Recent changes to the UK’s listing rules should lead to a host of new names joining the FTSE 100 and FTSE 250 indices in the new year, generating more interest in the UK stock market and putting more companies on the radar of investors.

This matters to investors whether they own UK stocks directly, have exposure via actively-managed funds or simply track certain parts of the market through an exchange-traded fund or index fund.

You won’t have to wait too long before the changes start feeding through: four companies which previously didn’t qualify for index inclusion have already laid the groundwork to change their listing category, Coca-Cola Europacific Partners (CCEP), Deliveroo (ROO), Oxford Nanopore Technologies (ONT) and THG (THG).

By doing so they should join the top tiers of the UK market, which could be the trigger for more ‘ineligible’ companies to follow suit and find a way into the FTSE.

Bottling company Coca-Cola Europacific Partners is big enough to join the FTSE 100, while Deliveroo, Oxford Nanopore and THG would comfortably slot into the FTSE 250.

There are multiple benefits to being part of either index: consumers are likely to see more media commentary on these companies, which raises brand awareness; tracker funds mirroring the performance of the FTSE 100 or FTSE 250 will buy the shares; being a member means companies ‘have arrived’; and liquidity in the shares should improve, making these businesses more visible to investors.

GET READY FOR MORE NEW FLOATS

The simplified listing regime should also result in more companies filing to IPO in London, and some of these new names could also slot into the FTSE 100 or FTSE 250 indices.

This would provide a much-needed boost to the UK stock market, which has lost countless companies to takeovers in recent years and has not replenished the pot with enough flotations.

A lot of companies will have been waiting for political stability in the UK before proceeding with a stock market flotation, as the past eight years has brought with it a lot of twists and turns, particularly the short-lived Liz Truss era.

With the general election now done and dusted, a big uncertainty has been removed in the eyes of company bosses and this should lead to more stock market flotations. Advisers and lawyers imply there is pent-up appetite for IPOs, but preparations to list a company can take months which is why a surge in stock market listings is more a story for 2025 than this year.

PADDINGTON TO THE RESCUE?

The first fruits could emerge before Christmas. The simplified listing regime was designed to attract more companies to the UK stock market and this action, together with a more stable political backdrop, could see one of the biggest UK IPOs in years.

Pay TV service-to-film production group Canal+ is expected to float on the London Stock Exchange on 16 December as part of a demerger from French parent Vivendi (VIV:EPA).

It is expected to be worth around £6.7 billion at listing, which is big enough for the FTSE 100, but there is a technicality which prevents it from inclusion in the UK’s blue-chip index.

In its IPO prospectus the company states it will not adhere to the UK Takeover Code, which means it doesn’t qualify for FTSE indices.

The Bollore family is expected to own 31.04% of Canal+ when its shares start trading in London, and the Takeover Code requires any party owning more than 29.9% to bid for the whole group, but Canal+ says neither the UK, nor the French, or any other equivalent takeover regime will apply to the company.

That means the Bollore family won’t have to bid, but the price is giving up inclusion in FTSE indices, which is a shame because Canal+ could be a big hit with investors if the valuation is attractive and it communicates a compelling strategy on how it intends to grow on a standalone basis, freed from the shackles of being owned by a media conglomerate.

Nevertheless, investors will still be able to buy the shares if they wish, even though it won’t qualify for the FTSE.

The IPO is timed to happen just after the release of the latest Paddington film, a hugely successful franchise produced by Canal+’s StudioCanal arm.

If Paddington in Peru cleans up at the box office, there might be a queue of investors eager to put a slice of the producer in their ISA or pension.

The London Stock Exchange has featured quite a few prominent TV and film-related companies over the years, including film and TV producer Entertainment One, the owner of ‘beloved pre-school brands’ such as Peppa Pig, which was bought by Hasbro (HAS:NASDAQ) in 2019; broadcaster-to-studio production business ITV (ITV); film studio owner Pinewood; production vehicle provider Facilities by ADF (ADF:AIM); and Zoo Digital (ZOO:AIM), which provides subtitles for big film and TV studios.

WHAT ARE THE NEW RULES FOR FTSE INCLUSION?

Historically, London-listed companies needed a premium category listing to qualify for FTSE indices whereas now they need to be ESCC (Equity Shares Commercial Companies), a new category created in July which combines the premium and standard listing categories.

All companies which previously had a premium listing were automatically switched to ESCC, while companies with a standard listing were transferred to a new ‘Transition’ category and have to apply to switch to ESCC.

To qualify for the ESCC category, companies must be worth at least £30 million; they must comply with the UK Corporate Governance Code; or explain why they don’t comply in their annual report; and they must offer pre-emption rights to shareholders, among other factors.

Deliveroo has already completed the move to the ESCC category, while Oxford Nanopore is targeting transfer on 6 November, Coca-Cola Europacific Partners should make the switch on 15 November and THG hopes to transfer by March 2025.

All of those changes, apart from Deliveroo, will take place too late for the next quarterly FTSE reshuffle as the cut-off date for qualification is 31 October 2024.

That means we’re looking at the March 2025 review to start reflecting changes to the listing regime. The indicative change list is normally published in mid-February.

It’s also worth noting Applied Nutrition (APN) recently floated on the London market. It has an ESCC listing and its £358 million market value might be enough to see it scrape into the FTSE 250 at the next reshuffle, although it is right on the cusp between this index and the FTSE Small-Cap so a lot will depend on market movements up until the cut-off point of 22 November as to where it ends up.

Quite a few companies in the Transition category have not publicly commented on whether they will move to the ESCC, including money transfer group Wise (WISE) which is big enough for the FTSE 100.

The Transition category is expected to be an interim status and there is the potential for the FCA to scrap it down the line.

Disclaimer: The editor of this article (Ian Conway) owns shares in Applied Nutrition.

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