Headlines about ARN Media’s flagship hosts, Kyle Sandilands and Jackie O Henderson have been thick on the ground this week. But it’s causing more than just bad PR for the company according to its most recent ASX filing.
While the antics of radio’s lowest common denominator are far from the purview of this publication, the company’s activity on the stock market certainly are.
ARN Media has confirmed it will be removed from the ASX All Ordinaries Index following the latest quarterly rebalance by index provider S&P Dow Jones Indices. The change comes as part of the regular review of companies included in the benchmark, which broadly tracks around 500 of the largest and most liquid stocks listed on the Australian Securities Exchange.
Index rebalances occur regularly and are largely mechanical. Companies move in and out depending on their market capitalisation and trading liquidity relative to peers.
In ARN’s case, the removal follows a difficult year on the market.
The company’s shares are currently trading around $0.36, down roughly 41% over the past 12 months. Over that period the stock has slid from a 52-week high of $0.64 to a low of $0.33, leaving the broadcaster with a market capitalisation of roughly $113 million.
That shrinking market value is precisely the sort of shift that can push a company down the rankings during periodic index reviews.
On the surface that may sound like a technical change, but index membership matters because a large number of institutional funds and exchange-traded funds track benchmarks like the All Ordinaries. When a stock is removed, those funds typically have to sell their holdings as they rebalance their portfolios to mirror the new index composition.
That can create short-term selling pressure as passive funds exit positions around the rebalance date. The flip side is that inclusion in an index can provide a steady source of demand from those same investors — something that disappears once a company falls out of the benchmark.
The All Ordinaries is a relatively broad index, so the impact is usually less dramatic than entering or leaving the more concentrated S&P/ASX 200. Even so, removal tends to reflect a company slipping down the pecking order of the local sharemarket.
But could it be good news in disguise?
There is a long-observed quirk in markets known as the “index effect”. Because funds tracking benchmarks buy and sell stocks based on index membership rather than company fundamentals, companies being removed can sometimes experience temporary price pressure as those mechanical sellers head for the exit.
For opportunistic investors, that can create an opening. Some traders actively hunt for companies leaving indices, betting that once the forced selling subsides the share price may rebound as bargain hunters step in.
Whether that plays out for ARN will ultimately depend on the underlying performance of the business rather than its position in a benchmark.
Being rounded out of a market index isn’t catastrophic for a company, but it does signal that ARN’s problems are a little more than just bad PR from a couple of shock jocks.
