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Woodford buys ITV on 'compelling' valuation

Under pressure star fund manager Neil Woodford buys shares in ITV and sticks with recent poor performers Capita, AstraZeneca and Card Factory.

 
Woodford buys ITV on 'compelling' valuation
 

Under pressure star fund manager Neil Woodford has bought shares in ITV (ITV) and an investment trust focused on warehouses for his new Income Focus  fund. 

His new position in the commercial broadcaster suggests Woodford has not lost confidence in his ability to spot good undervalued companies during the downturn in his performance in the past year. ITV shares have struggled of late as investors have worried about the threat to its business of advertisers shifting to the internet to reach large audiences. Last night they closed at 176.7p, well below their 12-month high of 221.76p.

'ITV is a highly-cash generative business with a good track record of returning excess cash to shareholders through special dividends. Its valuation has started to look increasingly attractive recently, however, as the market has focused on the perceived structural threat posed to the business by digital media,' Woodford's head of investment communications Mitchell Fraser-Jones wrote in an update to investors.

Earlier this week analysts at HSBC upgraded the stock from 'hold' to 'buy' on the view the worst could be over for the firm. 'We believe that a lot of the potential negatives are discounted, expectations have bottomed and the market has formed a view that "everything" is bad,' the investment bank said in its research note. 

Woodford Investment Management admits ITV may not be out of the woods, but agrees with HSBC analysts that its share price reflects the risks. 

'We are not complacent about the way that global advertising trends are evolving but, in our view, the risks are now more than adequately reflected in the share price,' Fraser-Jones said.

House music

Woodford also sees attractive income potential in Warehouse Reit (WHRW ), a real estate investment trust that recently floated on the London Stock Exchange after an initial public offer (IPO) of its shares.

'This is an investment trust which has raised capital to invest in a diversified portfolio of UK warehouses in urban areas. It aims to deliver a quarterly income stream of 5.5p per share in its first full year (31 March 2019 year-end), which equates a yield of 5.5% based on the 100p per share IPO price.' 

To fund these buys Woodford sold down positions in US drug firms Abbvie and Gilead. 'Although we remain attracted to these businesses, their shares have performed very well recently, so we decided to redeploy the capital in opportunities with even more compelling valuations'.

Card Factory challenge

Meanwhile in his flagship Equity Income fund Woodford is keeping faith in Card Factory (CARDC), upping his stake to over 5% after an 11% slide in its shares following a profits warning caused by rising costs.

The fund now holds 17.1 million shares worth £53 million at a share price of 313p.

‘The company’s decision to not pass on currency and living wage-related input price increases to its customers has negatively impacted its financial results in the near-term but it makes absolute sense from a long-term strategic perspective,’ Woodford noted.

‘Consequently, we were keen to take advantage of the share price decline to add to our position in this well-managed, highly-competitive and cash generative retailer.’

Card Factory shares have returned 71% since the company floated in 2014 although in the past two years they have rarely threatened to regain their 2015 high of 367p.

Analyst forecasts for the group have cooled sharply over the last six months with three of the analysts tracked by Reuters rating it a ‘hold’ versus two on a ‘buy’.

Looking ahead Woodford reiterated his confidence that the recent hits to performance would fade and the fund was well positioned for the future.

Capita confidence

Struggling outsourcing firm Capita (CPI), which recently appointed a new chief executive, continued to be one of the black spots in the portfolio last month after weak half-year results.

'The business is still on the path towards rehabilitation and the shares have recovered somewhat from the declines that greeted its operational difficulties in 2016,' said Woodford after a recent meeting with the company.

There was better news from AstraZeneca (AZN) which was the fund's best performer in September as it recovered from the sharp sell-off in July after the disappointing phase III Mystic trial of its key lung cancer treatment.

'As we said at the time, we have always believed that the investment case for AstraZeneca is about much more than Mystic – further evidence of this was provided at the European Society for Medical Oncology’s (ESMO) annual conference,' Woodford said, where the company updated investors on the other important drugs it was developing. 

