Phoenix and Just Eat soar into FTSE 100 as GVC and Wood are cut down

Russ Mould
27 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 latest quarterly review brings further changes.” says Russ Mould, AJ Bell investment director. 

“Both life insurer Phoenix and online food order and delivery service provider Just Eat are going into the FTSE 100, thanks to their respective market valuations of £5.0 billion and £4.9 billion. That is enough to rank them 88th and 89th by market cap, just above the 91st place cut-off point and enough to merit automatic promotion.

“This is Phoenix’s first flight into the FTSE 100, while it represents a rapid return for Just Eat, just three months after its demotion in December.

“Oil equipment and services specialist Wood Group’s £3.7 billion valuation leaves it ranked in the 111th spot, which just means automatic relegation to the FTSE 250. That means the company’s fourth spell in the FTSE 100 lasted just five months, after its elevation to the top flight following Comcast’s acquisition of Sky last October.

“Gambling services giant GVC ranks 107th by market cap, sometimes enough to keep it in the index, but it loses out thanks to Just Eat’s automatic promotion.

Promotions in Q1 2019

•        Phoenix Group is what is known as a life fund consolidator. It specialises in running life insurance businesses that are not open to new customers and looks to buy those so-called closed books from other insurers who no longer wish to handle certain types of policy. The purchase of assets from Axa and then Abbey Life from Deutsche Bank were major steps in the company’s development but it was 2018’s £3.3 billion of Standard Life Aberdeen’s life assurance operations that has catapulted it into the FTSE 100. 

Chief executive Clive Bannister has stated that Phoenix is looking for further deals to bolster the company’s powerful cashflow, which underpins a dividend yield that exceeds 6% and forms a key part of the investment case for the company.

This will be Phoenix’s first time in the FTSE 100, although in 2008 the company, then private and called Pearl, bought index member Resolution in a £5 billion deal. 

•        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 and it may be the prospect of further change at the firm that is supporting its share price and return to the FTSE 100.

Demotions in Q1 2019

•        Wood Group’s latest stay in the FTSE will 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. Its latest stint will end after barely five months in late March.

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. 

•        GVC entered the FTSE 100 last June after a meteoric rise for a firm whose shares only began trading on the junior AIM market in 2004. It offers sports betting and gaming, via brands such as partypoker and Foxy Casino and has grown rapidly, using big acquisitions to supplement its organic progress. Having previously snapped up Sportingbet in 2012 and bwin.Party in 2016, GVC vaulted itself into the big time with 2018’s £4 billion purchase of LadbrokesCoral.

However, the shares have lost some 40% of their value relative to last summer’s peak. Around two-thirds of sales come from the UK and GVC is therefore exposed to the Government crackdown on Fixed Odds Betting Terminals, and trading in its retail arm remains soft, although CEO Kenny Alexander insists that lost revenue will be at least partly covered by cost cuts. 

FTSE 250 changes

Promotions in Q1 2019:

•        AJ Bell
•        GVC Holdings
•        Kier Group
•        Pets At Home Group
•        Wood Group (John)

Demotions in Q1 2019:

•        Edinburgh Dragon Trust
•        Halfords Group
•        Just Eat
•        Phoenix Group Holdings
•        Superdry

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 Friday 1 March). The changes come into effect on 18 March.

•        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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