As the reshuffle of the FTSE 100 index approaches, several companies are vying for a coveted spot among the UK’s star stocks, while others face a demotion to the FTSE 250.
In the reshuffle, set to be based on closing prices on 29 August, strict rules prevent a repetitive “hokey-cokey” scenario of the same companies constantly entering and leaving the index.
Leading the pack of potential FTSE 100 newcomers – or in this case returners – is retail giant Marks and Spencer, said Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Shoppers have given the Percy Pig creator a “thumbs up” as focus on quality and price has been “a clear advantage”, explained Streeter.
M&S ’s turnaround strategy has paid off and popular click-and-collect services have led to strong sales growth. However, retail’s longer term prospects are “hard to map”.
Technical products supplier Diploma has also caught the eye of investors.
Steady sales growth, bolstered by repeat orders and strategic acquisitions, has propelled the company into the running for a premier blue-chip position.
Similarly, pharmaceutical companies Dechra and Hikma could join the top ranks, if only briefly in the former’s case due to its imminent £4.5bn takeover by Freya Bidco.
Hikma has benefitted from increased revenues and a summer vote of confidence in its generics drugs business as it hoisted up annual revenue and margin guidance earlier this month, cheering investors.
Heading out of the FTSE 100?
On the other end of the spectrum, several companies are teetering on the edge of demotion.
Catalytic converter maker Johnson Matthey is grappling with a lack of direction following its retreat from battery manufacturing plans.
The shift away from internal combustion engines has hampered demand for its technology.
“With delays to the electric revolution foreseen, revenues from its clean air business will keep ticking over but won’t set the investment world alight,” said Streeter.
Meanwhile, developer Persimmon’s shareholders have been spooked by industry data revealing the strain of borrowing costs on the housing market.
A sense of déjà vu must be lingering over asset management firm Abrdn as it finds itself at risk of being evicted from the FTSE 100 for the second time in a year.
Shares in the vowel-deprived investor have plunged by nearly a third in under a month.
On the bright side, it recently bought Interactive Investor, which Streeter said “should provide a relatively stable source of assets for the group given its one of the UK’s biggest direct-to-consumer investment platforms”.
RS Group, facing a 26 per cent drop in share price over the last six months, is also in danger of demotion due to weak revenues as it steers through a cloudy electronics market.
Companies must rank within the top 90 by market cap to enter and below the 110th largest to be demoted.
The final changes will be announced after UK markets close on 30 August, revealing the new lineup of Britain’s top-tier companies.