Royal Mail set to be relegated from FTSE 100 Index

Royal Mail

Royal Mail is to be relegated from the FTSE 100 nearly four years after its controversial privatisation.

Shares in the delivery business have fallen more than 15 per cent so far this year as it faces a cocktail of headaches including declining letter volumes and rumblings of industrial action, reports Sky News.

Its price was up nearly 1 per cent in Wednesday trading and, at just over 390p, was still worth more than the 330p the Government sold the stock for in October 2013.

But that was not enough to save it from the axe as it has not kept pace with the increasing value of its top-flight counterparts.

An official stock market review means that, together with troubled doorstep lender Provident Financial, it will drop into the FTSE 250 Index after close of trading on 15 September.

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said Royal Mail continued to face tough market conditions.

“Letter volumes have seeped away faster than the group had expected, partly as a result of direct marketing drying up as business confidence slumped after the EU referendum, while pricing remains tough in parcels,” he said.

“Long term we think Royal Mail is better positioned than many operators to weather those headwinds, and the international business is proving surprisingly successful.

“But throw in a dose of uncertainty over the pension scheme and potential industrial action, and it’s easy to see why some of the shine has come off the shares.”

Royal Mail shares soared by 38 per cent from 330p to 455p on the first day of trading four years ago, prompting claims that they were sold by the Government on the cheap.

The surge was dismissed as “froth” by then Business Secretary Vince Cable, though the price climbed to a peak of more than 600p by early 2014, before slipping back sharply later that year.

In May this year, Royal Mail reported a 6% fall in annual adjusted operating profit to £712m after what chief executive Moya Greene called a “more challenging period for UK businesses” for the year to 26 March.

More recently, shares received a boost from a trading update last month after election-related mail distribution and growth in its European parcel business helped shore up revenue.

But the summer has also seen more industrial discontent as the Communication Workers Union rejected a new pension arrangement, raising the possibility of strike action.

Provident Financial’s fall into the FTSE 250 comes after its share price collapsed last week amid a profit warning and the departure of chief executive Peter Crook following a botched reorganisation.

Replacing Royal Mail and Provident in the list of the 100 most valuable UK-listed companies will be house builder Berkeley and UAE-based healthcare group NMC Health.