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Woodford stock Allied Minds hit by hedge fund attack

Woodford stock Allied Minds hit by hedge fund attack

Key Neil Woodford holding Allied Minds (ALML) has been hit by a blistering attack from hedge fund Kerrisdale Capital, which argued the shares could fall by 'at least' 70%.

New York-based Kerrisdale, which manages around $330 million (£216 million) of assets and has been dubbed the 'self-promotin'-est fund in the land' is shorting Allied Minds, which commercialises intellectual property from universities, branding the company 'a dressed-up collection of high-risk, low reward gambles'.

Allied Minds is a major holding for Citywire AAA-rated Neil Woodford. The FTSE 250 stock is the 14th largest holding in both his Woodford Equity Income fund and Woodford Patient Capital (WPCT) investment trust.

Kerrisdale's attack has had an immediate impact on the shares, which plummeted 15% yesterday after the report was released. Today they have edged 3p higher to 439p.

'Ludicrous' valuation

The hedge fund labelled Allied Minds' valuation, which stood at three times net asset value (NAV) at the publication of the report, as 'ludicrous'. It argued that given the company was 'little more than an investment vehicle' and that as its assets were illiquid, it should be expected to trade at a discount to NAV, in line with the norm for similar investments.

'Here by contrast, investors are paying an almost $1.2 billion premium to NAV based on unverifiable prices supplied by the company itself for extremely illiquid and opaque assets,' it said. 'In effect, the market is declaring Allied Minds to be one of the greatest venture investors in the world, able to take one dollar of invested capital and turn it into seven overnight.'

Kerrisdale also attacked the company's leadership team, pointing to bankruptcies at a number of companies they had previously been involved in.

It took aim at the track record of the subsidiary companies that Allied Minds has launched over the last decade. Some have remained at 'early stage' for too long, and were a long way from commercial viability, it argued, while others that had reached commercial stage 'still lose large amounts of money on small amounts of revenue, yet Allied Minds values them at aggressive multiples of sales'.

The hedge fund also attacked some of the subsidiary companies that Woodford has backed in addition to his Allied Minds investment. Spin Transfer Technologies, held in the Equity Income fund, faces a series of hurdles to unlock the potential of its semiconductor technology, and competition from heavyweights like Sony, Toshiba and IBM, Kerrisdale argued.

SciFluor Life Sciences, held in the Patient Capital trust, specialises in incorporating fluorine into drugs, but this 'has thus far proven commercially irrelevant', according to Kerrisdale.

Woodford support

Woodford Investment Management and Allied Minds did not comment on the report. But the group reiterated its strong support for the company as recently as last week, including Allied Minds in its 'Woodford XV' of FTSE All-Share stocks, timed to coincide with the Rugby World Cup. After a capital markets day in April this year, Woodford Investment Management hailed Allied Minds' 'phenomenal pipeline of uncommercialised intellectual property and future investment opportunities'.

Analyst opinion on the stock is unanimous: of the two brokers listed by Reuters as covering Allied Minds, both rate the stock a 'strong buy'. Jefferies yesterday  to 584p, from 320p, arguing the company remained a 'unique asset'.

Others to rate the stock include Mark Barnett, Woodford's successor at Invesco Perpetual. Invesco is the largest shareholder, holding more than a third of the company, with Woodford the second largest with a 23% stake, according to Reuters.

Kerrisdale has enjoyed some success in its campaigns. Website Activist Shorts Research rates the group among the top 10 short-sellers it tracks, while shares in mobile phone satellite network Globalstar (GSAT.K) have lost more than half their value since Kerrisdale launched a high-profile short-selling campaign last year.

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