FTSE 350 quarterly reshuffle: B&M's bargains land it in FTSE 100

FTSE 350 quarterly reshuffle: B&M's bargains land it in FTSE 100

FTSE Russell, the global index provider, announced its latest quarterly review on 3 September 2020, which saw one change to the FTSE 100, and 10 changes to the FTSE 250.

Changes to the FTSE 100 index

With the pandemic forcing people to stay at home, ITV noted in its H1 results that total viewing was up 4%, with online viewing up 13%. Despite this, ITV was not immune to the effects of the pandemic, with its share price losing more than half its value in March as the majority of its productions globally were forced to come to a halt. The cancellation of popular programming such as Love Island and the UEFA European Football Championship saw ITV’s total studio revenues and total broadcasting revenues both down 17%. Furthermore, the restrictions also led to a slump in the demand for advertising, with advertising revenue down 43% in the second quarter. With its shares trading at levels not seen since 2011, when it last fell out of the FTSE 100, ITV was the only company to find itself demoted to the FTSE 250 in this quarter’s reshuffle.

Replacing the media giant is discount retailer B&M European Value Retail, who will be making its debut in the FTSE 100 since listing in 2014. Despite also seeing an initial decline in its capitalisation between February 2020 and April 2020, the retailer’s share price has since continued to rise, exceeding even pre-pandemic levels as its low pricing strategy, and out-of-the way locations which allow for better social distancing, make for a winner in the current climate.

Changes to the FTSE 250 index

Unfortunately, many other retailers did not share B&M’s success, as the sector is forced to weather yet another storm in light of the pandemic. This has had a knock-on effect on the property market, with many retailers unable to afford rent and being forced to close stores. Real estate giant Hammerson, which was demoted from the FTSE 250, noted the impact of retail in its half-year report, stating that the closure of non-essential retail and government restrictions on rent collection had led to less than half of expected Q2 rent collected. Chief executive, David Atkins, commented:

‘The pandemic has exacerbated structural shifts in retail, exerting further pressure on both property owners and brands, and provided further evidence that the UK’s historic leasing model has served its time. It is outdated, inflexible and needs to change. We are introducing a new UK leasing approach—one that is simpler, reflects an omnichannel retail environment and rewards positive performance on both sides. It will deliver a sustainable, growing income stream and we are in initial discussions with retailers and anticipate introducing the first of the new leases later this year.’

Notably, a day before the reshuffle was announced, Hammerson saw its share price rocket on 2 September 2020, closing at 292 pence per share—more than three times its closing price on 1 September 2020 (85 pence per share). This comes after the approval of its £552m rights issue (which saw shares offered at an almost 95% discount), share consolidation, and disposal of its interest in the VIA Outlets joint venture, which aimed to reduce the company’s debts and improve liquidity.

Despite the heat wave giving sales a much needed boost, the closure of the hospitality sector and continued volatility in sales left beverage manufacturer AG Barr parched, as it found itself relegated from the FTSE 250. The company has seen its share price continue to plummet since the peak of the pandemic, closing at 383 pence per share as of 3 September 2020—a 10% decrease from its previous low of 426 pence per share when lockdown measures were announced on 23 March 2020.

On the other hand, the current market turmoil was filled with opportunity for Diversified Gas & Oil, who found itself promoted to the FTSE 250, soon after making the move from AIM to the Main Market in May 2020. The company, which is focused on acquiring ‘Low-Risk, Low-Cost, Long-Life Producing Assets’, announced a dividend increase of 7% in its second quarter, at a time when almost 45% of the FTSE 250 have cancelled, suspended or cut dividends all together, further making it a star performer for investors. Chief and executive officer, Rusty Hutson, Jr said the following in its interim results:

‘As we enter the second half of 2020 with approximately $220 million of total liquidity, a healthy balance sheet and with a focused and efficient operation, we are well-positioned to capitalise on the opportunities these challenging times create, all with our unrelenting focus on creating long-term value for shareholders.’

Baillie Gifford US Growth Trust also benefitted from opportunities the current market has presented, as it managed to ride the US tech surge right into the FTSE 250 for the first time, with holdings in Tesla, Amazon, Netflix and others. The company issued further shares in order to keep up with investor demand in light of its current successes. Chair, Tom Burnet, noted in its final year results:

‘The last 12 months have been extraordinary ones for investors in the US stock market and it seems probable that the next 12 could be equally turbulent. At the time of writing, it seems probable that we are at the dawn of a significant global recession and ongoing market volatility is to be expected. In that context, it is comforting to note that as long-term investors in exceptional growth companies, many of the organisations in which we are invested have thrived during the period. As the digital transformation that has been accelerated by the Covid-19 pandemic continues, the portfolio should be well positioned to benefit in the long term. All that being the case, the Board and the Managers remain confident in our outlook.’

On 4 September 2020, only a day after its promotion, Baillie Gifford’s share price dropped 4% to 1,1135 pence per share. This followed the tumble of US stocks after a number of investors, including Baillie Gifford, sold off their holdings in a variety of tech companies on 3 September 2020.

SDL also cemented itself among the top 250 companies in the reshuffle, after announcing in August 2020 that it had come to an agreement with AIM 50 RWS, regarding a merger that would value SDL at £854m—a 52% premium on its closing price as of 26 August 2020, a day before the announcement. However, SDL’s time in the FTSE 250 is expected to be short-lived, as RWS intends to list the newly combined group on AIM.

Another notable movement in the reshuffle includes the exit of Finablr from the FTSE 250, who had only listed in 2019, before being caught amid scandal early this year regarding £1bn of unreported debt. The company saw its shares suspended in March 2020, as it questioned its ability to continue as a going concern. These problems stemmed from its association with NMC Health (also founded by billionaire BR Shetty), after investor Muddy Waters had accused the company of misstating its assets. Following these accusations, NMC fell out of the FTSE 100 in the March reshuffle, before it delisted in April 2020. Regarding the scandal encasing his companies, Shetty accused former and current executives of ‘serious fraud and wrongdoings’ before stepping down as co-chair and director of Finablr on 17 August 2020.

Risers and fallers

FTSE 100 entrantsFTSE 100 exits
B&M European Value RetailITV
FTSE 250 entrantsFTSE 250 exits
ITV (down from FTSE 100B&M European Value Retail (promoted to FTSE 100
Baillie Gifford US Growth TrustBank of Georgia Group
Diversified Gas & OilBarr (AG)
Hipgnosis Songs FundEquiniti Group
CMC MarketsGo-Ahead Group
JPMorgan Euro Small Co TrustHammerson
Premier FoodsPayPoint
SDLPPHE Hotel Group
Vectura GroupTemple Bar Inv Tst

All changes will take effect as of 21 September 2020.

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