(BFM Bourse) – The Euronext scientific council will meet on December 7 to decide on the composition of the flagship index of the Paris Stock Exchange. Alstom or Worldline seem threatened while Accor seems well placed to make a comeback.
Are we heading towards a major autumn cleaning for the CAC 40? Like every quarter, the scientific council of Euronext, the operator of the Paris Stock Exchange, will meet on Thursday December 7 to decide on the composition of the flagship index of the Paris market.
In any case, the decision of the scientific council should not constitute a Copernican revolution for the future of the CAC 40. “Changes in the composition of the CAC 40 should not have a major influence in the evolution of the index Quite simply because the smallest capitalizations of the CAC 40, which therefore concern new entries, represent a very low weighting in the construction of the index”, explains Pascal Quiry, professor of finance at HEC and co-author of the Vernimmen letter. .
Still, identifying stocks likely to leave or join the index is not without interest, since theoretically, newcomers benefit from buyer flows linked to passive management. Index fund managers (ETFs) must indeed modify their portfolio, so as to continue to replicate the CAC 40.
Remember that the Euronext scientific council, to decide on entry or exit from the index, is based on two rankings of Parisian stocks: weight in terms of floating market capitalization and trading volumes. Although these rankings serve as support for scientific advice, they do not constitute exclusive criteria.
“It is more or less accepted that the Euronext scientific council, beyond technical criteria, can take into account other issues, such as the sectoral diversity of the CAC 40,” explains Pascal Quiry.
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Alstom and Worldline as ideal suspects
After Vivendi’s exit last June in favor of Edenred, no candidate for departure from the index seemed to really stand out. Until October, during which Alstom (-37.58%) and Worldline (-59%) experienced unprecedented or almost unprecedented plunges in one session. And over the whole year, 2023, the first shows a fall of 48.3% and the second a decline of 58.75%. Certainly, Teleperformance shows a decline hardly far from that of Alstom (-42.5%), but its market capitalization remains significantly higher than that of the railway equipment manufacturer (8.2 billion euros compared to 4.5 billion for Alstom and 4.26 billion for Worldline).
Alstom issued a heavy warning on its cash flow before opening the door, in mid-November, to a potential capital increase to preserve its credit rating, a possibility that the group previously refused to consider. For its part, Worldline last month lowered its annual objectives and set aside its medium-term targets while publishing growth below expectations. This constituted a serious setback for a market which had already shown its disenchantment, in recent years, with the payments sector.
As our colleagues from L’Agefi have pointed out, with these heavy falls, the two groups see their status as residents of the CAC 40 being threatened. According to the financial media, the two stocks constituted by far the two lowest weightings of the index at the close of November 16.
And their market capitalizations are now lower than many of the companies housed within the CAC Next 20, a sort of antechamber of the CAC 40.
It remains to be seen whether Euronext’s scientific council will wait or decide to release one of the two values or even both at the same time. “Historically, it has happened several times that the scientific council has released two or three stocks from the CAC 40. This could therefore happen again this time or on another occasion,” underlines Pascal Quiry.
Note, however, that Worldline has an advantage: the group remains one of the rare representatives of the technology sector within the CAC 40. And potential replacements are somewhat lacking. Within the CAC Next 20, Soitec and Ubisoft can claim this status of technological value. But Soitec’s stock market performance (+6% since the start of the year) is not flamboyant and Ubisoft has a capitalization (3.3 billion euros) lower than that of Worldline.
Accor’s great stock market performance
If Alstom and Worldline therefore appear to be the most threatened groups in the CAC 40, which groups could on the contrary join the Parisian index?
As we noted in a previous article, a CAC Next 20 stock displays a recent stock market performance which could attract the attention of the scientific council of Euronext: Accor. The hotel group has gained 39% since the start of the year. The company led by Sébastien Bazin rode the resumption of tourism, raised its annual outlook several times, held an investor day which was considered successful by analysts, saw its credit rating raised by the agencies, and announced share buybacks. So a lot of good boxes have been ticked. Furthermore, its market capitalization of more than 8.6 billion euros, with a free float of 75%, seems sufficient to integrate the CAC 40. Or rather reintegrate it since Accor left the index in September 2020, replaced by … Alstom.
Outside of Accor, it is more difficult to distinguish candidates. Sodexo, which left the CAC 40 in June 2020, has gained 10.6% since the start of the year and has a market capitalization of 14.6 billion euros. But the collective catering group is preparing to list on the stock exchange apart from its prepaid service voucher subsidiary, Pluxee, next year. Which should mechanically reduce its market capitalization. And its free float also remains relatively limited (55%).
Agefi mentions other groups which have certain handicaps, such as Eiffage, which suffers from the presence within the CAC 40 of its comparables Vinci and Bouygues, or even Bureau Veritas and Euronext, which have the disadvantage of displaying volumes of exchanges significantly lower than those of Accor. The financial media also cites a potential return from Vivendi, six months after its release. If this may seem surprising, an analyst explains to L’Agefi that the group is located in the media, a sector not very present within the CAC 40. Even if one can however object that Publicis belongs to the broader “media” universe -advertisement”.
Last point: it is reasonable to believe that Unibail-Rodamco-Westfied, the only real estate company present within the CAC 40, could see its place ultimately challenged by Gecina, the two groups displaying comparable capitalizations (around 8 billion euros). However, this will probably not be for next Thursday’s meeting, given that Unibail has posted an increase of 23.3% since January 1 compared to 9.4% for Gecina.
Julien Marion – ©2023 BFM Bourse