UBS downgrades Royal Mail to 'sell', shares tumble

Royal Mail shares tumbled on Wednesday as UBS downgraded them to ‘sell’ from ‘buy’ and cut the price target to 440p from 590p.

The bank said risks to opex were increasing, with potential pricing pressure in UK Parcel. UBS cut its FY22/23 EBIT estimates by 8%/15%, mainly driven by higher costs in the UK business. It now stands 14% below adjusted EBIT FY23 consensus.

"We expect increasing opex costs are coming at a time when the pricing power within the industry is likely to decline as more parcel sortation capacity is added in 2022.

"We expect peak uncertainty around UK parcel volumes in Q4; and wage inflation ahead of the negotiations with CWU," it said, noting that the current agreement ends in March. "In this context, we believe the stock could underperform."

At 1615 BST, the shares were down 8.1% at 440.17p.