Lindsell Train investment trust’s share price has fallen by 19.8% over the last year to 31 March 2024, according to its half-yearly report published on the London Stock Exchange today (3 December).
The trust’s share price has managed to increase by 2.7% over the last six months to the end of September. However, its NAV total return is down 1.9% over the period, with the company’s NAV per share falling from £1,026.43 to £955.83. This marks a 3.8 percentage-point underperformance compared to its MSCI World index benchmark’s gain of 2.7%.
Robert Lambert, chair of Lindsell Train investment trust, said the past six months have been “characterised by the steady fall in the valuation of LTL”, the trust’s investment manager. Lindsell Train IT has a 29.9% weighting to the unlisted firm as at the end of October 2024, offering investors a way to access exposure to the company, alongside smaller allocations to shares in 13 other listed names including the London Stock Exchange, Nintendo and RELX.
According to Lambert, Lindsell Train’s valuation has fallen by 8.4% over six months to the end of September 2024, and has proved to be “the biggest detrimental contributor to the company’s performance”. Over six months to the end of September, the trust’s portfolio allocation to its investment manager fell from 34% to 31%, reflecting a reduction in LTL’s funds under management.
“LTL’s strategies have suffered from disappointing relative performance in recent years and some of its clients have understandably responded by withdrawing funds, with LTL’s FUM falling from £15.2bn to £13.4bn over the six months to 30 September 2024,” Lambert said. “A good proportion of clients, including the company, have experienced LTL’s successful longer-term performance and remain loyal supporters of its differentiated investment approach which, as the investment manager’s report implies, remains consistent with its core principles.”
Outflows from clients have impacted negatively LTL’s revenues, although profit margins have remained above 60%. However, if funds under management fall below £11bn, margin protection given by LTL’s salary and bonus cap of 26% of revenue “may be compromised”, according to the trust’s chair.
He added that LTL dividends paid in June fell by 16% compared to the same period last year, and by 7% compared to its December pay-out.
“Declining LTL dividends will impact the company’s ability to maintain its dividend at the same level in 2025 without using revenue reserves to do so,” Lambert warned.
“While the decline in LTL’s FUM is disappointing, the board takes some comfort from LTL’s financial strength, which gives LTL the option to invest behind its business if necessary. LTL’s half-year financial review shows that LTL has cash resources of £105m at 30 September 2024.”
Despite LTL’s performance, the chair added that other holdings in the portfolio have performed well, with Unilever returning 23.7% and London Stock Exchange gaining 9.1%.
That being said, Lindsell Train investment trust’s discount to net asset value, which currently stands at 25.7% according to AIC data, “is a source of concern” for the board.
“It reflects, to varying degrees, LTL’s and the company’s disappointing investment performance, the continued and prospective decline in the valuation of LTL, its largest investment, the succession risk at LTL and the general level of discounts in the investment trust industry,” Lambert continued. “The board thinks that resorting to share repurchases to reduce the discount would prove ineffective and believes its buyback powers are better deployed to take advantage of a discernible opportunity to add value for remaining shareholders should one materialise.
“Any opportunity has to be balanced with the need to fund a share repurchase with a sale of existing quoted investments, the consequence of an increase in LTL’s percentage weighting within the company investment portfolio and the burden of an increased expense ratio for remaining shareholders.”
He added that the board believes the “surest way to improve the company’s rating is for LTL to generate better relative and absolute performance for the company and for broader LTL funds”.
“The board has every confidence that this will happen and is doing everything in its power to the provide the support necessary to LTL to ensure that outcome.”
