Royal Mail share price under pressure after UBS downgrade

Analysts flag parcel volumes concerns

Royal Mail share price under pressure after UBS downgrade

Shares in Royal Mail Group (LON:RMG) closed deep in the red on Friday, pressured by downbeat comments at UBS. The analysts turned bearish on the postal operator, flagging concerns over the group’s parcel volumes.

Royal Mail’s share price lost 3.35 percent to end the previous session at 410.30p, underperforming the broader UK market, with the benchmark FTSE 100 index adding 13.64 points to end the session 0.19 percent higher at 7,350.92. The group’s shares have lost more than 14 percent of their value over the past year, and are down by some 11 percent in the year-to-date.

UBS lowered its stance on Royal Mail to ‘sell’ on Friday, arguing that a lack of automation and slow progress with restructuring made the group relatively expensive for heavy parcels. The broker notes that investors therefore are wrong to assume that parcels revenue growth will continue to balance the declines seen in letters.

“We believe both those are overly optimistic with larger letter volume declines and weaker parcel market due to the economic outlook,” UBS pointed out, as quoted by the Financial Times. “In order to stabilise profits, we believe parcel revenue would have to grow five percent; something that appears highly unlikely in the current environment.”

The downbeat comments come after Bernstein recently started its coverage of Royal Mail at ‘market perform’, pointing to a positive outlook for the Parcels & Logistics sector.

The 15 analysts offering 12-month price targets for Royal Mail for the FT have a median target of 475.00p on the shares, with a high estimate of 590.00p and a low estimate of 350.00p. As of July 7, the consensus forecast amongst 17 polled investment analysts covering the blue-chip group advises investors to hold their position in the company.

As of 07:52 BST, Monday, 10 July, Royal Mail share price is 410.30p.

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