Satellite operator Inmarsat (LSE: ISAT) is set for promotion to the FTSE 100 when the FTSE committee announces the results of its quarterly index review on Wednesday. That would lead to the lowest-ranked FTSE 100 firm dropping down to the FTSE 250. Wm Morrison Supermarkets (LSE: MRW) currently sits bottom of the group of companies in the danger zone.
Inmarsat previously had a three-year stay in the FTSE 100 between September 2008 and December 2011. A strong rise in the shares this year from £8 to just over £10 — giving the company a market capitalisation of £5bn — should be sufficient for Inmarsat to re-enter orbit in the top index.
Inmarsat’s rise has come despite an announcement last month of a delay in the launch of its latest satellite, which the company says is “currently expected to have a small negative effect on 2015 revenue and earnings”. Medium-term expectations that the satellite will deliver $500m of additional revenues (annual revenue is currently running at $1,285m) are “currently not changed by this delay”.
Inmarsat trades on a rich forward price-to-earnings (P/E) ratio of 33.5, although there is a reasonable dividend yield of 3.5%.
Morrisons is set to fall through the FTSE 100 trapdoor after a 14-year residency in the top index. The Bradford-based company, which joined larger rivals Tesco and Sainsbury’s in the FTSE 100 in April 2001, has been hit particularly hard by the rise of no-frills operators Aldi and Lidl.
As well as facing demotion to the FTSE 250, Morrisons is also likely to come under attack from shareholders at this week’s AGM over a £3m payoff awarded to former chief executive Dalton Philips, who stepped down earlier this year.
Looking on the brighter side, Philips’s replacement — Tesco veteran David Potts — is a promising appointment, and Morrisons is the only one of the “big four” supermarkets to have increased its sales over the last 12 weeks, according to figures from Kantar Worldpanel.
Furthermore, City analysts are optimistic about the longer term. The consensus is for Morrisons to grow earnings by 2% this year, followed by 20% next year. With the shares having fallen from over 200p at the date of the last FTSE review to 169p today, the current-year forecast P/E is 15, falling to 12.6 next year. The forecast yield is a market-average 3.5%, so Morrisons appears to be fair value at the moment.
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G A Chester has no position in any shares mentioned. The Motley Fool UK owns shares in Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.