Neil Woodford’s former holdings have continued to haunt his former trust inherited by Schroders which has seen its assets written down by a fifth.
On Wednesday Schroder UK Public Private trust announced the value of its NAV had been slashed from £398m or 43.48p per share at the end of September to £318m or 35.01p a share by the end of Q4 2020.
That afternoon the trust’s share price tanked by 12% and continued falling for the remainder of the week to 31p, losing a further 9%.
Managers Tim Creed (pictured) and Ben Wicks and the board described the hit to NAV as “disappointing” but stressed significant progress had been made in reducing the trust’s debt which is expected to be fully paid off with the proceeds from the sale of its stake in Kymab to French pharmaceuticals giant Sanofi.
They added that the trust was in a “strong financial position” after refinancing its credit facility, which would enable Creed and Wicks to better diversify the portfolio.
Rutherford value slashed by £47m
Former Woodford holding Rutherford Health dealt the biggest blow as its valuation was slashed by £47m to £34m, a near 60% haircut from its £81m value at the end of September. The holding was written down by Link Fund Solutions, the trust’s alternative investment fund manager, to reflect “slower than expected commercial progress and increased risk to the business outlook for equity holders”.
Rutherford, which specialises in proton therapy cancer care, was the largest holding at the end of the previous NAV period in September at 16.1% and last year was highlighted by Creed and Wicks as one of the winners benefiting from the Covid crisis.
See also: Schroders trust warns former Woodford holdings it will not be an ‘endless source of capital’
The trust’s third largest holding Atom Bank (11.3%) was also written down by Link in December, as well as cold fusion company Industrial Heat, Ombu, Spin Memory and Carrick Therapeutics and Mission Therapeutics. All six are ex-Woodford holdings.
Meanwhile Woodford unquoted Kind Consumer was written down to nil. The nicotine inhaler collapsed into administration in December and is not expected to return any value to shareholders.
The sole bright spot was the pair’s stake in Kymab which was re-written upward by 188% to £70m, representing a fair value gain of £52m.
‘To say the NAV is a disappointment is an understatement’
“To say this NAV is a disappointment is something of an understatement,” JP Morgan Cazenove wrote in an analyst note published Friday, in which it maintained its ‘underweight’ rating.
In addition to the December writedowns Schroder UK Public Private also incurred an £11m loss from selling down a handful of biotech stocks, including Carrick Therapeutics and Mission Therapeutics, to Rosetta Capital at a 20% discount, implying a gross loss of £120m, JP Morgan Cazenove said.
See also: Schroders trust receives muted reception as it offloads ex-Woodford holdings at 20% discount
And this does not include the impact from the tail of writedowns from the December NAV update which have yet to be quantified, it noted.
“This collection of writedowns highlights the problems faced by the current management team which has inherited a portfolio comprised of illiquid investments not of their choosing.
“The paydown of the debt is clearly welcome and meets a strategic objective that SUPP had set and the Kymab sale demonstrates that there may be additional value to be unlocked from this portfolio but we still think the risk is skewed to the downside.”
SUPP takes one step forward and two steps back
Stifel, which was previously hopeful the stars could align for Creed and Wicks with some of Woodford’s former holdings, also issued a downbeat assessment, downgrading its recommendation from buy to hold.
“It seems to be a case of one step forwards and two steps back for long suffering shareholders of Schroder UK Public Private (SUPP),” it said in a note on Thursday.
Stifel said the smaller writedowns on a number of other investments is “disappointing, especially in an environment with listed healthcare companies performing relatively well in the second half of last year”.
However it noted that the unaudited NAV as at 31 December 2020 does not include any valuation adjustment for Oxford Nanopore, the trust’s second largest holding, which is due to IPO in the second half of 2021.
Schroder UK Public Private is currently trading at a 7.2% discount, according to data from the Association of Investment Companies.
