Royal Mail shares set to trade lower, says Credit Suisse analysts
Analysts from Credit Suisse believe the ailing British postal service could see its share price halve in value this year ahead of the company’s full-year results on Thursday.
Analysts from Credit Suisse believe Royal Mail could see its share price halve in value this year, with their assessment coming just days away from company unveiling its full-year results.
Credit Suisse opted to reiterate its ‘underperform’ rating for the British postal service and issued a target price for the troubled stock of 95p – implying a potential downside of 48.9%.
Royal Mail will unveil its full-year results on Thursday 25 June.
Royal Mail results likely to disappoint
Royal Mail is unlikely to put a smile on investors faces when it unveils its full-year results later this week, with the British postal service expected to report lower profits, driven by disgruntled employees and the sudden departure of its CEO in May.
Due to letter volumes continuing to decline, Royal Mail has attempted to increase its parcel delivery volumes. However, there is stiff competition within this space and investors are likely to be disappointed by the lack of progress the company has made in this area.
Analysts at Credit Suisse noted in a recent report that growth in parcel deliveries would need to be significant for the postal service to offset the decline in letter volumes which has already squeezed margins considerably.
Its poor performance has led investors to speculate that the company will be broken up. However, analysts at Credit Suisse believe it would be difficult to find a buyer considering the state the business is in.
‘Given the unprecedented shift from more profitable B2B to B2C in GLS and from letters to parcels in UKPIL, we think it too optimistic to pay for all of this progress at this stage, so the UK turnaround remains key,’ Credit Suisse said in a note.
Royal Mail among the top five most shorted UK stocks
The company’s dismal outlook has prompted short-sellers to start circling, with Royal Mail among the top five most shorted UK stocks, according to data compiled by the Financial Conduct Authority (FCA).
The company currently has a 8.14% short position against, with Adelphi Capital and BlackRock Investment Management holding the two largest positions at 2.02% and 3.6% respectively.
Short interest in Royal Mail has steadily increased since the end of February and, unless the company is able to deliver a strong set of results this week, it is unlikely to see this trend reversing any time soon.
Royal Mail closed 2% higher on Tuesday at 186p per share.
How to trade stocks with IG
- Create an IG trading account or log in to your existing account
- Enter ‘Royal Mail’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
Seize a share opportunity today
Go long or short on thousands of international stocks.
- Increase your market exposure with leverage
- Get spreads from just 0.1% on major global shares
- Trade CFDs straight into order books with direct market access
Live prices on most popular markets