June may have been a rocky month for markets, but ace fund manager Neil Woodford was doing no selling. Instead, he was buying.
Catching my eye among his trades are a new holding in the shape of NewRiver Retail (LSE: NRR), and additions to existing positions in Centrica (LSE: CNA) Imperial Tobacco (LSE: IMT), NEXT (LSE: NXT) and Homeserve (LSE: HSV).
A rare property buy
Property is an asset class that Woodford isn’t particularly interested in. Which makes his investment in real estate firm NewRiver Retail all the more significant.
Founded in 2009, NewRiver is focused on the UK food and value retail market. Assets include 29 shopping centres, high street and warehouse units, and a portfolio of over 200 pubs for retail conversion.
Following “a very positive meeting with management”, Woodford participated in a £150 equity fundraise by NewRiver at 300p a share, the proceeds being used by the company to progress its current transaction and development pipeline. Woodford’s team says of NewRiver:
“It has a great track record of creating value by improving its second and third tier retail property assets. The business generates excellent returns and has the potential to deliver a very attractive income stream to the portfolio as well as long-term capital growth”.
NewRiver’s shares are currently trading above the placing price, but the prospective yield is still a chunky 5.6%, which compares favourably with many of its peers.
More core
Woodford also added money to “several core holdings” during June, his fund update specifically mentioning Centrica, Imperial Tobacco, NEXT and Homeserve.
Shares of British Gas owner Centrica have been largely in decline since last autumn. The market’s confidence in the company has been sapped by one thing after another: business performance hit by weather, heightened political and regulatory scrutiny, and a 30% rebasing of the dividend.
Woodford has been a persistent buyer in the face of adversity. A year ago, Centrica was ranked at number 17 in his portfolio with a weighting of 2%. Today, it’s at number 9 with a 2.9% weighting. Centrica currently trades on a forward price-to-earnings (P/E) ratio of 15.5, and — despite the dividend rebasing — offers a prospective above-market-average yield of 4.3%.
Imperial Tobacco has a similar valuation: a P/E of 16 and a yield of 4.3%. This is another stock that has moved significantly up the ranking in Woodford’s portfolio. A year ago, Imperial was at number 5 with a 5.3% weighting. After Woodford’s latest bout of buying, the weighting has gone up to 6.9%, and Imperial is now vying with long-time top dog AstraZeneca for the number 1 spot.
Clothing chain NEXT is a business Woodford had admired for many year’s, before finally biting the bullet and buying last summer. He bought more in the autumn when the shares fell on a weather-related blip. The price is a good bit higher this year, and his further buying in June is testament to the premium he’s willing to pay for what his team has described in the past as “a very high quality, dependable retail business with an outstanding track record of delivering long-term shareholder value”. NEXT’s shares are currently trading somewhat higher than their June level, on a forward P/E of 17.5 with a prospective yield of 2.3%.
Woodford has long been an investor in emergency plumbing and electricity services group Homeserve. His further buying in June shows that this is another business he’s happy to pay a premium price for. Homeserve’s shares are currently changing hands at or below the levels they were trading at last month. The forward P/E is 21.8, and the prospective yield is 2.7%.
Higher P/Es don’t necessarily put Woodford off a share. Strong cash flows and sustainable dividend growth are at the heart of the strategy he has been employing for a quarter of a century with huge success.
