Broker raises caution with Royal Mail’s mid-term outlook calling it highly uncertain

Berenberg analysts said that while the first-quarter update from the post carrier had not provided any great surprises, it did provide “little clarity about the future direction” of travel.

Analysts at Berenberg say Royal Mail PLC’s midterm outlook is “highly uncertain” and it is hard to predict where the company could go in the future.

The broker raised their target price for the postal carrier from 355p to 550p on Thursday. They also retained their ‘hold rating.

“Parcel volumes are starting to retrench and letter volumes are rebounding after last year’s exceptional volatility, but the business’s extremely high operating leverage, and substantial uncertainty about what new “normalised” volume levels will be, mean that it is difficult to be at all certain about the direction of travel from here”, Berenberg commented.

“In the near term, we think that the rebound of letters is likely to outweigh the slowing of parcel growth, but the mid-term remains highly uncertain, in our view”, they confirmed.

Royal Mail updated its subscribers on Wednesday to say that the group’s revenue for the three months ended June 2021 grew by 12.5% over the previous year and 20.2% over that of 2019. However, it cautioned that the revenue growth at GLS parcels will slow down as the year progresses due to loosening lockdown restrictions and stronger comparators from the second half.

Royal Mail shares were trading at 531.8p, up 3% in the early hours of afternoon trading

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