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Deutsche Bank applauds Royal Mail's pension agreement
Analysts at Deutsche Bank praised Royal Mail's ability to reach an agreement with the Communications Workers Union on Thursday and but still sees the shares as overpriced.
Deutsche Bank said striking a deal with the unions over pensions, a shorter working week, culture and operational changes were "positive as the RMG needs the unions to be on-side".
The GLS arm has been the "bright spot" since IPO both in terms of volumes/revenues and margins, analysts acknowledged.
"But overall top-line growth is hard to achieve (group revenues for 9m 2017/18 at 2%) and although we think the deal with the unions is good, the company still faces cost inflation not just in the UK, but also in Continental Europe and the US and therefore needs to find continuous efficiencies," they said.
The analysts felt there was "much to do to modernise the business" as mail volumes continued to fall, but forecast a post-operating costs profit of £550m for this year, roughly 6% ahead of Factset consensus of £519m.
The German investment bank raised its expectations for Royal Mail's earning per share in the 2017-18 trading year to 42.1p, again, above consensus of 39.9p.
Deutsche Bank made no change to its 'hold' rating or 359p target price, which remains well below Friday's close of 506.40p.