In a note entitled ‘First class delivery’, Panmure Gordon analyst Gert Zonneveld, whose claims that Royal Mail was being sold off on the cheap were dismissed by Business Secretary Vince Cable, said there is still some headroom for the share price.
“Despite the strong share price performance since listing, we believe there is still meaningful upside potential on a 12 month view and beyond,” said the analyst, who initiates coverage of the stock with a ‘buy’ recommendation and 570p target price.
He added that the focus for the next year is expected to be on ongoing network optimisation, fleet investment, technology investment and automation evaluation.
The company’s cash generation should be strong, “particularly once transformation outflows decelerate”, Zonneveld added.
Cable came under pressure when Zonneveld claimed Royal Mail was undervalued by £1 billion in a pre-IPO note on October 3.
The Business Secretary responded by calling the analyst an “outlier”, only to watch the shares soar on debut.
Having floated at 330p, the shares are already trading for 530p, valuing Royal Mail at £5.3 billion.
US banking heavyweight JPMorgan reportedly told the government Royal Mail could be worth up to £10bn before its privatisation, while Citigroup and Deutsche Bank also pitched valuations well above the initial price at which the shares were sold.
Both Cable and Royal Mail’s chief executive Moya Greene have played down claims the group was undervalued, claiming the share price will settle once the hype dies down.
It emerged this week that the biggest shareholder in the sale is The Children’s Investment Fund run by activist investor Chris Hohn, who was once described as a locust for ousting the boss of Deutsche Börse.