Property disposals helpful, but not material for Royal Mail, say analysts

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Royal Mail confirmed the partial disposal of its property holdings at Nine Elms, Battersea, with two plots being sold comprising 32% of the 8.35 developable acres at the site.

Following speculation last week that Royal Mail Group PLC (LON:RMG) was about to dispose of its historic site at Mount Pleasant in London, a real estate deal was actually signed late on Friday – but on the other side of the Thames.

In a statement today, Royal Mail confirmed the partial disposal of its property holdings at Nine Elms, Battersea, with two plots being sold comprising 32% of the 8.35 developable acres at the site.


Analysts at JPMorgan Cazenove noted that, on a gross basis, the £101mln cash disposal price implies nearly £38mln an acre, broadly in-line with their valuation.

In a note to clients, they added: “Net of the guided reinvestment and assumed transactions costs (5% of gross), this falls to just under £28m/acre or a 30% discount to our base case.”

They added that that discount downside, of just over £30mln in total, would roughly offset comparable estimated upside from the speculated disposal of Mount Pleasant.

JPMorgan kept an ‘overweight’ stance on Royal Mail with a target price of 565p.

Property disposals are not that material for Royal Mail
Deutsche Bank analyst Andy Chu, meanwhile, pointed out that, while helpful, in his view, property disposals are not that material for Royal Mail.

In a note to clients, the analyst said: “We expect property disposals at RMG but perhaps a little surprised given the softening London property market and that the company does not need the cash given its strong balance sheet. That said it makes strategic sense.”

He added: “We are of the view that there is a not a lot of hidden property value in RMG and as this disposal highlights, some of the proceeds are required for investment to help maximise future sales proceeds.”

But he noted: “A cumulative net proceeds figure of £114mln including this transaction is not material vs. a market cap of £4.4bn.”

Deutsche Bank retains a ‘hold’ rating and 450p price target on Royal Mail shares.

£30mln of proceeds to be reinvested into infrastructure works at Nine Elms
Meanwhile Liberum Capital analyst Gerald Khoo noted that Royal Mail intends to reinvest £30m of the proceeds into infrastructure works to support both the sold plots and other future developments.

He pointed out: “If we deduct the infrastructure investment from the proceeds (our valuation is net of such investment), and apply the same valuation to the rest of the plot, the implied valuation is slightly below our valuation (£222mln vs. £251mln) although this is not material on a per share basis (3p per share difference).”

The Liberum analyst repeated a ‘sell’ stance on Royal Mail with a 400p price target.

In lunchtime trading, Royal Mail shares were 0.8%, or 3.6p higher at 442.7p.