Market Report: When should the Government sell off its remaining Royal Mail shares?


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The Independent Online

Is the Government selling off its remaining Royal Mail shares too soon?

Analysts at Goldman Sachs suggest it might be after lifting their target price to 610p – a move which helped the shares up 5.5p to 510.5p.

The Government has already banked £750m from the sale of half the shares it kept after the IPO, but it still has another 15 per cent stake in the postal service to get rid of.

The Chancellor could make the timing of the next sale clearer in Wednesday’s Budget. Goldman, which expects Royal Mail to improve profitability, said: “Ongoing improvement in the company’s efficiency levels, a return to growth in parcel revenues, which we forecast only from 2016/17 onwards, and the successful execution of real estate disposals will be the key drivers of share price performance.”

The new 610p target price would be close to the record high Royal Mail hit in January 2014, only three months after its controversial privatisation.

Goldman was the bank criticised for pricing the group’s shares at 330p, only to watch them breach 600p just three months after its IPO. The shares have risen 18 per cent in 2015 as its parcel delivery rivals, including the now-bust City Link and main competitor Whistl, have floundered.  

The stock was one of Monday’s top blue-chip risers on the benchmark FTSE 100 index, which fell less than market experts were anticipating after Greece’s No vote, down 50.1 points to 6,535.68.

The decision by Greek Prime Minister Alexis Tsipras to nudge right-hand man Yanis Varoufakis out the door suggested a desire to seal an eleventh-hour deal and avoid a so-called Grexit.

The best-performing FTSE 100 stock was Marks & Spencer, up 8.5p to 547p as traders bet on a good  first-quarter update from the retail giant. M&S is also expanding its free “click and collect” service to more than 100 Simply Food franchise stores.

On AIM, Asos lost 41p to 3,880p as investors banked profits ahead of the online clothing retailer’s third-quarter trading update, even after bullish comments from Société Générale, which upgraded its target price to 4,960p.