Deutsche Bank upgrades Royal Mail, cites bid potential

"Our fundamental view on Royal Mail is that it is overvalued on a standalone basis and that the shares are fundamentally worth 93p, far below the current share price," DB said. However, following news that Kretinsky upped his stake in the company last week, the bank said there is potential for a bid.

Deutsche noted that through his investment vehicles, Kretinsky has taken stakes in French and German retailers Casino and Metro, as well as French newspaper Le Monde.

"We have no insight into his investment strategy but these investments suggest that Mr Kretinsky has a deep value strategy and this could explain his investment in the Royal Mail," it said. "We have no idea as to the strategy of Vesa Equity Investment for RMG going forward and whether they view RMG as just a financial investment or as an acquisition target.

"Mr Kretinsky's investment vehicles have taken investment stakes in companies such as Casino but also tried to acquire Metro, a deal that was rejected by shareholders.

"Given the potential risk of a bid for RMG, with the stock up 5.7% yesterday, even though we see little scope for any significant strategic changes at RMG, and in our view nothing that would technically block a potential deal (such as a golden share) other than shareholder approval, we move our recommendation from sell to hold."

The target price was lifted to 183p from 93p.