Royal Mail misses out on FTSE rally

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Competition worries meant Royal Mail missed out on London’s biggest rally since July.

TNT Post, the UK arm of Holland’s Post NL, has the funding and regulatory support to break Royal Mail’s monopoly, according to Credit Suisse.

It forecast £540m of Royal Mail’s sales going to TNT within five years, equivalent to 6 per cent of the group total.

TNT already handles an estimated 21 per cent of mail volumes before passing them to Royal Mail for last-mile delivery.

In December, TNT formed a joint venture with LDC, Lloyds Banking Group’s private equity arm, to build a delivery network covering up to 50 per cent of the UK.

“Effectively, competition could cap Royal Mail’s reported business margins at the lower end of the 5-10 per cent benchmark range, which is not reflected in consensus numbers,” Credit Suisse said.

It put a 530p price target on the stock, which ended flat at 594p. Since flotation in October, the shares have surged 80 per cent with nearly all of the gain coming in the first month.

With Ukraine tensions dissipating, the FTSE 100 jumped 1.7 per cent, or 115.42 points, to 6,823.77 on unremarkable volume. Risers on the FTSE outnumbered fallers by nearly 20 to 1.

Coca-Cola HBC bounced 5.3 per cent to £15.19. The bottler takes about 18 per cent of its sales from Russia and relies on concentrate imports, so would be vulnerable to trade embargoes.

St James’s Place rose 1.5 per cent to 874.5p ahead of Wednesday’s FTSE reshuffle, which will be framed around Tuesday’s closing prices.

The fund manager looked certain to be promoted into the blue chips, replacing Tate & Lyle, which added 3 per cent to 649.5p.

Barratt Developments, up 3.1 per cent to 451.8p, also looked likely to join the FTSE 100.

Engineer Amec, up 1.5 per cent to £11.24, was in the relegation zone having been overtaken in late trading by William Hill, which rallied 4.9 per cent to 397p.

Equipment hire group Ashtead jumped 13 per cent to 956p on better than expected quarterly results and raised full-year guidance.

BP drifted 0.3 per cent to 491.5p after a strategy day provided no clear guidance on operating cash flow, saying only that management expects “material growth” to 2018.

According to RBC, BP will need to grow cash flow by 20 per cent over the period to cover its dividend, capital expenditure and fines from the Gulf of Mexico oil spill.

Mexican silver miner Fresnillo led the FTSE fallers, down 4.7 per cent to 924.5p. Higher than expected costs meant its full-year earnings missed market forecasts with flat production suggesting little improvement for 2014.

Devro, the sausage skin maker, fell 9.2 per cent to 277p after it cautioned on excess inventory and currency headwinds.

The go-ahead on plans to invest £50m a new Chinese factory, ready for 2016, also dragged on earnings expectations.

Pace, the set-top box maker, jumped 10.9 per cent to 447.6p on results while Perform rallied 19.1 per cent to 277p after the broadcaster for bookmakers reiterated 2014 guidance. A profit warning in December had more than halved Perform’s valuation.

Jupiter Asset Management took on 3.7 per cent to 428.7p. After the close of trade, its second-biggest shareholder TA Associates said it was selling its entire 10.6 per cent holding.

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