ARM Holdings plc and Berkeley Group Holdings plc set for FTSE 100 exit

ARM Holdings plc (LON:ARM) and Berkeley Group Holdings plc (LON:BKG) are set to be ejected from the FTSE 100 (INDEXFTSE:UKX) but will one of them be back?

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Housebuilder Berkeley Group Holdings (LSE: BKG) is set to be demoted from the FTSE 100 when the FTSE committee announces the results of its latest quarterly index review on Wednesday.

Berkeley joined larger peers Persimmon, Taylor Wimpey and Barratt in the index this time last year. However, the sector was hit hard by panic selling following the EU referendum result. While the builders have since regained some ground, Berkeley hasn’t risen enough to save it from getting the boot.

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At Friday’s market close, the shares were at 2,660p, valuing the company at £3.65bn and ranking it at 113 in the FTSE All-Share index. A rank below 110 at the cut-off time (which is the close of trading today) means an automatic exit from the FTSE 100. As such, it’s looking very much on the cards that Berkeley will be demoted to the second-tier FTSE 250.

However, I wouldn’t be surprised to see the company back in the top index at some point. Unless the economic fallout from Brexit proves to be particularly severe, Berkeley is incredibly cheap, as it trades on just 6.9 times forecast earnings for the year to April 2017 with a prospective dividend yield of 7.5%.

A farewell to ARM

British tech giant ARM Holdings (LSE: ARM) is also set to depart the FTSE 100 — and in all likelihood never to return. That’s because the company is in the final stages of being taken over by Japan’s SoftBank. Indeed, ARM’s shareholders are expected to vote the deal through at a meeting today.

SoftBank made its 1,700p a share offer in the wake of the referendum, with the weakness of sterling making ARM a significantly cheaper buy for the Japanese group than it would have been just a few weeks earlier. The offer represents a heady 47 times ARM’s current-year forecast earnings, and the deal looks set to complete unless something really extraordinary occurs.

The departure of ARM, which is ranked at 22 in the FTSE 100, will wipe £24bn off the value of the index. It will also leave rather staid software group Sage as the only representative of the technology sector in the index with a weighting of just 0.4%.

Replacements

Precious metals miner Polymetal International is currently in pole position to be one of the replacements for ARM and Berkeley. At Friday’s market close, Polymetal was at the head of the FTSE 250 with a market cap of £4.7bn, having enjoyed a resurgence in its shares this year on the back of rising gold and silver prices.

The other replacement is likely to be either packaging firm Smurfit Kappa or chemicals company Croda International with today’s share price action potentially swinging it one way or the other.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has recommended Berkeley Group Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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