Royal Mail owner, IDS, gets broker boost, UK arm undervalued By Proactive Investors

Proactive Investors – Royal Mail (LON:) owner, International Distributions Services PLC rose nearly 3% to 264.50p, as JP Morgan highlighted the potential upside from the firm’s UK business.

The investment bank has upgraded the mail delivery firm to overweight from neutral and raised its price target to 310p from 300p.

“While predicting the outlook for the UK business is difficult, we think there are reasons to believe we are at an inflection point, both on revenue and costs,” JP Morgan said in a research note.

The bank noted the current valuation still seems to apply zero value to the UK business.

“This provides an attractive entry point, and also provides some protection against any recovery in the UK business failing to materialise,” it reckons.

The valuation at Royal Mail has always been potentially “cheap,˙the broker said.

“However, it is noteworthy that remains the case, despite the recent union agreement, helpful signals on regulation and an improving parcels market,” it added.

“We note the business has considered splitting the UK and GLS in the past, and this could again become an option as/when the UK is profitable,” JPM said.

The firm has been blighted by industrial action, with the long-running dispute with workers plunging the company into a crisis which saw cheif executive Simon Thompson resign.

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