Marks & Spencer share price dips amid FTSE 100 relegation prospects

Shares in Marks & Spencer Group (LON:MKS) have slumped in London in today’s session, amid trading in the rights to the retailer’s share issue, and with investors mulling over the prospects of the blue-chip company losing its spot in the FTSE 100 at the benchmark index’s upcoming reshuffle.

As of 13:51 BST, Marks & Spencer’s share price had given 6.75 percent, underperforming the broader market selloff, with the benchmark FTSE 100 index currently standing 1.52 percent lower at 7,158.17 points. The group’s shares have given up more than 21 percent of their value over the past year, as compared with about a six-percent drop in the Footsie.

FTSE 100 relegation prospects

Investors have been mulling the prospects of Marks & Spencer leaving the FTSE 100 index at its upcoming reshuffle after the retailer’s shares came under pressure last week after the company slashed its payout to shareholders and confirmed a rights issue to finance its joint venture deal with Ocado (LON:OCDO).

Sharecast quoted David Cheetham, chief market analyst at XTB, as commenting that despite a rise in Marks & Spencer’s share price in the previous session, a look back at prior performance made for ‘pretty grim viewing,’ with a six-month decline in the stock price of almost 20 percent and a near-40 percent drop seen in the past couple of years.

Proactive Investors, however, reports that  the money raised from the rights issue is likely to save M&S from falling out of the top tier index even though it does not close until June 12, a week after the FTSE 100 reshuffle.

“While the fresh capital won’t actually be available until after the FTSE reshuffle calculation, we expect the index provider to give M&S the nod, on the basis the money’s in the post,” said Laith Khalaf, senior analyst at Hargreaves Lansdown, as quoted by the newswire. “This makes sense to minimise changes to the blue-chip index, and means tracker funds which follow the FTSE 100 don’t have to sell the stock, only to have to buy it back a couple of months later.”

Analyst ratings update

HSBC reaffirmed the blue-chip retailer as a ‘hold’ on Friday, without specifying a target on the Marks & Spencer share price, while Royal Bank of Scotland, which rates the company as a ‘sector performer,’ lowered its valuation on the stock from 280p to 250p. According to MarketBeat, the high street retailer currently has a consensus ‘hold’ rating and an average price target of 260.17p.