Here’s one cheap growth stock in the FTSE 250 index that I’m considering as a higher-risk play amid the stock market chaos.

Breakthrough potential

IP Group (LSE: IPO) has a unique business model. It specialises in the creation and commercialisation of intellectual property (IP) rights in partnership with leading British and American universities. The IP Group share price has declined 39% in 2022. However, this could present a great opportunity to build a position in a company with big disruptive potential.

The business backs early-stage companies that exploit ground-breaking IP across a range of technologies. For example, its investment in gene sequencing outfit Oxford Nanopore Technologies makes up nearly a third of its portfolio following an IPO on the London Stock Exchange last year.

The Oxford Nanopore share price has fallen 47% since its flotation. Nonetheless, it’s testament to the nature of IP Group’s business — namely that one or two breakthrough investments can significantly lift its portfolio value and result in considerable cash realisation.

The net asset value of its investments according to its latest financial results is £1.7bn. This equates to 167p per share. The IP Group share price trails that significantly at just over 74p, suggesting it’s currently a value investment proposition.

The FY2021 financial results bolster the case for this growth stock being oversold. Post-tax profit increased by 142% to £449.3m. Liquidity is also healthy, evidenced by 33% growth in net cash to £270m. Moreover, investment remains strong. The company poured over £1.1bn into a variety of science-based businesses.

Looking to the future, the company’s portfolio is concentrated in a range of life sciences and green technology businesses. Highlights include companies exploring possible solutions to nuclear fusion, carbon capture, and long-duration battery technology, as well as product developers focusing on ‘virtual touch’ technology to make the digital world more human.

Risks for the shares

The macroeconomic climate isn’t favourable to IP Group. Growth stocks tend to underperform as interest rates rise. With inflation well above its 2% target, it’s likely the Bank of England will continue to hike rates throughout the year and possibly beyond.

The group operates in a sector where data security is paramount. Given the confidential nature of ideas before patent applications are filed, the company is a target for cyber attacks. The growth of state-sponsored hacking to steal technologies is a risk it will potentially have to contend with in the future.

Finally, the company needs to raise significant capital to operate at optimum levels of investment activity and overheads. The impact of a possible recession next year on capital markets could harm the growth prospects for the shares.

Would I buy this FTSE 250 growth stock?

IP Group shares certainly aren’t risk-free. However, at 74p, I like the risk/reward profile.

This is a company brimming with ideas to solve some of the 21st Century’s greatest problems. I’d buy this growth stock as a long-term hold.

However, despite an impressive track record – IP Group has played an integral part in the establishment of over 300 companies, with nearly £1bn of its own money directly invested – why is it that the share price of this FTSE 250 company has suffered so much over the past six months?

From a high of over 155p in September 2021, its shares have now fallen to less than 93p at the time of writing, valuing the company at approximately £984m. Notably, this is very close to the cash cost of its investments over the past 20 years, and substantially below its last reported net asset value (NAV) of 135p per share. 

A recent financial update (posted on 13^th January 2022) painted an upbeat picture, with an anticipated FY21 NAV of over 165p, full year’s profits in excess of £425m and a cash buffer of £256m.

At 20 years old, the company is well past the stage of being a new kid on the block, and a look at its regular RNS announcements shows a solid track record of achievement. These include a number of lucrative exits in 2021, as well as the impressive IPO of Oxford Nanopore (“ON”), one of the first companies identified by IP Group for investment back in 2005.

The big question is, therefore, why the slide?

Well, clearly this is something the company’s board don’t understand either. Since the middle of last year, they have dedicated a war chest of some £35m to a continued share buyback scheme. The management clearly believe that there is substantially more value to IP Group than the market is recognising.

Possibly the perception is that IP Group is too heavily reliant on its investment in ON, and it is true that even after a 30% slide in the share price of ON during January, IP Group’s holding in the company is still worth over £250m (or around 25% of the current market cap of IP).

The reality does appear to be different, though. A well-diversified portfolio of over 30 companies has the potential to continue the company’s established track record of development, growth and exits.

