If there is a clear pattern emerging from the pandemic, it is that the trends that were prevalent before it began accelerated as Covid-19 developed — from the growth of online shopping to the increased digitalisation of the workplace.
The same is true in healthcare. Governments have turned to the private sector for a vaccine and the quest for scale has sped up the pace of consolidation — witness the astounding $39 billion move by Astrazeneca to buy its rival Alexion Pharmaceuticals.
Broadly, these trends have been good news for Worldwide Healthcare Trust, a £2.3 billion investment vehicle that specialises in pharmaceuticals, biotechnology and the healthcare sector. Its performance has been strong and its shares, though volatile, have gained significantly in value this year.
At the same time, the niggles that bothered this column when it last looked at this investment trust in January — specifically the very modest yield — remain.
Worldwide Healthcare Trust was launched in 1995 and is managed by Orbimed Advisors, a privately owned investment adviser based in the US.
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The trust, a constituent of the FTSE 250, aims to provide strong capital growth for shareholders from the stocks selected. More than 65 per cent of these by value are headquartered in North America and nearly 39 per cent are biotechs.
Although it is the race for a vaccine that has dominated the headlines, breakthroughs in other treatments have been delivering the biggest boost for this vehicle.
Horizon Therapeutics, which has enjoyed runaway success with its Tepezza medicine for thyroid eye disease, has produced substantial gains, as has Natera, a diagnostics company that specialises in non-invasive prenatal testing.
Performance was dragged back by Theravance Biopharma, whose shares have fallen on concerns about delays to launches of respiratory drugs. Likewise, the trust’s holding in Biogen was hit after the biotech group lost a court ruling over a patent that was protecting one of its drugs from generic competition.
With the proposed takeover at the early stage, it remains to be seen whether Worldwide Healthcare Trust will benefit from Astrazeneca’s tilt at Alexion, the joint largest position in its portfolio.
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All told, the trust has been a net winner this year. The net value of its assets rose by 23.1 per cent over the six months to the end of September, compared with a 15.3 per cent increase in its benchmark, the MSCI World Healthcare Index. Worldwide Healthcare Trust has comfortably beaten its reference index assessed over one, three and five years.
The share price, which stood at £32.55 in January, has also done well. The stock has since risen by 15 per cent and has increased by nearly 47 per cent over the past two years. It was up 85p, or 2.3 per cent, to £38.05 yesterday.
For some, that might justify the lowly yield of about 0.7 per cent on the assumption that the Worldwide Healthcare Trust declares a final dividend similar to that of 2019.
There is much to like about this investment company, such as its exposure to the steady increase in private healthcare provision globally and the growing preponderance of mega-mergers in its sectors.
However, given the risks of failure that accompany drugs pipelines, and the fact that plenty of companies in its portfolio are respectable dividend payers, this observer would be more comfortable with a higher yield.
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While existing shareholders should stay invested in the hope of solid capital gains over the coming years, at this stage there is not enough to prompt an upgrade to the January hold recommendation.
Advice Hold
Why Well positioned, good performer in an attractive healthcare sector. However, the low yield is off-putting
Kainos
Trading life just keeps on getting better for Kainos Group. In fact, the IT services business did so well over the six months to the end of September that it paid shareholders a special dividend, after earlier suspending last year’s final payout in the light of coronavirus.
With its shares touching record highs in recent months, investors might ask themselves whether such good growth can continue.
Kainos was founded in 1986 by Queen’s University Belfast and the computer group ICL and was spun out and listed in 2015 at 139p. It employs 1,700 people at 15 offices in Europe and the US with customers in the public and private sectors.
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The company has two divisions. One helps businesses and other bodies digitise processes and works for government, including the Department for Work and Pensions and the Passport Office. It also has a bumper running contract with the NHS to digitise patient records.
Then there is the Workday practice, which is a leading partner for the eponymous US-based software group whose HR, pay and expenses system it configures and runs for third parties under a contract that provides solid and rising recurring revenues.
Both arms have been firing on all cylinders this year, despite the disruptions caused by the pandemic.
Revenues in the digital services business grew by 16 per cent to £71.4 million over the six months to the end of September as Kainos won new customers, including the Welsh government and the Driver and Vehicle Standards Agency.
At the Workday arm, revenues grew by 41 per cent to £35.8 million as it consolidated its position in Europe and grew in North America. That led to a group-wide increase in revenues of 23 per cent to £107.2 million and a doubling of half-year profits to £24 million, helped by lower costs.
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The shares, up 6p or 0.5 per cent to £12, have risen by more than 160 per cent since this column recommended holding them last October. At 38 times Stifel’s forecast earnings for a yield just below 1 per cent, they are expensive and while in the long term the group should continue to deliver, investors might want to bank some profits.
Advice Take profits
Why Very good long-term bet but richly valued