Royal Mail IPO adviser tells clients to 'sell' the stock ahead of MPs grilling
Swiss bank UBS says market is 'overestimating margin upside'
Wednesday 20 November 2013
UBS, one of the quartet of investment banks which helped to float Royal Mail, today told investors to sell the shares.
The Swiss investment bank said “market expectations were too high” for the company, whose shares were trading 8.5p lower at 541.5p. Analysts put a 450p target price on the firm, citing uncertainty over how quickly Royal Mail can drive efficiencies from its parcels business to boost margins and cut staffing costs.
“With Royal Mail’s shares up 69% since the IPO, versus 7% to 32% for peers, the market is overestimating margin upside,” it said.
“With mail volumes falling 6%-8%, the major opportunity and risk is with the parcels business.
“We believe parcel automation could have a significant impact, but it is likely to take time to implement, due to the fact that current staffing levels mean it would be difficult to benefit from the savings quickly. This may disappoint the market,” the bank added.
Analysts from the other banks in the float, Barclays, Bank of America Merrill Lynch and RBC, also issued notes today and none were prepared to give a buy rating. The trio were neutral on the stock.
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