Dixons Carphone, Capita, EasyJet could be demoted from FTSE 100 in reshuffle

Scottish Mortgage Investment Trust looks certain to replace Dixons, with Rentokil Initial, DS Smith and Weir Group vying for promotion that will be based on market capitalisations at the close of business on Tuesday 28 February.

The first FTSE 100 reshuffle of 2017 will be decided on Tuesday evening by FTSE Russell, with changes to the index taking effect from Monday 20 March.

The rebalance changes will be announced after close Wednesday 1 March 2017.

Mechanics of promotion

A company is automatically relegated to the FTSE 250 if it falls to 111th or below on the list of largest companies by market cap.

Based on the current prices, Dixons Carphone is 120th largest in the FTSE 350 and almost certain to drop, while Capita is 112th, EasyJet 111th and Intu Properties 106th.

Companies are automatically promoted to the FTSE 100 on the review date if they rises to 90th or above. Based on the closed prices at the time of prediction, Scottish Mortgage looks highly likely in 92nd place, while Rentokil is five places below and DS Smith at 99th.

By midway point on Tuesday, there were three companies situated in the automatic drop zone, with three likely replacements.

The FTSE decisions are closely followed by active investors and fund managers in the City, in part because the funds that track the FTSE 100 and 250 indices will sell shares in the company and buy those of the company that is promoted to the index.

Mid-cap moves

Looking at the bottom of the FTSE 250, CMC Markets has fallen below £350m, while International Personal Finance at £415m and SVG Capital at under £470m are likely candidates for relegation.

There are numerous small caps that eclipse this group in terms of size, including near £1bn corporate and fund administration services provider Sanne Group, Georgia's TBC Bank, commercial vehicle hire group Northgate and microprocessor specialist Imagination Technologies.

Dixons' 19-year run coming to an end

Following its 2014 merger, Dixons Carphone, which sits well below the cut-off level for automatic demotion to the second-tier, hit a high of 500p late in 2015 but its stumble since then turned into a sharp tumble after the Brexit vote due to investor concern about UK consumer confidence and online rivals like Amazon.

Seemingly inevitable relegation to the mid-cap index will end a 19-year run among the blue chip benchmark for Dixons since its entry in 1995.

A demoted Capita will join support services peers Serco and Mitie in the mid-cap index, while G4S is clinging onto its loftier perch despite all struggling with the pressures of complex government projects and continued austerity policies.

Ascension to the FTSE 100 for Scottish Mortgage would make it the third investment trust to ascend to the UK's elite index.

“Promotion would reflect excellent portfolio performance, helped by its focus on long-term growth stories in its quest for capital gains for investors," said Russ Mould, investment director at AJ Bell.

"Run by Baillie Gifford’s James Anderson and Tom Slater, the investment trust has barely 4% of its assets in the UK and key holdings include Amazon, Tesla, Ferrari and Chinese social media and internet sensations Alibaba and Baidu."

Looking at possible demotion for easyJet and Intu, Mould said the pair could be seen as victims of Brexit and concern over the UK economy.

The budget airline has wanted more clarity on how the UK’s withdrawal from the EU could affect its position with regard to the economic bloc’s ‘Open Skies’ agreement, while its shares have also been hit by terrorist attacks, air traffic control strikes and oil price volatility. Any demotion would end easyJet’s first run in the FTSE 100, which began in 2013.

Shopping centre operator Intu, which also joined the top flight in 2013 after being created from the splitting up of Liberty International in 2010, could have avoided the drop thanks to strong results last week, with its increased dividend possibly helping avert relegation.