Shares in Royal Mail fell on Tuesday after the stock was downgraded by Credit Suisse.
The bank changed its recommendation from ‘underperform’ to neutral’ and cut the target price from 492p to 325p.
Credit Suisse said it expects worsening letter revenue trends and higher than expected staff costs to make projected 2018 earnings unsustainable. It also does not expect free cash flow to cover dividends from 2021.
Analysts now expect Royal Mail to generate profits of £515m in 2018 (5% down on forecasts), £444m in 2019 (18% down) and £382m in 2020 (31% down).
Credit Suisse said there were two factors behind its view that letter revenue will weaken – action by RBS, Santander and the UK government to cut mail volumes, and the rise in internet traffic.