Why I’d still shun the Woodford Patient Capital share price at 45p

G A Chester discusses why he’d still avoid Woodford Patient Capital Trust plc (LON:WPCT) at a 40% discount to NAV.

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.

Just to rub salt into the wounds of embattled fund manager Neil Woodford, the FTSE powers that be last night confirmed his Patient Capital Trust (LSE: WPCT) is to be kicked out of the FTSE 250 index.

The move follows a 39% collapse in the growth trust’s share price since the last quarterly review of the FTSE indexes. The shares closed yesterday at 45p, representing a discount of 40% to its last published net asset value (NAV) of 74.43p.

On paper, Patient Capital appears to offer great value. Here, I’ll explain why I see it as a stock to avoid.

Discount

A month before the gating of his flagship Equity Income fund in June, I warned readers the House of Neil Woodford could be about to collapse. I’d been bearish on his Patient Capital Trust from way back in January 2018 (when the shares were 83p and trading at a discount of less than 10% to NAV), explaining why I believed the discount should be much wider.

However, due to the ramifications of the gating of his Equity Income fund, which has significant cross-holdings with Patient Capital, even the current 40% discount isn’t wide enough to tempt me.

Cornerstone investors under pressure

Woodford is in the process of clearing out the unlisted stocks from his Equity Income fund to raise cash in order to meet redemptions when the fund is ungated. Meanwhile, he’s also a seller with his Patient Capital hat on, having agreed with the trust’s board to clear a maxed-out £150m overdraft within 12 months.

Elsewhere, IP Group, another early-stage investment company, is backed by Woodford, as well as being a fellow cornerstone investor in many of the same unlisted companies. IP’s shares have also collapsed to a steep discount to NAV, making it difficult for it to raise fresh cash to support the investee companies.

Another under-pressure cornerstone investor is Invesco Perpetual. When Woodford left Invesco, he left his protégé Mark Barnett with big positions in many of the same unlisted companies he went on to buy for Patient Capital and his new Equity Income fund.

Omnishambles

With Woodford now a seller and key fellow cornerstone investors not best placed to take shares off his hands, the valuation of the investee companies will inevitably come under pressure. Any new investor willing to relieve Woodford of his shares will want a hefty discount.

Furthermore, with many of the investee companies being loss-making, and requiring more rounds of funding to have any hope of reaching commerciality, it’s not in their interest to see Woodford sell his shares to a new investor. This raises no cash for the companies themselves.

Far better for them to keep Woodford locked in by offering any interested investor new shares at a discount to Woodford’s selling price. This raises cash for the companies, rather than for Woodford, but puts further downward pressure on their valuation and on Patient Capital’s NAV.

Frankly, I think the situation is an omnishambles, and it’s impossible to estimate what Patient Capital’s true NAV might end up as when everything’s played out. For now, I see the trust as uninvestable.

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.

G A Chester has no position in any of the 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

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

Should I follow Warren Buffett and sell my favourite shares?

Billionaire US investor Warren Buffett has been selling tons of Apple shares and other stocks of businesses he thinks are…

Read more »