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Numis: we were about to ‘sell’ Lindsell Train before it crashed

11 July 2019

Half-year review of Numis Securities’ investment trust recommendations reveals broker was ‘poised’ to slap ‘sell’ rating on Lindsell Train before its precipitous plunge last Friday.

Numis Securities analysts were preparing to publish a ‘sell’ note on Lindsell Train (LTI) just before shares in the highly rated global trust run by Nick Train collapsed last Friday.

In their half-year review of investment trust recommendations the Numis team say they were ‘poised’ to issue a ‘trading sell’ alert on Lindsell Train whose shares had traded on a premium of more than 90% over their net asset value.

The bubble burst last Friday when Hargreaves Lansdown removed the £8 billion Lindsell Train UK Equity and £9 billion Lindsell Train Global Equity funds from its Wealth 50 list of recommendations.

‘This was not based on a view on the manager or performance, rather due to policies about the proportion of Hargreaves Lansdown shares held by the funds,’ Numis noted.

Nevertheless, the decision cast a cloud over the valuation of Train’s fund management business, Lindsell Train Limited (LTL), in which the trust holds a hefty stake, sending its shares down 22%.

Today, with the trust down a further 3% at £1,298.80, the shares have lost nearly a third of their value and the premium has been slashed to an admittedly still expensive 40% over NAV.

The Numis analysts say the premium ‘still appears excessive’ but have refrained from formally rating the trust a ‘sell’ saying that ‘with limited trading liquidity the premium can be volatile in both directions’, meaning the stock could recover.

However, they reiterated their view that the funds business was not understated in LTI’s accounts. Some investors believe LTL is worth more and therefore the premium is not as big as it appears.

‘LTI holds a 24% stake in the management group, Lindsell Train Limited, although we do not believe this represents hidden value because it is valued in the net assets (47% of NAV),’ they said.

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