Woodford Concerns

Moe_The_Bartender

Alexland wrote: »

From what we know so far about the truckers, overstating their operating profit by 4% is hardly going to take the company down so for Woodford this is one of his better problems.

Alex

Maybe but it depends on what the share price is when the suspension is lifted.

AnotherJoe

bowlhead99 wrote: »

Basically Link are damned if they do and damned if they don't.

Given their history and recent behaviour, that sounds entirely fair

dividendhero

Alexland wrote: »

From what we know so far about the truckers, overstating their operating profit by 4% is hardly going to take the company down so for Woodford this is one of his better problems.

Alex

It's not so much the amount, if fiddling the books investors wonder what other nasties have been hidden

AnotherJoe

Thought experiment for BH.
I will lend you at zero percent interest for 3 months, £50m.
With that, you can only purchase the WPCT investment in IH but you are getting it at a bargain price, £20m off at £50m not Links valuation of £70m.
You have to pay me back the £50m within 3 months after you've resold IH.
Failure to pay me back the full £50m means you have to make up the shortfall from your not inconsiderable private wealth up to and including bankruptcy.
Would you take the deal ?

bowlhead99

AnotherJoe wrote: »

Thought experiment for BH.
I will lend you at zero percent interest for 3 months, £50m.
With that, you can only purchase the WPCT investment in IH but you are getting it at a bargain price, £20m off at £50m not Links valuation of £70m.
You have to pay me back the £50m within 3 months after you've resold IH.
Failure to pay me back the full £50m means you have to make up the shortfall from your not inconsiderable private wealth up to and including bankruptcy.
Would you take the deal ?

Of course I would not take the deal.

The investment in a research company by Woodford is a foot-in-the-door, an establishment of a position to be close to research, which may or may not lead to future opportunities to invest more at the appropriate time. If I had ten billion, perhaps I could drop half a percent of it into IH alongside some other punts of similar magnitude; potentially one of them might come off or give me an opportunity or two within the next couple of decades to invest £200-500m in a closer-to-commercialisation development, which I could syndicate out rather than fully self-fund, and profit greatly.

So, it's the sort of thing that an investor with billions of dollars for an initial purchase and deep pockets for follow-on opportunities over an unknown timescale, might go for. Having seeded some research, it may be my kids rather than me, who end up sharing the spoils.

In a fund context, as I've said before, if a fund is going to deliver results over a multi-decade period, it doesn't need to have all its money exclusively in companies delivering a high level of income right now, or a high level of profits right now, or something that can definitively be easily flipped on to another like-minded investor in six months' time. It can have a mix of holdings.

You might think, if Woodford is running an income fund and a patient capital fund, and investors in each of them will want to see some returns at some point, what the hell is he doing investing a small portion of his overall capital in something without a quick payoff? Well, his funds did have the potential to run for decades, before unfortunately the money started to get pulled, which he probably didn't forsee five years ago.

So something with a low chance of any immediate reward, but contextualised as also having option value - some sort of chance to create potential dealflow in future - might have been something a fund manager could rationalise, even though it was more likely than not to be a money loser. VC funds invest in whole portfolios of things that are perhaps individually quite likely to fail but with a long timescale and broad set of opportunities, something will succeed and cover the losses. Woodford is not a VC house, and is not going to buy 200 x 0.5% punts. However, he is open to the potential long term risk/reward of some private capital deals.

But no, I would not take a your deal. Investing in bluesky research for a chance to commercialise it in the future at a cost of tens more millions of risk capital, is something you can do as a huge permanent capital fund or as the head of a multi-billionaire's family office, with a multi decade timescale. Whereas for someone who only has a few hundred grand of net worth: borrowing £50m from Joe with a requirement that you buy a research company and flip it on within three months because you have to pay the £50m back in that timescale, would be bonkers, even if the research company might be worth a present value of £100m to you if you'd been able to keep it for decades.

AnotherJoe

My point was if you cant make £20M profit on it by buying at £50M and flipping at Links valuation of £70M right now, its not worth £70M is it. Or at least, you dont think it is.
What price woudl you pay for it, where you had a pure "flip" scenario. Because thats the price it should be valued at, factoring in the downside and upside and setting a price people woudl pay today

Alexland

dividendhero wrote: »

It's not so much the amount, if fiddling the books investors wonder what other nasties have been hidden

Unless it expands into another Patisserie Valerie situation then Woodford has far worse investments in his back catalogue of errors.

bowlhead99

AnotherJoe wrote: »

My point was if you cant make £20M profit on it by buying at £50M and flipping at Links valuation of £70M right now, its not worth £70M is it. Or at least, you dont think it is.
What price woudl you pay for it, where you had a pure "flip" scenario. Because thats the price it should be valued at, factoring in the downside and upside and setting a price people woudl pay today

If I don't have to sell it in 3 months to pay you back your loan, I don't need to line up a buyer tonight, so I don't need to take the first offer of 50p for it. Whereas if you are going to enforce some arbitrary condition like I need to 'flip it' in 3 months, I would want to pay less, because when disposing it I would be a distressed seller, and would not achieve fair value.

However, if I held it already and didn't need to sell it in the next 3 months, and accounting standards told me to value it at fair value, maybe £50m is fine. I don't know what it is worth to an arm's length buyer as I am not party to the original investment thesis nor the strategic plans of any potential acquirer, and have not seen the business plans or any accounts. Yes I know you know it is worth £0 full stop.

I think it is likely to be worth a lot less than Woodford paid for it, as there are not many Woodfords who would want to take over the investment (the finance mostly funded expenses rather than assets) or an ongoing funding commitment. However, on a technicality, a low number of potential buyers does not mean it is actually worth zero - that's not how the accounting concept of fair value works.

Moe_The_Bartender

Two more WPCT investments heading south.

https://www.thetimes.co.uk/edition/business/neil-woodfords-worthless-tech-bets-ptllqm8b9

It only needs one unicorn and all will be well.

Alexland

I look at that Times article photo of him straddling the bridge and think "don't jump, you just haven't found what you are good at yet"...