Daily market update: FTSE reshuffle, Jackson Hole summit, Revolution Beauty

“The FTSE 100 saw a subdued start on Friday after achieving a record close above 9,300 yesterday,” says AJ Bell Investment Analyst Dan Coatsworth.

“This followed more selling on Wall Street overnight, albeit of moderate persuasion, as investors fret about the message Federal Reserve chair Jerome Powell might deliver at the Jackson Hole summit.

“Investors had been expecting a rate cut from the Fed next month so if Powell were to say anything suggesting rates might be kept on hold, it could see stocks come under greater pressure.

“PMI data from across the Atlantic on Thursday pointed to robust conditions in the world’s largest economy, potentially reducing the chances of the Fed moving rates lower.

“A slight uptick in consumer confidence in the UK is good news for retailers, hospitality and travel businesses but no-one will be getting carried away given this is just a case of people feeling a bit less bad rather than genuinely optimistic about the economic outlook.”

FTSE reshuffle: ASOS / Burberry / Johnson Service

“Index provider FTSE Russell reviews the main UK stock indices once a quarter, reshuffling the pack based on market value at a certain date. The indicative changes for the next quarterly rejig will be based off closing valuations today (22 Aug), with the final decision based on the market close on 2 September.

“Fast fashion group ASOS looks set to be kicked out of the FTSE 250 in the latest blow to the company’s reputation.

“ASOS moved from AIM to the Main Market in February 2022 with the aim of enhancing its corporate profile and recognition, as well as attracting a broader group of institutional shareholders. At the time, it had an ambitious growth strategy and was determined to bounce back from a post-pandemic hangover which saw a big slowdown in sales growth across the retail sector. Unfortunately, its struggles have got worse and the shares have limped along. Competition has remained fierce, consumer trends have shifted, and ASOS has been left behind.

“The timing of the potential demotion from the FTSE 250 couldn’t be any worse given it comes hot off the heels of Topshop’s relaunch, the once iconic UK retail brand 25% owned by ASOS.

“FTSE Russell’s quarterly reshuffle is unlikely to show any changes at the top of the UK market. Companies are bumped out of the FTSE 100 if they are no longer one of the UK's 110 largest listed groups. Currently, the lowest position of a FTSE 100 company is Taylor Wimpey at #107 which suggests it could escape automatic demotion unless its share price lags the broader market over the next week.

“Names from the FTSE 250 are automatically promoted into the FTSE 100 if they score within the top 90 London-listed companies by value when the market closes on the reshuffle date. Burberry and Spectris are close at #94 and #97 respectively, but not high enough for automatic promotion as it currently stands.

“Burberry has enjoyed a big share price rally since April as it works on a turnaround plan following strategic missteps and a lacklustre Chinese market, a region that was once a golden ticket to big sales. Spectris might not hang around long if it did secure promotion to the FTSE 100, given it is in the midst of a private equity takeover. There are similarities to cybersecurity group Darktrace which enjoyed a short-lived promotion to the blue-chip index last year thanks to a takeover bid before delisting as the acquisition completed.

“The band for automatic promotion into the FTSE 250 from FTSE Small Cap is #325 or above – and automatic demotion is #376 or below. There are two FTSE Small Cap stocks comfortably in the zone for automatic promotion into the FTSE 250: Oxford Biomedica (#298) and Pinewood Technologies (#309). Chesnara got a head start last week when it was promoted to fill a space left by Assura’s takeover.

“Johnson Service Group recently moved from AIM to the Main Market and is big enough for the mid cap index, which means it could also grab a slot in the FTSE 250 at the next reshuffle.

“Alongside ASOS, two other FTSE 250 stocks could be automatically demoted to the FTSE Small Cap: Polar Capital Global Financials Trust (currently #380) and Ocean Wilson Holdings (#385).”

Revolution Beauty

“It is not easy to put a positive gloss on Revolution Beauty’s latest update. The fact the company is no longer up for sale because it couldn’t get a successful offer means shareholders no longer have the prospect of an immediate exit and must now hope this last-ditch effort can revive its fortunes.

“Frasers pulling out of the formal sales process in June suggested takeover talks with interested parties weren’t going well. In Frasers’ case, the situation was complicated by Debenhams (aka Boohoo) owning 29% of Revolution Beauty and the fractious relationship between that retailer and Frasers.

“Debenhams is supporting Revolution Beauty’s latest turnaround effort, which comes just a matter of days after the latter downgraded earnings guidance after having to make changes to accounts to get the auditor to sign them off – not a great look.

“Revolution Beauty floated on the stock market in July 2021 at an issue price of 160p, valuing the company at almost £500 million, but a combination of poor trading, accounting probes and a boardroom spat means it is now worth just a fraction of that amount.

“Trying to find positives in the situation is like putting lipstick on a pig but the shares are up slightly today on the fundraise news and the return of co-founder Tom Allsworth as CEO.

“The injection of capital should give it some breathing space with lenders as it looks to execute a strategy based on product development and a more credible pricing strategy, efficiencies and optimised market spend.

“However, these initiatives will need to work quickly if Revolution Beauty is truly to become a viable business for the long term.”