Update: Carnival, Centrica, EasyJet and Meggitt fall out of FTSE 100

Many predictions come true as FTSE reshuffle kicks out some big names in favour of recently consistent performers.

Article updated: 4 June 2020 2:00pm Author: Helal Miah

  • Avast, GVC, KGF and Homeserve all gain promotion to FTSE 100
  • Reshuffle reflects current crisis, with those facing relegation coming from the sectors which have taken a beating
  • While those entering were already doing well pre crisis and have either benefitted or managed to mitigate the current situation

This FTSE reshuffle is highly reflective of the current crisis environment. Stocks from sectors that have taken a beating go out and questions arise as to how and whether some of these can manage this crisis. Carnival, Meggitt and EasyJet all head lower as the travel sector has taken a pounding. Meanwhile Centrica, a long standing member of the index and owner of British Gas, also heads for the mid-cap index – something unimaginable considering how retail investors piled into national industries that were being privatised under Margaret Thatcher.

Replacing them are some businesses that were already doing well before this crisis hit but that have also either benefitted to some degree or have managed to mitigate the crisis well. Avast, the software security business, comes in to the top 100 ranked at 75th in terms of market cap, while online gaming group GVC makes its return. Kingfisher and Homeserve also get promoted, but only just by virtue of the fact that four companies had to go down.
These changes will become effective on the 22nd of June.

Relegations:

Carnival’s shares plunged more than most, down nearly 60% since the crisis first hit Europe as travellers were left stranded on quarantined ships for weeks. With further cruises and bookings coming to a halt and the perception that cruises could be the area most hit within the travel sector, further equity capital raising hasn’t been enough to prevent its market capitalisation falling, leaving them ranking at a lowly 150th place.

Centrica is probably the one least affected by the current crisis. It has been in the relegation zone for some time now down to many other factors, biggest of which is the tough trading environment in the UK as new rival utility providers sweep away its customer base through offering lower bills. Energy price caps from the regulator limits its profits while its upstream business has felt the direct impact of lower oil and gas prices. The global crisis has helped mask many of the troubles at the owner of British Gas. Many felt a dividend cut was already on the cards even before the current crisis, making it easier for them to cancel the final dividend at the time of the publication of the full year results. The breakup of British Gas into two separate businesses some years ago, with one part now owned by Royal Dutch Shell, already reduced its relevance in the FTSE100 and has now ultimately lead to its demise, something many could not have imagined during the privatisation in 1986. Drops down to 143rd place.

Meggitt, the aerospace engineering group which only recently made a return to the top index, is out again. Its business was already feeling the impact of the grounding of Boeing’s 737 Max planes following two accidents and now, with airlines having grounded planes, fewer parts and components are needed while on the ground. The medium term outlook also looks highly uncertain as the likes of Boeing and Airbus will build fewer planes. Drops down to 139th place.

Despite a recent recovery, EasyJet’s share price is still roughly half of what it was back in February, leaving it as the fourth company being relegated. A strong liquidity position and its apparent ability to survive grounded flights for months isn’t enough for investors as it simply cannot win when people aren’t travelling. Like many others, dividend cuts and job losses have been announced to save on cash flows. However, EasyJet is one of the better-run airlines and we’re confident it can make a better recovery than some of its peers when lockdowns and travel restrictions are lifted. Drops down to 121st place.

Promotions:

The software security group Avast ranks the highest at 75th place. The shares did experience a significant selloff at the onset of the crisis but has nearly clawed back all of those losses as more people working from home need tighter security and antivirus software on their devices. This is expected to more than mitigate the loss from some business sectors hit by the pandemic. The group was on course to be in the top index before the crisis hit anyway, as organic growth for the last financial year hit 6.5%.

Management has maintained its guidance for the current year and this confidence led them to keep their final dividend.

GVC has been in and out of the top index lately and this is another company that has made a good recovery since the initial stock market hit from the crisis. The shares plunged as sporting events were cancelled worldwide, leaving punters with not much to bet on.

However, the group’s diversification through other sources such as online casinos, poker and slot games is expected to bring in new customers who are at home with not much else to do. Comes in at 85th place.

A surprising re-entry is Kingfisher. Its shares have made a strong recovery as DIY stores remained open in some places, albeit through click and collect services only. With people stuck at home, it’s natural for people to look to spruce up their home when they now have so much time on their hands. However, we fear this will be another yo-yo stock as the retail sector still grapples with its pre-existing challenges as well as the impact from coronavirus. Comes in at 90th place.

Homeserve’s shares have also made a dramatic recovery since the initial sell-off. They were always likely to join even if the crisis hadn’t happened as the shares have steadily climbed in recent years as customer numbers grew. Its latest full year results recently published shows revenues and earnings climbing by double digit figures. It intends on paying out the final dividend and the crisis luckily hit during a quieter period for the group who are traditionally busy during the winter months across its developed markets. Comes in at 91st place.


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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