The value of Woodford Patient Capital Trust’s (WPCT) holding in IH Holdings International (Industrial Heat) has been revalued downwards, equivalent to a reduction in the trust’s net asset value (NAV) of 5p. Industrial Heat is an unquoted early-stage company that investigates new energy technologies such as cold fusion, and its value was written down due to a delay in operational progress. It follows the recent announcement that Woodford Patient Capital Trust is changing the company that manages it to Schroders by the end of this year after Woodford Investment Management resigned in mid-October, following its decision to wind up.
The writedown to Woodford Patient Capital Trust's holding in Industrial Heat has been made by Link Fund Solutions which, with the support of independent valuation firm IHS Markit, values the trust’s unquoted investments.
This is the second significant writedown of Industrial Heat after Link revised down its value by £32m in August. Woodford Patient Capital Trust has not said how much the latest writedown on its Industrial Heat holding is, but Alan Brierley, analyst at Investec, estimates that it is about £45m. He thinks the total writedowns on Industrial Heat amount to around £75m versus a valuation of around £88m for this holding at the start of this year.
But Link Fund Solutions has also revised up the value of another Woodford Patient Capital Trust unquoted holding, which will result in the trust’s NAV increasing by 0.7p. This holding had been written down in September due to a challenging fundraising environment, but has since secured funding. So overall Woodford Patient Capital Trust’s NAV was reduced by 4.3p a share and reflected in its NAV of 58.12p on 31 October 2019.
Woodford Patient Capital Trust is not disclosing the name of the company that was revalued upwards because it does not give such details on companies below a certain size or if, for example, they are fundraising. But a spokesperson for the trust indicated that the revaluation has taken it back to a roughly similar value to where it was before the September writedown.
Analysts at Numis Securities commented: “Rutherford Health, formerly known as Proton Partners, secured a £20m facility from Triple Point Investment Management during October. Rutherford is building a network of cancer therapy centres in the UK, including proton beam therapy. It was Woodford Patient Capital’s largest investment at the end of August, and accounted for 9.23 per cent of gross assets on 30 June, equivalent to around £72m, or 11 per cent of net assets.”
It is difficult for investors to assess the full effect of the revaluations and the trust’s exposure to these companies because Woodford Patient Capital Trust has not disclosed what percentage of its assets its 10 largest holdings account for since August. All three of the Woodford funds used to disclose their entire list of investments and the proportion of their assets each one accounted for.
Ewan Lovett-Turner, director of investment companies research at Numis Securities, said: "We estimate [the trust's] residual exposure [to Industrial Heat] is around £15m, equivalent to 2.8 per cent of its net assets. We estimate this based on the last full portfolio disclosure in April 2019 when Industrial Heat represented 9.01 per cent of gross assets, equivalent to £91.9m. Since then, there have been writedowns [of] £32m and £45.4m."
At the end of August, Industrial Heat was Woodford Patient Capital Trust’s fifth largest holding, and at the end of June the trust’s fourth largest holding accounting for 8.98 per cent of its assets.
LF Woodford Equity Income Fund (GB00BLRZQB71), which is going to be wound up next year and is disposing of its holdings, also holds Industrial Heat. Analysts at Killik & Co said: “There is clearly potential for further setbacks as [Woodford Patient Capital Trust's] new management team [at Schroders] take on the challenging task of managing the portfolio against the backdrop of [LF Woodford Equity Income] winding down. However, the share price discount level provides a measure of protection against further markdowns.”
Woodford Patient Capital Trust was on a share price of 30.4p and discount to NAV of 51.9 per cent at close on 23 October – the day before it was announced that Schroders would become its manager. By close on 24 October, it was on a share price of 38p and discount to NAV of 40 per cent. It then traded in the mid-30s, but after news of the Industrial Heat writedown on 4 November, fell from 37.9p per share and a discount to NAV of 39.8 per cent at close on 1 November, to 32.5p and 44.4 per cent by close on 5 November. The trust had assets of £633m and a market cap of £295m as at 5 November.
LF Woodford Income Focus (GB00BD9X7109), the third fund that used to be run by Woodford Investment Management, was suspended from trading on 15 October. Link Fund Solutions, its authorised corporate director, is deciding whether to appoint a new manager, transfer its assets into another fund or wind it up. The next update on this fund is due by 13 November.
