Is M&S on the way out? Our FTSE 100 reshuffle predictions

Ahead of the next FTSE Russell index reshuffle calculation on, we examine the most likely candidates for relegation and promotion.

Article updated: 23 August 2019 10:00am Author: Helal Miah

  • The Marks & Spencer relegation is symbolic of poor performance of UK retail sector.
  • Regulatory challenges and political risk highlight the demise of former giant of the index, Centrica.
  • Polymetal and Hikma poised for promotion to FTSE 100.

It is interesting to see a clear distinction between those on the way up and those heading down and highly reflective of the current economic and political environment and the themes we have been highlighting in our quarterly Profit Watch UK report. Out go the more UK focussed businesses while those with a more global exposure look to replace them

Relegation Promotion
Certain M&S Polymetal
Likely Centrica Hikma
Possible Directline or Kingfisher Meggitt

Marks and Spencer for so long has been a candidate for going down only to just escape at the last minute. The last time around it was saved by its well-timed rights issue, but alas, it can only hold out for so long and this time there seems little that can save it from going down bar a spectacular recovery in the share price. There has been a decade long complaint by investors and customer that it has failed to revamp its clothing lines, especially within womenswear and lacks appeal for the younger generations. In the past its foods division helped offset the general merchandise division, not so anymore as growth opportunities from its smaller convenience food stores disappear and competition intensifies. The group has also been too slow to adapt to online retailing and has been left behind by others who offer a more compelling online service. M&S for many generations has been a stalwart of the UK retail market and a founding member of the FTSE100, its relegation will be highly symbolic of the troubles on the UK high street and the challenges the UK retail sector faces as the internet plays an increasingly important role.

Centrica, the parent company of the country’s best known utility group British Gas and once among the largest companies in the FTSE100 index, has faced several headwinds over recent years. The increased freedoms for customers to switch utility providers has seen customers exit en-masse to cheaper providers while regulatory restrictions limit energy prices. Declining profits eventually led to the inevitable slashing of its generous dividends recently, which drove the share price to new lows. Investors in Centrica, some of whom are still holding the shares since privatisation of the 1980’s, face the prospect of a tougher regulatory stance or even the shares being taken off them without adequate compensation should the current uncertainty in UK politics lead to a Jeremy Corbyn government.

Polymetal International is likely to take up Marks and Spencer’s position. The Russian based gold and silver miner has been in and out of the main index on past occasions reflecting the volatile nature of its key commodities, its leveraged balance sheet and its political exposure accentuates the share price moves. It should make its return to the main index as the recent worries over global growth, trade tensions, Brexit and the prospects of lower interest rates lifts the prices of gold and silver. At the same time its own production of gold has been rising, up 30% year on year over the last quarter and management indicates it should meet full year targets.

Hikma is another company that has yo-yoed in and out of the FTSE100 but the recent half year results and management’s upgraded outlook sees a resurgence in the share price of the Middle Eastern and North American focussed generics drugs producer. Increased R&D investments have broadened its drugs pipeline and it has made successful launches of recently approved drugs.

Other candidates for relegation are Directline and Kingfisher with engineering group Meggitt with an outside chance of coming back in.

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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. 

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