Royal Mail set to test sale price, suggests City broker

[TrueBlueTerrier]

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Royal Mail’s (LON:RMG) share price is heading lower and could even dip below the level of last October’s float, according to leading City broker Credit Suisse.

After soaring to more than 600p at the start of 2014, the price has since fallen back to 405p, but analysts at the Swiss group say the decline has further to go.

Business secretary Vince Cable has received heavy criticism from MPs and the opposition for setting the price at 330p per share, which has been claimed undersold the UK postal service by £1bn.

However, Credit Suisse, which was not one of the brokers involved in the float, now predicts fair value for the postal group is only just above the float price, and on a worst case basis, is as little as 270p per share.

In a gloomy assessment of its prospects, the Swiss broker sees few positives for the mail and parcels businesses and has cut its earnings forecasts for each of the years 2015-17 by between 14-17%.

Problems looming include overcapacity in the UK parcels market, currency headwinds, margin pressure in Europe, rising competition in the UK and potential problems in achieving costs savings in the face of the unionised workforce..

In 2015, for instance, the broker believes the current underlying profit consensus of £495mln is 15% too high.

The parcels market especially worries Credit Suisse as problems there increase the risk that even deeper cost cuts and restructuring will be required to offset the steady decline in the letters business.

“These would have clear near term cash implications from additional transformation costs” it adds.

Credit Suisse‘s view on Royal Mail is “underperform” though it has taken the middle ground on its target price and lowered it to 360p from 460p.

Shares today were 15p lower at 405.4p, valuing the group at £4.1bn.

[flaminmoses]

So brokers thought it was a very good buy and a year later after studying the form properly they realise they have made a rick?

Not on your nelly.
It was played out to maximise profit from the float.

Its a nice corrupt old world we live in and the small investors will be the ones hit.

Luckily i stayed well clear and wasnt even tempted to make a quick in and out killing.....was a bit shocked to see the price go dramatically up though but not shocked at all to see it slump back down again.