Royal Mail share price: HSBC points to compelling valuation

Analysts turn bullish on postal operator

Royal Mail share price: HSBC points to compelling valuation

HSBC has turned bullish on Royal Mail Group (LON:RMG), while trimming its price target on the shares, pointing to the company’s compelling valuation. The comments are a boost for the privatised postal operator which is currently trying to reach an agreement with trade unions over its new pension plan, having signalled that its defined benefit scheme is unaffordable beyond next year.

Royal Mail’s share price has inched higher in today’s trading, having added 0.35 percent to 401.20p as of 12:14 BST, marginally outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.16 percent higher at 7,486.91 points. The group’s shares have lost more than 21 percent of their value over the past year, and are down by some 13 percent in the year-to-date.

HSBC upgraded its rating on Royal Mail to ‘buy’ this week, while trimming its price target on the shares from 475p to 465p, arguing that the group’s risk/reward ratio is favourable at the current price of 400p or thereabouts.

“As comparatives get easier later in this financial year we think that there is a greater probability of results being better than our current forecasts than there is of a further worsening in the rate of decline,” the analysts pointed out, as quoted by Proactive Investors. The broker reckons that Royal Mail’s talks with unions over the pension arrangements are ‘delicate’ but that the management’s proposed defined benefit cash scheme to replace the gold standard defined benefit offering is ‘innovative’.

The 15 analysts offering 12-month price targets for Royal Mail for the Financial Times have a median target of 450.00p, with a high estimate of 590.00p and a low estimate of 350.00p. As of July 31, the consensus forecast amongst 17 polled investment analysts covering the FTSE 100 postal operator advises investors to hold their position in the company. 

As of 12:28 BST, Friday, 04 August, Royal Mail share price is 401.00p.

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