Analysts at Berenberg upgraded Royal Mail from ‘hold’ to ‘buy’ on Monday, stating it was now a “new era” for the firm.
Berenberg stated that after “several violent swings over the past few years”, many investors understandably viewed Royal Mail shares with trepidation.
However, the analysts said that with the stock trading on “extremely low multiples” and headwinds being “very well flagged”, they now think the risk/reward scenario appears to be “more attractive” on a 12-24 month view than they had ever seen it before.
The German bank highlighted that near-term risks were also to the upside, with any increase in Covid-19 pandemic restrictions through the winter likely to benefit both its UK and European businesses, with cost inflation largely in check for the meantime.
Berenberg also raised its target price on the stock from 530.0p to 650.0p.
“Although we have never thought the company was very likely to sell GLS, we do think that it should provide the group with some valuation backing – our intrinsic (multiples and DCF) valuation for the division is 324.0p – circa 66% of the current share price. Post-Covid-19 we think that valuing the UK business for such a low multiple (5x EV/EBIT) is too harsh.”
Analysts at Canaccord Genuity lowered their target price on professional services business K3 Capital Group from 452.0p to 414.0p on Monday following the company’s trading update for the six months ended 30 November.
Canaccord Genuity stated the update indicated that the group’s performance was in line with management’s expectations and showed that the company was “confident” in meeting market expectations for the full year.
K3 expects to report revenues in excess of £30.0m and adjusted underlying earnings of around £9.0m, said to be approximately 50% of market consensus figures.
The Canadian bank also pointed out that all business divisions were said to be continuing to perform well, driven by both organic growth in existing brands and contributions from Knight Corporate Finance and Knight R&D, which were acquired in July 2021.
Canaccord, which reiterated its ‘buy’ rating on the stock, highlighted that K3’s outlook indicated that it would maintain “strong pipelines across its brands” in the second half of the year, with the group’s focus remaining on organic growth and further acquisitions of complementary professional services businesses.
