A strong performance by Baltimore shares on the London market today and tomorrow could just save the company from removal from the FTSE 100 index of top stocks. Just over two months after it joined the index of the top 100 stocks in Britain, the Irish technology company is in danger this week of being removed from the index.
On Wednesday FTSE International will review its index to decide which stocks should be delisted. The decision will be based on the market capitalisation of the top companies. Calculations will be based on the closing share prices on Tuesday, June 6th. The FTSE decision will be announced on Wednesday and any delistings will become effective from Friday, June 16th.
Up to last week Baltimore looked certain to lose its place on the index. The shares had fallen sharply since it joined on March 20th, as technology shares fell out of favour on international markets. In volatile trading Baltimore hit a low of £3.13 sterling (€5) on May 20th, well off its £15 high on February 23rd just before it joined. But in the last week Baltimore shares staged a strong recovery. Analysts suggest that the company may be able to remain on the index if the shares manage to sustain last week's strong performance in trading on the London market today and tomorrow.
Between Friday, May 26th and last Friday, Baltimore jumped from £3.90 sterling to £5.81, a rise of almost 49 per cent as technology stocks came back into favour on signs that the US economy was slowing down and that expected US interest rate rises might not materialise. On Wednesday FTSE International will examine the market capitalisation of the top 110 stocks. It will remove from its FTSE 100 index any companies that rank outside the top 110. These will be replaced by larger companies which are not currently on the FTSE 100. The liquidity of a company's shares are another consideration for inclusion in the index.
To qualify for consideration for a listing on the FTSE 100, a company's market capitalisation - its share price multiplied by the number of issued shares - must be greater than the 90th largest company already on the index. In addition the shares in the company must be liquid - they must be traded regularly and not held by a small number of investors.
A company will be removed from the index at the regular quarterly reviews if it falls below the top 110 market capitalisation. Baltimore entered the index at about 70th position. It is currently ranked at about 120th according to a FTSE International spokesman. At that level it is a certain candidate for removal unless there is a dramatic recovery in its share price before the close of business on the London exchange tomorrow .
Baltimore joined the FTSE Index on March 20th together with eight other companies. At that time Baltimore shares were at an all-time high as investors piled into the so called technology, media and telecoms (TMT) shares. Companies such as Associated British Foods, Scottish & Newcastle Brewers, Hanson and Allied Domecq were replaced by TMT companies such as Baltimore, Cable & Wireless, Celltech, Psion, Thus and Freeserve. Reflecting the strong rise in TMT stocks in the first three months of the year, some nine companies were removed from the index at the last review, the highest number ever. Some of the new companies which came on the index in March are expected to be removed in the latest review, reflecting the volatility in TMT shares.
Because of the importance of the FTSE 100 index to pension funds and other funds tracking the British market, indications that a company is about to join or about to be delisted can have a self-fulfilling effect. In March when Baltimore's rising share price indicated that it would be a candidate for FTSE 100 inclusion, the share price moved even further ahead as fund managers tried to buy in before it was listed. Now, with a delisting expected, the shares have been pulled down by fund managers selling out in advance of this delisting.
