RGM.L Share News (RGM)

UBS has told clients to 'sell' their shares in Royal Mail, saying the postal service is now over-valued. The investment bank, which was one of the lead bookrunners on the £3.3bn privatisation of Royal Mail last month, said the market was far too optimistic about the company's prospects. Royal Mail's shares have soared from the government's 330p placing price. Shares were sitting at 550p yesterday, up two thirds from the initial value. They fell 1.45% to 542p at 09:20 on Wednesday after the broker note from UBS which set a target price of 450p."We believe management has executed well on improving productivity, with the UK margin rising to 4.3% in 2012-13 from -1.6% in 2009-10. We expect further improvements, due to productivity and revenue growth," the bank said. "However, with Royal Mail's share price up 69% since the IPO (versus 7-32% for peers), we believe the market is over-estimating margin upside. In particular, we believe it will be difficult to accelerate its transformation, given the limitations of the labour agreement."UBS added that to reach the upper end of the 5-10% regulated range would require acceleration of staff reductions, additional automation and no adverse events. The stock market faces disappointment over the pace of automation in Royal Mail's parcels business, it said."[Royal Mail]'s future growth will be highly dependent on which parcel size grows. We also believe there is a growing disconnect between parcel and internet retail growth, with the rise of "click and collect" and other such hybrid models reducing the need for parcels."The research note is likely to fuel the debate over the government's valuation of the Royal Mail. It comes ahead of a key session today by the Business, Innovation and Skills Select Committee where UBS and Goldman Sachs will appear alongside representatives of Citi, Deutsche Bank and JP Morgan. They all argued for higher valuations of Royal Mail when pitching to the government to win the privatisation work earlier this year.RD