3 Neil Woodford Low P/E Shares: Imperial Tobacco Group PLC, HSBC Holdings plc And Catlin Group Limited

Renowned fund manager Neil Woodford has been thrashing the market for a quarter of a century. Woodford is a very selective stockpicker. Fewer than 1 in 10 of the UK’s top 350 companies earn a place in his funds.

Hence, I always keep an eye on his holdings for promising investment ideas.

The following three firms are all currently on forward price-to-earnings (P/E) ratios of less than 13, compared with the FTSE 100 long-term average of 14:

Company Recent share price P/E
Imperial Tobacco Group (LSE: IMT) (NASDAQOTH: ITYBY.US) 2,677p 12.8
HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) 595p 10.6
Catlin Group (LSE: CGL) 535p 10.1

Imperial Tobacco

He’s been saying it for donkey’s years, and he’s said it again just this week: “The tobacco sector continues to trade significantly below an appropriate valuation”.

In addition to barriers to entry, pricing power and predictability, Woodford is confident a further round or two of consolidation in the industry will benefit all the players.

Right now, US groups Reynolds American and Lorillard are in the process of merging. In the hope of heading off objections from competition authorities the pair have agreed to sell a clutch of assets and brands — including Winston, Kool and e-cigarette blu — to Imperial Tobacco.

Imperial is already trading on an attractive P/E of 12.8, and the company says the deal “is expected to be significantly EPS enhancing in the first full year post completion”.


Famously bearish on banks since before the financial crisis, Woodford has now changed his stance — at least as far as one bank is concerned: global giant HSBC.

Woodford believes HSBC has the capacity to build up its capital at the same time as growing earnings and dividends. He reckons: “HSBC on some measures is rated worse now than it was at the height of the financial crisis – that is how cheap it is”.

The current P/E of 10.6 is certainly one measure on which HSBC is valued attractively.


While Woodford turned his back on banks and life insurers before the financial crisis, he was comfortable with investing in a number of mid-cap non-life insurers.

Catlin, a FTSE 250 company with a market valuation of £2bn, is one such company. This global speciality property/casualty insurer and reinsurer is diversified across more than 30 lines of business, and currently trades on a P/E of 10.1.

When management last updated the market at the company’s AGM in May, chief executive Stephen Catlin said the firm had “made a good start to the 2014 underwriting year … and we continue to look ahead with confidence”.

Beware the bull trap

The bull market, which has floated most boats, is now mature at five years old, and Woodford reckons picking winners is becoming more challenging.

It's a view shared by the Motley Fool's crack team of analysts. Indeed, our analysts believe only a handful of companies will make really big gains over the next 12 months.

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G A Chester has no position in any shares mentioned. The Motley Fool has no position in any of the shares mentioned.