Burberry and Metlen Energy enter FTSE 100, Taylor Wimpey demoted

A reshuffle of the FTSE 100 index has introduced Metlen Energy & Metals (LSE:MTLN) to a broader group of investors and ended the one-year blue-chip exile of luxury goods group Burberry Group (LSE:BRBY).

The quarterly rejig, which comes into force on 22 September, will also remove one of the highest dividend yields in the FTSE 100 as Taylor Wimpey (LSE:TW.) is to be relegated after 11 years in the top flight. The other stock to make way is student accommodation business UNITE Group (LSE:UTG).

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

ASOS (LSE:ASC), Bloomsbury Publishing (LSE:BMY), Crest Nicholson Holdings (LSE:CRST) and Auction Technology Group (LSE:ATG) are among the well-known names ejected from the FTSE 250 index.

Textile rental and cleaning business Johnson Service Group (LSE:JSG), which switched from AIM to the main market last month, is among those to gain mid-cap status. The promotion caps a strong week after its shares surged 10% on the back of strong margin guidance in half-year results.

Johnson is joined by BioPharma Credit Ord (LSE:BPCR) and Partners Group Private Equity Ord (LSE:PEY) after London-listed securities traded in euros and US dollars were made eligible for index inclusion.

The change in methodology as part of efforts to boost the attractiveness of the London market led to euro-denominated Metlen securing blue-chip status in the reshuffle, having last month switched its primary listing from the Athens stock market.

The industrial-focused company was founded as Mytilineos Group in Greece in 1990, an evolution of a metallurgical family business that had been operating since 1908.

• Thinking behind Rolls-Royce price target downgrade
• Why investors shouldn’t worry about weak stocks in September

Shares have performed strongly over the last year, leading to a market capitalisation of 6.75 billion euros (around £5.8 billion) and a share price of 53.70 euros.

Bank of America has a price objective of 66 euros, believing that passive index flows can be a positive driver for shares. At the core of Metlen is its aluminium smelter in Greece, which is vertically integrated with its own alumina refinery.

The bank said last month: “Conventional wisdom is that aluminium smelters need long-term contracts for (ideally low-cost) power. Metlen turns this approach on its head and uses its aluminium business as a ‘sink’ for energy around which it trades spot energy, both electricity and natural gas.

“While not without its risks, in our view, this ‘nimble’ energy-indifferent model challenges conventional wisdom for sourcing power for aluminium smelters.”

Berenberg, which has a price target of 59 euros, said in March: “The most outstanding thing about Metlen is the glove-like fit of its integrated Metals and Energy divisions.

“Individually, both divisions are efficient and well positioned; together, they form the basis of a naturally synergistic business model.”

The bank believes the London listing should nurture a broader appreciation of the company’s “overlooked and undervalued” business model.

• Oil sector top picks: what the City thinks of Shell and BP
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

The return of Burberry to the top flight comes less than a year after chief executive Joshua Schulman launched his Burberry Forward strategic plan. This focused on stabilising the business and repositioning the brand by focusing on outerwear and its British roots.

The shares today traded at 1,240p, which compared with less than 650p in April when fears over the impact of a global trade war caused investors to dump luxury goods stocks.

The company’s most recent trading update in July showed a 1% decline in comparable store sales, ahead of City expectations for a 2% fall and prompting UBS to lift its price target to 1,575p.

The relegation of Taylor Wimpey follows a disappointing set of half-year results, when cladding fire safety provisions led to a bottom-line loss of £92.1 million. It also disclosed a £20 million charge to cover defective workmanship by a contractor on one of its London developments built between 2012 and 2015.

• Is the 4% rule still reliable as a safe withdrawal strategy?
• Where the pros are finding opportunities in shrinking AIM market

The group reiterated guidance for full-year UK completions between 10,400 and 10,800, but said market conditions had softened in the second quarter. The shares are down from 123p in mid-June to today’s level of 96.5p, the lowest level since the mini-Budget crisis of 2022.

The shares trade with a current dividend yield of 9.7%, reflecting the impact of an ongoing policy to distribute 7.5% of net assets or at least £250 million annually.

It has returned £2.7 billion to shareholders since the policy was introduced in 2018, which Taylor Wimpey said provided investors with visibility of the income stream they can expect throughout the cycle including during a downturn.

An investor event is due to be held on 1 October, when capital allocation will be among the areas of focus alongside the company’s approach to the next stage of the cycle.