HBM Healthcare sees healthy NAV rise but remains at a deep discount
Swiss-listed HBM Healthcare Investments (HBMN.S) recorded an impressive 23% rise in NAV and saw a 36% gain in its share price in the 11 months to end November, according to its latest monthly update. However, the trust’s shares currently trade at an 18.5% discount to NAV, which is at the lower end of a 20-30% range established over the past three years (see chart). However, the discount is surprisingly large when compared to those of UK-listed biotech specialist investment trusts – most of which are now at low single digit percentage discounts and have even moved to premiums briefly over the course of this year, as interest in the biotech sector has grown. This could make the CHF1.2bn trust run by Swiss healthcare investment specialist HBM an interesting option for UK investors looking for exposure to biotech, especially if the Swiss franc continues to appreciate against Sterling (which would tend to enhance returns). HBM also pays a generous dividend, currently CHF5.8/share, and thus offers a yield of 5.2%.
The funds strategy is to maintain a diversified portfolio of 25-40 mostly US-listed public companies, with a major focus on those with products on the market or at an advanced stage of development. Its largest single investment is the UK inhaled drug delivery specialist Vectura (7.2% of NAV), which it inherited as a result of that company’s 2016 merger with SkyePharma. Vectura’s stock has, however, under-performed over the course of 2017, falling from 140p/share to c.106p/share, largely as a result of regulatory approval delays for VR315, its US generic version of GlaxoSmithKline’s blockbuster Advair, developed in partnership with Hikma Pharmaceuticals.
A better return has been achieved with second-ranked Advanced Accelerator Application (6% of NAV), a France-based, US-listed biotech that is subject to an agreed takeover bid from Novartis. Advanced Accelerator’s share price has risen four-fold over the course of 2017, although the cash offer will mean that HBM Healthcare will soon have to reinvest the funds. Another good performer in 2018 was fourth placed Esperion Therapeutics (3.0%), which is up five-fold this year, although still trades at a price that is well below a peak reached in 2015. HBM Healthcare has a number of private company holdings in its portfolio, including three – Cathay Industrial Biotech, HB Harmony Biosciences and mABs – within its top ten holdings. Private company holdings are typically carried at the value established by their last funding round, so often have the potential for substantial uplifts on any IPO.
HBMN.S : HBM sees healthy rise in NAV but remains at a deep discount