Leading shares have started the shortened trading week in a downbeat fashion, partly on the continuing crisis in Greece, but Royal Mail is bucking the trend after a broker upgrade.
The recommendation for Royal Mail from Cantor Fitzgerald is hardly glowing, but the broker has moved from sell to hold, and this has been enough to push the company’s shares 11.5p higher to 515p, the biggest rising in the FTSE 100 and a near 12 month high.
Cantor’s analyst Robin Byde said:
Royal Mail reported solid full year earnings last week and delivered a healthy uplift in operating margin. But the UK parcels market continues to be over-supplied and the decline in letter use is persistent. Therefore, revenue growth is forecast to be muted and modest profit improvement will mainly be driven by restructuring. Royal Mail is trading on a 30% PE discount to the broad sector but this looks justified at the moment given our forecast for low growth. Our target price is lifted to 500p from 440p assuming lower capital expenditure and cash one-offs...
W now assume capex and cash restructuring charges will be £70m lower each year and inflows from disposals will be £30m higher.
[But it] faces potential cost headwinds and industrial action with wage negotiations in 2016. The investment case for Royal Mail is finely balanced, in our view. We upgrade to hold from sell.
Overall the FTSE 100 is currently down 42.22 points at 6989.50, with renewed worries about whether Greece will pay its debts or default, or even leave the euro. Regional election victories by anti-austerity parties in Spain have added to the mood of uncertainty surrounding the future of the eurozone. Michael Hewson, chief market analyst at CMC Markets UK, said:
This uncertainty in Spain is one of the main reasons why EU leaders are playing hardball with Greece, as any concessions granted to the Greeks are likely to play badly elsewhere in Europe where hard decisions have been made.
The possibility of a Greek default early next month appears to be moving closer as politicians in Athens raised the possibility that the paying of pensions and salaries over the next few weeks would take precedence over payments to creditors, with the 5 June scheduled payment to the IMF the first test.
A strengthening dollar - despite comments from Federal Reserve chair Janet Yellen late last week suggesting a US rate rise would come in September at the earliest - has pushed oil and precious metal prices lower.
So Royal Dutch Shell B shares are down 31p at 1969.5p, while Mexican gold and silver miner Fresnillo has fallen 11p to 752p.
But positive results from Ryanair are providing some support, with rival easyJet up 12p at £16.03 and British Airways owner International Airlines Group 3p better at 545.5p.
Taylor Wimpey has built up a 2.5p rise to 186.9p after Deutsche Bank raised its price target from 173p to 210p with a buy rating. The bank said:
Recognising the strong performance over the past year, we find upside to our share price target at Taylor Wimpey and Barratt Developments now appears more moderate. However we keep these stocks on our top picks list seeing further upside for those valuing solely on dividend, with the stocks well positioned to benefit from strategic and government sourced land respectively providing comfort on longer term returns.
Barratt, where Deutsche moved its target from 576p to 659p, has added 6p to 601.5p.
Vodafone has dipped 0.25p to 253.50p despite continuing talk of a possible tie-up with US group Liberty Global.
