Leading shares are on the wane for the second day running after last week’s surge.
Worse than expected Chinese import figures cast further doubts about the strength of the world’s second largest economy, undermining commodity companies again.
But the biggest faller is Royal Mail, down 22p at 450.2p as the UK government sold 13% of the company to institutional investors at a placing price of 455p a share, raising £591.1m.
Its remaining 1% - 10m shares - will be allocated to Royal Mail employees. Following the controversial privatisation of the business in 2013 at 330p a share, this marks the final sale of the government’s shares.
Analyst Robin Byde at Cantor Fitzgerald said:
Clearly this removes any overhang issues, but we think that the bullish case for Royal Mail is still not clear cut. The company’s first quarter update in July reported a challenging revenue environment. Group revenue was flat year on year (full year 2015: 1%). Notably, letter revenue in its UKPIL [UK Parcels, International and Letters] division was down 4% with customers down-trading to cheaper mail products. UKPIL division parcel revenue growth (up 2%) lagged volumes (up 3%) due to a tough domestic pricing environment.
Looking forward, Royal Mail has a new pay deal to negotiate with its tetchy union, and against the backdrop of a tightening logistics labour market. Ofcom, the regulator, is conducting a wide-ranging review of the regulation of Royal Mail and the market. Further out, we remain concerned that the company’s main pension scheme will require significantly higher cash service payments. Having said all this, Royal Mail’s valuation is attractive, trading on a calendar 2016 PE of 10 times versus the wider logistics sector on 14 times (a near 30% discount). The current dividend yield is 4.7%, twice covered and versus the FTSE 100 offering 3.7%. We maintain our hold recommendation and target of 500p.
Overall the FTSE 100 has fallen 56.08 points at 6315.10.
Glencore another big loser, down 5.4p at 115.75p following the Chinese data and Monday’s decision to sell two copper mines to help cut debt.
BHP Billiton is down 16p at 1161.5p and Rio Tinto has fallen 17.5p to 2519.5p.
Brewer SABMiller has jumped 307p to 3928.5p after it accepted a £69bn takeover proposal from Anheuser-Busch InBev.
