MARKET REPORT: Downgrade sends Royal Mail shares to a new low

Royal Mail's annus horribilis continued yesterday as Credit Suisse cut its target price and joined other City banks in questioning the sustainability of the company's dividend amid a profits slump.

The stock slid 2.9 per cent, or 9.4p, to 316p, a record low and nearly a full 50 per cent below its May peak of 631p.

The latest sell-off marked another setback for chief executive Rico Back, who only this week defended his bumper pay packet that is worth as much as £2.7m a year on top of the £5.8m 'golden hello' he received when he replaced Moya Greene on June 1.

Analysts at Credit Suisse said they think shares are worth 301p, down from an earlier target price of 339p. Royal Mail shares floated at 330p in 2013 but this year has seen the departure of Greene as well as chairman Peter Long, a blazing row over fat-cat pay and a 57 per cent slide in profits.

David Madden, an analyst at CMC Markets, said the downgrade was 'no surprise' following Royal Mail's 'disappointing' results. He said: 'Adding to the pressure on the stock is the chatter about a possible general election. The Labour Party have suggested they would renationalise the firm, and that is weighing on investor confidence too.'

Selling pressure also hit Melrose, the industrial group that paid £8 billion for engineer GKN, which was the day's biggest casualty with a fall of 6 per cent, or 11.05p, to 171.45p.

Turning to the wider market, the FTSE 100 opened a healthy 40 points higher only for sentiment to be dented by the Tory infighting over Brexit. The blue-chip index closed the day 0.3 per cent lower, or 24.13 points, at 7013.88.

As Theresa May faced a no-confidence vote, so City investors gave the thumbs down to the banks, with Royal Bank of Scotland leading the fallers with a 3.3 per cent drop, or 7.3p, to 216.9p.

'Lower interest-rate hike expectations, coupled with the fear that a no deal Brexit could bring chaos to trade, are raising worries over the performance of UK banks going forward,' said IG market analyst Joshua Mahony.

Hutchison China Meditech (off 19.4 per cent, or 1085p, at 4515p) had £700m wiped off its value as flagship treatment Fruquintinib stumbled in a final-stage lung cancer trial. In a study of 527 patients in China, Fruquintinib slowed the disease but failed to improve survival rates to any significant degree over existing treatments.

Among the tiddlers there was disappointment for those thrill-seekers who chased Tom Co Energy from a low of 3.22p earlier this week to 5.64p after the stock was suspended.

SVS Securities terminated its broker appointment with immediate effect and ended an agreement to act as agent for the shale exploration and technology company's £532,350 share placing, saying its reputation was 'likely to be prejudiced' by continuing its work for the company.

It was lift-off time for shares in mining minnow China Nonferrous Gold as the shares soared 40.4 per cent, or 1.61p, to 5.6p after it said it is processing 2,000 tons of ore a day from its operation in Tajikistan.

Friday's change in fortunes is probably cold comfort for investors who bought at the start of the year when it traded at 19p.

It is Thanksgiving next week in the US, but just which UK company will win the award for biggest turkey when a welter of blue-chips report?

A year ago it was Centrica (up 0.8 per cent, or 1.2p, at 145.25p), which sounded the earnings alarm.

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November 17, 2018

Sources: Daily Mail

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