Royal Mail share price dips amid Jefferies comments

on Jun 4, 2019
Updated: Mar 11, 2020

Royal Mail’s share price (LON:RMG) came under pressure yesterday as analysts at Jefferies lowered their valuation on the stock. Proactive Investors quoted the broker as pointing to the postal operator’s low productivity in the UK as the company’s biggest challenge.

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Royal Mail’s share price fell in the previous session, giving up 5.21 percent to close at 194.50p, and underperforming the FTSE 250 which ended trading 0.49 percent lower at 18,877.17 points. The group’s shares have given up more than 60 percent of their value over the past year, as compared with about a 10-percent drop in the mid-cap index.

Jefferies lowers target on Royal Mail share price

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Jefferies, which rates Royal Mail as an ‘underperform,’ lowered its price target on the shares from 180p to 150p yesterday. Proactive Investors quoted the broker as commenting that the postal operator’s UK productivity was 50 percent below the sector average, resulting in 70-percent below-average profitability.

The comments follow Royal Mail’s recent strategy update which will see the mid-cap company target operating profit margin of over four percent in 2021-22, increasing to over five percent in 2023-24.

Jefferies, however, reckons that the group’s target improvements in productivity were back-end loaded and ‘unlikely’ to mitigate rising inflation in people costs. Overall, the analysts remain ‘cautious’ on Royal Mail, citing increasing near-term margin pressures and a risk of re-nationalisation which is likely to keep any potential investors on the sidelines.

Other analysts on privatised postal operator

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The 16 analysts offering 12-month targets for the Royal Mail share price for the Financial Times have a median target of 245.50p, with a high estimate of 350.00p and a low estimate of 170.00p. As of June 3, the consensus forecast amongst 17 polled investment analysts covering the blue-chip group advises investors to hold their position in the company.

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