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Snapchat IPO + Scottish Mortgage elevation

FTSE hits record as Baillie Gifford trust joins elite

London Stock ExchangeStock markets on both sides of the Atlantic soared to record highs today on the back of fresh hopes of economic stimulus.

The FTSE 100 hit a new intra-day record of 7,383.05 and closed at a new peak of 7,382.9, up 119.46 points, or 1.64%, while the more UK-focused FTSE 250 also hit an intraday high of 18,983.01.

On Wall Street, the Dow Jones surged through the 21,000 mark for the first time as investors continued to back President Donald Trump’s plans.

The rally from 20,000 to 21,000 is the Dow’s fastest move between thousand-point milestones since 1999.

While the FTSE 100 is only marginally up since the turn of the year it has soared 33% from the low point of 5,537 12 months ago when markets were gripped by fears of a sharp slowdown in China.

David Stubbs from JP Morgan Asset Management said the rally was not just a result of Mr Trump’s encouraging comments on the economy.

“Economic data globally turned in the summer… and there’s a clear upswing in both confidence and leading indicators such as new orders and manufacturing,” he said.

“The global economy is in the strongest synchronised upswing we’ve seen in a number of years and investors are buying into that.”

Asian shares rose on Thursday, while growing expectation of a US rate hike this month buoyed the dollar. Japan’s Nikkei rose 1.3% to a 14-month high.

SnapchatToday sees the debut of Snap Inc in New York after the owner of the Snapchat disappearing message app raised $3.4 billion in its initial public offering, above its price expectations.

Snap’s IPO was oversubscribed by more than ten-times with its shares priced at $17 a share, valuing the company at $24 billion.

The social media app, known for applying bunny faces and vomiting rainbows onto selfies, has yet to turn a profit. Despite a nearly seven-fold increase in revenue, the Los Angeles-based company’s net loss widened 38% last year.

The five-year-old company is valuing itself at nearly 60 times revenue, more than double the 27 times revenue which Facebook raised in its flotation five years ago which was undermined by a technical glitch at Nasdaq.

After the markets closed Scottish Mortgage Investment Trust‘s promotion to the FTSE 100 was confirmed. It becomes only the third investment trust to be included in the top stock market index.

The Baillie Gifford managed trust will be hoping for a longer stay than Edinburgh, which lasted six months as a founder constituent in 1984; Foreign & Colonial, which lasted just six months in 2009; and Alliance Trust whose tenure ran from 2008 to 2011.

Rentokil Initial also makes the step up to the top bracket. Outsourcer Capita and Dixons Carphone have been demoted.

Russ Mould, investment director at AJ Bell said Scottish Mortgage’s promotion to the FTSE 100 reflects excellent portfolio performance, helped by a focus on long-term growth stories in its quest for capital gains for investors.

The investment trust has barely 4% of its assets in the UK and key holdings include Amazon, Tesla, Ferrari and Chinese social media and internet sensations Alibaba and Baidu.

“As such Brexit worries are not an issue for investors here and sterling’s weakness has increased the value of these overseas holdings,” he said.

“Support services stock Rentokil Initial has a substantial overseas presence, minimising the impact of Brexit and bringing benefits in the form of a weak pound. 

“It is demonstrating consistent earnings growth and has just announced its sixth straight annual dividend increase. Rentokil has reshaped its business to focus on pest control and hygiene, helped by key disposals and no less than 41 acquisitions in 2016.”

Rentokil Initial was demoted from the FTSE 100 in 2009 after a three-month stay and it has previously been a constituent in 2007-2008 and before that from 1991 to 2006, when it was just known as Rentokil and was a different business from the one it is today.

Capita’s chief executive, Andy Parker, is stepping down – as it unveiled a 33% fall in profits.

The company, which administers TV licensing, among many other things, said today that Mr Parker will leave later this year, once a successor has been found.

Analysts say its fall is largely self-inflicted as the support services company joins sector peers G4S, Serco, Interserve and Mitie in dishing out hefty profit alerts as big, complex projects prove difficult to manage and cash begins to flow out of these deceptively capital intensive businesses, where new tenders soak up money and require a good flow of wins to cover the costs.

AJ Bell’s Ross Mould said: “Concerns over its balance sheet do question whether Capita’s optically attractive 5.7% dividend yield for 2017 can be relied upon, especially as earnings cover is just 1.8 times.”

Capita first entered the FTSE 100 in 2000 and has been a member ever since, barring a brief spell in the FTSE 250 from 2003 to 2004.

Dixons Carphone’s demotion from the blue chip index follows a rough period due to concerns over how Brexit will affect UK consumer confidence and the ongoing battle within the retail industry between bricks and clicks.

Relegation ends a 19-year run in the FTSE 100, and clouds the legacy of the 2014 Dixons-Carphone Warehouse merger, but boss Sebastian James will be looking to bounce back, just as Dixons has twice before following two previous demotions from the FTSE 100 (1985-88 and 1995-98) since its initial entry in 1985.

Where are they now?

Only 30 of the original FTSE 100 from 1984 still remain in the index, 17 with the same name and 13 more with different names. Fourteen more are still members of the index following mergers, demergers or acquisitions. 

Where are they now – FTSE 100’s original members, 1 January 1984

In FTSE 100, same name

17

In FTSE 100, different name

13

Acquired and now part of FTSE 100 firm

12

Spin-outs or mergers to create new FTSE 100 firm

2

Still quoted, another index

4

Acquired by another firm

39

Broken up

10

Bankrupt

3

Source: FTSE, London Stock Exchange

The quarterly review of the FTSE indices is based on data from the close of business usually on the Tuesday before the first Friday of the review month.

Any constituent changes, which are to be announced after the London market closes this Wednesday, will be implemented after the close of business on the third Friday of the review month (i.e. effective Monday).

A company is promoted to the FTSE 100 if it rises to 90th or above, which is currently a market capitalisation of £4.65 billion.

It will be demoted into the FTSE 250 if it falls to 111th position or below, which was a market capitalisation of around £3.64bn.

 

 

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