Perhaps it is also the lumpy and less-than-transparent nature of these revenue streams that causes investors to shy away. This is maybe the reason that IP Group has started to pay a dividend over the last year to win back confidence. Expect this dividend to grow if full-year profits meet current expectations.

One should not forget as well that IP Group’s activities now include a solid bank of complementary revenue streams, including the separately managed private Venture Capital Fund and the well-respected EIS manager, Parkwalk Advisers (acquired in 2017), with over £400m under management.

I keenly look forward to the release of its final results in March, but in the meantime — since I’m prepared to assume a little risk — there appears to be substantial upside to this misunderstood sleeping giant, and I’m strongly considering buying more of the shares for my own portfolio.

Early-stage company backer

As a backer of ambitious early stage companies, IP Group (LSE: IPO) has been in the news as Oxford Nanopore Technologies confirmed its intention to proceed with an initial public offering.

This ought to be good news for IP Group shares. Yet they appear to be cheap. The FTSE 250 group’s shares trade on a price-to-earnings ratio (P/E) of eight and a price/earnings-to-growth (PEG) ratio of 1.11. These ratios both suggest the shares could be undervalued. Yet there are reasons to be optimistic as the floating of Oxford Nanopore proves.

IP Group is experienced in backing early-stage companies, but there are inherent dangers in the industry. Such companies can be hit and miss and some could fail. But IP Group has a good track record and with the shares being so cheap, it could be one of the best UK shares to buy now. I’ll certainly consider adding it.

Two more on my buy list

Rathbone Brothers (LSE: RAT) is another FTSE 250 company that could have a bright future. Again it comes up looking cheap with a P/E of 12 and a PEG of 0.7. The asset manager is well established in ESG investing, and as this trend towards environmentally and socially conscious investing grows more popular, that positions it well within the asset management industry. It could bring in a lot more customers.

The decision to grow by bolt-on acquisitions is a new development and investors may well like seeing Rathbones beefing up to grow its market share. It currently has around 3.8% of the UK wealth management market.

As an asset manager it has strong margins, which adds to its investment case and, for me, makes it one of the best shares to buy now. 

Of course, there are reasons the share price might not do well in the future as other asset managers may grow more quickly, the company could make the wrong acquisitions, or overpay for some. 

Yet the potential for improvement in the business means I’m likely to add Rathbone Brothers shares to my portfolio.

Then there’s Sylvania Platinum (LSE: SLP), which strikes me as one of the best shares to buy. I hold the shares already and am keen to add more. Why? First and foremost a falling share price has made these shares cheap. The P/E is three and the PEG is 0.2. For a cash-rich, low-cost producer of platinum group metals (PGMs), including platinum, palladium and rhodium, this is too cheap for me to ignore.

The price of these metals has been falling, which explains the current share price slump and mining is undeniably cyclical and volatile. Yet markets for both palladium and rhodium are forecast to be in deficit this year. The result of this could well be that prices bounce back due to the imbalance between supply and demand.

The share price is volatile and metal prices could keep falling, potentially hurting the share price. But in my opinion, Sylvania Platinum is one of the best UK shares to buy now.

Royston Wild: Angling Direct 

I’m expecting a sunny set of numbers when Angling Direct (LSE: ANG) releases its full-year financials on Tuesday, 11 May. I think the retailer’s share price — which is already up over 120% over the past year at the time of writing — could rise strongly again. 

In its most recent update this penny stock said that it had retained “positive sales momentum,” and that revenues were tipped to have risen 27% in the 12 months to January 2021. Angling Direct has a history of lifting profits guidance in recent times thanks to strong progress on lifting margins and excellent sales via its online channel, too.

Beware, though, that Angling Direct trades on an elevated forward price-to-earnings (P/E) ratio of 50 times. This leaves the UK share in danger of a sharp share price reversal if sales growth shows signs of moderation. 

Royston Wild does not own shares in Angling Direct. 

Rupert Hargreaves: IP

IP (LSE: IPO) develops intellectual property-based businesses like Oxford Nanopore Technologies. IP owns 15% of this business valued at £340m. The ultimate sale price could be significantly lower or higher when it IPOs later in 2020.

