Marks & Spencer Poised to Lose Its Spot in the FTSE 100

(Bloomberg) -- Marks & Spencer Group Plc is poised to drop out of the country’s benchmark equity index for the first time, the latest sign of the iconic British retailer’s declining fortunes.

A near 20% drop in the stock this year has reduced M&S’s market capitalization to about 3.7 billion pounds ($4.5 billion), the lowest among companies in the FTSE 100 Index, according to data compiled by Bloomberg. That, along with a queue of potential new entrants to the benchmark gauge, means the retailer will likely lose its place at next week’s quarterly review, according to a report by Russ Mould, investment director at AJ Bell.

It’s a far cry from the company’s peak more than two decades ago, when it was worth about 18 billion pounds. Following years of falling clothes sales, M&S fell further out of favor with investors this year by financing a joint venture with Ocado Group Plc with a rights offering and a dividend cut. The stock touched its lowest since January 2001 earlier this month.

FTSE 100 membership is important not just in terms of prestige, but because it brings investment from funds that track the index. The latest re-balancing will be based on Tuesday’s closing prices and will be announced after markets close on Wednesday. Should M&S exit, it would be the first time the retailer has been absent since the benchmark gauge was formed in January 1984.

“M&S only survived in the last review three months ago because of the short-term technical boost from the Ocado rights issue, but the bleak fundamentals have since asserted themselves,” Nick Bubb, an independent retail analyst, wrote in emailed comments.

A spokeswoman for M&S couldn’t immediately provide a comment, while a spokesman for London Stock Exchange Group Plc declined to comment on potential index changes.

Potential Additions

As of Thursday’s close, M&S was ranked 111 among FTSE All-Share Index members by market value, Bloomberg data shows. According to FTSE rules, a security will be removed from the benchmark gauge if it falls to that spot or below. Even if M&S moves up a position, it can still be replaced by one of three companies that stand to join the index having risen up the rankings.

Those that could be included are Russian gold miner Polymetal International Plc, Hikma Pharmaceuticals Plc and engineering group Meggitt Plc, AJ Bell’s Mould wrote in his report this week. Shares in all three have risen since the last index review in June, pushing them inside the top 90 U.K. stocks by market value, the criteria stipulated for FTSE 100 qualification.

Other stocks at risk of removal from the index include Micro Focus International Plc, whose reduced revenue guidance on Thursday left its place in peril. Direct Line Insurance Group Plc and home energy supplier Centrica Plc as well as retailers Kingfisher Plc and J Sainsbury Plc are others whose falling valuations could leave them vulnerable to the potential new entrants, Mould wrote.

--With assistance from Jan-Patrick Barnert.

To contact the reporter on this story: Lisa Pham in London at lpham14@bloomberg.net

To contact the editors responsible for this story: Beth Mellor at bmellor@bloomberg.net, Paul Jarvis, Celeste Perri

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