All change at the FTSE 100 this week. Let’s take a look at the big losers.
Out is Royal Mail, which has seen its stock decline 11% since it was floated amidst so much fanfare. Royal Mail is facing structural problems, foremost of which is falling letter volumes and a parcels business that is being poached by independent operators who are leaner, more nimble, and if I’m to be frank, give you better customer service.
Like many other dinosaurs of British industry, Royal Mail is also having problems with the unions. There is a big battle being joined to decide how the company operates. We see this again and again in UK industry – companies that find themselves embattled either by technological change, or the rapid pace of globalisation, are also attacked by unions who would like to keep everything just the way it is, thank you. This does the struggling business no favours over the medium term. Royal Mail is a good case in point.
The company is facing rising costs, which could climb to as much as £1.3 billion a year, compared with the current £400 million, if unions are successful. Pension reform also risks the prospect of industrial action that will disrupt the business, undermine confidence and damage revenues. Royal Mail has until 6 September to come up with an offer for its unionised labour force or face the possibility of strikes over Christmas. Presumably this will mean Amazon will rely even more heavily on independent operators, further compounding Royal Mail’s woes. Watch this one as a possible short if you have access to CFDs.
Another high profile whale on the beach of financial fortune is Provident Financial. It took a massive 70% hit in its share price this month and has really not recovered. But the stock was already in trouble – investors have been backing out of it fairly consistently since the end of April. Shares are trading at just under £9 at the moment. If you have been holding this one since the heady days of £32 back in Easter, you will be feeling sorry for yourself. The doorstep lending firm is currently navigating a wide range of problems, not least an FCA investigation into its Vanquis subsidiary.
Provident Financial’s pain seems largely self-inflicted. A specialist sub-prime lender, it shot itself in the foot when a project to digitise much of its lending and credit control activity imploded. Most of its woes seem to stem largely from bad management, but this has led to the suspension of an interim dividend, and investors have punished the share price accordingly. Peter Crook, the CEO, resigned after 10 years in the job, but it remains to be seen whether this blood on the board room carpet will be enough. Staff leaving the firm are being very open about the balls up in the technology revamp.
The Vanquis credit card business seems to be the running sore on the face of Provident – this is a debt forbearance product that charged fees for debt holidays. However, the FCA is concerned that it was mis-sold to vulnerable customers, and Provident Financial may be facing some pretty hefty pay-outs in compensation. Some estimates put this as high as £200 million.