Neil Woodford has just sold shares of this FTSE 100 giant

G A Chester looks at a FTSE 100 (INDEXFTSE:UKX) stock Neil Woodford has been selling and a small-cap he’s been buying.

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The holdings of veteran fund manager Neil Woodford have come under more scrutiny than usual in recent weeks due to the poor performance of some of his top picks, notably the spectacular collapse in Provident Financial‘s shares. However, anyone with an outstanding record stretching over a quarter of a century doesn’t suddenly become a bad investor. Indeed, Woodford has invariably bounced back strongly after previous spells of underperformance.

With this in mind, I’ve been having a look at recent regulatory news announcements to see what shares he’s currently buying and selling.

Sticking with a falling stock

Woodford first bought FTSE 100 security giant G4S (LSE: GFS) at around 275p back in 2012 when he was at Invesco Perpetual. The timing was unfortunate, being just before the company’s London Olympics debacle.

Nevertheless, he bought the stock afresh (in the region of 250p) when he launched his Woodford Equity Income fund in 2014, describing it as a “core” holding. It declined through 2015 (ending the year at 225p) but he continued buying, taking his stake above 5%.

Recovery and sales

The shares began recovering from mid-2016, and at 235p Woodford and his team said: “Although it has had several problems in the UK in recent years, G4S is a global-facing business with strong long-term growth prospects in emerging markets in particular. The company has a robust and geographically diversified pipeline, strong cash flows and good demand for its services globally. In our view, the market continues to undervalue these growth prospects.”

The shares continued to recover and Woodford trimmed his position in May this year in the region of 320p. On Monday this week, with the shares down to around 275p and the scandal-prone company embroiled in yet another unedifying controversy, it notified the market that Woodford had cut his holding from 5.8% to below the disclosable threshold of 5%.

We’ll have to wait for his fund update in October to see whether the latest sale is another trimming of his stake or whether he’s exiting the position and, if so, why. Trading on a forward P/E of 14.9, with a prospective dividend yield of 3.5%, the current valuation doesn’t look exactly cheap to me, particularly for a company with an unfortunate propensity to shooting itself in the foot.

Sleep on it

On the buying front, Woodford has added to a number of holdings in recent weeks. His stakes in pharma firm Circassia and online mattress and bedding seller eve Sleep (LSE: EVE) have both passed notifiable thresholds.

Woodford already owned 17.5% of eve Sleep before its flotation on AIM in May. He participated in the IPO at 101p a share, taking his stake to 18.6%, and increased it to 22.2% by the time the company released its half-year results last week. He bought more shares on the day of the results, lifting his holding to 24.04%, and upped it again on Wednesday to 25.09%.

The shares are currently trading at around 90p, valuing the company — which is forecast to be lossmaking for the foreseeable future — at £125m. While it has net cash of £37m and Woodford and his team reckon it can create “substantial shareholder value as it matures,” I’d want to see a bit more evidence that this is a viable business with a significant competitive advantage.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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