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Sunday share tips: Royal Mail Group, Digital 9 Infrastructure

Sun 16 May 2021 17:58 | A A A

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No news or research item is a personal recommendation to deal. Hargreaves Lansdown may not share ShareCast's (powered by Digital Look) views.

(Sharecast News) - The Sunday Times's Sabah Meddings told readers to 'buy' shares of Royal Mail Group.

Although it remained to be seen if the pandemic-fuelled boom in online-shopping would continue, the firm keeps delivering, she said.

In particular she highlighted growth in Royal Mail's parcels delivery unit, GLS, which was now expanding out of Germany and into France, Spain and America - with technology now a key focus.

Royal Mail is now looking to double that unit's profitability to £500m by 2024-25.

Indeed, according to analysts GLS is now worth more than the entire company.

Doesn't make any sense? That may be what attracted Daniel Kretinsky, the 'Czech Sphinx', to the business, leading him to build a 15% stake.

The company's pension meanwhile has been in surplus for nearly a decade and Ofcom paved the way for a reduction in its universal service obligation, Meddings further pointed out.

A £90m management restructuring is also underway which is expected to yield £130m in annual savings.

And just last February, the company bumped-up its full-year profits forecast from £500m to approximately £700m.

Hence the one-off 10.0p dividend announced in March with an update on future dividend policy expected when Royal Mail publishes its annual results on 20 March.

"The question is whether the pandemic-fuelled shift towards online shopping will slow. For now, as GLS keeps delivering, this is a buy."

The Financial Mail on Sunday's Midas column touted Digital 9 Infrastructure's "appeal" for ethically-minded investors, but also its growth prospects.

Digital 9's aim is to broaden and improve access to the worldwide web, thus promoting more inclusive and sustainable industrialisation, as well as innovation.

It owns and operates approximately 12,000 miles of subsea cables - through it Aquacomms unit - transporting internet data, stretching from the New Jersey to the Nordics and between New York and the UK and Ireland.

Having surged 12-fold over the past decade, traffic is forecast to double again over the next two years.

The company now intends to add subsea networks to nearly almost double its profits over the next four years.

Meanwhile, the dividend, now at 6.0p per share, for a 5.3% dividend yield, is expected to continue growing over the years to come.

Digital 9 is also branching out into wi-fi connectivity and terrestrial fibre.

"Digital 9 operates in a fast-growing industry that governments around the world are keen to promote," said Midas.

"At £1.12, this is an appealing investment for ethically minded and income-hungry investors alike."

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