Will British high street icon Marks & Spencer be a victim of the next FTSE reshuffle?

Examining the top contenders for moving in and out of the FTSE 100.

Article updated: 22 May 2018 1:00pm Author: Helal Miah

  • Possible candidates to drop out of the FTSE 100 include a British high street icon and a security services group
  • Unfavourable sentiment and regulatory pressures core themes amongst relegation candidates
  • M&A activity as well as the relaxation of regulation providing key boost for promotion contenders

Who could go down?

In pole position to be relegated from the FTSE 100 next week is security services company, G4S. Those who follow these quarterly reviews will be aware that the group has been lingering around the demotion places for at least the last two quarters, having only being promoted recently. Interested investors 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 was 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. However, it appears that unfavourable sentiment and wider concerns over the support services sector has just added to its woes

According to the latest market cap data, others in contention is British high street icon Marks & Spencer. Whilst investors will be hoping that the company’s full year results, due to be released to the market tomorrow, will provide a similar boost to that rival Next received recently, the harsh reality is that the retail environment continues to hugely weigh on this well-known and respected retailer. M&S is likely to find itself amongst the relegation places as a result of weak figures in its all-important food business released to the market earlier this year. Whilst there have been some encouraging signs that the new management team on the clothing side is having some impact, competitive pressure from rivals and relatively weak consumer sentiment has left sales growth uninspiring. Its full year results could ultimately decide its fate, at least in regards to its future in the FTSE 100.

Other demotion contenders include UK water supplier, Severn Trent which continues to face pressures from regulators and interest rates as well as global private hospital group Mediclinic International whom has suffered poor operational performances in Switzerland and South Africa and failed in a full takeover of Spire Health. 

Who’s on their way up?

Sitting prominently at the top of the FTSE 250 at the time of writing, making it the top pick for promotion into the top index, is British online grocery delivery group, Ocado. The company, which in contrast to its main competitors has no chain of stores and does all home deliveries from its warehouses, has been voted the best online supermarket in the UK by a leading consumer magazine so clearly resonates with the UK customer base. The share price has recently received a surge from a tie up with American retailer Kroger as well as encouraging signs from its expansion in Europe. 

It appears our allies across the pond have also had an impact on the performance of the second promotional candidate. GVC, the gambling and online gambling operator has received a boost from relaxed gambling rules on sports betting in the United States, sending its share price to all-time highs and breaching the £10 a share level. 

Engineering company Weir Group also finds itself hovering around the elevation places as does Kaz Minerals. Re-energised commodities investments as a result of a strong recovery in the sector are likely to be the reasons for the two companies above featuring although, our view is the latter would be an unwelcome addition to the FTSE 100 because of what could be described as a chequered past.

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.