FTSE reshuffle - retailers face the big drop

Here’s what you need to know 

Next week’s FTSE reshuffle promises to pile a bit more woe at the doorstep of some familiar high street names. The reshuffle is calculated based on closing prices on Tuesday 29 May, will be formally announced after the market closes on Wednesday 30 May, and becomes effective from Monday 18 June.

  • M&S hanging in there by a thread
  • Mothercare, Carpetright and Moss Bros set to fall out of FTSE All Share
  • Ocado on the up
  • Woodford Patient Capital may drop out of FTSE 250

Laith Khalaf, Senior Analyst, Hargreaves Lansdown:

‘Marks and Spencer looks like it’s going to avoid relegation from the FTSE 100 by the skin of its teeth. Reshuffles happen every three months though, so this is a stay of execution rather than a full pardon. M&S boss Steve Rowe is promising transformation, and has been candid in admitting it’s a lengthy road ahead. However the pace of disruptive technological change means making M&S special again is a moving target, and management are taking aim from a long way out.

Barring a minor miracle a trio of high street names will be leaving the FTSE All Share, as Carpetright, Mothercare and Moss Bros face ejection, so shares in these companies will be jettisoned from the large number of passive funds which track this index. These companies are struggling to make ends meet, so losing their place in the index is probably a peripheral concern, though it still has negative implications for the liquidity in these stocks.

In a sign of the old economy giving way to the new, Ocado looks set to gain promotion to the FTSE 100 in this reshuffle. A spate of licensing agreements has trumped up the share price in recent months, and shows that Ocado is well-versed in the art of the deal.’

FTSE 100 promotions

Ocado looks likely to enter the FTSE 100 for the first time after a sensational year which has seen the share price treble. The company has managed to sign deals in France, Sweden, Canada and the US to license out its market-leading online delivery technology. Ocado has for some time been a popular stock for hedge funds to bet against, but now just 5% of the company’s shares are in the hands of the short sellers compared to 13.5% in January. There’s still the question of turning potential into profits, but the cookie jar lid has now definitely been prised open.

Gambling group GVC is also vying for automatic promotion to the FTSE 100, despite the UK government clamping down heavily on Fixed Odds Betting Terminals. While this door has closed, another has opened in the form of the US sports betting market, which looks set to be unlocked following a landmark ruling from the US supreme court. GVC may not be a familiar name, but it’s a serial dealmaker, acquiring Ladbrokes Coral earlier this year, the online bookie bwin in 2016, and Sportingbet in 2013.

FTSE 100 Relegations

G4S looks set to be ejected from the blue chip index, not for the first time in its history. The global security company is no stranger to controversy, with scandals including overcharging the MoJ for electronic tagging and botching security arrangements at the London Olympics. The share price has actually been climbing recently after posting a positive set of results in March, but that doesn’t look like it’s going to be enough to save its blushes in this reshuffle.

M&S was one of the founding members of the FTSE 100 and has been in the index since it was launched in 1984, however it is now on the cusp of relegation. It’s some way clear of the automatic drop zone, so its fate depends on how many companies achieve automatic promotion to the FTSE 100, and how its share price fares in the next couple of days versus other FTSE 100 laggards like Severn Trent and Mediclinic. At the moment it looks like M&S will hang on in there by a very fine thread.

FTSE 250 promotions

Integrafin, the owner of adviser platform Transact, is expected to enter the FTSE 250 following its recent listing. Premier Oil and the AA group also look like securing promotion to the mid cap index, and AO World has a shot too.

FTSE 250 Relegations

Woodford Patient Capital Trust looks like it may fall out of the FTSE 250 for the first time since it listed in 2015, with the shares now trading around 26p below the £1 launch price. Successes in the fund include Benevolent AI, Oxford Nanopore and Purple Bricks, though these have been outweighed by poor performance from stocks like Prothena, Circassia and Northwest Biotherapeutics. Investing in early stage companies clearly comes with risks attached and, as the title of the trust suggests, a good deal of patience is required. It’s worthy of note that the trust works on a ‘no win, no fee’ basis, so the investment manager shares in the financial fortunes of investors. The trust has to return a cumulative 10% a year before Woodford Investment Management makes a penny, and to date no management fee has therefore been charged.

On the BeachPureCircle and Renewi also look like falling out of the FTSE 250 index this time around.

FTSE Small Cap/ FTSE All Share relegations

A trio of high street retailers will be jettisoned from the FTSE All Share in the coming reshuffle, with CarpetrightMothercare and MossBros all deep in the drop zone.

While promotion to and relegation from the FTSE 100 is clearly the highest profile element of the reshuffle, ejection from the FTSE All Share is actually much more significant in terms of liquidity and impact on a company’s share price. That’s because of the large number of passive funds which track the broader All Share index, who will no longer need to hold these stocks going forward. Losing a spot in the FTSE All Share is not good news for these high street retailers, but they’ve got bigger problems to contend with right now.

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