Royal Mail share price: Berenberg lifts valuation after deal with union

Broker hikes earnings forecasts as clouds lift over postal operator

Royal Mail share price: Berenberg lifts valuation after deal with union

Berenberg has hiked its price target and earnings forecasts on Royal Mail Group (LON:RMG), arguing that the strike cloud has lifted over the postal operator, Citywire reports. The move came after the company recently disclosed details of its agreement on pay and pensions with the Communication Workers Union (CWU).

Royal Mail’s share price has fallen deep into negative territory this morning, having given up 1.99 percent to 502.60p as of 10:14 GMT. The decline is largely in line with losses in the mid-cap FTSE 250 index, which has tumbled 2.17 percent to 19,263.86 points.

Berenberg upbeat on Royal Mail

Berenberg reiterated its ‘hold’ rating on Royal Mail yesterday, while lifting its price target on the shares from 415p to 460p. The move came after the postal operator reached an agreement with the CWU, disclosing that the ongoing annual cash cost of pensions will continue to be around £400 million.

“This has removed the threat of a debilitating strike and provided much-needed certainty about personnel cost development,” the broker’s analyst Joel Spungin commented, adding that the broker had increased its valuation “to reflect our higher profit forecasts and diminished risk to earnings from industrial action”.

“We retain some concerns about the lack of long-term organic growth, falling mail volumes and intense competition in the parcels market, but the group has little debt and the dividend looks secure for the foreseeable future,” the analyst concluded.

Other analysts on postal operator

The 16 analysts offering 12-month price targets for Royal Mail for the Financial Times have a median target of 467.50p on the shares, with a high estimate of 600.00p and a low estimate of 300.00p. As of February 5, the consensus forecast amongst 18 polled investment analysts covering the blue-chip group advises investors to hold their position in the company.

As of 10:39 GMT, Tuesday, 06 February, Royal Mail share price is 500.80p.

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