Neil Woodford has endured a hard time of late. Some of the star fund manager’s most prominent positions, such as Allied Minds (LSE: ALM), have seen their share prices crater in recent years. For example, if you were unlucky enough to buy shares in Allied at the stock’s five-year peak in mid-2015, you’d now be looking at losses of 91% on your original investment.
The company is trying to turn itself around, but it’s not been easy. Allied invests in early-stage tech and biotech businesses, two markets where it notoriously difficult to pick winners.
However, management is hoping that 2019 will be the year that the group’s portfolio starts to yield results. In a trading update today, CEO Jill Smith reports that three of the firm’s largest investments, Spin Memory, HawkEye 360, and Federated Wireless are “on track to deliver commercial revenue in 2019.“
The CEO also set out to reassure investors that the business is well-funded for the foreseeable future, reporting Allied “had a cash balance at 31 December 2018 estimated at $50m.” Smith goes on to note that this figure includes additional capital contributions to SciFluor and Precision Biopsy, which were both supported by Woodford Investment Management.
Time to buy?
Today’s update shows that Allied is trying to put its mistakes behind it, but I’m not a buyer at the current level.
I’ve always been sceptical about Allied’s potential because I know how difficult it is to pick successful startups. So far, the company hasn’t proved to investors it can succeed where so many other funds have failed. For this reason, I’m staying away.
On the other hand, I would happily invest my money in another Neil Woodford favourite, Burford Captial (LSE: BUR).
Booming market
Unlike Allied, Burford has an impressive track record of creating wealth for its shareholders. Investors who bought the stock five years ago have seen the value of their funds grow by 74% per annum.
It doesn’t look as if the business is planning to slow down anytime soon. The booming market for litigation finance is proving to be a fertile environment for Burford to grow and expand.
According to a recent survey of nearly 500 lawyers around the world conducted by the firm, 70% of respondents who don’t already use litigation finance say they’re likely to do so in the next two years. Meanwhile, just under two-thirds of interviewees cited Burford as the best provider of litigation finance in the field.
All types of investors are trying to get in on the litigation finance market, where returns tend to be significantly higher than other asset classes. Back in December, Burford announced it had secured funding for $1.6bn in new litigation investments. A sovereign wealth fund and new private investment fund made up the bulk of these contributions, with the company’s cash filling in the rest.
City analysts believe the company’s earnings per share could grow 21% by the end of 2019. That puts the stock on a forward P/E ratio of 16.5 and gives a PEG ratio of 0.5, which implies the shares offer growth at a reasonable price. That’s a valuation I think is worth snapping up today.
