The Biotech Growth Trust Plc

The Biotech Growth Trust Plc (BIOG) is an investment fund management company that invests in biotechnology and life sciences sector. Major investments are in equities related to biotechnology companies located globally. Its investment portfolio comprises companies ranging from startups to multinational large companies. The group’s assets are managed by OrbiMed Capital LLC, which is located in New York. The company employed Frostrow Capital LLP as its alternative investment fund manager. It measures its performance against the US-based NASDAQ Biotechnology Index.

Financial Highlights – Financial Year 2019 (31^st March 2019, £, thousand)

(Source: Annual Report, Company Website)
 
For the financial year ending 31^st March 2019, due to a decline in the investment income for the period, the company’s total income declined to GBP 1,246 thousand as against GBP 1,576 thousand in FY2018. The company’s total profit before finance expenses and tax stood at GBP 22,106 thousand in FY2019 versus a total loss before finance expenses and tax of GBP 29,054 thousand in FY2018. The company’s Revenue PBT (Profit before tax) stood at GBP 701 thousand for the financial year 2019 versus a revenue PBT (profit before tax) of GBP 837 thousand in the financial year 2018. The company’s Total PBT (Profit before tax) stood at GBP 21,286 thousand for the financial year 2019 versus a Total LBT (loss before tax) of GBP 29,543 thousand in the financial year 2018. The company’s total PAT (Profit after tax) stood at GBP 21,100 thousand for the financial year 2019 versus a total LAT (loss after tax) of GBP 29,781 thousand in the financial year 2018. The total basic and diluted earnings per share in FY2019 stood at 38.8 pence versus a total basic and diluted loss per share of 53.3 pence in FY2018.
 
Share Price Performance
 
Daily Chart as at October-17-19, before the market closed (Source: Thomson Reuters)

On 17th October 2019, the Biotech Growth TrustPlcshares were trading at GBX 682.52 at the time of writing before the market close (at 1:41 PM GMT), up by 1.57% against the previous day closing price. Stock's 52 weeks High and Low are GBX 816.00/GBX 594.54.
Conclusion
 
The company’s top-line performance had declined in the financial year 2019. Thebiotechnology sector had been challenging and volatile for the period. The company’s profitability has improved significantly for the period. Long term investment performance and diversified investments are few of its key strengths. Industry developments and corporate tax cuts in the US may offer significant growth opportunities for the company. The regulatory environment in the US is in favour of biotechnology companies. Since the company majorly invests in the US-based pharmaceuticals and biotechnology companies, it will help the company to achieve operational excellence with improved financial performance.
 
Based on the financial performance and growth prospects of the company, we have given a “Speculative Buy” recommendation at the closing price of GBX 672.00 (as on 16^th October 2019).
 

Woodford Patient Capital Trust PLC

Woodford Patient Capital Trust PLC (WPCT) is a closed-ended investment company, which aims to attain long-term capital growth over investing in a portfolio containing mainly of the United Kingdom companies, both unquoted and quoted, which is exposed to a mix of exciting, disruptive early-stage and early-growth companies. The company's portfolio is differentiated across several sectors, which include industrials, financials, telecommunication, technology, healthcare, and consumer goods industries.
Recent Development
The £252 million Income Focus fund was frozen by its administrator, Link Fund Solutions, after it took the decision to suspend the flagship Equity Income fund in June, as Neil Woodford, the best-known fund manager in the country, was fired from his flagship fund and he walked away from his remaining two investment vehicles. Woodford Equity Income Fund will now be liquidated and £3bn of assets out of the flagship will be transferred to the owners.
Financial Highlights (H1 2019, £m)
 
(Source: Company Filings)

During the period, loss on investments and derivatives measured at fair value through profit or loss amounted to £229 million against a profit of £6.86 million reported in the prior year. Total return before finance costs and taxation deteriorated to a loss of £230 million, down from a small profit of £6 million reported in the previous year. Return before taxation also declined to a loss of £231 million versus a profit of £5 million in H1 2018, while loss per ordinary share was reported at 26.27 pence against a profit of 0.61 pence in the prior year. Net asset value also declined to £654 million over the year from £760 million reported in the prior year and £807 million on 31 December 2018. Net asset value per share was reported at 72 pence as on 30 June 2019, dipped by 26.2% since 31 December 2018, when net asset value per share was reported at 97.61 pence, while it was 91.94 pence on 30 June 2018.

Share Price Commentary

Daily Chart as at 17-October-19, before the market closed (Source: Thomson Reuters)
 
On 17 October 2019, at the time of writing (before the market closed, GMT 11:19 am), WPCT shares were trading at GBX 32.65, up by 0.46% against the previous day’s closing price. Stock's 52 weeks High and Low is GBX 93.95/GBX 29.85. The company's stock beta was 0.20, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around GBP 360.70 million.
Conclusion
The group is going through an existential crisis as its lead investment manager was ousted from the company, and a couple of its funds were suspended. It is also under intense regulatory oversight, which might lead to punitive measures in the future. The general market sentiments do not help either, not least due to the market uncertainty caused by Brexit and predictions of a global recession in a few months.

Based on the above rationale, we have given an “AVOID" recommendation at the current price of GBX 32.65 (as on 17 October 2019, before the market closed).

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