Neil Woodford Buys More ‘Profoundly Undervalued’ Allied Minds PLC, 4d Pharma PLC And Midatech Pharma PLC

Ace fund manager Neil Woodford sees huge value in Allied Minds PLC (LON:ALM), 4d Pharma PLC (LON:DDDD) and Midatech Pharma PLC (LON:MTPH).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The Woodford Patient Capital Trust published its latest update this week. In noting that the trust had increased its holdings in Allied Minds (LSE: ALM), 4d Pharma (LSE: DDDD) and Midatech Pharma (LSE: MTPH), the update said that these purchases were made “at what we consider to be share price levels that profoundly undervalue the long-term commercial potential of these young businesses”.

Allied Minds

Index: FTSE 250 — Share price: 399p — Market cap: £860.4m — Proportion of company owned by Woodford Asset Management: 29.1%

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Allied Minds is a science and technology development and commercialisation company. The company forms, funds, manages and builds businesses, based on innovative technologies developed at leading US universities and research institutions.

According to its latest trading update, Allied Minds has a portfolio of 23 subsidiary businesses and “exciting collaborations with industry leaders such as Bristol-Myers Squibb, Intel, AMD and Google”.

At the same time as Woodford was upping his stake, his team noted that “the market appears to be struggling to place an appropriate value on this young technology business”.

I can see why. Companies with no earnings are often valued on the their price-to-sales (P/S) ratio, but on this measure Allied Minds is profoundly overvalued. Revenue for the last calendar year was $4.7m (£3.2m), so with a current market cap of £860.4m, we’re looking at a ridiculously high P/S of 269.

Turning to assets, Allied Minds still appears to be on a very rich rating: five times book value, based on the last published balance sheet (30 June 2015) showing net assets of $270.4m (£172m). A US short-selling hedge fund, in a research report that was of course slanted to its own agenda, did, however, calculate net asset value (NAV) based on Allied Minds’ own higher valuation of its assets. This worked out at $631m (£401m) — so, the company is currently valued in the market at more than twice that implied by the management’s own valuation.

Allied Minds said in its trading update last month that management’s valuation for 31 December 2015, “while still being finalised, is expected to be comfortably ahead of the prior year”. Even so, that sounds like the current share price still represents a hefty premium — which, on the face of it, doesn’t seem a profound undervaluation of what is a portfolio of largely early-stage, illiquid and opaque assets.

4d Pharma

Index: FTSE AIM 100 —  Share price: 850p — Market cap: £550.6m —  Proportion of company owned by Woodford Asset Management: 24.1%

4d Pharma is developing therapeutics based on live bacteria. The company has earned no revenue to date, recently acquired another interesting (but also early-stage) business, and had net assets of £66.6m (£61.5m of which was cash) at 30 June 2015.

If you purchased the whole company today at the current share price, your cash of £550.6m would essentially buy you cash of £61.5m, a few million intangible assets and a lot of hope that Woodford is correct in believing this represents a profound undervaluation of 4d Pharma’s commercial potential.

Midatech Pharma

Index: FTSE AIM All-Share — Share price: 156.5p — Market cap: £52.4m —  Proportion of company owned by Woodford Asset Management: 20.0%

Nanomedicine company Midatech Pharma had net assets of £37.1m at 30 June 2015, so the shares are trading at 1.4 times NAV, which compares favourably with 4d Pharma’s 8.3 times NAV.

Midatech also boasts some revenues, having brought in £0.4m over the 12 months to 30 June. A leap to over £8m is forecast for calendar 2016, with around £14m currently pencilled in for 2017 — which would give a not-outrageous P/S ratio of 3.7 at the current share price.

At the end of the day, though, I have to say that these kind of ‘high hopes’ businesses don’t really appeal to me — even if the redoubtable Mr Woodford reckons their commercial potential is profoundly undervalued.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

Stock market crash: here’s why falling prices is good news

Over in the US, a stock market crash is battering high-priced stocks. But I see falling shares as an opportunity…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

These 5 FTSE 100 shares crashed in 2022. I’d buy 1 today

Although the FTSE 100 index is flat in 2022, some Footsie shares have crashed hard this year. But I see…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How investors can boost their passive income when the FTSE is falling

Stock markets are plagued with fears right now. Here's why I firmly believe those fears improve our passive income prospects.

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Investing Articles

2 cheap UK shares to buy right now!

Recent market volatility means many top stocks now trade at rock-bottom prices. Here are two cheap UK shares I'm thinking…

Read more »

Rolls-Royce's business aviation engine, the Pearl 700
Investing Articles

The Rolls-Royce share price is just pennies. Am I missing something?

As the Rolls-Royce share price lingers in penny stock territory, our writer revisits the investment case that has attracted him…

Read more »

Compass pointing towards 'best price'
Investing Articles

How to put a valuation on the Woodbois share price

The Woodbois share price has fallen from its recent spike, so should I buy now? And how can I work…

Read more »

Inflation in newspapers
Investing Articles

I’d fight inflation with these 2 FTSE 100 dividend shares

With inflation hitting a 9%, I'm boosting my passive income and turning to these two FTSE 100 dividend stocks.

Read more »

New Ways of Investing - Hands Only Using Smart Phone
Investing Articles

2 cheap Footsie stocks to buy for BIG dividends!

The recent stock market sell-off leaves plenty of top stocks looking too cheap to miss. Here are two great Footsie…

Read more »