Woodford To Stand By 'poor Investment' Capita

The manager, who is the third largest shareholder of the company through positions in both his £7.7bn Woodford Equity Income and £690m Woodford Income Focus funds, commented on the developments in a blog post two days after the profit warning was issued.

At the start of last week, Capita represented 0.8% and 1.3% of the respective funds.

However, Woodford said he would not be selling his holdings in the company, which has suffered a string of profit warnings in recent years, with its share price dropping 45% last Wednesday, as he believes there is "a clear plan and project underway" to turn the business around.

"I would go as far as to say that the business will be in better shape at the end of 2018 than it was in 2016," he said, referring to the company's profit warning in December 2016.

"It will have infinitely better leadership, a stronger balance sheet, better cash flow, more conservative accounting policies and a lower pension deficit.

"The mistake I have made, albeit I didn't know it at the time, was in owning Capita in 2016. It is not a mistake to own it now. And so, I will not be compounding the previous error by behaving in an irrational and valuation insensitive way now."

Woodford admitted owning the company has been "a poor investment" but said it "is one that has the capacity to become a significantly better one from here".

He added: "Discussions with all major customers have gone very well as have conversations with the Cabinet Office. The collapse of Carillion has catalysed the whole outsourcing sector to rebase its relationship with the Government, which also recognises the need for change, to reflect a fairer balance between risk and reward."

Reflecting on the current economic environment in general, Woodford said the stock market is "totally preoccupied with momentum and insensitive to valuation".

"We should all expect the environment to remain as challenging for the Woodford funds, as it has been since early summer last year," he said.

"I will underperform in such market conditions as I have done before. Equally, however, we should expect rationality to return in an unpredictable way, as it has done always in the past.

"When this happens, share prices will adjust to reflect reality in the economy and in the businesses that thrive and prosper within it. In the meantime, I would be doing you, my investors, a massive injustice if I was to abandon the investment discipline that has guided me for 30 years in this industry."

Over three years to 2 February, the Woodford Equity Income fund has returned 10.8%, underperforming both its FTSE All Share benchmark return of 25.3% and the IA UK Equity Income sector average return of 22.2% during the same period, according to FE.

Last week, the fund lost its five Crown rating after FE's bi-annual rebalance, just six months after gaining the top accolade.

https://www.investmentweek.co.uk/investment-week/news/3025717/woodford-favourite-capita-falls-45-after-profit-warning