Schroders UK Public Private (SUPP) shares have pepped up following good news for another of its legacy Neil Woodford holdings, which is to be combined with a European special purpose acquisition company (Spac).
In a stock exchange announcement, the £438.8m trust noted Benevolent AI had entered into a definitive agreement to combine its business with Odyssey Acquisition, a Spac listed on the Euronext Amsterdam.
SUPP will receive class A ordinary shares of Odyssey in exchange for its shares in the unquoted biotech firm as part of the deal, which will see Benevolent AI become a wholly owned subsidiary of the Spac vehicle. Benevolent AI represented 5.2% of the trust’s net asset value (NAV) as of 30 September 2021.
SUPP’s share price was cheered by the news, rising 2% to 33p by midday.
The Benevolent AI transaction represents another spot of good news for SUPP managers Tim Creed (pictured) and Roger Doig who have been struggling to make their mark on the portfolio since inheriting it from Neil Woodford.
Though they have found some success with the likes of Oxford Nanopore, which has seen its share price surge 774% since listing on the London Stock Exchange in October, many of Woodford’s unlisted holdings have continued to be loss-making and in need of further capital injections to stay afloat.
Investec downgrades SUPP to ‘sell’
Investec downgraded the £438.8m trust to ‘sell’ last week, with director of investment company research Alan Brierley concluding that liquidity, an immature portfolio, and legacy issues would continue to be a drag on returns over the medium-term.
Brierley singled out ex-Woodford holding Rutherford Health as a major “cause for concern”. The proton therapy cancer treatment firm, which is SUPP’s third largest holding at 7.9%, revealed a £19.9m loss in its unaudited interim accounts, up 27%, and a cash position of just £3.1m. The biotech firm added it may require additional funding in order to keep the lights on.
The performance of new positions initiated by Creed and Doig has also been “underwhelming,” Brierley added.
Johnson Matthey, the pair’s first public equity investment, saw its valuation slashed by 13% in Q3 and its shares have fallen 23% further after the company issued a profit warning and said it would sell its capital-intensive battery business.
Petershill Partners, which Creed and Doig ploughed £7m into in September, has also floundered since its September IPO, with shares down 18% below issue price.
Brierley wrote: “While Oxford Nanopore has been a spectacular success, the health of the remaining legacy portfolio is a concern, and although still early days, the performance of two of the new investments have done little to inspire confidence. We downgrade to sell.”
Spac merger leaves Benevolent AI in stronger cash position
SUPP said the implied valuation impact from the Benevolent AI deal is expected to be positive for NAV but will ultimately be determined by its listing price on the Euronext Amsterdam.
SUPP said the transaction will enable Benevolent AI to continue investing in its technology platform, accelerate the scale-up of its clinical pipeline and consolidate its position in AI-enabled drug discovery.
It will also leave the company in a strong cash position, with €300m of gross cash held in escrow by Odyssey prior to any redemptions and €56m of cash on Benevolent AI’s balance sheet. Existing Benevolent AI shareholders including Temasek and strategic partner Astrazeneca have also committed €135m via a private placement.
Benevolent AI and Odyssey’s board of directors have already unanimously approved the proposed merger, though it is still subject to customary closing conditions expected to complete by Q1 2022.
Last week SUPP ditched its holding in online crowdfunding platform Seedrs, another legacy Woodford holding, following a takeover bid. It also initiated a €11.8m investment in Berlin AI company Ada Health.
See also: Schroders trust ditches legacy Woodford holding in online crowdfunding platform
