Royal Mail weighed down by parcels competition

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Credit Suisse is probably right to say there will be no regulatory relief from the cherry-picking activities of rival TNT Post

Another day, another new low for Royal Mail. At 405.5p, buyers at flotation at 330p last October are still sitting on a gain on 23%, but the 618p of January will feel a long time ago. Lauded fund manager Neil Woodford has picked up a few shares for his new fund but the market gave more attention to Credit Suisse's advice to sell. The bank's analyst put a 360p target on the stock, arguing there are "no near term positive catalysts."

One such catalyst would be regulatory relief from the cherry-picking activities of rival TNT Post, which has big ambitions for its letter-delivery business in UK cities. As argued here on Saturday, this competition looks basically unfair: Ofcom, the postal regulator, should take a look urgently, given the threat to the Universal Service Obligation. But Credit Suisse is probably right to say there will be no regulatory change this year.

In the meantime, the company must contemplate a parcels market that is becoming more competitive in the UK. "Too many players," is the gist of Credit Suisse's assessment. It thinks Royal Mail will fail to achieve its target of a 0.5% improvement in profit margin this year and will get 0.3% instead. At a £9bn-turnover business, fractions of a percentage point matter, and the currency effect isn't helping the continental operations.

In the long term, Royal Mail still looks attractive given the cashflows and scope for efficiency gains, which is Woodford's argument. In the short term, it needs Christmas to be bountiful.