Royal Mail, AA and Thomas Cook face FTSE index downgrade following profit warnings

Three longstanding British businesses risk falling out of the FTSE indices at the end of the year after a difficult year filled with profit warnings and tumbling share prices.

AA road side assistance
Source: Bloomberg

Royal Mail, AA and Thomas Cook all face being kicked out of the coveted FTSE indices at the end of the year, making a bad year worse for the three businesses which have had to issue several profit warnings and watch their respective share prices take a tumble.

It has been a tough year for Royal Mail, with the postal service seeing its stock price halve in value over the last six months, falling from a high of £6.31 a share in May to hovering around the 317p a share at midday on Wednesday.

Royal Mail’s stock market woes

Tough times have will see Royal Mail fall out of the FTSE 250 with the postal service only joining the blue-chip index less than a year ago.

But it is worth noting that Royal Mail is a business that has become accustomed to highs and lows, with it not the first time the company has been relegated out of the UK stock market’s top flight.

Senior analyst at Hargreaves Lansdown Laith Khalaf reminded investors about Royal Mail’s history in the stock market and how it is a business that has endured some challenging times.

‘At the time of flotation, the government was accused of selling it off too cheaply, because after floating in October 2013, the shares rose 75% by Christmas,’ he said.

‘However, this year cost savings have proved elusive after a bout of industrial action last Christmas, and lower levels of marketing mail thanks to new data privacy rules have meant an even bigger slowdown in letter volumes than was expected.

‘New CEO Back is yet to deliver a detailed strategy update, but it looks like he’s got his work cut out for him,’ he added.

AA and Thomas Cook bid farewell to the FTSE

Elsewhere, AA and Thomas Cook are also facing relegation from the FTSE 250, with both companies seeing massive declines in their respective share prices.

Thomas Cook suffered most at the hands of investors, with its stock plummeting by as much as 70% since September after it issued a profit warning that fuelled a dramatic sell-off.

AA also saw its share price fall by around 30% since the end of September, with the company’s profits struggling after it had a major increase in road-side assistant call outs due to adverse weather conditions and poorly maintained roads damaged customers vehicles.

‘Both Thomas Cook and the AA look poised to fall out of the FTSE 250, thanks to weather-induced maladies,’ Khalaf said. ‘Balmy UK weather over the summer meant Brits felt less need to go abroad for some warmth, and that’s hit the bottom line at Thomas Cook.’

‘Meanwhile AA claims the severe winter weather led to a pothole epidemic and a 15 year high in breakdown calls.

‘It’s certainly been a bumpy year for AA shareholders, the company has already been both relegated and promoted to the FTSE 250 already in 2018,’ he added.

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