Royal Mail will deliver, Investec says, but more slowly than expected

Investec cut its target price on shares of Royal Mail, telling clients it was "very positive" on the long-term potential for efficiencies but less so on the outlook for the company's operating margins.

The broker hailed the improvement seen in the company's parcel volumes during the first quarter - thanks to new cross border initiatives - and better-than-expected letter revenues, saying it had been too pessimistic on the latter.

However, the analysts lowered their 2018 forecast for the firm's earnings before interest and taxes by 5%, explaining that they now expect that the significant efficiencies which they had envisaged would occur more slowly.

On a more positive note, they bumped up their sales forecasts slightly and believed it likely that an offer to staff regarding their pensions plans would at least be put to a ballot.

Valuation was also supportive.

Once adjusted for the remaining property value of £350m, the shares were trading on an EV/EBITDA multiple of roughly 4.4, offering a roughly 30% discount to its Europaen peers.

Investec trimmed its target price on the shares from 550.0p to 520.0p but stayed at a 'buy'.