(BFM Bourse) – Edenred will enter the elite of the Paris Stock Exchange on June 19 while Vivendi will be ousted. Capitalization and traded volumes are the main criteria justifying changes within the index. But the decision to integrate or leave a company listed on the CAC 40 remains partly at the discretion of an independent committee.
As every quarter, Euronext is cleaning up its indices. The stock market operator announced Thursday evening the result of its quarterly review of the indices of the Paris Stock Exchange. And for the first time since September 2021, the CAC 40 has a new resident.
Euronext has announced that Edenred will join the star Parisian index as of June 19.
With a good stock market performance – the value has taken 19% since January 1 and 165% over 10 years – the specialist in payment solutions in the business world, known to the general public for its Ticket Restaurant brand, has been hitting for several quarters on the doorstep of the CAC 40…
And this new arrival means the departure of a fallen star. This is Vivendi, which sells its chair as a resident of the CAC 40 for the benefit of the former subsidiary of Accor. This eviction of Vivendi sounds like a real thunderclap. The media giant left the Holy of Holies when it was one of the residents of the Parisian index when the index came into force in 1988. The company was then operating under the name of Compagnie Générale des Eaux.
But the group no longer had many arguments to make to remain in the stock market elite. Its valuation, one of the lowest in the CAC 40 (9 billion euros) and a float limited by the share of just under 30% of the Bolloré Group, did not plead in its favor for maintaining it in the CAC 40. “Euronext’s decision is technical and does not call Vivendi’s fundamentals into question,” group communications director Jean-Louis Erneux told AFP.
In September 2021, Atos experienced such a mishap. The IT services company then had to give way to Eurofins Scientific, which had seen its activity soar during the Covid crisis.
An independent committee that cultivates discretion
But how does a company enter or leave the flagship index? On what criteria? It is to answer this question that the 7 members (regulators, professors, analysts, etc.) of the Scientific Index Council (CSI) of the Paris Stock Exchange meet at least every quarter. This independent committee cultivates discretion. Moreover we do not know the names of these members, in order to avoid that they are solicited at the approach of the revisions and to guarantee serenity in the decision-making process. Initially, the dates of the meetings were not even known in advance. For some years now, they have been (discreetly) indicated from one trimester to the next. The CSI is therefore the sole decision-maker on the composition of the main indices of the Paris Stock Exchange, in particular the CAC 40. Each member has a single vote, while the Euronext market operator has no say.
For the composition of the flagship index of the Paris Stock Exchange to be modified, “there must be a fairly strong conviction that the ranking differences between the values are significant and lasting”, indicated a member. of this committee to echoes in 2013. “It must not be a simple statistical accident”, added another. It therefore regularly happens that the committee decides not to revise the flagship index, as was the case between September 2021 and the last meeting which confirmed Edenred’s entry.
Market valuation, free float, “liquid” securities…
If the integration of a value in the Holy of Holies is entirely at the discretion of the CSI, the latter nevertheless relies on a certain number of strict and precise criteria. The first of them is logically the stock market valuation of groups listed in Paris. Eligible stocks must necessarily be among the top 100 market capitalisations. In addition to the stock market valuation, the trading volumes of securities constitute another essential criterion, the CAC 40 having to represent “liquid” values, for which it is easy to find a consideration for the purchase or sale.
Since 2013, the CSI has also taken into account the share of free float in the capital, i.e. the share of capital actually available on the market. In 2015, EDF was thus excluded from the CAC 40 because the French State held 84.5% of its capital. And in the case of Vivendi, it is this criterion that weighed heavily in the balance.
The media giant, whose capitalization exceeded 9 billion euros at the time of the decision, is penalized by a float limited by the share of just under 30% of the Bollore Group. Only the giant shopping centers Unibail-Rodamco-Westfield (6.4 billion euros), and Teleperformance (6.9 billion euros), have a lower capitalization than Vivendi.
According to experts familiar with the actions of the CSI, geographical or sectoral considerations may also have intervened for certain values neck and neck. Noël Amenc, professor at Edhec, had thus slammed the door of the CSI, at the end of 2012, criticizing the entry of the Belgian Solvay in the CAC 40 (instead of the car manufacturer PSA Peugeot Citroën), because of the nationality of the chemist. “There are many specific rules which have conflicting consequences for the composition of the index, and it is left to the members of the CSI to apply this or that rule on a purely discretionary basis. The application of the rules are clear, transparent and systematic”, he explained to the echoes. If this is not the case, he believes that there is therefore a doubt “over the objectivity and the absence of conflicts of interest, an essential element of the credibility of an index”.
On its site, Euronext explains that the two main criteria are the free float and the amount of capital traded over the past year. The stock market operator combines them to make an average and then provides a ranking of listed companies to the Scientific Index Committee each quarter. This is where it gets tricky because the CSI is not necessarily going to select the first 40 companies in the combined ranking, because there is a form of priority for “old hands” to avoid excessive turnover. The “Index Summary” defined by Euronext thus explains that “the 35 best-ranked companies (according to the combination of the two aforementioned criteria) are selected. A “buffer zone”, where the stocks currently in the index have priority on companies that are not part of it, is composed of companies ranked between 36th and 45th place”. It is within this panel of 10 groups that the CSI chooses, as a priority, a value to be included in the CAC. Conversely, another value will then have to leave the index.
Sabrina Sadgui – ©2023 BFM Bourse
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