Woodford ditches asset manager and adds to Imperial at crisis level price

Woodford favourite Imperial Brands has seen its share price dive 20 per cent over the past year, prompting manager Neil Woodford to add to the position in the Income Focus fund.

Although Imperial Brands was a drag on performance in October, head of investment communications Mitchell Fraser-Jones says the current share price level is “very appealing and unjustified”. Last month the top three position was increased to 4.8 per cent.

“There have only been two occasions since 1996 when the 12-month share price performance has been more negative than it is at the moment – during the dotcom bubble of 1999-2000 and during the financial crisis of 2008-09,” Fraser-Jones says.

However, Fraser-Jones maintains that the investment case for Imperial Brands “has not changed dramatically”.

“From a fundamental perspective, Imperial Brands continues to be a business which should deliver attractive and sustainable long-term growth, as it has done consistently throughout its history as a quoted, independent business.

“The shares currently yield more than 6 per cent which, for such a cash-generative business with a long track record of delivering consistent growth, just looks like the wrong price. On a five-year rolling basis, the shares have never delivered a negative return – clear evidence that, although fundamentals may not always be rewarded over short time periods, over more sensible time frames, they are all that matter.”

Woodford has also been adding to Provident Financial, which has had a torrid time this year, shedding two thirds of its stock market value in August after issuing its second profit warning in three months and cancelling its interim dividend.

“The company’s share price continued to recover in October, helped by an encouraging trading update, which provided early evidence that management’s plan to bring the company’s home collected credit division back on track, is beginning to work.

“Provident Financial’s other business divisions, Vanquis and Moneybarn, continue to perform well and the company’s capital and liquidity position looks solid.”

However, Fraser-Jones warns there is “much work to be done to rehabilitate this business”.

He adds: “The company has been significantly damaged by the problems in its household collected credit division but not irretrievably so. We remain supportive of the new management team’s strategy and added to the position during the month.”

Purchases were funded by the disposal of specialist asset manager ICG, which Woodford sold out of on the grounds it was looking expensive.

“Its shares have performed very well in recent months, so we have recycled the position into more attractively valued opportunities,” Fraser-Jones says.

The £724m Income Focus fund, which launched in April, is down 1.8 per cent over six months.