Top FTSE 100 low debt companies for lower risk exposure - BATS, LSE & AAL

Summary

  • A difficult economic situation like a pandemic put additional pressure on the finances of the company, forcing them to raise more debt, which badly impacts their profitability.
  • The FTSE 100 index companies are the largest and strongest companies on the London Stock Exchange, but the pandemic has made the situation difficult for them with significant debts on their books
  • There are a few companies who have been strong enough and withstood the major crisis of the economy managed not to increase their debt exposures.

The FTSE 100 index comprises of the stocks of top 100 companies on the London Stock Exchange based on the value of their market capitalisation, representing at least eighty per cent value of the total market capitalisation of the Exchange at any point of time during a trading day. The FTSE 100 also boasts itself to be the United Kingdom's globally recognised headline stock benchmark. The companies on the index have long donned pathbreaking new technological and business practices, have fostered global business outlook and have brought about prosperity, business and economic success for the United Kingdom and also to the countries in which they transact.

The FTSE 100 stock index, popularly known as “Footsie” is also representative of the largest companies in the UK, also known as the large-cap stock index, in terms of revenues and market capitalisation, and hence is considered as the barometer of the British economy. It has been analysed all across by investors, economists, debt market makers, stock market professionals and fund managers alike to carefully consider the implications of noteworthy movements in the general economic parameters of the economy on the headline index and vice versa. However, lately, this concept of FTSE 100 being the barometer of the British economy is coming for a change as the index is now increasingly being represented by a number of multinational and foreign companies whose performance is not linked or to a very little extent linked to the macro-economic fundamentals of the British economy.

Why having debt in the books of the company is not favourable during times of economic crisis?

Debt on the books does eat into the operating profits of the company. In times of crisis when the economy is not doing well, the revenues of the company will go down, and the presence of debts on its books will become doubly taxing, and its profitability will see a sharper rate of fall. Thus it is obvious that in times of crisis the shares of these companies will suffer a steeper decline compared to companies who do not have much debt on their books, and the situation will only continue to deteriorate for these companies as the crisis stretches.

How has the FTSE 100 index been performing since the outbreak of the pandemic?

Since the beginning of this year, the FTSE 100 index has been underperforming. On 2 January 2020, the index was trading at 7,604.30 and took a sharp dive in the month of March when the lockdown was imposed in the nation. On 23 March 2020, the day the lockdown was imposed in the United Kingdom the index recorded its lowest so far in this year and was quoted at 4,993.89, since then however some pullback has been witnessed on the index and as on 8 September 2020 it was quoting at 5,921.81.

Nearly half of the FTSE 100 companies this year have cut or suspended their dividends and the total dividend payout for this year has also come down significantly. This is in sharp contrast to 2019 where despite the adverse effects of Brexit, most companies paid dividends and some even created records in the rate of dividends and the total sums paid out. Here we will discuss the top FTSE 100 featured companies that have low debts on books.

  1. British American Tobacco Plc– (LON: BATS) The shares of British American Tobacco Plc performed well initially at the beginning of the year. On 2 January 2020, the shares of the company were at GBX 3,265.00, and after that, it rose to GBX 3,483.00 on 14 January 2020 before gradually turning downwards. The shares of the company reached a year low of GBX 2,382.00 on 23 March 2020 when the lockdown was imposed in the country, since then; however, the performance of the company has marginally improved and on 8 September 2020, they are trading at GBX 2,578.50.
  2. London Stock Exchange Group Plc- (LON: LSE) The shares of London Stock Exchange Group Plc have been performing well since the beginning of the year. Except for a drop in its share prices when the lockdown was imposed, the company has continued to march steadily upward on the exchange. On 2 January 2020, the shares of the company were at GBX 7.700.00, and after that, it rose to GBX 8.416.00 on 19 January 2020 before gradually turning downwards. The shares of the company reached a year’s low of GBX 5,806.00 since then; however, the performance of the company has marginally improved, and on 8 September 2020 they are trading at GBX 8.660.50.

  1. Anglo American Plc- (LON: AAL) The shares of Anglo American Plc has not been performing well since the beginning of the year, On 2 January 2020, the shares of the company were at GBX 2,202.00, and after that, it rose to GBX 2.245.50 on 17 January 2020 before gradually turning downwards. The shares of the company reached a year’s low of GBX 1091.80 on 23 March 2020 when the lockdown was imposed in the country, however, since then, the performance of the company has marginally improved and on 8 September 2020, they are trading at GBX 1850.20.

Shares price performance of BATS, LSE & AAL since the beginning of 2020

(Data Source- Refinitiv, Thomson Reuters)

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