Is there ANYTHING worth backing in the Woodford wreckage?
OF ALL the many questions that investors might ask of Woodford, one of the most pertinent must surely be this: why? Why did the now closed Equity Income Fund include so many companies that provided no income?
After last week’s decision to wind up the fund, the Woodford website has removed all mention of the companies that he invested in – but The Mail on Sunday has the names of every listed firm where he held a stake of more than 5 per cent. Over half of them do not pay dividends and therefore provide no regular income.
Most of the non-dividend payers are biotech businesses, with little chance of returning cash to shareholders for years. They may be excellent companies but, right now, they are loss-making and fall into the ‘jam tomorrow’ camp.
These firms have been hit hard since the Equity Income Fund was suspended in June. Companies such as Tissue Regenix, Synairgen, Arix Bioscience and Hvivo have fallen more than 20 per cent over the past four months. They may continue to suffer as the managers now in charge of Woodford’s portfolio try to sell them off and return cash to shareholders.
It would take a brave investor to buy any of these small healthcare stocks while this process is ongoing. For existing shareholders in the individual firms, however, this is not a good time to sell. The prices today are more reflective of the Woodford effect than the businesses’ underlying mettle and that effect could linger for months.
Ultimately some prices may rebound, particularly if the underlying businesses are sound. Tissue Regenix and Hvivo, for example, do pioneering work. They are highrisk – and completely inappropriate for an income fund – but may deliver long-term capital growth.
And, while far too many Woodf ord i nvestments are biotech stocks, some are made of very different stuff. They are solid, profitable and dividend-paying firms and their shares should prove resilient to Woodford-itis. from around 95p to £1.14. Looking ahead, there is considerably more mileage in the shares.
Redde CEO Martin Ward makes most of his money from providing drivers with replacement cars and repair services when their vehicle is damaged in a collision. The group has contracts with several large insurers and dealerships so, when customers ring up to say they have had an accident, they will be referred straight to Redde. The business has a fleet of more than 10,000 cars and prides itself on topnotch service, providing replacement vehicles f rom st andard hatchbacks to luxury convertibles to ice-cream vans.
Redde also works with a network of garages to ensure that repairs are completed quickly and efficiently and it manages claims for insurance firms. Ward works with big companies too, handling damaged fleet cars or vans. And there is a legal division, that covers motor injuries, employer liability and negligence claims. This division works on behalf of insurers but it has some large public-sector customers too, such as the Royal College of Nursing and the British Medical Association.
The company used to be known as Helphire but was renamed and restructured by Ward and his team back in 2013.
Ward did not just put the business back on its feet, he changed the dividend policy so that virtually all the profits are paid out as dividends.
In the year to 30 June, Redde paid a dividend of 11.65p, putting the stock on a yield of more than 10 per cent. In most cases, such a high yield rings alarm bells with canny investors but Redde is slightly different because the generous payments are part of a deliberate policy and the board is committed to making sure that there is sufficient cash left in the business for its needs.
Redde had a difficult time earlier this year, when it lost a contract with a large insurer and the stock halved from £1.80 to 90p. Other contracts have been won since but these have not been fully reflected in the share price. This presents an opportunity for investors.
MIDAS VERDICT: Redde is linked to the Latin word restoration, helping drivers to get back to normal. With the stock at £1.14, the word is relevant to investors as well. Redde is a strong business with an attractive dividend and the shares should move higher. The Woodford stake is large but big investors have been expressing an interest in the stock so the holding should be sold off relatively smoothly.