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Huge buyback today according to the RNS:
"On 28/03/2024, the Company announces the purchase of 5,059,772 Ordinary Shares at a price of 893.62p. The shares purchased will be held in Treasury."
£45m in one day.
Undercarriage - Tesla was certainly a factor in driving up (excuse the pun) SMT's share price .
However, SMT's previous highs weren't "MOSTLY due to Tesla's meteoric rise". Partly, yes. Mostly, no.
Whilst past success isn't necessarily a guide to the future, it does suggest a degree of stockpicking skill (along with some luck).
Nvidia is another more recent example, though I'm hoping they'll cash in some of their chips there before the AI bubble inevitably deflates somewhat.
Beyond these public holdings, you never know - one or more of their current unlisted investments could just become the next Tesla. SpaceX? Northvolt?
Weren't SMT's previous highs mostly due to Tesla's meteoric rise?
I agree with them, I bought these about 18 months ago for a bit below 8 quid, I was quite annoyed with myself for a while but recently I am feeling a bit better.
I like the SMT portfolio, allows me to get exposure to private equity investments in an easy low cost way.
Only a relatively small piece of my portfolio due to the risk level but that risk (and the corresponding return I am hoping for) is nice to have in a well balanced/diversified portfolio.
Now all they have to do is get back to their previous highs and I will be very impressed with SMT :)
As Questor itself points out in the article below, they've sometimes got it wrong on SMT in the past. But an interesting summary nonetheless and I pretty much go along with their summary - namely "Buy* this high-risk, high-return fund for the long term but take profits when they occur".
*(in my case hold)
www.telegraph.co.uk/money/investing/stocks-shares/questor-time-buy-scottish-mortgage-again/
Beachhouse - it's a tricky one with those unlisted holdings.
At presentations, the managers have gone to great lengths to highlight all the checks & balances they've built into their valuation process. They've stressed the arms length independence of their valuers (i.e. it's not the managers marking their own homework), as well as the relatively high valuation frequency.
So they can't really win either way - they'll always either be accused of over- or under-valuing these assets. Possibly even both simultaneously from different quarters!
When SMT was languishing in the 600-700p area, I think the main concern was with the PROPORTION of unlisted holdings, as they're inherently less transparent - so it's much harder to know their true value.
I doubt Elliott would (or could) persuade them to change their valuation methods, even if they feel they're being over-conservative. A policy u-turn of that sort would soon be spotted & could easily lead to accusations of the books being cooked to overstate NAV, causing significant reputational damage.
I guess they might try to pressurise managers into reducing the overall unlisted proportion through trade sales. But that might not please certain existing investors, who were attracted by the trust's relatively high unlisted content & saw this as the major long term growth driver. Alternatively, they might push for more lobbying of companies like SpaceX, urging them to IPO sooner rather than later. Whether this would fall on deaf ears though is anyone's guess.
IMHO, the enhanced buyback programme has Elliott's fingerprints all over it. And it was probably their trump card. But no doubt they've a few more tricks up their sleeve!
I've been reading many articles about Elliot, they seem to know what they are doing, they have bought over five percent of SMT the UK's largest investment trust, that's a significant investment and they will be expecting to make a good profit. One thing they mention is they think SMT have undervalued the private equity, that makes sense to me, over the past year the pundits have been negative about the private equity saying it is risky, hard to value and up to the thirty percent limit, it's possible SMT have undervalued it to keep below thirty percent, Elliot may have done their own valuations and think they should be higher. I'm happy how things are going, many investment trusts are trading at large discounts, but Elliot chose SMT, and they will have had good reason.
Oldnbald - on your final point, the proceeds from selling one or more listed holdings could immediately be reinvested into other listed holdings - thereby simply rebalancing.
It wouldn’t necessarily lead to an overall increase in the proportion of unlisteds.
Thank You.
I have mixed feeling re: Private equity holdings as these are the future cash cows but.... they have grown in proportion of overall holdings and this balance needs to be restored tbh. However - this can be done in one of two ways
1. - sell a private stake to another investor. In Space X this may be do-able but others are far less 'liquid' and could lead to a significant distressed sale price discount to perceived value - this in turn means that any remaining holding is downgraded and the value drops and so does the NAV. if you follow me.
2. Start being activist - and get IPO's scheduled. This is easier said than done but SMT cannot be the only shareholders on the register that want this outcome. Take a leaf from Elliots book, or even use Elliot themselves, to agitate for IPO.
My preference is for '2' for value reasons, even if it is slower. Some of the holdings however are, by their holdings structure, hard to 'force' to IPO. ByteDance is 20% owned by founders, 20% by employees and 60% by global investors - with 40% 'sewn up' (assuming employees do what they're told) it will be hard to get any kind of outcome for IPO. These shares.... the one with restrictive covenants or large founds share holdings are the ones that should be disposed of fast IMHO .
I do not really think selling existing listed holdings like NVidia is an option, as tempting as it is, as this will make the Private:Public ratios even worse.
I note there was a webinar today, just finished in fact. I for one shall watch with interest when it's available to stream.
Beachhouse - not sure how tradeable unlisteds like SpaceX would be right now?
Best time to find their true value might be when they IPO.
It'll be interesting to see how much influence Elliott can (& wants to) wield. I suspect the managers will hold firm on their existing unlisted investments. I also suspect the new buyback scheme was a direct result of Elliott's intervention.
