Helal Miah, investment research analyst at The Share Centre, makes his predictions on possible movers in next week’s FTSE reshuffle
Will Royal Mail deliver in the next FTSE reshuffle?
Possible candidates to drop out of the FTSE 100 include a UK retail property developer and a global security services group.
Current prices indicate that companies in prime promotion positions are a 500 year old British institution as well as an engineering solutions business.
Ongoing recovery in a number of sectors is theme amongst promotion candidates.
Who could go down?
- Hammerson – highly likely
- G4S - likely
- Severn Trent - possibly
- Mediclinic International - possibly
In pole position to be relegated from the FTSE 100 next week is UK retail property investor Hammerson. There’s no denying that the background environment for property developers focused on the retail sector in the UK has become more difficult in recent times courtesy of strong online competition, weaker consumer sentiment, and ongoing concerns about the impact of Brexit on the UK economy and retail sales. In December of last year, the group made an attempt to negotiate this uncertainty by merging with its smaller rival Intu Properties which, interestingly, was a victim of the May quarter shuffle last year. The merger remains pending but, once complete, the larger group should make a comeback to the top 100, barring a disastrous share price performance.
Shares in G4S, the security services company, fell off at the back end of 2017 after staging a recovery in the previous summer months. A trading update in November, which stated that sales growth for the year would now be below expectations, probably didn’t help its intentions. Those interested in the group will be aware that it has worked hard to address past problems which hit its reputational standing and the ongoing strategic review, which was put in place a few years ago, will keep management busy for some time yet. The hope is that it will provide potential for the company to improve efficiency, cut costs, sell off and close further businesses or assets, and restore faith in the group. Wider concerns over the support services sector will only have added to its woes.
Other demotion contenders include UK utilities, specifically water company Severn Trent which continues to face pressures from regulators and interest rates along with global private hospital group Mediclinic International whom some may remember survived the drop in the last quarterly shake up.
Although unlikely to feature in this reshuffle, not far behind these companies is big retailer Marks & Spencer and the UK’s largest listed water company United Utilities. It should therefore be noted that continued underperformance will make these prime relegation candidates in the not too distant future.
Who’s on their way up?
- Royal Mail – highly likely
- Weir Group - likely
- Melrose Industries - possibly
- B&M Retail - possibly
Leading the way at the top of the FSTE 250 at the time of writing is a British institution, Royal Mail. The group, whose heritage takes them back over 500 years, received a boost last year from mailing around the General Election which helped offset wider issues in its letters business. The increasing trend of consumers doing their shopping online has also aided the group as has the solid performance at its European GLS business, the resolution of its pension issues and strikes being averted. All of this recent momentum has boosted the share price and it is therefore no surprise that it finds itself as top promotion contender in this latest reshuffle.
Engineering company Weir Group also finds itself hovering around the promotion places. Its business supports the oil and gas and mining sectors and the strong recovery in both of these areas has no doubt played a role in the company’s performance.
Further upgrade candidates include Melrose Industries, who, if the GKN takeover happens, will certainly be promoted in the next reshuffle as well as discount retailer B&M Retail who has had a strong run up to this position in the short time that it has been a listed company.
It will definitely be worth keeping an eye on the noted company prices over the next few days.
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.