I think the best way to look at the business is to consider its book value growth as a measure of wealth creation. Book value has grown at a compound annual rate of 11.3% since 2015. 

As the company gears up for the Oxford float, I think its stock could be worth buying, although if the float flops, IP could be left nursing large losses.

Rupert Hargreaves does not own shares in IP.

Dan Peeke: Diageo

With the hospitality sector reopening, alcoholic drinks company Diageo (LSE:DGE) is my top stock for May.

In short, after months without the pub, Brits are going to treat themselves. Diageo owns an incredible portfolio of premium brands – from Guinness to Tanqueray to Johnnie Walker – that are all going to be in high demand. Its share price had already risen by 10% in the first four publess months of 2021, so with sales increasing, its growth should be even more pronounced.

Of course, there’s always the chance that reopening venues is a disaster that reignites the pandemic and sends Diageo’s sales back down… but I’m feeling confident at the moment.

Dan Peeke owns shares in Diageo.

Paul Summers: Burberry

The share price of luxury firm Burberry (LSE: BRBY) has recovered fairly well over the last year as normality has returned to its key Asian markets. Even so, it’s still 10% below the highs hit in early-2020 (at the time of writing). 

Back in March, the blue-chip company revealed that revenue and adjusted operating profit would now likely be “ahead of consensus expectations”. Should this be confirmed in May and accompanied by a positive outlook statement, I think there’s a good chance we will see this gap close. As the great unlock continues, I’m holding tight to my stock.

Paul Summers owns shares in Burberry.

Harshil Patel: Howden Joinery 

Howden Joinery (LSE:HWDN) is a leading manufacturer and supplier of fitted kitchens. It has steadily grown its earnings over several years and could be well placed to benefit from a rise in homebuying.  

Several schemes and incentives are supporting the UK residential property market. A new government-backed mortgage scheme will help home buyers with just a 5% deposit. Stamp duty incentives are also currently still in place. 

Overall, this quality consumer cyclical stock offers double-digit margins, earnings growth and return on capital. It’s also conservatively financed and trades at an undemanding valuation.  

Harshil Patel does not own shares in Howden Joinery.

Edward Sheldon: JD Sports Fashion

My top stock for May is JD Sports Fashion (LSE: JD).

The reason I like JD is that, right now, many consumers are cashed up after months of lockdown. I think JD could benefit in the months ahead as the global economy reopens and consumers head out to spend their savings. JD could do particularly well in the US (where it now generates over a third of sales) due to the fact that many US citizens have received stimulus cheques.  

JD can be a volatile stock at times, so it’s not going to be suitable for everyone. However, overall, I think the risk/reward proposition here is attractive.

Edward Sheldon owns shares in JD Sports Fashion.

Roland Head: ITV

Television group ITV (LSE: ITV) had a difficult year in 2020. But the group is already reporting an improved outlook for 2021. I expect this recovery to continue.

Although the company continues to face tough competition from big streaming services and the decline of broadcast television, I do not think that ITV’s share price reflects the potential value of its programme production business.

Analysts’ forecasts suggest earnings will rise steadily over the next couple of years. With the stock trading on 11 times 2021 forecast earnings and offering a 4.4% dividend yield, I continue to view ITV as a buy.

Roland Head owns shares in ITV.

Nadia Yaqub: Diageo

Lockdown restrictions are easing and as people start to socialise they are likely to eat and drink out. I think Diageo (LSE: DGE) is well placed to capitalise on this. The beverage company has a diversified portfolio of over 200 brands including Johnnie Walker and Smirnoff.

It derives a significant portion of its revenue from the emerging markets. Here, Diageo’s brands are seen as a symbol of status for the growing affluent class. I think this region has further growth potential. The shares also offer an attractive dividend yield of over 2%, which is covered by earnings.

Nadia Yaqub does not own shares in Diageo.

