“NMC Health is already doomed to demotion from the FTSE 100 index as the latest quarterly reshuffle looms but travel agent TUI, retailer Kingfisher and grocer Morrisons are teetering on the verge of the drop into the FTSE 250,” says Russ Mould, AJ Bell Investment Director. “With markets looking volatile, last-minute changes ahead of the reshuffle deadline on 3 March could also put recent entrant Just Eat Takeaway.com, Hikma, Centrica, Meggitt and even profit-warning plagued Pearson in danger.
“While it should avoid the chop, demotion for Pearson would cap a dreadful period for the publisher under the guidance of CEO John Fallon and CFO Coram Williams, both of whom are preparing to step down. The company was a founder member of the FTSE 100 and it has been ever-present since the launch of the index in January 1984. Its £4.6 billion market cap leaves it ranked 99th, well above the 111th-place cut-off for automatic relegation but the firm may have to start looking over its shoulder should there be any further profit disappointments in 2020.
“Silver miner Fresnillo looks poised for a rapid return to the FTSE 100, after its demotion last December. Intermediate Capital Group and house builder Bellway are on the brink of automatic promotion too, with bookmaker GVC, utility Pennon and student accommodation provider Unite in with a chance of a step up to the UK’s premier index.
“It will only take a small percentage change in these firms’ respective market capitalisations to confirm demotion or achieve promotion and 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.”
Possible FTSE 100 promotions in March 2020
• Fresnillo’s £5.3 billion market cap is currently enough for automatic promotion just three months after the firm departed the FTSE 100.
The silver miner was demoted last December after cuts to its precious metal output guidance for 2019, a first-half-dividend cut and operational setbacks at the Herradura and Fresnillo mine sites.
But silver prices have since rallied, reaching nearly $19 an ounce in late February as Coronavirus prompted investors to look for haven assets. Fresnillo could ride this all the way back to the FTSE 100, although the metal has dipped back a little to $18.15 an ounce.
Mexico-based Fresnillo first entered the FTSE 100 in 2008, although that stint lasted just three months. The company was then promoted back to the premier index in March 2009 to begin a ten-year spell that ended late last year.
• Intermediate Capital was among the best performers in the FTSE 250 in 2019 and the specialist asset manager has been on a roll for some time. Strong inflows have taken assets under management to €42.1 billion, helped by buoyant financial markets and strong performance from its funds which focus on debt and private equity finance for corporate investments. The group also increased its fees in 2019 and this, alongside healthy flows, supported strong profits growth and a 50% hike in the dividend at the first-half stage.
With a £5 billion market cap, Intermediate Capital is on the verge of automatic promotion. If achieved, this would represent the company’s debut in the FTSE 100.
• Newcastle-headquartered house builder Bellway would be another debutant, were it to achieve promotion. A market cap of £4.9 billion ranks the firm on the cusp of the big league.
Bellway would become the fifth house builder in the FTSE 100, joining Barratt, Berkeley, Persimmon and Taylor Wimpey.
The company continues to benefit from the short supply of new homes in the UK, as well as the combination of low headline interest rates, strong competition between banks in the mortgage market and the Government support for the housing market via the Help-to-Buy scheme, which supported 36% of Bellway’s completions in the year to July 2019.
Profits and dividends have advance every year since 2009, the company has net cash on its balance sheet and February’s trading statement revealed record completions for the first-half of the firm’s fiscal year.
Possible FTSE 100 demotions in March 2020
• A market cap of just £1.8 billion means NMC Health is a certainty for the drop, ending a stint in the FTSE 100 that began in March 2017.
Shares in the hospitals operator have lost two-thirds of their value since last summer, thanks to a research paper from short-seller Muddy Waters which questioned the firm’s accounting policies, the sale of stock by major shareholders despite the plunge and then mass confusion over the company’s shareholder register.
Initial reports of a potential bid from private equity firms have so far come to nothing.
• Just six 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 in November.
• Shares in TUI got a boost in 2019 from the failure of major rival Thomas Cook but the travel agent has been dogged by the delayed delivery of 737Max aircraft from Boeing, weaker customer bookings thanks to Brexit and now the Coronavirus scare.
February’s first-quarter results offered some comfort, as they were better than expected and also flagged strong summer bookings, and investors’ fears over the balance sheet will have been assuaged by the €700 million sale of the luxury cruise operation Hapag-Lloyd. But sentiment toward the shares has been hit by the spread of the Coronavirus to Spain and Italy prompting a fresh dive in the shares.
TUI entered the FTSE 100 in its current form in December 2014 when Thomson holidays owner TUI Travel merged with its German parent TUI AG in a deal that valued the new entity at £5.6 billion.
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 Tuesday 3 March). The changes will be announced after the close on Wednesday 4 March and come into effect as of the market opening on Monday 23 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.
