M&S and Easyjet facing drop from the FTSE 100: Who else is at risk, and which firms look set ascend to the corporate premier league?
- AJ Bell lists the firms that face relegation from the FTSE 100 at the next reshuffle
- M&S and Easyjet are in precarious positions, along with Sainsbury’s and Just Eat
- JD Sports and AVEVA, meanwhile, could be in line for promotion to the FTSE 100
A quarterly reshuffle of the UK’s blue chip firms next week threatens to force high street stalwart M&S out of the FTSE 100 for the first time since the index’s launch 35 years ago.
M&S’s position is precarious after its shares took a bashing last week; the stock sunk to £2.35 after it revealed another year of declining sales and plans for speedier store closures.
Shareholder sentiment has been further soured by the firm’s plan to cut the dividend and raise money through a rights issue to fund its £750million online food delivery venture with Ocado.
Reshuffle: M&S and EasyJet are both at risk of falling out of the FTSE 100 at next week’s review
Management is urging investors to be patient while it attempts to drag the clothing and food juggernaut into the 21st century, but with a market value of £3.83billion, M&S may not have done enough to satisfy the London Stock Exchange that it is still deserving of a place in the FTSE 100.
Also dangerously close to relegation from the UK’s elite corporate index is struggling airline EasyJet, which has endured a torrid year.
Its shares have tumbled 47 per cent amid Brexit uncertainty, hot competition in the short haul space, rising oil prices and drone chaos at Gatwick.
It has the smallest market cap of any firm in the FTSE 100 at around £3.6billion. If relegated next month, it would end a stint in the index dating back to March 2013.
Other possible dropouts
While Easyjet and M&S are currently ‘the most likely candidates’ for relegation to the FTSE 250, it will only take a share price movement of a few percentage points to leave Just Eat, Hikma Pharmaceuticals, Sainsbury, Direct Line or DS Smith hovering over the trapdoor, argues AJ Bell investment director Russ Mould.
Just Eat joins Sainsbury’s and Direct Line as a possible drop out
Just Eat is facing its second demotion from the FTSE 100 in less than six months. The online food ordering firm slipped out of the index in December last year, just to bounce back at the first opportunity in March.
‘Investors are still wondering quite what to make of the £4.2billion company’s prospects,’ Mould says.
‘It returned to profit in 2018 as sales rose 43 per cent. But Amazon’s move to take a stake in Deliveroo, and Uber’s massive fund raising means the competition is only getting hotter.’
Sainsbury’s is another firm that’s looking peaky, with shares tumbling to historic lows last month after its plan to merge with Adsa was vetoed.
Like M&S, Sainsbury’s was a founder member of the FTSE 100 in 1984.
Hikma Pharmaceuticals has never quite managed to cling on to FTSE 100 status, says AJ Bell, and the drug manufacturer is teetering on the brink once more after the company’s failure to meet forecasts with its results in March.
‘Hikma last achieved promotion to the FTSE 100 in December so this latest stay could be brief,’ Mould says.
Direct Line entered the FTSE 100 in 2014, but it too has come up against a number of issues, including price competition in the car insurance market.
This, along with rising labour and parts costs, has weighed on its share price and caused analysts to query if its 8 per cent-plus dividend yield is entirely safe.
Poised for promotion
On the up: AJ Bell thinks JD Sports and AVEVA could be in line for a potential promotion into the FTSE 100
Meanwhile, AJ Bell believes FTSE 250 firms JD Sports and AVEVA should could be in line for a promotion into the upper echelons at next week’s quarterly review.
JD Sports has so far bucked the trend on the UK’s struggling High Street, benefiting from the ongoing athleisure boom and knocking Mike Ashley’s Sports Direct well and truly off its perch.
‘Analysts tend to become nervous when British firms buy American ones as the track record of such deals is pretty poor but JD’s £400million swoop for Finish Line seems to be going to plan,’ says Mould.
JD has a market value £5.85billion, and its shares have risen over the past year to exceed £6.
Likewise, Cambridge-headquartered AVEVA, which supplies software to engineers working on large capital projects like power plants, has captured the attention of investors.
It doubled its size by successfully merging with French rival Schneider and, in doing so, was able to return £650million to shareholders.
The final decision will be made based on the share price of each listed company at the close of markets on June 4, and implemented in the middle of the month.