Proactive Investors - International Distribution Services has received a share price target upgrade from UBS, which states that valuing its UK postal arm Royal Mail (LON:IDSI) at zero, as the market seems to be doing currently, is too harsh.
Currently, UBS estimates that all of the market value of IDS can be attributed to European parcels arm GLS, hence the zero-rating implied for Royal Mail.
The Swiss bank though reckons IDS (and Royal Mail) might be one of the few self-help stories left in the European transport sector.
"Among areas of cost-cutting: i) reducing sick absence and sick pay; ii) reducing temporary employees needed due to seasonal working; iii) later starting hours; iv) further voluntary redundancies - potential mail centre consolidation opportunities; v) reducing opening hours for customer service points."
A lot of execution risks remain, especially in the UK for Royal Mail, but UBS suggests the consensus forecast for a loss this year of up to £280m at the postie already includes a buffer for a worsening UK economy.
In fact, UBS thinks Royal Mail might do a lot better and has raised its estimates to an operating loss of £180m (£230m previously) followed by a profit of £70m the following year.
Add in a profit of around £310m for GLS and group operating profits this year might come in at £130m against a previous forecast of £70m.
Interim results are due in mid-November and UBS expects any share price reaction to be driven by progress on regaining lost market share by Royal Mail (which it expects) and cost reduction initiatives.
Due to the increased forecast for the UK, UBS's new price target is 315p, up from 295p, though its investment stance remains neutral.