Star fund manager Neil Woodford really lost his touch in recent years, backing a whole cutlery drawer of falling knives, shredding his reputation in the process.
Woodford may have been squeezed out, but most of those companies are still trading, and two have seen their share prices rise around 4% today, after their latest results. Is their future now brighter than his?
PurpleBricks Group
Woodford held onto online estate agency PurpleBricks Group (LSE: PURP) well after the cracks began to show, following its ill-fated foray into the US.
The PurpleBricks share price is now down 70% measured over two years, helped by the fire sale of one of Woodford’s more liquid stocks. However, it’s up today following a reasonably positive first-half trading update reported it had “modestly outperformed expectations over the period.”
The £346m group has maintained its 4% overall market share, and expects to report an improvement in marketing-to-revenue ratio as planned efficiencies are now being realised. That’s despite “a weakening in the overall UK property market as political and economic uncertainty impacted confidence, reducing home sale volumes,” particularly in the South East.
PurpleBricks expects revenues to be broadly flat in next month’s interims, but at least recent significant losses have been reversed, with the group enjoying profitable trading in the first half.
However, I remain wary. PurpleBricks was supposed to be a game changer, sweeping away the traditional high street estate agency model, rather than a company where flat revenues are seen as good news.
You have to strip away all the early aura before deciding whether to invest, as well as examine underlying issues, such as how its flat fee system of payment works in practice. The group has stabilised, but it’s real attraction was rapid growth, and I don’t see that coming.
Provident Financial
I never saw why the phrase ‘doorstep lender’ got Woodford’s juices flowing. He went massive on Provident Financial (LSE: PFG), a company launched by Bradford Methodists in the 1880s that ended up as a short-term lender run by a man called Peter Crook charging up to 1,550% on short-term loans to people who struggled to borrow elsewhere. It also sells high-interest Vanquis credit cards, payday loans and car finance through its Moneybarn brand.
The short-term credit market has come under pressure from City watchdog the Financial Conduct Authority, whose tough compensation rules have driven out payday lenders Wonga and QuickQuid. Last year, the FCA ordered Provident’s Vanquis unit to repay £169m to mis-sold customers, and also fined it £2m.
Today, the £1.15bn group reported “good momentum in new customer volumes and stable delinquency,” with “all three divisions producing good business volumes and a stable impairment performance.” Moneybarn did particularly well, with new business volumes beating internal forecasts to rise 36%, and client numbers up 24% to 73,000.
This will reassure some investors that management has put the bulk of its problems to bed, and the forecast yield of 5.7%, covered 1.9 times, and a valuation of 9.1 times earnings, may tempt some. Just remember, the FCA is watching.