Royal Mail PLC double-downgraded by Deutsche Bank Research on threat to volumes, pricing and margins

Royal Mail PLC (LSE:RMG) was double-downgraded by Deutsche Bank Research over the indirect consequences of Russia’s invasion of Ukraine.

“The outbreak of war in Ukraine has little direct impact for our logistics and container shipping stocks under coverage but we think that there are indirect consequences that will likely negatively impact the health of the consumer and GDP,” wrote analyst Andy Chu in a note to clients.

Forecasts for the logistics and container shipping sectors were adjusted to assume a weaker, but not recessionary, growth outlook, less consumer spending power and higher wage and fuel pressures, after the sectors benefitted from the shift to goods from services during the pandemic.

The analyst said the aim was to “avoid those companies that have a high level of fixed costs and European exposure” and so also gain exposure to “stocks that have the highest amount of global exposure and potential for value accretive M&A”.

Royal Mail was cut to ‘sell’ from ‘buy’, with the share price target slashed to 275p from 680p.

In the postal and logistics subsector, Chu said “weaker consumer demand could impact both parcel and express volumes, pricing and margins”.

The FTSE 100 delivery group’s recommendation was cut as Chu said the team think “it is the most exposed to potential consumer weakness. Additionally, we think that the pay negotiation with the unions could prove challenging in a higher inflation environment”.

German rival Deutsche Post DHL was kept on a ‘buy’ rating as the believe it has the best chance of defending its profits thanks to a more diverse mix of activities and geographic exposure.