Renewed competition fears meant Royal Mail missed out on Wednesday’s London market rally with the stock slipping to a two-month low.

Royal Mail was down 3.3 per cent to 386.2p after Deutsche Post DHL revealed plans to re-enter the UK market with the £243m acquisition of UK Mail.

While a small deal for the German group, the news could have “significant negative implications for Royal Mail if Deutsche Post DHL were to follow up with a more aggressive expansion in parcels in the UK market”, said Goldman Sachs.

“DHL could emerge as a strong competitor over the coming years, thus taking away volumes and revenues from Royal Mail (which derives £3.2bn, or 33 per cent of group revenues from parcels in the UK).”

UK Mail closed 43.4 per cent higher at 440.8p, a narrow premium to Deutsche Post’s 440p a share offer. The FTSE 100 bounced off a one-week low to rise 0.6 per cent, ahead 41.71 points to 6,849.38.

Smiths Group rallied 4 per cent to £14.43 after its 2016 results, the first under new management, beat expectations set a month before.

Soft-drinks maker AG Barr faded 2.6 per cent to 504.5p, with SocGen downgrading to “sell” on concern that sterling’s weakness will push commodity prices higher. Société Générale also worried that Irn Bru Xtra, Barr’s first new product in the range for 35 years, would cannibalise existing sales.

ICAP retreated 3.6 per cent to 460.4p after Citigroup took the interdealer broker off its “buy” list.

A valuation of 21 times core 2018 earnings is “reasonable” given subdued volatility in currency markets, which points to revenue expectations for 2017 being too high, said Citi.

J Sainsbury dropped 3.9 per cent to 241p, largely in response to cautious guidance from management in a post-results conference call.

In particular, investors were spooked by a 1.1 per cent decline in second quarter like-for-like sales and a lack of detailed guidance around its Argos acquisition.

Caterer Compass took on 1 per cent to £14.93 after Redburn turned positive.

Outsourcing in US health and education gives Compass decades of expansion prospects while ageing populations in developed markets enhances structural growth, said Redburn.

Setting a £17.30 valuation on Compass shares, it forecast cash returns totalling £4.5bn over the next three years.

Sirius Minerals jumped 14.2 per cent to 34.3p on a speculative report that the developer of a potash prospect in Yorkshire might plausibly be a takeover target for BHP Billiton.

Having last month hit a record high, Sirius shares have slipped 34 per cent amid talk that investors were being sounded out about its longer-term funding options.



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