These mid-caps could join FTSE 100 next month

by from interactive investor |

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

They would be replaced by FTSE 250 stocks: Spirax-Sarco Engineering, Wood Group (John), JD Sports Fashion, Weir Group and Hiscox Ltd. But it's not.

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
91 Halma HLMA 5.43 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
99 Hiscox HSX 4.88 FTSE 250
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
104 Aveva AVV 4.58 FTSE 250
105 Direct Line Insurance DLG 4.57 FTSE 100
106 Royal Mail Group RMG 4.56 FTSE 100
107 Rightmove RMV 4.43 FTSE 100
108 ConvaTec CTEC 4.28 FTSE 250
109 Auto Trader AUTO 4.28 FTSE 250
110 Meggitt MGGT 4.19 FTSE 250
111 Cineworld CINE 4.11 FTSE 250
112 B&M European Value Retail BME 4.11 FTSE 250
Source: Sharepad as at 30 August 2018      

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