Royal Mail dumped from FTSE 100

Deutsche Bank has cut Royal Mail’s target share price in face of fears that the company may not be able to deal with the challenges it faces when it is kicked out of the UK FTSE 100 index.

The postal operator is set to be dropped from the index of the UK’s best performing stocks after a profit warning it gave in October which led to its share price falling to the lowest level since it floated in 2013.

Royal Mail’s presence on the FTSE 100 is important as many funds only invest in those stocks and it will be denied investment from them. It only joined the top table earlier this year when its shared briefly touched 631p in May.

Membership of the FTSE 100 is reviewed quarterly with strict criteria governing which companies are included in different indices.

“We see no signs that these (challenges) will abate near term,” Deutsche analysts wrote in a note to clients in which it cut the firm’s target price to 250p from 300p.

“However, we do see a number of levers that management can pull – and perhaps announce at next year’s Capital Market’s Day in March – to improve the financials of the business. We think the focus should be on UK parcels, international and letters (PIL) to drive out costs and improve service quality.”