Hiscox, Spirax eye blue chip promotion in FTSE reshuffle

Royal Mail looks likely to be replaced by insurer Hiscox in the FTSE 100 in next month's quarterly reshuffle, while the completion of Shire's takeover in the new year will trigger the promotion of another newcomer.

The biotech group is set for its last day of dealings on 4 January and will be deleted from the FTSE 100 on 7 January, after Shire and Takeda Pharmaceutical shareholders and regulators approved the deal.

Spirax-Sarco Engineering, a provider of electrical thermal energy and peristaltic pumping solutions, was in prime position on Friday to gain promotion to the top flight, with its market capitalisation having risen to above £4.5bn helped by recent good operational progress.

Index administrator FTSE Russell will conduct the quarterly index review based on the market values of companies at the end of trading on Tuesday 4 December. It will confirm the changes on 5 December, with the changes made effective on Christmas Eve.

The index rebalancing rules state that a company will be automatically relegated from the FTSE 100 index if it falls below 111th place among qualifying companies on the London Stock Exchange, or if a company on the FTSE 250 rises to 90th position or above.

A profit warning in October flagged up travails at Royal Mail, which first entered the blue chip index in December 2013 before dropping out in September last year and then being readmitted in March this year. Its market cap has sunk to just above £3bn, making it the 119th largest company in the FTSE 350.

If share prices change much before Tuesday's cut-off date, Rightmove and Just Eat are nearest to automatic demotion, sitting in 107th and 105th places at just over £4bn.

Behind Spirax on the FTSE 250 are life fund consolidator Phoenix Group and generic drug maker Hikma Pharmaceuticals, both above £4.3bn on Friday in 98th and 100th position respectively.

It has been a relatively quiet year for changes to the FTSE 100, observed Russ Mould, investment director at AJ Bell, with just seven promotions and deletions so far in 2018.

“Firms have swapped places thanks to the scheduled quarterly reshuffles, by dint of their market valuations on just three occasions. Royal Mail replaced Hammerson in March and Ocado and GVC took over from Mediclinic and G4S in June.

“There were no changes after the September reshuffle, the first time that had happened since March 2006," he noted.

BOTTOM OF THE FTSE 250

A mighty shaking-out is likely to take place at the bottom of the FTSE 250 index after somewhat of a market purge over the past year that has accelerated in some sectors in recent months.

Thomas Cook has been the tip of this particular iceberg, with its valuation having crashed more than 70% in 2018 amid three profit warnings. Likewise, online peer On The Beach has fallen around 30% since it was promoted to the index in February and now both look likely to be demoted.

Bottom of the pile, however, is Keller Group, which has tumbled 40% since a profit warning at the start of October, blamed on worsening market conditions in its Australian and South East Asia business.

Also up for the chop after either steady falls in their share price this year or sharp drops in recent months are Spire Healthcare, AA, Halfords Group, Premier Oil, Charter Court Financial, 888 Holdings, Rank, Superdry and SIG.

In pole position for promotion are Acacia Mining, which has almost doubled in recent months, and McCarthy & Stone after rallying since the summer.

Woodford Patient Capital, the fund that was mistakenly promoted to the 250 by FTSE Russell but kicked out again after it was realised that the inclusion of Civitas Social Housing's C-shares should have meant it was promoted instead.

Sabre Insurance, Law Debenture, Apax Global Alpha, Marston's, NextEnergy Solar Fund and Pets at Home, even though some have seen their shares fall this year, could also be up for promotion into the mid-cap index due to the dire performances higher up the indices.