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Royal Mail tops FTSE 250 risers after UBS upgrade

Published: 10:34 11 Oct 2017 BST

royal mail post sacks
UBS expects Royal Mail to have more revenue from parcels than letters by 2022

Royal Mail PLC (LON:RMG) was one of the top FTSE 250 risers on Wednesday morning after the postal giant was upgraded by UBS.

Analysts at the Swiss broker previously had the company as a ‘sell’ but said today that the recent share price fall – it’s down almost 12% since June – means it is “fairly valued”.

READ: Royal Mail faces two-day strike later this month in dispute over pensions and pay

As a result, UBS is now ‘neutral’ on Royal Mail and kept its 390p price target.

As well as looking cheap, analysts said the potential slowdown of the parcel market, driven by slower e-commerce has turned out not to be the case so far.

“One positive has been that UK eCommerce growth has remained at 10-15%. We believe this could result in H1 parcel revenue being above our full-year forecast (+1%),” read this morning’s note.

‘Risks remain’

Despite the upgrade, UBS said it still “cannot recommend buying the stock” given the threat of industrial action which is currently hanging over the group.

Employees and their unions are unhappy about pensions, work pipeline, shorter working week and pay. Should a strike go ahead, there’s the possibility it will impact on Royal Mail’s lucrative holiday period later in the year.

READ: Royal Mail's sale of surplus land won't resolve its troubles, analysts say, as it leaves the FTSE 100

UBS agrees that the business “needs to change”, but adds that the Unions need to play ball as well.

RMG shares gained 1.9% to 389.9p in mid-morning trade.

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