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FTSE Index Review: who’s in and who’s out?

The constituents of the FTSE 100 and the FTSE 250 are reviewed on a quarterly basis. We have a look at which of London’s companies have risen to earn their place, and those that have fallen from grace in the first shake-up of 2018.

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Royal Mail
Source: Bloomberg

Quarterly review of the FTSE 100 and FTSE 250

The constituents of the FTSE 350 are reviewed quarterly, and based on the closing share prices on the Tuesday before the last Friday of the review month.

This review has been based on the closing share prices on 27 February, and the changes become effective when markets open on 19 March.      

FTSE 100 Index Review

Entering

Exiting
Royal Mail Group Hammerson

 

 

Royal Mail delivers for shareholders to return to FTSE 100

Royal Mail will return to the FTSE 100 after losing its place six months ago. Shares found support in mid-November, when it released its interim results and raised its dividend 4%. Underlying revenue rose 2% year-on-year, while profit was broadly flat, with parcel volumes growing as expected while the ongoing decline in letters has not been as severe as forecast.

The postal operator has since got through the all-important December period, to place confidence behind its outlook for the full year.

Shares jumped in early February after the firm struck a vital deal with the Communication Workers Union over pensions, pay, a shorter working week, culture, and operational changes – without having to change its existing budget. The cost of implementing change and ongoing redundancies is still forecast to be £130 million to £150 million per year going forward, but at the lower end for the current financial year.

Excluding those costs, operating profit this year is set to be ‘at least’ £680 million, a 39% jump from the £490 million reported last year. Royal Mail will release its annual results for the year to 25 March 2018 on May 17.

Hammerson’s big bet on Intu Properties sees it exit FTSE 100

The retail property firm behind some of the UK’s biggest shopping centres has failed to sell its big bet on ‘bricks-and-mortar’ retailers since launching a £3.4 billion recommended all-share offer for Intu Properties late last year.

Although Hammerson boasts the deal would create a £21 billion ‘pan-European’ portfolio, the combination would see Hammerson’s UK exposure grow. Ultimately, investors have not been convinced doubling-down on the UK retail space is wise when footfall and high street sales are on a long-trending decline, especially with Brexit still to come.

However, any tie-up would see Hammerson likely to return to the blue-chip index.

Hammerson’s 2017 annual results were released earlier this week, and shares failed to find inspiration. Investors don’t seem tempted, even though Hammerson’s portfolio value grew 5.9% to £10.6 billion, while its current share price only values Hammerson as a whole at just £3.6 billion.

That was also despite the company reporting improved returns from both property and capital, higher occupancy levels, and strong profit growth despite a dip in rental income. Even a 6.5% hike to the dividend failed to win over investors.

ContourGlobal enters FTSE 250 after IPO

The US energy group joins the FTSE 250 after its initial public offering (IPO) last November priced at 250p per share, floating 25% of the business. Founded by current chief executive Joseph Brandt and Reservoir Capital Group in 2005, ContourGlobal buys and develops power plants. Its portfolio is comprised of thermal, renewable energy, spread over 19 countries.

After a quiet start, ContourGlobal shares began climbing in December after sealing a deal for a new power plant in Kosovo, and rose further after appointing Ruth Cairnie, former vice president of strategy and planning at Royal Dutch Shell, as a non-executive in early January.

The recent uptick in February was prompted by the company’s acquisition of a solar farm in South-West Spain. Preliminary results for 2017 will be released on 5 April.

Bakkavor Group joins FTSE 250 after IPO

After a seemingly nervous IPO in November, Bakkavor Group joins the FTSE 250. The company, which supplies prepared food to UK supermarkets, launched its IPO only a week after it said it had decided not to proceed with a listing because of volatility in the IPO market. The IPO price was 180p, and the free float was 25% of the business.

Bakkavor’s news flow has been slim since listing. In January, the company said revenue in 2017 rose 4.6% following ‘continued progress across all parts of the business’, with annual results to be in line with expectations.

Full year results were released the day after the Index Review deadline, with revenue, like-for-likes, underlying profit, and free cashflow all heading in the right direction. Profit at the bottom line took a big hit however, due to listing costs and its refinancing efforts. The first dividends from the firm are due in 2018.

