Results analysis from Kepler Trust Intelligence

Intl. Biotechnology Trust PLC

08 May 2024

 

International Biotechnology Trust (IBT)

08/05/2024

Results analysis from Kepler Trust Intelligence

IBT's NAV has again beaten the NASDAQ Biotechnology Index during the six-months ending 29/02/2024. The NAV total return of 11.2% outpaced the index return of 8.2%. The share price total return per share was 8.7%, marginally ahead of the index, reflecting widening discounts across the sector.

Increased confidence that the interest rate cycle has peaked led to a change in investor appetite for risk towards the end of 2023. This has continued into 2024, indicating evidence of a nascent recovery in the biotechnology sector.

The private equity portfolio, which comprised 7.9% of total investments as at 29/02/2024 is primarily represented by two venture capital funds managed by SV Health. this part of the portfolio has seen some holdings within the venture capital funds marked down over the interim period.

The Company's dividend policy is to make dividend payments equivalent to 4% of the Company's NAV, as at the last day of the preceding financial year ending 31 August, through two semi-annual distributions. The first dividend for the year of 13.9p per share was paid on 26 January 2024, and the Board intends to declare the second dividend in July 2024 for payment in August 2024.

The board continues to keep the discount to NAV under close review and is committed to buying back its shares to help manage the position. Although 1,060,776 shares were bought back, the discount widened from 6.3% to 8.7%. As expected, the ongoing charges ratio has decreased since the transition to Schroders, reducing from 1.4% to 1.3%.

Chairman of the board Kate Cornish-Bowden said of the managers' move to Schroders "the integration of the new Manager arrangements has gone well. We received a positive endorsement of this strategic decision at the AGM in December 2023, when shareholders voted by over 99% in favour of continuation of the company".

Kepler View

The Biotechnology sector has suffered three consecutive years of underperformance, but the green shoots of a recovery are appearing, as evidenced by the M&A cycle kicking back in. Ailsa and Marek have so far transitioned to their new management house without any detrimental impact to performance, which will be gratifying for the board and for shareholders who, according to the board, expressed a strong desire for continuity when SV Health took the decision to relinquish the mandate.

We think it noteworthy that the headline NAV performance numbers above under-play Ailsa and Marek's strong performance from the quoted portfolio, which rose by 13.1% (gross of management and performance fees) for the six-month period, outperforming the reference index which returned 8.2%. The pair passed their three-year anniversary as joint lead-managers on 15/03/2024.  Since taking over the helm, they have delivered a similarly impressive quoted portfolio NAV total return of 14.7% (1^st April 2021 to 31 March 2024), well ahead of the reference index which increased by 5.0%, a period which encompassed a huge amount of volatility.

Ailsa and Marek's approach to investment is pragmatic and valuation-sensitive, with a strong focus on risk management. Valuations, M&A and the macroeconomic outlook contributed to the managers making a well-timed move into small caps in Q4 2023, and while they have since taken some profits and allowed gearing to fall, Ailsa and Marek maintain a positive outlook for the sector. The team remains focused on identifying companies with innovative technologies, strong intellectual property and solid growth potential. IBT has an actively managed, diversified portfolio, with a team behind it that has shown it can add value through the highs and lows of sentiment toward this volatile sector. With the discount to NAV at a historically wide level, those who share the board's belief that a more benign economic environment and robust industry fundamentals will give investors greater confidence to invest in the biotechnology sector, may see this as an opportunity.

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