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Woodford eyes big share issue for Patient Capital
Neil Woodford is considering a further issue of shares for his £800 million Patient Capital trust, raising fears the stock could suffer.
In a brief stock market update, the trust said: 'With the current market conditions in mind, the board of the company is currently looking at ways it can raise additional capital in the year ahead and will consult with, and gauge interest from, investors.'
The trust initially targeted £200-£500 million but this was raised to £800 million in response to strong investor demand when it came to market last April. The board said in August that it could raise a further £80 million after issuing a further £4.6 million in shares.
The latest announcement suggests a larger fundraising could be on the cards as Woodford believes there are plenty of untapped opportunities out there. So far he has invested 95% of the trust's assets, nearly two thirds of it in the early growth and early stage healthcare companies he thinks have exciting long-term potential.
Although three quarters of the trust is invested in the UK, its largest holding, accounting for 6.4% of the trust, is in Prothena, a US biotech listed on the Nasdaq technology exchange. AIM-listed Verseon is its biggest UK share holding, although Woodford has delved off market with three of the top five positions in university research spin-off ventures Oxford Nanopore, Immunocore and Porton Partners which have not yet floated on the stock market.
Mark Dampier, head of research at investment broker Hargreaves Lansdown, said with the trust currently having 60 holdings, he would expect this to increase by 20 to 30 with some existing investments also topped up. This could potentially suggest a further fundraising of up to £200-300 million.
Although he backed the trust's mandate, Dampier warned any further fundraising could result short-term share price weakness.
Dampier said: 'It must be said, that if and when there is a capital raise, a new large tranche might cause the trust’s share price to fall to a discount (to its net asset value) in the short term.'
In its short life the trust's share price has been volatile. Enthusiasm for the trust's mandate and its innovative 'no-charge' structure, which means Woodford only gets a fee for good performance, pushed the share price to a peak of 120p in August, a 15% premium to its then net asset value per share of 104p.
A US-led sell-off in healthcare and biotech stocks and the release of new shares by the trust has seen the share price slide 13% in the past six months. This all but wiped out the premium before Christmas although it has revived to 7% this year.
Today, the shares are down 1.4p at 97p, leaving the trust's investors below the 100p per share they paid at its launch in April.
Ewan Lovett-Turner, investment trust analyst at Numis Securities, said given Woodford's strong following and exceptional track record as an equity income manager at Invesco Perpetual it was likely a new issue would generate demand from investors.
But he cautioned: 'However, it is unusual to be raising additional capital when the shares are trading below the IPO price and note that previous “blockbuster” investment trust IPOs have often failed to meet the inflated expectations of retail investors.'
Dampier sought to reassure investors saying the fact Woodford believed the investment case remained strong was good news: 'In my view, any new money raised should not fundamentally change the reasons for holding the trust for the long term - Woodford’s only reason to consider this would be the opportunities he believes are out there. Long-term investors, who take the trust’s name literally and are patient, should be rewarded.'
The writers hold shares in Woodford Patient Capital in their company pension plans
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by Gavin Lumsden on Jul 25, 2016 at 00:01