Next week’s FTSE indexes reshuffle is likely to spell bad news for a number of familiar high street names but Marks & Spencer Group PLC (LON:MKS) could now escape relegation from the blue chips after a post-results rally.
The reshuffle, calculated based on the closing prices on Tuesday 29 May, will be formally announced after the market closes on Wednesday 30 May, and becomes effective from Monday 18 June.
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Laith Khalaf, senior analyst at Hargreaves Lansdown said: ‘Marks and Spencer looks like it’s going to avoid relegation from the FTSE 100 by the skin of its teeth.”
He added: “Reshuffles happen every three months though, so this is a stay of execution rather than a full pardon. M&S boss Steve Rowe is promising transformation, and has been candid in admitting it’s a lengthy road ahead. However the pace of disruptive technological change means making M&S special again is a moving target, and management are taking aim from a long way out.”
Retail casualties
However, barring a minor miracle, a trio of high street names will be leaving the FTSE All Share index, with Carpetright PLC (LON:CPR), Mothercare PLC (LON:MTC), and Moss Bros Group PLC (LON:MOSB) face ejection.
Khalaf said: “While promotion to and relegation from the FTSE 100 is clearly the highest profile element of the reshuffle, ejection from the FTSE All Share is actually much more significant in terms of liquidity and impact on a company’s share price.
“That’s because of the large number of passive funds which track the broader All Share index, who will no longer need to hold these stocks going forward.”
He added: “Losing a spot in the FTSE All Share is not good news for these high street retailers, but they’ve got bigger problems to contend with right now.”
Shift to digital
However, in a sign of the shift from the high street, online grocer Ocado PLC (LON:OCDO) looks set to gain promotion to the FTSE 100.
A batch of international licensing agreements has boosted Ocado’s share price in recent months, with the firm signing deals in France, Sweden, Canada and the US to license out its market-leading online delivery technology.
If M&S manages to hang on, outsourcing firm G4S PLC (LON:GFS) looks set to be relegated from the blue chip index, to make way for Ocado, with its market cap now just £4.2bn.
The Hargreaves Lansdown senior analysts pointed out: “This would not be the first time in its history. The global security company is no stranger to controversy, with scandals including overcharging the MoJ for electronic tagging and botching security arrangements at the London Olympics.”
Gaming group GVC Holdings PLC (LON:GVC) is also vying for automatic promotion to the FTSE 100, with its value having been boosted after acquiring bookmaker Ladbrokes Coral earlier this year.
M&S clear of automatic drop zone
While M&S is now some way clear of the automatic drop zone, other FTSE 100 laggards like Severn Trent PLC (LON:SVT), worth £4.8bn, and Mediclinic International Plc: (LON:MDC), around £4.6bn, could be vulnerable.
Khalaf noted that M&S would have to drop to 111th spot in the UK’s eligible market capitalisation rankings to be automatically ejected from the blue-chip index and that would need a drop in the company’s valuation to around £4bn, or 250p a share – currently it is trading at 307.6p, giving it a value of £4.9bn.
He said a greater threat would come from other companies moving into an automatic promotion slot, by becoming at least the 90th most valuable firm, although GVC’s £5.6bn valuation is just not enough at the moment.
If M&S does drop out of the index, that will mark the departure of yet another FTSE 100 founding member.
Two have already disappeared this year as GKN was acquired by Melrose (LON:MRO) (although the combined firm is in the index) - and Ladbrokes – which merged with Coral – now owned by GVC.
Any demotion for M&S would mean just 27 of the original FTSE 100 remain in the index, 15 under the same name as then and 12 more under a different guise.
Another 13 are now part of a company that is still in the FTSE 100, via a break-up, merger or takeover.