Royal Mail share price dips as RBC trims rating on stock

Analysts argue postal operator needs to hike dividend

Royal Mail share price dips as RBC trims rating on stock

Shares in Royal Mail Group (LON:RMG) have declined in today’s session as analysts at RBC Capital Markets trimmed their rating on the privatised postal operator, while raising their valuation on the stock. Proactive Investors quoted the analysts as arguing that the FTSE 100 company will need to raise its full year dividend well above market forecasts to support the current share price.

As of 14:30 BST, Royal Mail’s share price had given up 2.14 percent to 558.60p. The stock is underperforming the broader London market, with the benchmark FTSE 100 index having climbed marginally into positive territory and currently standing 0.07 percent higher at 7,263.56 points.

RBC trims rating on Royal Mail

RBC Capital Markets trimmed their stance on Royal Mail from ‘sector perform’ to ‘underperform’ today, while hiking their price target on the shares from 465p to 500p. Proactive Investors quoted the analysts as commenting that the postal operator’s shares traded at a premium to income peers, requiring a 20-25-percent beat on the full year dividend per share (DPS) consensus forecast to justify the price.  

“While possible, stakeholder issues suggest it is not as probable as the shares have priced in, so we move to underperform, target price 500p,” the broker pointed out. “This is the level at which investors should re-engage with the shares for long-term restructuring potential.”

RBC expects Royal Mail to raise its DPS to 0.24p in fiscal 2017/18 from 0.23p last year, representing a dividend yield of 4.2 percent.

Other analysts on postal operator

Liberum Capital reaffirmed Royal Mail as a ‘sell’ earlier this week, valuing the shares at 450p. According to MarketBeat, the privatised postal operator currently has a consensus ‘hold’ rating and an average price target of 456.25p.

As of 14:59 BST, Friday, 13 April, Royal Mail share price is 559.82p.

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