Royal Mail share price under pressure even as Credit Suisse hikes valuation

on Jun 1, 2016
Updated: Mar 11, 2020

Shares in Royal Mail Group (LON:RMG) have fallen deep into the red in today’s session, underperforming the broader London market, as analysts at Credit Suisse remained ‘neutral’ on the stock, even as their hiked their price target on the company. The shares have retreated after rallying yesterday when they were boosted by expectations for M&A activity in the postal sector.

As of 14:30 BST, Royal Mail’s share price had shed 3.42 percent to stand at 522.50p, as compared with a 1.07-percent drop in the benchmark FTSE 100 index. The shares have lost 0.38 percent of their value over the past year, but are up nearly 18 percent in the year-to-date.
Credit Suisse maintained its ‘neutral’ rating on Royal Mail today, while hiking its price target on the stock by 11 percent to 559p based on the bank’s expectation that the postal operator’s management would be successful in finding the necessary efficiency gains to keep earnings flat.

The Swiss bank’s analysts Neil Glynn and Julia Pennington were quoted as commenting in a research report dated May 31 that the company appeared increasingly comfortable with the competitive landscape in the market for parcels delivery. The analysts further referenced Royal Mail’s strong finish to its financial year.
Last month, the privatised postal group revealed that its pre-tax profit had fallen in the financial year to the end of March. Royal Mail, however, also posted a small rise in revenues and hiked its payout to shareholders.
Credit Suisse now estimates that the FTSE 100 group’s earnings before interest and taxes (before transformation costs) would come in between £729 million and £748 million over the three fiscal years to the end of 2019. The analysts, however, remain ‘wary of potential M&A expectations building’. The comments came as Royal Mail’s shares surged yesterday following news of failed merger talks between Belgium’s Bpost and Dutch postal group PostNL which fuelled expectations for possible consolidation in the sector.
As of 14:58 BST, Wednesday, 01 June, Royal Mail share price is 523.25p.