Neil Woodford has sold his entire stake in Rolls Royce across all his mandates, saying he has lost confidence in the company’s business model.
Woodford, who has held the stock for more than 10 years, says the company’s November trading update was “very disappointing”, with downgrades to profit and cash expectations.
Rolls Royce has issued five profit warnings in two years, which has pushed the share price down by around half since the start of this year.
“The problems, which initially had affected the military aerospace and marine businesses, now appear to have spread to the core civil aerospace business,” says Woodford in a blog post.
“This has resulted in material downgrades to profit and cash expectations, and to such an extent that it is now likely that the dividend will be cut in 2016.”
Among his issues with the company are the the Rolls-Royce civil aerospace business, which he says is “pretty opaque and difficult to analyse”.
He says: “This is a very long-term business which is sensitive to assumptions around manufacturing and servicing costs and operational metrics such as the number of hours flown, reliability and operational longevity.
“Our decision to sell the shares reflects a significantly increased level of uncertainty about how these metrics will play out over the next three to five years in a way which will benefit Rolls’ shareholders.”
“In many ways we hope we are wrong, but we think it is in our investors’ best interests to exercise caution at this point in time,” he adds.
Woodford says he will remain in close contact with the company to monitor its progress and will reinvest if the company’s outlook changes.
The Rolls Royce allocation has been redistributed to other existing positions in the fund.