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Software Company’s FTSE 100 Spot in Doubt After Guidance Cut

Kit Rees

(Bloomberg) -- The timing of Micro Focus International Plc’s reduced revenue guidance couldn’t have been much worse.

Thursday’s drop of as much as 34% in the stock caused the software provider to briefly fall below 110th place among the U.K.’s biggest listed companies, the point at which it would face expulsion from the FTSE 100 index. With a quarterly review of the U.K.’s benchmark gauge due to take place after markets close on Tuesday, Micro Focus’s place is on the line.

“FTSE 100 exclusion looks a higher risk than before,” Ken Odeluga, an analyst at City Index, said by email. “It’s not a given that it will occur at the next review, but it’s certainly another growing worry for Micro Focus.”

FTSE 100 membership is important not just in terms of prestige, but because it brings investment from funds that track the index. Also at risk in next week’s review is retailer Marks & Spencer Group Plc, the index’s least valuable member with a market capitalization of about 3.7 billion pounds ($4.5 billion).

At Thursday’s session low, Micro Focus’s market value fell to just 3.5 billion pounds, reducing its ranking among fully listed U.K. companies to about 118th. According to FTSE rules, a security will be removed if it falls to 111th or below.

While a partial rally in the stock took its valuation back to about 3.9 billion pounds -- a level that may just secure its spot in the index -- Micro Focus will need to avoid any renewed weakness in the coming days to ensure its FTSE 100 survival.

According to JPMorgan Chase & Co. analyst Pankaj Gupta, removal from the index is a possibility for the stock and there are two or three potential replacements. “It still has until next Tuesday to recover,” he said by email.

READ MORE: Micro Focus Turmoil Grows as Firm Cuts Guidance, Shares Slump

--With assistance from Jan-Patrick Barnert and Justina Lee.

To contact the reporter on this story: Kit Rees in London at krees1@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, Paul Jarvis, Jon Menon

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