“In the struggle for survival, the fittest win out at the expense of their rivals because they succeed in adapting themselves best to the environment” – Charles Robert Darwin
The race of FTSE 100 also follows a similar pattern; hence, the performance of stocks and sectors are dependent on adaptability to change. The major triggers of change in 2020 are as follows:
- The Coronavirus-imposed restrictions have massively impacted the hospitality and travel & leisure industry as it has disrupted the supply chain and demand patterns.
- Besides travel & leisure, the energy markets also got a massive hit, following the nosedived demand, price war resulting from the spat over output between with Russia & Saudi Arabia, and the storage issues.
- The Government introduced several stimulus packages to contain the disruption from employee retention scheme to various loan schemes initiatives introduced.
- Companies in the pharmaceutical & biotechnology sector and retail companies with exposure to online business model have outperformed the markets.
Today, we are discussing four stocks that have plunged over 60 per cent on year-to-date (YTD) percentage change and therefore, may be moving out of FTSE-100 Index soon – Carnival PLC, EasyJet PLC, Meggitt PLC and Centrica PLC. Moreover, ITV PLC is also at the verge of moving out with YTD change of -49 per cent. In comparison, FTSE 100 only dipped around 20 per cent. Before jumping to stocks, it is imperative to understand the composition of FTSE 100 Index.
Created by FTSE Russell, the FTSE 100 index was launched in January 1984 to encompass the top 100 Companies listed on the London Stock Exchange (LSE) by market capitalization. The overall market capitalization of FTSE 100 is around GBP 1.51 Trillion, with a dividend yield of 4.19 per cent (as of 22nd May 2020).
FTSE 100 – Key Statistics
Let us quickly go through the distribution of the FTSE 100 index by sector in the picture below:
FTSE-100 Index - Sector Composition
It is evident that FTSE 100 is presently dominated by three sectors - Consumer Goods (19.61 per cent), Financials (16.69 per cent) and Oil & Gas (13.91 per cent). The sector contribution is given in the chart below for better representation.
(Source: Refinitiv, Thomson Reuters)
Now, it would be interesting to evaluate what affects the performance of FTSE 100 Index. Inevitably, the performance of various sectors can impact the returns of the index. However, it is mindful to note that the constituents of FTSE 100 are operating in over 150 countries, and more than 70 per cent of the revenue of FTSE 100 is generated from international operations and markets. Hence, the global macro-economic and geopolitical factors certainly impact the index massively.
Reshuffling of Stocks
As the novel Coronavirus infection has been a major trigger for impacting the performance of companies, sector, and indices globally in 2020, it might lead to a reshuffling of various blue-chip stocks. Some of them are Carnival PLC, Easyjet PLC, Meggitt PLC, Centrica PLC and ITV PLC. Let us quickly walk through them and compare their performance with FTSE-100 Index on some vital statistics.
Comparison of Price Performance - FTSE 100 vs Stocks
In the past 1 year, the FTSE 100 has delivered a negative return of -18.28 per cent. However, in the past 10 years, the index has shown a positive return of 21.30 per cent. However, if we observe the year-to-date (YTD) per cent change in price, it is evident that CCL, EZJ, MGGT and CNA have fallen around 60 per cent and hence, moving out of FTSE 100 Index. Whilst ITV on the cusp of moving out with YTD percentage change of around 49 per cent.
Price Percentage Change
Comparison of Share Price Chart
Please refer to the share price chart comparison for the past 1 year of above stated stocks.
(Source: Refinitiv, Thomson Reuters)
Similarly, the comparison of 1-year price performance of FTSE 100 can be seen with other major indices below:
FTSE vs CDAX, FCHI, SPX, Nasdaq Composite: It is clearly visible in the chart below that FTSE 100 is lying below other major indices:
(Source: Refinitiv, Thomson Reuters)
Brief Description and Recent Regulatory Updates
Business at a Glance
Carnival PLC (LON: CCL) is a British-American cruise operator, which has operations in North America, Europe, Asia, and Australia. Its brand portfolio includes Holland America Line, AIDA Cruises, Costa Cruises, Seabourn, Cunard, Princess Cruises, P&O Cruises (UK and Australia) and Carnival Cruise Line.
EasyJet PLC (LON: EZJ) operates as low-cost point-to-point airline company. It differentiates the business into four geographic segments, namely Southern Europe, Northern Europe, United Kingdom and Other. The Company serves across 159 airports to about 96 million customers, with a workforce of over 15,000 employees.
Meggitt PLC (LON: MGGT) is a manufacturer and provider of sub-systems, components, and advanced technological solutions for application into energy, defence and aerospace equipment. Globally, around 73,000 aircraft rely on its services as they serve in 16 countries with approximately 12,000 employees.
Centrica PLC (LON: CNA) is a provider of energy related solutions and services. It has significant operations in the US, UK, Ireland, and Canada. These operations are catered through three segments, namely Centrica Business, Centrica Consumer and Upstream.
ITV PLC (LON: ITV) is a UK based media company, which operates as an integrated producer broadcaster. It segments the business operations into parts - ITV Studios and Broadcast & Online. The ITV studio serves in the UK and multiple countries with its content, while the Broadcast operates commercial channels in the United Kingdom.
Major Developments of the Year 2020
CCL: The Group bolstered its liquidity by USD 6.4 billion in total through the common stock and senior convertible notes. The Company had suspended the operations in March due to COVID-led restrictions. It has extended the pause of activities in Australia and New Zealand to 31st August 2020.
EZJ: The Group had raised GBP 600 million through the Covid Corporate Financing Facility and withdrew USD 500 million through revolving credit facility to hold the total cash reserves of GBP 2.3 billion. The entire fleet of the Company has been grounded since May. However, the Group plans to resume flights from 15th June 2020.
MGGT: Recent won a contract of USD 78 million in April for building a training complex in the middle east. Further, the Group affirmed that trading was in line with expectations during January and February. In March, the Company had extended the contract with GE Aviation.
CNA: During the financial year 2020, the Group appointed and Chairman (Scott Wheway) for the Board and appointed a tentative Chief Executive Officer to Chris O’Shea. The Company also announced a partnership with Volkswagen in May, for charging stations of electric vehicles. It also signed an agreement with Centrais Elétricas de Sergipe S.A. in February 2020.
ITV: The Group has adopted several measures to contain the impact of COVID-19 such as the voluntary reduction in pay by 20 per cent for management and the Board and, the suspension of bonus in 2020. During the first-quarter, revenue of ITV Studios segment plunged 11 per cent, and Broadcast shed 2 per cent against the first quarter of 2019.
FTSE 100 suffered its worst first-quarter since 1987, following the inevitable impact of COVID-19 after the Brexit and other macro-economic issues. Subsequently, the stocks plummeting over 50 per cent are at the risk of moving out of FTSE 100, with missing on market capitalization and liquidity requirements criteria. The four stocks that may be reshuffle from the blue-chip index despite the possible efforts are – Carnival - increasing rescue bonds; easyJet - boosting liquidity; Meggitt - postponing the retirement of Chairman; Centrica - making management changes after showing the worst return on investment ratio. Hence, it is correct to say that Companies with big pockets of liquidity and resilience in the business model will only be able to navigate the economic turmoil and maintain their position in the blue-chip index.
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