Stock Market Week: Mining giant finds a berth in FTSE 100

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The Independent Online
PASSENGERS in the FTSE 100 train will have to move right inside the carriage this week to make space for a new, bulky traveller.

Some kind soul should offer the new arrival a seat, as it has just completed a long trans-continental journey to join the London elite.

Anglo American, the South African mining giant, is virtually certain to enter the blue-chips' inner sanctum after Wednesday's quarterly review of the indexes.

The precious metals specialist moved its listing to London a mere two weeks ago but its massive market value is enough to guarantee a place in the FTSE 100.

Barring any disaster before tomorrow's deadline, the South African newcomer's pounds 12bn capitalisation should put it ahead of stockmarket aristocrats such as Marks & Spencer, British Aerospace and Imperial Chemical Industries.

However, size alone will not be sufficient to endear Anglo to the Square Mile. After beginning their new life at around 3,180p, Anglo shares have plummeted to 2,866p before rebounding to Friday's 2,966p.

Analysts and fund managers cite two main reasons for such a shaky start. First, Anglo is seen as a sprawling conglomerate, which deserves to be on a discount to more focused peers. Despite recent efforts to simplify its structure, some investors are not too keen on a company with interests ranging from gold to financial services.

The second drawback is the management's reputation for poor investor relations. A few City types believe that if Anglo wants to make its mark in London it will have to be more transparent and accommodating towards the UK financial community.

On the plus side, Anglo has a number of solid businesses with world-leading positions in several metals markets. Moreover, on valuation grounds, the shares look fairly cheap, as they trade on a forward price/ earnings ratio of around 15 times, compared to Rio Tinto's 24 times and Broken Hill's near 50 multiple.

Of course, all of this in-depth analysis will be entirely irrelevant to gauge the direction of Anglo's share price, at least at the beginning of its FTSE 100 career. The simple fact that, from 21 June, Anglo will become a blue-chip, will trigger a wave of buying from index-tracking funds. These passive investors do not care a jot about a company's fundamental strengths, since their only concern is to get their weightings up in line with the index.

Even that may be rather difficult as the supply of Anglo shares is scarce . The free float is only about 55 per cent because the Oppenheimer family and the De Beers diamond empire control a chunky stake.

When Anglo boards the blue chip train, the information technology group Sema is likely to be pushed out. The Anglo-French company is a bit of a yo-yo stock as it keeps going in and out of the FTSE 100. Sema last got in March, when its shares topped 700p, but since then, a sell-off in US technology shares has prompted a slump to Friday's 537.5p. The slide should sanction Sema's second relegation in just six months.

Next is another company in danger of making a swift exit. The fashion group returned to the top flight only last month because insurer Guardian Royal Exchange was bought by AXA. However, the stock has looked wobbly since then and the fashion retailer could make way for Blue Circle. The building materials producer is coming out of the recent doldrums as its Far Eastern markets slowly recover. Recent acquisitions in Greece and the imminent arrival of a new chief executive have also contributed to Blue Circle's improving outlook.

There is an outside chance that British Steel could complete its recent renaissance with a return to the blue-chip fray at the expense of medical and engineering group Smiths Industries. The grand old lady of British manufacturing was ejected amid much clamour last September after another year where everything had gone wrong. But hope springs eternal, even for British Steel, and after a tough restructuring programme and the mooted takeover of Dutch rival Hoogovens - details of the deal are expected today - the company is back on the FTSE 100 doorstep.

A few established blue chips are due to report results in a week marked by an interest rate decision. The outcome of the Bank of England meeting is tough to call, but the majority of economists is going for no change.

On the corporate front, Vodafone is set to be the star of the week. Tomorrow, the mobile phone group should post a 30 per cent rise in profits to around pounds 877m from pounds 650m a year ago, according to the estimates service IBES. A stellar peformance from its international business, particularly in Australia and Greece, will be the main driver, while UK earnings should be flat.

Cricket-mad chief executive Chris Gent will play a straight bat to questions over the multi-billion pound deal to take over US rival Airtouch as regulatory approval is not expected until the end of the month.

Granada, the TV and leisure group, will beam some good interims on Wednesday. Strong growth in advertising revenue in its ITV franchises will combine with solid sales in its catering division to push profits up some 12 per cent to around pounds 300m. The Little Chef road restaurants and Forte hotels should also boost the bottom line.

Chief executive Charles Allen will be quizzed on recent reports that he wants to forge a partnership with an international media group and then spin off Granada's hotels business.

GEC is on the block on Thursday, but the profit number, say pounds 1.1bn versus pounds 1bn in 1998, will be irrelevant. During the year, the company has sold its defence electronics business Marconi for pounds 7.7bn to British Aerospace and embarked on a shopping spree in telecoms. Much of the attention will be focused on whether managing director Lord Simpson will be able to gel the new businesses into a coherent unit. The GEC boss will have to dispel the market's fears over a $1bn legal action launched by shareholders of Fore Systems, the GEC's company latest US buy. The timing of GEC's expected US listing will also be on the agenda.

Another hungry acquisitor, Stagecoach, reports finals tomorrow. The transport group's profits, at around pounds 210m, should overtake last year's figures by over 30 per cent. The best numbers will come from Southwest Trains, which has benefited from good passengers growth, and the train leasing unit Porterbrook. The main question mark is on future sources of growth. Stagecoach wants to buy abroad but some analysts have questioned the quality of its recent purchases and the management's ability to make them work.

On Wednesday, Scottish & Southern Energy reports maiden finals since the merger of Scottish Hydro and Southern Electric. Profits will be around pounds 420m before a restructuring cost of pounds 140m.