The Lindsell Train investment trust has revealed it now values Lindsell Train Limited, the fund house run by Nick Train in which it holds a sizeable stake, at £450m.
The information was contained in the half-year report of the £210m Lindsell Train investment trust, published yesterday (December 2). The trust owns 24 per cent of Lindsell Train Limited, which it now values at £109m, up from £82m in March.
The valuation is based on a number of metrics including the fund house's assets under management, which rose from £16.3bn to £22.5bn in the six months to July 31 2019. Six-month profits at the firm rose by 47 per cent to £28m over the same period, according to details published in the investment trust's update.
The trust described its valuation as "cautious", for a number of reasons. It assumed that Lindsell Train Limited could ultimately spend as much as 45 per cent of revenue on staff costs; in the six months to the end of July those costs accounted for 33 per cent of revenues.
Trust chairman Julian Cazalet suggested in the half-year report that the trust's share price premium to NAV had remained elevated because investors believed the stake in Lindsell Train was valued too conservatively. A valuation of £450m equates to just 2 per cent of the fund house's assets under management, a relatively modest proportion by the standards of current merger and acquisition activity.
But Mr Cazalet pointed out that the asset manager remained exposed to a significant amount of key man risk in the shape of founders Michael Lindsell and Nick Train:
"The board believes it vitally important that the prospects for future growth in funds under management and profitability should be balanced in any valuation of LTL by the risks associated with reliance on key individuals and with succession.
"The board has encouraged LTL to take measures to build a successful and experienced team; in the meantime, while uncertainty remains over how the future unfolds, the board believes it is appropriate to reflect that ongoing risk in LTL's current valuation."
Lindsell Train's latest AUM figures do not take into account the recent spike in outflows from its funds. Some £374m left the Lindsell Train UK Equity fund in October, as investors moved away from growth funds of the type run by Mr Train.
As of July, the fund house's £22.5bn of assets was comprised of £10.7bn in UK equity funds, £11.2bn in Global equity funds, and £664m in the company’s Japanese equity fund. All three categories had higher assets under management than in the previous year.
Mr Cazalet also highlighted the fact that Hargreaves Lansdown removed the Lindsell Train funds from its Wealth 50 buy list this summer. He said this might negatively impact the company’s inflows in future.
The company has begun succession planning in recent years, with James Bullock now a named fund manager on the Lindsell Train Global Equity fund.