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Investment Trust Insider: explaining the mispricing opportunity of LawDeb
by James Carthew on Jan 29, 2013 at 00:01
Its contribution to the revenue account has almost tripled over the past decade – in 2011 it generated profits of £8.5 million and although Banszky was cautious about the outlook for 2012, at the 2012 half-year stage net revenues were 3.45p vs 3.55p for the first half of 2011.
The fiduciary business has operations in the UK, US, Channel Islands and Hong Kong. It is a trustee for a number of bond issues (a business that suffered when there was a dearth of new bond issues post the credit crisis, although this was offset by fees associated with bond restructurings); an operator of escrow accounts; a trustee of many pension funds, including the BT pension scheme, which is the largest in the UK; and a provider of company secretarial and other support functions for special purpose vehicles. It also operates a whistleblowing service, Safecall.
Net assets attributable to the fiduciary business were £15.5 million at the end of June 2012, after allowing for a £2.8 million deficit on their defined benefit pension scheme – another rarity among investment companies.
Deciding whether Law Debenture is attractively priced requires you to put a value on the fiduciary business. Many brokers don’t try but Oriel Securities reckon as a rough guide, 10 times earnings should do; that is, you can add 71.5p to the NAV, which would put LWDB on about a 5% discount – a little narrower than the average global growth fund but about right given the performance record and cheaper than Henderson’s Lowland trust, which is on a 3% discount. (LWDB is also trading on a higher yield than Lowland.)
LWDB is no bargain but it could be worth a closer look if the premium decreases from here.
James Carthew is a director of Sapient Research
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