Why Royal Mail has plunged out of the FTSE 100

Britain's postal service is struggling to cope in a tough market.

by Jack Torrance
Last Updated: 31 Aug 2017

Perhaps the privatisation of Royal Mail wasn’t as big a screw up as some previously claimed. Britain’s 500 year-old postal service was floated back in 2013 with an offer price of 330p, surging 38% to 445p on their first day, provoking claims from the government’s opponents that it was sold off on the cheap. 

Today its shares aren’t such a hot property. Though they’ve not dropped below their float price, they’re now trading around 388p, which is why it’s now about to be relegated from the prestigious FTSE 100 index.  

In some ways you might expect the current market to be fertile ground for Royal Mail. Online shopping is only continuing to grow, providing it with plenty of parcels that needs delivering. 

But competition is fierce and there are other challenges too. You could hardly expect the volume of letters we send one another to be growing, but it has been falling even more dramatically than expected of late. 

‘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,’ said Nicholas Hyett, equities analyst at Hargreaves Lansdown. (Its direct marketing volumes did grow a little in the last quarter thanks to all the election-related leaflets sent out by political parties). 

There are also personnel issues. It may be in private hands now but Royal Mail’s workforce is heavily unionised. The Communication Workers Union has rejected plans to scrap the company’s defined benefit pension scheme, which could lead to strike action in the near future. 

The other company to drop out of UK Plc’s top flight next month will be the doorstep lender Provident Financial (hardly surprising after it shares suffered a 66% drop – one of the biggest one-day falls in history – earlier this month). They’ll be replaced by home builder Berkeley Group and healthcare provider NMC. 

That means that one of the other casualties is the fight to get more women into top executive roles. Without Royal Mail’s Moya Green, the FTSE 100 will have just six women CEOs. 

Read more - Moya Green: Women need to take the riskiest roles 


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