The FTSE All Share Index Quarterly Review is based on yesterday’s closing prices and is due to be announced this evening (Wednesday 31st August) by FTSE Russell, with changes effective after the close on Friday 16th September.
- Cineworld Group plc (LON:CINE) is set to leave the FTSE All Share Index as its horror story continues
- Struggling furniture maker Made.Com Group PLC (LON:MADE) also is heading out of the FTSE All Share
- Asset manager Abrdn PLC (LON:ABDN), Hikma Pharmaceuticals Plc (LON:HIK) and Howden Joinery Group Plc (LON:HWDN) are set to leave the FTSE 100
- Harbour Energy PLC (LON:HBR), F&C Investment Trust PLC (LON:FCIT) and wound care specialist Convatec group look set to join FTSE 100
- Go-Ahead Group plc (LON:GOG), Puretech Health PLC (LON:PRTC), NextEnergy Solar Fund Ltd (LON:NESF) and Bluefield Solar Income Fund Ltd (LON:BSIF) look set to be promoted from the FTSE Small Cap to the FTSE 250
- Door manufacturer Tyman PLC (LON:TYMN), and lender Provident Financial plc (LON:PFG), are among the companies which are likely to leave the FTSE 250
- Homeserve plc (LON:HSV) looks set to vault into the FTSE 100 temporarily, replacing cyber firm Avast PLC (LON:AVST) after its takeover goes through – but the home repairs company will also soon be taken private.
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Cheap UK assets, volatility in financial markets, the cost-of-living crisis and a structural shift in the movie industry are all factors behind the moves expected to be announced in the latest FTSE quarterly review.
Based on yesterday’s closing prices it appears Abrdn’s time in the FTSE 100 limelight is drawing to an end for now, as the investment company looks set for demotion, hit by volatility in financial market and seen as “behind the curve” in its ESG fund offerings.
The horror story continues for Cineworld as it prepares for bankruptcy with its latest share slide propelling it out of the FTSE All Share. This index represents around 98% of the UK market, so Cineworld’s exit from this wide pool demonstrates just how far its star has fallen.
It’s been weighed down by its huge debts after Covid played out as a highly depressing scene for the industry with revenue streams drying up as the might of the streaming giants ate into ticket sales.
HomeServe is set to jump back into the FTSE 100 earlier than the official reshuffle as it is set to leap into the place vacated by Avast, due to its takeover by US cyber giant NortonLifeLock. But its extra time in the top-flight is expected to be limited for HomeServe as it in turn awaits takeover by Canada’s Brookfield Asset Management.
Go-Ahead group is also expected to jump into the FTSE 250, but it’s also likely to be a short lived stint given that the transport operator has also agreed to a buy-out offer from an Australian and Spanish consortium. As suitors continue to circle UK assets, amid a weak pound and worries about the health of the economy, the risk is that more listed companies will be erased from indices.
The cost-of-living crisis also looms large in this reshuffle with Howdens Joinery, door and window firm Tyman and furniture maker Made.com looking set for relegation from their positions. This is partly due to worries that increasingly squeezed household budgets will slow the pace of purchases and renovations.”
Abrdn - Set To Be Relegated From The FTSE 100
Huge geopolitical uncertainty, sky high inflation and worries about economic growth have been challenging for the asset management sector, and Abrdn’s weaker performance in this environment looks set to propel it out of the big league.
Operating profits came in lower than expected as fund flows reduced further. But this isn’t just a recent problem, assets have been walking out the door for years. It’s Environmental, Social and Governance (ESG) options currently lag peers, and demand for ESG investments is on the rise, which puts it in a tricky position.
It’s been trying to keep revenue moving in the right direction through acquisitions. It now owns Interactive Investor, which should provide a relatively stable source of assets for the group given its one of the UK's biggest direct-to-consumer investment platforms.
The majority of the funds abrdn manages have been able to deliver investment returns ahead of their benchmark – which is a key requirement if fund investors are to be tempted back.
Hikma Pharma - Set To Be Relegated From The FTSE 100
Pharmaceutical company Hikma Pharma is in the drop zone after growth ground to a halt and its chief executive headed for the door. Amid the pile up of disappointing news was the slashing of guidance for revenues and margins in its key genetics medicines division.
However, there were still a few rosier developments, with forecasts increased for its branded products and the injectables part of the business is still expected to follow the slightly higher trajectory laid out in April.
But weakness may continue until a long-term replacement is found for Siggi Olafsson given that the executive chair and former CEO Said Darwazah, has only stepped into the breach temporarily.
Howdens - Demotion From The FTSE 100
“There were high hopes that the shift in consumer behaviour brought about by the pandemic would be long term and the focus on doing up homes would continue as people continued to race for more space amid new hybrid ways of working.
But worries are rising that amid the cost-of-living crisis consumers will put off launching fresh new renovation schemes unless absolutely necessary and that’s led to falls in Howden’s valuation, making it a potential contender for demotion from the FTSE 100, after only joining the index earlier in the spring.
The red-hot housing market is also seeing tentative signs of cooling off with rates set to continue to rise amid painful inflation. However, Britain’s housing stock is ageing and that should provide some resilience particularly with the fresh focus on energy efficiency which could provide added impetus for renovations.’’
AVAST Set To Leave FTSE 100 While Homeserve Is Set To Join Temporarily
“The London market may be showing signs of some short-term resilience but private equity firms are set to keep circling around the bargain bin, picking up firms discarded by investors.
After the Competition and Markets Authority provisionally approved the takeover deal of cyber security firm Avast by US giant NortonLifeLock, the deal is expected to go through assuming final approval is given on 12 September, which will see Avast removed from the index.
