“Hiscox may have the FTSE 100’s longest-serving chief executive, as Bronek Masojada has held the post for almost 20 years, but the Lloyds of London insurer looks set for a brief initial stay in the index as the latest quarterly reshuffle looms next week,” says Russ Mould, AJ Bell investment director. “The specialist underwriter of catastrophe, property and marine insurance only joined the UK’s elite equity benchmark a year ago but its £3.7 billion market capitalisation means it looks set for an automatic exit, to be replaced by easyJet, which is set to return to the FTSE 100 after an absence of just six months.
“Just Eat could return to the FTSE 100 for its third stint in the index, although the latest stay could be as brief as the prior two as Takeaway.com and Prosus jostle for control of the business. Shareholders have until 11 December to decide which offer to accept, seven days after the announcement of the latest reshuffle and twelve days before it comes into effect.
“Gambling services provider GVC is also looking to get back into the index, with silver miner Fresnillo and retailer Kingfisher seemingly at the greatest risk of demotion to the FTSE 250, according to their current market valuations.
Possible FTSE 100 promotions in December 2019
• Airline easyJet only lost its status as a FTSE 100 stock in June, after a six-year stint that dated back to March 2013, when Dame Carolyn McCall was CEO. She stepped down in December 2017 to take the top job at ITV and her successor Johan Lundgren quickly had to face the challenges posed by excess capacity in the short-haul market, price pressure, rising fuel costs, start-up costs associated with an acquisition at Berlin airport and the uncertainty caused by the UK’s fractious relationship with the EU.
All of those factors weighed on profits and the dividend in the 2017 and 2019 fiscal years but even a 26% drop in pre-tax income in the year to September 2019 came in at the high end of expectations. Buoyed by the failure of the some rival carriers, the launch of easyJet holidays and the absence of any further profit forecast downgrades for 2020, shares in the airline trade at a one-year high.
• Just Eat lasted just a year in the FTSE 100 after its first promotion in December 2017 and just seven months after its second rise to the top flight in March 2019, since it had to make way for M&G when Prudential spun off the fund manager in October.
Just Eat’s next stay could be shorter still, if it achieves a third promotion as the online food order and delivery expert is the subject of a two-way bid battle between Takeaway.com of the Netherlands and Prosus, which is backed by South Africa’s Naspers. Shareholders vote on the rival bids on 11 December and that decision could end Just Eat’s spell as an independent public company, which dates back to it April 2014 flotation. Index compiler FTSE Russell has said, however, that Takeaway.com would qualify for FTSE UK index inclusion should its all-share offer prevail over the all-cash, 710p-per-share bid from Prosus.
• GVC, the owner of the Ladbrokes, Coral, Sportingbet, Bwin.party, partypoker and other leading gambling services brands, dropped out of the FTSE 100 in March 2018 after a maiden nine-month stretch in the index. The shares had collapsed following the sale of almost £20 million of stock by chairman Lee Feldman and chief executive Kenny Alexander but they have since rebounded to within touching distance of a one-year high.
GVC raised profits guidance for 2019 twice in quick succession during the summer as it began to recovery from the shock of the cut in maximum stakes for fixed-odds betting terminals (FOBTs) to £2, thanks to cost-cutting, new service offerings in the UK and a fast start in the USA, where British bookies are jockeying for position following last year’s repeal of the 1992’s Professional and Amateur Sports Protection Act.
Possible FTSE 100 demotions in December 2019
• Hiscox is the FTSE 100 stock that is currently most at risk of demotion. It entered the index for the first time ever in December 2018, following in the footsteps of sector peer Amlin, which joined the index in 2008, only to drop out of it in 2009 and finally fall to a bid from Japan’s Mitsui Sumitomo in 2015.
One of the oldest members of Lloyds of London, Hiscox runs Syndicates 33 and 3624 on the London Market and underwrites catastrophe insurance. It also provides property and marine insurance and, through its retail operations, offers coverage for business risk, property and specialist areas such as vintage cars and fine art of individuals and small and medium-sized businesses.
Hiscox’s shares stand near two-year lows in the wake of November’s third-quarter trading update. The statement revealed $165 million in catastrophe claims for Hurricane Dorian and Typhoons Faxai and Hagibis, warned of lower-than-expected fees and commissions and also noted in rise in claims from the US casualty operations.
• The shine has well and truly come off shares in Fresnillo, as they trade at their lowest level since 2009. Silver has gained around 10% in price this year, to $17 an ounce but the Mexican miner has failed to capitalise on this, thanks to a series of operational mishaps.
A cautionary outlook statement in early July saw management cut production guidance for the year. That was followed by further downward revisions to output forecasts for 2020 and 2021 as well as a dividend cut alongside very weak first-half results.
Problems have included a delay in construction work at the Herradura mine and lower-than-expected ore grades and throughput at the Fresnillo site. As a result, silver production dell 12% year-on-year in the first nine months of 2019 and gold output slipped by 7%.
• Just three months after the ejection from the FTSE 100 of one High Street bellwether, Marks & Spencer, another is flirting with the drop in the form of B&Q and Screwfix owner Kingfisher.
Although the DIY retailer was not a founder member of the FTSE 100 in January 1984, it did achieve promotion to the index in July of that year, albeit under the moniker of Woolworths, the firm it had acquired in its guise as Paternoster Holdings the previous.
An ever-present member of the index since then, Kingfisher took on its current name in 1989 and its corporate structure has changed many times since. The firm acquired France’s Darty in 1993 and merged with the same country’s Castorama in 1998. Having acquired Screwfix in 1999, Kingfisher then demerged Woolworths and sold Superdrug in 2001 before it spun off Kesa Electricals in 2003.
Weighed down by the sluggish French and British economies, as well as the failure of CEO Véronique Laury’s ‘One Kingfisher’ plan to deliver improved profits, the shares languish near ten-year lows. Ms Laury left the firm in the autumn after almost five years in the top job and her replacement Thierry Garnier, who joined from running the Chinese operations of French retailer Carrefour, has a big job on his hands, judging by the weak third-quarter results released earlier this month.
Appendix: How promotion and relegation are assessed
• All of the major FTSE indices are reviewed on a quarterly basis. They are set according to share prices from the close of business on the Tuesday before the first Friday of the review month (in this case 3 December). The changes will be announced on Wednesday 4 December and come into effect as of the market opening on Monday 23 December.
• In general, a stock will be promoted into the FTSE100 at the quarterly review if it rises to 90th position, or above (by market capitalisation) and a stock will be demoted if it falls to 111th (by market value), providing it fulfils the other criteria, such as free float and a presence on the Main Market.
