2:10 PM, October 4, 2022

Travel sector recovery boosts chances that EasyJet could fly back into FTSE 100 in March reshuffle

Aviation
| The European | 22 February 2022

The FTSE All Share Index Quarterly Review is based on closing prices on Tuesday March 1 and is due to be announced on Wednesday March 2.

  • A flying recovery for EasyJet pushes it into a prime position to move back into the blue chip league.
  • Dechra pharma set to fall out of the FTSE 100 amid some concerns pet purchase tailwinds will wind down.
  • Horror story continues for Cineworld as it faces being booted out of the FTSE 250.
  • Clipper Logistics set to enter the FTSE 250, but it could be a short term stint.
  • Outsourcer Capita could be booted out of the FTSE 250.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown summarises the runners and riders for the FTSE review:

EasyJet – could re-enter FTSE 100
‘’EasyJet is still on its flight path back to recovery, but the progress made on its turbulent journey looks set to push it back into the blue chip index. The lifting of travel restrictions and another relaxation of testing requirements in February came as a much needed shot of medicine after the set-back of the Omicron variant. Top line figures are much improved from last year in the first quarter, when planes were grounded – revenue was almost five times last year’s level and bottom line losses halved to £213m. This progress has helped lift the share price 18% since the start of the year which investors more optimistic about the outlook. The focus on short haul travel puts easyJet in a better position than its long haul rivals when it comes to capturing returning passengers. UK beach and leisure routes look set to benefit from pent up travel demand in the months to come as holiday-starved families seek out a temporary stint in the sun. Guidance that capacity is expected to return to re-pandemic levels by the fourth quarter has also lifted spirits among investors. However the threat of war on the doorstep of Europe has unnerved the market, leading to a recent dip in travel companies’ share prices, and if the Ukraine situation deteriorates it could be yet another setback in the far from easy path EasyJet is attempting to follow to get back into the blue chip index.’’

Dechra pharma – contender to leave the FTSE 100
‘’Dechra pharma clawed opportunity from the soaring popularity for new furry additions to the household during the pandemic but there remains caution about how long the pet boom will continue. Dechra is in the business of keeping animals healthy throughout their lifetimes and although demand for the pharmaceutical company’s veterinary products has been strong, there is a risk that with incomes facing a squeeze from rising inflation spending per head could decline. But other results from pet orientated companies indicates that demand for pets doesn’t seem to be waning just yet which should make future revenues streams reasonably resilient as long as new product pipelines don’t get blocked. ‘’

Cineworld – contender to leave the FTSE 250
‘’The horror story continues for Cineworld with little sign that there will be a rapid recovery in its fortunes, and so its share price is bumping along in the cheap seats. Although the rush of Bond and Spiderman bookings came as a new uplifting scene for Cineworld, given the sorry story that played out during the pandemic, the brief euphoria didn’t last. Spies and superheroes alone won’t be the secret weapon back to health given that Cineworld is now reeling from the punch delivered by the Supreme Court of Justice in Ontario which ruled in favour of the Cineplex chain of cinemas in its legal battle against the company. It’s also unlikely that ticket sales will ever fully recover to the heady days of the past, given the huge shake-up of the movie industry. The footprint of the large cinema chains is set to contract further and there is likely to be a further refocus on smaller more luxury venues, providing the high-end cinema experience that people are unable to get at home.’’

Clipper Logistics – set to enter the FTSE 250
“Clipper has positioned itself right at the heart of British supply chain, capitalizing on the accelerated shift to e-commerce during the pandemic. The e-commerce specialist boasts big retail player partners like Marks and Spencer and ASOS, who recognized the benefits of outsourcing warehousing and supply chain operations. With a flurry of deal activity in the logistics sector, there is little surprise Clipper may have found a suitor, and news that US rival GXO Logistics is circling with a bid has sent the share price soaring. Although no firm offer has yet been made, the group said it was minded to accept the cash and share offer, so a stint in the FTSE 250 is likely to be short lived.”

Capita – contender to leave the FTSE 250
“Outsourcer Capita has been trying to streamline its operations and cut debt by offloading parts of its portfolio but that’s not stemmed the loss of confidence. Its shares have fallen by another 20% since the start of the year and are down 43% over the last six months. After years of declining revenues due to a loss of contracts, the restructuring drive has yet to reap rewards, disappointing investors with a significant turnaround not yet in sight.’’

Other potential movers from the FTSE 250
“Hochschild Mining reported a strong production mining increase but it’s been beset with problems regarding the threat of closure of some of its mines in Peru, where it sources the majority of its gold and silver. Concerns over the restrictions have led to a 20% drop in the share price since the start of the year. Baillie Gifford Shin Nippon is a publicly traded investment trust which invests in Japanese smaller companies. It’s share price has fallen by 25% since the start of the year and is a contender to fall out of the FTSE 250. Taking a place in the FTSE 250 could be Temple Bar Investment Trust which aims to provide growth in income and capital to achieve a long-term total return greater than the benchmark FTSE All-Share Index, through investment primarily in UK securities. Ruffer Investment Company is also a contender for FTSE 250 promotion. It invests in equities or equity related securities or bonds which are issued by corporate issuers or government organisations.”

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