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Royal Mail’s woes likely to see it fall out of FTSE 100

Royal Mail letters post boxRoyal Mail looks almost certain to lose its place in Britain’s leading index of shares this week just nine months after regaining its position among the stock exchange elite.

The firm’s relegation from the FTSE 100 caps a difficult few months. Chairman Peter Long resigned in September and it issued a profit warning in October which wiped £1.2 billion from its value. Last month it posted a 57% drop in half-year profits to £33m.

The company was criticised for awarding new chief executive Rico Back a pay package of £2.7m a year on top of a £6m golden hello.

Operationally, Royal Mail has been trying to combat a sharply declining letter market and even the arrival of Christmas is unlikely to ease the pain as fewer cards are sent by post. Competitors are also grabbing a lucrative slice of online parcel deliveries.

The business was controversially privatised and then floated on the stock market in October 2013. Initial claims that it was undervalued at 330p a share looked justified when the shares soared this year to see the firm re-enter the FTSE 100 in March following its demotion in September 2017.

The shares hit a high of 621p in May but have plunged again to an all-time low in recent weeks, trading at a low of 308.7p.

Insurer Hiscox is poised to replace Royal Mail in this week’s quarterly reshuffle, while Aberdeen-based oil services group Wood  – recently promoted – may just hold on to its place, along with  Rightmove and Just Eat. Life fund consolidator Phoenix Group and Spirax-Sarco Engineering are other potential new entrants.

Russ Mould, AJ Bell investment director, said: “We have already had one change to the FTSE 100 during the final three months of the year, since oil services and equipment specialist Wood re-entered the index following Comcast’s successful bid for Sky, and it looks like we might get at least one more after the final FTSE 100 reshuffle of the year on 4 December.

“Royal Mail’s £3.4 billion valuation leaves it ranked 115th in the market capitalisation rankings and below the 111th spot which means automatic relegation to the FTSE 250. 

“Hiscox looks poised to enter the FTSE 100 for the first time, following in the footsteps of fellow Lloyds syndicate manager Amlin, which briefly featured in the UK’s premier index in 2008-2009, a good while before its acquisition by Japan’s Mitsui for £3.5 billion in 2016.”



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