Who's most likely to move in the next FTSE 100 reshuffle

Our predictions on possible movers in next week’s FTSE reshuffle.

Article updated: 29 August 2018 at 1:00pm Author: Helal Miah

  • Possible candidates to drop out of the FTSE 100 include an online estate agent, an insurance giant and two British institutions
  • Increasing sector competition, hostile sentiment and regulatory pressures remain core themes amongst relegation candidates
  • Engineering companies dominate the promotional candidate positions

Who could go down?

As it stands, the company in pole position to be relegated from the FTSE 100 next week is the UK’s largest online estate agent, Rightmove (RMV). The company has had a tumultuous year. The share price reached a high in May on the back of M&A activity in the sector, but this led to increased competition from the likes of Zoopla and PurpleBricks and this is likely to be the reason why the company finds itself in this vulnerable position. A weak housing market in London and the South East and what the group describes as a ‘muted sentiment towards the UK property market’ continues to weigh. However, this didn’t stop the group reporting increases in revenue (10%) and operating profit (12%) year on year. It could be that the bad traits are just outweighing the good at the present time, sending the group in the wrong direction and ultimately to the bottom of the FTSE 100.

It appears the ‘Beast from the East’ took its toll on Direct Line (DLG) over the last few months meaning the insurance giant finds itself sitting closely behind Rightmove in the relegation zone. Its interim results recently released to the market were slightly overshadowed by the news that the long-serving CEO Paul Geddes will be stepping down next year. Numbers wise, gross written premiums dropped 5% in the first half with pre-tax profits down 14% to £293.8m. It confirmed that it had been hit by a £66m increase in weather-related claims but also benefited from a £49m revision to reserves related to personal injury claims. The shares dropped in reaction to the news and have underperformed over the past year so it’s unsurprising it finds itself susceptible to relegation.

According to the latest market cap data, others in contention to be demoted include UK water supplier Severn Trent (SVT) which continues to face pressures from regulators and interest rates. British institutions Royal Mail (RMG) and Marks and Spencer (MKS) also remain stubbornly above the relegation zone. Royal Mail only returned to the FTSE 100 in March on the back of a strong recovery in the share price, which hit an all-time high in May. Since then there has been a fall of around 25%, back to new-year levels. There remains a divergence of opinion amongst analysts as to the prospects for the group. Meanwhile, M&S continues to face competitive pressure from rivals, at the same time, relatively weak consumer sentiment has left sales growth uninspiring.

Who’s on their way up?

Sitting importantly at the top of the FTSE 250 at the time of writing, making it the top pick for promotion into the top index, is engineering company Spirax Sarco Engineering (SPX). The company, which is a manufacturer of steam management systems, recently increased its interim dividend by 14% to 29p on the back of a 7% rise in operating profit compared to the previous year. It also acknowledged that the amalgamation of the ‘two significant acquisitions’ it made in 2017 were progressing well and as a result, future guidance remained unchanged. Its overseas exposure means it is likely to have also benefitted from the weaker pound of late.

Engineering companies dominate the promotional candidates with Spirax being joined by John Wood (WG) and Weir (WEIR). Re-energised commodities investments as a result of a strong recovery in the sector and in the case of John Wood, the integration of acquisitions are likely to be the reasons for the two companies featuring. Niche insurance provider Hiscox (HSX) is also sitting pretty at the top. Shares in the underwriter at Lloyd's of London hit a record high during the last quarter after the group reported a jump in profits driven by higher premiums.

It will definitely be worth keeping an eye on the noted company prices over the next few days to see if anything changes.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

Helal Miah portrait photo
Helal Miah

Investment Research Analyst

After graduating with an economics degree from University College London, Helal started his career within private banking at Smith & Williamson Investment Management and later held analyst and fund manager roles with the Industrial Bank of Japan, Schroders and Mitsubishi Corporation. He is a chartered fellow of the Chartered Institute for Securities & Investment.