“It looks like Hammerson will need a strong set of full-year figures on Monday 26th to spark a major share price run to save its FTSE 100 status which dates back to summer 2005.
“Meanwhile, the Royal Mail would be making a speedy return after just six months down in the FTSE 250. If the company’s promotion is confirmed next week, boss Moya Greene would take the total of female FTSE 100 chief executives back to (just) seven, alongside Emma Walmsley at GlaxoSmithKline, Alison Cooper at Imperial Brands, Dame Carolyn McCall at ITV, Veronique Laury at Kingfisher, Liv Garfield at Severn Trent and Alison Brittain at Whitbread.”
Possible promotion: Royal Mail
“After a stunning run from barely 370p in November to 560p, Royal Mail looks poised to return to the FTSE 100 just six months after its deletion from the UK’s corporate elite.
“The company first entered the FTSE 100 following its 2013 flotation at 330p, a deal which raised a political storm over whether the shares had been sold too cheaply as they soared beyond 600p amid demand for its then 20p-a-share annual dividend.
“That pay-out has since crept to 23p and is expected to reach 24p for the fiscal year to March 2018, still enough for a 4.3% dividend yield with earnings cover for the pay-out of some 1.7 times.
“If the dividend yield has been one source of support for the stock, another has been the settlement of pay, pensions and working conditions with the Communication Workers Union, a deal which headed off strike threats and also helped Royal Mail to manage its pension liabilities.”
Possible demotion: Hammerson
“Shares in Hammerson have ground relentlessly lower in the past nine months, falling from over 600p to 466p, as investors have continued to take a dim view of the real estate investment trust’s prospects.
“Hammerson’s speciality is retail properties. It manages 58 shopping centres in the UK, Ireland and France, including Brent Cross in London, Bicester Village and Birmingham’s Bullring.
“In the mind of the bears, this leaves the company exposed on two fronts. First, trading conditions in the UK for bricks-and-mortar retailers remains tough, as wage growth remains sluggish, the UK savings ratio is low and doubts persist about how the British economy will fare after Brexit. Second, competition from online rivals remains as fierce as ever and many retailers are finding themselves with too much floor space, prompting fears over weak rent reviews and rising vacancies.
“In addition, investors are clearly sceptical of Hammerson’s planned acquisition of FTSE 250 shopping centre owner Intu, which the company plans to fund with an all-share deal.
“The shares have continued to fall even though they look cheap. Hammerson offers a prospective dividend yield of some 5.5%, based on a consensus dividend forecast of 25.5p, and its last published net asset value per share figure was 771p. The stock therefore trades at a very high 40% discount to net asset value, although the share price seems to believe that the asset values will start to fall at some stage.”
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 (which in this case is December). The changes come into effect in mid-to-late March.
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.