Homeserve set to give up FTSE 100 spot to Pershing Square
Homeserve is set to drop out of the FTSE 100 on Wednesday after a brief stay as investors shift their bets from steady earners to undervalued shares with Covid-19 vaccines in the pipeline.
The home repairs company joined the index of top shares in June as demand for domestic repairs rose during lockdown and investors were attracted by the group's reliable results.
But Homeserve's shares have lost about a fifth of their value in the past six months while the wider index has gained 3%. With a market value of about £3.5bn Homeserve is valued at less than a dozen or more FTSE 250 companies and will leave the FTSE 100 unless its shares surge remarkably before the market closes on 1 December.
Homeserve's most likely replacement is the racier option of Pershing Square, the investment company whose assets are managed by US investor Bill Ackman. Pershing Square shares have leapt from £19.36 to £24.54 in the past six months, valuing the company at about £4.7bn.
Susannah Streeter, an analyst at Hargreaves Lansdown, said: "Homeserve’s star shone brightly during the early stage of the pandemic. With so many people at home to use and break appliances, demand rose. But with mass vaccine rollouts on the horizon, its appeal has dimmed, with expectations the stay at home trend will be on the wane."
Homeserve also appears to be a victim of investors moving out of shares with solid earnings in search of businesses that are undervalued with relief from Covid-19 on the horizon in the shape of vaccines produced by AstraZeneca and others.
Russ Mould, investment director at AJ Bell, said: “The very facets which propelled Homeserve into the FTSE 100 in summer - financial solidity and a business model where demand is pretty steady whatever the economic conditions - may now be responsible for its demotion, as investors look for greater potential from turnaround and recovery plays, at least in the near term."
Pershing's Ackman has had a good crisis, cashing in a $2.6bn profit on a bet against corporate credit after deciding in February that the market was too complacent about risks from the coronavirus pandemic. He then put his profit into shares of big US companies at knockdown prices, setting himself up for gains as stocks recovered.
In November Ackman placed another, smaller bearish bet despite good news on the development of vaccines for Covid-19.
Streeter said: "Shares in Pershing Square have leapt partly due to deft choreography by CEO Bill Ackman’s fund management team during the coronavirus crisis. Moves to hedge its equity portfolio just before the pandemic hit paid off when the market crashed in late March."