Royal Mail share price: Liberum flags pension deal risks

on Mar 15, 2017
Updated: Oct 21, 2019

A proposal from unions to replace Royal Mail Group’s (LON:RMG) defined benefit (DB) pension scheme with a hybrid version could bring risks for the company, analysts at Liberum have said. The news comes after the privatised postal operator recently closed a consultation on its pension plan, having signalled that its DB scheme, which guarantees a retirement income to members, is unaffordable beyond next year.

Royal Mail’s share price lost 0.64 percent to close at 405.20p yesterday, slightly underperforming the broader market, with the benchmark FTSE 100 index shedding percent to 7,357.85 points. The group’s shares have lost more than 10 percent of their value over the past year, as compared with a near 20-percent rise in the Footsie.
Liberum reiterated its ‘sell’ rating on Royal Mail yesterday, valuing the shares at 400p, after news emerged this week that the company was considering a counter proposal from the Communication Workers Union, which is a compromise between the current DB scheme and a defined contribution (DC) scheme.

“We believe the proposals would be likely to result in higher costs and risks for Royal Mail than a DC scheme,” the broker’s analyst Gerald Khoo commented, as quoted by Citywire. “That might be acceptable given the risk of industrial action, but expanding the hybrid arrangement to current DC scheme members would risk pushing up the cost of pension provision for those staff.”
Royal Mail has is currently considering the union’s proposal along with other feedback it received during the consultation which concluded last week.
The 14 analysts offering 12-month price targets for Royal Mail for the Financial Times have a median target of 472.00p on the shares, with a high estimate of 590.00p and a low estimate of 360.00p. As of March 11, the consensus forecast amongst 17 polled investment analysts covering the blue-chip group advises investors to hold their position in the company.
As of 07:56 GMT, Wednesday, 15 March, Royal Mail share price is 405.14p.

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