The slump in Woodford's performance in the past year saw the manager lose his long-standing Citywire rating over the sumer and prompted him to apologise to investors. Over the last three years Citywire shows he has returned 20.8% below the average 28.1% achieved by all fund managers in the UK Equity Income sector.

15 comments so far. Why not have your say?

andy mac

Oct 20, 2017 at 11:58

oh no I have been holding ITV for a couple of years but if NW is now into it may be time to sell as my patience have gone

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North Star

Oct 20, 2017 at 12:32

In the current market one should be worried why a share is deemed cheap.

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colin overton

Oct 20, 2017 at 13:50

Old Neil needs a few wins, soon.

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Andrew Stevenson

Oct 20, 2017 at 14:21

There were an awful lot tips for ITV but I ignored them on the grounds of what I do myself. I spend most evenings (I don't turn on until about 2130) watching Netflix. Why ? Because I think the programmes on the established channels are complete rubbish. If you're not interested in football, cooking, dancing, or soaps, there isn't much left. Plus, who on earth wants to sit and wait for endless dreary adverts to go past ? I think this could be the last straw for 'star fund manager Woodford', he's just completely lost it....

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Micawber

Oct 20, 2017 at 14:50

I did well out of ITV for several years from 2012 to 2016 but now it's looking rather clapped out and, most of all, Crozier has left. Good luck, Neil - I'd prefer Abbvie and Gilead but you might be rescued by that elusive bid....

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Franco

Oct 20, 2017 at 15:12

Unfortunately I was carried away by the blaze of advertising of the Woodford Income fund and the Woodford Patient Capital trust and invested at launch without applying my my usual criteria.

I am now regretting it of course and blaming HL for the hype, but it has been a good reminder that emotion is a very bad aviser.

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xxxxx

Oct 20, 2017 at 16:37

Great to see such pessimistic comments on ITV. You persuaded me to buy.

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Micawber

Oct 20, 2017 at 16:41

^^ Neil, you don't have to be anonymous on this thread!

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Tyrion Lannister

Oct 20, 2017 at 19:49

I hold Woodford's Income Focus but am worried that he seems to continually ignore the internet, or the 21st century for that matter. Too many of his mainstream investments seem to be in companies who's heyday has long since passed.

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colin mayne

Oct 21, 2017 at 10:52

Card factory is a good steady earner,with an 18p dividend in november. It has pushed the 367 top standing at 355 on 27 th September before the recent fall.

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Mark Yu

Oct 21, 2017 at 12:33

Woodford said the same when pfg crashed from over £30 to about £20 in one of his fund update. He said that the problem at the time was a teething problem of changing the debt collection practice to bring it inhouse and in the long run it would benefit pfg. He said he talked to the pfg management and was confident to up his already huge position in pfg. I chose to trust him with a small buy at around £19 and we know the rest. Just show he is quite gullible and fallible like us. Not sure why citywire treat him like a investing god and obsessed with him.

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Stephen B.

Oct 21, 2017 at 13:46

I don't see any medium-term future for broadcasting in the traditional sense, i.e. channels which transmit a sequence of programmes in defined timeslots; In a couple of decades I'd expect everything to be VOD. The money will be in programme making, not distribution. That isn't necessarily bad for ITV as long as it can manage the transition.

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Franco

Oct 21, 2017 at 14:02

I see Woodford is buying ITV "on compelling valuation". As compelling as Personal Finance Group? Or Zeneca? Or Card factory?

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Stephen B.

Oct 21, 2017 at 14:07

Personally I'm not compelled by anything, or impressed by people who are, I prefer to think for myself ...

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Eugen

Oct 24, 2017 at 06:40

@Franco You cannot blame someone else for your poor decisions and take the credit for the good ones.

Woodford is past his “sell date”, however he is happy to get £100 million per annum in management fees for underperforming the FTSE 100. Good luck for people willing to pay his fees, I prefer the iShare MCSI World ETF .

If I need to add some Value factor (cheap companies) I will use the MCSI World Value ETF.

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