Shares purchase

Scottish Mortgage launches biggest trust buyback

Tom Slater
Tom Slater: pursuing an opportunity (pic: Terry Murden / DB Media Services)

Scottish Mortgage Investment Trust has launched the biggest ever share buyback programme in the sector as it seeks close a wide gap between its share price and the underlying value of its portfolio.

The trust has already bought back £353 million of shares in the past two years, and will increase buybacks to at least £1 billion over the next two years, it told shareholders today.

The latest buyback represents 9% of its shares and the Baillie Gifford-owned trust said it is a “strong demonstration of confidence in the underlying valuation of the portfolio.”

Scottish Mortgage’s board said it was making “more concerted action” to address the 15% discount to net asset value (NAV) at which the company’s shares trade. Before the announcement SMIT’s share price stood at 781p and its net asset value at 927p.

Buybacks are often used by companies who believe that their stock is undervalued, and the trust sector has suffered as investors switched to higher yielding assets which have benefited from rising interest rates, and away from the higher risk public and private assets that SMIT has backed.

The trust benefited from its holdings in the likes of Amazon and Tesla during the pandemic when growth stocks soared. But it suffered as the shine came off the tech sector.

Tom Slater, lead manager of the trust, said: “In a volatile period for growth investment, we own a portfolio of established companies achieving rapid expansion, propelled by enduring structural trends.

“Advances in foundational technologies are unlocking exciting new products, services, and business models. These well-funded public and private companies are shaping the future of the economy.

“The stock market has yet to fully recognise their progress, which creates the opportunity for us to buy the portfolio for less than its market value. 

“In doing so, we can provide liquidity and augment returns for our shareholders. We intend to pursue this opportunity with conviction.”

Justin Dowley, the trust’s chair, added: “We remain committed to using share repurchases strategically to enhance liquidity in our shares and to seek to facilitate trading around net asset value.

“Our Company has a strong balance sheet, and its portfolio companies are delivering strong operational results.  We are acting upon this investment opportunity by materially increasing the capital available to our liquidity policy over the next two years with the aim of maximising returns for our shareholders.”

Analysts at Jefferies noted that “importantly, the programme likely reflects the board’s confidence in the valuations of the private company holdings”, though one other commentator suggested the better move would have been to mark down the value of its huge private company holdings to something closer to what the market clearly thinks they are worth.

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