Kirsteen Mackay: Tate & Lyle 

FTSE 250 stock Tate & Lyle (LSE:TATE) is hoping to sell a controlling stake in its artificial sweeteners division to help streamline the company and futureproof its growth prospects. By retaining a minority stake it won’t entirely lose out if this arm continues to grow its profitability.

This division could potentially sell for £1.2bn, according to the Telegraph. The proceeds would be used to help Tate & Lyle reduce its debt pile and turn its attention to becoming more competitive in its higher margin food and drinks division.

I like the growth potential in this stock and its 3.6% dividend yield. 

Kirsteen owns shares in Tate & Lyle.

Zaven Boyrazian: Saga

Saga (LSE:SAGA) is a travel and insurance business. For years its share price has fallen due to mismanagement.

But in 2020, Saga’s original owner, Sir Roger De Haan, made a sudden return. He injected £100m into the business, replaced the old management team and is now restructuring the entire company.

Based on the most recent results, it looks like the new strategy is working. Advanced cruise bookings for 2021-2023 increased by 20% despite the disruptions from Covid-19. And the insurance division finally started growing again.

There are plenty of risks and challenges ahead. But I believe Saga is capable of making a comeback over the long term. And so, I’m considering adding it to my portfolio while it’s still cheap.

Zaven Boyrazian does not own shares in Saga.

Christopher Ruane: C&C Group

C&C Group (LSE: CCR) is the drinks company that owns famous brands such as Magners and Tennent’s Lager. It has been hit hard by the pandemic.

While supermarket sales have held up well, the pub business has suffered badly. C&C also owns a drinks wholesaler and part of a pub chain. While there is a risk patrons won’t frequent pubs as much as they did before the pandemic, the reopening of many pubs across the UK still bodes well for its prospects in my opinion.

Christopher Ruane owns shares in C&C Group.

Launched in April 2015, Patient Capital is a growth-focused investment trust that invests largely in early-stage and early-growth businesses. It has steadily ramped up its exposure to unquoted companies.

Today, its make-up is not dissimilar to that of IP Group, which is an incubator of potentially “world-changing” life sciences and technology businesses. Indeed, as well as owning shares in IP, Woodford is a fellow cornerstone investor in quite a number of its investee companies.

Discount prices

Tangible net asset value (TNAV) is the appropriate measure to look at for investment trusts and investment companies like Patient Capital and IP. Currently, the shares of both are trading at a discount to their last reported TNAVs, and so appear to offer good value.

As I’m writing, Patient Capital’s share price is 84.6p — a 12.2% discount to its TNAV per share of 96.35p. IP’s share price is 103.6p — a 15.5% discount to its 122.6p a share TNAV. However, I’m not convinced these discounts are wide enough to offer investors a sufficient margin of safety. Here’s why.

High paper values

Around this time last year, I drew readers’ attention to a controversial report on IP by US short-seller J Capital Research (JCap). The report suggested that a relatively small number of cornerstone investors, who set the valuations of IP’s unquoted companies, had “a collusive interest creating high paper values.” JCap put a value on IP that was a 40% discount to the group’s accounting TNAV.

By way of testing this in a small way, I’ve searched out IP investee companies that have floated on the stock market to see what happened to their valuations when they were subjected to scrutiny and assessment by a much wider pool of investors.

I found five unquoted companies in which IP is a cornerstone investor that came to market via an initial public offering (IPO) in the last five years. The table below summarises my findings.

The average current value (market cap) of the companies is 45% below their average value at IPO. On a per share basis, the picture is even worse, with an average decline in value of 81%, due to dilution via further fundraisings.

I think this provides some support for JCap’s view that IP’s unquoted investee companies go in its books at over-rosy valuations. Of course, with Woodford being another cornerstone investor in this area of the market — not infrequently alongside IP — much the same criticism can be levelled at Patient Capital.

On balance, I’m inclined to avoid these two stocks at their current prices. I’d want much bigger discounts to TNAV than Patient Capital’s 12.2% and IP’s 15.5% to feel I was getting value for money and a margin of safety.

There’s no denying that the stock has rewarded early investors very well. The price has more than trebled over five years, but since a peak in July last year it’s lost more than 35%.