HomeServe, the Walsall based British multinational home emergency repairs and improvements business will temporarily move back into the FTSE 100. But it will be scratched from the index once its takeover by Brookfield Asset Management goes through in the next few months.
These exits from the London market are unlikely to be the last, given how much interest there has been in UK assets from overseas buyers. The risk to capital markets is that competition and innovation could suffer if corporate concentration continues to rise.
Retail investors who are unable to access private markets may also lose out because they won’t be able to share in the returns of as many companies in the economy, with some of the better opportunities going private.”
Harbour Energy – Set To Enter The FTSE 100
North Sea oil and gas producer Harbour Energy headed downstream out of the FTSE 100 at the last reshuffle after worries about the windfall tax ricocheted around the stock. Harbour Energy is the reincarnation of Premier Oil formed via a reverse takeover by recently listed Chrysaor.
But the share price has climbed back up, helped by the elevated price of fossil fuels which pushed half-year profits up to $1.49bn up from £120 million a year ago. The energy price levy will still be relatively onerous for the company, compared to larger producers given the majority of its production in hubs are in the UK.
The full year tax liability is expected to be in the region of $300 million but it’s not deterring investment in the UK market, with new projects in the pipeline.”
Convatec – Set To Enter The FTSE 100
“Medical company Convatec specialises in wound and skin care and demand for its products is expected to increase amid a rising number of surgical procedures globally and new initiatives for treatment. It’s battled cost inflation but its profit’s performance has still be pretty hardy, despite the headwinds.
As populations age around the world, the ailments of the elderly such as leg ulcers are expected to provide brisk business for the company. Its product range extends to continence and critical care products, which are also expected to increase in demand as demographics change and medical professionals update care requirements.’’
F&C Investment Trust - Set To Enter The FTSE 100
“Although the F&C Investment Trust hasn’t escaped the recent market volatility, it’s resilience with its share price up 10% over the past six months makes it another contender for entry into the FTSE 100. The Trust aims to secure long-term growth in capital and income from an international diversified portfolio of listed equities, as well as unlisted securities and private equity.”
PureTech Health - Set To Enter The FTSE 250
“The reshuffle could prove to be a revolving door for Biotech company PureTech Health as it’s in position to head back into the FTSE 250 after exiting the index at the last review. It had been a casualty of investors’ increasingly cautious approach to risk.
The nature of the product pipeline makes the results quite volatile, and sentiment has rebounded highlighting how the broad spectrum of drugs should help offer longer term resilience.”
Next Energy Solar and BlueField Solar - Set To Enter The FTSE 250
Despite the volatility facing the financial markets, there is still strength in the appetite for renewable energy stocks, with NextEnergy Solar Fund and BlueField Solar set to enter the FTSE 250.
Next Energy Solar is a specialised solar and energy storage climate impact fund which has been boosted after its sustainability credentials were recognised under new European regulations known as the EU taxonomy.
It has also managed to do a deal for more subsidised solar contracts in the UK, under the government-backed low carbon contracts company and it’s reported a rise in its net asset value amid an increase in power forecasts assumptions.
BlueField Solar has also seen its net asset value rise and the Guernsey-based investment company has also won fresh contracts in the UK, with a 15-year duration, for sites in Northamptonshire, Hampshire and Norfolk.
Tyman – Set To Leave The FTSE 250
Tyman the door and window manufacturer could be heading for the exit just months after it entered the FTSE 250. It had benefited from a robust demand for repairs, renovations and new build homes in its key markets, but there are concerns that demand could shift down a gear as interest rates continue to rise and the housing market cools.
There are also worries about consumer confidence and a dwindling appetite for non-essential spending. A house makeover might be nice to have, but with budgets set for an even bigger squeeze, investors are concerned that Tyman could see a sharp slowdown in revenues.
Provident Financial – Set To Exit The FTSE 250
Provident Financial looks set to be heading out of the FTSE 250 after worries about the cost-of-living crisis rise and it was forced to wind down its doorstep lending unit following a surge of complaints.
Although the costs of the winding down have fallen, and business remained relatively robust in its credit card arm, concerns are growing across the sector about future potential spike in bad loans as consumer struggle to make payments amid soaring prices.
Cineworld has struggled to grab hold of fresh financial lifelines, and is looking at bankruptcy options, unable to survive the post pandemic floodwaters in its current form. Crawling back to profitability after being sideswiped by Covid was always going to require almost superhero levels of effort and with the blockbuster pipeline drying up, its options are very limited.
The surge in streaming services might have been good news for movie fans confined to their homes and has helped support the big studios, but for the cinema industry it came as a double blow. Even when social distancing measures eased, not enough movie goers booked seats, forcing the company into an even more precarious position.
Losing its position in the FTSE All Share Index is another twist in the Covid horror story for Cineworld, with its future now highly uncertain.”
“Bigger ticket items like furniture are much harder to shift as many consumers who are facing squeezed budgets are tightening the purse strings. A plush new sofa may be nice to have but it’s far from essential expenditure, when grocery bills are rising so fast. Retailer Made.com is now considering an equity raise to strengthen its balance sheet amid volatile trading conditions.
It had already highlighted that it was hard to attract new customers while hanging onto decent margins and expected gross sales to fall from between 15% and 30% this year. With the extent of its slide in fortunes becoming clear, its share price is down 93% year to date, and it looks set to drop out of the FTSE All Share.
Other Movements Expected In The Upcoming Reshuffle
XP Power, Greencore and Chrysalis Investments look set to be relegated from the FTSE 250. It’s likely there will be two new entries into the FTSE All Share: Industrials REIT and Warehouse REIT.
About by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
