Ongoing underperformance from the managers at Worldwide Healthcare (WWH ) is frustrating the board, who said it was ‘closely’ monitoring the ‘disappointing performance’.

Writing in the company’s half year results for the six-month period to the end of September, chair Doug McCutcheon said the company’s investment performance has ‘been disappointing in recent periods’ and the board ‘continues to monitor our performance closely and will further report on it in the full year results,’ which is expected in June next year.

In the period the company said its total underlying value was down 0.6%, while the share price delivered a 0.1% return thanks to the narrowing of the discount, which was at 8.8% at half year, down from 9.3% at the beginning of the fiscal year. It has widened since and stands at 11.3%

The £2bn portfolio of assets has seen its underlying value drop 3.1% in the past three years, while the share price is down 13.8%. It has significantly underperformed compared to the MSCI World Health Care index which is up 24.3% in that period.

Peel Hunt analyst Thomas Pocock said ‘it is not clear what initiatives the board may be considering.’ However, he noted that WWH has a continuation vote scheduled for its AGM in 2024 and ‘therefore may come under pressure to proactively deliver shareholder friendly proposals’.

The board has a policy to buy back shares if the discount than wider than 6% and purchased a total of £133.4m shares during the six months under review, with a further £35.8m bought since then.

Shareholders will receive an interim dividend of 0.7p per share, in line with the previous year.

Rathbones is the biggest shareholder in the company with 15.9%. 

Portfolio impacts

Unlisted exposure, which makes up 6.5% of the portfolio, made up half of the decline during the period.

The company’s unquoted investments suffered a 5.1% drop, entirely driven by API Holdings, India’s largest digital healthcare platform, which was materially written down.

The company was forced to accept a capital infusion at a distressed valuation after a planned IPO was delayed due to adverse market conditions, leading to a funding shortfall, including a potential breach of a debt covenant.

The principal detractors from performance in the listed portfolio were global pharmaceutical company Bristol Myers Squibb and biotechnology company UniQure.

Managers Sven Borho and Trevor Polischuk have since exited Bristol Myers, which turned into a ‘value trap’ during 2023.  

‘The company has had one of the most productive pipelines in the industry over the past three years, with new approvals in immunology, haematology, oncology, and cardiovascular disease,’ they wrote in their update. ‘However, commercial execution of the many new product launches has underwhelmed, and a top line renaissance has so far failed to materialise.’

The managers said they would revisit the company next year.

UniQure, a Netherlands-based gene therapy business, saw its share price fall after a mixed interim update in June where it released data from a trial of its gene therapy for Huntington’s disease that worried investors.

Worldwide Healthcare benefited from its investments in Denmark-headquartered Novo Nordisk and US-based pharmaceutical company Eli Lilly.  

Novo Nordisk has seen its share price rise 40% in the nine months to the end of September and became the largest company in Europe by market capitalisation, as it continues to impress with its obesity drug Wegovy and diabetes drug Ozempic.

Eli Lily saw its shares rise over 50% in dollar terms during the six-month period as it continued to progress with its efforts to tackle Alzheimer’s disease.

Stifel’s Will Crighton retained his ‘positive’ rating on the company stating the current discount is ‘near the widest end of its recent trading range’ and is a ‘good entry point’.

‘We remain believers that emerging biotechs are cheap and performance should eventually come through in these names – and will be helped by the rate environment at least stabilising and potentially falling,’ he said.

Crighton also pointed out that the managers have increased their leverage, or borrowing, which they said was ‘a reflection of our overall bullishness on the portfolio’.

WWH had leverage of 14.7% during the period, rising from 10.5% at the beginning of its financial year.

The managers said a ‘caveat’ that has stopped them from extending leverage further is the ‘continued volatile and uncertain macro backdrop, either economic in nature or even further geopolitical risk factors’.