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Neil Woodford’s High Income Fund Farewell: Wm. Morrison Supermarkets plc, Rentokil Initial plc And Sanofi SA

Neil Woodford announced last October that he was calling time on his quarter-century career with asset management group Invesco Perpetual. Britain’s most celebrated money manager handed over control of his Invesco funds last month, and will shortly launch his own equity income vehicle from his new Woodford Investment Management business.

Invesco has just published the final annual report under Woodford’s tenure of the £13.5bn flagship High Income fund. The report reveals some of the City wizard’s last mega-million moves for the fund, including big trades in Wm. Morrison Supermarkets (LSE: MRW)Rentokil Initial (LSE: RTO) and Sanofi (NYSE: SNY.US).

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Woodford’s share buys and sells during the first half of the year were balanced. However, the second half of the year saw net sales of around £1bn, as Woodford paid out to investors who pulled out of the fund after the announcement of his departure.

We saw a trimming of many holdings to raise the £1bn, but there were also some large positions that Woodford exited completely.

Wm. Morrison Supermarkets

Woodford disposed of the High Income fund’s 68.4 million shares in Morrisons, raising a whopping £187m. The numbers give a sale price of about 273p a share. Whether Woodford had become disillusioned with his former supermarket favourite, or was getting shot of a company his successor wasn’t keen on, is a moot point.

Either way, it was a timely sale, as the shares are currently trading at not much more than 200p — representing 14 times forecast earnings with a potential income of 6.5%.

It will be interesting to see whether Woodford buys back into Morrisons for his new fund. I see the supermarket as being in a similar position to AstraZeneca a couple of years ago, when the contrarian Woodford was piling into the then-unloved pharmaceuticals firm.

Rentokil Initial

Rentokil, which has a wider range of hygiene businesses than the soubriquet ‘royal rat catcher’ suggests, is another holding Woodford has binned. The sale of the High Income fund’s substantial stake in the mid-cap firm raised £117m. My sums say Woodford sold at about 105p a share, compared with 116p today.

Like Morrisons, Rentokil trades on a forward P/E of 14, but the prospective dividend yield is much lower at 2.2%. Woodford originally bought into Rentokil as “a significant restructuring opportunity”. The bulk of the restructuring has been done, and it remains to be seen whether Woodford thinks the story has further to run and buys back into Rentokil for his new fund.


Given the outflow of money from the High Income fund, and the net £1bn of share sales to cover the redemptions, I was surprised to find Woodford actually increasing the fund’s stake in some companies.

Woodford added modestly to a few of his Footsie favourites, including Imperial Tobacco, GlaxoSmithKline and Centrica, but substantially upped the fund’s stake in French drugs giant Sanofi. He increased the holding by almost 50% during the course of the year, spending in the region of £100m.

The Paris-listed company, which can also be traded on the New York stock exchange, is on a forward P/E of 14 — the same as FTSE counterpart GlaxoSmithKline. Analysts have Sanofi delivering faster earnings growth over the next couple of years, but GlaxoSmithKline offering a higher dividend.

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G A Chester does not own any shares mentioned in this article. The Motley Fool has recommended shares in Morrisons and GlaxoSmithKline.

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