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Woodford Patient Capital to issue more shares

Neil Woodford's fund that invests in unquoted companies aims to bring down its premium rating
August 20, 2015

Woodford Patient Capital Trust (WPCT) reports that between listing on 21 April and 30 June its net asset value (NAV) grew 3.1 per cent and its share price grew 13.5 per cent. As a result, the trust is trading on a premium to NAV of 11.85 per cent and has traded above a 10 per cent premium since June. This has been driven by high investor demand - since the trust entered the FTSE 250 in June its shares have been bought by index trackers.

"We have been wary of the excessive premium, and believe there is potential for this to reduce over time, especially given the implementation of a tap issuance programme," says Ewan Lovett-Turner, director, investment companies research at Numis Securities. "This is especially the case when you consider that the trust is not fully invested and some of the unquoted holdings won't move as fast as the market. It might be possible to buy the shares at more attractive levels in future."

Analysts at Winterflood think that "given Woodford's reputation and high profile, particularly among retail investors, we would expect the fund to continue to trade well in the secondary market".

Laith Khalaf, senior analyst at Hargreaves Lansdown, says it is hard to make a judgment because the trust is so young you cannot know how entrenched the premium will be.

The trust is issuing shares to try to satisfy excess demand. These will be at a premium to NAV and so avoid new shareholders being given bargain access to the trust at the expense of existing shareholders. Nevertheless, broker Killik & Co speculates that some new shares may be at a lower premium than existing ordinary shares, providing a more attractive entry price into the fund. After saying it would issue shares on 11 August the trust's share price and premium fell slightly.

It can issue up to 80m shares and started with 4m on 11 August at a price of 115.7p at a premium of about 12 per cent.

Much of the trust's positive performance so far has been driven by early-stage companies with blue-chip holdings typically detracting. GlaxoSmithKline (GSK) and AstraZeneca (AZN) in particular have shown short-term share price weakness.

The trust's chairman and commentators say that it is far too early to judge performance as many of the investments are unlikely to bear fruit for many years.

Woodford Patient Capital Trust had invested three-quarters of its existing assets by the end of June, and its manager Neil Woodford expects it to be fully invested by the end of this year as there are several unquoted businesses in the pipeline.

The trust has 49 holdings and is expected to have between 60 and 80 when deployment is complete, with 20 to 30 of these unquoted. Many of these are also held in the CF Woodford Equity Income Fund (GB00BLRZQ513), with the exception of: Silence Therapeutics (SLN), HVIVO, (HVO) and Sphere Medical (SPHR), and among the unquoted holdings Kymab, Drayson, SciFluor, AMO and PsiOxus.

Woodford Patient Capital initially invested in the mid- and large-cap companies that account for 26.8 per cent of assets. These include Legal & General (LGEN) and Rolls-Royce (RR.), and mid-caps such Allied Minds (ALM) and IP (IPO). The long-term aim is to have about 25 per cent of assets in mature dividend payers to cover its costs.

Unquoted companies include Proton Partners International, which is bringing the first proton beam cancer therapy centres to the UK, and Oxford Sciences Innovation, which is part of the UK's growing technology commercialisation industry.

 

Listing status

Quoted59.6
Unquoted14.5

Source: Woodford Funds

 

The trust has 15.7 per cent of its assets in non UK companies and US biotech holdings, in particular, Prothena (US: PRTA) and Northwest Biotherapeutics (US: NWBO), have contributed positively to performance. US biotechnology and healthcare shares have rallied strongly on the back of enthusiasm for new potential treatments and expectations of takeovers.

"Although this has led to several US biotech stocks trading on bubble-like valuations, we have focused our exposure on stocks where future potential is, in our view, significantly undervalued by the market: Prothena, Northwest Biotherapeutics and Alkermes (US: ALKS), all trade on valuations more in line with those we see on this side of the Atlantic," says Mr Woodford.

 

Top 10 holdings, as at 30 June 2015

Prothena4.5
Verseon4.2
Northwest Biotherapeutics4.0
Proton Partners International (unquoted)3.7
Circassia3.7
Vernalis3.2
Oxford Sciences Innovation (unquoted)2.8
Alkermes2.8
Allied Minds2.6
Imperial Innovations2.4

Source: Woodford Funds

 

A full list of holdings is available at woodfordfunds.com, which will be updated every month with a monthly round-up of portfolio news.

 

Sector allocation

Healthcare46.7
Cash and near cash25.9
Financials16.5
Industrials8.2
Technology1.0
Other1.7

Source: Woodford Funds

 

Mr Khalaf says that the early-stage companies Woodford Patient Capital invests in may be rewarding over 10 to 20 years and, if you already have a portfolio of core mainstream holdings and a long-term investment horizon, you could have a small allocation as a high-risk/high-return inclusion in your portfolio.

If you want exposure to smaller companies but to take less risk, options include IC Top 100 Fund Marlborough UK Micro Cap Growth (GB00B02TPH60) as its holdings are not so early stage.

Henderson Opportunities Trust (HOT) has exposure to university start-ups or spinouts providing meaningful exposure to early-stage growth areas, but these are a small proportion of its assets and are quoted.