Royal Mail worth £10 a share, says Citigroup
The US investment bank raised its share price target to 1,000p as it updated its forecast model, with new adjusted operating profit numbers coming in around 50% higher than the City consensus for 2022 and 2023 financial years.
Citi clients who followed the bank’s advice and double upgrade to ‘buy’ on April 28 last year, when the shares were 158.45p, are already sitting on a massive gain, with the shares given an extra boost last week by JPMorgan’s ‘just buy it’ note.
“We upgraded the stock in April 2020 on the hoped-for acceleration in parcel volumes and in November we argued for the potential for a pricing increase in parcels,” the Citi analysts said.
They now see near-term upside from the recovery in letter volumes, which feeds into the new forecasts along with recent trends in volume and pricing for parcels.
The analysts noted that the implied valuation multiple at their new target price is 7x EV/EBITDA, 10.5x EV/EBIT and 12x P/E.
Citi also added Royal Mail to its ‘Focus List’ for Europe.
The shares were up 2% to 590.41p on Tuesday, helped by the Citi note and Royal Mail’s return to the FTSE 100 after a two-year absence.