The impression I get is that Elliot think SMT are undervaluing the private holdings, so by selling some of the space x holding it creates a definite valuation for the remaining space x that they still hold, maybe Elliot know that if SMT do this for some of the other private equity as well it will give them definite valuations that can then effect the NAV.
I'm not convinced of Elliot's strategy to reduce the private equity holdings, including SpaceX. This is one of the things that differentiates SMT from its peers in that investors gain access to private equity as well as large caps. I can't seem to see the reasoning behind this published anywhere so I'm not sure of the logic here.
Oldnbald - no need to apologise!
Whilst I don't have a subscription to The Times, this non-paywall summary might help you:
www.proactiveinvestors.co.uk/companies/news/1043857/scottish-mortgage-asked-to-get-real-on-private-holdings-like-spacex-bytedance-1043857.html
Apologies lordloadsoflolly, it was directed at sfh300 with this link:
https://stocks.apple.com/A-s3JQ97hRRaWcoFGR2mVvw
290754 - playing devil’s advocate, I suppose you could argue SMT’s managers might be persuaded to play things more cautiously with unlisteds in future, as these have been a drag on recent performance.
And that could lead to lost opportunities.
Or that they might be talked into part-selling some of their holdings with more racy current valuations (Nvidia springs to mind). Personally, I’d be quite happy with that anyway, but I guess it might mean missing out on the final? leg of their bull run.
I don’t really see much downside with Elliott myself, but am just trying to surmise the type of concerns others might have.
Sounds like good news for all shareholders to me - what is the downside?
Oldnbald - not sure if this was addressed at me "Any chance you could post the content pls? Behind a paywall."
The content in that link's not behind a paywall for me. But if it still is for you, let me know and I'll post the most relevant bits (it's a lengthy article!)
Any chance you could post the content pls? Behind a paywall.
Elliott are viciously and relentlessly focussed on success and gets any boards attention - look at Salesforce in CY 2023. Went from being a nonsense run company driven by the politics and ego of its CEO, with great revenue and minimal profitability to a completely refocussed company with great EPS, good Margins and even a dividend in a year.
I have bought SMT today purely on the back of Elliot's reputation. I would have done last week but sadly getting cash available took a couple of days.
Whilst I am not always a fan of buybacks - they are a great use of cash when you are buying back your own assets at a discount. I mean - who wouldn't pay 90p for a £1 coin?
I think we've established by now that some buybacks produce long term benefits, others don't.
What's perhaps more relevant here is Elliott's involvement (which probably kickstarted SMT's new buyback scheme in the first place).
As I've posted previously, it's worth reading up on Alliance Trust's "run in" with Elliott. In 2017, Elliott finally sold its holding in AT, saying:
"When Elliott became a shareholder over five years ago Alliance Trust had poor corporate governance and its shares traded at more than a 15% discount to net asset value. Since then, corporate governance has improved, an external asset manager has been proposed and the discount has narrowed to less than 5%."
You can read the full article via the link below. Whilst Elliott's relationship with AT was certainly fractious, the end result was largely positive:
www.citywire.com/new-model-adviser/news/elliott-ends-war-with-alliance-trust/a987878
I recall owning a US stock where they announced a material buyback authorisation. Moved the SP.
After the allocation had been exhausted over 2 years (amounting to purchasing 5% of the float at the time of the announcement), digging into the 10K's...it was determined by a 3rd party that 2 years later, the size of the float was the same. Why? Stock based comp and convertibles that converted!
The double whammy was when their earnings dropped too! LOL!
This should answer some questions:
"Why activist Elliott wants a stake in Scottish Mortgage Trust"
https://stocks.apple.com/A-s3JQ97hRRaWcoFGR2mVvw
DorestLSE - sure, not every buyback bolsters a share price in the longer term.
Just as not every buyback is done for the same reason initially.
Diageo has very little in common with SMT, so I don’t see how you can usefully extrapolate from one to t’other.
As for preferring a special dividend, in effect you’ve been given one right now - thanks to the near 13% share price uplift since 15 March.
If you think there are better opportunities out there, now might be a good time to take the money & run.
Personally, I don’t see it that way & will definitively be staying put.
“… is the SMT buyback coming from borrowing or have they been sitting on a £1bn cash pile”
Part cash. Majority trimming publicly traded investments where they view immediate opportunity for growth is seen as more limited.
Trimming the publicly traded investments will skew the balance towards the private investments - up to 28%.
My view is that they have sight of an IPO, which will balance it down again and boost NAV.
I understand what you say but I have a few other long term holdings with disappointing results following buy backs such as Diageo which has been buying back shares for a couple of years and it hasn't done anything for the share price (and this was before the recent profit warning) . In reality I would prefer a special dividend if they have excess cash and I can decide where to invest it. Artificially boosting share prices is often about executive bonuses. Incidentally is the SMT buyback coming from borrowing or have they been sitting on a £1bn cash pile?
DorsetLSE - there are probably two main schools of thought with buybacks.
Either: managers are running out of growth opportunities & see buybacks as a short term way to boost the share price.
Or: managers genuinely believe their shares are currently undervalued & use buybacks to signal this to the market.
Whichever people believe here, the short term impact is that with fewer shares in issue, the price rises. So SMT value creation, rather than destruction, for now.
Personally, I believe the size of the buyback programme is the gamechanger here, as it’s far greater than any previous scheme. And it’s not as if the shares are being bought back at a particularly high price for now. Which is probably why they’ve gone in hard early, whilst the price remains relatively subdued. They’ve already bought back over £40m worth in the first week.