Morrison Set to Escape FTSE 100 Index Demotion at Eleventh Hour

Inside A Morrisons Supermarket Ahead Of Preliminary Results
An employee on the fresh fish counter passes a cut of fresh fish to a customer at a Morrisons supermarket, operated by William Morrisons Supermarkets Plc, in Crawley, U.K., on Tuesday, March 3, 2015. Wm Morrison Supermarkets Plc named David Potts as chief executive officer, tasking the former head of Tesco Plc's Asia unit with reviving the ailing British grocer. Photographer: Chris Ratcliffe/Bloomberg

Sales growth of just 0.1 percent may have been enough to save Wm Morrison Supermarkets Plc the ignominy of being kicked out of the U.K.’s FTSE 100 Index.

A rise in Morrison shares Tuesday, coupled with a drop in the price of Aggreko Plc, will probably result in the industrial company exiting the benchmark index instead, according to Societe Generale index analyst John Carson.

Morrison’s first sales growth since December 2013 was reported Tuesday by Kantar Worldpanel in the researcher’s regular monthly report on the U.K. grocery industry. That sent the shares 1.8 percent higher on the same day that quarterly changes to the FTSE 100 were decided.

The gain boosted Morrison’s market capitalization to 4.03 billion pounds ($6.2 billion) at the close of trading, while a 1.5 percent drop in Aggreko cut its value to 3.99 billion pounds. The results of a review of the index will be announced after trading hours Wednesday.

A 7.2 percent drop in Morrison shares during the opening five months of the year put the grocer’s place in the index in jeopardy for the first time since it was included in 2001. A demotion would result in funds that seek to track the performance of the FTSE 100 having to dump the shares.

Remaining in the index would provide a boost to new Chief Executive Officer David Potts, who is seeking to get the company back on track after two years of losses brought about by a price war among U.K. supermarkets.

Morrison shares continued to rally Wednesday, climbing 3.1 percent to 177.9 pence at 2 p.m. in London.

Many investors still doubt the prospects of the Bradford, England-based retailer. Short positions equate to 14.7 percent of its shares outstanding -- the second highest of any FTSE 100 member, according to data compiled by Markit Ltd.

A recovery at Morrison will be “much harder” to achieve than at market leader Tesco Plc, Bruno Monteyne, an analyst at Sanford C. Bernstein, said in a note yesterday.

“Its medium- to long-term growth rate is well below Tesco and Sainsbury and we are not yet convinced that it has a credible online and convenience channel,” Monteyne said.

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