Stock Market Week: Footsie aristos face the index guillotine

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The Independent Online
FOOTSIE'S Judgement Day is only two days away and chief executives and investors of a number of blue-chip companies are quaking in their boots. The quarterly review of the London stock market index's constituents is due on Wednesday, and a few big players - including, unbelievably, British Steel - could be thrown out of the Footsie 100.

The rules are cruelly simple. Companies will be judged on the basis of their market capitalisation at close of play on Tuesday. Footsie members ranking 111th or below will be relegated to the mid-cap, to be replaced by FTSE-250ers with a market value higher than the 90th-placed business. In practice, this means that if your market cap falls below pounds 2.7bn or so you are dropped to the exchange's second division.

The decision will be announced on Wednesday evening and the indices will be reshuffled on 21 September. For the unlucky ones which fail to make the cut on Judgement Day, life on the market will never be the same again. For a start, the company's prestige slumps and the directors will have to brace themselves for a fall in the number of invitations to dinner parties in exclusive clubs and the like.

More importantly, the loss of the coveted status as one of the UK's top 100 companies tends to have a negative impact on the share price as tracker funds withdraw their support. These passive investments aim to mirror the performance of the benchmark index and they stop buying in when a company is relegated, switching to the new Footsie members.

So who is most at risk of being relegated on Wednesday? The oil explorer Lasmo looks odds-on for the drop. Weak oil prices and difficult trading conditions have pushed the shares from a 297.5p year high to a lowly 162p, giving a market cap of pounds 1.5bn, well below the pounds 2.7bn threshold.

In fact, Lasmo could be kicked out today, when Allied Zurich, the group formed from the merger of the Swiss insurer with BAT's financial services arm, goes straight into the Footsie. Lasmo could be joined by rival Enterprise Oil on Wednesday. The shares have almost halved since the year high and the market cap hovers around pounds 1.7bn.

The leisure group, Rank, is also in the danger zone. The stock has been hammered by strategic mistakes and the market value is around pounds 2bn. Building materials group RMC and engineer Smiths Industries look rather unsteady, but the shock of the quarter could come with the expulsion of British Steel. The strength of the pound has wiped some pounds 1.6bn from BS's market cap in the past 12 months, leaving it perilously close to the brink.

The pack of mid cappers pushing at the Footsie's doors is led by Colt Telecom. The fibre-optic specialist's price has grown tenfold since coming to the market 10 years ago, and admission to the market's pantheon would be the icing on the cake. Securicor is also a safe bet: its 40 per cent stake in mobile phone operator Cellnet has done wonders for the security group's share price and market value is now well within sight of the pounds 2.7bn threshold.

Southern Electric, the utility which is merging with Scottish Hydro-Electric, Sema, the IT group, and the cigarette makers, Imperial Tobacco and Gallagher, are also strong candidates for inclusion.

The rest of the week's interest will be provided by a raft of results, including a cluster of companies which are, and will remain, in the Footsie. Norwich Union, the life assurer which floated last year, is expected to report a maiden interim profit of between pounds 300m and pounds 418m, up from last year's pounds 288m. New business on the life side has not ben sparkling and the strength of the pound will take the gloss off the overseas result.

P&O, the cruise-to-containers giant, reports on Tuesday and could deliver its first increase in interim dividend in eight years. Analysts are shooting for a pounds 135m half-year profit, up from pounds 118m a year ago, thanks to a strong performance by the cruising division. Watch out for any news on the sale of its construction division Bovis.

LucasVarity interims will be scrutinised to see how much the recent strike at General Motors has impacted the car engineer's profits. GM is the largest customer for Lucas's brakes, and analysts at BT Alex.Brown have taken pounds 15m from their estimate to reflect the factory closures. They are now going for pounds 165m, an 11 per cent advance on last year.

The Mirror Group analysts' meeting should be fun. City experts will grill the chief executive, David Montgomery, over the company's strategy following the dual collapse of talks with the German group Axel Spring and with regional newspaper group Trinity. Some analysts are grumbling that the group lacks a coherent strategy and they look to new chairman Victor Blank as the man to steer Monty in the right direction.

Lord Hollick's United News & Media is on the block on Wednesday. The shares have had an abysmal run since it announced the demerger of its money-broking business, underperforming the market by around 11 per cent. The interims should provide little solace, with analysts going for a fall from pounds 167m to, say, pounds 160m, due to larger losses on Channel 5 and on the interactive service business.

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