Who will fall out of FTSE 100?

Possible candidates to drop out of the FTSE 100 tomorrow include a tailored credit products provider, one of Britain’s most recognised brands and an engineering support group, says Graham Spooner, investment research analyst at the Share Centre.

Who will fall out of FTSE 100?

It appears certain that provider of tailored credit products Provident Financial will be the latest candidate to be relegated from the FTSE 100 in this week’s third quarter reshuffle.

Investors are likely to have seen the company plastered over the news last week as it issued another profit warning. The group, which was once regarded as the leading non-standard lender in the UK, also announced further problems at its Home Credit division, an investigation into Vanquis Bank and the resignation of the CEO. Moreover, the Provident highlighted that the dividend announced in July had also been cancelled.

Unsurprisingly, all of this news hit the share price very hard, and with the share price down by over 75% since June, it may not come as any surprise to investors that it is in prime position for relegation.

At the time of writing, it appears that British institution Royal Mail is also in the running for demotion. Despite posting full year results which pleased the markets, in which group revenue and profits before tax were up, the company noted that it is heavily relying on the international parcels business as letter volumes continue to act as a drag on overall performance.

It rubber stamps the ethos that the uncertainty amongst UK businesses in the current Brexit environment means less are using direct mail marketing.

Another company appearing in the risk zone is engineering support services company Babcock International. The performance of the group over the past year has been disappointing on the back of concerns for support service providers, which was notably highlighted by the problems at Carillion.

Concerns remain over its growth targets for next year and there continues to be pressures on the sector as a result of Brexit and contract delays. Nevertheless, there continues to be solid growth prospects for the group and it has been keen to reiterate recently that it has identified significant opportunities across its core markets and it subsequently remains confident to achieve mid-single digit organic revenue growth this year. Will it be enough? We’ll find out soon.

Others in the mix for relegation include UK retail property developer Hammerson and one of the largest visitor attractions groups in the world Merlin Entertainments.

Possible promotion to the FTSE

Is housebuilder Berkeley set to bounce back to the FTSE 100 a year to the date that it was relegated to the FTSE 250? It appears so as the group is currently in prime position to return to the UK’s largest index.

The shares dropped 30% after the EU Referendum last year as demand concerns hit. However, it appears faith has been restored. Courtesy of greater cash flow and an improving sentiment for house builders , the shares have rallied and are now trading at better than pre-Brexit levels. Furthermore, investors recognise that the yield is attractive and a special dividend programme has undoubtedly attracted some positive attention.

Plastic packaging company DS Smith is also sitting pretty in the promotion zone. Founded in 1940 in the East End of London, the group is now a leading provider of corrugated and plastic packaging in 25 countries. The group has experienced excellent sales and earnings growth in recent years, especially due to the strong trend towards online retailing where cardboard packaging is widely used to transport products.

Recent updates also pointed to the fact that acquired businesses of late have made solid progress and the group therefore expects to deliver on all five of its medium term financial targets. Strong earnings are now feeding through into dividend payments, which have increased substantially in recent years, and the prospective yield now stands at 3.2%.

Also in contention is professional support services provider Capita who have been expanding their operations into overseas markets, industrial engineering group Melrose Industries, a company with a strong operations model and online food order and delivery company Just Eat, whose shares have doubled since floating in 2014.

It will definitely be worth keeping an eye on the noted company prices over the next few days.

 

The final decision and approval of changes in the FTSE will be announced after the markets close on Wednesday 30 August – using the market capitalisation of companies at close of trading on Tuesday 29 August. The changes will be made effective from start of trading on Monday 18 September.

 

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