Pantheon International enters FTSE 250 after share consolidation

Pantheon International, which invests in private-equity funds, saw shares rise in late September last year, after consolidating all of its shares into one share class, reducing exposure to its lower performing tail portfolio, and paving the way for share buybacks. The share consolidation also made it easier to invest in the company, providing more liquidity.

The company provides monthly performance updates, and after seeing a tiny 0.1% month-on-month lift in net asset value in December, net asset value (NAV) slumped 4.4% in January. Its interim results covering the six months to the end of November were released in February, showing 2.5% NAV growth year-on-year.

Pantheon’s NAV has almost trebled since the financial crisis, and its share price has followed it, comfortably outperforming the FTSE All-Share Total Return and the MSCI World Total Return in sterling terms.

With valuations remaining high and low market volatility, Pantheon is focusing more on mid-market opportunities and ‘out of favour’ sectors going forward with the aim of growing returns over the long term.

Games Workshop makes the right moves to enter FTSE 250

Games Workshop was one of the best-performing stocks in the FTSE All Share Index in 2017. The company is best known for making miniature figurines used to play the likes of the Warhammer game brand, and makes a large proportion of its revenue abroad, in countries like the US, Australia and in Asia.

Shares have rallied since the company released annual results in July 2017, when pre-tax profit more than doubled, allowing it to hike its dividend to 74p from 40p.

The performance has continued to improve, after its latest interim report released in January showed its £38.8 million pre-tax profit in the six months to 26 November 2017 was more than the entire annual profit made in the previous financial year. The interim dividend was also raised to 61p from 25p the year before.

It announced another 35p dividend in early February, when it also said sales profit for the current financial year to 3 June should be ‘slightly above’ expectations.

Charter Court Financial Services Group enters FTSE 250 after IPO

Charter Court Financial Services Group is a mortgage provider operating in the UK, which listed in London in early October 2017 at an IPO price of 230p per share. Trading has remained on track, with mortgage originations rising 8.3% year-on-year in the nine months to the end of September with its loan book growing by a huge 47%.

Results in its first financial year since listing, covering 2017, are on course to meet expectations and will be released on 20 March.

On The Beach Group shares follow revenue growth to enter FTSE 250

Online travel agent On The Beach has delivered solid results in a competitive market. In the last financial year to the end of September 2017, the company’s pre-tax profit was up by 25% on the back of strong revenue growth. The dividend was hiked 27% to 2.8p from 2.2p.

In February, the company said revenue in the UK rose 23% in the four months to the end of January 2018, supported by the collapse of Monarch Airlines and destinations in the Eastern Mediterranean reopening. Interim results for the six months to the end of March 2018 will be released on 10 May 2018.

Baillie Gifford Japan Trust enters FTSE 250 as NAV climbs to all-time high

Baillie Gifford Japan Trust enters the FTSE 250 having outperformed its benchmark index four out of the last five years, with its NAV rising 34.9% in 2017, with its share price rising at an accelerated pace of over 47%.

The lift came despite no dividend being paid in the last financial year to the end of August, as its revenue reserve remained in deficit.

Still, its NAV stood at its highest ever level at the end of January 2018, and shares have traded at a premium since the middle of 2013. At the end of January, shares traded at a 15% premium to NAV.

Dignity shares fall from FTSE 250 after profit warning

UK funeral provider Dignity confirmed its 2017 results met expectations in January, but investors sold off shares after the company warned profit in 2018 would come in way below expectations, as it looks to address aggressive price competition in the market.

The firm cut and froze the prices of its funeral packages, and began looking how it can be ‘run more efficiently and effectively’. Preliminary results will be released on 14 March.

Dignity also said it plans to provide the first update on the progress being made with the new balance between volumes and margins in its next set of interim results in August.

AA breakdown sees shares slump out of FTSE 250

Shares suffered heavily following the removal of chairman Bob Mackenzie last August for allegedly hitting a colleague, and the issue may be dragged on following reports Mackenzie is taking AA to a tribunal over the matter.

