Royal Mail's woes are in the share price, Berenberg says
Royal Mail faces multiple pressures and will cut its dividend but with the shares close to record lows investors should stick its problems are priced in, Berenberg analysts said.
FTSE 250
19,733.94
16:59 10/01/25
FTSE 350
4,521.32
16:59 10/01/25
FTSE All-Share
4,476.42
17:15 10/01/25
Industrial Transportation
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16:59 10/01/25
International Distribution Services
363.80p
17:15 10/01/25
Analyst Joel Spungin upgraded Royal Mail to ‘hold’ from ‘sell’ and edged their price target down from 240p from 250p.
Letter volumes will remain under pressure and Berenberg said GDPR data rules could have caused an irreversible reduction in marketing mail. Royal Mail’s lack of flexibility means it may struggle to compete for growing online deliveries as customers demand seven-day and timed deliveries.
Royal Mail will have to increase investment to deal with productivity and automation issues, the analysts said. This will affect cash generation and the dividend, which Berenberg thinks will be cut by about a third in 2020.
Despite these problems, Royal Mail’s depressed share price – 234p when the report was published – means the company is no longer a ‘sell’, the analysts said.
“Royal Mail’s share price has more than halved since we cut it to sell in May 2018," the analysts said. “While we still think that the company needs to increase investment and that there is a good chance the dividend is cut, those risks now look priced in.”