I’m really not a follower of share price charts — but I do get a little twitchy when I see a certain growth share pattern emerging:

Everyone piles in, keen not to miss the next big thing. The share price soars, then reaches a peak and starts to fall back a bit. Next we have a second wave of buyers who push it back up, only to see a subsequent decline that typically continues for some time.

Risky stage?

Purplebricks is at the point when that second peak has faded, and the price is now lower than the intermediate dip. Anything could happen tomorrow, of course, but I’ve seen this same thing followed by steady decline so many times that it’s enough to keep me away.

Monday’s news of a “strategic investment from Axel Springer of approximately £125 million including a £100 million subscription for new shares” offered a boost to confidence, with the cash to be used partly for the firm’s rollout in the US. But the market didn’t really respond, and I can’t help wondering if we could be seeing an overstretched expansion plan a little too early.

I’ve previously offered other reasons for my bearishness on Purplebricks, and it remains a sell for me.

Blue sky

The other Neil Woodford stock I wouldn’t touch right now is IP Group (LSE: IPO), which released full-year 2017 results on Thursday.

The company, which invests in a portfolio of early stage businesses built on research from its partner universities, reported net portfolio gains of £94.2m, up from £6.5m in 2016. Reported net assets rose from £768.7m to £1,508.5m, which also seems impressive, and the firm even recorded a profit for the year of £53.4m (from a 2016 loss of £14.8m).

So what don’t I like about it? For one thing, I’m greatly disturbed by a very critical analysis of the company unearthed by my colleague G A Chester. If the opinion offered by J Capital Research is correct, that IP Group shares are worth no more than 75p, then buying at 116p (at the time of writing) could be a big mistake. 

Buy what you know

Two other things keep me away too. Firstly, the diversity and the innovative nature of the firm’s investments mean I really don’t understand enough to evaluate them properly — or properly understand IP Group’s accounts. In fact, very few investors will be able to, and that means I’d largely be investing blind — and that’s something I just don’t do.

The other thing is that I just don’t go for unquantifiable ‘jam tomorrow’ blue sky investments these days. I did occasionally in the past, but my reliance is increasingly on investments where I can see solid earnings and healthy dividends today, and future profits where reasonable estimation is possible.

Of course, it just goes to show that even a veteran investor with an enviable long-term record of outperforming the market can go through difficult spells and make some poor stock choices. Today, I’m looking at one Woodford stock I’d buy, and one I’d sell.

Growing business momentum

Specialist healthcare firm BTG (LSE: BTG), which is a member of the mid-cap FTSE 250 index, ranked at number 18 in Woodford’s flagship Equity Income fund at the last reckoning, with a weighting of 1.8%. It was one of his better performers in 2017, rising almost 30% over the course of the year.

Woodford has been an investor in the company for many years and seen it progress via a number of key products across its interventional medicines pipeline. A fund update for April last year noted: “As so often happens with early-stage companies, the development process has taken longer than initially expected, as has the process of market penetration once products have made it to market.” However, BTG provided mounting evidence of growing business momentum through 2017, and the share price responded accordingly.

City analysts are forecasting the company will deliver a 27% rise in earnings to 29.3p a share for its financial year ending 31 March. At a share price of 745p, this gives a price-to-earnings (P/E) ratio of 25.4. While this is a relatively high multiple, factoring in the earnings growth produces a price-to-earnings growth (PEG) ratio of 0.9. This is on the good value side of the PEG fair value marker of one and suggests the stock could be a great buy for the growth on offer. I rate it as such and think it could put in another good performance through 2018.

An accounting game more than a company?

I’m a lot less keen on another of Woodford’s FTSE 250 stocks, namely IP Group (LSE: IPO). IP provides capital and other assistance to a large portfolio of early stage businesses, which are mainly founded on research coming out of its partner universities. It’s the 10th largest holding in Woodford’s Equity Income fund, with a weighting of 2.4%.

