Cantor upgrades Royal Mail as it highlights benefits of scale

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ShareCast News) - Cantor Fitzgerald upgraded Royal Mail to 'buy' from 'hold' and raised the price target to 530p from 500p.
It said the company has made good progress cutting costs, lifting productivity and introducing new products.

"We believe that the strengths and value of the company's established networks and brands, in the fast changing delivery world, are underappreciated. We also think that market concerns about wage negotiations, future pension costs and regulation are overstated," said the brokerage.

Cantor forecasts modest earnings growth in the next few years and reckons free cash should improve as capex reduces.

It estimated annualised cost savings should reach £500m over the next three years, compared with £200m for a similar period up to full year 2015.

It added that the stock is good value, trading on calendar 2016 price-to-earnings of 10.5x versus the wider sector on 15.1x and other European postal companies on 13.1x.

At 1220 GMT, Royal Mail shares were up 1.5% to 443.70p.