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Royal Mail share price: Credit Suisse flags dividend concerns

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Credit Suisse has lowered its price target on Royal Mail Group (LON:RMG), as it joined other analysts questioning the sustainability of the company’s dividend, Proactive Investors reports. The comments come after the privatised postal operator updated investors on its performance last week, reiterating its revised guidance following a profit warning in October.

Royal Mail’s share price fell in the previous session, giving up 2.89 percent to close at 316.00p, underperforming the broader UK market. The group’s shares have lost about a fifth of their value over the past year.

Credit Suisse trims price target

Credit Suisse trimmed its price target on Royal Mail from 339p to 310p on Friday, saying in a note that it did not believe the company’s dividend would be covered by free-cash-flow in the 2020 financial year, adding that it was forecasting a 4.5-percent decline in the group’s mail revenues that year. The comments came after the privatised postal operator lifted its payout to shareholders last week, despite having warned on profits in October.

Proactive Investors quoted the analysts as saying that the cost pressures on the company would be worsened by the shift toward parcel delivery as it required “7x more work units” than a UK end-to-end letter but estimated the average unit revenue was only 5.5x higher. The broker further forecast 320 basis points of margin pressure in 2019 to Royal Mail’s Global Logistics Systems business, as a result of fuel costs, wages and higher road tolls for hauliers.

Analysts on postal operator

The 17 analysts offering 12-month price targets for Royal Mail for the Financial Times have a median target of 340.00p on the shares, with a high estimate of 500.00p and a low estimate of 250.00p. As of November 17, the consensus forecast amongst 18 polled investment analysts covering Royal Mail has it that the company will underperform the market. 

As of 08:07 GMT, Monday, 19 November, Royal Mail share price is 316.00p.

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