No Jubilee celebration for FTSE 100 dropouts Royal Mail and ITV

·2-min read

By Lucy Raitano

(Reuters) - Royal Mail and broadcaster ITV will lose their spots on Britain's benchmark FTSE 100 equity index after their respective valuations plunged this year.

British Gas owner Centrica and UK student housing provider Unite Group will replace them when the next quarterly reshuffle takes effect on June 20. Index provider FTSE Russell last week flagged British chemicals maker Johnson Matthey as a potential addition but it failed to make the cut in the end. Harbour Energy, shares of which fell on Wednesday on talk that it would be demoted from the index, kept its place.

Shares in Royal Mail and ITV, both now set to enter the FTSE 250 index, are down about 41% and 36% respectively this year, vastly underperforming the wider FTSE 100 index which has risen 3% in the same period.

A FTSE 100 spot can increase demand for a company’s shares, since funds that track or invest in the index are able to add the stock to their portfolio. The reverse also applies, as some tracker funds may be forced to sell shares of companies that are ejected from the index.

The outcome of FTSE Russell's review was announced after markets closed on Wednesday, with the shuffle providing clues about pressures facing British companies amid soaring inflation and shifting consumer behaviour.

For Royal Mail, falling post-pandemic parcel numbers and rising stamp prices are two factors weighing on its shares.

Meanwhile fierce competition from streaming services combined with the UK's cost-of-living crisis are seen as headwinds for ITV, said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown. "It's fair to say that both companies have kind of been doing the hokey cokey with the FTSE for some time, so this is not the start of a continual decline, but a kind of bellwether of what is happening right now in the economy." Both companies are also having to keep up with rising labour costs, Streeter added.

UK Inflation reached a four-decade high last month, as soaring food and energy prices fuel a cost-of-living crisis. Meanwhile Britain's unemployment rate hit a 48-year low in the first three months of 2022, pushing up pay.

(Reporting by Lucy Raitano; Editing by Kirsten Donovan)