Royal Mail Group PLC has had its target price cut by 16% by Deutsche Bank over concerns about the company’s ability to deal with the challenges it faces as it faces being kicked out from the FTSE 100 index.
Royal Mail is set to be ejected from the FTSE 100 after a profit warning in October, which has since sent its share price down to its lowest level since its IPO in 2013.
Losing a place in the FTSE 100 is significant as it can put stocks out of reach of funds that only track the index of the UK’s top companies. Royal Mail only joined the FTSE 100 this year, with its shares touching an all-time high of 631p in May.
The companies that make up the FTSE indices are reviewed on a quarterly basis, 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.”