Is It Time To Sell WM Morrison Supermarkets PLC, Meggitt plc & G4S plc?

Morrisons (LSE: MRW), Meggitt (LSE: MGGT) and G4S (LSE: GFS) were all relegated from the FTSE 100 this week after the FTSE’s quarterly review, published after the market closed on Wednesday. The three companies were replaced in the UK’s leading index by payment processor Worldpay, doorstep lender Provident Financial and Irish support services company DCC. 

Morrisons, Meggitt and G4S have all been dropped from the FTSE 100 following a period of dismal trading and share price performance. Morrisons’ troubles have been well publicised, the retailer has struggled to fend off competition from discounters Aldi and Lidl, as well as price-cutting by larger rivals. Profits have collapsed; the group has been forced to sell its loss-making convince store portfolio and the dividend has been cut. Unfortunately, it doesn’t look as if things are going to get any better for Morrisons anytime soon. The company is facing multiple pressures in the form of food deflation, is currently running at a rate of -2.5% per annum, increasing competition from the likes of Aldi and Lidl and higher costs from the introduction of the government’s national living wage next year. City analysts expect Morrisons’ earnings per share to contract 16% for the year to 31/01/2016 and as a result, the company’s shares could have further to fall. 

Meggitt crashed out of the FTSE 100 following a profit warning in October that sent its shares tumbling by about 20%. However, after recent declines the company’s shares now look to be relatively good value. Year to date, Meggitt’s shares have fallen by around a third, but now the shares trade at a subdued forward P/E of 12.6 and even through City analysts expect the company’s earnings per share to fall 9% this year, a rebound is expected next year. Analysts have pencilled in earnings per share growth of 8% to 31.7p for the year to 31/12/2016. Looking at these figures is seems as if Meggitt’s demotion from the FTSE 100 is only an opportunity for investors, not a reason to sell at all. 

Lastly, G4S, which has been demoted following a difficult six months for the company. Since the beginning of June, the company’s shares have fallen by around a fifth as the City has become concerned about the group’s outlook. Slowing growth in emerging markets is the key concern here, along with rising group costs, which will pressure margins. Analysts still expect G4S’s earnings per share to expand by 14% this year and a further 11% during 2016, but this is off a low base. Even after these two years of double-digit growth, by year-end 2016 G4S’s earnings per share will still be 20% below the reported figure for 2011 and nearly 30% below 2010 reported earnings per share. Moreover, G4S currently trades at a forward P/E of 15.3, a premium valuation that doesn’t leave much room for error if the company fails to meet expectations.