The leading contenders to replace them in the UK’s corporate elite are resurgent support services group G4S and real estate investment trust SEGRO.
Russ Mould, investment director at AJ Bell, comments:
“A market capitalisation of around £5 billion is now the minimum required to gain entry to the FTSE 100 and the index promotions and relegations highlight the importance of consistent growth and the ongoing battle between clicks and bricks within the retail industry.
1. Demotion for Hikma Pharmaceuticals’ caps a torrid 12 months for the Jordanian company, whose shares have plunged from nearly £27 to below £17 after its failure to gain regulatory approval for its main pipeline drug, a would-be rival to GlaxoSmithKline’s asthma treatment Advair. The company has also been hit by delays to new product launches, concerns over its exposure to the US healthcare market and even the devaluation of the Egyptian pound as the firm has had to dish out three profit warnings since the summer.
This is all a long way from March 2015, when Hikma was first promoted to the FTSE 100 as it rode a wave of price increases and generic drug shortages, and shows that there are few worse investments than a highly-rated growth stock which then fails to deliver the growth. Earnings per share fell in each of 2015 and 2016, although analysts are still looking for a 15% rebound in 2017, according to consensus.
Hikma has already been demoted once, in March 2016, but it quickly returned to the FTSE 100 in June 2016.
2. Intu Properties’ shares are languishing back near the lows reached in the immediate aftermath of the UK’s vote on EU membership. Even a first dividend increase in a decade hasn’t helped the stock, where sentiment is beset by fears over what Brexit and a weaker pound could do to UK consumer confidence and spending power, as well as the havoc being wrought upon bricks-and-mortar retailers by their online rivals.
Intu is the developer and manager of 18 major shopping centres in the UK, including Gateshead’s Metro Centre, Lakeside in Essex and Manchester’s Trafford Centre, while it also has three properties in Spain.
It will be interesting to see if contrarians use the demotion as an opportunity to buy the shares, which offer a dividend yield above 5% (third highest in its peer group) and a discount to net asset value of 23% (also the third highest in its peer group).
Intu used to be part of as Liberty International, which split itself up in 2010 having first joined the FTSE 100 in 2002. It briefly fell out of the FTSE 100 in March 2013 only to return in June 2014.
1. A return to the top flight for G4S is a huge affirmation of the strategic overhaul launched by chief executive Ashley Almanza, who has gradually rebuilt the firm’s credibility since his appointment in 2013.
G4S had previously been demoted in December 2015 after eight years in the FTSE 100, a tenure that was ended by the collapse in earnings which followed the outsourcing specialist’s role in a 2013 scandal relating to UK public contracts, whereby the company was found to have overcharged the Government.
New contract wins have begun to pick up, cash flow has improved and net debt has begun to fall, all developments which have prompted the shares to surge by more than 80% since the middle of 2017.
Such a dramatic return to favour offers hope to fellow outsourcing giant Capita, ejected from the FTSE 100 in March, and also Serco and Mitie, all of whom are embarking upon turnaround programmes of their own after a downturn in trading.
2. SEGRO used to labour under the rather more prosaic moniker of Slough Estates but rather than 2007’s name change it may have been the sale of retail assets in 2004 and acquisition of FTSE 250 peer Brixton in 2009 that set the firm on its path toward FTSE 100 promotion
Unlike fellow Real Estate Investment Trust (REIT) Intu, SEGRO has no direct exposure to retail properties. Instead, its £6.3 billion portfolio specialises in warehouses and logistics sites, the very properties which are thriving thanks to the rise of online shopping and customers’ demand for near-instant delivery.
Over half of the portfolio can be found in Greater London or the Thames Valley, with a further 11% in the Midlands. Just over a third of the assets are in Europe, including Germany, France and Poland.
The shares wobbled in March when management sought to take advantage of a share price which was trading at a premium to net asset value (in marked contrast to Intu’s big discount) with a rather opportunistic-looking rights issue, designed to raise money to fund its acquisition of the 50% it did not already own of site near Heathrow.
As Slough Estates the company enjoyed brief spells in the FTSE 100 between July 2006 and September 2007 and September 2009 and September 2010.”