Liberum ups rating, price target on Royal Mail

Liberum has upped its rating on Royal Mail, but warned that execution risks remained "substantial" for the UK postal operator.

The broker, which has also increased its target price, to 320.0p from 165.0p, now has a ‘hold’ rating on Royal Mail. It previously had a ‘sell’ rating on the FTSE 250 stock.

Analyst Gerald Khoo said: "The structural challenges in the UK have not been changed by the surge in parcels volumes fuelled by online retail. Combined with the ongoing strength at GLS, this has given Royal Mail more breathing space in which to find, agree and implement solutions to its long-term problems. Execution risks remain substantial, but the outlook is now more balanced."

Last month, Royal Mail upped its full-year revenue estimates after online shopping surged during lockdown. Group interim revenues improved 10%, while GLS, its overseas parcels business, saw sales jump nearly 22% after better-than-expected performances in France, Spain and the US.

But the Universal Service Obligation, Royal Mail’s commitment to deliver mail six days a week across the UK, continued to weigh on profits, while the pandemic pushed costs up, including overtime and protective equipment for staff.

Royal Mail is scheduled to update on Christmas trading in February before posting full-year numbers in May 2021.