The Woodford Patient Capital Trust is in need of a “magic wand” as its net asset value takes a hit from further writedowns to cold fusion company Industrial Heat ahead of Schroders taking on the portfolio.
The board of the trust confirmed on Monday that Industrial Heat had been written down for a second time by the fund’s authorised corporate director Link and IHS Markit, resulting in a 5p hit to the company’s net asset value.
It said the downward revision to Industrial Heat’s valuation was due to “a delay in operational progress”.
The controversial cold fusion company was also written down in August, knocking 3.4p off the trust’s NAV at the time.
Anonymous holding receives write-up
The board said the blow from Industrial Heat was slightly offset by an upward revaluation of another holding, which boosted NAV by 0.7p per share.
The business, which was not named in the RNS filing, had previously been written down in September “due to a challenging fundraising environment” but was re-evaluated by Link and IHS Markit after it was able to secure funding.
After factoring in the write-up, the net hit to Woodford Patient Capital’s NAV was 4.3p. This takes the trust’s total NAV, which was 62.8p as at 31 October, down 6.8% to 58.5p.
‘Schroders does not possess a magic wand’
Analysts from JP Morgan Cazenove said the damage from Industrial Heat would be limited going forward. By their estimates the cold fusion company has already been written down by 83% and is now valued at less than £10m, making it less than 2% of the written down NAV.
But the investment bank retained its ‘underweight’ rating, predicting further writedowns even as the trust changes hands to Schroders.
“Schroders does not possess a magic wand,” it said in an analyst note. “Our view remains that there are likely to be further writedowns to come despite the wave of optimism last month that greeted Schroder’s appointment as the new manager when Woodford’s contract ends.”
The firm added that Monday’s writedown would make it more difficult for Schroders to reach its performance fee hurdle which requires NAV to hit 77p a share by 23 December 2022.
“The new NAV implies a discount of 35% at last Friday’s close,” JP Morgan continued in the note. “In our view this is insufficient to compensate for the high-risk portfolio, worsening gearing position and lack of any returns of capital. We remain Underweight.”
