A couple of warnings before we begin - (i) this article is for entertainment purpose only and no part of it should be considered an investment advice, (ii) we have no financial position in the mentioned companies.
Our last comment on Oxford Nanopore was posted in early 2018, where we discussed the analysis of Ms. Anne Stevenson-Yang (twitter: @doumenzi). As our readers know, Oxford Nanopore itself is not publicly traded, but its parent fund company (IP Group) is. The fund is managed by the British investor Neil Woodford, often described as “Britain’s very own Warren Buffet”.
Ms. Stevenson-Yang issued a “sell” recommendation on IP group in Dec. 2017 based on her negative findings on Oxford Nanopore (ONT). Her recommendation worked spectacularly gaining ~35% within 4 months. Then the IP group stock started recovering from the level of $100 in this tracking stock, and people thought the worst was over for British Warren Buffet.
However, the bounce was short-lived. IP group stock got wobbly again and this time breached the maginot line of $100 level. The same troubling performance has been seen in other funds of Woodford, and lately his investors have gotten up in arms. You can sense the negativity from articles like this - “Britain’s best-known investor Neil Woodford is in a mess of his own making”.
Oxford Nanopore Can Save Woodford
Woodford has been experiencing ‘liquidity crisis’, according to a Motley Fool article titled “Could the House of Neil Woodford be about to collapse?” -
We’re looking at a vicious spiral that could potentially lead to the fund imploding, and a star manager downfall on a scale I’ve not seen before. Woodford desperately needs to stem the outflows from his Equity Income fund by improved performance. It might also help, if some of his unlisted holdings can get listed in public market, and he can raise cash from those.
In simple language, Woodford needs to pay cash to the liquidating investors, but he has many pre-IPO illiquid businesses. More he distributes his remaining cash, more illiquid his fund gets. The only solution is public listing of his companies, and therefore this announcement was no surprise -
Oxford Nanopore, the gene analysis company, has told investors it plans a stock market listing within 12 months, handing a lifeline to fund manager Neil Woodford.
The Jury is Still Out
Right after the announcement, the tracking stock of IP group bounced somewhat, hit the ceiling at $100, and fell back to the level, where the above market listing annoucement was made. You can track the entire movement here.
There are two possibilities at this point.
If the market believes Woodford can be rescued by stock market listing plans of his companies, and the stock market overbids his companies, his fund will start to recover.
If the market does not believe his plans will work out, his fund will sink further and he will be forced to fire-sale the companies to meet the liquidity needs.
We are eagerly waiting to find out which of the two possibilities materialize.