By Emma Wallis, News editor, Trustnet, 15 March 2024:
Jefferies has given the Scottish Mortgage Investment Trust a buy rating while Numis Securities’ Ewan Lovett-Turner believes it “warrants a place in portfolios for its unique mandate focused on companies that have the potential to deliver exceptional growth,” after the trust’s commitment to investing at least £1bn in its own shares – some 9% of its £10.9bn market capitalisation.
Spread equally over two years this would be equivalent to £2m per day, which is around 10% of average daily trading volume, the Numis head of investment companies research noted.
“The willingness to buyback such a significant sum also highlights that the board and manager are comfortable that there is sufficient headroom on limits on private company exposure and gearing, with £450m of short-term debt repaid over the past two years.”..
Another question for investors is whether Scottish Mortgage’s listed portfolio, which includes large positions in Nvidia and Amazon, is richly valued (the trust’s discount notwithstanding). It has a one-year forward price-to-earnings (P/E) ratio of 30x, almost double the FTSE All World at 16.1x on 31 December 2023..
Meanwhile, the unquoted portfolio (worth 26.2% of the trust) contains several large businesses that could become public imminently, providing a potential uplift, Lovett-Turner said. There has been speculation about Starlink, Northvolt and Tempus Lens considering initial public offerings..
One risk is that if the value of the unquoted holdings increases, they could bump up against the self-imposed 30% limit. Selling listed equities to fund buybacks would exacerbate that, warned James Carthew, head of investment companies at QuotedData.
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