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Royal Mail share price: Deutsche Bank concerned over challenges

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Deutsche Bank has lowered its price target Royal Mail Group (LON:RMG), flagging concerns over the postal operator’s ability to deal with challenges, Proactive Investors has reported. The move marks another hit for the company which lost its spot in the FTSE 100 this week following the benchmark index’s latest reshuffle.

Royal Mail’s share price fell in the previous session, giving up 3.39 percent to close at 304.70p. The decline was largely in line with the broader market selloff which saw the FTSE 100 shed points to close 3.15 percent lower at 6,704.05 points. The postal operator’s shares have inched marginally higher this morning, having gained 0.75 percent to 307.00p as of 08:03 GMT, as compared with an 80-percent gain in the Footsie.

Deutsche Bank trims valuation

Deutsche Bank, which rates Royal Mail as a ‘sell,’ lowered its valuation on the shares from 300p to 250p yesterday. Proactive Investors quoted the analysts as commenting that it saw no signs that the challenges for the group “will abate near term”. The privatised postal operator has been struggling with falling letter volumes as well as significant cost pressures.

The broker further believes that a significant investment is needed to achieve this and would see it as a negative signal for the company if investment costs were significantly pared back.

‘Number of levers’

Proactive Investors, however, also quoted Deutsche Bank as saying that it also saw “a number of levers that management can pull – and perhaps announce at next year's Capital Market’s Day in March – to improve the financials of the business”.

“We think the focus should be on UK parcels, international and letters (PIL) to drive out costs and improve service quality,” the broker pointed out.

As of 08:01 GMT, Friday, 07 December, BT Group plc share price is 305.07p.

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