Royal Mail’s covid bounce is well and truly over the stock market has decided and investors’ attention firmly back on its long-standing problems.
Industrial strife is affecting the postal group again with managers walking out in a row over pay and more widespread disruption threatened down the line.
Labour costs are already rising, while fuel and power rises have led to a warning that stamp prices might have to rise again.
Volumes have fallen from last year's highs, and though they are rebasing at a much higher level than pre-pandemic, Liberum is concerned about the impact of a possible recession.
“Demand for both letters and parcels is economically sensitive. In an economic downturn, letters demand tends to be impacted adversely by lower volumes of transactional mail and reduced advertising spending.
“Parcels demand is mostly driven by online retail activity, where there are clear risks to the downside as tougher economic conditions and inflation squeeze consumer confidence and spending.
“B2B parcel delivery volumes are also exposed to reduced economic activity.
“We see headwinds in both the UK and at GLS.”
“The lack of sustained parcels growth and the absence of consistent productivity improvements mean UK margins are once again being squeezed.
“GLS remains well-positioned, but growth there is stumbling in the face of tough comparatives and cost inflation. “
The Liberum view was 'sell', with a 205p target price.