Woodford: stand by for 'thick and fast' profit warnings

Invesco Perpetual’s Neil Woodford has warned investors to stand by for more profit warnings, which will come in ‘thick and fast.’

The Citywire A-rated manager, speaking to shareholders in the Edinburgh Investment Trust, said the potential for these warnings could suppress fragile markets.

‘The answer for the overall market is that I struggle to see how the market can make such headway, but within the market there is a lot of opportunity,’ Woodford said, who also manages the Invesco Perpetual Inome and High Income funds.

He explained the accumulation of weak economic data and downgrades across the world in terms of GDP (gross domestic product) is set to be reflected in further downgrades to both profits and earnings.

‘There is earnings risk in the market, and I have talked about this in the past,’ said Woodford. ‘However, I still believe there is a lot of valuation opportunity as well.

‘I have said consistently that despite these difficult economic times, there is a population of stocks that can grow consistently through this difficult period. So I believe there is valuation opportunity,’ he added.

Woodford said businesses that feature prominently in his trust’s portfolio are those that can deliver revenue, cash flow earnings, and dividend growth on a consistent basis.

In terms of Europe, Woodford said the underlying weakness of the Continent will likely get worse.

‘The reason it is getting worse is that we have a combination of monetary and fiscal headwinds, which are getting harder, not weaker,’ he said.

The manager added: ‘It is hard to see how the eurozone crisis will be resolved. You have to attach some probability to a eurozone breakup. You also have to attach some probability to a move to more integration.

‘But either way it is likely to be coincident with poor economic performance.’

Woodford’s view is that it is still possible for high quality businesses with consistent growth to break free from the challenging backdrop. ‘That is why my strategy remains unchanged,' he told Edinburgh Investment Trust shareholders.