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Royal Mail set to crash out of the FTSE 100 - just nine months after it clawed its way back into blue-chip index

03 Dec 2018, 13:54

Royal Mail set to crash out of the FTSE 100 - just nine months after it clawed its way back into blue-chip index

PUBLISHED: 16:50 EST, 2 December 2018 | UPDATED: 03:34 EST, 3 December 2018

Royal Mail is set to be ejected from the FTSE 100 this week – just nine months after it clawed its way back into the blue-chip index.

The postal firm's relegation to the FTSE 250 would top off a disastrous year which saw it suffer a profit warning, shareholder revolt and the resignation of its chairman.

Royal Mail's widely expected demotion, because of its falling market value, comes as it battles declining letter volumes that have hit earnings hard. And despite the rise of online shopping, the delivery sector has proved fiercely competitive.

Earlier this year Royal Mail was slapped with a record £50m fine for breaching competition law and was accused of abusing its dominant market position.

Lee Wild, head of equity strategy at Interactive Investor, said: 'Christmas is Royal Mail's busiest time of year, but the large-scale replacement of handwritten letters with email, means the company will almost certainly lose its place among the premier league of UK-listed stocks at the quarterly reshuffle.

'Without a miracle, Royal Mail will be deserving of its reputation as a yo-yo stock – it was demoted from the FTSE 100 in September 2017 and promoted in March this year.'

Royal Mail made its stock market debut in October 2013 in a heavily oversubscribed placing. Shares were listed at 330p each, valuing the 500-year-old company at £3.3 billion, but the price has see-sawed over the past five years, hitting a high of 621p in May and then plunging to 308.7p this month – its lowest ever.

Royal Mail's relegation will mean funds that track the FTSE 100 are forced to abandon the stock.

It comes as communications watchdog Ofcom warned over Royal Mail's ability to hit productivity targets after a profit warning in October wiped £1.2 billion off its market value. And this month it posted a 57 per cent drop in half-year profits to £33m.

Ofcom's report is the latest in a legacy of issues facing newly appointed chief executive Rico Back.

The 64-year-old German was also forced to defend his bumper pay package of £2.7m a year on top of a £6m golden hello. And a massive shareholder revolt against its fat-cat pay led to the departure of chairman Peter Long in September.

Insurer Hiscox, one of the oldest members of Lloyd's of London, is touted as the frontrunner to take Royal Mail's place in the FTSE 100.

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