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Is Neil Woodford running short of cash?

By Nigel Somerville, the Deputy Sheriff of AIM | Wednesday 17 October 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Having noted that Neil Woodford has been dumping shares in our Big Short BCA Marketplace (BCA), I see that the sell-off appears to be rather more widespread. One wonders if Tom Winnifrith’s comments that after a market crash investors tend to sell up is coming true already, or is there another explanation?

First up we have Hostelworld (HSW) in which Neil has reduced Woodford’s exposure from 13.79% of the company to 12.86%, with sales done on 15 October (ie Monday this week). At the current 197.6p that’s a cool £1.75 million worth. Also on Monday we see that he offloaded a stack of shares in Forterra (FORT), reducing his holding from 11.71% of the company to below 5%. At the current 241.5p that means at least £35 million worth (and that would only be down to 4.99%).

And announced late on Tuesday, he also sold around £8 million worth of Horizon Discovery (HZD), also on Monday. Next up comes Homeserve (HSV) in which he dumped a load of stock on Friday, reducing his holding from 7.52% of the company to less than 5% - so at least £77 million worth at today’s prices, even if he still has 4.99% of the company.

Wowee! So a minimum of around £123 million sold (and it could be as high as the best part of £300 million) in the last three days! It may be a relatively small drop in the ocean compared to the total size of his funds, but strip out the unlisted cash-guzzlers and up to £300 million in three days feels like a pretty decent amount. So why is he selling? Is he taking profits on fantastic investments?

Well, Hostelworld has been in a downward drift since April of this year, and over the past year has dropped from comfortably ahead of £3 to the current (just shy of) £2. Forterra has been drifting south since May of this year and over the past 12 months has fallen from £3 to about £2.40. And Homeserve had been rising nicely from May of this year all the way through to September, but fell away sharply by around 10% during the market crash. And Horizon has fallen from over £2.40 in mid-September to £2. So it doesn’t look much like profit-taking.

Well, what about redemptions? That would mean that investors in his unit trusts had booked emergency meetings with their financial advisers and sent in paperwork to sell up. I don’t think the timescale (a couple of days) really is feasible. Alternatively, there are those who choose their own investments via an online discount broker who suddenly lost confidence. Again, given the timescale I rather doubt that – although it is possible that a boat-load of redemptions late last week could have forced Mr Woodford’s hand….but that might worry a few that there is plenty more to come in the pipeline.

Or is he getting his cash-pile ready to support all those cash-guzzlers when they come knocking on his door, begging bowls in hand? If so, I fear a problem ahead as the proportion of funds in unlisted stocks takes a big hike. But that would suggest that the great man has got his timing all wrong, and sold up after the crash and not before.

That leaves the possibility that the bank has at least partially pulled the plug on lending to Mr Woodford, having taken fright at the increasing risk of lending cash to funds which are falling away and hold increasing levels of unlisted (and therefore untradeable) stocks. I wonder… Cynical Bear’s perfect storm for Neil Woodford now upon us?

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