Royal Mail Group PLC’s (LON:RMG) letter performance still has the potential to disappoint market expectations, Credit Suisse warned on Wednesday, with concerns also lingering about cost reductions.

The Swiss bank’s analysts cut their target price for the FTSE 250 group to 107p from 138p, keeping their ‘underperform’ rating.

With reports that around 26,000 workers are off sick or self-isolating amid the coronavirus outbreak, while still being paid, and management having confirmed that its strategic plan is running behind schedule, analysts at the Swiss bank now assume just £50mln of cost avoidance will be achieved in the current financial year, down from the £150mln previously forecast.

Following Channel 4 comments that it sees TV advertising revenue falling more than 50% year-on-year in April and May, the analysts reckon the postal operator is likely to face a 20% hit to marketing mail revenues in the first half of the new financial year, which began this month.

As a result, the forecast for the whole of the 2021 financial year is now for marketing mail to fall 14%, down from a previous estimate of a 5% decline, resulting in a £58mln hit to revenue and underlying profit.

The analysts also expect a 1% drop in volume at the GLS international parcel arm to lead to profit margins falling from 6.3% in 2020 to 3.6% in 2021 as revenue falls 5.1%.

Royal Mail’s results for the 12 months to March 2020 have been postponed from 21 May 2020 and a new date has not yet been confirmed.