What with the run-up to the General Election and the launch of his Patient Capital Trust — focused on fledgling growth companies — I didn’t expect Neil Woodford to be particularly busy tending to the more mature stocks of his established Woodford Equity Income Fund.
However, April proved to be a busier month than usual. A number of trades caught my eye among Woodford’s latest dealings: in particular, additions to his holdings in Legal & General (LSE: LGEN), BAE Systems (LSE: BA), Centrica (LSE: CNA), SSE (LSE: SSE) and RM2 International (LSE: RM2).
There’s only one blue-chip financial, one blue-chip financial…
Woodford continues to be less than keen on big FTSE 100 banks and insurers. In fact, he holds only one financial company from the blue-chip “premier league”, and that’s Legal & General.
Woodford’s team describes the life insurance industry as having been “opaque and unpredictable” historically, but sees, with L&G’s “relentless focus on cash generation”, a chief executive “transforming the business into a much simpler, easier to understand business with strong growth prospects”.
L&G trades on an undemanding forward P/E of 14, while the prospective dividend yield — to which Woodford remains attracted — is about 5%.
RM2, RM who?
AIM-listed RM2 International will not be as well-known to most investors as the likes of L&G. The pallet-maker “is still at an early-stage of its development but has tremendous potential to disrupt the pallet industry”, and Woodford is very keen on the company.
In adding to his holding, his fund update noted that RM2’s “recent contract win with PPG International [an S&P 500/Fortune 200 company] is very positive news, in our view, and could herald the broader adoption of its composite pallets”.
RM2 is loss-making at present, but revenues are forecast to leap from £18m this year to £65m next year, with the company starting to move towards profitability.
3 blue chips bulked up
Back to the FTSE 100, and Woodford added to a number of blue chips — that “demonstrated weakness in the run-up to the General Election” — at “what we consider to be attractive valuation levels”. These companies included BAE Systems, Centrica and SSE — described by Woodford’s team as “important income contributors”.
The shares of “Big Six” energy firms Centrica and SSE had been under the cloud of potential Labour Party meddling, but have rallied on the back of the Tory election victory. As such, investors today won’t get quite as high a yield as Woodford was able to secure, although the prospective income from the pair remains attractively above the market average: Centrica at 4.4% and SSE at 5.5%.
Conversely, BAE’s shares are currently a bit lower than when Woodford was buying, so investors today are getting a slightly better yield deal. The prospective income from BAE is 4.2%.
Other “important income contributors” that came in for top-ups during April were GlaxoSmithKline, Game Digital, Next and Royal Mail, while the fund “marginally trimmed” its position in BT, “where the share price is now back at levels not seen since early 2001”.