British Gas owner Centrica PLC (LON:CNA) could be among a rash of 15 or 16 companies demoted from the FTSE 100 and FTSE 250 next week as an index reshuffle shows the dramatic effects of the coronavirus pandemic on the UK’s big companies.
Four or five corporations are on the verge of tumbling out of the blue-chip index when the quarterly index review is confirmed on the basis of closing market valuations next Wednesday, with easyJet PLC (LON:EZJ) and Carnival PLC (LON:CCL) almost certainly for the chop despite a strong rally in their shares this week.
The travel pair’s shares are still down around 50% and 64% respectively so far this year as the holiday industry has been battered by the virus, while both just missed being relegated in March’s moves.
Likely to join this pair on the way down are British Gas owner Centrica PLC (LON:CNA) and aerospace engineer Meggitt PLC (LON:MGGT), both of which have seen their market capitalisation halved below £2.5bn during since the start of the year.
This means they are ranked well below the 110th place on the London Stock Exchange’s list of largest companies and so are in line for automatic demotion to the mid-cap ranks.
ITV PLC (LON:ITV), Pearson PLC (LON:PSON), Intermediate Capital Group (LON:ICP) are all flirting with relegation, while M&G PLC (LON:MNG) and British Land Company PLC (LON:BLND) both put out news today that boosted their shares and gave them a good chance of avoiding the drop.
The highest-valued companies currently in the FTSE 250 are cybersecurity group Avast PLC (LON:AVST) and Ladbrokes owner GVC Holdings PLC (LON:GVC), both roughly either side of the £5bn market cap mark.
Other promotion hopefuls will include Homeserve PLC (LON:HSV), the home repairs insurance provider, B&Q owner Kingfisher PLC (LON:KGF) and ConvaTec Group PLC (LON:CTEC), the maker of colostomy bags and catheters.
Apart from GVC and Kingfisher, the rest of this quintet have all remained on the dividend list during the great bonfire of company payouts during the crisis.
With a week still to go, strong gains for any of insurer Direct Line Insurance (LON:DLG) and retailer B&M European Value (LON:BME) could put them in with a chance of moving up to the Footsie, with Pershing Square (LON:PSH) and F&C Investment Trust (LON:FCIT) hoping to become the second and third investment trusts in the UK’s top index.
Under the index rules, it could be four or five companies swapping places in the FTSE 100 next week, as a company is automatically relegating from the index if it falls below 111th place among qualifying companies on the London Stock Exchange at the end of each quarter, or if a company on the FTSE 250 rises to 90th position or above.
Russ Mould, investment director at AJ Bell, said eight changes are likely, four names in, four names out, but if that goes higher it would be the most dramatic index review for almost two decades.
“Six promotions and relegations (for a total of 12 changes) have not been seen in one single quarterly reshuffle since September 1992 and even four pairs changing places is relatively rare, with the last instance of this being March 2016.”
With only a small percentage change required to several firms’ market capitalisations to trigger further changes, he said investors will be watching these changes closely.
“With so many people’s pensions now invested in tracker, or exchange-traded, funds which are designed to mirror and deliver the performance of the FTSE 100 (minus their running costs), private individuals will end up with exposure to the newly-promoted names, whether they are aware of it or not.”
Dropping into the small caps
There are even more relegation candidates from the mid-cap index, led by events organiser Hyve (LON:HYVE), down 81%, and Elementis (LON:ELM), down almost two thirds, together with a group whose shares are still sitting around half the level they started the year: Marston’s (LON:MARS), McCarthy & Stone (LON:MCS), Provident Financial (LON:PFG), Stagecoach Group (LON:SGC) and Senior (LON:SNR).
Not much better in share price performance are Bakkavor Group (LON:BAKK), Bank of Georgia (LON:BGEO), TBC Bank (LON:TBCG) and Forterra (LON:FORT), all still down more than 40%, while JPMorgan Indian Investment Trust (LON:JII) down a third.
Given the fluctuations in the market, several of those names could be saved from the drop if their shares are carried higher over the coming days, with Bakkavor, TBC, Forterra, Provident Financial and Bank of Georgia sitting nearest to safety.
Promotion candidates from the ranks of the FTSE Small Cap index are led by BB Healthcare Trust (LON:BBH), Diversified Gas & Oil PLC (LON:DGOC) and Civitas Social Housing PLC (LON:CSH), JLEN Environmental Assets Group (LON:JLEN), Liontrust Asset Management (LON:LIO) and CMC Markets (LON:CMCX).
Published at Wed, 27 May 2020 13:01:00 +0000-Carnival, easyJet and Centrica poised to drop out of FTSE 100