Today’s full-year results report from Syncona (LSE: SYNC) presents us with an interesting investing proposition, I reckon.
Targeting life sciences
The life sciences sector is almost guaranteed to stir the animal instincts as we dream of multi-bagging investments driven by underlying businesses creating and commercialising blockbusting and novel treatments for diseases and ailments. However, the truth is that many companies in the sector fail to deliver the returns we hanker after, instead grinding on for years, burning the capital that’s invested in them and never actually scoring a meaningful commercial breakthrough.
Risk in the sector is rife, so Syncona’s declared intention to focus its investment strategy on building a portfolio of investee companies in life sciences strikes me as a potentially decent way of capturing upside and mitigating downside.
A pipeline of opportunities
The firm operates as a closed-end investment fund, which means we can’t redeem our shares against the fund, but we can buy and sell them on the stock market just like we can any other company. At the moment around 70% of the firm’s net assets are invested in other funds focused on equity, debt, commodities and fixed income. The remaining 30% is in life science companies, but Syncona plans to invest more from its portfolio of other funds into life science firms as opportunities arise. In its own words, the firm is targeting “Evolution to concentrate on creating, investing in and building global leaders in life science”.
Syncona reckons it has a strong pipeline of opportunities that should lead to the firm investing around £75m to £150m in new and existing life science investments during the current financial year. Meanwhile, investee firms already in the life science portfolio are making progress towards key milestones. I suspect that Syncona’s shares could have much further to go as the firm’s investment strategy plays out.
Production down, shares up
We also heard from Ferrexpo (LSE: FXPO) today as the firm issued its second quarter production update. The company specialises in iron ore, producing, developing and marketing iron ore pellets for the metallurgical industry. During the first half of the year, pellet production slipped by around 10% compared to the equivalent period the year before, which the firm put down to a planned 55-day pellet line refurbishment.
Of course, an investment here is all about the price of iron ore and where investors think it’s going. The underlying fluctuations of the commodity price directly affect the firm’s profitability and investor sentiment can magnify movements of the firm’s share price. At the beginning of 2016 Ferrexpro shares changed hands at less than 20p when commodity prices and resource company share prices sold off. Today’s share price around 202p represents a spectacular trade for investors brave and prescient enough to have bought at the lows.
Strong uptrend
City analysts following the firm have pencilled in a 62% increase in earnings per share this year and a decline of 37% for 2018, but there must be a lot of guesswork in those figures. All we really know for sure is that the uptrend in the shares seems to remain strong and I would take a punt on that while remaining vigilant for any sentiment-driven reversal.
