Royal Mail PLC (LON:RMG) has had its target price raised to 115p from 105p by analysts at Liberum, who said the company’s GLS international parcel business was “proving surprisingly resilient”, however the ‘sell’ rating was reiterated as they said the coronavirus pandemic had “accelerated previous structural headwinds”.

In a note on Monday, the broker said the outlook for the company’s UK parcels and letters (UKPIL) business was “as bad as we had feared” and hopes that GLS could be sold or spun off to shareholders have not been fulfilled.

READ: Royal Mail’s improved trade union relationship gets big shrug from investors and analysts

Liberum also said while GLS was holding up its value was “still at risk of erosion from UKPIL losses and cash burn” and forecast group losses across the horizon.

The broker also warned that a review of the Universal Service Obligation (USO), which specifies the services that the group must provide as well as its rights and obligations, could bring changes that made Royal Mail “financially unsustainable”.

“Management’s hope is clearly that a review could result in the USO being revised to something that Royal Mail can deliver in a financially sustainable fashion. On the other hand, the big risk is that a radically different way of delivering the Universal Service is proposed instead”, Liberum said.

“Without the USO, Royal Mail has very few competitive advantages in parcel delivery. It has a higher cost base, reflecting its unionisation, reliance on directly-employed labour and the legacy of being a monolithic former state entity”, they added.

Shares in Royal Mail rose 2.3% to 171p in mid-morning trading.

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