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06 September 2019

End of 35-year reign for M&S

It was as much a stalwart of the FTSE 100 as it was of the high street.
 
But after clinging to the index by its fingertips for months, Marks & Spencer (M&S) will be a FTSE 250 company after a turbulent year for the store and the wider retail sector.  
 
Saul Fulda, Investment Analyst, said: “The relegation is a symbolic moment for M&S, having been the first British retailer to report £1bn in pre-tax profits and a headline name on the British high street.”
 
The store has seen many ups and downs throughout its history. Having started from a stall in Kirkgate Market, Leeds, it grew into a major chain and announced over £1bn in pre-tax profits in 1998. However, in 2001 it closed its European stores amid falling sales, with profits down to just £145m.
 
In July 2004 former Arcadia and BHS chief executive Philip Green attempted a takeover of the struggling store, but shareholders failed to back his 440p-a-share valuation. In 2007 shares rose to a high of 716p, but as the global financial crisis hit, more shoppers opted to buy from cheaper retailers and M&S’ share price dropped to less than 200p the following year.
 
In May this year Chief Executive Steve Rowe said the store was making good progress with a major programme to modernise the business and was well on the way to becoming “special again.” As part of the overhaul, the business said it planned to close 120 full-line stores in total by 2023. In February this year M&S announced a partnership with Ocado, giving it a home delivery service for the first time.
 
Saul said: “The deal signifies the shift in emphasis away from the troubled clothing business, whose poor performance ultimately caused the company’s fall from the FTSE 100.”
 
Also leaving the FTSE 100 is software giant Micro Focus International. It had been a member of the FTSE 100 since September 2016, but its market capitalisation fell sharply after a trading update on Thursday 29th August in which it cut revenue forecasts and announced a management review.
 
Shares in the company had been volatile since its £6.6bn merger with Hewlett Packard Enterprise’s software division in 2018, but in February this year it extended its share buyback programme after reassuring investors that it was over the worst of the “most disruptive issues experienced since completion”.
 
Direct Line completes the trio of companies facing relegation. In July, the Kent-based insurance group reported a 10% drop in first-half pre-tax profits as it felt pressure from competitors and government changes to discount rates used to determine personal injury compensation.
 
After being demoted to the FTSE 250 in previous quarterly reshuffles, this month will see a return to the top index for Hikma Pharmaceuticals, Meggitt and Polymetal International.
 
This month will see Hikma’s fourth stay in the FTSE 100, having made its top-flight debut in March 2015, with further appearances in June 2016 and again in December 2016.
 
Meggitt’s return to the FTSE 100 will come just over a month after the British specialist engineering business upped its full-year revenue growth guidance following a 7% increase in first-half adjusted profits.
 
A rise in gold prices has boosted Polymetal, which owns gold and silver mines in Russia, Kazakhstan and Armenia.
 
Companies promoted to the FTSE 250 will be telecommunications provider Airtel Africa, global payment platform Finablr, Jersey-based investment company Foresight Solar Fund, property company Sirius Real Estate, rail and coach travel platform Trainline and luxury jeweller and watchmaker Watches of Switzerland Group.
 
Meanwhile guarantor lender Amigo Holdings, SME loans platform Funding Circle Holdings, challenger bank Metro Bank, investment trust NewRiver REIT, clothing brand Ted Baker and Woodford Patient Capital Trust will drop from the FTSE 250 into the small-cap index.
 
The reorganisation will take effect from Monday 23rd September.
 
Ends
 
Please note, past performance and forecasts are not reliable indicators of future results or performance.
Please note that this article is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned.

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End of 35-year reign for M&S
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