Royal Mail share price: Long-term potential eyed after cost savings

Written by: Deyana Ivanova
March 11, 2020

Royal Mail’s (LON:RMG) share price has been marginally lower in early trading today despite an upbeat analyst comment. Investec yesterday reiterated its ‘buy’ recommendation and target price of 580p on the stock, citing the postal group’s long-term potential.

“For those familiar with the history of privatisation in the UK, the latest £500 million medium-term cost reduction targets will come as no surprise and will, we believe, be exceeded by the long-term potential,” Investec analyst Alex Paterson said. “We are also confident the rate of capacity growth in the parcels market will slow over the next two years, resulting in better prices,” he added.
Paterson further noted that Royal Mail had made “significant progress on efficiency over the last five years, with volume and revenue growth considerably exceeding the growth in costs.” He expects the company’s cost savings to continue to be “found for long periods of time”.
Investec’s note echoed arecent Questor analysis. The Telegraph’s share tipping column said last week that Royal Mail’s shares remained “a good long-term hold,” especially as they no longer have the overhang that they did, after the British government sold its final 14 percent stake in the postal service last month.
Royal Mail’s shares opened marginally lower today, declining by 0.45 percent to 488.70p by 08:31 GMT. The stock has been in demand since last week, when the UK postal services firm delivered a “resilient” first-half performance in a competitive trading environment. Although down, revenue and profits came in above market expectations and shareholders hailed the management’s pledge for further modernisation and cost cuts.
As of 08:58 GMT, Friday, 27 November, Royal Mail share price is 490.90p.