MFM Primary Opportunities manager Oliver Brown is picking up some bargain stocks direct from Neil Woodford’s equity income portfolio as the embattled manager seeks to raise cash following the fund’s suspension.
Brown (pictured) said RC Brown Investment Management has been part of a consortium of institutional investors that has approached Woodford on two holdings in the past two months as the beleaguered fund manager sells down positions.
These groups are put together by brokers and anonymously so Brown said he was not able to reveal the identity of the other investors.
He said: “The market knows that Woodford has some big holdings in some small and mid caps and we know he’s going to have to look to raise money due to his fund being suspended. Brokers, certainly the week after the fund was suspended, were running around like headless chickens really trying to bid Woodford for stock.”
He noted the potential for a “double discount” on certain stocks because the “Woodford overhang” has already depressed share prices and there is the potential for them to be bought cheaper than their current trading value given Woodford is a forced seller.
Ten Entertainment and Morses Club
As a result the fund has increased its position in tenpin bowling operator Ten Entertainment and doorstep lender Morses Club – two stocks taken directly from Woodford since the fund was frozen.
The fund bought Ten Entertainment last month at 212p at a time when they had been trading around 225p. They are currently trading at 240p.
“It just goes to show that as soon as that overhang was cleared, the shares traded higher as the big seller in the market, or the big perceived seller, had gone.”
Similarly, in July Morses Club was trading at around 150p and Brown was able to purchase shares at 130p. They currently trade at 129p.
“We’ve now taken Woodford out and the shares did immediately perk up to about 139p, but have trended back to 130p really on, I guess, the markets having been pretty ropey the last week or two. And it is quite a UK-centric stock.”
Woodford overhang combines with Brexit
Other stocks in Woodford’s portfolio that look attractive to Brown include Eddie Stobart, which according to the logistics firm’s website, Woodford Investment Management owned 22.89% of as at 2 August.
“It’s cheap for a couple of reasons. It’s got a Woodford overhang but it’s also got a Brexit overhang. This is very much a UK economy play but I think the price of the shares are now trading around about 70p, it’s on a single digit PE and it’s got a yield around 6%.”
Another is Card Factory. “It’s been hit by the high street malaise, but I do consider it to be a good operator in a tough market. That’s something I think has a price. I don’t think it’s going bust or anything like that.”
Elsewhere, Brown said Countryside Properties could be attractive as long as RC Brown and other investors could take Woodford out of the position entirely. Loans lender Amigo Holdings is a “volatile company” but could be attractive at the right price, he added.
‘A good opportunity to be brave’
Brown said: “Some of these companies are discounting almost a worst-case scenario in a hard Brexit, so I am starting to feel like in the next few months might be a good opportunity to be brave.”
He added: “We are not buying them because they’re cheap. We’re buying companies that we actually think are the perfectly good companies but the primary opportunity in this case is what we call a forced seller and we put Woodford in this camp.”
