It’s rare to find a listed company that, as well as being driven by the profit motive, has a philanthropic element to its business model. One such is Syncona, a £1.46 billion investor in life sciences that donates a small portion of its returns each year to charities including the Institute of Cancer Research and the Alzheimer’s Society. But that doesn’t mean the company is a soft touch; in fact, it’s pretty good at making money.
Syncona was created in its present form in 2016 through the merger of Battle Against Cancer Investment Trust, a listed vehicle, and Syncona Partners, a life sciences investor set up in 2012 with £250 million in backing from the Wellcome Foundation. A constituent of the FTSE 250, its aim is to invest in founding, building and funding companies that it hopes will be global leaders in healthcare and it boasts that its investments team is replete with experts in cell and gene therapy, 83 per cent of whom have completed PhDs. Syncona’s life sciences portfolio is valued at just over £1 billion and it has been the primary initial backer on all its biggest holdings.
Several recent deals shine a favourable light on its investment strategy. Its most valuable holding is in Autolus, a cell therapy specialist that has developed a pioneering cancer treatment. It retained its holding when the company was listed in the United States last year and, based on its most recent valuation at the end of March, generated a return of 4.3 times its initial investment. The outcome with Blue Earth, a molecular imaging diagnostics company that it backed with a £35.3 million investment in 2014, is even stronger. The Oxford-based group is being bought by Bracco Imaging for $450 million in a sale that will earn Syncona a return of ten times its initial outlay. Other companies worth watching include Freeline, developing a treatment for haemophilia, and Gyroscope, which is working on retinal gene therapy.
The tidy sums that Syncona has been banking from sales means that it has plenty of capital in the tank, probably close to £900 million or so once the two recent sales have been completed, that can be ploughed back into new investments. It aims to put between £150 million and £200 million to work this year.
In its favour, Syncona seems to be locked into the structural growth of private healthcare that in turn is linked with the world’s increasingly ageing and wealthier population. Some investors may have raised an eyebrow last year when the company detailed plans to suspend dividend payments, not spelling it out as such but most likely to give it additional firepower to back new ventures. What they have enjoyed instead, however, is a business that has been increasing the net value of its assets at an extremely healthy clip, by 37.9 per cent in the financial year to the end of March.
There is much to commend this company, which seems to take a refreshingly cautious approach to valuing its investments, effectively putting them on the books at the value of the capital outlay and revaluing them only when a definitive event such as a sale or a listing takes place.
Having had a strong run, Syncona’s shares have been held back since the heavy market sell-off in October, just before which they peaked at 180¼p. The stock was off again yesterday, dipping 8p, or 3.6 per cent, to 213p, and there seems no obvious reason for the recent weakness, save perhaps that investors are waiting for proof that the next round of investments will perform.
Based on the company’s track record, that’s likely. Trading almost exactly flat to the most recently disclosed NAV per share of 216.8p, the shares look like a good bet.
ADVICE Buy
WHY Careful and conservative investor with increasingly strong track record of returns
Saga
Deciding whether Saga has an investable future looks pretty binary. It seems likely that the specialist insurer and tour operator for the over-50s will manage to successfully carve out a niche at the premium end of its chosen market, or will simply disappear under the weight of cut-price competition and the more alluring brands that keep stealing its customers.
The backdrop for any investor trying to make that calculation is a share price that trades at distressed levels — less than five times Numis’s forecast earnings — with a prospective yield above 10 per cent, a number that suggests some people think the payout is unsustainable.
Saga was founded in 1959 by the son of a shoe factory foreman. Owned by several private equity investors since 2004, it was listed on the stock exchange in 2014 for 185p.
Although it has 2.1 million customers and generated nearly £842 million in revenue last year, Saga has struggled to exploit the potentially lucrative market for older (therefore safer) and wealthier drivers and travellers. In short, they have been able to buy cheaper insurance through price comparison websites and more cost-effective holidays through other brands.
So in April the group chose to go another way. Rather than compete on cost, it will offer a premium service that aims to give customers what they can’t get elsewhere. In insurance, it started to sell three-year fixed-price motor and home deals, only available directly, and in travel it has pressed ahead with a £600 million investment in two new cruise ships, each able to carry 1,000 passengers, with a large amount of single accommodation.
It’s obviously early days, but Saga has made good progress and insurance sales and cruise bookings have held up well, both in extremely tough markets. It will take at least a year for the picture to clear, but the shares, down ½p, or 1.2 per cent, last night to 39½p, imply that the City is not convinced.
Nevertheless, it has a chance and one that is hardly reflected in the lowly valuation, which equates to just over half last year’s revenues. For those investors who believe that there’s life yet in Saga’s tired-looking legs, the shares are a risky “buy”.
ADVICE Buy
WHY Worth speculative punt on its turnaround chances
