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Numis questions Woodford’s controls after Prothena blow

Numis questions Woodford’s controls after Prothena blow

(Update) Neil Woodford has appealed for investors in his Patient Capital Trust to remain patient following the failure of key drugs trial at Prothena, which yesterday wiped nearly 11% of the investment trust’s shares.

Shares in Woodford Patient Capital Trust (WPCT) plunged 9.3p on Monday to close at 75.7p, nearing the all-time low of 72p set in March, as the £626 million fund passed its third birthday in unhappy fashion.

Today the shares performed a dead cat bounce, up 1% at 76.5p, as Numis Securities estimated the 69% collapse in US Nasdaq-listed Prothena, the trust's third biggest holding representing over 9% of assets at the end of March, had knocked 5.5p or 6.2% from its net asset value. This left the shares at a 7.1% discount to NAV.

Nevertheless, the shares languish well below their 100p launch price with shareholders apparently no closer to seeing the 10% annual returns Woodford originally targeted, although bargain hunters at Smith & Williamson and Whitechurch Securities have begun to nibble at the stock recently.

By comparison, the FTSE All-Share index has delivered a total return of 19.8% since April 2015, underlining the point that the fund with 87% of net assets invested in unlisted companies bears no comparison with rival trusts in its UK All Companies sector.

Writing in the trust’s annual report, which confirmed a 2% drop in net asset value and further 7.2% drop in share price last year, the manager said: ‘While Prothena's announcement is disappointing, it should not overshadow the progress many of the portfolio companies have made - particularly in recent months. Many are inevitably now reaching the point at which a market listing is appropriate, and several of our portfolio holdings are either already progressing down that route or actively considering it.’

Woodford cited Proton Partners treating its first cancer patient with its high energy proton beam last month, and both Benevolent AI and Oxford Nanopore raising fresh funding from investors as recent examples of positive milestones in the portfolio.

‘There are many businesses in this portfolio that I believe should become multi-billion-dollar organisations within the next five years. Patience has been required to get to this stage and it remains a prerequisite for investing in this part of the asset class. The investment case for WPCT, despite Prothena's news, remains compelling,’ Woodford said.

Susan Searle, who chairs the trust, echoed the sentiment saying that 2018 had so far seen ‘tangible signs’ of progress at holdings such as Atom Bank and Autolus. ‘The board expects significant news flow in the next period and will continue to track the top portfolio companies and the achievement or not of business milestones.

‘We continue to share the portfolio manager’s confidence that investors’ patience will ultimately be rewarded,’ she added.

However, with the setback at Prothena dominating attention, Sam Murphy of Numis questioned Woodford Investment Management’s risk controls that had allowed the trust to hold such a big position. While he said there was no doubting Woodford's knowledge of Prothena, having previously backed its management at Elan, the 17% stake in the business after its 2016 flotation looked out of step, he said.

‘This size of exposure seemed excessive, in our view, given that Prothena was an early-stage business with the potential for a binary outcome in its clinical trials. 

‘We believe that WPCT’s average cost price for Prothena is $40 per share,’ he added.

Prothena shares slumped from $36.84  to $11.50 yesterday, wiping $1 billion off its market value to leave it at $458 million. Woodford Investment Management is a 29% shareholder, with stakes held in both WPCT and his Equity Income and Income Focus funds.



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