Questor: years of going nowhere, 
a cautious new boss – and a dividend at risk: sell Glaxo

“Over the past three years, [the HIV division] has been responsible for more than half of Glaxo’s growth. If the company’s one remaining growth engine starts to falter, this could pose a threat to its future revenue growth, earnings and cash flows,” Mr Woodford said in an update to investors last week.

He said he was also concerned about “the lack of a rich pipeline and the lack of strategic options which results from an already stretched balance sheet”.

“These concerns make me less convinced that Glaxo’s dividend is sustainable,” he added.

The fact that Glaxo may have to spend about £8bn buying back a stake in its consumer division – which it sold to Novartis as part of an asset swap in 2014 and which the Swiss group has the right to sell back to its British rival – is unlikely to help it to afford the dividend and, if Mr Woodford is right, will result in even greater reliance on one of the “perennial under-performers” in its portfolio of businesses.

The star manager said he had tried to persuade successive chief executives of Glaxo to break the business up into more focused sectors but he had failed every time. The new boss, Emma Walmsley, was “keen to portray herself as a continuity candidate”, he said, meaning that “the prospect of a Glaxo break-up looks more remote than ever”.

He added: “In the event of a break-up being pursued, I would have viewed a dividend cut as a tolerable consequence of such a positive outcome for shareholder value more broadly.

“My base assumption now, however, is that Glaxo remains a healthcare conglomerate with a sub-optimal business strategy, and shareholders face a cut to the dividend.

“These characteristics do not appeal to me ... that is why I have recently sold the fund’s position in Glaxo.”

Mr Woodford has a habit of getting the big calls right, such as his sale of banks before the financial crisis and his move into tobacco when every other investor was avoiding the sector, now widely regarded as one of the best for generating income.

We suggest that readers follow his example and get out of Glaxo.

Questor says: sell

Ticker: GSK

Share price at close: £16.67

Update: Redcentric

In November last year we looked at Redcentric, the IT business, following a plunge in its share price as the result of an accounting scandal. We advised investors to hold on at 85¼p until the results of an investigation into the irregularities had been published.

It seems that things were not as bad as many had feared. One highly regarded fund manager who holds the shares, speaking on condition of anonymity, told Questor that a recent statement from the firm had “drawn a line under the accounting problems and quantified the financial impact”.

He said Redcentric was adamant that the scandal had not affected customer behaviour: one household-name client, on the point of signing a contract as the scandal became public, had gone ahead anyway.

However, investors still seem to be taking a cautious view of the company, he said, and are not expecting much growth. The shares currently trade at about 17 times forecast earnings for March 2018 and any upgrades to the forecasts could start to make them look cheap.

The company will next update investors in its annual results, due on June 29.

Telegraph Money originally tipped the shares at 140p in December 2014 and at yesterday’s close of 90p they still have a lot of ground to make up. But with the accounting scandal in the past, we suggest holding on for further recovery.

Questor says: hold

Ticker: RCN

Share price at close: 90p