Volatile trading hits Allied Minds

What does this show?
This shows the share price of small-cap company Allied Minds, rebased from the point of its listing in 2014. The chart compares its performance with two of its rivals, IP Group and Touchstone Innovations.

Allied who?
Allied Minds — it’s an intellectual property company that invests in tiny start-up companies working in healthcare and technology. These kinds of companies, which are often working on technology that is yet to come to market, are high-risk investments, but the theory is investors who buy shares when they’re small and unheard of can gain big returns by selling the company if it becomes a commercial success.

Two of Allied’s biggest shareholders — Mark Barnett and Neil Woodford — should be household names for readers of FT Money. Mr Woodford invested heavily in Allied while managing equity income funds for his former employer, Invesco Perpetual. When he left Invesco to set up his own asset management business, his former colleague Mr Barnett took over running his funds at Invesco.

Mr Woodford bought more shares in Allied for his new funds: Woodford Equity Income and Patient Capital Trust. The two fund managers between them own around two-thirds of the company. An investment analyst covering the stock described its relatively high share price as “the Woodford effect”.

Which are the other two companies?
IP Group and Touchstone Innovations (formerly Imperial Innovations) are also intellectual property companies, doing a similar thing to Allied. IP Group is much larger and older than Allied.

Imperial Innovations, which changed its name to Touchstone in January this year, was founded in 1986 to turn the ideas of researchers at Imperial College London into commercial successes. It is listed on Aim, the UK’s junior market.

IP Group, founded more than a decade later in 2001, has a larger market capitalisation of £803.75m and is listed on the FTSE 250.

Invesco and Woodford combined hold around 40 per cent of IP Group and around 60 per cent of Touchstone.

So why is Allied Minds’ share performance so different from its rivals?
Nobody really knows. Proponents might argue that it is invested in better companies than its peers, with strong links to US military technology. Allied has agreements with 34 federal research institutions, including the Naval Surface Warfare Centre. Critics, however — notably the US hedge fund Kerrisdale Capital — have called the company’s valuation “absurd”.

Allied has yet to make a commercial success of any of its investments, and incurred a net loss of $52.2m on revenues of $1.3m in the first half of the year to June 2016. Its next results are due at the end of the month.

Why has its share price bounced up and down so much?
The stock is “thinly traded”, meaning not many people in the market are buying and selling. This is usually a recipe for share price volatility.

What’s behind that recent crash?
The recent collapse in its share price follows the news that its new chief executive, Jill Smith, had decided to write down the value of seven of its businesses by $146.6m and pull back from funding them further. This would allow the company to focus its attention on only the most promising start-ups, Allied said. Allied’s shareholders reacted badly to this news.