The Woodford Patient Capital Trust board has “no choice” but to fire Neil Woodford now that his flagship Equity Income Fund has been yanked from him and placed into wind down.
The trust hit a record low price of 33.8 p on Tuesday morning as Link confirmed it was giving the fallen star manager the boot.
A short statement from the investment trust board failed to quell markets with the trust falling to 34.2p in early trading and then later hitting 33.8p representing a 10.2% drop since open.
The latest published net asset value was 64p with a discount of 41%. That is not the lowest it has been with the discount to NAV hitting 50.6% in August, according to Association of Investment Companies data. That is a vast contrast from the 15.1% premium it had enjoyed in August 2015.
The board reiterated its review of management and said it would make an announcement in “due course”.
WPCT board has its hand forced
The wind down “will force the hand” of the board, JP Morgan Cazenove said in an analyst note.
“Woodford receives no fee from WPCT and appears in no position to credibly remain as manager of WPCT, or indeed any other mandates,” the note said. “In our view the Board will have no choice now other than to fire Woodford, something we believe they should already have done weeks ago.”
The debacle has “destroyed” Woodford’s reputation, the note said.
The trust’s market cap is currently £342.1m compared to its peak of £954.4m in August 2015.
Discount offers a buffer against further unquoted markdowns
Stifel expected the share price may bounce in the short-term as investors anticipate a replacement manager.
It said the board needed to appoint a replacement “as a matter of necessity” and the Equity Income Fund wind-up increases the likelihood the trust employs a run-off strategy.
This would mean investments are realised over a number of years and cash returned to investors once £111m of bank debt is repaid.
A replacement manager would likely charge a conventional fund fee, the note said.
JP Morgan Cazenove said there is a “very high risk” there could be further substantial markdowns to the NAV, particularly as Equity Income winds up. It said the headline discount provides some protection against this for investors.