Last month, IP came under attack in an extensive report by US short-seller J Capital Research (JCap). The report, which you can access at JCap’s website, is not without errors and some contentious interpretations, but I believe the broad thesis has substance.

JCap points out that since 2008, IP has invested a total of £346.3m in its portfolio companies but only realised £40.9m from disposals, with other gains being paper-only. It suggests: “IP Group is an accounting game more than a company and has an atrocious track record of delivering bankable returns.”

JCap put a valuation of around 75p on the shares. They’re trading at 134p as I’m writing, and I view the bear case as sufficiently compelling to rate the stock a ‘sell’.

However, as an investment, it still seems to be rather overvalued. For example, while earnings for the current year are forecast to rise from 2p per share last year to 8.4p per share this year, it still leaves IP Group trading on a price to earnings (P/E) ratio of 25.5. That’s expensive and, with IP Group’s share price having risen by just 4% since the turn of the year, it seems likely that a degree of pressure may be exerted upon it in the short run as a result of its rather rich valuation.

Therefore, 3i (LSE: III), which invests in a range of private equity and infrastructure opportunities, appears to be a better buy. Certainly, its shares have soared by 20% since the turn of the year, but they still trade on a P/E ratio of just 9.1. And, with 3i paying out just 24% of profit as a dividend, there is tremendous scope for it to increase shareholder payouts at a brisk pace moving forward so as to improve 3i’s current yield of 2.6%.

Also having considerable future potential is document storage company Restore (LSE: RST). It today announced the acquisition of The Data Imaging and Archiving Company for £1.45m, which is slightly higher than the company’s annual turnover of £1.3m. And, while the acquisition only made a small profit last year, Restore is expected to grow its earnings by 24% in the current year, and by a further 14% next year. This means that Restore’s bottom line could be as much as 41% higher in 2016 than it was in 2014 and, with it trading on a price to earnings growth (PEG) ratio of just 1, it appears to offer considerable scope for capital gains over the medium to long term.

Meanwhile, online video search company Blinkx (LSE: BLNX) continues to offer excellent value for money, but a highly uncertain future. For example, it trades at well below net asset value, has a very strong balance sheet and impressive cash flow, but remains in a transitional period where it is expected to maintain a red bottom line in the current year and next year. And, while its strategy of focusing on mobile customers and rebranding its offering, as well as making multiple acquisitions, could pay off, the likes of Restore and 3i appear to offer greater potential rewards and much lower risk for long term investors.

What are the similarities and differences between the options? And which is likely to give you most bang for your buck?

Woodford’s target weighting for his Patient Capital portfolio is: 25% mid/large quoted companies; 25% early-growth companies (typically quoted but may be unquoted); and 50% early-stage companies (quoted and unquoted). Woodford is very much seeking to exploit the same cutting-edge-technologies space that Allied Minds, IP Group and Imperial Innovations invest in, except that he includes mid/large cap exposure.

Woodford anticipates initially holding 50-100 companies; potentially more as the portfolio matures. Imperial, IP and Allied have stakes in 98, 90 and 20 companies, respectively (a combined 208).

Geographically, Woodford is targeting at least 70% invested in companies traded on the London Stock Exchange or incorporated in the UK. An equally-weighted Imperial, IP and Allied portfolio (let’s call it IIPA, for convenience) would have about 67% invested in UK companies, via Imperial and IP, and 33% in the US, via Allied.

So, there are a number of broad similarities between Patient Capital and IIPA, with IIPA’s lack of any large-cap exposure perhaps being the most marked difference. The table below shows the blended IIPA’s top 10 holdings

The IIPA top holdings look a little scary against some of the familiar blue-chip names, such as AstraZeneca, that are likely to feature in Patient Capital’s top 10.

But how has the unconventional IIPA portfolio performed? The table below shows some compound annual growth rate (CAGR) numbers for IP and Imperial. (Allied joined the stock market less than a year ago, so isn’t included.)

Now, what can we expect from Patient Capital. The trust’s investment objective is as follows:

“The Company will aim to deliver a return in excess of 10% per annum over the longer term. (Note: this is a target only and not a profit forecast and there can be no assurance that it will be met.)”

