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Neil Woodford’s Patient Capital Trust: behind the numbers


Neil Woodford’s Patient Capital Trust has published a fairly dismal half yearly report. The London-listed investment trust aims to buy stakes in businesses with outstanding intellectual property, and helps them to grow via the deployment of long-term, ‘patient’ capital, hence the name of the trust.

Over the six months to 30 June 2019 the investment trust saw a decline in its net asset value of over 26%. The trust’s board has asked for a revaluation of the top 20 holdings in the trust, which saw a revision of its overall value. Among the write downs were Benevolent AI, Industrial Heat, Immunocore, Precision Biopsy and Scifluor Life Sciences.

On top of this Patient Capital Trust saw some weakness among its listed companies. Take Autolus, a specialist in biopharmaceutical technology, which took a 51% hit. Or Mereo Biopharma, which plunged more than 70% during the period under review. It is not pretty.

This was offset to a degree by some of the winners in the portfolio, among them stem cell research specialist ReNeuron, which saw a staggering +341% gain in the wake of some very positive clinical trials. ReNeuron is a good indicator of what made Woodford his name as an investor in the first place.

In March the investment trust picked up five assets from the suspended Woodford Equity Income Fund, to the tune of £72 million. To fund the purchase, WEIF subscribed to the Patient Capital Trust to the tune of 96.67 pence, representing a premium of 15.8% to the prevailing share price. WEIF currently owns almost 9% of the Patient Capital Trust as a consequence.

Watch out though – Link is known to be in the process of selling unquoted assets from the Woodford Equity Income Fund. Some of these are going to be forced transactions. Some of this activity could have a knock on effect on the holdings inside the Parient Capital Trust. However, according to stockbroker Killik, such forced transactions may be at fire sale prices that will not drag down their real values as much.

Fingers crossed on that one. Patient Capital Trust is also reducing debt in the portfolio with the aim of bringing the level of gearing down to below 10% by the end of 2019. It plans to cut this to zero by mid-2020.

Shares in Patient Capital Trust are currently down around 34% to NAV which is pretty hefty. Investors should feel some confidence returning as Link is kicking the tyres on the shares in its portfolio. However, there could still be some sudden valuation changes ahead, especially relating to the common holdings between Patient Capital Trust and the Woodford Equity Income Fund.

What is going to happen to Neil Woodford himself? His role as manager of the trust is under scrutiny and the board itself admitted that in its report to shareholders. It has said that it “remains in dialogue with other potential managers.”

Unlike an open ended fund, this is an investment trust and consequently is not in a position where it is being forced to sell stocks in order to meet redemptions. This is one of the key differentials between an investment trust and a mutual fund. Killik is rating the trust as a hold as it notes it is now trading at a considerable discount. A change of manager here and a restoration of confidence on the part of the market could see a considerable up tick in price. We would agree.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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