'No quick fix' for Woodford Patient Capital, analysts warn

by Tom Bailey from Money Observer |

While markets have welcomed the appointment of a new manager, getting the trust back on track will be no easy task.

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."

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

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