The Motley Fool

Why I’d sell Woodford Patient Capital Trust plc today

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.

Businessman pulling out wooden brick from toppling stack
Image source: Getty Images.

I’ve reconsidered my position on master investor Neil Woodford’s Patient Capital Trust (LSE: WPCT), having reviewed its development since its launch in April 2015. The shares have performed poorly — they’re trading at 83p versus an IPO price of 100p — but there are more fundamental reasons why I now rate the trust a ‘sell’.

Prospectus

The trust issued a prospectus ahead of its launch and the following table summarises how Woodford expected the portfolio to look “one or two years from admission”:

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Company type Characteristics Portfolio weighting
Mature Mid- and large-cap. Quoted companies. “Woodford’s high conviction blue-chip ideas.” c. 25%
Early growth “Typically quoted although may be unquoted companies.” c. 25%
Early stage “Likely to include both quoted and unquoted companies.” c. 50%

The trust appeared to offer a good balance between prudence and risk, with a decent chunk of the portfolio in liquid blue-chip stocks and even the second-tier early growth companies being “typically quoted.” While the weightings weren’t set in stone, there was a longstop on exposure to illiquid, unquoted companies, the prospectus declaring a maximum limit of 60% of net asset value (NAV) at the time of investment.

Also providing comfort on the risk front, the prospectus advised that while the trust was permitted to use gearing of up to 20% of NAV (at the time of borrowing), it “does not intend to deploy long-term gearing.”

Shaped up nicely

At the end of its first financial year (31 December 2015), it had shaped up nicely, being “substantially invested.” It held a small amount of cash and had no borrowings.

Mature companies, including FTSE 100 giants AstraZeneca, GlaxoSmithKline, Legal & General and Provident Financial, represented 30% of the portfolio. The early growth segment was at 23% and early stage at 46%. In terms of the balance of quoted and unquoted companies, the former had a weighting of 63% and the latter 36%.

A far higher risk proposition

However, the trust has morphed into a rather different animal to that envisaged in the prospectus. All its FTSE 100 holdings have been sold, the limit on unquoted companies has been increased from 60% to 80% and it’s dropped “does not intend to deploy long-term gearing” from its remit.

As of 30 November, I calculate that unquoted companies represented 78% of NAV and that Woodford had utilised £143m of a £150m overdraft facility, giving the trust gearing of 19%. The table below shows the top 10 holdings.

Company Status Market Weighting (%)
Prothena Quoted Nasdaq 11.8
Oxford Nanopore Unquoted n/a 9.3
Benevolent AI Unquoted n/a 7.1
Immunocore A Unquoted n/a 6.8
Purplebricks Quoted AIM 6.0
Proton Partners International Unquoted n/a 4.5
Autolus Unquoted n/a 4.4
Mereo Biopharma Quoted AIM 4.3
Atom Bank Unquoted n/a 4.2
Theravance Biopharma Quoted Nasdaq 3.9

The four quoted companies are all lossmaking and hardly seem to fit the prospectus mould of “Woodford’s high conviction blue-chip ideas.” Indeed, with the portfolio also stuffed to the hilt with unquoted companies (many of which require ongoing funding) and with the overdraft and gearing limit almost maxed out, the trust now looks a far higher-risk proposition than when it launched.

The shares currently trade at a discount of less than 10% to NAV. I believe the discount should be much wider and I rate the stock a ‘sell’.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.