Sunday 22 July 2018

Woodford's silence speaks volumes on Malin placing


Eugene O’Callaghan, director of ISIF, at the NTMA Treasury Building in Dublin for last week’s media briefing. Photo: Colm Mahady/Fennells
Eugene O’Callaghan, director of ISIF, at the NTMA Treasury Building in Dublin for last week’s media briefing. Photo: Colm Mahady/Fennells
Gavin McLoughlin

Gavin McLoughlin

Neil Woodford, the man routinely described as London's best-known hedge fund manager, is no shrinking violet. Woodford made headlines last week for lambasting a hedge fund - Kerrisdale Capital - that has been shorting one of his investments.

The investment in question is a Nasdaq-listed biotech firm called Prothena. Kerrisdale reckons the company's lead product is going to fail its clinical trials, and issued a stinging report in November to that effect.

Since then, Prothena's stock is down around 20pc and Woodford is not a happy chappy.

"Their job [the short sellers Kerrisdale] is to scare the market when the market is prepared to be scared. It doesn't matter if what they said about...Prothena is totally inaccurate and unsubstantiated," he was reported as saying by 'City Wire' earlier this week.

"What matters is Bloomberg and others giving them the oxygen of publicity and, hey presto, there is a self-fulfilled prophecy and the share price falls."

Prothena isn't the only company that's been giving Woodford trouble. He was an investor in troubled moneylender Provident Financial - which had a disastrous 2017 on the back of multiple profit warnings.

But closer to home, there's another of Woodford's biotech investments that's not performing too well - that's Irish biotech investor Malin. Both Malin and Prothena have strong links to Elan.

The latter was spun out of the Irish drug-maker in 2012, while Malin was set up by a number of key Elan figures, including Kelly Martin, Elan's chief executive, when it was sold for billions to Perrigo.

I wrote about Malin's difficulties in these pages last week - noting that the shares were down more than 10pc on the IPO price.

That leaves Woodford and another key initial investor - the Ireland Strategic Investment Fund (ISIF) - owned by you and me, sitting on a loss.

With hundreds of millions pumped into the company since its 2015 flotation, Malin was left with €50m in cash at the end of June 2017 - not enough to follow its money in a meaningful way across its investment portfolio.

So it wasn't surprising to see the company announce last week that it was looking to raise more money from the market.

What was surprising, however, was the sum it was looking for - a relatively measly €31m at most, with the shares priced at €8.88 a pop - more than 10pc below the IPO price.

In the end it only raised around €28m. Woodford declined to comment on whether he followed his money, which in itself would seem to speak volumes.

ISIF did not respond to a request for comment on the placing. However, it did not follow its money in a previous placing conducted by Malin in May of last year.

It so happens that ISIF conducted a media briefing earlier this week alongside its parent organisation the NTMA.

I asked Eugene O'Callaghan, who runs ISIF, what the fund's strategy was when it comes to follow-on investment. His answer was that ISIF has a two-stage process.

"We have to think that every investment that we have is commercial and will generate economic impact first-time around," O'Callaghan said.

"So when somebody asks for follow on we would obviously look and say: 'how has this business done both commercially and in economic impact terms since the first time? Is it worthy of consideration for a follow-on investment?'"

After that, said O'Callaghan, ISIF would "need to see new additional economic impact arising, not just a continuation of the economic impact that was envisaged first time around".

It looks like Malin failed the test on at least one of those counts when it came to the placing in May, and it seems unlikely that this week's placing was any different.

It's probably safe to say that neither ISIF nor Woodford are jumping for joy about the company's performance.

Kevin Toland's honeymoon as Aryzta chief executive is well and truly over. The former Glanbia and DAA man got a bit of a tongue-lashing on an analysts' call this week.

The call came about after yet another profit warning from the embattled bakery business, which is embarking on an effective fire sale of assets as it seeks to get the business back on track.

On Thursday, Aryzta told investors that like-for-like full-year Ebitda, excluding currency effects and disposals, was going to be a stonking 15pc behind last year.

On a reported basis the decline is projected to be 20pc.

This attracted the ire of Societe Generale analyst Warren Ackerman, who let Toland have it with both barrels.

"This looks like a complete shambles and it's going to be very painful for your beleaguered shareholders yet again.

"Now, you didn't give any guidance previously because of lack of visibility, and then now you give us guidance for the first time and you're down 20pc offside from what you've thought you were going to deliver," he said.

"So, my question really is, how can we have any confidence on your guidance? And can you just talk about the demand-supply planning signals within your business because these things keep hitting you.

"I know there's a new management team coming in, but is this supposed to be a stable company, this was not supposed to happen like this."

Toland said he took "slight exception" to the usage of the term "complete shambles", but acknowledged nevertheless that the profit warning was "difficult".

"I understand. I'm about as happy as you on it now at the moment... we're giving an update as quick as we're getting a sense of these issues," Toland said.

"We're committed to being clear, transparent and sharing where we're going - good or bad - with our shareholders and interested parties."

If things continue going as badly as they have been of late you would have to question whether Aryzta will survive in its current form or whether it might be broken up and sold off to the highest bidder.

Billions in shareholder value has been vaporised in the last couple of years and in the analysts' call Toland was speaking about how the rescue project is a multi-year endeavour.

One line in the profit warning was particularly worrisome: "Aryzta's successful refinancing ensures the group continues to be covenant compliant."

If a company feels it should say something like that, it's an indication that things are pretty challenged.

Toland has lots of harsh medicine to administer to get the company deleveraged and back on a platform for growth.

Sunday Indo Business

Business Newsletter

Read the leading stories from the world of Business.

Also in Business