Patient Capital Trust is a quoted Woodford investment trust, floated in April 2015 partly to provide funds for start-up and early stage companies of the sort that might have difficulty raising cash from traditional venture capital sources. There are 70 investments, in the middle of the target range of 60 to 80, while 57 per cent is in healthcare, including some chunky holdings in American pharma.
Neil Woodford, the fund manager, has always had a predilection for that sector and the biggest holding is in Prothena, which is quoted on Nasdaq and works in the hot area of using the immune system to fight disease.
About 75 per cent of the portfolio is in UK companies and 15 per cent in unquoted ones. This is a different vehicle to Mr Woodford’s other quoted fund, the Equity Income Fund, which is probably more for widows and orphans, or Woodford Income Focus Fund, which is unquoted and was launched in the spring in the third biggest cash-raising by a British fund. The latter is designed to provide income for more cautious investors.
The unproven nature of the investments taken on by Patient Capital make it the most risky of the three but mean the capital uplift if those investments work out can be substantial. The trust raised £800 million at the April 2015 launch and has taken on a limited amount of debt. The performance has been mixed. Last year was not terribly good, with weak points including Circassia, which failed to get through medical trials for its cat allergy cure, and Northwest Biotherapeutics, one of Mr Woodford’s biggest failures. This year has been much better. The latest reported net asset value per share is up by more than 10 per cent, well ahead of the FTSE All Share. Two investments, Purplebricks, the online estate agent, and Halosource, which provides clean water technology, have doubled in value.
Less successful was Allied Minds, the intellectual property specialist, where a new chief executive decided to ditch funding to several businesses and the share price more than halved. The discount to net asset value has narrowed from about 10 per cent in early June to below 2 per cent. This one is a straight punt on Mr Woodford’s ability to find successful early stage businesses.
MY ADVICE Buy
WHY Given the unproven nature of many of its investments, this is at the riskier end of the spectrum, but the upside is considerable
Weir Group
There is a noticeable change of tone from Weir Group’s oil and gas division, which represents about a third of the Glasgow engineering group, since the purchase of KOP Surface Products a month ago. The company says that oil and gas margins are continuing to improve on the back of increased activity in the American shale market. This is allowing it and other oil services companies to push up prices for the first time since the oil price collapsed. By contrast, oil and gas made a £9 million loss last year, so the turnround is a marked one, helped by substantial job cuts and consequent savings in North America.
The market did not see this coming and the shares rose 158p to £19.82 after yesterday’s statement. The recovery in Weir’s share price was remarkable enough even before that, having been about £8 in early 2016.
Weir is having to take a £13 million write-off on a couple of contracts in its flow control division, which provides pumps for oil refineries and the like, a highly competitive market. This will be more than balanced by that improvement in oil and gas. The shares sell on 20 times earnings, which looks a full valuation.
MY ADVICE Avoid
WHY Much of the good news seems to be in the price
Conviviality
When this column recommended buying shares in Conviviality in November, it was because of the benefits that would come from integrating its three recent acquisitions — Matthew Clark, which some may remember as a highly acquisitive quoted company in the 1990s, Bibendum, the wine business, and Peppermint, which provides bars at events such as festivals.
The shares have come on by more than a pound since, gaining another 14¾p to 332¾p yesterday after figures to the end of April showed the integration proceeding well and some encouraging rises in group sales since.
Conviviality, which has three retail chains including Wine Rack as well as the distribution business, reckons to supply all sectors of the drinks market. The three acquisitions were in for the full financial year, barring a month less for Bibendum, which was bought in May, and revenues were ahead by 85 per cent to £1.56 billion. This masked an underlying rise of 5.8 per cent, well ahead of the industry average.
The company has been ratcheting up the cost benefits from putting the new businesses together with its original operation, and these now stand at £16.5 million in the 2018-19 financial year. Pre-tax profits, stripping out one-offs, rose by 111 per cent to £45.8 million, reflecting a 1.3 percentage point improvement in margins to 13.3 per cent.
The shares sell on 14 times earnings. Investors might think about taking some of their profits.
MY ADVICE Take profits
WHY Shares have come a long way since the autumn
And finally . . .
HICL Infrastructure has featured here regularly because it converts its investments in infrastructure into reliable income for its investors and regularly makes new shares available. A note from Canaccord approves of its latest purchase, a 35 per cent interest in the High Speed 1 rail line linking London St Pancras with the Channel Tunnel. The broker notes that the move fits with HICL’s policy of investments at the lower end of the risk spectrum because HS1 has a 20-year operating history.
