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View the article online at http://citywire.co.uk/wealth-manager/article/a752711

Royal Mail not a buy as competition concerns bite

by Eleanor Lawrie on May 22, 2014 at 14:37

Justin Cooper, chief executive of Capita Asset Services said the case had lessened for the stock since its privatisation and IPO in October, which saw the shares rise by 38% on the first day of trading..

'Most investors flooded into the stock when it floated because the yield looked so appealing. That’s not the case any longer. Even after the sharp fall in the share price after the results were published, the yield is not attractive compared to the rest of the FTSE 100,' he said.

'What’s more, with the management admitting competition is eating Royal Mail’s direct delivery lunch, future profits are at risk. That means future dividends could easily disappoint. Investors may conclude there are better places to find a reliable income.'

But analysts at JPMorgan Cazenove said their long term stance 'remains bullish,' and have not changed their estimates in light of Royal Mail's warnings, as they think the stock is a particular beneficiary of the UK domestic recovery. 

Analysts Christopher Combe and Wenchang Ma said the shares 'offer a combination of exposure to UK and European macro-economic recovery – a trend to which parcels operations are particularly geared'.

They also noted the Royal Mail's announcement of a 1,300 headcount reduction as evidence that the company was committed to cost cutting.

 

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