Paddy Power Betfair (LSE: PPB) and Mediclinic International (LSE: MDC) have both become bigger companies by recent mergers, and are set to storm into the FTSE 100 when the FTSE committee announces the results of its quarterly index review on Wednesday.
Power player
Irish bookie Paddy Power completed a merger with peer-to-peer betting exchange Betfair on 2 February. The shares ended last week at £107.70, giving the combined group a market capitalisation of £9bn, which would catapult it into the FTSE 100 at number 44 as things stand.
Analyst earnings forecasts for 2016 give Paddy Power Betfair a lofty price-to-earnings (P/E) ratio of 33.3. Nevertheless, industry analysts are generally positive on the company’s prospects, with strong earnings growth forecast in the coming years, although one top US hedge fund has a £62m short position in the stock.
Healthcare specialist
Abu Dhabi-based Al Noor Hospitals (a FTSE 250 firm) completed a reverse takeover of larger South African firm Mediclinic on 15 February. The combined private healthcare group will have operations in Southern Africa, Switzerland and the UAE, and exposure to the UK through a minority stake in Spire Healthcare.
At last week’s closing share price of 846.5p, Mediclinic International has a market capitalisation of £6.2bn, which would put it at number 61 in the FTSE 100. The group’s P/E isn’t quite as elevated as Paddy Power Betfair’s, but is still relatively high at 26.7. Again though, the City is generally positive about the company on the basis of strong earnings growth prospects.
Knocking on the door
Supermarket Morrisons (which was kicked out of the FTSE 100 at the last quarterly review) and media group Informa are both currently hovering just below the entry level to the top index. The FTSE committee’s changes will be based on valuations at the market close on Tuesday, so if Morrisons and Informa put on a bit of a spurt in the remaining trading sessions, either company, or both, could qualify for promotion.
For the drop
Troubled retailer Sports Direct and fund manager Aberdeen Asset Management are set to be FTSE 100 casualties, with both heading for demotion to the second-tier FTSE 250.
Sports Direct had entered the FTSE 100 in September 2013 after a storming performance from its shares that year. However, the value of the company has almost halved over the past six months, as profit warnings have taken their toll. Ejection from the FTSE 100 could be the first leg of an unwelcome double relegation for founder Mike Ashley, whose Newcastle United football club is currently sitting in the bottom three of the Premier League.
Aberdeen Asset Management’s shares have been in decline for almost a year and have fallen around 30% since the December FTSE review. Acquisitions and the recovery of world stock markets after the financial crisis had taken Aberdeen into the FTSE 100 in March 2012, but the company has suffered from weak investor sentiment toward Asia and emerging markets of late.
Hikma Pharmaceuticals and Smiths Group are current favourites for also getting the boot from the FTSE 100 should Morrisons and Informa sneak into the top index.
All the changes announced on Wednesday will take effect from the start of trading on Monday 21 March.
