Dixons Carphone plc set for FTSE 100 exit. Capita plc & easyJet plc also in danger

Dixons Carphone (LSE: DC) is odds-on for relegation from the FTSE 100 when the FTSE committee publishes its first quarterly index review of 2017 tomorrow. Dixons currently sits seven places below the cut-off level for automatic demotion to the second-tier FTSE 250.

However, according to my sums, Capita and easyJet are also teetering on the brink. And, with the reshuffle being decided on market capitalisations at the close of business today, a poor performance by their shares in the remaining hours of trading, could see one or both follow Dixons through the trapdoor.

Consumer spending

I’ve written about my views on easyJet recently, while my Foolish colleague Jack Tang looked at Capita just last week. So, I’ll have a quick gander at racing-certainty-for-demotion Dixons, before revealing the FTSE 250 firms that are in line for promotion to the FTSE 100.

Dixons shares are down about 13% since the last index review, with the major part of the fall coming since the company’s Christmas trading update on 24 January. There wasn’t much wrong with the update as far as I could see. Management trumpeted a fifth consecutive year of Christmas growth” and said it was trading in line with expectations for its financial year to 29 April but clearly the market was unimpressed.

Although Dixons reported a solid performance from large screen TVs, which it views as “a bellwether for consumer sentiment”, the market appears to be pricing-in the prospect of consumer belt-tightening (in which discretionary spending reduces disproportionately) as inflation rises and wage increases slow.

The company trades on just 9.5 times current-year forecast earnings, with a prospective dividend yield of 3.6% but earnings forecasts could come under pressure, with consumer spending power set to come under pressure. Add in a protracted period of Brexit-related uncertainty and I think the stock is best avoided for the time being.

New FTSE 100 entrants

Scottish Mortgage Investment Trust looks nailed-on to gain promotion to the FTSE 100, as it currently sits two places above the automatic entry level. This company invests globally and, with less than 4% of its portfolio in the UK and 47% in North America (including the likes of and Facebook), it has benefitted from the weakening of sterling since the EU Referendum.

Other promotions would depend on whether Capita and/or easyJet slip into the drop zone. If they do, Rentokil Initial, a global business, not just the ‘royal rat-catcher’ of old, and international packaging firm DS Smith are in the prime positions for promotion. Gold and silver miner Polymetal International, which lost its place in the FTSE 100 at the last review, could also be in the mix for a quick return to the top index.

It’s all very tight at this quarter’s review, with today’s trading being key to the outcome. Changes to the index will take effect from Monday 20 March.

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