Interactive Investor

FTSE quarterly reshuffle: changes to FTSE 100 guaranteed

After a cracking three months in which the UK stock market has risen 8%, lots of companies are battling for promotion to the blue-chip index. City writer Graeme Evans looks at the stocks that could be in and out.

29th May 2024 13:11

by Graeme Evans from interactive investor

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A fifth FTSE 100 housebuilder is set to be created after deal-making Vistry Group (LSE:VTY) today moved to the brink of blue-chip promotion ahead of next week’s reshuffle calculations.

Wealth management firm St James's Place (LSE:STJ) looks likely to move the other way after a decade in the top flight, with technology-focused Ocado Group (LSE:OCDO) also in danger of losing its FTSE 100 status.

Others in peril include easyJet (LSE:EZJ) and former Electrocomponents business RS Group (LSE:RS1), while Hiscox Ltd (LSE:HSX) and British Land Co (LSE:BLND) are a couple of strong sessions away from securing their return.

Next Tuesday’s closing prices will determine the new make-up of the FTSE 100 and 250 indices ahead of a formal reshuffle announcement by FTSE Russell the following evening.

Bovis Homes owner Vistry has moved firmly into contention after a 85% jump for its shares on the back of an upturn in house market conditions since last autumn.

FTSE 100 status alongside Taylor Wimpey (LSE:TW.), Barratt Developments (LSE:BDEV), Berkeley Group Holdings (The) (LSE:BKG) and Persimmon (LSE:PSN) would be a big endorsement for the company’s new strategic direction, which is focused on the delivery of homes in partnership with local authorities and other providers.

The group revealed this month that it expects more than 18,000 completions in 2024, an increase of 10% on the previous year and up from its previous estimate of 17,500 units.

Vistry’s plan follows 2022’s transformative merger with Countryside Partnerships and 2020’s acquisition by Bovis Homes of Linden Homes and Galliford Try Partnerships.

It aims to pre-sell up to 65% of its total completions to local authorities as well as other partners, reducing risk and cyclicality in a capital-light way. Recently announced medium-term targets are for 40% return on capital employed, 5%-8% revenue growth per year and £800 million operating profit at a 12% margin.

Under the strategy, Vistry is aiming for the return of £1 billion to shareholders over next three years from ordinary and special distributions alongside the elimination of net debt.

Deutsche Bank said Vistry’s recent trading update pointed to a much stronger performance than the traditional housebuilding sector. It has backed the shares to reach 1,513p, which compares with this afternoon’s 1,259p.

The bank added: “Execution of the plan will be critical, but if achieved, it points to material share price upside, even after the strong gains posted over the past six months.”

Vistry is now worth about £4.3 billion, making it the 92nd-largest company in the FTSE 350 index and well placed for promotion ahead of other potential candidates including Endeavour Mining (LSE:EDV), takeover target Darktrace (LSE:DARK) and LondonMetric Property (LSE:LMP).

Ocado is currently worth £3.2 billion and outside the London market’s top 110, the cut-off point that triggers automatic relegation from the FTSE 100 index.

Its shares have continued their roller-coaster ride, with Tuesday’s jump of 10% followed by another big decline to leave the Marks & Spencer retail partner down 47%  in 2024.

Deutsche Bank has a price target of 660p and believes the City has failed to grasp the value of the company’s technology solutions.

Roll-out to grocery partners has been slower than originally envisaged and the bank expects Ocado to be in a cash-consumptive state until 2027.

However, it believes the build-out of the 64 customer fulfilment centres announced by Ocado and its partners - from 22 currently - will lead to a highly profitable, cash-generative business.

It said recently: “We are enthused by the opportunity Ocado’s solutions can provide to grocery partners given the continued shift of grocery to online, the significant and unmatched productivity gains from the group’s technology, and Ocado's ongoing innovation.”

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