Broker tips: Royal Mail, JTC Group
Berenberg upped its rating on Royal Mail on Tuesday to ‘hold’ from ‘sell’ and hiked the price target to 280p from 137p as it said risks remain but are now balanced.
The bank noted that despite a severe hit to mail volumes, Royal Mail has been relatively successful during the Covid-19 pandemic, with a surge in e-commerce benefiting both the UK division and its European business, GLS.
However, Berenberg said the latest lockdowns are likely to provide a short-term boost for the company.
"The resumption of tighter Covid-19 restrictions in the UK in December has likely benefited the parcel operations as even more Christmas shopping moved online,” it said, adding that in the year to November, the business had already achieved revenue growth of £380m year-on-year - the bottom end of the guidance range for the full year."
Nevertheless, Berenberg said it remains sceptical about the ability of the UK business to achieve substantial productivity improvements without sweeping headcount reductions, while letter volume declines are likely to remain remorseless for some time.
Analysts at RBC Capital Markets raised their target price on fund management services provider JTC Group from 610.0p to 640.0p on Tuesday following some recent mergers and acquisitions.
The analysts adjusted their forecasts for JTC's RBC Cees deal, stating whilst there was "some uncertainty" from new business wins through Covid-19 and highlighted that the company still needs to deliver on the integration of recent M&A, they still continue to see the stock as "good value" given medium-term structural organic growth prospects and a "significant consolidation opportunity".
RBC added that it remained at 'outperform' on the stock, stating that there were few companies with the growth or returns profile of JTC, and as such, a premium rating was justified.
"With high levels of visibility, a balance sheet to support its acquisition strategy, and potential to improve margins from current levels (following a period of significant investment), we continue to be fans of the story," said RBC.
The Canadian bank also said JTC was "well-positioned" given its "unique ownership model" and jurisdictional reach.