It seems there is no end yet in sight to Neil Woodford’s ‘incredibly painful’ period after his funds took a big hit from beleaguered Capita today.
FTSE-250 listed outsourcing group saw its share price plunge by 45 per cent at one point this morning after issuing a profit warning for the year ahead.
Woodford has been a long-term backer of Capita and holds the stock in his Woodford Equity Income and Income Focus funds.
In a recent update for investors in the Income Focus fund, it was revealed Woodford had snapped up more Capita shares in December, despite acknowledging the group’s poor performance and potential for dividend cuts.
Embattled: Neil Woodford’s ‘incredibly painful’ episode may be about to continue thanks to Capita
Woodford holds 0.9 per cent of his £8.3billion Equity Income fund in Capita, and 1.4 per cent of his smaller Income Focus fund in the group.
Speaking before today’s news to explain the decision Woodford said: ‘The shares yield over 7% here which suggests that some investors fear a dividend cut may be required.’
‘With a new chief executive now in place, clearly that eventuality cannot be completely ruled out, but having met Jon Lewis during the month, we are reassured that decisions around capital structure and the dividend will be informed by a clearer long-term strategy for the business, something we expect to hear more about later this year,’ it continued.
‘In the meantime, we have maintained the portfolio’s exposure to this business, seeing the potential for significant value creation in the future as Capita is restored to the high quality, successful and well-run business that it used to be.’
Capita’s new boss Jonathan Lewis, who took up the role on December 1, said ‘significant change’ was needed at the company.
He has ordered a top-to-tail overhaul of the business and plans to cut costs, sell off unprofitable operations, suspend dividends and launch a cash-call to investors.
Performance: Capita’s share price chartered over the last 12 months
But, for some, Capita’s share price plunge and profits warning will reignite questions over whether Woodford has lost his share picking touch.
In June, troubled Provident Financial’s share price tumbled when it revealed that a re-organisation of the business designed to boost efficiency at its home credit arm was veering alarmingly off track.
But Woodford, the business’s second-largest stockholder, purchased 103,000 shares for around £2.5million days later after he spoke ‘at length to management about the issues’ and was ‘reassured’ about the future.
Then, a few weeks later in August, Provident’s shares crashed by 66 per cent after its bosses realised the damage done was much worse than they initially thought.
For Woodford, this meant those extra shares he purchased were worth £770,000, marking a £1.7million loss. At one point during the Provident saga, Woodford lost around £326million in a single day.
Already bruised by his exposure to Provident, in September, Woodford published a video apologising for his fund’s poor performance over the last year.
He blamed irrational markets, traders’ herd mentality and a ‘dangerous’ bubble in Chinese credit for his dramatic fall in performance.
Woodford said in the video: ‘It’s been a difficult period, and I’m very sorry for the poor performance that we’ve delivered.’
With performance flat across the CF Woodford Equity Income fund in the last year, Woodford’s fund is propping up the Investment Association’s UK Equity Income chart.
His almost unrivaled track record of stellar returns won him tens of thousands of investors and £17billion in assets to manage after he left Invesco Perpetual to set up his own firm.
Future plans: Capita is suspending dividend payouts to shareholders as it pulls together a transformation plan for the struggling business
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