Much like the end of the football season, the reshuffles of the FTSE 100 are always an interesting affair. Today, I’m taking a look at one promotion candidate and two companies at risk of being relegated from the market’s premier division.
Heavy metal investing
Russian gold and silver miner Polymetal International (LSE: POLY) may not be familiar to some retail investors, perhaps because the company has developed a habit of yo-yoing in and out of the top index as the demand for commodities has ebbed and flowed.
Notwithstanding this, recent concerns over stalling global growth, Donald Trump’s tussle with China and Brexit look set to elevate Polymetal back to the FTSE 100 as investors rush to acquire ‘safe’ assets such as gold.
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Earlier this week, the £5.5bn cap stated that H1 revenue and adjusted earnings had been 20% and 34% higher respectively year-on-year. The company also declared that it was on track to meet its production guidance for the full year of 1.55 million ounces (Moz) of gold equivalent and that it was considering dipping its toe in the rare earth metal space in the hope of capitalising on the increasing demand for commodities used in electric cars.
At the time of writing, the shares change hands on 12 times FY19 forecast earnings and offer a secure 4% yield. As if the latter weren’t attractive enough, Polymetal is also considering a special dividend after hitting debt targets thanks to the rising gold price.
If you believe that the macro-economic landscape is only going to deteriorate further over the next year or so, there could be even more upside ahead.
Relegation candidates
Potentially going the other way in the forthcoming shuffle are British Gas owner Centrica (LSE: CNA) and DIY behemoth Kingfisher (LSE: KGF).
Centrica’s woes are numerous and well-publicised — one of the biggest being its struggle to retain customers. Having recognised the ease with which they can switch, the increasingly savvy energy consumer is no longer loyal to a particular provider and many have made the move to more nimble suppliers to cut their household bills.
Understandably this development — combined with the introduction of caps on energy prices — has impacted on profits which have in turn forced Centrica to slash its dividend. The threat of eventual nationalisation if Jeremy Corbyn were to get the keys to Number 10 and the likelihood that holders would get a poor price for their shares hasn’t helped sentiment either.
Having more than halved in value since the end of August 2018, Centrica’s descent into the FTSE 250 looks pretty likely.
The state of affairs over at Kingfisher isn’t much better. Its share price is now down 30% since this time last year.
The firm’s Q1 results — revealed back in May — were a mixed bag with decent trading at Screwfix and B&Q in the UK offset by ongoing troubles in France.
As is to be expected after falling so far, Kingfisher’s shares now trade on a valuation of just under 9 times forecast earnings for the current financial year. The 5.6% yield, while secure for now, might not be enough to keep income investors interested if the company does indeed fall out of the index and others rush to sell.
Relegated of not, it looks like ex-Carrefour man Thierry Garnier will have his work cut out when he takes the reins on 25 September, a week after the company posts half-year numbers.
