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’.
This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. 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. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.
Be ready to act on ECB opportunities
Learn how the ECB’s monetary policy announcements affect interest rates and price stability ahead of its next meeting in 12 December 2024.
- 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
- Forex
- Shares
- Indices
Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.
