As many as four companies are in danger of receiving the boot from the FTSE 100 in the last quarterly reshuffle of 2017. The FTSE committee will publish its decision on Wednesday, based on market capitalisations at Tuesday’s closing share prices.
However, as things stand Babcock International and Merlin Entertainments are sitting well below the automatic demotion threshold of position 111th. Their shares would need to rise significantly in the remaining trading sessions to avoid the drop into the FTSE 250. Conversely, FTSE 250 firms DS Smith and Just Eat are ranked comfortably above the automatic promotion threshold of 90th and are on for promotion to the FTSE 100, barring a dramatic fall in their shares.
In addition, Mediclinic International and Convatec are teetering on the brink of an automatic FTSE 100 exit, with relatively minor movements in their shares before Tuesday’s close set to decide their fates. If both were to exit, Halma and John Wood are currently sitting in prime positions to join DS Smith and Just Eat in the FTSE 100.
International packaging group DS Smith was knocking on the door of the top index last quarter but is set to storm over the threshold this time. A strong trading update at the end of October — discussed by my Foolish friend Rupert Hargreaves — has propelled the shares higher. Rupert sees an undemanding valuation and believes the company can continue to achieve double-digit annual returns for investors.
The ascent of takeaway ordering platform Just Eat has been even more impressive. The company only listed on the stock market in 2014 (at a share price of 260p) but the shares have climbed relentlessly to over 820p. This has come on the back of rapid international expansion and spectacular revenue and earnings growth. There aren’t too many high-growth companies in the FTSE 100 but Just Eat’s earnings are forecast to continue soaring.
Babcock International is an engineering services company with a focus on the defence, energy, transport and emergency services sectors. Sentiment towards the defence sector was hit by a profit warning from Ultra Electronics earlier this month. Babcock has remained out of favour this week after releasing its half-year results on Tuesday. My Foolish friend Edward Sheldon thought the results looked robust and concluded that the shares are oversold and appear to offer strong long-term value.
Merlin Entertainments’ expected drop to the FTSE 250 comes after business at its Madame Tussauds, Legoland and other attractions wasn’t helped by this year’s unfavourable summer weather and terrorist attacks in the UK and Europe. However, management said it remains confident in the longer-term prospects. So, this might be another case where the shares are oversold.
The changes to the indexes the FTSE committee announces on Wednesday will take effect from the start of trading on Monday 18 December.
G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended DS Smith, Halma, Just Eat, and Ultra Electronics. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.