Arguments about whether Royal Mail was sold off on the cheap by the government are unlikely to die down just yet, especially if City banks keep putting hefty price tags on the business.
JP Morgan told ministers before the flotation that the company could be worth £10bn rather than the £3.3bn sale price. Now analysts at JP Morgan Cazenove, while not quite getting as high as £10bn, have issued a buy note valuing the business at £7bn. It said:
We are initiating coverage on Royal Mail Group with an overweight rating and a price target of 700p implying 20% upside potential, rooted in projected 200 basis points of underlying margin gains over the next five years.
This implies a 'slow-burn' equity story contingent upon successful execution of complex restructuring, but we adopt a bullish stance in light of a supportive macroeconomic backdrop, gearing to secular e-commerce growth as the UK's number one parcel delivery provider, a solid balance sheet and potential disposals upside.
In a falling market Royal Mail is up 1p at 588p. On Monday the company announced a management shake up.
