Just Eat could return to FTSE 100 as latest index reshuffle prepares to chop down Wood Group

Russ Mould
21 February 2019

“We have already had two changes to the FTSE 100’s membership since the last reshuffle in December, thanks to successful bids for Randgold Resources and Shire, who were replaced by Auto Trader and Hikma, and the next rejig of the benchmark may bring further changes” says Russ Mould, AJ Bell Investment Director. 

“Oil equipment and services specialist Wood Group’s £3.7 billion valuation leaves it ranked 108th in the market capitalisation rankings, just above 111th spot which means automatic relegation to the FTSE 250. Any sudden 4% to 5% drop in its share price could jeopardise the company’s FTSE 100 status, which it only regained in the fourth quarter of last year once Sky was acquired by Comcast.

“Other firms whose market valuations lie near the approximate £3.6 billion cut-off point include gambling services giant GVC, and Hikma, although both should be safe this time around, as they lie in the £3.9 billion to £4 billion price bracket.

“Even if Wood avoids automatic relegation it could still slide out of the index should any FTSE 250 firms reach the 90th spot by market cap, as would earn them automatic promotion.

“Just Eat is hovering around that mark, with a market cap of £4.8 billion and – with a few days still to go - other names within a few hundred million pounds’ worth of automatic entry to the UK’s corporate elite include life fund consolidator Phoenix Group and JD Sports Fashion.”

Potential entrants in Q1 2019

•         Online food order and delivery service Just Eat stormed into the FTSE 100 in the fourth quarter of 2017, within four years of its April 2014 flotation. However, anyone who tucked into the stock on the back of its promotion ended up with a bad case of indigestion as the shares peaked in January 2018, almost immediately after its entry to the index. 

The shares’ slide began when then chief executive Peter Plumb announced a plan to invest £50 million in delivery services, subsequently stepped up to £55 million to £60 million. Just Eat had previously positioned itself as an online platform for takeaway outlets who then took care of delivery themselves.

That move was designed to improve customer service and combat other online platform rivals but investors took fright amid (unsubstantiated) talk that Uber Eat was looking to acquire Deliveroo, which itself raised its game with the launch of its Marketplace+ platform.

A better end to the year, when Just Eat announced in January that it would exceed sales expectations for 2018 and raised them for 2019, was overshadowed by CEO Plumb’s resignation after barely 18 months in the job. Chief customer officer Peter Duffy stepped up on an interim basis but the company is still looking for a full-time boss at a time when it faces pressure from disgruntled shareholder Cat Rock Capital. 

The US activist investor is calling for a further overhaul of management and a merger with a rival platform to bolster its competitive position

Potential departures in Q1 2019

•         Wood Group’s latest stay in the FTSE seems destined to be as brief as its previous ones. Promotions in April 2008, March 2011 and September 2012 were swiftly followed by demotion in September 2008, September 2011 and September 2013. If the group is again relegated then its stay this time will be barely five months, following its elevation in October when Comcast bought Sky.

Sentiment does appear to have soured on the wider oil services and equipment sector. In December Wood Hunting issued a relatively downbeat outlook for 2019, citing oil companies’ ongoing capital discipline and budgetary caution thanks to a retreat in the price of crude from its peak near $80 a barrel back toward the $60 mark in the second half of last year. 

Appendix: How promotion and relegation are assessed

•         All of the major FTSE indices are reviewed on a quarterly basis. They are set according to share prices from the close of business on the Tuesday before the first Friday of the review month (which in this case is December). The changes come into effect in mid-to-late December.

•         In general, a stock will be promoted into the FTSE100 at the quarterly review if it rises to 90th position, or above (by market capitalisation) and a stock will be demoted if it falls to 111th (by market value), providing it fulfils the other criteria, such as free float and a presence on the Main Market. 

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