Tui Travel set to replace Pennon in UK FTSE reshuffle

Mon Dec 10, 2012 11:01am EST

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Related Topics

* Tui Travel set to join FTSE 100 in December reshuffle

* Strong revenue fuelled 80 pct rally since June

* Promotion to boost demand for stock from index trackers

* Crisis-hit Pennon a likely demotion after 24 pct stock slide

* Direct Line to secure mid-cap status after October listing

By Francesco Canepa

LONDON, Dec 10 (Reuters) - Shares in UK-listed tour operator Tui Travel are set to regain blue-chip status this month in a promotion that will stoke yet more demand for the stock after an 80 percent rally since June.

The owner of Thomson and First Choice is expected to be added to Britain's FTSE 100 in a reshuffle to be announced on Wednesday, replacing struggling utilities group Pennon.

The promotion to FTSE 100 status after 1-1/2 years among the second tier "mid-caps" was expected to attract demand for around 21 million Tui shares from investors who track the UK benchmark, according to a European investment bank.

Shares in buyout group Melrose and energy services company John Wood Group hit all-time highs in the week when their additions to the FTSE 100 were announced in September.

"Normally once the announcement is made we get a flurry of buyers hoping to catch any move that the funds that have to start buying create," Will Hedden, premium client manager at IG, said.

Tui's shares are already trading close to a 1-1/2 year peak, propelled by strong sales of package holidays to cash-strapped European consumers, making the firm the 92nd largest stock on the FTSE 350 index with a market capitalisation of 3.2 billion pounds ($5.13 billion), Thomson Reuters StarMine data showed.

By contrast, Pennon, whose recycling business has been hit by the economic crisis, looks a strong demotion candidate after a 24 percent share price slide in the past 3-1/2 months left it at 119th place in the FTSE 350.

The investment bank estimated that if Pennon lost its FTSE 100 status, 34 million of its shares would be sold.

Any blue chip that falls to the 111th spot or below automatically drops into the FTSE Midcap 250 index, freeing up a spot for the largest company outside the FTSE 100.

Stocks outside the benchmark that grow to rank among the 90 largest by market capitalisation are automatically promoted into the blue-chip index, although no company automatically has qualified for direct promotion at this reshuffle.

The review uses closing prices from Dec. 11, but the changes have to be confirmed by index compiler FTSE after the market close on the following day. The changes will be implemented from the start of business on Dec. 24.

MID CAPS

The most notable addition to the FTSE Midcap 250 index was expected to be Britain's largest motor insurer, Direct Line , which went public in October and has yet to be included in any FTSE index.

Direct Line shares have risen roughly 11 percent since they were listed at 175 pence each on Oct. 11, valuing the firm towards the bottom of the range of analysts' estimates and triggering a string of "buy" recommendations from banks and brokers.

The rally raised the former RBS unit's market capitalisation to 3 billion pounds, or just 6.3 percent less than FTSE 100 hopeful Tui.

This meant Direct Line could be up for blue-chip promotion at the next reshuffle, due in March, with miner Xstrata marked for possible demotion once its planned merger with commodities trader Glencore is completed.

Other candidates for promotion to the FTSE 250 in the December reshuffle are pubs firm Enterprise Inns and pharma group United Drug, replacing oil & gas firm Ruspetro, Talvivara Mining Company and waste management firm Shanks Group.

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