Royal Mail PLC could be a takeover, according to Deutsche Bank

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Royal Mail’s bid potential only reason not to sell shares - Deutsche says
It comes as Vesa Equity Investment has increased its shareholding.

Stake building suggests Royal Mail PLC (LON:RMG) could be a takeover, according to Deutsche Bank.

Bid ‘risk’ is the reasoning behind a lukewarm upgrade for the FTSE 250 share by the German bank, which moved to ‘hold’ from ‘sell’.

Deutsche’s price target of 183p (current price: 171p) was lifted from 93p.

“Our fundamental view on Royal Mail is that it is overvalued on a stand-alone basis and that the shares are fundamentally worth 93p, far below the current share price,” analyst Andy Chu said in a note.

“However, last Friday, after market close it was disclosed that Vesa Equity Investment had upped its stake in RMG and crossed the 4 and 5% shareholder ownership limit to a 5.35% stake (RMG's 4th largest shareholder).”

Vesa Equity Investment is the vehicle for Czech billionaire Daniel Kretinsky, who owns Sparta Prague football club and has recently been snaffling stakes in other major European companies.

Last week, meanwhile, Citigroup upgraded its rating for the mail delivery firm to ‘buy’ from ‘sell’.

Citigroup highlighted a significant and recent acceleration in parcel volumes during the coronavirus lockdown, as well an attractive and nuanced valuation. The US bank also raised its target price for the FTSE 250-listed firm to 210p from 150p.

In April, Credit Suisse warned that Royal Mail’s letters performance could still disappoint against market expectations along with concerns also lingering about cost reductions.

The Swiss bank’s analysts cut their target price for the FTSE 250 group to 107p from 138p, keeping their ‘underperform’ rating.