The Schroder UK Public Private trust has struck a deal to offload a handful of biotech stocks it inherited from Neil Woodford at a steep discount.
The £220.8m trust revealed it would be selling a basket of largely unquoted stocks to an investment fund managed by UK life sciences venture capital firm, Rosetta Capital, for £49m.
The sale price represents a 22% discount to the aggregate valuation for the holdings as at 30 September 2020 or 19% when adjusted for foreign exchange movements.
The seven stocks included in the deal are Carrick Therapeutics, Mission Therapeutics, Psioxus Therapeutics and Mereo BioPharma, as well as partial holdings in Inivata, Immunocore and Reneuron.
This is the trust’s third big announcement in a matter of weeks after its holding Kymab was scooped up by French pharmaceutical giant Sanofi and it was granted a last-minute extension on a credit facility worth £107.3m for up to two years.
Rosetta Capital has also agreed to pony up £2.9m, reflecting certain follow-on investments Schroder UK Public Private has made this month with respect to certain holdings included in the sale. As such, the trust expects to see initial proceeds from the transaction of £51.9m.
Following news of Immunocore’s imminent IPO, Rosetta Capital has also agreed to an earn-out clause that would result in an additional payment of up to £5m subject to the acquired stake exceeding certain value thresholds upon the buyer’s future exit.
“After the announcement of the acquisition of Kymab by Sanofi and the extension of the company’s credit facility by two years, this is the third very positive announcement for the company so far in 2021,” managers Tim Creed (pictured) and Ben Wicks said.
Sale to result in a 3.2% hit to NAV
But news of the trust’s latest sale did little to inspire market confidence, with shares in Schroder UK Public Private opening 1.8% lower on Wednesday. By midday they were just under the previous closing price of 34.9p.
Numis calculated the realisations from the Rosetta Capital sale would knock another 3.2% off NAV. The trust’s current share price represents a 25% discount to Numis’ estimated NAV of 46.4p including the recent transactions.
“Seeing another hit to NAV as a result of the sale is disappointing, although the debt is now expected to reach a more manageable level and convert into a revolving credit facility, which gives the manager more flexibility to add new holdings to the portfolio,” it said in an analyst note.
“The nature of the portfolio meant that it was never likely to be a smooth ride for investors, and recent weeks have seen both significant uplifts and hits to NAV.”
Winterflood said that while investors may be disappointed by the level of the discount, this would narrow to 11% if the full contingent payment on Immunocore is triggered.
“We estimate that the uplift to the fund’s NAV as at 30 September 2020 adjusting for recent events is approximately 6%,” Winterflood said.
“This includes estimated negative impacts from the Ombu and Rosetta transactions of -2.5% and -3.5% respectively, while the sale of Kymab should increase the NAV by 11.8%, with the potential for an additional uplift of up to 6%, contingent on milestones.”
See also: Ex-Woodford trust rallies 9% after holding quadruples but trapped fund investors miss out
‘There is no longer a compulsion to sell’
More importantly Winterflood said the combined £115m proceeds from the sale of Kymab and the basket of biotech stocks would allow the trust to de-gear.
“This is important, as SUPP had become over-levered into early stage companies, which had impaired its ability to invest in new holdings and participate in further funding rounds.”
Net debt at the end of September was around £101.2m or around 25% of net assets. However as per the trust’s recently extended facility once debt reaches £60m it will convert into a revolving facility.
See also: Former Woodford trust reveals last minute extension on £100m of debt
“Further disposals cannot be ruled out and we note the concentration of the largest four holdings in the portfolio, which represented 48% of net assets at the end of September,” Winterflood said.
“However, as a result of being able to de-gear, importantly there is no longer a compulsion to sell.”
