Royal Mail PLC down 7%; but is a broker downgrade the real reason for the slump?

Peel Hunt, a broker normally synonymous with small caps, appears to have made its presence felt in the blue-chip arena with a downgrade of Royal Mail PLC (LSE:RMG), which tumbled 5% at the open.

It has dropped its recommendation to ‘sell’ from ‘buy’ and its price target to 307p from 550p in the wake of last week’s profit warning from the letter and parcel delivery giant.

Peel is assuming there will be a 10.5% fall in full-year 2023 domestic parcel volumes compared to previous assumptions of a flat performance.

International parcel volumes, which dropped 42% last year, are expected to fall a further 8% before recovering a little ground in 2024, the broker said in a note to clients.

“Full-year 2022 was an excellent year for the group, with significantly improved profitability and distributions to shareholders,” readers were told.

“Unfortunately, a weakening consumer environment combined with inflationary pressures and a domestic business with a constrained rate of change makes for a highly challenging future.

“We make substantial cuts to forecasts, as high operational gearing means lower revenues cannot be fully mitigated by cost avoidance and risks further downside to estimates.”

The shares fell 23p, or 7% to 308.80p.