FTSE shrugs off early losses as Royal Mail leads the way higher

Discussion in 'Market News' started by Lily, May 23, 2016.

  1. Lily

    Lily Forum Member

    Aug 29, 2015
    Likes Received:
    Postal group lifted by upgrades after last week’s results

    Leading shares are searching for direction at the start of the new trading week, but Royal Mail has risen sharply after positive comments about last week’s results.

    Its shares are up 17.6p or 3.5% to 509.5p as analysts at RBC moved their recommendation from underperform to sector perform and lifted their target price from 445p to 525p. Meanwhile Cantor Fitzgerald issued a buy note with a forecast raised from 530p to 550p. Cantor’s Robin Byde said:

    Royal Mail’s full year update was encouraging. Revenue and operating profits were up year on year and ahead of consensus estimates. European parcels continue to drive growth with cost cutting and productivity gains helping to protect margins in UK letters. Following the update, our forecast changes are minor. We expect parcels in the UK and Europe to drive the top-line and restructuring and productivity gains to support the bottom-line. Even with forecast hefty capex, free cash should be healthy. Royal Mail faces potentially tough wage and pension negotiations this year but the risks are probably overstated. The stock is good value, trading on a calendar 2016 estimated PE discount of 16% to the sector. Our forecast dividend yield is 4.8%.

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