Who will avoid the drop from the FTSE 100?
May 31, 2022
Wondering what the main market talking points are right now?
The football season has come to an end and what an exciting end it was. As happens at the end of every season, 3 teams have to go down to the Championship to give 3 new teams the chance to compete in the premiership.
In much the same way, we are about to see which companies get relegated from the FTSE 100, and which companies will be promoted from the FTSE 250.
The largest 350 companies in the UK are split into 2 divisions with the top 100 being in the FTSE 100. The promotion might not be worth extra millions, but it’s still a badge of honour.
Also decided on tonight’s closing will be those who drop out of the FTSE 250 into the lower leagues/FTSE small cap.
With today’s closing prices determining the latest quarterly FTSE 100 reshuffle, we look at which stocks are likely to make it to the benchmark index and which companies are on their way out.
There are two stocks for whom relegation is guaranteed. Royal Mail is set to drop out of London’s leading share index as shares in the postal services group have fallen by more than 43% over the past 12 months.
“Having narrowly avoided relegation in March, Royal Mail will not escape the axe this time around. Standing at number 124, the shares have declined by 35% so far this year after a volatile bout of trading,” Interactive Investor’s head of markets Richard Hunter said.
“Any progress on its transformation and parcel volumes has been more than offset by inflationary cost pressures, ongoing pay talks with the unions, tougher comparatives and, of course, steeply declining letter volumes.
“The company had regained its place in the FTSE 100 in June 2021, having previously been relegated in December 2018.”
Broadcaster ITV is also facing demotion, while Centrica which owns British Gas is set to be promoted from the midcap FTSE 250 to the top 100.
“ITV is currently languishing at number 136 in the market cap listings, well below the 110th spot required to remain. Having returned to the FTSE100 in the reshuffle of June 2021, the shares have declined by 47% over the last year.
“It most recently unsettled investors in March by announcing an investment of £180m into its new streaming service at a time of intense competition and inflationary pressures crimping the discretionary spend of the consumer,” Hunter said.
Centrica's share price was up again on Tuesday, reinforcing expectations that it will secure promotion back to the FTSE 100 index.
Student housing firm Unite is set to join Centrica in the top flight, at the expense of Royal Mail and ITV.
“For the latter, rising energy prices have played into the hands of utilities in general, although progress has been hampered of late by the possibility of a windfall tax spreading to the sector. Centrica’s promotion would mark a return to the top table after a two-year absence, having previously been relegated in June 2020,”.
There could also be a third change, with Harbour Energy in danger of making a swift exit after just a month as a blue-chip company.
“Currently teetering on the edge of relegation is Harbour Energy, formerly known as Premier Oil. Its relegation would mark one of the shortest stays on record in the FTSE 100, since the company was only admitted to the premier index this month following Ferguson moving its market listing to the US.
“Its relegation would then open the door for the stock currently standing at 95th in the overall listings, namely the medical products business originally spun out of Bristol-Myers Squibb, ConvaTec Group. Its share price has risen by 13.5% in the year to date, pushing the group into promotion contention.”
From the lower leagues to the Championship
One contender to move into the FTSE 250 is Supermarket Income REIT,which Streeter described as a “beneficiary of investors looking for potentially more stable income prospects amid the market volatility”.
While rising inflation and wage pressure have been tough for consumers, the same cannot necessarily be said of supermarkets, which is where the £1.6bn real estate investment trust has been a beneficiary.
ASOS is also set to be elevated to the UK FTSE 250 Index for the first time, potentially bringing some stability to the online fast-fashion retailer’s often volatile shares.
The stock will be eligible for inclusion in the index’s having begun trading on the London stock exchange’s main market in February after spending 20 years on the city’s junior AIM market.
A casualty of the US tech stock crash
It’s no surprise that Ballie Gifford US Growth Trust is on its way out given what has happened to the US stock market. The Nasdaq is down -23.49% so far this year, one of the worst first 5 months in its history.
The large British investment trust established in 2018, is dedicated to investments in US based companies. So far this year it is down -44.69%, posting results far worse than its benchmark.
The second FTSE reshuffle of 2022 will be announced after the close of play on Wednesday 1 June, based on the closing prices from this evening. The changes will then take effect on Monday 20 June.
FTSE 100 constituents are switched up four times a year, in March, June, September and December, to ensure it remains the 100 biggest UK firms by market capitalisation.
This is one of the reasons that we at The Portfolio Platform prefer to trade and invest in the index, rather than individual stocks. Who knows what the next crises will bring, which stocks will do well, and which won’t.
The index itself should always grow over time, as should our portfolios. If you would like more information, please contact us here.
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