Next week the London Stock Exchange will outline who the casualties and new entrants of the FTSE 100 will be, in the first reshuffle since the Brexit vote.
At present and unsurprisingly it looks like housebuilding companies, and those that are associated with the sector, could be shown the door.
Residential housebuilding company Berkeley Group is one of those that could be in trouble. The company stated that pre-tax profits and reservations were down even before the [Brexit] vote although forward sales were on the rise. Nevertheless, the shares dropped 30% after the Referendum on concerns that the housebuilding sector would suffer a fall in demand, declining selling prices and greater difficulty in finding enough skilled labour.
Investors should also appreciate that the London market, where Berkeley has most of its developments, is seen as especially vulnerable given the large number of foreign buyers and the strong growth in recent years.
Travis Perkins is another that is potentially in the firing line. The group is one of the leading suppliers of building materials to builder’s merchants and home improvement markets and its share price was hit hard by the Brexit vote. Another factor could be that two of its main indicators, consumer confidence and secondary housing transactions, have not been positive.
Other companies that could be relegated include the likes of Intu Properties, Provident Financial and possibly Dixons Carphone.
In regards to new entrants, it looks like precious metals producer Polymetal International could bounce back to the FTSE 100 after a number of years outside of the index. The overseas company is likely to have benefited from the fall in sterling post Brexit and in addition, the recovery in gold and silver prices will have helped raised the value of the company.
IT software producer Micro Focus International is also in a good position to get the boost. The company is in fact on our recommend shares to ‘buy’ list as it has a good track record of returning a significant amount of cash to shareholders and the healthy dividend yield is well covered. Recent acquisitions have given the group access to more markets around the world, which could significantly boost earnings and will provide a large stream of recurring revenues.
Other companies in the mix include Croda International, Aberdeen Asset Management and Smurfit Kappa.
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