Wednesday 29 May 2019 1:02 pm | Updated: Monday 17 June 2019 10:20 pm

M&S looks set to survive FTSE 100 drop amid £600m rights issue

Marks & Spencer looks set to remain in the FTSE 100 through the skin of its teeth in next week’s reshuffle after launching a £600m rights issue to fund its joint venture with Ocado.

City speculation that the department store chain could drop out of the blue-chip index has mounted after it reported a 10 per cent decline in full-year profits last week, leading to more than £400m being wiped off of the value of the retail giant.

However, Square Mile analysts are predicting that M&S will likely stay in the index of Britain’s largest listed companies in next Wednesday’s reshuffle after announcing a cash call aimed at funding its plans to buy half of Ocado’s food delivery business.

"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. 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," said Laith Khalaf, senior analyst at Hargreaves Lansdown.

He added: "This isn’t the first time M&S has flirted with relegation from the index, and it probably won’t be the last. The retailer’s facing a secular headwind in the form of digital retailing, an area it’s belatedly expanding into."

M&S shares have tumbled five per cent today, with investors cashing in on a 47p discount from the 271p price that shares closed at the day before the terms of the capital raising were announced.

"M&S is offering investors the chance to support the deal with Ocado by giving them the chance to buy one new share for every five they already own (hence the term "one-for-five rights issue") at the heavily discounted price of 185p," explained Russ Mould, AJ Bell investment director.

Mould said: "Last week’s underwhelming set of full-year results and the possibility that next week’s reshuffle will relegate the company from the FTSE 100 for the first time ever means that Marks & Spencer will be hoping that its proposed £600m rights issue goes as smoothly as possible."

Richard Hunter, head of markets at interactive investor, said: "When the FTSE100 was launched in its current guise in 1984, Marks & Spencer was an original constituent. At current levels, that 35-year association could be coming to an end. The company’s recent results gave proof, if it were needed, that M&S requires a significant shot in the arm to give it relevance in the modern day."