FTSE 100 could be in for its biggest shake-up since 2009 as latest index shuffle looms

Despite their latest sharp rallies, easyJet and Carnival are still very likely to lose their FTSE 100 status in the latest quarterly reshuffle, thanks to the even bigger falls seen during the spring as their revenues dwindled to pretty much zero. Centrica and Meggitt also look destined for the drop, as their market capitalisations leave them ranked way below the 110th place cut-off.

Avast, Homeserve, GVC and Convatec look the most likely names to take their places but Kingfisher, Foreign & Colonial Investment Trust, B&M European Value Retail and Direct Line are all jockeying for position and sudden gains in their share prices could yet vault them into the UK’s premier index. The most at risk of demotion then would be ITV and M&G.

As such, eight changes are likely – four names in, four names out – but that number could go higher. Six promotions and relegations (for a total of 12 changes) have not been seen in one single quarterly reshuffle since September 1992 and even four pairs changing places is relatively rare, with the last instance of this being March 2016.

Number of promotions/demotions (pairs) Number of occurrences Dates

Source: FTSE Russell. One promotion/relegation pair signifies two changes to the index – one company in and one company out

If they make the leap, GVC and Convatec would be returning to the FTSE 100 for the first time since March 2019 and December 2017 respectively, while Homeserve and Avast would be making their debuts in the premier index.

Meggitt and EasyJet only returned to the top flight in September and December 2019 so their latest forays may prove brief but Centrica and Carnival have enjoyed much longer tenures. Centrica has been ever-present in the FTSE 100 since its demerger from British Gas in February 1997 while Carnival can trace back its presence in the index to 2002 when it merged with P&O Princess Cruises.

It will only take a small percentage change in a few other firms’ respective market capitalisations to trigger further changes and investors will be watching these changes closely.

With so many people’s pensions now invested in tracker, or exchange-traded, funds which are designed to mirror and deliver the performance of the FTSE 100 (minus their running costs), private individuals will end up with exposure to the newly-promoted names, whether they are aware of it or not.

Possible FTSE 100 promotions in June 2020

• Cybersecurity specialist Avast operates in a hot area and promotion to the FTSE 100 looks certain barely two years after the company’s initial public offering at 250p a share (for a £2.4 billion valuation) in May 2018. The Czech company got off to a sticky start as its listing was priced at the bottom end of the proposed range and then sagged to nearly 200p before they began to build up a head of steam. The owner of Avast and AVG firewall, anti-virus, malware and anti-hacking toolkits has since gone from strength to strength as consumers have become ever more aware of the risk of data and privacy loss, although Avast itself is still trying to shake off a privacy issue of its own, amid allegations that it was selling customer data via a subsidiary called Jumpshot
• Convatec is looking to return to the FTSE 100 following an initial brief tenure that ran from December 2016, just two months after its initial public offering, to December 2017. That first spell did not go well, as private equity backers swiftly unloaded stock, but the hiring of former Genus’ CEO Karim Bitar looks to have been a masterstroke. A turnaround plan has got the provider of medical equipment back on track as sales growth has begun to accelerate. The COVID-19 outbreak has also given fresh additional profile to the company’s product set, which are designed to combat the risk of skin infections for patients and lower the overall cost of treatment
• Shares in acquisitive bookmaker and gambling services provider GVC tumbled out of the FTSE 100 in March 2019 after share sales by CEO Kenneth Alexander and chairman Lee Feldman worth some £20 million came just days after the firm announced it would have to consider mass closures of betting in shops in the wake of the imposition of a £2 maximum bet on Fixed Odds Betting Terminals (FOBTs). Alexander bought back £5 million worth of stock last summer and GVC’s shares have rolled higher since, even allowing for a big spring dip when the whole market took a tumble. GVC cancelled its final dividend for 2019 to preserve cash but the initial hit from the closure of its Ladbrokes and Coral betting shops and the cancellation of sports events has been less than feared thanks to its online prowess. It also feels like the hit from the FOBTs clampdown was also less bad than feared, as GVC scaled back shop closure targets by around 10%
• Homeserve is a good example of Peter Drucker’s maxim that the sole purpose of a company is to find a customer. Homeserve helps out legions of consumers with its home repair services and the company has a very resilient business model, which generates recurring revenues as its membership scheme provides cover in the event of emergencies with gas, water or electricity supply. Homeserve grew its policy book during the financial crisis and its model may well prove similarly resilient in 2020 during the COVID-19 outbreak and lockdown, even if more discretionary spend through its Checkatrade platform could take a hit. The firm is also looking to crack the US market. Promotion would signify the firm’s FTSE 100 debut

Possible FTSE 100 demotions in March 2020

• Carnival, easyJet and Meggitt may all well find themselves unseated from the FTSE 100 owing to the global viral outbreak. All three have seen their businesses suffer to varying degrees thanks to the collapse in international tourism and travel which in Meggitt’s case has filtered through to the aerospace industry and the systems, parts and components that it supplies to aircraft manufacturers
• Carnival’s tenure in the FTSE 100 dates back to 2002, when it merged with P&O Princess Cruises, while demotion would end easyJet’s second stay in the index (March 2013-June 2019 and then since December 2019) and Meggitt’s second, too (October 2011-December 2015 and then since September 2019)
• Centrica's ejection from the FTSE 100 would cap a multi-year share price slide that dates back to a share price peak of almost 400p in 2013. Since then, Centrica has found itself hemmed in by the regulator on one side, increased competition and customers who are happy to switch energy providers on another, while oil price weakness has hit the company’s exploration and production business and falling gas prices have hampered energy supply. A move to providing online services such as smart metering service Hive has, thus far, not been enough to stem the tide of customer losses or shrinking profits and cashflow. Centrica cut its dividend in 2014 and 2015 then again (twice) in 2019. CEO Iain Conn stepped aside in March, after five years at the helm, and the appointment of finance director (and interim boss) Chris O’Shea as his replacement prompted some to suggest that Centrica had not been swamped with applicants, such as the challenges that face the business

How promotion and relegation are assessed

• All of the major FTSE indices are reviewed on a quarterly basis. They are set according to share prices from the close of business on the Tuesday before the first Friday of the review month (in this case Tuesday 2 June). The changes will be announced after the close on Wednesday 3 June and come into effect as of the market opening on Monday 22 June
• In general, a stock will be promoted into the FTSE100 at the quarterly review if it rises to 90th position, or above (by market capitalisation) and a stock will be demoted if it falls to 111th (by market value), providing it fulfils the other criteria, such as free float and a presence on the Main Market

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