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Lindsell Train: the ‘ten-bagger’ trust with a nine-year future?

Lindsell Train: the ‘ten-bagger’ trust with a nine-year future?

Lindsell Train (LTI), star fund manager Nick Train’s highly rated global investment trust, has become a ‘ten bagger’ with a ten-fold rise in its shares fuelled by his stock picks and the trust’s stake in the fund management firm he runs with Michael Lindsell.

From their £100 launch 17 years ago, shares in Lindsell Train hit £1,030 on 31 March, a feat that chairman Julian Cazalet heralded in its latest annual report as ‘rare and satisfying’.

This was achieved after a 29.6% rise in the share price in the year to March, underpinned by a 30% total return in net asset value (NAV). Both were way ahead of its 4% UK gilt-based benchmark and the 1.3% sterling rise in the MSCI World index.

Once again the trust’s increasingly valuable stake in Lindsell Train Limited (LTL), the privately owned investment boutique founded by the two managers, was the main driver of returns. Its 24% stake in the business jumped 54% in value to account for 41.7% of assets by the end of the financial year.

The continued strong performance of the managers’ three open-ended UK Equity, Global Equity and Japanese Equity funds, helped LTI’s assets under management soar 47% from £9 billion to £13.2 billion, with total net new inflows of £2.1 billion.

Train’s Global Equity and Lindsell’s Japanese Equity funds, in which the investment trust is both invested, generated outperformance of 5.6% and 2.9% respectively over their benchmarks, according to the company.

The impressive asset gathering saw LTL’s operating profits leap 40% from £27 million to £37.9 million on margins of 62% enabling a £7,840 dividend payment to its shareholders, up from £5,450 in the previous year.

Risk LTL could just ‘cease trading’

Cazalet admitted he was ‘somewhat apprehensive’ over whether the fund management company could maintain this growth with rising interest rates presenting a more challenging environment for Train (pictured above) and Lindsell. However, a 12% dividend yield supported the firm’s £250 million valuation, he said.

Succession risk remains a big concern for the chairman, notwithstanding Train, 59, and Lindsell (pictured above), 58, have recruited three younger fund managers in recent years with co-manager James Bullock showing his commitment by buying shares in the business.

Although Cazalet said the founders remained healthy and ‘devoted’ to their business ‘the board recognise that there is a risk, albeit a low one, that the company could simply cease trading when the founders retire.’

In recognition of this the board used a discount cash flow valuation that assumed revenues for the next nine years only, given the principals behind the business might no longer be there.

‘This limited time horizon that reduces as every month passes helps capture the risk of succession more explicitly than any other valuation measure we employ,’ the chairman said.

Premium could ‘evaporate’

Investors, who can tolerate the chronically high premium at which the investment trust’s shares trade, can bask in a big dividend pay-out too. The company declared a final dividend of £21.29, up from £15.45 last year, topped up with a 51p special dividend.

LTI shares have dipped to £1,025 since the year end but remain on a 32% premium over NAV per share of £789, according to Morningstar.

Cazalet repeated his view that the premium was unjustified. ‘The board recognise that some shareholders view the monetary value of the company’s share price premium over the NAV as equivalent of the board’s undervaluation of LTL. I have asserted before that the board view the premium as unwarranted and do so again today with particular reference to my comments about succession.

‘Consistent with that I continue to caution new shareholders about buying shares at a premium as any reversal in markets or in LTL’s performance could cause it to evaporate, leading to significant losses,’ he added.


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