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Deutsche Bank cuts Royal Mail target price as it warns dividend is “unsustainable”

It is not just Deutsche Bank which thinks Royal Mail will be forced to cut its dividend soon; others, including Liberum, have echoed those concerns of late

royal mail worker
Deutsche thinks Royal Mail shares are worth just 180p – 100p below where they currently sit

Deutsche Bank has once again reiterated its belief that Royal Mail PLC’s (LON:RMG) current dividend is “unsustainable” and should be cut.

In last week’s third-quarter results, the postal giant cut the upper range of its 2019 profit forecast on expectations that letter volumes will decline more than previously estimated, while parcel deliveries will slow, too.

READ: Deutsche Bank cuts Royal Mail target price

With a rebound in profit or cash flow looking unlikely any time soon, Deutsche Bank warned again that the dividend is now facing the chop as it cut its own divi predictions.

“We cut our 2019/20E dividend using what we think is a more sustainable dividend pay-out ratio of 70% of earnings,” read a note to clients.

Analysts at the German investment bank also chopped the price target to 180p from 250p – implying a 35% downside from the current market price of 278.2p.

Liberum looking for a cut, too

Deutsche Bank isn’t the only one tipping a dividend cut; City broker Liberum said in a note last week that it, too, is expecting one.

“The annual cash cost of more than £240m could go a long way to funding a restructuring programme,” said Liberum.

“We think it is unlikely that the dividend will be suspended altogether, although that cannot be ruled out.”

Quick facts: Royal Mail PLC

Price: 240.2 GBX

Market: LSE
Market Cap: £2.4 billion

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