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Troubled Provident Financial relegated from the FTSE 100

Written by: Paloma Kubiak
Doorstep lender Provident Financial has been booted out of the UK’s leading index just a week after revealing it expected to make significant losses.

In the latest quarterly reshuffle of the largest companies listed on the London Stock Exchange, Provident Financial and Royal Mail have been demoted to the FTSE 250.

The downgrade comes just over a week after Provident Financial announced it expected to make a loss of between £80m and £120m following a significant fall in sales and loan collections in 2017.

NMC Health – one of the largest healthcare providers in the private sector in the UAE – and Berkeley Group will be joining the ranks of the blue chip index, according to the FTSE Russell global index provider.

The FTSE 250 Index will see the following changes:

Entering FTSE 250 Index – Alfa Financial Software HoldingsSequoia Economic Infrastructure Income Fund and 888 Holdings.

Exiting FTSE 250 Index – CarillionNorthgate and Petra Diamonds.

Graham Spooner, investment research analyst at The Share Centre, said the news was no surprise as it rightly predicted it was be demoted.

He said: “Investors are likely to have seen Provident Financial plastered over the news over the last few weeks as it issued another profit warning. The group, which was once regarded as the leading non-standard lender in the UK, also announced further problems at its Home Credit division, an investigation into Vanquis Bank and the resignation of the CEO. Moreover, Provident highlighted that the dividend announced in July had also been cancelled. Unsurprisingly, all of this news hit the share price very hard, and with the share price down by over 70% since June, it may not come as any surprise to investors that it has been relegated.”

Turning to Royal Mail, Spooner said it’s been hovering around the drop zone for a little while now so this move is also unlikely to be a revelation.

“Despite posting full year results which pleased the markets, the company noted that it is heavily relying on the international and UK parcels business as letter volumes continue to act as a drag on overall performance. The uncertainty among UK businesses in the current Brexit environment means less are using direct mail marketing.”

Housebuilder Berkeley Group has bounced back to the UK’s largest index a year to the date since it was relegated. The shares dropped 30% after the EU referendum last year as concerns hit the sector, but Spooner said faith has obviously been restored.

“Courtesy of greater cash flow and an improving sentiment for house builders , the shares have rallied and are now trading at better than pre-Brexit levels. Furthermore, investors recognise that the yield is attractive and a special dividend programme has undoubtedly attracted some positive attention.”

The FTSE reshuffle will come into effect from 18 September 2017.

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