Royal Mail’s revenue stability ‘unclear’, says broker


It is currently “unclear” whether Royal Mail PLC (LSE:RMG)’s revenue trends in both parcels and letters will stabilise once the disruption brought on by the COVID-19 pandemic has passed, according to analysts at Liberum.

In a note on Monday, the broker, which rates Royal Mail at ‘hold’ with a 560p price target, said that if revenue growth takes longer to fade or stabilises at a higher rate the in the past, it may be “possible to largely mitigate the forthcoming working week shortening in the UK business” which they said is a “looming headwind” for costs.

READ: Royal Mail’s mid-term outlook ‘highly uncertain’, says broker

However, Liberum said that even if this case the company’s management will face “a race to deliver productivity improvements” and that they expected the slowdown in revenue growth seen in Royal Mail’s recent update to continue in coming quarters as “toughen and trading conditions begin to normalise”.

“We remain mindful of the challenges that Royal Mail continues to face. Getting productivity improvements back to the previous 2-3% annual range is feasible, but requires the repaired relationship between senior management and the CWU trade union leadership to be replicated across the business…The addition of at least two parcel sorting mega-hubs is needed for capacity and capability (especially later cut-off times for next-day deliveries), but there have been execution issues so far and implementation risks cannot be ignored”, the broker said.

Shares in Royal Mail were down 1.3% at 536.2p in late morning trading on Monday.


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