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‘Buy’ Woodford Patient Capital as a defence against a crash

‘Buy’ Woodford Patient Capital as a defence against a crash

Winterflood Securities, broker to Woodford Patient Capital (WPCT), has pitched the struggling investment trust as a potential safe haven in a stock market downturn.

Half-year results today showed fund manager Neil Woodford’s fee-free fund apparently making no progress at a headline level this year. Net asset value (NAV) edged 0.7% in the six months to 30 June but has since given up 0.5% to 91.94p per share. Meanwhile, shares launched at 100p over three years ago fell 1.7% in the reporting period and have slipped a further 1.7% since June to 81.9p.

The one sign of renewal has been in the discount - or gap - between the share price and NAV, which has narrowed from 16% to 11% in the past month.

Kieran Drake, Winterflood analyst, said this followed a period of positive news from several of the trust’s healthcare holdings, which we have previously reported, such as the flotation of Autolus, the listing of Sensyne Health and Kymab moving to phase three trials on its key treatment.

In addition, Benevolent AI, the trust’s largest holding at the end of July, had raised $115 million in April, valuing the company at $2 billion.

Unfortunately, the failure in the same month of a key drugs trial by Prothena, another major holding, had offset these gains, in the eyes of some investors at least.

Drake said the key to the £674 million fund’s recovery would be an ‘asymmetry’ in returns as its winners had the potential to generate more than 100% gains, while its losers could lose 100% at most. 

‘While this asymmetry is yet to develop, the operational progress at portfolio companies is significant in many cases and, while this has not led to valuation uplifts in all cases, we would view it as evidence of positive progress for the fund,’ commented Drake.

Meanwhile, the analyst suggested that the trust’s high 65% exposure to unquoted companies - which had held it back as markets rose - could be a benefit if listed stocks retrenched.

‘In addition, there is potential for the NAV to outperform the broader equity market in the event of a downturn given its unquoted exposure and focus on healthcare innovation and technology disruption, which should not be correlated to broader equity markets,’ he said.

He believed the 11% offered an ‘attractive entry point’ although the analyst cautioned the share’s rating could continue to be volatile.

Earlier this month Crystal Amber (CRS), the activist fund backed by Woodford, disclosed it had invested over 2% of its assets in WPCT as it traded at its April lows.

In the results, Woodford, who only earns a fee if he repairs the fall in NAV since launch and returns 10% a year on top, reiterated his confidence in the company’s progress.

‘The company has faced some challenges, but the portfolio is in extremely good shape, as evidenced by the positive progress being delivered by several of the larger holdings, which are maturing rapidly. 

‘The investment case for investing in early-stage science is as strong as ever and we look forward to more positive outcomes like Autolus in the months and years ahead, as our portfolio of young businesses continues to mature and fulfil its potential,’ said Woodford.

Disclosure: the author of this article holds Woodford Patient Capital in his pension. 



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