It’s only a little over a month ago that Woodford Patient Capital (LSE: WPCT) announced the appointment of a new investment manger in the form of the Schroders-owned Schroder Investment Management, after the disgraced Neil Woodford got the boot.
Woodford invested much of the trust’s money in illiquid and unquoted companies — a risky strategy. There’s little transparency and it’s hard to get objective valuations, and a lot of unquoted start-ups simply don’t make it.
If he’d got it right, Woodford could have made a fortune, but too many of his choices have already turned bad, and we’ve seen a string of downward revaluations. At one stage, the trust’s net asset value per share (NAV) stood at 97.7p, but by the time of the Schroders announcement, it was down to 63.2p. And since then, NAV has fallen further, with the latest quote putting it at 57.26p.
Price crash
The WPCT share price has followed suit, down 66% over the past 12 months. Actually, the share price has plunged more rapidly than NAV, standing today at just 28.5p — and it’s down almost 20% since Schroder’s appointment was announced. But should investors consider buying in to WPCT now? I think there are reasons to be tempted, but also reasons to be cautious.
When new management is installed in a troubled company, they can be keen to shake out as much bad news as quickly as they can and put it behind them. That way, the blame is correctly seen to lie with the previous management. If bad news is delayed and trickles out slowly, it can start to look like it’s the new management’s fault.
NAV bottom
I reckon Schroders will be keen to see NAV bottoming out as quickly as possible, and to get past the association with Neil Woodford and start seeing the trust’s progress in terms of its own new management. We’ve had a couple of asset revaluations recently, resulting in a net reduction of 4.3p per share — one unquoted company downgrade knocked 5p off NAV, but there was a 0.7p upgrade from another. But what’s still to come once Schroders take the reins?Â
I expect (and hope) Schroders will be looking to dispose of the riskiest of Woodford’s picks, though offloading unquoted holdings can take some time. So no rush, but a year from now I think we should see WPCT in a safer state and with a stable NAV — but at what level? After that, Schroders will be able to focus on getting NAV back above the 77p it will need in order to qualify for any performance fees.
Irresistible discount?
Where does that leave WPCT now? At that 28.5p share price, we’re looking at a discount to NAV of 50%, and that’s huge. Investment trust shares typically do trade at a discount, but not like this.
The gap between share price and NAV surely has to close, either through further NAV downgrades, share price rises, or both. But which will make up the bulk is very hard to say right now, and there could be worse to come before things get better. I’d wait until Schoders has had at least a few months to get a fuller picture of the true state of WPCT’s investments.