Scottish Mortgage (SMT) has announced that its board has taken the decision to make at least £1bn available for buybacks over the next two years. The trust says that its public and private portfolio is delivering strong operational results, with free cashflow from the portfolio companies having more than doubled over the past year, and that, collectively, portfolio companies have adapted to a higher cost of capital and are funding their future growth. In addition, over recent months, SMT’s balance sheet has been strengthened via debt reduction, leaving invested borrowings at 13% of net assets, at an average interest rate cost of 3.2%. These two improvements have given the SMT’s board the confidence to take more concerted action to address SMT’s discount to net asset value.

SMT says that, when allocating capital, a range of factors are considered including the level of gearing, exposure to private investments and general market conditions. Currently, private companies represent 26.2% of the portfolio, which would rise to 28.3%, assuming £1 billion of share repurchases at current market levels. Over the last two years, SMT has repurchased approximately £353m of its own shares. SMT comments that share buybacks are a key component of capital allocation decisions and that, during the last two years, the Board and managers have been actively considering increasing the level of buybacks. SMT comments that buybacks provide shareholders with significant benefits including improved liquidity in SMT’s shares, an immediate accretion to the net asset value per share for remaining shareholders and, in its view, a strong demonstration of confidence in the underlying valuation of the portfolio.

Comments from Justin Dowley, chair of SMT

“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.”

Comments from Tom Slater, the manager of SMT

“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.”