Credit Suisse upgrades Royal Mail, hikes price target

Credit Suisse upped Royal Mail to ‘neutral’ from ‘underperform’ on Friday, hiking the price target 261p from 94p as it said the UK outlook has been improved by pandemic-driven tailwinds.

Following new analysis of short-term parcel trends and early indications of letter and parcel revenue baselines beyond the pandemic, the bank raised its FY21 EBIT estimate from a loss of £337m to a profit of £169m and its FY22 EBIT estimate from £161m to £367m.

It highlighted a number of reasons why pandemic-driven tailwinds can support structurally higher earnings.

CS said analysis of Google Mobility data suggests that movement to retail venues normalised in Germany and the Netherlands in 3Q20, but that parcel tailwinds outweighed letter headwinds, suggesting revenue tailwinds beyond the pandemic.

It also pointed to Savills research, which suggests that in 2021, UK online will be around 24% of total retail and said FTI analysis suggests this can expand further.

"This supports our pre-crisis forecast of 5% parcel revenue growth for FY23E and beyond," the bank said.

At 1430 GMT, the shares were up 1.2% at 274.20p.