Royal Mail upped to 'overweight' by JPMorgan as PostNL abandons UK direct delivery

JPMorgan Cazenove upgraded Royal Mail to ‘overweight’ from ‘neutral’ and raised the target price to 605p from 515p, pointing to diminished postal risk after PostNL announced the suspension of Whistl’s UK direct delivery operations.

“While uncertainty persists with respect to parcel market headwinds (overcapacity) and postal market uncertainty (competition, regulation), the withdrawal of PNL from the direct delivery market leaves us with a more compelling Royal Mail valuation,” said JPM, noting 17% upside potential.

The broker said the move reduces its competition discount while lifting underlying earnings per share by 4%.

It also pointed out that the government now holds a 15% stake in the company, down from 30%. “Besides lifting liquidity, we believe a complete sell-down might simplify upcoming labour/pension negotiations,” said JPM.

At 08:48, Royal Mail shares were down 3.2% at 499.90p.