Lindsell Train IT 80% Premium to NAV

coastline

A thread from 2 years ago where posters attempt to put a value on the investment trust.

https://moneyforums.citywire.co.uk/yaf_postst5495_Lindsal-Train-Investment-Trust--LTI--Premium.aspx

Recent statement here on the factsheet.

https://www.theaic.co.uk/companydata/BWSAG

pafpcg

coastline wrote: »

.......
Recent statement here on the factsheet.
https://www.theaic.co.uk/companydata/BWSAG

Thanks for the link to the factsheet with the comments by Nick Train to the shareholders of the Linsdell Train IT.

I'm puzzled by his assertion (in the last paragraph on the first page of Portfolio Manager's Comments) "However, to be clear, we do not invest in unquoted shares ...". Who is "we"? How does that fit what he says in the first paragraph "The comments are relevant to you as shareholders of the Lindsell Train Investment Trust (LTIT), because of its ownership of nearly 25% of Lindsell Train Limited (LTL), an unquoted company."? (Note: the holding in LTL comprises 47% of the NAV of LTIT!]

What am I missing?

Update: OK, I get it now after a re-read! The "comments" are in fact about "our UK and Global funds" - he draws a distinction between "our UK and Global funds" and Lindsell Train Investment Trust (which he also manages).
Hmmm, he could have made that distinction a trifle clearer for the benefit of his audience (the shareholders in LTIT) and then discussed why it's OK to have nearly half the NAV of an IT invested in an unquoted company. Just strikes me as a rushed cut-and-paste exercise.

bowlhead99

pafpcg wrote: »

Update: OK, I get it now after a re-read! The "comments" are in fact about "our UK and Global funds" - he draws a distinction between "our UK and Global funds" and Lindsell Train Investment Trust (which he also manages).
Hmmm, he could have made that distinction a trifle clearer for the benefit of his audience (the shareholders in LTIT) and then discussed why it's OK to have nearly half the NAV of an IT invested in an unquoted company. Just strikes me as a rushed cut-and-paste exercise.

The monthly commentaries of the funds and the trust rarely try to cover everything going on in the portfolio. Generally only one or two topics each month.

In this month, the most pertinent areas for discussion were related to recent headlines: HL is a large holding? ; impact on HL due to fallout from Woodford etc?; is HL still investible?; HL dropping LT from the recommended list due to perceived conflict of interest?; might LT's funds be at risk of 'a run' due to liquidity / concentration risk like Woodford's?

All of that, which LT had written about for their open ended funds products audience, is of interest to an LT IT investor - given the exposure to HL and the potential impact on the LT management business of uncertainty in the industry and a change in AUM.

So, it makes perfect sense that they would lead with "Below is the text of the report we have sent out this month to holders of our UK and Global funds. The comments are relevant to you as shareholders of the Lindsell Train Investment Trust (LTIT), because of its ownership of nearly 25% of Lindsell Train Limited (LTL)" and then give a couple of paragraphs noting again the premium (which has been discussed before) and the fact that they are not currently buyers of the trust themselves, and then share the information they had given to their investors in the open ended products.

As the factsheet template doesn't really accommodate lots of funky formatting, it seems reasonable that they say "below is the text of..." and put the text of, lower down, in quotes

They don't really need to explain why it's ok to have a large proportion of the IT invested in the unquoted company:

- it is nothing new, as they have held it for years.

- it's not their fault if it goes up in value as a proportion of the portfolio when it grows faster than the sum of the rest of the holdings. Investors want it to go up in value.

- it's not their fault if investors (wrongly?) bid the trust shares up to a premium, because they have been making efforts to talk it down for months/years.

- they can't sell it, because then some outsider owns their business alongside them.

- it doesn't give a liquidity problem because as a closed ended fund they have no need to dispose of it to meet investor redemptions, because the trust's shares aren't redeemable.

aroominyork

Was it only trading at an 80% premium? Wasn't it more like 160%?

About half of LTIT'S holdings are in Lindsell Train Ltd. The rest are a half-way house between LTUK and LT Global. Given that a) you can buy the non-LT companies through the two OEICs for no premium, and b) if you want a closed version of LTUK you can buy FGT for next to no premium... then within LTIT shouldn't the non-LT holdings be seen as priced at NAV, and the LT Ltd. holding as priced at a 160% premium, averaging out to the 80% premium?

bowlhead99

aroominyork wrote: »

Was it only trading at an 80% premium? Wasn't it more like 160%?

About half of LTIT'S holdings are in Lindsell Train Ltd. The rest are a half-way house between LTUK and LT Global. Given that a) you can buy the non-LT companies through the two OEICs for no premium, and b) if you want a closed version of LTUK you can buy FGT for next to no premium... then within LTIT shouldn't the non-LT holdings be seen as priced at NAV, and the LT Ltd. holding as priced at a 160% premium, averaging out to the 80% premium?

You do sometimes see investment trusts on a premium if they have been successful and the manager is well-liked, even when they only hold stocks that you can find on a public market and the same manager has open ended products available. So generously the non-management-company holdings might have been on 5%+ premium meaning the management company was on less of a premium itself.

When it was on a higher premium I gave some comments on valuation in post #11 further up the thread, which I can't be bothered rehashing again as it was only two months ago. Clearly the market is more nervy about LT's prospects now than it was then.

aroominyork

bowlhead99 wrote: »

You do sometimes see investment trusts on a premium if they have been successful and the manager is well-liked, even when they only hold stocks that you can find on a public market and the same manager has open ended products available. So generously the non-management-company holdings might have been on 5%+ premium meaning the management company was on less of a premium itself.

When it was on a higher premium I gave some comments on valuation in post #11 further up the thread, which I can't be bothered rehashing again as it was only two months ago. Clearly the market is more nervy about LT's prospects now than it was then.

I hadn't clocked post #11 but, heck, if it's worth saying once... well, that's usually enough.

stphnstevey

I would be concerned about the cyclical relationship between the investment trust and the management company

Fine while the funds continue to do well, in an environment where the markets have in general been doing well, but in a downturn or when sentiment changes, the premium can vanish, leaving those bought at the peak a significant cliff edge drop in value