Royal Mail share price: Jefferies points to dark clouds for group

on May 26, 2017
Updated: Oct 21, 2019
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Labour negotiations and pensions are the dark clouds hanging over Royal Mail Group (LON:RMG), analysts at Jefferies have said. The comments came as the broker reiterated its bearish stance on the privatised postal operator.

Royal Mail’s share price nevertheless rose in yesterday’s session, adding 2.12 percent to close at 438.10p, outperforming the broader London market, with the benchmark index inching 0.04 percent higher to 7,517.71 points. The group’s shares have lost just under 11 percent of their value over the past year, and are down by some five percent in the year-to-date.
Jefferies reiterated its ‘underperform’ rating on Royal Mail yesterday, while lifting its price target on the shares from 330p to 350p. The broker expects that the 2017/18 year would be ‘difficult’ for the group driven by “weak revenue trends and increasing cost pressure” compounded by wage inflation.

“Royal Mail’s valuation is broadly in line with the European postal sector, but there’s downside risk in the thorny labour negotiations about pay and pensions in our view,” Jefferies’ analyst David Kerstens pointed out, as quoted by Citywire. “We stick to our ‘underperform’ rating with an increased discounted cashflow-based 350p, reflecting lower capital expenditure.”
The comments come as the privatised postal group continues to look for a solution to its pension problem, having signalled that its current plan is unaffordable beyond next year. Royal Mail noted in its annual report published yesterday that it continued to “work closely with our unions on a sustainable and affordable solution for the provision of future pension benefits”.
Investec meanwhile remains bullish on the postal operator, having reiterated its ‘buy’ rating on the group earlier this week, with a price target of 550p on the shares. According to MarketBeat, Royal Mail currently has a consensus ‘hold’ rating and an average valuation of 458.82p.
As of 07:57 BST, Friday, 26 May, Royal Mail share price is 437.59p.

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