Buy Royal Mail up to 600p

With competition from delivery firm Whistl no longer a threat, Royal Mail's earnings should benefit as the last big fish in the shrinking postal pond. Selling off the government's stake has increased liquidity, too, and upcoming labour and pension discussions should be easier. Already up 30% from their December low to their highest in over a year, one analyst reckons Royal Mail shares could be worth 605p, or 19% more than today's prices.

Last month, Post NL suddenly decided to abandon its UK direct delivery ambitions through subsidiary, Whistl - formerly TNT Post. PNL launched a strategic review of the business after LDC withdrew from the joint venture project that would have supported Whistl's development in the UK delivery sector.

JP Morgan reckons the lack of competition should add as much as 4% to underlying earnings per share (EPS), while helping to reduce Royal Mail's competition discount. The analysts have added back to its valuation the 53p per share headwind chalked up as Whistl risk, supporting its target price upgrade from 515p and rating switch to 'overweight' from 'neutral'. Dividend forecasts have been maintained.

"We believe the market is now discounting a more realistic FY16-17 EPS trajectory after downward year-to-date revisions and digestion of recent management guidance," say the analysts.

There are still risks, however, as less competition could trigger more red-tape from regulators. Although timing is uncertain, Ofcom has already said it wants to monitor Royal Mail's enhanced freedom over commercial pricing. Despite the uncertainty, Royal Mail's valuation is "more compelling" for JP Morgan analysts: "Our price target implies target calendar '15E P/E and FCF [free cash flow] yield of 14.7x and 5.2%, respectively, vs. current 12.5x and 6.0% vs. peers 15.5x and 5.0% (including Deutsche Post)."

Royal Mail shares rose 3% to 507p on Friday.