Royal Mail slips as broker says it is time to sell

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Cantor Fitzgerald says valuation is no longer compelling after spectacular rise

Royal Mail has, obviously, had a stellar run since its flotation at 330p in October.

It hit a peak of 607p - prompting much talk of the government selling it off too cheaply - but could it now be time to sell?

That is the view of analyst Robin Byde at Cantor Fitzgerald, who has begun coverage of the group with a sell recommendation and target price of 500p. He said:
Royal Mail has made good progress on restructuring but still faces significant challenges. It has powerful brands, an unrivalled network in the UK and with GLS a leading pan-European parcel operator. However, core letter volumes continue to decline sharply and many other operators are fighting for share in the packets & parcels market.

Costs are being contained and productivity is rising but Royal Mail still needs to invest heavily in automation to lift service quality, efficiency and margins. The many uncertainties around medium-term growth, costs-of-change and capex are reflected in the broad range of forecasts in the market. Following its spectacular post-IPO performance, Royal Mail's valuation and dividend yield are no longer compelling. It is trading on a 2014 estimated PE of 14.7 times versus the European logistics sector on 15.2 times and other postal companies on 12 times. Our 2014 annualised dividend yield, at 3.2%, is below the wider FTSE 100, yielding 3.8%.

Royal Mail shares are currently down 6p at 566p.