Credit Suisse cuts RM target as risks increase in 2015

[TrueBlueTerrier]

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Credit Suisse has trimmed its target price for Royal Mail from 380p to 370p and reiterated an 'underperform' rating, saying that risks are increasing this year for the postal delivery group.

The bank said back in November that consensus estimates for the year ending March 2016 would need to shift down.

Since then, earnings per share (EPS) forecasts have fallen around 9%, but the stock as re-rated by 8% on a price-to-earnings (P/E) basis.

"We think this is unjustified and see further negative earnings momentum to follow," it said.

Credit Suisse forecasts adjusted EPS of just 24.33p for next year, some 24% below below consensus.

In 2015, competition is set to rise with the UK rollout of Whistl, while political risk will grow ahead of the elections in May.

Meanwhile, free cash flow yields are "deteriorating", falling from peak yields of 9.4% in the year ended March 2014 to an estimated 6.7% in the year to March 2016. This "represent[s] a fundamentally less attractive offer", Credit Suisse said.

The bank pointed out that Royal Mail trades on a P/E of 17.5 on next year's estimates.

The stock was more or less flat at 427.9p by 10:26.

[Jamesneil2014]

Our shares will be worthless soon!.

[wacko74]

Don't worry about it.. this is just Credit Suisse giving it's usual downgrade of RMG, they've got some kind of petty, emotion driven agenda against us which seems to be based on nothing more than bitterness and jealousy. They're a bit like a jilted lover who can't move on.