UBS says that while Royal Mail Group’s (LON:RMG) deal with the Communication Workers Union (CWU) seems reasonable for both sides, the implementation of the changes will be crucial, Proactive Investors reports. The comments came as the analysts maintained their ‘hold’ rating on the privatised postal operator, while lifting their valuation on the shares.
Royal Mail’s share price has jumped in London this morning, having gained 3.15 percent to stand at 524.40p as of 10:17 GMT. The stock is outperforming the FTSE 250 index which is currently 1.06 percent better off at 19,466.94 points. The group’s shares have added more than 27 percent to their value over the past year, as compared with a near five-percent gain in the mid-cap index.
UBS sees Royal Mail as ‘hold’
UBS maintained its ‘hold’ stance on Royal Mail yesterday, while lifting its price target on the shares from 437p to 528p. The move came after the privatised postal operator said last week that it had reached an agreement on pay and pensions with the CWU, following months of negotiations.
Proactive Investors quoted UBS as commenting that it assumed that the group could offset the cost of the fewer working hours through efficiency savings but added that “if this proves not possible then forecasts could be impacted”.
“The new pension scheme appears a reasonable compromise, with the total cash cost remaining stable but with a better package for newer employees,” the analysts pointed out.
The analysts further noted that they now valued “Royal Mail on 12x price-earnings ratio (was 10x) reflecting: higher visibility from labour agreement and better operating performance”.
The comments came after Berenberg also hiked its price target on the postal operator this week, noting that the agreement with the CWU had “removed the threat of a debilitating strike and provided much-needed certainty about personnel cost development”.