The discount at which Neil Woodford’s £804m Patient Capital investment trust trades has made the shares are a buy, according to investment analysts.
The shares currently trade at a discount to net asset value of 41 per cent, according to data from the Association of Investment Companies (AIC).
The trust lost 50 per cent of its share price over the past five years after suffering in the immediate aftermath of the suspension of Mr Woodford’s Equity Income fund in June, when its shares fell from 77p to 63p.
This was because investors worried that Mr Woodford would be forced to sell holdings in his main fund that are also held in Patient Capital, and being a forced seller would mean the price of those assets would fall.
What's more the trust invests predominantly in illiquid and unquoted companies and holdings such as IH International have had their value written down dramatically.
Fear of losses prompted many advisers to avoid the Patient Capital trust, but with the shares now trading at 45p versus a nav of 74p some analysts told FTAdviser they believe the shares are now a buy.
Tom Sparke, investment director at GDIM, a discretionary fund management firm in Cambridge, said: “The discount on the Patient Capital trust has widened to seemingly chasmic levels versus the net asset value but there are lingering doubts around a couple of factors.
"The potential for further losses from disappointing company results or from those targeting Woodford’s holdings is still evident and I think that some potential investors would be suspicious of the true value of the underlying investments.
"The valuations of the unquoted assets are undertaken by an independent third party company with no link to the trust, so I would say that the fears over mis-valued assets are probably unfounded at the moment."
DIY platform Interactive Investor said yesterday that platform “discount opportunists” have increasingly purchased the trust, helping it onto sixth position on the firm's bestsellers table in August.
Ben Yearsley, a director at Shore Financial Planning, said the trust was an interesting long-term investment although there were risks around the management in the short-term.
The board of the trust in June restricted Mr Woodford’s powers as fund manager, including limiting the amount of debt he can take on, and said it is talking to rival fund managers about potentially taking over the management of the trust.
Mr Yearsley said: “The problem comes if the board appoints a new manager as that manager will inevitably write down the value of the portfolio and probably charge a performance fee based on the new written down value.
"The current discount gives a lot of headroom for write-downs. Whilst not knowing the portfolio companies in depth, as a long-term high risk investment I think it looks interesting.”
Adrian Lowcock, head of personal investments at Willis Owen, was a little more cautious. He said: “The shares are at a sufficient discount that they factor in most of the risks we know, but they remain at such a low level because what is still uncertain and is yet to be resolved is Woodford's ability to pick stocks in this space.
"The discount reflects this and also the concerns over the future management of the fund, including the structure of the board.
"Whilst I wouldn’t recommend a buy outright I could see the trust rallying on some good news, probably more relating to the fund itself rather than the underlying investments.”
david.thorpe@ft.com
