RBC downgrades UK Mail, highlights execution risk

10th Aug 2015 13:45

(ShareCast News) - RBC Capital downgraded its forecast for UK Mail to 'sector perform' from 'outperform', and lowered its price target to 460p from 540p.Analyst Andy Jones said the company's recent profit warning suggested the postal service's transition to an automated model was executed too hastily."While the company's medium-term aspirations have not changed, the route to recovery also involves significant risk due to reliance on pricing power," Jones said in a note.RBC Capital said due to last week's profit warning, it now forecasts profit before tax to fall by 49% for 2015, and by 27% for the years 2016-7.Jones said UK Mail needs to maintain service levels while undergoing transition.RBC said the mail and parcel markets are highly competitive and it is likely large competitors could exit the market."This would inevitably bring risk for UK Mail, but also opportunity - be it through gaining market share in the case of a competitor exit, or the chance to trim the lower contribution contracts from the portfolio in the case of downward pricing pressure," RBC Capital said in a note.