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Royal Mail and Provident demoted in FTSE 100 reshuffle

Royal Mail and Provident Financial pay price for difficult trading conditions and botched reorganisation with ejection from 'blue chip' index.

 
Royal Mail and Provident demoted in FTSE 100 reshuffle
 

Royal Mail (RMG) and Provident Financial (PFG) have been relegated from the elite FTSE 100 in the index’s latest quarterly rebalancing. They will be replaced by NMC Health (NMC) and housebuilder Berkeley Group (BKGH).

The demotion of Provident in particular is no surprise, given its calamitous 66% fall on the day it reported a second profit warning this year and the departure of its chief executive this month.

Although its share price has rebounded 49% in the past five days, it has lost more than two thirds of its value this year. 

Royal Mail’s decline has been more steady, with the company’s share price sliding 15.5% this year. The company continues to suffer from a decline in its UK letters business, while the parcels market remains fiercely competitive.

Hargreaves Lansdown equity analyst Nicholas Hyett commented: ‘Royal Mail has lost its struggle to maintain a place in the FTSE 100. We’re not sure that’s something you can lay at CEO Moya Green’s door though, as the group continues 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.’

‘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.’

Meanwhile, in the rebalancing of the 'mid cap' FTSE 250 index, Northgate (NTG), Petra Diamonds (PDL) and Carillion (CLLN) have been ejected, with Sequoia Economic Infrastructure Fund (SEQI ), Alfa Financial Software (ALFAAL) and bookies 888 Holdings (888) promoted in their place.

Hyett said: ‘Relegations for Carillion and Provident Financial will come as no surprise. Both have plummeted following eviscerating profits warnings, largely of management’s own making. Carillion fell foul of the outsourcers’ kryptonite, bidding too aggressively for contracts that ultimately proved loss-making.

‘Meanwhile, Provident managed to botch an organisational revamp to such an extent that a 137-year-old business, which was robustly profitable last year, is now facing losses of up to £120 million.’ 

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