As we predicted FTSE Russell, the global index provider, has officially confirmed that consumer electronics retail giant Dixons Carphone and the UK’s leading provider of business process management and support service solutions Capita are the victims of the first reshuffle of 2017 and will be falling out of the FTSE 100 index.
Dixons Carphone share price has dropped off of late as a result of increasing competition within the sector, particularly from the likes of Amazon. Moreover, higher import costs which have been a result of the weaker pound, have hurt the group and in its latest update, Dixons informed the market that it was ‘preparing for all eventualities’ as a result of the increasing uncertain times ahead.
Meanwhile Capita has seen its share price remain under pressure since the Brexit vote, as the market highlighted concerns over future contracts and their length, which has dropped from an average of eight years to seven. These concerns were rubber stamped with a significant profit warning in September of 2016 and a further lowering of its profit guidance in December pointing to a slow-down in trading, costs and continued delays in client decision making. The relegation cements investor’s views that the performance of the chief executive, Andy Parker, has not been good enough and we therefore feel that it is not too much of a coincidence that Capita have announced that he will step down.
These relegations do pave the way for two exciting new entrants to the FTSE 100. First is the Scottish Mortgage Investment Trust. With 95% of its holdings weighing towards international investments, it’s possible that its recent success is as a result of it benefiting from the weaker pound. The other is pest control group Rentokil Initial.
Investors should note that the changes outlined above will come into effect from Monday 20 March 2016.