Barclays upgrades Royal Mail as it hails cost-cutting programme

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Barclays upgraded Royal Mail to 'overweight' from 'equalweight' and lifted the price target to 575p from 440p as it took a look at the European postal and parcel delivery market.
The bank said RMG's action on costs announced with the interim results gives it significantly more certainty around its forecasts for the next three to five years and brings the group more in line with its European peers in terms of the balance between revenue growth and cost control.

"We believe it moves the risks to our forecasts to the upside," said Barclays.

It continues to recognise that management is still in the middle of the transformation programme, that the interim regulatory review is due to report in H1 2016, that the current wage deal expires at the end of Q1 2016 and that the closure of the defined benefit pension scheme will take time to negotiate and may require an injection of assets.

However, the bank believes the rating discounts these potential negatives and fails to take account of the revenue, cost and cash flow benefits the transformation programme will ultimately deliver.

Barclays has 'overweight' stances on Deutsche Post's DHL unit, Panalpina and Denmark's DSV.

As far as DHL is concerned, it pointed to an expected recovery from a low rating.

It said Panalpina's new technology should deliver benefits in 2016, while DSV will likely be lifted by its acquisition of UTI.

At 1038 GMT, RMG shares were up 1.6% to 444p.