Royal Mail Booted from FTSE 100

Royal Mail is set to be dropped from the FTSE 100 on December 24, after a difficult year which has seen the share price halve over the past six months

Emma Wall 5 December, 2018 | 7:07AM

Royal Mail set to leave FTSE 100 in index reshuffle

Royal Mail (RMG) is set to be dropped from the FTSE 100, after a difficult year which has seen the share price halve over the past six months. Royal Mail peaked at 631p in May this year, but now sits at just 308p.

Last week, director dealings revealed that Royal Mail chief executive Rico Back went bargain hunting for shares last week after his firm's share price fell to an all-time low.

But the drop was not enough to tempt brokers; “The attractive dividend yield probably sets a floor for the stock at current levels, but we see no compelling ‘buy’ case pending the strategy update,” said Robin Byde, research analyst at Cantor.

The demotion to the FTSE 250 comes less than a year after the firm was promoted to the blue-chip index – and it is not its first relegation either.

Laith Khalaf, senior analyst at Hargreaves Lansdown reminded investors that this is not the first time since the stock has hit controversy since it floated on the stock market.

“At the time of flotation, the government was accused of selling it off too cheaply, because after floating in October 2013, the shares rose 75% by Christmas,” says Khalaf.

“However, this year cost savings have proved elusive after a bout of industrial action last Christmas, and lower levels of marketing mail thanks to new data privacy rules have meant an even bigger slowdown in letter volumes than was expected. New CEO Back is yet to deliver a detailed strategy update, but it looks like he’s got his work cut out for him.”

Helal Miah, investment research analyst at The Share Centre, says the shock trading update in October – a terrible month for markets as a whole – delivered the final blow to Royal Mail.

“The shock unscheduled trading update in October sent the shares plunging in excess of 20%,” he explained. “This came about as it seems the Black wants to start his tenure with a clean slate and his statement informed the market that letter volumes were facing a steeper than anticipated decline while productivity performance and cost savings fell way short of plans, thus the management downgraded expectations for the full year operating profits to £500 million whereas the previous year they generated £694 million.”

Insurer Hiscox (HSX) will be promoted to the FTSE 100 in the reshuffle, which is calculated on the close-of-play prices from yesterday, and comes into effect on December 24.

Long Hot Summer Hits Thomas Cook

Thomas Cook (TCG) and the AA (AA.) are set to leave the FTSE 250 – with both firms blaming weather for their recent patchy performance.

The longest and hottest summer on record meant Thomas Cook shares have fallen from 146p in May this year, to just 22.7p today. The travel company issued a profit warning last week. Even CEO Peter Fankhauser has called 2018 a “disappointing year”.

The AA has blamed our other extreme season – winter – for its problems.

“The AA claims the severe winter weather led to a pothole epidemic and a 15 year high in breakdown calls,” says Khalaf.

“It’s certainly been a bumpy year for AA shareholders, the company has already been both relegated and promoted to the FTSE 250 already in 2018. A clutch of newly floated companies in the form of Aston Martin (AML), Funding Circle and Smithson Investment Trust will be admitted to the FTSE 250, applying further downward pressure on the laggards in the index.”

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
AA PLC81.20 GBX-0.42-
Hiscox Ltd1,577.00 GBX0.00-
Royal Mail PLC277.60 GBX-3.21-
Thomas Cook Group PLC28.08 GBX-3.97-

About Author

Emma Wall

Emma Wall  is Senior International Editor for Morningstar