Love Island and Euro 2020 appear to have saved UK television giant ITV from falling out of the FTSE 100 index in the latest rebalance, but takeaway delivery firm Just Eat and engineering company Weir Group look set for the chop.
In their place, WM Morrison Supermarkets is likely to return to the index of the UK’s largest companies, alongside Meggitt, the defence business.
The FTSE All Share index quarterly review took place today, based on the share prices at the end of August, although confirmation from parent company FTSE Russell is expected this evening.
For the FTSE 100 reshuffle, potential entrants have to place in the top 90 to ensure membership, and existing constituents have to drop outside the top 110 to be demoted.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Morrisons looks to be heading back to the FTSE 100, fuelled by bid speculation from hungry firms wanting a slice of the UK supermarket pie.”
The supermarket chain has accepted a bid from private equity group Clayton, Dubilier & Rice, although rival private-equity firm Fortress is also interested.
It is a similar situation for Meggitt, which has also drawn the eye of overseas investors, bringing it back into FTSE 100 contention. The firm has agreed a deal with Advent International, although the bid is being reviewed by the government on national security grounds.
So far this year, WM Morrison Supermarkets shares have risen 63.5% while Meggitt’s are up 77.8%.
Share price return of stocks in 2021
Source: FE Analytics
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said Weir Group was an unfortunate casualty of the strong performance of other companies.
The firm, which only made it back into the FTSE 100 in March, looks set to be dumped despite a positive reaction to its move away from oil & gas.
“It is not anything the company has done, it has just been overtaken. I don’t think ordinarily it would have left, but it is just that the speculation swirling around Morrisons and Meggitt has been so strong. There is a feeling among brokers, however, that the group is undervalued,” she said.
Just Eat is also set to leave the FTSE 100, after it was announced that FTSE Russell was reclassifying the firm as domiciled in the Netherlands.
ITV survived, however, after the company was boosted by Euro 2020. The firm reported half-year revenues were up 27% in its latest results, which did not include the semi-finals of the competition.
“It had great viewing figures during the Euros and the advertising spots that it clinched helped to propel revenues, which had been creeping up anyway, so it looks like it has held on to its FTSE 100 spot,” said Streeter.
Share price return of ITV and Weir Group in 2021
Source: FE Analytics
These changes are likely to have a limited effect on investors’ portfolios, Streeter said, before adding Just Eat’s departure will have “the biggest impact” as the largest of the outgoing FTSE 100 companies.
Not only will it leave passive funds, but any active fund managers that own the firm will now need to evaluate whether to own it as an overseas listing. This could be crucial if the portfolio is already skirting the 20% limit of holdings in overseas stocks.
However, Streeter warned the tenure of Morrisons and Meggitt is likely to be short-lived if the tabled bids are accepted.
“This might make a small difference in the short term as there could be a lift from the bids, but it will only be short term as they could be taken out altogether if acquired. Besides, the bid price is already reflected in the share price, so I think it is pretty much there,” she added.
However, the companies entering could have an initial burst, the analyst noted, as being included in the FTSE 100 means tracker funds will be forced to buy them.
“This will have some bearing on valuations and will mean there is more demand for the stocks overall because of the institutions buying them,” she said.