Royal Mail share price: what’s the outlook after analysts downgrade stock?
The British postal service continues to struggle after being booted from the FTSE 100 at the end of last year, with investment banks recently downgrading the company’s stock.
Royal Mail's share price fell nearly 3% late on Monday after coming under pressure from analysts downgrading its stock.
Analysts at US-based investment bank Jefferies lowered its valuation on Royal Mail, reducing its target price for the stock from 220p to 170p a share on Monday.
Jefferies blamed the postal service’s low productivity in the UK as a major hurdle to overcome and a contributing factor in its decision to downgrade the stock, with Royal Mail's output 50% below the sector average, damaging its profitability.
Royal Mail five-year turnaround plan to boost profitability
Royal Mail’s share price has lost more than 60% of its value over the last 12 months of trading, while the FTSE 250 index, which is a member, has seen a 10% decline over the same period.
In response, the postal service unveiled a new five-year turnaround plan in its full-year results, with the strategy looking to boost its profitability by reorienting the business around parcel delivery and diversifying its international business.
To finance the turnaround, Royal Mail has said that it must cut its total dividend for 2019 to 15p a share, down from 25p a share last year.
‘No easy’ fixes for Royal Mail, says Deutsche Bank
Jefferies wasn’t the only investment bank to be critical about Royal Mail’s performance, with Deutsche Bank analysts also downgrading the stock.
The German lender said that Royal Mail’s share are ‘overvalued’ in recent note to investors cutting its target price for the stock – even lower than Jefferies – to 150p a share down from 180p a share.
Deutsche Bank did say that the share price may climb higher over the course of its five-year strategic plan if it is able to drive a rebound in profits and cash flow.
However, the bank did add that ‘there are no easy short/medium-term fixes for the Royal Mail as the business model is largely a fixed cost business that is facing a material decline in letter volumes and has a unionised workforce’.
IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.
This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.
Please see important Research Disclaimer.
European Central Bank meeting
Learn about how the ECB meeting affects interest rates and price stability ahead of the next announcement on 24 October 2019.
- How might the next meeting affect the markets?
- What are the key rate decisions to watch?
- Why is the Governing Council announcement important for traders?
Live prices on most popular markets
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.