Breaking into the UK’s elite FTSE 100 index is a feather in the cap for any company.
And there are some big positives for existing investors. FTSE 100 tracker funds have to buy shares, and the company also appears on the radar of active fund managers with blue-chip mandates. More private investors become aware of the firm, too.
Hikma Pharmaceuticals (LSE: HIK), Merlin Entertainments (LSE: MERL) and Berkeley Group (LSE: BKG) are three companies that look well-placed to reap the reward of increasing demand for their shares by breaking into the FTSE 100 in 2015.
Hikma Pharmaceuticals
Hikma Pharmaceuticals was founded in 1978, and floated on the London stock exchange in 2005 with a market capitalisation of £480m. In less than 10 years, Hikma has grown into a £3.9bn company and is now poised just below the threshold for entry into the FTSE 100.
Hikma operates through three businesses (branded, generics and injectables) and is a market leader in the Middle East and North Africa (MENA) region. Hikma trades on a deserved premium P/E of 22 at a share price of 1,964p, and has the financial resources to make strategic acquisitions and investments that could rapidly lift the company into the FTSE 100.
Hikma’s strong position in the MENA region also makes the company attractive to US and European drugs players. A bid (or rumours of one) could be another catalyst for catapulting Hikma’s valuation through the FTSE 100 entry level.
Merlin Entertainments
Merlin Entertainments runs 100 theme parks and visitor attractions in 22 countries across four continents. The company is the second-largest operator in the world to Walt Disney.
Merlin’s portfolio of brands — which include Alton Towers, Legoland and Madame Tussauds — was put together over the past couple of decades, but the company was only floated on the stock market as recently as last year.
Like Hikma, Merlin currently sits just outside the FTSE 100 and trades on a premium rating: the market cap is £3.8bn, and the P/E is 22 at a share price of 379p. With growth in annual visitor numbers running in double digits and an increasing international rollout of the company’s brands, it may not be long before Merlin gets to the front of the queue for entry into the FTSE 100.
Berkeley Group
Housebuilders Persimmon, Barratt Developments and Taylor Wimpey were ejected from the FTSE 100 when their shares crashed during the financial crisis and recession. However, all three will have regained their places by the end of this year.
Berkeley Group has never been in the top index, but could become the fourth housebuilder to join the blue-chip elite in 2015. Berkeley was valued at just £67m when it listed on the London stock exchange in 1985, but the market cap today is £3.4bn at a share price of 2,550p.
Berkeley is a higher-end housebuilder than its FTSE peers and focuses on the wealthy London and South East area. With a strong balance sheet and land bank, the company is well-positioned for further growth, and even a modest re-rating of the shares from an undemanding P/E of 10 could see upmarket Berkeley graduate to the premier index.