Is there a spring in the step of the FTSE 100?

Helal Miah looks at the recent market movements.

Article updated: 29 March 2018 5:00pm Author: Helal Miah

  • Takeover speculation main booster for majority of FTSE 100’s top ten risers in 2018
  • Top three FTSE 100 performers include GKN up 33% Sky up 29% and Evraz up 26% since the beginning of the year
  • Recovery in the commodity sector as well as increasing consumer confidence explains other constituents

Helal Miah, investment research analyst at The Share Centre, comments on the FTSE 100s best performers in 2018 and outlines his view on each:

Company % change
GKN 33.38
Sky 29.84
Evraz 26.53
NMC Healthcare 18.75
Royal Mail 17.88
Smurfit Kappa 17.75
London Stock Exchange 9.23
easyJet 7.9
Coca-Cola 6.98
Next 6.72

*Based on share price on 28/03/2018

Takeover

Takeover speculation has been the main booster for the majority of the FTSE 100’s top ten risers in 2018 as has ongoing recovery stories in a number of sectors.

At the beginning of the year, news of a takeover bid from Melrose Industries took Britain’s largest engineering group GKN to its highest share price level in four years and the ongoing speculation has continued to aid performance, hence it being this year’s top riser so far. The hostile battle between the two companies is due to conclude this afternoon so it will be interesting to see whether the company continues, within its own right, as a constituent of the FTSE 100.

The purchase of Sky has been dominating the headlines this year. First there was the 21st Century Fox and Disney proposition saga which was followed by Comcast, the giant US cable network, stepping into the bidding war, upping the game. The Comcast bid would make UK and European regulators more comfortable as the group has little exposure to these markets at the moment and will not bring up the issues of too much news media power under the influence of Rupert Murdoch organisations. The CMA (Competition and Markets Authority) has already made findings that Fox’s bid and subsequent control of SKY News channel not to be in the public interest. Interested investors may want to acknowledge that Comcast’s management directly suggested that regulators would be much more comfortable and likely to approve its takeover more quickly than they have so far with Fox’s offer. The shares have now climbed over 65% since the day before Fox’s offer and this is fantastic for those investors who have stayed the course so far.

Plastic and paper packaging company Smurfit Kappa is also amongst the top risers likely because it is another chapter of the takeover offer story, with the group fairly recently turning down another offer from International Paper Company, which is a US counterpart. The group’s Chairman Liam O'Mahony called the offer ‘highly opportunistic’ after deciding that the proposal ‘undervalues the group’. This ongoing activity has led to renewed focus on the sector and Coca Cola RPC, which is the bottling company for Coca-Cola has found itself amongst the newswires as a result, hence its presence in the top risers so far this year. Quite recently, the group’s management highlighted exceptional full year results and it’s expanding its offering of renewable plastics – both of which will no doubt have helped its proposition and consumer confidence.

British institution Royal Mail is a very recent entrant to the UK’s biggest index, and it’s promotion to the FTSE 100 came as a result of an increasing trend of consumers shopping online, as well as a boost last year from mailing around the General Election which helped offset wider issues in its letters business. The solid performance at its European GLS business, the resolution of its pension issues and strikes being averted are also other explanations as to why it features so highly in the top risers list.

Retail focus

Two more retail focussed companies that perhaps surprisingly feature includes budget airline easyJet and high street favourite Next. We recently commented on how easyJet’s first class Q1 results pushed its share price to pre-Brexit levels. While competition in the sector remains strong, the airline is coping better than many others and has taken steps to ensure that trading continues as normal after the Brexit settlement. When you combine this with the fact that economic growth across Europe is beginning to pick up and further growth opportunities therefore present themselves it’s no wonder they appear. Next’s existence could be the surprising entrant as it wasn’t long ago that it held its hands up and blamed mediocre spring sales range for poor sales. Nonetheless, the shares have risen as a result of the positive outlook made by the group’s management, perhaps indicating that it is performing better than its peers. Those seeking exposure to the general retail sector may therefore have appreciated this sentiment.

Other companies that have had a good spell so far this year include Evraz as a result of a recovery in commodities and steel price, NMC Healthcare courtesy of better prospects in the Middle East and the London Stock Exchange.

March volatility

Overall, just shy of a quarter of FTSE 100 constituents have seen their share prices rise since the beginning of the year. Stock markets in March have been increasingly volatile, with the market focussing on the timetable for rate rises in the US, the recovery of the pound and the possibility of the US imposing trade tariffs, which in turn could lead to a trade war. There has also been the inevitable ratcheting up in Brexit issues. Furthermore, investors are reminded that the constituents of the UK’s main index are, as a rule, large companies with international operations, many of whom benefitted from the fall in the pound post Brexit. Sterling has recovered from around 1.25 one year ago to 1.41 at the time of writing and this will naturally start to impact profits negatively going forward.

Expectations for volatility to continue into April have risen, so investors are advised to be savvy and keep a close eye on the markets.


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

Helal has spent time as an independent proprietary trader, trading the US equity futures market. He has also helped manage private client, institutional, retail and hedge funds. His qualifications include the Securities Institute Diploma and the Investment Management Certificate.

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