Ex-Woodford trust rallies 9% after holding quadruples but trapped fund investors miss out

‘Shareholders have waited a very long time for some good news from SUPP’

Neil Woodford’s former investment trust has rallied over 9% as one of its holdings quadruples in value off the back of a bid from French pharmaceutical giant Sanofi, but investors in his former open-ended fund have missed out significantly with the holding sold from LF Equity Income in summer 2020.

In a regulatory filing on Monday morning, the Schroders UK Public Private Trust said it expects to receive £65m upfront from portfolio holding Kymab, which is set to be bought by Sanofi in a $1.1bn deal. The holding was valued at £18m in the last net asset value update for the period ended 30 September.

Schroders UK Public Private had rallied 9.2% just before midday.

The investment trust could enjoy an additional £25m over the coming years from the deal. An additional £5m is subject to potential deductions and deferred release over the next 24 months, while an extra £20m over the next seven years is contingent on Kymab reaching certain regulatory milestones.

The Schroders UK Public Private Trust will use expected proceeds to pay down debt, provide follow-on capital for existing holdings and investing in new opportunities.

Investors in LF Equity Income, the former Woodford Equity Income fund, would not enjoy any benefit from the Kymab deal because the holding was sold to Acacia Research in June 2020 as part of a bundle of heavily-discounted biotech companies. Several months after the deal, Kymab announced successful phase 2a trials for its dermatitis antibody.

See also: Link accused of letting further middleman chip into Woodford investor savings

‘Shareholders have waited a very long time for some good news’

In an analyst note, Stifel reiterated its buy rating and said there was scope for some re-rating on the news. “Shareholders have waited a very long time for some good news from SUPP, but assuming this sale completes it is very good news in terms of the up to 4x multiple uplift over prior valuation and also in assisting the fund to reduce leverage,” said analyst Iain Scouller.

In August, Stifel had argued the investment trust could see a 22% uplift if positive news flow came through in the following months. It noted a discount at the time of 38.3% was significantly wider than the 15% to 20% discounts seen in comparable private equity investment trusts. Today, the trust trades at a 33.9% discount.

But Numis reckoned the discount indicated investors remain sceptical about the investment trust’s outlook. “We would expect the new managers will need to deliver a number of successful realisations to enable the reduction of debt and portfolio repositioning before sentiment turns significantly,” the analyst note said.

Due to the concentration of the portfolio, the outlook remained heavily dependent on Rutherford (16.1% of portfolio), Oxford Nanopore (13.7%), Atom Bank (11.3%) and Benevolent AI (6.7%), Numis said.

Nevertheless, it described the deal as a “strong realisation” for Schroder UK Public Private and said it was “some rare good news after a series of write-downs in the portfolio over an extended period”.

Schroder UK Public Private portfolio manager Tim Creed said he was confident of similar success stories in the future. “Since we took over the investment management of the company in December 2019, we have had a large team working with the management teams of the company’s portfolio to support their strategic development. This successful divestment is an important milestone for the company.”

See also: Ex-Woodford trust handed to Schroders could see 20% uplift if stars align

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