'No quick fix' for Woodford Patient Capital, analysts warn
While markets welcome the appointment of a new manager, getting the trust back on track will not be easy.
28th October 2019 10:52
by Tom Bailey from interactive investor
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While markets have welcomed the appointment of a new manager, getting the trust back on track will be no easy task.
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The appointment of Schroders (LSE:SDR) as the new manager of Woodford Patient Capital (LSE:WPCT) was welcomed by investors, with the announcement (on 24 October) leading to a 21.3% rise in its share price at market close.
After months of losses and uncertainty over its future, many investors clearly believe the fortunes of the troubled trust are now starting to look up. Analysts, however, are less enthusiastic.
According to Numis Securities, the appointment of Schroders as the new management of the trust removes a significant amount of uncertainty for investors. But, they warn, it still "leaves a number of questions unanswered".
The broker continues:
"We would welcome more information on the management team and on how they intend to manage the existing holdings and future strategy."
Commenting on the rally in the trust's stock price following the announcement of Schroders being appointed, Numis noted:
"We believe investors need greater clarity on the future strategy and portfolio valuations."
In particular, the broker flags up the potential risk coming from the LF Woodford Equity Income fund, which has 9% of its portfolio in Patient Capital. The fund is in the process of being wound down and will therefore be forced to eventually sell its large stake in the trust. This could impact the trust's share price.
Alan Brierley, an analyst at Investec Securities, is even more sceptical. While acknowledging that the appointment was a welcome development, he cautions that "the company faces some serious challenges in the coming months".
Brierley says:
"In reality, Schroders inherits a highly geared, highly illiquid and concentrated portfolio, predominantly consisting of venture capital investments."
Brierley points out the portfolio is highly concentrated, with the top five holdings in the trust making up 50% of its net asset value. This makes its performance heavily reliant on the performance of just a few companies.
And, says Brierley, "the newsflow has been underwhelming".
He points out: "While Oxford Nanopore (in which the former Woodford funds are significant investors) was considering an IPO earlier this year, it is now reported to be looking at further private fundraising, while investments in Industrial Heat and Benevolent AI have been written down." Indeed, the value of several of the trust's holdings have been written down recently.
At the same time, Atom Bank has seen disappointing results due to stiff competition.
Brierley says that he retains a sell recommendation, arguing that "there is no quick fix here". He continues:
"We expect to see more gremlins before any unicorns."
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.
This article was originally published in our sister magazine Money Observer, which ceased publication in August 2020.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.