Syncona Limited – Overbought and overstretched stock amid economic uncertainties.

Syncona Limited (LON: SYNC) is a FTSE 250 listed closed-ended Investment Company, which aims long-term capital appreciation. It invests in life science businesses and single or multi-asset projects.

On 19 November 2020, SYNC expects to announce its interim results for the six months ended 30 September 2020.

Investment Rationale – Sell at GBX 277.50

• In terms of trading multiples, Price/Earnings and Price/Book are overvalued as compared to the corresponding multiples of the collective investments sector.
• In the past one month, stock has delivered a positive return of ~4.75%, whereas the benchmark index (FTSE 250) has outperformed the stock with a return of ~6.79%.
• From a technical perspective, 14-day RSI (83.22) is in the overbought zone, and hence, stock price correction is expected in the short term.
• The duration and impact of the pandemic remained uncertain.
• Both return on equity and return on assets are in the negative territory.

Risk Assessment

• The Covid-19 pandemic can lead to delays in the clinical trials.
• The recessionary economic conditions can materially impact the portfolio valuations.
• Most of the portfolio entities are yet to prove their financial viability with the commercialisation of products.

Recent News

5 November 2020: SYNC’s portfolio company, Autolus Therapeutics announced that the net loss attributable to ordinary shareholders was US$37.3 million for the three months ended 30 September 2020, as compared to US$ $27.2 million for the same period last year. The cash and equivalents totalled US$177.7 million.

Quarterly update (Q1 FY21) for the period from 31 March 2020 to 30 June 2020 (as on 10 August 2020)

• The life science portfolio increased by 35% since the year end. As of 30 June 2020, life science portfolio stood at £677.0 million, driven by the surge in Autolus Therapeutics’ share price and the write-up of Freeline Therapeutics.
• As of 30 June 2020, the Company had the capital base of £737.9 million.
• The Company also recorded strong clinical progress with significant data generation while new programmes were also initiated.
• Syncona has also agreed to invest £18.5 million in the IPO of Freeline.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Book Approach (NTM) (Illustrative)

Conclusion

Syncona is still looking to invest in new opportunities despite the disruptions caused by the COVID-19 pandemic. However, it is too early to assess the long-term impact of the Covid-19 disruption. In addition, many companies in SYNC;’s portfolio are yet to commercialise its products, and their ability is exposed to operational, and commercial risk. Furthermore, the 14-days RSI is indicating an overbought position while the stock is already trading close a 52-week high, and thus, the upside potential is quite sceptical.

Given the heightened level of uncertainties, we recommend a “Sell” stance on Syncona Ltd. at the current price of GBX 277.50 (as on 12 November 2020, before the market close at 3.00 PM GMT), while we look forward to reviewing the support from upcoming catalysts to reinvest.  

ICG Enterprise Trust PLC – Market dislocation and volatility, keeping the outlook uncertain.

ICG Enterprise Trust PLC (LON: ICGT) is a FTSE 250 listed Investment Trust Company, which generate long-term returns by investing in private companies primarily in Europe and the United States.

Investment Rationale – Sell at GBX 910.00

• From a technical perspective, 14-day RSI (74.72) is in the overbought zone, and hence, stock price correction is expected in the short term.
• ICGT’s dividend yield is nearly half of the industry median.
• As of 31 July 2020, the portfolio valuation has gone down by 5.13%, as compared to the value on 31 January 2020.
• In the past one month, the stock has delivered a positive return of only ~1.13%, whereas the benchmark index (FTSE 250) has outperformed the stock with a return of ~7.12%.

Risk Assessment

• The economic shock arisen from Covid-19 restrictions can materially impact the investment performance and portfolio valuation.
• Change in regulatory and taxation compliance can cause significant financial risk.
• The availability of substantial funds and fluctuating exchange rates can also derail financial performance.

Recent News

10 November 2020: David Warnock will join the Company’s board as a non-executive director with effect from 1 December 2020. He co-founded the investment firm of Aberforth Partners.

Interim Results for the six months ended 31 July 2020 (as on 7 October 2020)

 (Source: Company Website)

• The Company has generated £94 million in proceeds through realisation and secondary sales.
• As of 31 July 2020, the Company had £197 million of available liquidity.
• It has maintained a quarterly dividend of 5 pence per share.
• As of 31 July 2020, cash balance increased to £39 million (31 Jan 2020: £14 million).
• At the end of period, the portfolio represented 99% of net assets, as compared to 102% on 31 January 2020.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

Invariably, ICGT is operating amid volatility and uncertainty, and thus, portfolio valuation is exposed to market risk. Moreover, political and macroeconomic instabilities can cause significant financial risk. The stock is already trading close to a 52-week high, which is raising doubts over the upside potential. Furthermore, the stock has already yielded a return of ~28.86% over the past six months, and it is offering an attractive opportunity to book the profit. Stock 52 week High and Low were GBX 1,015.00 and GBX 460.00, respectively.

Given the heightened level of uncertainties, we recommend a “Sell” stance on ICG Enterprise Trust PLC at the current price of GBX 910.00 (as on 12 November 2020, before the market close at 8.00 AM GMT), while we look forward to reviewing the upcoming catalysts and reinvest at the right price.  

*All forecasted figures and Industry/Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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