Royal Mail upped to buy as UBS estimates longer lockdowns will boost 2021 earnings

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Royal Mail PLC (LON:RMG) has been upgraded to ‘buy’ from ‘neutral’ by analysts at UBS, who said they had increased their 2021 earnings expectations for the post carrier amid the “stricter and longer duration lockdowns” in the UK.

In a note on Thursday, the bank also upped its price target for the FTSE 250 firm to 445p from 320p, adding that they also expected Ofcom’s recent recommendation to reduce mail deliveries to five days a week from six days will also help the firm’s UK parcels, international and letters (UKPIL) business save around £100mln per year.

READ: Royal Mail breathes sigh of relief as union members back pay deal

UBS also de-risked the top line estimates, modelling a 10% decline in parcel volumes in the 2022/23 financial year as a result of declines in parcel demand as lockdowns eased and increased competition from Post Office shops increased the risk of parcel volume cannibalisation.

The bank also pointed to its survey data which showed that 29% of UK consumers intended to increase their online shopping in February 2021, although it added that the future trends will be “more challenging post [coronavirus]”.

Shares in Royal Mail were up 0.8% at 416.6p in mid-morning trading.   

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