MARKET REPORT: Shares in FTSE 250 postal group Royal Mail plunge after broker paints bleak outlook for future
Shares in Royal Mail plunged after a broker painted a bleak outlook for its future.
In a blow to the FTSE 250 postal group, JP Morgan lowered the stock’s rating to ‘neutral’ from ‘overweight’, and cut the target price to 270p from 360p.
‘This reflects growing losses in the UK, with no end in sight and potential for losses to climb further,’ the broker said. Shares fell 8.1 per cent, or 20.2p, to 229.7p.
Bad sign: JP Morgan lowered Royal Mail’s rating to ‘neutral’ from ‘overweight’, and cut the target price to 270p from 360p
The slump was made worse after the US parcels giant FedEx issued a profit warning. Its shares tumbled 22 per cent in New York.
JP Morgan said shares in Royal Mail, which floated in London in 2013, were unlikely to improve while it remained locked in battle with the CWU trade union.
Workers at the postal group were set to go on strike this month but cancelled their action ‘out of respect’ for Her Majesty Queen Elizabeth II.
JP Morgan lowered its forecast for Royal Mail’s parcel volumes for the full financial year in 2023, expecting a 16.6 per cent decline compared with a 12.1 per cent fall last year.
It caps a difficult year for the group, which tumbled out of the FTSE 100 in June. Its shares are down nearly 56 per cent in 2022.
On a day of little corporate news, the FTSE 100 dipped 0.6 per cent, or 45.39 points, to 7236.68 and the FTSE 250 fell 0.5 per cent, or 89.18 points, to 18797.14.
The mood was not helped by the pound tumbling to a 37-year low as a slump in retail sales fuelled fears of a recession.
AJ Bell analyst Danni Hewson said: ‘People are clearly thinking hard about what they spend their money on.
‘It’s just not stretching as far as it used to, and essentials have to come first. But even essentials are costing more and with the spectre of unmanageable fuel bills looming large people did the only thing they could – cut back.’
Intercontinental Hotels Group, the owner of Holiday Inn and Crowne Plaza chains, was also hit with a broker downgrade. Citigroup lowered the stock’s rating to ‘sell’ from ‘neutral’, and cut the target price to 4450p from 5000p. It fell 4.7 per cent, or 229p, to 4670p.
Outsourcer Capita did its best to lift spirits after a double dose of good news. One of the Government’s largest contractors, it has agreed to offload payments arm Pay360 to the business software company The Access Group.
Capita expects this to bring in around £156m, which will help shore up its balance sheet.
The group also landed an extension to its contract with Barnet Council, from next September when a ten-year deal runs out.
It could be worth up to £57m. Capita shares rose 12.6 per cent, or 3.22p, to 28.74p. Wickes rose but was dealt a further blow only a day after the home improvement business said customers had cut spending on big ticket items such as sofas.
Citigroup cut the target price to 200p from 260p as the shares climbed 2.2 per cent, or 2.8p, to 129.4p.
One of online grocer Ocado’s non-executive directors – Swedish billionaire Jorn Rausing – bought 422,004 shares for 644p each, worth almost £3m, only days after it left investors spooked by a sales warning. It climbed 3.2 per cent, or 21p, to 671p.
AstraZeneca was boosted after a regulator backed its coronavirus therapy to treat the disease and endorsed a second treatment used to prevent lower respiratory tract infections caused by respiratory syncytial virus (RSV).
The European Medicines Agency endorsed Evusheld as a Covid treatment for adults and adolescents. Its recommendations are usually followed by the European Commission which has the final say-so on approvals. Astra inched down 0.1 per cent, or 8p, to 10122p.