Royal Mail on course for FTSE 100 spot

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Two months after its successful but controversial flotation Royal Mail is set to join the FTSE 100.

The company's shares hit a new peak last week and are now around 80% higher than its 330p flotation price, which continues to provoke criticism the business was sold off too cheaply by the government.

News that it had reached an agreement with unions on pay and pensions to avert a strike during the festive season was the latest spur to the share price, helping push it to a high of 603.5p. On Friday a bout of profit taking saw it dip 2p to 594.5p but analysts are still enthusiastic. Espirito Santo for one repeated its buy recommendation and 635p price target on Thursday. Analyst Alex Paterson said:

We anticipate that the cyclical recovery in the UK should help slow the decline in letter volumes and revenues will benefit from higher prices for both letters and parcels. Three of the biggest value drivers are the slow rate of Government e-substitution, Ofcom's defensive view of end-to-end competition and the potential to reach an agreement for more flexible staffing.

And next Wednesday, Royal Mail is likely to be confirmed as a member of Britain's leading 100 listed companies, with another recent flotation, Merlin Entertainments, having an outside chance of joining it. Vedanta Resources, Croda International and Amec are among the companies whose FTSE 100 positions are under threat.