The roadside assistance company known for its bright yellow vans provided another big knock on its shares in February when it unveiled a three-year plan to get the business on track. But it comes at a cost, as AA issued a profit warning and said it would pay a fixed 2p annual dividend for the immediate future, slashed from 9p last year.

AA is turning its attention to monitoring systems to help foresee mechanical issues, as well as building its insurance business. Annual results for the year to the end of January will be released on 17 April.

Mitie Group exits FTSE 250 as problems mount

Mitie Group had issued three profit warnings in just four months by early 2017, and following the collapse of Carillion (which has tarnished the entire UK outsourcing sector) there has been a perfect storm to send shares to their lowest level since April 2005.

To make things worse, the Financial Reporting Council (FRC) launched an investigation into former directors of Mitie last November, which is still ongoing. The board has also undergone some changes, after a new chairman took over in May and numerous changes to the head of its finance department in 2017.

In the first half of the current year, it paid a dividend of 1.33p. The year before, Mitie declared a 4p interim dividend before deciding not to make a final payout that year. As it continues to undertake a three-year ‘transformation programme’, like-for-like revenue was up 3.9% in the first half, with like-for-like operating profit up 5.8%.

Annual revenue from its continuing operations is guided to grow 3% to 4% this year, with a medium-term margin target between 4.5% to 5.5%. That margin was only 3.8% in the previous year. The company will release a pre-close statement for the full year on 16 March and its annual results on 7 June.

N Brown Group to exit FTSE 250 after sharp January drop

N Brown Group is behind fashion brands including Jacamo, JD Williams, and Simply Be. Shares experienced a sharp drop in January after the release of its third quarter results, which continued to see revenue growth from all of its core brands, while improving the quality of its loan book.

However, the growth in its loan book is pushing net debt higher, and the company warned increased promotional activity will mean its product margin tightens more than previously guided.

Annual results will be released on 26 April, with consensus expectations for trading pre-tax profit of £79.2 million, down from £80.6 million the year before, which in turn dropped 8.7% from the year before.

Acacia Mining falls from FTSE 250 as Tanzania takes its toll

Acacia Mining had a torrid 2017, plagued by a crackdown of exports of gold concentrate out of Tanzania, where its producing mines lie, as the government looked to have minerals processed inside of the country rather than abroad.

The miner released its 2017 annual results in early February, sinking to a $707.4 million net loss from a $94.9 million profit in 2016, after the ban caused lower gold production that saw it lose out on $264 million of revenue. It also booked a $644 million impairment in light of the uncertainty in Tanzania.

Shares continued to sink after the miner confirmed in mid-February that it is valuing its assets in preparation for a possible sale a stake in some or all or of its Tanzanian assets to interested Chinese companies, although no firm offer is currently on the table.

Hansteen Holdings exits FTSE 250

Analysts are currently bearish on Hansteen Holdings, which trades in industrial property, fearing it is overvalued. Shares rallied after it announced its interim results in August, which saw normalised total profit, which takes discontinued operations into account, almost treble and the dividend upped to 2.3p from 2.2p.

The latest dive in February took shares to a two-month low and came after the firm sold off a portfolio for £166 million and earmarked the funds for paying down debt rather than reinvesting the funds or returning it to shareholders. Annual results for 2017 will be published on 20 March.

Vectura Group exits FTSE 250 as outlook fails to inspire

Shares in Vectura Group, which makes inhalers using proprietary formulations and devices, have been on the decline since the company warned revenue would be hit by foreign exchange headwinds in 2018, overshadowing confirmation that results for 2017 were on target.

That follows on from delays in gaining approval for its Advair programme in the US.

It also announced a shift in strategy, with its solo work focusing on lower risk developments using known molecules whilst lowering its exposure to higher risk activity by working with more partners on novel molecules. Annual results for 2017 come out on 21 March.

What other companies were close to moving?

Narrowly holding onto their positions in the FTSE 100 were Mediclinic International, Halma and Marks & Spencer. Weir Group, Melrose Industries and Investec were some that missed out on joining the FTSE 100 this time round.

Meanwhile, Edinburgh Dragon Trust, JPMorgan Japanese Investment Trust and VinaCapital Vietnam Opportunity Fund missed out on joining the FTSE 250.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.