Woodford Patient Capital Investment trust catches my attention as share price continues to fall

Woodford patient capital trust

Woodford Patient Capital Trust (WPCT) has had a torrid few months. It is a closed-end investment trust, unlike the Equity Income fund, this structure means that Neil Woodford and his team have not been forced to suspend it because of high redemption caused by poor performance.

woodford patient capital share price 2018-2019
WPCT  performance

About Woodford Patient Capital trust

Market cap £360 million, shares in issue 908 million

Listed April 2015

Fees 0.17% (HL)

From the Woodford web site: Hmmm. Looks dicey based on what we know now.

A compelling investment opportunity

  • Portfolio exposure to a mix of exciting, disruptive early-stage and early-growth companies and the scaled, commercial enterprises they become if successful

  • Buying stakes in businesses with outstanding intellectual property and helping them fulfil their growth potential through the deployment of long-term patient capital

  • Aiming to identify the best, untapped growth opportunities and deliver attractive long-term returns

  • An innovative fee structure, aligning manager and investor

The opportunity

  • Despite some of the best universities and finest intellectual property, the UK’s record of converting this into commercial success is poor

  • This is primarily due to a lack of appropriate capital investment – which creates a compelling investment opportunity

  • A long-term ‘patient capital’ approach can deliver extremely successful outcomes and help businesses fulfil their potential, while also helping to develop the UK’s ‘knowledge economy’ and support economic rebalancing

  • Untapped growth opportunities offer potential for attractive long-term returns

An investment team that shares a single goal

  • The fund is managed by Neil Woodford, who has more than a decade’s experience of deploying long-term patient capital to young businesses

  • Neil is supported by a dedicated team that shares his approach and absolute focus on client outcomes

  • Five experienced analysts work with Neil, providing him with valuable analysis and support on specific investment opportunities – each with a different skill set for depth of cross-market coverage

  • Understanding early-stage risks

  • Young businesses have a very different risk profile to more mature companies – risks are much more stock-specific, which implies a lower correlation with equity markets in general and the wider economy

  • This may offer diversification benefits

  • It also means long-term outcomes are more binary – extremely attractive rewards for success but also risk of capital loss (as some businesses will fail to fulfil their potential)

  • We aim to mitigate this risk through rigorous analysis of the opportunity, an unwavering focus on valuation and diversification across a larger number of smaller positions

Top 10 holdings

top ten holdings WPCT

NAV and share price

WPCT NAV Oct 2019

The shares of WPCT at 39.7p and trading at a discount to Net Asset Value (NAV - the sum of all the holdings the trust has) is 36.2 per cent as of October 4 2019. The shares have suffered hugely because of the troubles of Neil Woodford and Woodford asset management. A series of bets on risky, unlisted companies have unravelled the Woodford dream and cost investors dearly.

The issue with WPCT is the gearing of the company i.e. debt, which stands at 119%. The trust’s management is currently trying to renegotiate this debt facility before the deadline of January 2020. With a closed end investment trust, investors can buy and sell at will. The 60 percent decline in the share price over the last few weeks caused by sentiment, worries about this debt and also underlying portfolio performance (partly caused by redemptions and short selling of Woodford positions by speculators like Hedge funds) has made WPCT pop up on my interest screen.

I believe that WPCT will rebrand under a new fund manager in 2019 and if the debt can be sorted it looks like the discount to NAV could make things interesting. The worry is that Woodford fund management is finished and therefore when the Equity income fund reopens to redemptions in late 2019, it is likely that a further wave of sales will force Woodford to wind down his mutual funds. Because WPCT is an investment trust, separately listed on the LSE, this won’t happen. The directors of the company will rebrand and move the portfolio to a new manager.

The risk/reward looks good at less than 40p. I’m a buyer at these levels. The risk is no refinancing of debt and a huge sell off in any liquidation of other Woodford funds but 39p looks to have taken this into account.