Published 09 Dec 2013 13:46
LONDON (Alliance News) – The quarterly FTSE index review this week looks set to be heavily influenced by the resurgence of the IPO market over recent weeks, with the now privately owned Royal Mail set to jump straight in to the leading UK index.
The index reshuffle, which is based on changing market capitalization, usually sees the smallest three companies in the FTSE 100 moved down to the FTSE 250 and vice versa. The review takes place after the market close on Tuesday December 10, with changes announced on Wednesday December 11 and the new constituent lists effective from market open Monday December 23.
“It’s fair to say that the resurgence in the IPO market, including big names like Royal Mail, has reignited the public interest in investing in shares, set against what’s been a strong year for the market in general”, said Head of Equities at Hargreaves Lansdown Richard Hunter.
In some cases it’s still all to play for and the index listing of some stocks will be decided by the share price performance over the coming 48 hours.
“With so many new listings to consider it’s a close run thing this month”, said Shore Capital Head of Equity Sales Philip Kerr.
Here’s a run down of how things look set to change, based on current analysis by Alliance News.
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FTSE 100 Adds:
Royal Mail PLC: Market Capitalisation GBP5.92 billion. Having joined the main market after a controversial IPO in October, Royal Mail looks set to jump straight in to the FTSE 100 at its first review. A possible privatisation of the 501-year-old postal service had been mooted for many years but the current coalition government finally pulled the trigger in October. The IPO price was set at 330 pence, apparently at the top end of the range advised to the government. However, massive over-subscription sent the price up more 40% on it’s first trading day. It has continued to perform strongly since, making Royal Mail “a shoe in” for entry to the blue chip index, said Hargreaves Lansdown’s Richard Hunter. Current share price 592.60p.
3I Group PLC: Market Capitalisation GBP3.59 billion. Shares in the private equity company suffered some heavy selling when the company announced interim results in mid-November but have performed well since and actually trade at almost exactly the same price today as they did at the last index review three-months ago. A relative out-performance to others of a similar market cap over the quarter means 3i looks could be the only company currently listed in the FTSE 250 to move up to the FTSE 100. Current share price 369.50p.
Merlin Entertainments PLC: Market Capitalisation GBP3.54 billion. Merlin was another high-profile IPO since the last index review, with the owner of attractions like the London Eye and Madame Tussauds, raising about GBP200 million from a sale of 20% of the business. Merlin’s early November IPO was priced at 315 pence. Since then shares have gained more than 11%, which, as things stand, should be enough to get the company in to the bottom end of the FTSE 100, although it’s “touch-and-go”, said Richard Hunter. Current share price 351.00p.
Taylor Wimpey PLC: Market Capitalisation GBP3.50 billion. At current prices, the company will just miss out on joining fellow house builder Persimmon in the FTSE 100, but a strong performance in the coming hours could see it displace either Merlin Entertainments or 3I Group. House builders have been having a good run over the last quarter due to the strong UK house price recovery and the introduction of the second stage of the government’s Help to Buy scheme. Although the sector took a knock at the end of November when the Bank of England announced it would no longer target its Funding For Lending scheme at mortgages, some analysts argued this just provided a better buying opportunity. Taylor Wimpey has more embedded value than most of its peers in its “consented and strategic land banks”, said Jefferies Analysis Anthony Codling. Everybody knows by now that house prices are rising, and there is good evidence that land prices follow house prices, said Codling. Current share price 108.3p.
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FTSE 100 Deletes:
Vendata Resources PLC: Market Capitalisation GBP2.32 billion. The India-focused miner has been one of the worst performing FTSE 100 stocks since the last index review, falling about 25%. Suffering from the fall in global commodity prices, Vedanta reported a huge drop in half-year pretax profit in mid-November and a number of broker price target downgrades followed. Now with the smallest market cap in the Index by far, Vedanta looks sure to be deleted from the FTSE 100 and added to the FTSE 250. “Vedanta is a very sentiment driven stock and the enthusiasm for it has dimmed”, says Liberum Capital analyst Ben Davis. “It’s also difficult to see how the Indian elections will play out in March, but the shares are getting sown to a level that should reignite interest”, the analyst said. Current share price 838p.
