Out with the old: shock as three big names set to fall from the FTSE 100
THREE of Britain’s best-known blue-chip companies are on the verge of dropping out of the FTSE100 in a ‘hugely symbolic’ changing of the guard as investors ditch shares once viewed as safe bets.
Shareholders were warned of a bumpy ride for retailer Marks & Spencer, insurer Direct Line and software company Micro Focus, all of which are expected to be demoted to the FTSE250 this week following a slump in their values.
Shares in M&S have more than halved in five years, having been hit by onerous long leases on large stores and being slow to adapt to online shopping.
Following a steady erosion of profits, it now has a market cap of £3.7billion – below the value it needs to stay in the FTSE100. Its relegation would end its 35-year membership of the index of Britain’s 100 biggest companies.
Micro Focus was dubbed ‘Hocus Pocus Micro Focus’ by analysts in the 1990s due to its reputation for dishing out profit warnings. It announced another profit alert last week, wiping almost £1.7billion off its value as its shares collapsed by a third.
Direct Line has been hit by regulatory issues amid an industry probe into alleged ripping off of customers. Its shares have slumped to their lowest level since late 2014.
The latest quarterly FTSE 100 reshuffle, to be announced on Wednesday, will be based on stock market valuations when the markets close on Tuesday. Companies are automatically promoted to the FTSE100 from the FTSE250 when they rank within the top 90 companies in the UK in terms of value. Firms are automatically ejected from the FTSE100 if they fall outside the top 110 largest companies.
Based on the state of play this weekend, the three biggest FTSE 250 firms – Russian gold miner Polymetal, Hikma Pharmaceuticals and Meggitt, the aerospace and defence firm – have all risen to be valued in the top 90 largest firms.
As a result, the bottom three ranked FTSE 100 companies – Micro Focus, M&S and Direct Line – are on track to be pushed out. Changes in share prices over the next two days could alter these rankings.
British Gas owner Centrica is at risk as the next lowest-ranked company by value. Once perceived as a ‘safe stock’, Centrica investors have sold shares as the energy giant battles price caps, anger over bosses’ bonuses and fears that a Jeremy Corbyn administration would nationalise energy firms.
Tom Stevenson, investment director at Fidelity Personal Investing, said: ‘It is significant that a very domestically focused UK company – M&S – is being replaced in the FTSE 100 by a Russian gold miner.
‘The FTSE100 is progressively less and less about the British economy. It is such an international market now.’
Rachel Winter, investment manager at Killik, said: ‘This is a sad moment for British brands. People are concerned about Brexit so they don’t want companies purely exposed to the UK.’
Fund managers say the relegated stocks will continue to experience hard times after the demotions are announced because funds that track the FTSE 100 will be forced to sell their holdings.
However, once the reshuffle is complete later this month the shares could rally.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said M&S’s exit from the FTSE100 will be a landmark moment. He added: ‘It is hugely symbolic and a psychological blow for M&S management.’