M&S faces FTSE 100 demotion for the first time

(Sharecast News) - Marks & Spencer is likely to drop out of the index of leading shares for the first time since the FTSE 100 was formed 35 years ago as the retailer suffers the effects of high street decline and its own problems.
The quarterly FTSE 100 reshuffle takes place on 3 September and usually results in at least one company being replaced by another from the FTSE 250 midcap index.

M&S narrowly avoided demotion in June as easyJet dropped out of the index but barring a sudden surge in its share price the company looks certain for the drop this time. M&S's market value of £3.7bn is well short of the £5.2bn valuation for Polymetal International, the Russia-based miner most likely to replace it.

M&S has been a member of the FTSE 100 since the index was launched in 1984. It is one of fewer than 30 original members still in the rankings after others disappeared because of mergers or declining fortunes.

The company has suffered for years from failing to keep up with customer tastes in its clothing ranges and online services. Chief executive Steve Rowe is cutting costs, shutting stores and reducing prices in the latest in a series of revamps at the 135-year-old company.

Helal Miah, an analyst at online broker The Share Centre, said: "Marks and Spencer for so long has been a candidate for going down only to just escape at the last minute. It can only hold out for so long and this time there seems little that can save it from going down."

Other candidates for the drop include Centrica, the parent of British Gas, and Kingfisher, the owner of DIY retailers B&Q and Screwfix, which has been affected by the stagnant housing market and shaky consumer confidence. Hikma, a generic drugmaker focused on the Middle East and North Africa, is another prospect for promotion to the FTSE 100.

Many Centrica shareholders have owned their shares since British Gas was privatised in the 1980s, making it one of the UK's biggest companies. Centrica's share price has been hit by competition for domestic energy customers and the prospect of tougher regulation or renationalisation under a Labour government.

Miah said: "It is interesting to see a clear distinction between those on the way up and those heading down and highly reflective of the current economic and political environment. Out go the more UK-focused businesses while those with a more global exposure look to replace them."

The FTSE 100 reshuffle is managed so that companies do not move in and out too often. To be relegated a company's market value must be below that of the top 10 companies beneath it and to gain promotion a FTSE 250 company's valuation must exceed that of the bottom 10 in the FTSE 100.