Lindsell Train outperforms, again – Over the year to the end of March 2020, Lindsell Train posted a 9.8% return on NAV, well ahead of the 4% return on its benchmark. However, tthe shares began the year at £1,475, a 65% premium to NAV, rose to a premium of 100% (reaching £2,000 per share), only to fall to a low in mid-March, when they hit an 18% discount to NAV. The share price ended the year at 31 March 2020 down 26.5%, at £1,060, an 11% premium to NAV. The dividend was upped from £29.50 to £44 but the chairman cautions that it could fall if profits fall.
Given the fall in the share price, the manager elected not to take its performance fee. All credit to it for this but we see little logic in it. Both the board and the manager (and us) have continually warned about the dangers of buying these shares on an excessive discount. All the directors bought shares when the shares moved to trading at a discount.
Lindsell Train Limited
“Turbulent markets present a challenge in valuing any unlisted company and the board focuses with great care on its valuation of Lindsell Train Limited (LTL), not least because it remains the most significant investment in the company’s portfolio at 46.8% (45.9% at 31 March 2019) of NAV. At the end of March 2020 the board decided to apply an adjustment to the inputs used to calculate LTL’s valuation. The aim was to ensure that the valuation captured the full effect of the decline in LTL’s funds under management (‘FUM’) as markets fell, and to reflect the sharp fall in the values of listed fund managers. The board has used two methodologies to value the company, weighted equally. One values LTL at 1.5% of its FUM and this input remains unchanged. The other element uses an estimate of LTL’s historical annual notional earnings. The earnings based valuation took time to capture the effects of declining FUM as it was based on three month rolling data. From 31 March 2020 valuation and into the future, the board has decided to calculate LTL’s notional earnings with reference to LTL’s most recent end month FUM (see page 75). In the month of March this resulted in a 17.2% decline in the earnings calculation and a 13.4% decline in LTL’s overall valuation.”
“Despite the turbulence in markets impacting its FUM, LTL made good progress in a difficult year for the industry in general. Its valuation increased by 8.7% despite the adjustment mentioned above. Add to that the dividends paid and its total return for the year to 31 March 2020 was 21.4%. This made LTL once again the largest contributor to the company’s returns over the year. It proved to be a year of two distinct halves for LTL’s FUM, which rose to a peak of £22.7bn in August only to plateau and then decline in the first quarter of 2020 due to both market moves and net outflows. LTL’s FUM at 31 March 2020 was £18.2bn, almost the same level as at 31 March 2019, having recorded net inflows of £759m over the year. Throughout all the turbulence LTL’s investment performance has remained impressive. Provided this continues it bodes well for the future even against a difficult background for the active management industry. The ongoing progress in LTL’s FUM sourced from the USA is also encouraging; they increased again this year and show every sign of building further in the future.
Reflecting LTL’s record year for revenues and profits, its dividend was up 47.3% and its contribution to the company’s revenues was even higher this year at 84%. It is this contribution more than any other that has led the 48% increase in the company’s profits.”
One new stock, Laurent Perrier was added to the portfolio. London Stock Exchange moved up into the top spot after strong performance.
LTI : Lindsell Train outperforms, again