Yahoo Finance FTSE 100: Ocado at risk, IMI in – how London Stock Exchange is set to reshuffle the index
Ocado (OCDO.L) was at risk of being demoted from the FTSE 100 (^FTSE) index following a troubled period that saw its price plunge but a recent rally might just save the retailer.
The online grocery delivery firm boomed in lockdown, with its share price hitting a record 2,895p in September 2020. But the easing of restrictions put the company on the back foot as consumers returned to supermarkets.
The online grocer’s stock market value has more than halved in the past 12 months and is expected to drop down into the FTSE 250 (^FTMC) after the markets close this Wednesday.
FTSE Russell, which manages the make-up of London’s indexes, will announce its quarterly reshuffle at 5pm today.
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The FTSE 100 is a share index of the 100 most highly-capitalised companies listed on the London Stock Exchange. Any company that falls to 111th and below is automatically ejected from the top-flight index, while any firm that rises to 90th or above is automatically promoted.
Ocado saw a £501m loss last year and topped the Financial Conduct Authority’s list of ‘most-shorted’ stocks in London.
The group, which had a value of more than £21bn in 2020, is now worth less than £4bn.
The firm has also suffered from weaker-than-expected demand for its robotic warehouse technology. As a result, the stock has tumbled over 85%.
The changes will be announced after the market closes this Wednesday, based on the companies' closing share prices the day before.
Despite being the front runner to leave the FTSE, Ocado might just keep it place among the blue chips.
‘’Ocado, like Everton, may escape relegation at the last gasp as the battle to stay in the FTSE 100 intensifies on the final session before the reshuffle, Susannah Streeter, head of money and markets at Hargreaves Lansdown, said.
"Ocado was lifted up on the coat tails of M&S resilience last week. Although their joint venture has been struggling, M&S has staged a slick recovery and still spies further potential with their partnership. It is planning to deepen its collaboration with an Ocado Retail reset underway.
"This will include leveraging the potential of its vast treasure trove of M&S customers. This announcement gave Ocado’s share price a little bit more wind in its sails, helping it speed upwards, but volatility has returned today. However, it still may mean that it will escape relegation with worries about the property sector edging out retail concerns from the centre of the field."
However markets will only know for sure once the results are announced by FTSE Russell.
The online grocer is not alone in the FTSE 100 demotion area. Johnson Matthey (JMAT.L), British Land Co (BLND.L) and Frasers Group (FRAS.L) were all at risk of automatic demotion from the FTSE 100, according to investment platform Interactive Investor.
British Land has lost more than 20% in share value and Frasers about 16% over the last three months.
"It looks like British Land could be demoted, after shares in the commercial property giant fell further as fresh hikes in interest rates were forecast. Already the value of its property portfolio has been sideswiped by the rapid tightening in monetary policy and the shocker of an inflation reading last week, dented the company’s valuation further," Streeter said.
However, this reshuffle isn’t just about companies being demoted from the big league of the London Stock Exchange. Some companies will be smiling at the close of the markets as they are promoted to the UK’s blue chip index.
Birmingham-based IMI (IMI.L), formerly Imperial Metal Industries, is in the pole position for promotion into the premier index from the FTSE 250.
Its share price has jumped by more than 20% year-to-date and a guidance boost in early May means its stock is up 2.5% so far this month.
IMI, which designs fluid control technology for sectors like energy, life sciences and industrial automation, saw turnover increase by 10% to £2.05bn in 2022.
The company also said the integration of recent acquisitions, including Blackburn-based Heatmiser, would unlock new opportunities for growth.
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Hikma Pharmaceuticals (HIK.L) and Diploma (DPLM.L) are also set to join the blue chips in this reshuffle.
“IMI is well-known to seasoned investors, previously having been a FTSE 100 stalwart in its days as Imperial Metal Industries and having been previously relegated in December 2014.
"Hikma, meanwhile, has had a recent chequered past which has seen the company in and out of the premier index on more than one occasion,” according to Interactive Investor," Richard Hunter, head of markets at Interactive Investor, said.
Looking at the mid-cap index, contractor Capita (CPI.L) is poised to return to the FTSE 250. Despite a high-profile cyber attack in April that will cost it £20m, analysts and the firm say boss Jon Lewis's turnaround is bearing fruit.
"The company is cash generative after years of outflows and revenues grew 2.4% on an adjusted basis last year. The data breach at the company following a cyber-attack, which is still being investigated, has knocked some confidence. But shares have still risen by almost a third since the start of the year, easing its passage back into the FTSE 250 which it was relegated from in March 2022," Streeter said.
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