Is Allied Minds plc Neil Woodford’s biggest mistake or a huge opportunity?

Investors are starting to question Allied Minds plc’s (LON: ALM) motives.

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

Yesterday shares in Allied Minds (LSE: ALM) lost a quarter of their value after the company announced a $147m writedown on the value of seven businesses. 

Allied Minds, which is a favourite of star fund manager Neil Woodford, made this announcement after a review by its interim CEO Jill Smith. The company believes that by pulling out of these seven early-stage businesses today, it can re-consolidate its efforts and focus on other firms that are more likely to yield substantial results. 

However, critics believe Allied has decided to take this course of action to make life easier for management. One set of City analysts noted last week that by writing off the value of some struggling businesses, it would be easier for management to improve the value of the remaining portfolio from a lower base. 

Timing is suspect 

Not only are the motives of Allied’s decision to write down the value of its assets questionable, but the timing of the announcement is also suspect. 

Indeed, only three months ago in December, the company tapped investors for £64m in fresh equity to invest in its businesses and technology. Neil Woodford contributed £15m as part of this capital raise. The $147m (£120m) writedown means investors have seen all of their additional investment obliterated. 

And it is possible management could have seen this coming. Jill Smith became Allied’s interim chief executive last month after co-founder Chris Silva stepped away from the business. The company has been criticised in the past by the activist New York hedge fund Kerrisdale Capital for not actually creating any value for investors since it was formed in 2006. 

Time to sell? 

Neil Woodford, who owns around 30% of Allied Minds, remains optimistic about the company’s future despite yesterday’s slump. But personally, I’m not convinced. 

Private equity is a risky business, and for every billion-pound idea, there are thousands of failures. So it makes sense for a venture capital company to have as many opportunities as possible available to it, which is the opposite of the course Allied Minds has decided to take.

What’s more, Kerrisdale Capital has a valid argument about Allied’s track record of success. In the past decade, the company has not sold any portfolio companies and has not taken a single one public. Further, of the five companies Allied formed in 2006, four failed completely, and the fifth remains stuck in R&D mode. 

Current operating figures are no better. Even though the company has agreements with 34 federal research institutions, for the half-year to June 2016, it reported revenues of just £1.3m and a net loss of $52.2m.

So overall, even though Neil Woodford remains a supporter of Allied, the company’s poor track record and lack of progress put me off the business.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Buffett at the BRK AGM
Investing Articles

Can Warren Buffett principles help when looking for AI stocks to buy?

Billionaire Warren Buffett has made a fortune by applying old investing principles to new industries. Can our writer learn some…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Up 36% in 3 months! Is my nightmare purchase of Glencore shares about to come good with a vengeance?

When Harvey Jones bought Glencore shares two years ago, he didn't expect to find himself sitting on a 45% loss.…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

£1,000 invested in Lloyds shares 5 years ago is now worth…

Anyone who’s owned Lloyds shares over the last five years is probably laughing right now with impressive returns that crushed…

Read more »

A mature woman help a senior woman out of a car as she takes her to the shops.
Investing Articles

If a 50-year-old puts £500 a month into a SIPP, here’s what they could have by retirement

Investing £500 a month with a SIPP could build a pension pot worth £269,900 or quite a bit more over…

Read more »

A rear view of a female in a bright yellow coat walking along the historic street known as The Shambles in York, UK which is a popular tourist destination in this Yorkshire city.
Investing Articles

How much do you need to invest in dividend stocks to target a £1,000 passive income?

Want to earn an extra £12,000 each year with dividend stocks? Zaven Boyrazian explores how much money investors need to…

Read more »

Finger pressing a car ignition button with the text 2025 start.
Investing Articles

FTSE shares for beginners: 2 solid picks to consider when starting a Stocks and Shares ISA

For those new to investing, Mark Hartley explains why he believes these two FTSE shares could help kickstart a resilient…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Here’s how to invest £10k to target a 7% dividend yield in 2025

Want to earn a lucrative and sustainable 7% dividend yield? Zaven Boyrazian explains the strategy he uses to generate plenty…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

I’m taking Warren Buffett’s advice as stocks reach record highs

Warren Buffett's wisdom is guiding my investing strategy in 2025 as stocks start reaching new all-time highs. Here's how I'm…

Read more »