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Marks & Spencer finals to fix FTSE 100 future

High street retailer has sunk to the relegation places in the FTSE 100 index
marks and spencer
M&S shares have been depressed by its plans for a rights issue

Marks and Spencer Group PLC (LON:MKS) on Wednesday will publish results that could determine whether it remains a FTSE 100 company.

The full-year numbers are the high street retailer’s first since agreeing to buy half of Ocado Group plc’s (LON:OCDO) retail business for a hefty £750mln price, for which M&S said it would need a £600mln rights issue and a dividend cut.

READ: M&S plans big rights issue and divi cut to fund online grocery joint venture with Ocado

As a result, not only are pre-tax profits expected to fall by more than 10% to around £520mln, but the final dividend has been “reset” by 40%, meaning the final payout will be 7.1p.

Analysts at UBS said the key talking points in the results will be terms of the rights issue to fund the Ocado deal and further detail on timing and benefits of the joint-venture launch, together with updates on the store closure programme and pricing initiatives in the food business.

Since the Ocado news was announced, shares in Marks & Sparks have stumbled more than 12%, taking the company’s market valuation down below £4.5bn, making M&S the fifth smallest company on the UK blue chip index ahead of the next review of the benchmark on 5 June.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said that demotion from the FTSE 100 will be determined by the reaction to the forthcoming results and obviously the price movements of other companies flirting with the bottom of the table, including easyJet PLC (LON:EZJ), Just Eat PLC (LON:JE.), Hikma Pharmaceuticals Plc (LON:HIK) and J Sainsbury PLC (LON:SBRY).

“Once again M&S is fighting to stay in the FTSE 100, a position it’s enjoyed since the blue chip index was launched in 1984,” Khalaf said.

“A demotion from the FTSE 100 wouldn’t directly affect the department store’s business performance, but it would be a hugely symbolic moment for M&S, and for the retail sector as a whole,” Khalaf said, noting that the changing of the guard has seen Ocado nestling relatively safely in the top half of the index after being promoted last year.

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