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Law Debenture clears up confusion over premium rating

Shares in global investment trust buck trend by trading at a premium to net asset value due to previously unvalued in-house business.

 
Law Debenture clears up confusion over premium rating

Law Debenture (LWDB ), the global investment trust which also houses a fiduciary services business, has published a valuation of its in-house company for the first time in a bid to counter investor confusion.

Shares in the James Henderson trust, which we included as one of Five Top Trusts for Global Growth in this month's Investment Trust Insider, have traditionally traded at a premium to their net asset value (NAV), unlike most other global investment trusts.

That is largely due to the market pricing in the value of the fiduciary business, which provides pension trustee services and whistleblowing facilities, among other services, for businesses.

'This difference between the published NAV and the market's assessment of the value of the independent fiduciary services (IFS) businesses has meant that some investors, particularly individual investors, find it difficult to appraise Law Debenture's shares compared with other investment trusts,' said the trust in its annual report.

'The board has therefore concluded that, in order to present a better understanding of the group's valuation, it should publish a fair value NAV, including the fair value of the IFS businesses and long-term borrowings.'

The trust has valued the IFS business at £90.5 million, using a multiple of 8.4 times earnings, equating to 61.3p per share. Taken with the latest NAV estimate from Numis for the rest of the trust of 436.8p, that gives a total NAV of 498.1p.

The shares are trading at 453p, at a 9.1% discount to the full NAV, compared to the 3.7% premium they would appear to enjoy versus the NAV excluding the fiduciary services business.

'We believe it is positive that Law Debenture has decided to provide greater clarity for investors by publishing a valuation for IFS,' said analysts at Numis.

'The figure is closely in line with our estimates, but we believe that it helps investors to understand the business more easily and to compare the valuation to the conventional global growth investment trusts.'

Trust placed for recovery

Alongside the annual report, manager James Henderson said the trust was well placed for 'a recovery in investor confidence', having bought more of some of the stocks which hurt him the most last year in anticipation of a rebound.

Shares in the trust fell 3% over 2015, although that figure hides large swings in the shares of some of the companies held. Mining and oil stocks were among the worst hit stocks in the portfolio last year, with Glencore (GLEN), Rio Tinto (RIO) and Shell (RDSb) among the worst performers. The trust is unusual for a global fund as it mostly invests in the UK,  

'Further purchases have been made in oil companies since the period end as we believe that the depressed share prices are not reflecting the medium term outlook,' said Henderson.

'The same is true for parts of the mining sector, where certain commodity prices are likely to recover as demand and supply return to balance.

'These additions have detracted value in the short term, but place the portfolio for a recovery in investor confidence. This should return when it becomes clearer that there will be a reasonable level of economic growth.'

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Investment Trust Insider: issue 32 out now!

by Gavin Lumsden on Sep 28, 2016 at 11:03

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