Royal Mail shares could hit 610p says Goldman Sachs

29th November 2013

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The controversy surrounding Royal Mail’s IPO has escalated as Goldman Sachs has now put a target price of 610p on the stock – almost double the original price writes Philip Scott.

The declaration from the investment bank will further stoke the political wrangling surrounding Royal Mail after it initially valued the shares at 330p.

Since then the shares have rocketed by some 67% and are presently trading at circa 552p.

Royal Mail was privatised in October when the government sold 60% of its stake to investors in an initial public offering.

According to a report in The Guardian analysts at the bank said the group’s valuation should benefit from an increase in parcel deliveries, despite falling letter volumes.

Goldman Sachs who gave Royal Mail a “neutral” rating, predicted a 7.7% rise in annual UK parcel revenues between 2013 and 2017, largely as a result of growth in online shopping. They forecast parcels will account for 57% of group revenues in 2017, up from 48% in 2013.

“With further modest growth coming from EU parcels we expect group parcel growth to more than offset continued letter volume declines,” analysts said in the note.”

The investment bank’s 12-month price target of 610p represents an 85% premium on the flotation price, and bolsters the assessment of those who have argued that government sold off Royal Mail far too cheaply.

Commenting on the latest assessment Chuka Umunna, the shadow business secretary, said: “This raises yet more questions for ministers on their apparent failure to secure maximum value for the taxpayer in the Royal Mail fire sale.”

Business secretary Vince Cable has been under fire since before the floatation and this week defended the government’s valuation of the business after a market update sent from Royal Mail, drove share prices even higher. This week, when being questioned by the Business, Innovation and Skills committee, he insisted the shares had not been sold off too-cheaply.

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