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Woodhill simplifies investing. We invest when we believe the risk is low and seek to protect your capital when we see risk as high. Our approach focuses on generating returns in all market conditions, with transparent and competitive fees.

We’re based in Bath, England, and are approved by the Financial Conduct Authority.

REAL-TIME WATCH

Up-to-date information on Woodhill Equity Fund and investment news.

The case for Johnson Matthey after the Honeywell deal

Our objective is to help investors compound wealth by owning outstanding businesses, while seeking to reduce the emotional and financial cost of major market falls. That inevitably influences where we look for new investments. We are less interested in chasing fashionable companies on increasingly demanding valuations and more interested in finding good businesses where change creates an attractive balance between risk and potential reward.

Johnson Matthey is an interesting example.

The company has agreed to sell its Catalyst Technologies business to Honeywell for £1.325bn. Following the disposal, around £1bn is being returned to shareholders through an £800m special dividend and a £200m share buyback.

What remains is a more focused collection of specialist businesses built around Johnson Matthey’s considerable expertise in platinum group metals. These serve a range of industrial and environmental applications where technical knowledge, intellectual property and long-standing customer relationships create meaningful barriers to entry.

Analysts currently expect relatively little sales growth over the next few years, but earnings per share should grow considerably faster, helped by the reduction in shares outstanding. On current forecasts, the valuation could quickly fall towards little more than 10x earnings.

For a specialist business of this quality, we don’t think it is unreasonable to envisage a valuation of 15–18x earnings if management delivers. There is also the possibility that a simpler Johnson Matthey ultimately attracts a buyer.

Importantly, we don’t need everything to go right. The combination of a substantial return of capital, a more focused business, earnings growth and a relatively modest valuation is precisely what makes the opportunity interesting to us

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easyJet and private equity – should this really be allowed?

First of all, disclosure. Our investment company, Woodhill Asset Management, owns shares in easyJet. This means that our investors stand to benefit should the proposed acquisition by the private equity company Apollo proceed.

Despite this, we cannot help but feel that this deal is fundamentally the wrong direction for the company – and for several reasons.

We spend a great deal of time looking at the quality of the businesses that we own. From an analytical perspective, one of the first things we look for is a company that is sensibly financed. We like businesses where leverage is low and management has the freedom to run the company without constantly having to worry about debt levels. Sensibly financed companies also have the potential to remain in business ‘forever’. Highly leveraged ones, by contrast, are always more vulnerable when the next recession or financial crisis arrives. If we can find financially stable businesses that also have the ability to grow, then that is, from our perspective, the very best sort of equity to own.

easyJet fitted both of these criteria. It had demonstrated a strong ability to grow over the long term and its balance sheet was, by airline standards, in excellent shape. We regarded it as a high-quality long-term investment. Management deserves considerable credit for rebuilding that balance sheet after the pandemic. It would be a great shame if one of the company’s greatest strengths were now to become one of its greatest weaknesses.

The private equity model has undoubtedly been successful in many sectors and there are businesses where it can add genuine value. However, leveraged buyouts also tend to rely on significantly increasing debt while seeking to maximise cash generation and returns to investors over a relatively short ownership period. The financial priorities of the business inevitably change. Cash that might otherwise have been available for expansion, investment or simply strengthening the balance sheet can instead become committed to servicing debt.

Good businesses can gradually become financially fragile ones. The time horizon changes from one where management can focus on long-term development and growth to one where refinancing debt and generating cash become dominant considerations. It can feel as though the company enters a financial black hole where the future becomes secondary to the next interest payment.

For an airline, we think this is particularly concerning. Airlines are extraordinarily capital-intensive businesses operating in an industry that is exposed to wars, recessions, pandemics, fuel-price shocks and countless other events beyond management’s control. Strong balance sheets are not a luxury; they are an essential part of running a resilient airline.

Equally important is the need for continual investment in aircraft, technology, maintenance, engineering and training. We are not suggesting that Apollo intends to compromise safety standards, nor is there any evidence that it would do so. Aviation is rightly one of the most heavily regulated industries in the world. Neverthelesse do question whether a highly leveraged ownership structure is the right model for a business where long-term engineering investment and operational resilience are so fundamental.

The experience of Boeing, while clearly very different, serves as a reminder of what can happen when financial priorities begin to dominate engineering culture. Many commentators have argued that Boeing became excessively focused on financial metrics and shareholder returns at the expense of long-term engineering excellence. Whether or not one agrees entirely with that analysis, it illustrates why airlines and aerospace businesses are different from many other industries.

More broadly, we question whether this proposed takeover is in the UK’s long-term economic interest. easyJet is not simply another listed company. It is a major British employer, an important part of the country’s transport infrastructure and one of Europe’s leading airlines. The fact that shareholders may receive an attractive premium today does not automatically mean that private ownership represents the best outcome for the company, its employees, its passengers or the wider economy.

Ironically, our own investors may well profit if this transaction proceeds. That does not stop us asking whether something valuable is being lost.

We are not arguing that private equity has no role to play. There are undoubtedly businesses where it provides capital, expertise and valuable restructuring. Our concern is simply that there are certain industries where the ownership model matters. Businesses that require exceptionally long investment horizons, conservative financing and an unwavering focus on operational resilience are, in our view, different.

Commercial aviation is surely one of them.

For that reason, we believe the government and regulators should examine very carefully whether highly leveraged private-equity ownership of strategically important airlines is genuinely in the public interest. The question should not simply be whether shareholders receive an attractive price today, but whether the resulting business will remain financially resilient, properly invested and capable of serving passengers and the wider economy for decades to come.

