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Woodford hit by double blow from Industrial Heat and Eddie Stobart

23 August 2019

Double blow for embattled fund manager Neil Woodford after major writedown to big stake in Industrial Heat and suspension of shares in Eddie Stobart.

Embattled fund manager Neil Woodford has been hit by a big writedown to the valuation of Industrial Heat, one of his largest unquoted holdings, and a suspension to the shares of Alternative Investment Market-listed Eddie Stobart Logistics (ESLE).

His Woodford Patient Capital (WPCT) investment trust announced the markdown in the valuation of the controversial stake in cold fusion developer Industrial Heat.

The move will knock 3.4p, or 4.3%, off the trust's net asset value, which stood at 78.96p yesterday. Shares in the trust, which have fallen to a deep discount since the suspension of Woodford's Woodford Equity Income  fund, dropped 5.5% to 41.5p.

The trust's stake was valued at £91.3 million at the end of December in its annual report, then its largest holding. Today's markdown implies an approximately 40% fall in the value of the stake to £55 million.

Industrial Heat is also held in the suspended £3.2 billion Woodford Equity Income fund. Valued at £115 million at the end of December, that stake is now likely to be worth around £70 million. The writedown will knock around 1.4% off the fund's value.

The markdown has been carried out by Link Fund Solutions, administrator of both Woodford Patient Capital and Woodford Equity Income, and valuers IHS Markit. 

Link said Industrial Heat's development 'had not progressed at the rate upon which previous reviews were based'.

'The valuation adjustment reflects the slower progress of the company and is not a result of a "trigger event".'

A spokesman for Woodford Investment Management said: 'Woodford is not responsible for unquoted valuations across any of its funds. Link is ultimately responsible for the pricing and valuation of unquoted stocks and it employs an independent valuation company in the process.'

Industrial Heat has proved one of Woodford's most controversial investments, given the cold fusion technologies it is developing are viewed with scepticism by the scientific community.

The stock was the subject of an eye-catching revaluation 357% higher in September last year, prompting Woodford to list his stake in the business on the Guernsey's The International Stock Exchange (Tise) to avoid Woodford Equity Income breaching a 10% limit on holdings in unquoted companies.

After Citywire revealed Woodford's listing of unquoted stakes in Guernsey, Tise suspended the manager's Industrial Heat shares, which were delisted from the exchange at the end of last month.

A timeline of correspondence between Guernsey's stock exchange authority and the Financial Conduct Authority in the run-up to Woodford Equity Income's suspension shows Guernsey repeatedly raising concerns over the valuation of Woodford's stocks with the City regulator.

Analysts at Numis said the Industrial Heat writedown could be followed by markdowns to other unquoted stocks 'and sentiment towards Woodford Patient Capital is likely to remain weak'.

'In our view, though, the share price has reached a level where there could well be support from the potential for corporate action,' the said.

'The board is currently assessing its options regarding the future management of the fund and we believe that the appointment of a new manager could be a catalyst for a turnaround in sentiment'.

Eddie Stobart suspension

Separately, Woodford has been hit by the suspension of shares in Eddie Stobart Logistics, a holding in both the suspended Woodford Equity Income fund and the smaller Woodford Income Focus .

Trading in the AIM stock has been halted after the logistics firm failed to publish its half-year results on time, after revealing a £2 million overstatement of 2018 profits last month. Chief exectuive Alex Laffey has stepped down.

Woodford is the largest investor in the business, owning 22.9% of the shares. At the end of April, the last date when full portfolio data was available, the stock accounted for 1.7% of the Equity Income fund and 2% of Income Focus.

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