UBS analysts have downgraded their recommendation for the Royal Mail, advising clients to "sell" shares in the postal service. UBS, one of the banks that ran the flotation of the company, recommends selling on valuation grounds, with a target of 450p. Shares have surged over 60 per cent since they were sold, but UBS now says that "market expectations [are] too high". In a note published today, the bank said:
In particular, we believe it will be difficult to accelerate its transformation, given the limitations of the labour agreement. To get to the upper end of the 5-10pc regulated range (assumed by the market; current 3%) would require acceleration of staff reductions, additional automation and no adverse events.
Barclays, which also worked on the float, has said that shares have an 'upside case' fair value of 575p.
The news comes as the grilling of the investment banks who advised the government on the controversial flotation begins. The Business, Investment and Skills Committee are quizzing bankers from Goldman Sachs this morning, as well as UBS, on the £3.3bn selloff of the postal service, which is now valued at over £5bn.
The summoned bankers are expected to argue that a re-pricing could have risked the collapse of Royal Mail's flotation, and that the process was transparent. JP Morgan - who reportedly told the government that the company could be worth £10bn - and Panmure Gordon, the broker who said that the sale was undervalued, will appear, alongside Citi and Deutsche Bank.