Woodford plans new share issue
In an announcement to the London Stock Exchange on Wednesday (13 January), the board of the Woodford Patient Capital trust has indicated that it intends to issue a fresh tranche of shares for the popular trust.
'The Woodford Patient Capital Trust has successfully deployed the proceeds of its initial public offering and has a substantial ongoing pipeline of investment opportunities.
'With the current market conditions in mind, the board is currently looking at ways it can raise additional capital in the year ahead and will consult with, and gauge interest from, investors,' the statement says.
Launched in April 2015, Woodford Patient Capital raised a record breaking £800 million during its initial offer period. This significantly surpassed the trust's £200 million target and made it the largest initial public offering (IPO) for a UK-listed investment trust in market history.
The star status of manager Neil Woodford secured the trust's popularity and shares have traded at a significant premium to net asset value (NAV) since its launch, from a high of more than 15 per cent to 5.2 per cent as of 12 January.
This is despite the trust shedding close to 14 per cent of its share price value and more than 8 per cent of its NAV over the six months to the same date, as a number of its biotechnology holdings have plummeted - particularly scandal-stricken US firm Northwest Biotherapeutics.
Commenting on the board announcement, Mark Dampier, head of investment research at Hargreaves Lansdown, says: 'Neil Woodford believes there remain plenty of unexploited opportunities in early growth businesses and he now wants to consider raising further money specifically to take advantage of these. In his view there are some outstanding investment cases, but they will not be around forever.'
The trust's board has already issued new shares since Woodford Patient Capital's IPO, creating 27 million shares between August and September 2015, increasing the trust's market capitalisation to £815 million as of 12 January.
Shares tumbled 2 per cent following the announcement on Wednesday as a fresh share issue is likely to further reduce the trust's premium to NAV, indicating that current shareholders may be banking profits while shares remain at a premium.
Dampier adds: 'A new large tranche might cause the trust's share price to fall to a discount in the short term. However, the fact that Woodford believes the investment case remains so strong is good for the long-term investor, although there are no guarantees of future performance.'
Net asset value
A company’s net asset value (NAV) is the total value of its assets minus the total value of its liabilities. NAV is most closely associated with investment trusts and is useful for valuing shares in investment trust companies where the value of the company comes from the assets it holds rather than the profit stream generated by the business. Frequently, the NAV is divided by the number of shares in issue to give the net asset value per share.
A way of valuing a company by the total value of its issued shares and calculated by multiplying the number of shares in issues by the market price. This means the market capitalisation fluctuates continually as the value of the shares change in the market. For example, HSBC has 17.82bn shares in issue at a price of 646.2p making a market capitalisation of £115.15bn.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
An Initial Public Offering is the US equivalent of flotation, and is the first sale of equity in a private company in the form of shares (know as stocks in the US) to the public in order to raise capital to finance growth.