A gig as purse-holder for the Tyson Fury and Dillian Whyte world title boxing fight in April helped Law Debenture Corporation (LWDB ) offset blows from rising inflation and volatile markets to deliver a resilient half-year performance.

Net asset value for the £982m investment trust, which uniquely owns a collection of specialist financial services businesses alongside a UK equity income portfolio, fell 4% in the six months to 30 June with dividends included. 

The fair value of the Independent Professional Services (IPS) division rose 4.9%, making up for some of the decline in the investments managed by James Henderson and Laura Foll at Janus Henderson, although this too was softened by their holding buoyant energy and commodity stocks. 

The overall 4% reduction was based on debt at fair, or current market, value, which put the trust slightly ahead of the 4.6% total loss in the FTSE All-Share index. However, with debt valued at ‘par’ (the original sum borrowed), Law Debenture’s total first-half loss increased to 8.4%.

FTSE destroyer

Either way, the interims extend the 133-year-old company’s record of beating the UK stock market. Over five years to June its underlying net asset value (NAV) advanced 34.8% (with debt at par) and by 40.6% (with debt at fair value). That trounced the 17.8% from the FTSE All-Share and underpinned a 58.2% total return to shareholders.

The much higher shareholder return reflects the trust’s re-rating by investors. Five years ago the shares stood at a discount of around 10% below NAV, but today stand at a 2% premium above asset value. The revival demonstrates the improved financial performance from IPS since chief executive Denis Jackson (above) took charge in December 2017, and the more recent rebound in the ‘value’ style shares held by Henderson and Foll.

As of yesterday, Law Debenture stood second out of 23 trusts in the AIC UK Equity Income sector with a 10-year total shareholder return of 185%, again well ahead of the UK stock market’s 98%.

The interims underlined Law Debenture’s appeal as a reliable dividend generator with IPS accounting for 19% of assets but over a third of its income. Net revenues from the pensions and trustee businesses grew 11.3% to £21.67m and jumped over 65% to £16.9m from the UK-focused shares portfolio. 

This puts the ‘dividend hero’ on track to pay a 44th year of consecutive rising payouts covered by earnings. It declared this year’s first quarterly dividend in May, lifting it 5.5% to 7.25p per share. It also holds revenues reserves equal to last year’s payout of 29p per share and at last night’s close offered a 3.8% yield, having grown dividends by nearly 14% a year since 2018.

Looking ahead, IPS should be well positioned even in a tough recession, with Jackson telling Citywire, ‘we should be pretty resilient if the wheels do come off’. Two thirds of its administrative operations in corporate pensions, trusts and bonds is recurring business, much of it on inflation-linked contracts. 

While a freeze in bond issuance proved a challenge for the corporate trust business last year, revenues recovered 5% in the first half and could rise further if an economic downturn leads to company bankruptcies and a spike in activity in Law Debenture’s role as ‘middleman’ between borrowers and investors.

As its name suggests, Law Debenture’s historic connections with law firms can produce unexpected opportunities. In April, its escrow service was asked to hold on to the monies in the $41m Fury v Whyte WBC title fight in Wembley, a role Jackson said pointed to the company’s longevity and trustworthy reputation.

Inflation pressure

The soaring cost of hiring the best graduates or staff with new legal, accounting or investment qualifications is a problem, however, forcing up IPS’ administration costs. These jumped from £13.5m to £15.4m, denting profit margins. 

Jackson said: ‘We must compete to retain our people who underpin the quality of service we deliver to our clients.’

It’s a story that fund managers Henderson and Foll (above) understand as they added to their positions in the UK and looked to find bargains, particularly among consumer stocks, in a cheap market, while avoiding value traps. 

They were hit by steep falls in Accsys Technologies (AXS), as investors dumped early-stage companies, and Marks & Spencer (MKS), as investors doubted the food and clothing retailer’s latest revamp. However, they also benefited from Shell’s (SHEL) surge on the back of high oil prices and the boost to BAE Systems (BA) from increased military spending after Russia’s invasion of Ukraine.

They believe the stock market clouds will lift as short-term pressure from inflation and interest rate rises ease. ’In a year’s time, as the large jump in energy costs work their way out, inflation will likely retreat. Once this is clearly seen, the upward trend in interest rates will cease. Company operating performance may come to be seen as surprisingly robust given the backdrop,’ they said.