Royal Mail warning hits shares

Some of the fizz in shares of FTSE 100 newcomer Royal Mail faded today after a City firm slapped a sell rating on the stock.

Some of the fizz in shares of FTSE 100 newcomer Royal Mail faded today after a City firm slapped a sell rating on the stock.

Cantor Fitzgerald i nitiated its coverage of the delivery firm with a warning that Royal Mail still faced significant challenges and that its current valuation and dividend were no longer compelling.

Shares have surged from their starting point of 330p in October to more than 600p in recent weeks, although they were 10.75p lower at 561.25p after today's note of caution from Cantor.

The wider FTSE 100 Index rallied after a tepid start to stand 28.7 points higher at 6759.6.

Banking stocks set the pace in the top flight as Lloyds Banking Group improved 1.9p to 82.1p, Royal Bank of Scotland added 4.5p to 348.8p and HSBC cheered 10.3p to 670.3p.

Retailers continued to fluctuate ahead of eagerly-awaited festive trading updates from Sainsbury's, Tesco and Marks & Spencer.

Investors eyed some value in M&S shares following recent heavy falls caused by speculation that the company endured a poor festive period, with clothing sales down by as much as 1.5%.

The department store chain, which is due to publish its trading update on Thursday, rose 3.1p to 443.4p.

Sainsbury's fell 2.4p to 365.4p after Bank of America Merrill Lynch cut its rating on the stock. The supermarket is expected to lose its record for underlying sales increases on Wednesday, with analysts pencilling in a decline after 35 quarters of growth in a row.

Tesco was 0.3p lower at 331.85p, while Morrisons faded 3.6p to 252.7p.

Elsewhere in the retail sector, Topps Tiles highlighted the impact of a recovering property market as it reported that like-for-like sales rose 9.3% in the 13 weeks to the end of the year.

Its shares were a penny higher at 130p but homewares retailer Dunelm fell 28p to 951p in the wake of a 2.9% improvement in underlying sales over the same period.

It described the performance as robust but some analysts were disappointed that the company's first-ever TV advertising campaign had not given more of a boost to sales.

Back in the top flight, shares in water company Severn Trent fell by 2.5%, or 43p to 1661p, after JP Morgan highlighted fears that Ofwat may be tougher than expected on the sector in the current round of price negotiations.