With results of the quarterly FTSE reshuffle due in less than a week, Lee Wild talks us through who's banging on the door of the blue-chip index and the companies they could replace.
It's that time of the year when some of the country's largest companies get nervous. The quarterly FTSE reshuffle threatens the coveted blue-chip status that inclusion in the index affords, and we've had some close calls already this year.
Marks & Spencer Group was the big name facing demotion last time, eventually surviving by the skin of its teeth. In February, Hammerson lost its place among the top 100 shares following an ill-conceived plan to buy rival Intu Properties. The idea was dropped soon after, but the damage was done.
Next reshuffle will be based on market capitalisation of companies the day before changes are announced after market close on Wednesday 5th September. Any changes come into effect just under three weeks later.
Currently, there are some interesting potentials, but there would need to be a big shift in events to produce a shock this time.
If inclusion in the FTSE 100 index were based solely on market cap, five companies would be kicked out of the FTSE 100 index: Rightmove, yo-yo stock Royal Mail, Direct Line Insurance Group, Severn Trent and Randgold Resources Ltd.
Instead, if a 250 stock wants to gain automatic promotion to the big league, its market cap must be ranked 90th position or above. The lowest ranked FTSE 100 stock will then be ejected. Similarly, a blue-chip must be ranked 111th position or worse to suffer automatic demotion.
If there is no neat solution where both a riser and faller meet this criteria, the indices will need rebalancing. This means that if a FTSE 250 stock makes it to 90th position, the lowest ranked FTSE 100 stock will lose its place whether it’s at 101 or 110.
Little-known engineer Spirax Sarco is currently ranked 93rd with a market cap of £5.26 billion. But it would have to rank above Barratt Developments at 90 with a market cap of £5.53 billion to make the FTSE 100. Wood Group would have to add another £500 million to its capitalisation to get in.
Spirax has had a great run this year. Its shares, worth less 800p each following the financial crisis, are up over 25% in 2018 alone to a peak of £73.60! It’s been a great cyclical play, but there's a lot in the price already and a forward price/earnings (PE) ratio nudging 30 suggests further upside is limited for now.
Source: interactive investor Past performance is not a guide to future performance
Rightmove is nearest the FTSE 100 exit, ranked 107 with a market cap of £4.43 billion. Drop below Meggitt at £4.19 billion and it’s out! Royal Mail at 106 and £4.56 billion is also vulnerable, as is Direct Line Insurance.
After a great spring, culminating in a record high at almost £54 in June, a slowing housing market and industry competition have taken the wind out of Rightmove's sails.
However, even if all other stocks stayed the same, Rightmove would have to shrink by a further £240 million, or 5%, equivalent to 245p per share to lose its place in the FTSE 100.
|Rank||Company||Ticker||Market cap (£m)||Current index|
|89||Taylor Wimpey||TW.||5.58||FTSE 100|
|90||Barratt Developments||BDEV||5.54||FTSE 100|
|92||Just Eat||JE.||5.27||FTSE 100|
|93||Spirax-Sarco Engineering||SPX||5.26||FTSE 250|
|94||Wood Group (John)||WG.||5.01||FTSE 250|
|95||United Utilities||UU.||5.00||FTSE 100|
|96||JD Sports Fashion||JD.||5.00||FTSE 250|
|97||Weir Group||WEIR||4.93||FTSE 250|
|98||Marks & Spencer||MKS||4.90||FTSE 100|
|100||Berkeley Group Holdings (The)||BKG||4.86||FTSE 100|
|101||Hikma Pharmaceuticals||HIK||4.80||FTSE 250|
|102||Randgold Resources||RRS||4.76||FTSE 100|
|103||Severn Trent||SVT||4.68||FTSE 100|
|105||Direct Line Insurance||DLG||4.57||FTSE 100|
|106||Royal Mail Group||RMG||4.56||FTSE 100|
|109||Auto Trader||AUTO||4.28||FTSE 250|
|112||B&M European Value Retail||BME||4.11||FTSE 250|
|Source: Sharepad as at 30 August 2018|
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.