DS Smith, Just Eat and John Wood up for promotion in FTSE 100 reshuffle

Unless their shares enjoy a resurgence, the low-lying quartet of Babcock International, Merlin Entertainments and Mediclinic International and Convatec Group look the most likely to give way.

The changes, weighted using market capitalisation from closing prices on Tuesday 28 November, will be confirmed after market close on Wednesday 29 November and will be put into practice on 15 December.

Companies are automatically demoted from the FTSE 100 bechmark to its mid-cap sister index if they fall to 111th or below on the list of largest companies by market cap.

With a market cap of just under £3.5bn, defence contractor Babcock is the smallest company in the FTSE 100 and was 121st in the list just before midday on Thursday.

Merlin's £3.7bn market value placed the Madame Tussauds and Legoland Parks operator at 120th, though it still offers attractions for many analysts such at Credit Suisse, three places above hospital operator Mediclinic and catheter maker Convatec, valued either side of £3.8bn. Just inside the safety zone, for now, G4S's £4.1bn market value made it was the 108th largest company on the FTSE 350.

NEVER MIND THE SYMBOLICS

Packaging specialist DS Smith was valued at £5.8bn and Just Eat at £5.6bn, making them the 82nd and 86th largest companies on the London Stock Exchange as of midday on Thursday.

At just under £5bn market cap, newly enlarged oil services group John Wood and public safety specialist Halma were 95th and 96th largest.

Analyst Nicholas Hyett at Hargreaves Lansdown said, “Reshuffles in and out of the FTSE 100 are somewhat symbolic but can highlight companies whose stars are in the ascendancy, Just Eat being a good example having only floated a little over 3 three years ago.”

He highlighted Just Eat's cash-generating qualities, allowing small fast-food outlets to get online and offering them a platform to sell their curries, kebabs and pizzas on the internet to anyone in the vicinity.

"Just Eat dominates the mass-market takeaway space in UK, whilst rivals like Deliveroo focus on providing the delivery service for a more upmarket slate of outlets. A series of deals have brought Just Eat strong positions in markets around the world."

On DS Smith, the provider of corrugated paper packaging founded in 1940 in the East End of London, Hyett notes that while the paper and packaging sector has been "horrendous" for many investors, Smith’s focus on innovative, complex packaging has made it a long term winner.

"Scale and a focus on recycled materials has given it a cost advantage in a very commoditised industry while the introduction of straight to shelf packaging for consumer goods has allowed it to charge customers a premium. Moves to acquire and integrate smaller European rivals over the years mean it is now one of the few larger players left standing."

Share Centre analyst Helal Miah noted that although unlikely to feature in this reshuffle, not far behind these companies are big retailers Marks & Spencer and Direct Line. "Investors may therefore want to note that continued underperformance will make these prime relegation candidates in the not too distant future."

SMALL AND MID-CAPS

Those that might drop out of the FTSE 250 are led by Electra Private Equity, which has seen its market cap fall to £363m as it hands back most of its cash amid a strategic rethink; Restaurant Group, which stands around £575m as it attempts to restructure and resfresh; P2P Global Investments at £625m; and Vectura Group at £629m as it has been hit by the delays over its partnership with Hikma over generic Advair.

In line for potential promotion from the small cap realms to the FTSE 250 is RHI Magnesita, the merged supplier of high-grade refractory products which floated in October and is valued at £1.6bn, and the owner of the webuyanycar.com website BCA Marketplace.

Not far behind are Ti Fluid Systems, a manufacturer of automotive fluid storage, carrying and delivery systems that also was an October flotation; while Pantheon International, an investment trust that invests in private equity funds around the world and has been growing steadily this year after a strong acceleration in 2016.