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Royal Mail PLC (LON:RMG) investors should prepare for more disappointment from the accelerating shift from letters to parcels, analysts at Credit Suisse have warned. 

With the departure of chief executive Rico Back and speculation that the company could be broken up, shares in the letters and parcels group have rebounded more than 40% since early April.

TIMELINE: Royal Mail boss Back returned to sender after less than two years

However, the Credit Suisse analysts said this is not their base-case scenario or stated company policy, with analysis suggesting the market is being optimistic about the value that can be extracted, as the shares seem to already be priced for a material recovery in earnings.

To deliver the current share price, which last closed at 173p, a break-up would require three conditions, the analysts said.

READ: Royal Mail’s GLS spin-off likely after CEO’s departure but not without problems, says Berenberg

Firstly, the GLS overseas parcels business would need to be sold off for the same valuation multiple as Deutsche Post DHL’s, which is “optimistic in our view given DPDHL’s superior earnings-growth prospects”, with a GLS buyer also “paying up” for its profit margins rebounding in the coming years to above levels seen last year, plus for investors to assume that the UK Parcels, International and Letters (UKPIL) arm’s underlying profits to recover to circa €500m in 2024. 

“Given the unprecedented shift from more profitable B2B to B2C in GLS and from letters to parcels in UKPIL, we think it too optimistic to pay for all of this progress at this stage, so the UK turnaround remains key.”

What’s more, with 2% parcel growth required to offset a 1% letter decline, the analysts expect letter revenues will disappoint and so the full-year results on June 25 are sees as likely to be “a negative catalyst” for the shares. 

Nevertheless the stock was up 1% to 179.55p on Wednesday afternoon.