3i Set To Return To FTSE 100

LONDON (Reuters) – Three companies demoted from the FTSE 100 .FTSE at the last quarterly index reshuffle — London Stock Exchange (LSE.L), 3i Group (III.L) and Wolseley (WOS.L) — will return when the latest rejig is unveiled on Wednesday.

They will replace non-life insurer Amlin (AML.L), leisure firm Whitbread (WTB.L), and power generator Drax Group (DRX.L) in Britain’s index of leading shares.

Shares in companies that get demoted from the FTSE 100 tend to fall immediately after the move as funds that track the index are forced to sell them.

FTSE International will announce the changes to the FTSE UK index series after the market closes on Wednesday. The review is based on the closing share prices from Tuesday, June 9, but the changes have to be confirmed by a FTSE committee on Wednesday.

Companies not in the FTSE 100 that grow to rank among the 90 largest by market capitalisation are automatically promoted, while FTSE 100 constituents with the lowest value or that fall below the 110th spot drop into the FTSE Midcap 250 index .FTMC.

None of the likely blue-chip demotion candidates were outside the top 100 stocks by market capitalisation at the close on Tuesday, but the three promotion candidates were all ranked above them.

DOUBLED DEALERS

London Stock Exchange has more than doubled in value since its demotion in March, having fallen 30 percent in the previous quarter.

Aside from benefiting from the overall stock market rally, LSE shares have also been boosted by a change of management.

Xavier Rolet, a 49-year-old former Lehman banker with decades of trading experience, took over from Clara Furse the previous chief executive on May 20.

Private equity company 3i (III.L) has also seen its share price more than double in the past three months, having shed 45 percent in the previous quarter.

Its poor performance in the first quarter of 2009 was caused by funding uncertainties, with investors concerned by the likely need for a rights issue, which 3i finally launched on May 8.

With the deeply discounted 732 million pound ($1.20 billion) cash call out of the way and debt worries receding, investors have focused on the likelihood of private equity firms being ready to profit from likely credit crisis buy-out bargains.

Similarly, plumbing services company Wolseley (WOS.L) was dented by concerns over an expected cash call in the first quarter, with its 1 billion pounds rights issue launched just ahead of the last FTSE reshuffle.

Since then, with its debt successfully restructured, signs of life in the housing markets in both Britain and the United States have helped Wolseley shares rise 57 percent.

AMLIN UNDERMINED

Capital-raising moves have undermined Amlin shares since the last FTSE review, with the stock down 12 percent.

At the start of June, Amlin raised 76 million pounds via a placing to part-finance a 350 million euro acquisition of Fortis Corporate Insurance, a provider of marine and corporate property insurance from the Dutch government.

Power generator Drax has seen its share price fall by 1 percent over the three months since the last quarterly review as the defensive attractions of utilities have been sidelined by a greater appetite for risk.

Last month, Standard & Poor’s downgraded its debt rating for Drax but retained it at investment grade. At the end of April, Drax said it expects a 34 percent decline in its full-year core earnings as margins come under pressure from lower gas prices.

Leisure group Whitbread looks set to be the unluckiest of the FTSE 100 demotion candidates, with its stock actually gaining 21 percent over the last quarter but its market capitalisation still remaining below those of the three companies set to be promoted to the blue chips.

Whitbread’s share performance was constrained at the end of April when the firm accompanied better than expected full-year results with news that first-quarter trading at its Premier Inns budget hotels chain had deteriorated.

The index changes will be implemented at the start of business on Monday, June 22.

By Jon Hopkins