FTSE 100 Analysis: British Land loses blue-chip status after 20 years

FTSE 100 rebounds from 2-month lows

The FTSE 100 is up 0.3% this morning, with the blue-chip index rebounding from the two-month lows hit yesterday and set to open at 7,462.7. That follows in the wake of a positive session in Asia with markets in Australia, China, Hong Kong and Japan all closing higher.

FTSE 100 analysis: Where next for the UK 100?

The UK 100, which tracks the FTSE 100, slumped to two-month lows yesterday but is holding up above 7,450, making this a key level to watch. A break below here would bring the closing-low of 2023 back into play at 7,314.

Notably, the RSI has now slipped into oversold territory to reaffirm that it should find some support at current levels. The immediate job is to reclaim the heavy ground lost this week and climb toward 7,622, which has emerged as a ceiling on multiple occasions since early 2022. It can then try to recapture the floor that held throughout the first three weeks of May at 7,710.

Top UK stock news

We discovered yesterday that British Land will leave the FTSE 100 after more than 20 years in the index and be replaced by engineer IMI when the next index review takes effect when markets open on June 19. British Land, down 0.1% and at 7-month lows today, has succumbed to the pressure on commercial real estate stemming from higher interest rates. Notably, markets were anticipating online grocer Ocado Group to lose its place in the index but it has now narrowly avoided relegation, sending the stock up 1.3% this morning.

Meanwhile, Capita, Empiric Student Property, ME Group International, North Atlantic Smaller Cos Investment Trust and Tyman will join the FTSE 250 and replace ASOS, Capricorn Energy, Hunting, Tullow Oil and Videndum.

BHP Group is up 0.7% today. The firm said a preliminary review has revealed that around 28,500 employees in Australia have had leave incorrectly deducted on public holidays since 2010. The mining giant said the estimated cost of fixing the issue will be up to $280 million before tax. ‘BHP is continuing to investigate and an update will be provided in our full year results in August,’ said the company.

Auto Trader is down 0.9% today. The company said Matt Davies has been appointed as chair designate as current chair Ed Williams prepares to retire in 2024. Williams will join the board at the start of July and formally take on the role of chair after the AGM in September. He has previously been the CEO at Pets at Home, Halfords and at Tesco’s UK and Ireland business. That came as Auto Trader said revenue rose 16% in the year to the end of March to £500.2 million despite constrained supplies of new and used vehicles, although operating profit declined 9% to £277.6 million as its margin tightened, coming in short versus the £313.2 million forecast (although pretax profit fell 2.5% to come in-line with expectations). The company said it introduced its annual pricing and product event at the start of April which underpins its revenue growth ambitions for the new year. It paid a total dividend of 8.4p for the year, up from 8.2p the year before.

AstraZeneca is up 0.7% after the pharmaceutical giant said US regulators have approved the use of Lynparza in combination with abiraterone and prednisone or prednisolone to treat adults with prostate cancer following a successful Phase 3 trial.

Johnson Matthey is up 1.2% amid reports it is planning to sell its medical device division, according to unnamed sources speaking to Blomberg. The unit could be worth several hundred million pounds. That comes after the firm identified several non-core businesses for divestment by the end of the 2024 financial year.

Network International Holdings is up 0.6% after it said it has extended the deadline by which any potential bidders are required to make a firm announcement to make an offer for the business or walk away to June 9. That comes as reports suggest Brookfield Asset Management is the frontrunner to buy the business after interest from a consortium led by CVC Capital Partners cooled off.

Pennon Group is down 1.4% after it said adjusted pretax profit plunged 88% in the last financial year to £16.8 million as inflationary pressures and higher financing costs swallowed up earnings. The dividend for the year was raised 10.9% to 42.73p. It said there are some signs inflationary pressures are stabilizing before it begins receding to normal levels in the new financial year. Revenue will continue to grow as prices rise and Pennon said near-term earnings should improve.

Dr Martens said it generated over £1 billion in sales for the first time ever in the year to the end of March, after revenue jumped 10% as demand for its boots, driven by its direct-to-consumer business (which now accounts for over half of revenue), remains strong. However, pretax profit was down 26% at £159.4 million due to impairments, higher depreciation and amortization, as well as forex headwinds and fell short of the £179.1 million forecast. It paid a dividend of 5.84p for the year, up from 5.50p the year before, and is preparing to launch a new £50 million buyback. It said price increases will continue to counter inflationary pressures and expects sales to grow by a mid-to-high single digit rate in the new financial year, but warned margins will be impacted by the need to invest in infrastructure – with results to be weighted toward the back-end of the year. It said it expected faster revenue growth and margin improvement in the 2025 financial year.

ME Group International is up 8.4% and at levels not seen since 2018 after it raised its outlook for the full year after it delivered strong double-digit growth in sales and profits in the six months to the end of April. Revenue rose 24% as demand for its photobooths, photo printing app and laundry services all increased. Pretax profit was over 35% higher than the year before. ME Group said it now expects to deliver revenue of £300 million to £320 million and pretax profit of £64 million to £67 million over the full year. It had previously said profit would be around £58.5 million this year.

The drop in value at Drax Group following a new investigation being launched by regulator Ofgem was a ‘material overreaction’, according to RBC. The broker said fears that the firm will lose its renewable obligation certificates are ‘misplaced’. It maintained its Outperform rating and raised its price target to 1,200p from 1,050p. The stock is up 2.1% today at 565.2p.

ConvaTec has been upgraded to Overweight and had its price target raised to 250p from 235p by Morgan Stanley, which said it is now its preferred play in the chronic care sector and highlighting it is near the bottom of its valuation range. The stock is up 2.8% today at 208.4p.

ITM Power is up 4.3% after it revealed revenue will be ahead of the £2 million forecast by the markets in the year to the end of April. Its adjusted Ebitda losses will be between £90 million to £95 million compared to the £90 million pencilled-in by analysts. It ended the year with about £281 million in net cash as it continues to deliver its turnaround plan outlined in January.

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