Hargreaves Lansdown reckons that it is no surprise that Royal Mail Group’s (LON:RMG) chief executive has decided drastic action is needed. The comments came after the privatised postal operator updated investors on its full-year performance yesterday, and announced a ‘refreshed strategy’.
Royal Mail’s share price has fallen deep into the red in London in today’s session, having given up 5.36 percent to 210.10p as of 09:02 BST. The stock is underperforming the mid-cap FTSE 250 index which currently stands 1.07 percent lower at 19,100.59 points.
HL weighs in on Royal Mail results
Hargreaves Lansdown’s analyst Nicholas Hyett commented in a note yesterday that against the background of disagreement with trade unions, struggling letters business and rising costs at its GLS business, it was no surprise that Royal Mail’s chief executive Rico Back had decided that drastic action was needed. The action will see the postal operator automate its UK sorting operations, and invest £1.8 billion in the UK postal system over the next five years.
“Unfortunately, all that extra investment comes at a price, and the first casualty has been the dividend,” Hyett pointed out, adding that although there was theoretically room for additional returns, even the 6.6-percent yield implied by the postal operator’s announcement depended on cash coming in as planned.
“A balance sheet that’s still relatively unburdened by debt is in the group’s favour, but these kinds of major organisational restructures are expensive and risky,” the analyst concluded.
Analyst ratings update
Berenberg Bank reaffirmed the privatised postal operator as a ‘hold’ yesterday, with a target on the Royal Mail share price of 240p, while Barclays, which is ‘overweight’ on the stock, lowered its valuation on the shares from 410p to 250p. According to MarketBeat, the company currently has a consensus ‘hold’ rating and an average price target of 294.25p.