Royal Mail has been tipped for a triumphant return to the FTSE 100 this week, six months after its tumbling share price saw it relegated from the elite index of companies.
The postal company dropped out of the FTSE 100 and into the FTSE 250 last August when its share price fell to 390.5p, but is the favourite among market watchers to shift back up to the big league after its shares rose to 560p.
In stark contrast Hammerson, the owner of Birmingham’s Bull Ring shopping centre and designer outlet Bicester Village, has been marked to drop out of the top brass and into the 250 list.
Royal Mail has been tipped for a triumphant return to the FTSE 100 this week, six months after being relegated and five years since it first floated on the stock market
The stock markets are ‘rebalanced’ every three months. A company is promoted to the FTSE 100 if its market capitalisation rises to 90th largest or above, and a company is demoted if its market value falls to 111th and lower.
Hammerson owns 58 shopping centres across the UK, Ireland and France but is threatened with losing its FTSE 100 status due to its tumbling share price, not helped by tough trading conditions and the growing dominance of online shopping.
But for the Royal Mail, which first floated on the stock exchange in 2013, AJ Bell investment director Russ Mould said it had seen a ‘stunning run’.
‘The company first entered the FTSE 100 following its 2013 flotation at 330p, a deal which raised a political storm over whether the shares had been sold too cheaply as they soared beyond 600p amid demand for its then 20p-a-share annual dividend,’ Mould said.
‘That pay-out has since crept to 23p and is expected to reach 24p for the fiscal year to March 2018, still enough for a 4.3 per cent dividend yield with earnings cover for the pay-out of some 1.7 times,’ he continued.
Bicester Village (pictured) owner Hammerson looks set to drop out of the FTSE 100 – the firm’s share price has suffered over recent months
‘If the dividend yield has been one source of support for the stock, another has been the settlement of pay, pensions and working conditions with the Communication Workers Union, a deal which headed off strike threats and also helped Royal Mail to manage its pension liabilities.’
The return of Royal Mail, along with boss Moya Greene, to the top index would also take the number of female chief executives at FTSE 100 companies back up to seven.
Hammerson on the other hand is in ‘pole position’ for relegation according to Helal Miah of The Share Centre.
He said: ‘There’s no denying that the background environment for property developers focused on the retail sector in the UK has become more difficult in recent times courtesy of strong online competition, weaker consumer sentiment, and ongoing concerns about the impact of Brexit on the UK economy and retail sales.’
Severn Trent could be another casualty as it continues to face regulatory pressures and stress from higher interest rates while private hospital group Mediclinic International may drop after scraping through the last quarterly rebalance, Miah added.
Security firm G4S may also be in the firing line after its share price failed to recover after tanking in the closing months of 2017, falling to 260p by the end of December.
B&M Retail only listed on the stock market in 2014 but is already tipped as a possible contender for a spot in the FTSE 100
A trading update in November stated that sales growth would fall below expectations which ‘didn’t help its intentions’, Miah said, adding: ‘Wider concerns over the support services sector will have only added to its woes’.
Alongside the Royal Mail and tipped for promotion at some point however is the likes of Weir Group, Melrose and B&M Retail.
Engineering company Weir Group finds itself hovering around the promotion as its business supports the oil and gas and mining sectors and the strong recovery in both of these areas has played a role in the company’s solid performance.
Miah has also tipped Melrose Industries, the firm behind the hostile takeover bid for British engineering firm GKN, as sure fire contender to rise if the deal went through – as would B&M Retail which has seen its share price shoot up in the four years since listing.