Croda International PLC: Market Capitalisation GBP3.13 billion. The speciality chemicals company warned investors of a subdued fourth-quarter ahead when it released its third-quarter interim results. Although both profit and turnover increased in the third-quarter, the results were below consensus expectations and management warned that the weakness of currencies such as the Indian rupee would hurt its profitability for the remainder of the year. Since that update shares have fallen more than 13% and Croda looks set to spend the next quarter in the FTSE 250 – although it will join close to the top of the index and management have said they are confident in delivering progress in 2014. Despite the forex headwinds, it’s encouraging that sales are increasing in new and patented products, says Deutsche Bank analyst Martin Dunwoodie. Current share price 2,306p.
William Hill PLC: Market capitalisation GBP3.27 million. The increasingly competitive UK betting market has seen William Hill’s share price drop more than 20% from a mid-summer peak as companies report profit margins in the industry being squeezed. UBS added William Hill to it’s “most preferred” list earlier this month, saying it thinks the selling of betting stocks in general has gone far enough and that William Hill in particular is well placed to benefit from the UK’s economic recovery. With an increasing focus on football William Hill should also see a boost from the 2014 world cup, said Jefferies analyst James Wheatcroft. It remains in the balance whether William Hill will join fellow bookmaker Ladbrokes in the FTSE 250, as the stock is currently the third smallest FTSE 100 company by market cap, neck-and-neck with AMEC. Current share price 376.989p.
Amec PLC: Market capitalisation GBP3.27 million. Competing for position with William Hill, the two stocks are currently trading places between 97th and 98th in the FTSE 100. Shares have dropped more than 8.0% over the last month. Current share price 1,098p.
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FTSE 250 Additions:
Grafton Group PLC: Market capitalisation GBP1.44 billion. The Irish building merchants decided to ditch its Irish listing earlier this year in favour of the London Stock Exchange so that it could be included in a FTSE index. The stock began trading with a main listing on the London market in October, making this week its first index review. The size of the company should mean it’s one stock that is guaranteed entry to the FTSE 250 index, firmly at mid-table. The company said it made the move to the London market to boost its profile and attract more investors. Current share price 618p.
Foxtons Group PLC: Market capitalisation GBP830 million. Another significant IPO over the last quarter saw the private equity owners of the well known UK estate agent offer about 60% of the company to investors at a price of 230 pence per share. In early November Foxtons released its first set of results since privatisation and showed revenue up 18% year-on-year. The stock has since received a number of broker rating upgrades on the back of strong results and a booming UK housing market. The company’s valuation should see it join Grafton around the middle of the FTSE 250. Current share price 294p.
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FTSE 250 Deletes:
Dialight PLC: Market capitalisation GBP287 million. Dialight narrowly avoided deletion at the last review. The LED technology company dropped more than 15% on the day after that review after it said full-year profits would only be in-line with the previous year as new contracts were not going to be awarded in time to effect the current financial year. The company is now the smallest by far in the FTSE 250 and looks set for relegation from the index. Current share price 885.50p.
Schroder Asiapacific Fund PLC: Market capitalisation GBP345 million. With shares trading just marginally lower than at the last index review, down to 244.6p from 249p, a relative under-performance to the index puts Schroder Asiapacific Funs in the firing line for deletion. Current share price 244.6p.
Carpetright PLC: Market capitalisation GBP360 million. Shares of the flooring retailer have fallen more than 20% since a negative trading update in October, which was accompanied by the announcement that company CEO Darren Shapland was stepping down. Capretright are due to update the market on Tuesday with interim results, with any sign of a consumer pick up or positive dividend surprises likely to provide a share price boost, said a research analyst. Currently the third-smallest FTSE 250-listed stock by market cap, the shares have some way to go to become fourth smallest. Therefore Carpetright’s index fate will lie with FTSE’s decision over how many stocks will; be relegated from the index. In any case, the sharp ride seen in mortgage applications and approvals suggests the company should receive a boost when the lag from the housing market kicks in to home refurbishments, said the analyst. Current share price 533.00p.
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By Jon Darby; jondarby@alliancenews.com; @jondarby100
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