The continuing resurgence of the UK housebuilding industry sees Barratt Developments (LSE: BDEV) and Taylor Wimpey (LSE: TW) set for promotion to the FTSE 100 when the FTSE Group announces the results of its quarterly index review on Wednesday.
Oilfield services group Petrofac (LSE: PFC) and engineer IMI (LSE: IMI) are expected to drop to the FTSE 250 to make way for the housebuilders, the changes taking effect from the start of trading on Monday 22 December.
The winners
Barratt had previously been promoted to the FTSE 100 back in March this year, but was muscled out at the September review by the merger of mid caps Dixons Retail and Carphone Warehouse into the heavier-weight Dixons Carphone.
However, a 27% rise in Barratt’s shares since September has put the company in line for a quick return to the top index. Despite the rise, Barratt trades on a modest forecast P/E of not much above 10 at a current price of 460p.
Taylor Wimpey’s shares — currently trading at 134p — are up 18% since September. The company, which was one of the hardest hit stocks during the recession, is set to rejoin the FTSE 100 after an absence of more than six years. Taylor Wimpey, too, is on a modest forecast P/E in the region of 10.
The losers
Petrofac could once do no wrong, and graduated to the FTSE 100 in 2009. However, this year has seen a tarnishing of management’s reputation, as well as falling oil prices and a series of profit warnings. The market has punished Petrofac mercilessly: the shares have fallen 28%, wiping £1bn off the value of the company in the last three months alone.
Petrofac’s shares may be trading on a bargain-basement P/E of eight at a current price of 808p, but management has work to do if it’s to turn around earnings and investor confidence.
IMI is set to join Petrofac in being demoted to the FTSE 250. IMI’s shares are down a less drastic 13% since September — but enough to bring the engineer’s four-year stay in the top index to an end. IMI’s forward P/E, at a current price of 1,157p, is 14 — relatively high, particularly for a company that’s recently undergone a management shake-up and strategic review.
