Royal Mail shares slump for second day in a row
Royal Mail's shares have sunk to their lowest level since the company was taken private, putting the firm's membership in the FTSE 100 at risk.
Shares are trading more than five per cent down today after falling off a cliff edge yesterday, losing 14 per cent and wiping more than £800m off its market value. So far, shares have fallen 25 per cent over two days.
It follows the company slashing its profit guidance down to £500m-£550m on Monday, far less than the £694m it made last year. This was due to a higher-than-expected decline in letter volumes and poor productivity performance.
The drop mean Royal Mail's market value has fallen by £1.3bn in less than 24 hours with shares trading below 360p.
It also brings Royal Mail stock close to the level it debuted on the market at in 2013. Shares opened at an initial public offering (IPO) price of 330p, before jumping to 475p on the first day of trading.
Analysts have speculated that Royal Mail could face being relegated from the FTSE 100 at the next reshuffle in December.
David Cheetham, XTB chief market analyst, said: "The fall has seen the stock drop back to trade not far from its IPO price of 330p and the resultant decline in the company’s valuation has placed it in danger of being relegated from the FTSE 100 in the December reshuffle."
He also criticised the firm's decision to hold the dividend. "This may not be a wise course of action as it is becoming increasingly apparent that the company keeping the dividend at present levels could be detrimental to its future prospects," Cheetham explained.
Royal Mail said it had experienced a bigger than expected impact on marketing mail thanks to the EU's new data protection regulations governing the gathering and storage of personal information.
Read more: Royal Mail profit warning sends shares tumbling
The delivery giant also hasn't been helped by a number of brokers slashing its price guidance and downgrading the stock.
Liberum downgraded its rating to "sell" and reduced its target price massively, from 415p to 250p.
"Yesterday's profit warning was shocking in its scale and timing," Liberum's note read.
"The £130m reduction in the current year cost avoidance target drops straight to the bottom line. Weakness in letters volumes and GLS margins was disappointing, but almost peripheral by comparison."
Morgan Stanley also cut its price target down to 405p while saying Royal Mail may need to consider faster sales of assets within its "attractive" London property portfolio.
Nicholas Hyett, an equity analyst for Hargreaves Lansdown, described Royal Mail's share drop as a "messy situation".
"There is no better way for shareholders to publicly show their dissatisfaction than selling off shares, and that’s clearly exactly what investors are doing now," he told City A.M.
Neil Wilson, chief market analyst at Markets.com, agreed that investors would be vocal in their dissatisfaction with Royal Mail.
"Investors will almost certainly start to speak up after this," he said. "It’s a bit of a debacle really but to a degree it’s new boss Rico Bach resetting expectations early on so he can blame the previous management."
Russ Mould, investment director at AJ Bell, said the company's poor performance could raise more questions about exec pay at the company, months after Royal Mail suffered one of the biggest shareholder revolts over exec pay in the City this year.
"Moya Greene may have timed her exit well and Rico Back has a tough job on his hands," he said. "He has inherited a difficult operating environment but will need to deliver on those cost and productivity goals if the issue of his own pay is not to resurface at some stage."
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