Master investor Neil Woodford was busy in the market last month. Catching my eye are increased holdings in blue chips Centrica (LSE: CNA), British American Tobacco (LSE: BATS), Imperial Tobacco (LSE: IMT) and Royal Mail (LSE: RMG). And a brand new investment in AIM-listed Breedon Aggregates (LSE: BREE).
Centrica
The CF Woodford Equity Income fund added to its position in British Gas owner Centrica on share price weakness following a trading update on 20 November. Centrica announced that earnings for the year would be lower than previously expected, due to challenging trading conditions, including the warm weather in the UK.
Woodford’s team remains confident in the long-term outlook for Centrica, noting in particular that “the company retains its commitment to real dividend growth”. At a share price of 285p, Centrica offers a yield of over 6%.
Tobacco
Woodford continues to see the tobacco industry as “a very compelling long-term investment proposition”. And right now, he reckons the valuations of UK-listed tobacco companies “look increasingly attractive“.
How attractive? Well, attractive enough for him to sell out of his position in US group Philip Morris International in order to add to his holdings in British American Tobacco and Imperial Tobacco. The former offers a dividend yield of over 4% at a share price 3,700p, and the latter a yield of nearer 5% at a price of 2,834p.
Royal Mail
Royal Mail’s shares weakened after the company released its half-year report on 19 November. While noting that the results suggested it may take longer than previously thought for the business to reach its margin improvement target, Woodford’s team said: “we remain confident in the long-term investment case and took the opportunity to add to the position”.
Royal Mail is another of the fund’s high income generators, offering a yield of over 5% at a share price of 400p.
Breedon Aggregates
Listed on the AIM market, but bearing a FTSE 250-level valuation of £445m, Breedon Aggregates is the UK’s largest independent aggregates business, with 37 quarries, 22 asphalt plants and 48 ready-mixed concrete plants. Woodford has been keeping an eye on the company for several years, impressed by “a strong management team with a proven track record of creating shareholder value through sensible acquisition activity”.
Woodford’s team added Breeden to the portfolio, anticipating that the company will participate in, and benefit from, consolidation in the aggregates industry. Breedon pays no dividend, being focused for now on delivering capital growth. At a share price of 43.5p, the P/E is a whopping 30, but earnings are expected to soar by an equally whopping 30% a year for the next couple of years.
