https://www.digitallook.com/news/broker ... 05499.html
Royal Mail is a hard company to forecast at the moment, with numerous moving parts and risks, said Deutsche Bank as it cut its forecasts and moved the shares to a 'sell' recommendation.
Deutsche Bank, which reduced its share price target to 359p from 450p as it downgraded its prior 'hold' rating, said the transformation of the former state postal monopoly was "still in the early phases of transformation".
As such, "shareholders are not at the top of the stakeholder list", with management's primary focus on restructuring, employee wages and pensions and M&A.
Chief executive Moya Greene and her team are doing a "fine job" but the operating environment is expected to become "even more challenging" in the coming year, making it more difficult for RMG to modernise and take costs out of the business against a backdrop where GDP growth is weak, Brexit is clouding business confidence, wage bill pressures are generally higher and the company is facing an on-going mediation process with the unions over pay and pensions.
Added to that, postal and parcel network businesses are "highly complex and take many years to reconfigure and fully modernise".
Over the next 12 months, Deutsche forecasts continued strong growth in the GLS parcel arm and modest volume growth in UK parcels, largely offset by a mid-single digit volume decline in addressed mail.
With cost avoidance measures to be "hard to execute" over the next 12 months, profits for the year to March 2018 and 2019 could fall, with the current year EBIT post-transformation costs forecast to fall 0.5% and the following year 5.1% to £498.7m and £485m respectively.
These new forecasts are below the consensus of £508m and £505m, by 1.8% and 4.1% respectively.