Sign up United Kingdom
Proactive Investors - Run By Investors For Investors

Two brokers up target prices for Royal Mail following confirmation of pensions and pay deal with union

Analysts at Deutsche Bank raised their target price for Royal Mail to 440p from 359p, noting that the terms and conditions of the union agreement are “broadly as expected”
Royal Mail delivery
Elsewhere, analysts at Liberum Capital hiked their target for the FTSE 250 listed firm to 450p from 395p after hiking their estimates for the group

Royal Mail Group PLC (LON:RMG) saw its shares tick higher as two City brokers raised price targets for the mail delivery group following confirmation on Thursday it had reached agreement in principle with the Communication Workers Union (CWU) on a pensions and pay deal.

However, both still retained ‘sell rating on the FTSE 250-listed firm’s stock, while another broker cut its rating for the firm, and a fourth started coverage neutrally.

READ: Royal Mail highlights “continuing good trading” performance, as it confirms agreement in principle with union

Analysts at Deutsche Bank raised their target price for Royal Mail to 440p from 359p noting that the terms and conditions of the union agreement are “broadly as expected” and “guidance for FY 2017/18 above the market”.

In a note to clients, they said: “In our view the plan is broadly as expected and in-line with the recommendations set out by the mediator last December.

“On pensions, the company is able to continue to pay annual cash contributions of around and £400m and wage inflation for 2017/18 and 2018/19 of c 2.5% and 2.4% is slightly better than market expectations of around 3%.”

Elsewhere, analysts at Liberum Capital hiked their target for the FTSE 250 listed firm to 450p from 395p after hiking their estimates for the group, although – like Deutsche Bank - they also maintained a ‘sell’ rating on the stock.

“Steep productivity mountain to climb longer term”

In their note to clients, the Liberum analysts said: “The details of the pay, pensions and productivity agreement with the Communications Workers’ Union offer a mix of encouraging short-term dynamics but a steep productivity mountain to climb longer term.

“The pensions cash costs were in line with current levels. The pay deal was more moderate than we had assumed, resulting in higher forecasts. The trade-off is a shorter working week, but substantial productivity improvements are required to neutralise this.”

However, they concluded: “We remain cautious on what can be achieved against a toughening base and adverse parcels dynamics.”

“Balanced risk/reward profile”

Meanwhile, French broker Societe Generale initiated coverage on the UK mail delivery firm with a ‘hold’ rating and price target of 480p, saying that overall it believes the stock offers “a balanced risk/reward profile”.

Its analysts said: “An attractive FCF yield, GLS’s eurozone exposure, and a discount vs peers are decidedly appealing, but declining mail volumes and the highly competitive UK parcels environment make RMG’s home market unattractive – with the full Brexit effect yet to come.”

They added: “For the pensions deal, although fears of an excessively punitive burden have eased, we still need details.”

And analysts at HSBC Securities downgraded their rating for Royal Mail to ‘hold’ from ‘buy’ in a note today, on valuation grounds following the union deal, with an unchanged target price of 525p.

In late morning trading on Friday, BT shares were changing hands at 499.5p, up 0.6% on Thursday’s close.

View full RMG profile View Profile

Royal Mail PLC Timeline

Related Articles

Intellectual property sign
April 11 2018
The AIM-listed intellectual property group’s investments were worth £8mln as at the end of December 2017, helped by the additions of The Vaccine Group and water pollution tester Molendotech
credit cards
July 08 2018
The group is already seeing good progress at its US contact centre business
drill rig
June 18 2018
The last few months have seen an increase in demand for exploration rigs, which will benefit Capital Drilling's utilisation rates from this segment of the market - chairman Jamie Boynton

No investment advice

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable or advisable for any specific person. You further understand that none of the information providers or their affiliates will advise you personally concerning the nature, potential, advisability, value or suitability of any particular security, portfolio of securities, transaction, investment strategy, or other matter.

You understand that the Site may contain opinions from time to time with regard to securities mentioned in other products, including company related products, and that those opinions may be different from those obtained by using another product related to the Company. You understand and agree that contributors may write about securities in which they or their firms have a position, and that they may trade such securities for their own account. In cases where the position is held at the time of publication and such position is known to the Company, appropriate disclosure is made. However, you understand and agree that at the time of any transaction that you make, one or more contributors may have a position in the securities written about. You understand that price and other data is supplied by sources believed to be reliable, that the calculations herein are made using such data, and that neither such data nor such calculations are guaranteed by these sources, the Company, the information providers or any other person or entity, and may not be complete or accurate.

From time to time, reference may be made in our marketing materials to prior articles and opinions we have published. These references may be selective, may reference only a portion of an article or recommendation, and are likely not to be current. As markets change continuously, previously published information and data may not be current and should not be relied upon.

© Proactive Investors 2018

Proactive Investors Limited, trading as “Proactiveinvestors United Kingdom”, is Authorised and regulated by the Financial Conduct Authority.
Registered in England with Company Registration number 05639690. Group VAT registration number 872070825 FCA Registration number 559082. You can contact us here.

Market Indices, Commodities and Regulatory News Headlines copyright © Morningstar. Data delayed 15 minutes unless otherwise indicated. Terms of use