Intu Properties (LSE: INTU) is odds-on for relegation from the FTSE 100 when the FTSE committee publishes its latest quarterly index review on Wednesday. G4S (LSE: GFS) currently sits in pole position to take its place.
According to my sums, Hikma Pharmaceuticals is also teetering on the brink of demotion, which could pave the way for Segro to join G4S in the top index.
Meanwhile, Sirius Minerals (LSE: SXX) is set to jump straight into the FTSE 250 following its recent move to the Main Market from AIM.
More to come?
It looked at one time as if G4S had established itself as a fixture in the FTSE 100. Having entered the index in 2007, the multinational security group performed relatively well through the market crash of 2008/09 and emerged as a middle-ranked blue-chip.
However, a combination of company problems and a recovery in the wider market saw it sink down the rankings to such an extent that it was demoted to the FTSE 250 in December 2015. Its shares went on to hit a multi-year low of 164p last summer.
Since then, the turnaround of the business has gained traction and the share price has just about doubled. Could there be more to come?
A forward P/E of 17.5 on forecast earnings growth of 17.5%, gives a rating bang-on the ‘fair value’ price-to-earnings growth (PEG) marker of one. However, analysts have been revising their earnings forecasts upwards and there could still be decent gains to be made here if that trend continues.
Contrarian buy?
It would take a miracle in the next couple of trading days for Intu Properties to avoid being ejected from the FTSE 100. It currently sits eight places below the automatic demotion threshold.
The company is largely focused on UK shopping centres. The shares have declined as investors have turned cautious on the prospects for the business in light of the challenging trading environment facing retailers and the considerable uncertainty regarding the UK’s EU exit.
I think investors are right to be cautious. I’m not convinced a P/E of 18 and a vulnerable-looking 5.2% dividend yield are sufficiently attractive to make Intu’s shares a contrarian buy.
Substantial rewards?
Shares of Sirius Minerals were trading at 18.25p on London’s junior AIM market when I last wrote about the company in February. They’re now 10p higher following positive news flow on the development of its massive North Yorkshire polyhalite project and a move to the Main Market. With a capitalisation of near to £1.2bn, Sirius is set to catapult straight into the FTSE 250.
If the company delivers its project on time and on budget, and meets its volume and price targets, I reckon the market cap could be above £15bn in 10 years’ time. To put that into context, Tesco is currently valued at £15.3bn and ranked number 34 in the FTSE 100.
Of course, with five years of construction and 10 years to targeted full production, Sirius is a proposition for risk-tolerant, patient investors with a long-term horizon. However, the rewards could be substantial if things go broadly to plan.
