by Kyle Caldwell, from interactive investor, 18th March 2024:
The plan announced by Scottish Mortgage at the end of last week to make at least £1 billion available to buy back its own shares over the next two years was warmly welcomed, causing its share price to rise by 5.3% on 15 March.
Buying back its shares is an attempt to address Scottish Mortgage’s discount, which stood at 15% to its net asset value (NAV) prior to the announcement. Scottish Mortgage has been trading on a discount during the past couple of years due to performance coming off the boil. Prior to hitting a share price peak of £15 in November 2021, the trust had typically traded on a small premium for a number of years..
However, while buying back shares is a sign of confidence from a board, which views the discount the trust is trading on as unjust and too cheap, it is no panacea. Buybacks won’t prevent discounts widening if there is no demand for the shares.
Matthew Read, a senior analyst QuotedData, also welcomed the share buyback plan. He said: “We are pleased to see the board of Scottish Mortgage stepping up its efforts to address the trust’s discount. It is no secret that, on the back of its very strong performance, SMT raised a lot of money from investors, when interest rates were low and its strategy was very much in favour.
“We have long believed that where funds have taken in a lot of capital in the good times, they should also be prepared to provide their shareholders with liquidity when times are tougher and the fact that Scottish Mortgage has some illiquid assets does not make it immune from this. Irrespective of the underlying asset class, buybacks should always be done in a measured way that also protects shareholders’ interests.
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