Woodford appears confident of success, though, because Patient Capital is charging no annual management fee. His remuneration will come in the form of performance fees, dependent on him beating the 10% per annum hurdle.

It seems Woodford believes he can do at least as well as that long-term 12% CAGR delivered by IP in the table above — and, what’s more, achieve it with 25% of his portfolio invested in less risky FTSE 100/FTSE 250 companies.

While Woodford is renowned for his blue-chip nous, investing in early-stage/early-growth companies isn’t unfamiliar to him. In fact, he actually holds Allied (4.1%), Imperial (1.3%) and IP (0.8%) in his mainstream Woodford Equity Income Fund.

Significantly, though, he has also put additional cash into a select few of the IIPA investee companies — presumably in the belief that his subset will out-perform the whole; otherwise, why bother? And the same goes for a number of other early-stage/early-growth companies he’s invested in that aren’t in the Allied, Imperial and IP portfolios.

Woodford will have some hard data on his stock-picking performance in this area of the market from past experience, and projections on what he might reasonably hope to achieve when combining this with a 25% weighting of his high-conviction large-cap picks.

As such, on balance, I tend to think that Woodford’s Patient Capital could offer a better risk-reward profile than the alternative IIPA portfolio. Patient Capital’s shares closed at 102p on the first day of dealing (21 April). I’ll note the IIPA prices at the same date — Allied (687.5p), IP (219.1p) and Imperial (490p) — and perhaps revisit the subject in the future.

The master investor’s new venture, the CF Woodford Equity Income Fund, which launches on 2 June, will be managed very much along the same lines. And that means up to 7% of the fund will be in small, early-stage businesses.

Run-of-the-mill fund managers would consider such investments risky. But Woodford claims he’s had only one disaster in this area in the last 10 years and “many, many” successes.

Brit tech champion

Woodford has a passion for British science. He was quoted in the Guardian as saying:

“No other country matches Britain in its track record of scientific discovery … We do science and innovation incredibly well, but we have a lamentable record in converting top science into top businesses”.

Woodford’s interest in supporting start-up businesses coming out of British universities and research centres isn’t driven by a sentimental patriotism. Rather, he sees himself as being presented with “incredible opportunities”, due to under-funding in the area.

Speaking to What Investment earlier this month, Woodford said:

“While changing [under-funding] is socially useful, I do want a return. I am not in this for totally altruistic reasons. The demand for capital is high, but the supply of capital is very low, and you don’t need more than an O-Level in economics to understand that in those circumstances there is a lot of value to be had for investors”.

3 companies that fit the bill

Tissue Regenix Group (LSE: TRX) was formed in 2006 when it was spun-out from the University of Leeds. The group’s patented regenerative technology enables animal and human tissue to be used to repair diseased or worn out body parts in areas such as vascular disease, heart valve replacement and knee repair.

The AIM-listed group made an operating loss of £6.6m last year, but still has a cash pile of £18.5m to accelerate its commercial roll-out programme.

Imperial Innovations Group (LSE: IVO) was founded in 1986 and listed on AIM in 2006. Imperial is an investment company that provides capital and other assistance for businesses founded on research coming out of Imperial College London, University College London, Cambridge University and Oxford University.

Imperial has interests in over 30 such businesses, focused on therapeutics, medtech and medical devices, engineering, and information & communications technology. The group has a market capitalisation of £395m and net assets of £255m. The book value of 1.5x doesn’t look glaringly expensive given the potential for substantial uplifts in the value of the underlying holdings.

IP Group (LSE: IPO), founded in 2001, is similar to Imperial Innovations, but is rather larger, being a member of the FTSE 250, and having holdings in no fewer than 87 businesses. IP also draws on a much wider range of universities — all across the UK and as far afield as Princeton in the US — but, like Imperial, focuses on techie sectors: energy & renewables, healthcare, biotech, information & communications technology and chemicals & materials.

The group has a market capitalisation of £861m and net assets of £530m. The book value of 1.6x again doesn’t look extortionate.