Royal Mail's valuation looks 'stretched', says Credit Suisse

[TrueBlueTerrier]

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The share price of postal and delivery service firm Royal Mail was trading lower on Tuesday after Credit Suisse initiated coverage of the stock with an 'underperform' rating.

The Swiss bank has set a target price of 530p, indicating 12% downside potential to current prices.

"And for multiples in line with peers and a mid-range financial performance, we see better opportunities elsewhere in the sector," analysts said in a research report.

Credit Suisse believes that the stock's valuation looks "stretched" given its 85% jump since the flotation in London in October 2013.

"We think intensifying competition in last-mile delivery could cap Royal Mail's margins at the lower end of its targeted range (5-10%). Challenging consensus expectations on margin progression leave little room for error."

The bank attributed these competitive headwinds to the ramp-up of TNT Post (Post NL in the UK) which could render its margin targets "overly ambitious".

"We estimate Royal Mail could lose circa £540m revenues (6% of group) in five years, which would fall largely to the bottom line."

The stock was down 0.7% at 589.94p by 10:03.

[pinstripe]

""We estimate Royal Mail could lose circa £540m revenues (6% of group) in five years,"

Mmmm, isn't that when we can sell our shares? What a surprise.

[wacko74]

Aaaaaand here we go again... these experts claim Royal Mail is overpriced, people duly panic sell and the price drops, then next week some other experts claim Royal Mail is undervalued, people buy up more shares and the price rises.....

[El-Bandito]

I always love this complete and utter pish. Now it's the Swiss turn to'speculate' about the non value of RM shares. These c@nts couldn't speculate the banking crisis. So forgive me if I totally ignore these idiots. RM shares will stay around £6 from now till end of the tax year. It will fluctuate before and after dividends given. BUT the share price WILL increase between now and October 2017.

[wandle]

http://sharecast.com/news/royal-mail-s- ... 18857.html

The bank attributed these competitive headwinds to the ramp-up of TNT Post (Post NL in the UK) which could render its margin targets "overly ambitious".

"We estimate Royal Mail could lose circa £540m revenues (6% of group) in five years, which would fall largely to the bottom line."

The word 'estimate' is the key word. These highly-paid analysts are guessing at the future earnings. An educated guess, but a guess nonetheless. There are other factors which may come into play that they have not foreseen. Equally, as another person pointed out, some other analyst at another brokerage firm will have a different view, stating that RM's share price is still good value. Why are TNT begging the regulator to intervene, in an attempt to prevent RM raising prices for Downstream Access mailings? Could it be that the rises will make TNT's profit margins so wafer-thin on DSA, that they'll struggle to make money out of leeching on RM's most profitable traffic? My heart bleeds for them. NOT

[wacko74]

I really can't understand how the regulator can have any say in what we charge for DSA... It's a private business transaction carried out between private companies and has nothing at all to do with our obligation to provide a 'service for the public' (which is what the regulator is supposed to be protecting).... if TNT don't like what we charge they're quite free to find someone else to deliver their DSA mail.

[deshulme]

Aaaaaand here we go again... these experts claim Royal Mail is overpriced, people duly panic sell and the price drops, then next week some other experts claim Royal Mail is undervalued, people buy up more shares and the price rises.....

Market overview: JP Morgan hikes target on Royal Mail
JP Morgan has raised it price target for Royal Mail Group (LON:RMG) by 10% due to a more bullish assessment of its pension liabilities.
The broker says having examined RMG’s Defined Benefit plan in detail it believes cash costsare unlikely to exceed £400m annually beyond 2018, which is well below its previous £560mln estimate.
“We believe our previous estimate would only apply in an extreme scenario where bond yields remain flat and pension plan membership churn falls to zero.”
As a result we are raising our target price by 9% to 765p from 700p. ‘Overweight’ is the investment stance.

[UnhappyGremlin]

I think the share price will steadily rise for the foreseeable future.
I know one guy who plays the stock market quite a bit, he reckons near £10 by 2019.
It would be nice....

[aiden01]

I think the share price will steadily rise for the foreseeable future.
I know one guy who plays the stock market quite a bit, he reckons near £10 by 2019.
It would be nice....

hope he,s right