It is a source of some frustration that whenever a clever British biotech start-up, often spun out of academia, approaches viability, it is snapped up by investors, often from the United States, prepared to take a longer view.
It is certainly a stance taken by Wellcome Trust, the second biggest funder of medical research in the world, which in 2012 set up Syncona as a home for promising healthcare companies with the intention of keeping them within the British science community until they reached their full potential.
Last November Wellcome injected Syncona into Bacit, a London-listed investment trust, which took in the investment fund of Cancer Research UK, to be run by Syncona’s management. The aim was to offer the chance to invest in such promising start-ups and to target others. Syncona, whose market worth is about £1 billion, invests directly in unquoted companies and funds that provide income to pay for further investment. Wellcome retains a holding of 37 per cent. At the end of April, the latest figure available, of the £892 million net assets, £583 million was invested in those funds and £238 million in seven biotechnology companies, with the balance in cash.
Of those seven investments, one is CRT Pioneer Fund, which has the rights to some innovations coming out of Cancer Research UK. The biggest is in Blue Earth Diagnostics, which provides a drug, in use in the US, to find the parts of the body where cancer has returned after prostate treatment. Last month Syncona received a boost after the treatment was approved by the European Commission. Syncona has 90 per cent of the company, which was acquired at a fairly developed stage from GE Healthcare.
More than a quarter of those direct investments are in cancer treatments and Syncona is pledged to hand over 0.3 per cent of its net asset value to charities, including the Institute of Cancer Research, each year, so this might suit ethical investors. There is even a dividend, though the yield is not much and there is a healthy number of retail shareholders, a legacy of Bacit. The shares, off 2¾p at 153¼p, are at an expected hefty premium to net assets. A good way into unproven life sciences investments.
My advice Buy
Why Syncona offers retail investors a way of buying into promising life sciences start-ups that may become substantial companies
Workspace Group
The managed office sector has been one of the most successful areas in property and the decision yesterday by Blackstone to snap up a majority stake in The Office Group suggests that some can still see value. At the same time Workspace, a quoted leader in the sector, said that it had sold the third phase of a development in Bow, east London, for £6.3 million in cash and the acquisition of a 40,000 sq ft business centre.
This is typical of the reshuffling of such portfolios as developers vie for any scrap of useable space. Workspace was sounding extraordinarily bullish at its results a couple of weeks ago. There are indications that its customer base is spreading beyond the typical technology start-ups to the big corporates seeking temporary office space that are probably more willing to commit for longer, and the rent roll was up by 14.5 per cent.
Nonetheless, some question how much further the market has to run. Any downturn in demand would result in falling occupancy rates and rents and declining property values. The shares, down 2p at 946p, are up from below £8 at the start of the year and might be due some profit-taking.
My advice Take profits
Why The sector is starting to look overheated
Caretech Holdings
Operators of residential care homes have come to grief in the past because they have racked up too much debt in a highly acquisitive sector (think of Southern Cross a few years back) or because local authorities have cut back on fees.
Caretech’s debt might seem high, too, at first, standing at £122.5 million at the end of the first half in March. The company, which that month raised £37 million to fund deals, has spent £20.7 million of this on two of them, the most recent announced yesterday, buying a chain of homes in the Midlands and the southwest for £16.9 million.
To take the second point first, Caretech provides homes for children and adults with special needs such as learning difficulties that should prove more resilient than old age care, because the company aims to make them less dependent and so can save councils money in the long run. The debt represents less than three times’ earnings, while Caretech generates £20 million to £25 million a year in cash. The banks have agreed to defer two loan repayments, which provides £30 million or more for further deals. These tend to be accretive because of administrative and other savings.
The halfway figures were in line with expectations, underling pre-tax profits up 14 per cent at £13.1 million, although the headline figure is down 37.5 per cent to £7 million because of an earlier disposal.
The yield is not up to much but the shares, up 16p at 440p, sell on a reasonable 12 times’ earnings. A good long-term bet on a growing market.
My advice Buy
WhyLong-term prospects for specialist care look good
And finally . . .
Velocys is the name used by the old Oxford Catalysts, which has been finding ways of converting unuseable gas into useable liquids. It is an interesting technology and the company is a pioneer with a solid investor base, but the shares have had a terrible time over the past two or three years. Velocys is working with the US Department of Agriculture for a loan guarantee for up to $200 million of debt that would allow it to build a commercial biorefinery in the southeast and yesterday it announced further progress.