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June 2026 Newsletter: The Silent Bear

There has been a silent, selective but progressive bear market underway. To us, this suggests that an overall bear market in equities is now probably unfolding, although it is not yet in plain view. We had a quiet month and were flat. We remained hedged* and continue to regard the current environment as being a not especially safe one.

For a few years now, markets have felt like a casino where players are rushing from one hot table to the next. This trend has been intensifying. It is not enough to just rush to the new hot roulette table. There has also been an imperative to abandon all other tables, to use leverage, and to have zero diversification.

The media also plays a role here. On the way up, the media coverage of the crypto boom was everywhere, and it was relentlessly excitable and positive. When the crowd moved on to AI, the media coverage of the now dramatic bear market in crypto has been to pretty much ignore it. Helping to fuel speculative bubbles seems to be what the media likes. When the boom turns to bust, the eye of Sauron moves on. There is some culpability here, and someone owns these assets. Bitcoin itself has halved and, in that respect, it has done well. Ether is down almost 70% from its peak, and the more speculative second-tier crypto coins are down, in many cases, as much as 90%. Even crypto, however, has not done so badly, really, compared to the now almost entirely forgotten non-fungible token market.

We do not mean to make a case that the current mania after crypto (AI/Nvidia/DRAM) is a nonsense or that AI may not have utility. Rather, we only want to point out how the game is being played in the investment world. Each one of these assets has taken on the pattern of a classic bubble – both on the way up and the way down. This pattern and its psychology have been well known since tulips were the new hot thing in the 17th century.

When bubbles take over, all fundamentals, and perhaps all rationality, are thrown out of the window. From a chart perspective, this is when the price goes up vertically. In the down leg, it is usually the case that over 100% of the vertical move is lost.

This pattern repeats again and again. Recently, this sort of behaviour has been popping up with increased frequency and intensity. Most, or certainly many, of the participants are losing a substantial amount of money each time the cycle repeats. More recently, companies like Nvidia look very much like this, and, quite remarkably, the crowd, it seems, have now decided to move on from the “Magnificent Seven” to DRAM**. We cannot help but find this amusing. DRAM is a commodity business. As an industry, it can fairly be categorised as being a capacity-driven cyclical. It is subject to violent price swings and, consequently, has historically been a low-valuation sector. The chart of the sector today, however, looks very much like the early stages of other bubble charts. And now that DRAM stocks have had their vertical moment, there is now a new sector to move on to – capacitors. If DRAM is a basic and not especially new technology (it was invented in its current form by Toshiba in 1965), then capacitors are literally out of the Ark. They began to be manufactured and used extensively in radio technology from around 1900. There is nothing special about them. A major US broker, however, now thinks that there is and is pushing a very aggressive super bull story on capacitors. To the participants, we say good luck.

The question for us is: when will people stop playing this game? How many times do you have to lose on roulette to give up the whole game? The actual damage being done to investors and savers is real and, at some point, this is likely to have economic consequences. When it does, what has been a quiet bear market has the potential to go mainstream. The bear has been picking off the weakest and most speculative members of the pack before potentially moving on to the stock market as a whole. When it does, the results will probably not be pretty. For us, all this behaviour is a sign that a bear market has started, and it will probably not be over until the overall stock market goes down too. This is just one of the many reasons we have remained hedged in the last month or so.

At a portfolio level, we are getting a little more interested in the oil majors. Following the declaration of a peace of sorts in the Middle East, the oil price has now fallen like a stone. It is back to levels last seen before the start of hostilities. China has run down its reserves, and, at some point, these stockpiles, along with stockpiles across the whole system, will need to be rebuilt. In addition, it is not entirely clear that the situation in the Middle East is completely fixed. Meanwhile, the valuations of BP and Shell are reasonable, and these are solid companies. All the recent geopolitical drama has clearly highlighted the importance of oil and oil prices to the world economy. Not so long ago, the oil majors were public enemy number one, and now we know how important they are. Taken together, we believe that the balance of risk in the oil majors is now better than it has been for some time.

We have also decided to move from a monthly to a quarterly newsletter format. We believe that this will help us to focus on the medium term rather than being too concerned about what happens in any individual month. We will continue to write what we hope are interesting things, and these will be sent out as regular emails rather than within the newsletter.

*From time to time, the fund uses FTSE 100 equity futures to protect the value of the fund. When the hedge is applied, net equity exposure is reduced, and the capital should be largely protected.

**Dynamic random-access memory stocks.

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Fund Updates

The Fund

VT Woodhill UK Equity Strategic Fund in GBP (Source: VTIM)

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We launched the VT Woodhill UK Equity Strategic Fund on 2nd June 2014 as a UK large-cap equity OEIC. This means we’re domiciled in the UK, not abroad, and invest in large public companies. We’re authorised by the FCA in accordance with the UCITS Directive.

The fund’s objective is to generate a positive capital return over a 12-month period irrespective of market conditions.

Financial Thoughts

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This website is provided by Woodhill Asset Management LLP, which is an authorized fund manager regulated by the Financial Conduct Authority in the United Kingdom. The content of this website is for informational purposes only and should not be considered as investment advice or a recommendation to invest in any of our funds. Please contact us for more detailed information concerning the investment management services we provide to clients.

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Woodhill Asset Management LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom, registration number 649832. This status can be checked with the FCA on 0800 111 6768, or on the FCA website. Registered in England No. OC389733.

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