Scottish Mortgage activist ‘laughing all the way to the bank’

Scottish Mortgage Investment Trust PLC (LSE:SMT) was the ‘victim’ or maybe the beneficiary of one of the shortest-lived activist investor campaigns in history, analysts reckon.

Less than two months after declaring a 5% stake in the Edinburgh-managed trust, Elliott Investment Management has started to sell down its holding.

It was confirmed in an RNS statement after 5pm on Friday, that the activist fund manager reduced its position in the FTSE 100-listed tech investor to below 5%.

SMT unveiled a significant share buyback programme recently, with some 35 million shares repurchased as of last week. 

Elliott said, via leaks to newspapers, that it wanted Scottish Mortgage to ramp up share buybacks to close the stock’s discount, while paring down some private investments, including Elon Musk’s SpaceX.

The source said Elliott was concerned about the lack of transparency in Scottish Mortgage’s private investments, which have increased in proportion to listed stocks, potentially contributing to the lagging share price.

“We assume that the vast majority and perhaps all of the 35m shares purchased in the buyback at 895p last Wednesday were from Elliott,” said analyst Iain Scouller at Stifel.

“The purchase had a total cost of £313m, which is equivalent to 2.5% of shares in issue. This appears to be roughly a halving of Elliott’s position from 70.2m shares or 5.04%, a threshold that was reached on March 19th.”

Analyst Russ Mould at AJ Bell said: “Whereas some previous activist campaigns against investment trusts have had a long list of demands … it’s fair to say that Scottish Mortgage was a much simpler one to comprehend.

“Do something to narrow the discount to net asset value and sell some of its private holdings as it might get a better price than was attributed by the market.”

The buyback programme, accompanied by a wider improvement in investor risk appetite that has seen many trusts with unquoted assets bouncing back, has seen the SMT discount shrink from circa 15% to around 6%, based on a closing NAV of 950.1p.

“Elliott has been laughing all the way to the bank as it has barely taken its feet off the desk, let alone had to flex its muscles in the normal way an activist does to get their message across,” Mould said.

Elliott, which started accumulating its large position in the shares last summer, when the price was typically between the 640p and 700p level and the discount was in excess of 20% at times, appears to have realised some sizeable profits, said Scouller, “but at the same time they remain one of the largest shareholders and they are likely to continue to give the board clear views as to how shareholder value could be enhanced in the future and keep their ‘feet to the fire’.”

“We assume that if any other shareholders also want to exit a large or small position in Scottish Mortgage’s shares in the market into the buyback, the board will be quite happy to facilitate this in the same way that they have accommodated Elliott’s realisation.”