Royal Mail PLC (LSE:RMG) has received an upgrade from a leading investment bank, but it is far from a ringing endorsement of the company’s prospects.
UBS moved to ‘neutral’ from ‘sell’ while maintaining its 440p price target.
Following a comprehensive analysis of the business, it said it does not expect the UK parcels, international and letters business to hit its underlying earnings (EBIT) targets in the face of cost pressures caused by labour shortages.
It is also sceptical of the general logistics business’ ability to hit its new EBIT goals.
“We have analysed UK parcel industry margins historically and capacity addition plans from competitors as well as online penetration trends globally,” UBS analysts said.
The analysts used high-frequency data on job vacancies to form an opinion on job shortage and labour cost pressures in the UK, comparing the workforce of the large parcel players, and analysing UK retail footfall traffic to form a view on parcel volume growth.
Royal Mail shares were changing hands for 446p, up 3.3% in late morning trade. UBS is well below the consensus target price, which according to Sharepad data currently sits at 658p.