The new-look FTSE 100: Avast, GVC, Kingfisher and Homeserve promoted to the blue-chip index as Covid crisis reshuffles the stock market
- Each quarter firms drop into and out of the FTSE 100 index as they change size
- EasyJet, Carnival, Meggitt and Centrica exit the index as they shrink
- Avast, GVC, Kingfisher and Homeserve step up into blue-chip index
- Covid crisis plays crucial role in this latest reshuffle
While relegation and promotion among the British football leagues remains on hold a matter of fierce debate, no such uncertainty clouds the London stock market.
The latest quarterly recalibration – whereby firms drop out of and into the FTSE 100 index according to their new market valuations – might be called the Covid reshuffle, with the impact of the crisis central to listed firms’ fate.
One analyst called it the most far-reacing reorganisation in the index’s history.
Cybersecurity company Avast, Ladbrokes’ parent firm GVC Holdings, domestic maintenance giant Homeserve and B&Q owner Kingfisher have all leapfrogged into the blue-chip index.
The quarterly FTSE 100 reshuffle has seen travel-related companies drop out, replaced by a variety of firms related to domestic needs.
FIRMS PROMOTED TO FTSE 100
By Helal Miah, Investment Research Analyst at The Share Centre
AVAST
The software security group ranks the highest at 75th place, and was on course to join the blue-chip index before Covid. The shares did experience a significant sell-off at the onset of the crisis but have nearly clawed back all of those losses as more people work 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, and they have kept their final dividend.
GVC
The shares of Ladbrokes’ owner 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. Ranks at 85th place.
KINGFISHER
A surprising re-entry: 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 is natural for people to look to spruce up their property. 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 Covid-19. Ranks at 90th place.
HOMESERVE
The shares have also made a dramatic recovery since the initial sell-off and another company 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 figure. 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. Ranks 91st place.
The four heavyweight firms to drop down into the FTSE 250 after their market capitalisations fell are easyJet, cruise company Carnival, British Gas owner Centrica and aerospace engineer Meggitt.
Adrian Lowcock, head of personal investing at Willis Owen, an investment platform in the UK said that the two airline stocks’ relegation ‘looked nailed on weeks ago’.
‘Investors need to be aware that it could be some time before they return to the blue-chip index given the outlook for travel remains very uncertain, with any return to pre-crisis levels likely to take years, not months,’ he added.
‘The reshuffle is one of the most far-reaching in the index’s history and will impact many tracker funds. The crisis looks to have accelerated the shift to digital solutions for consumers.
‘Whilst some of today’s reshuffle may be reversed in due course, the disruption caused to businesses has really highlighted the need for companies to have both robust demand and strong business models.’
FIRMS RELEGATED FROM FTSE 100
By Helal Miah, Investment Research Analyst at The Share Centre
CARNIVAL
Shares are down nearly 60% since travellers were left stranded on quarantined ships for weeks. With 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. Now ranked at a lowly 150th place.
CENTRICA
Probably the one least affected by the current crisis, it has been in the relegation zone for some time now down to other factors, biggest of which is the tough trading environment in the UK. New cheaper utility providers have swept away its customer base and price caps from the regulator limit its profits. Its upstream business has felt the direct impact of lower oil and gas prices. Many felt a dividend cut was already on the cards even before the current crisis. Ranks at 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 many more planes, fewer parts and components are needed. The medium term outlook also looks highly uncertain as the likes of Boeing and Airbus will build fewer planes. Ranks at 139th place.
EASYJET
Despite a recent recovery, the share price is still roughly half of what it was back in February. 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. Ranks at 121st place.
Gambling giant GVC Holdings would seem a surprise entrant to the FTSE 100 given the cancellation of sporting events worldwide and its share price plunging in March.
But analyst Nicholas Hyett of Hargreaves Lansdown writes that ‘unlike some other operators GVC has multiple strings to its bow, and its online casino business has seen a modest rise in activity’.
‘It’s more evidence of something we’ve observed throughout this crisis – while some sectors have been hit hard, in general coronavirus and the associated lockdowns have turbo-charged trends that were already well underway,’ he added.
Meanwhile, Centrica seems to be the odd one out among the relegated companies.
Emily Waterworth at Brewin Dolphin said that the energy sector had been hit hard by unprecedented lows in the oil and gas prices, price and the cancellation of services such as Smart Meter installations.
A recent rally in oil prices wasn’t enough to save Centrica’s place in the FTSE 100.
Meggitt, which supplies components and systems to the aerospace industry, has suffered following the mass suspension and cancellation of flights by airlines and the resulting grounding of aircraft.
EasyJet’s shares were trading above 1,500p at the start of March but have since halved as a result of plunging passenger demand. In April, 99.6 per cent fewer people rode on an EasyJet plane compared to the same month last year.
Nine firms meanwhile are expected to gain entry to the FTSE 250 including Oxford Biomedica, which signed an agreement last week with AstraZeneca to make a Covid-19 vaccine candidate.
One significant faller from the FTSE 250, the events business Hyve Group, has seen its share price collapse by over 95 per cent since March as the coronavirus pandemic wreaked havoc on the exhibitions and conferences industry.
Brewer Marston’s, travel company Stagecoach, and specialty chemicals firm Elementis are also likely to be relegated from the index.