The performance of Neil Woodford’s high-growth fund, Patient Capital Trust, has been rather lacklustre since its launch just over two years ago. However, as the name suggests, it isn’t expected to deliver instant wealth.
It contains many disruptive early-stage and early-growth companies. In fact, currently, well over half the holdings aren’t even listed on the stock market. Some of these businesses could, in time, deliver truly spectacular returns.
Last Thursday, one of Woodford’s unquoted stocks was floated on the AIM market. Could early-birds be on to a winner by snapping up shares at this relatively early stage of the company’s growth?
Business model
eve Sleep (LSE: EVE) describes itself as “an e-commerce focused, direct to consumer European sleep brand which designs and sells eve-branded mattresses and other sleep products, including pillows, sheets and duvets”.
Woodford and his team believe its low-cost, digital business model gives it “a substantial competitive advantage” and that the company can create “substantial shareholder value as it matures”.
Limited financial information
Woodford owned 17.5% of the business prior to its admission to AIM but participated in a £35m placing at 101p a share, taking his stake to 18.6%. The market cap of the company on admission was £140m.
I can’t find any broker forecasts for eve and with it having been launched as recently as February 2015, financial information is limited. Revenue for 2016 was £12m, with the UK contributing about £8m, Europe £3m and the rest of the world £1m. The group posted a loss for the year of over £11m.
However, Woodford holds eve’s management team in high regard “for their years of expertise in creating and nurturing early-stage companies in the digital realm”. And with the company reckoning there’s a £26bn market in the UK and Europe to attack, there’s considerable potential for growth.
Hot sector
As far as sentiment goes, investors have certainly recognised the structural shift in retail to online and shown a strong appetite for online specialists that have come to market in recent years. Take a look at Boohoo.Com, On The Beach and Gear4music, for example.
In what is a hot segment of the market, has eve taken advantage to IPO at a price that overvalues the business? It’s priced at 11.7 times trailing sales, which is considerably higher than Boohoo (7.2), On The Beach (6.8) and Gear4music (2.8), albeit eve is coming from a lower revenue base.
Another thing to perhaps note is that eve isn’t the first company to list on the stock market that Woodford backed as a private business. And they’ve had mixed fortunes. For example, Allied Minds‘ shares shot up from 190p to over 700p in less than a year, before collapsing to 140p and Circassia Pharmaceuticals, which listed at 310p, is currently trading at 97p. On the other hand, Purplebricks is looking strong, having risen to 350p from a listing price of 100p.
On balance, I don’t think I’ll be snapping up shares in eve at this stage. However, it’s going on my watch list and I’ll be looking out for broker notes and forecasts.