With its shares worth about 50 per cent more than they were a year ago, it may be tempting to cash in on the strong run enjoyed by Edinburgh Worldwide Investment Trust (Greig Cameron writes). The focus is on boosting the share price further as the trust has little interest in paying dividends.
The trust was formed in 1998 and is run by Baillie Gifford in Edinburgh. Someone who bought in at about 420p when Douglas Brodie, the manager, came in at the start of 2014 could happily exit with a healthy return. Yesterday the shares were changing hands at more than 900p. As with any investment decision, one fear will be of bailing out too early.
Mr Brodie, in common with many of his Baillie Gifford colleagues, tries to look beyond short-term numbers while taking a view on what a company can achieve. Biotechnology and software make up some of its larger holdings, which give an indication of where the managers perceive the greatest value. Mr Brodie has talked often about the broad range of digital technologies and scientific advances that will open up “exciting” business opportunities. He acknowledges, though, that these trends may be “exceptionally long in duration”. This also means that some of the businesses spawned as part of these shifts will be undervalued compared with their potential size.
The trust’s recent interim report for the six months to the end of April showed that the portfolio had had its ups and downs. Ocado, the online grocery and technology group, was a star performer with an 86 per cent share price rise, while Grubhub, an online and mobile delivery platform for the restaurant trade, was up almost 60 per cent. Others in the trust’s top ten holdings didn’t fare as well. Alnylam Pharmaceuticals, which works in gene therapy, slid by more than 25 per cent, while Tesla, the automotive and technology group, dipped by 14.5 per cent.
Mr Brodie and his team continue to seek out new companies. Recent additions include Blackline, which provides software to help companies to adjust to new accounting procedures, and Jianpu Technology, an online platform providing consumer finance recommendations in China. The trust also bought a stake in Restorbio, which is working on inhibiting biological mechanisms involved in age-related diseases.
The trust has exposure, too, to unlisted companies, with its most recent deal participating in a funding round for Reaction Engines, an aerospace engineer that designs and manufactures advanced heat exchangers that are tipped to have an impact on thermal management for many industrialised processes. Other unlisted holdings include Spire Global, an American satellite data business, Akili Interactive Labs, a healthcare technology group, and Oxford Nanopore Technologies, a specialist in DNA sequencing.
The trust also invested in Unity Biotechnology when it was unlisted, benefiting from a recent $85 million float on Nasdaq. More than half of the portfolio is in North America, with 20 per cent in Britain and the remainder in Europe and Asia.
Yesterday the trust announced plans to hold a meeting at the end of this month to seek approval for issuing more shares without offering existing investors the chance to maintain the size of their stake. If it goes through, the trust could issue nearly 5.4 million new shares, the equivalent of 10 per cent of existing share capital. The board said that it wanted to “meet the continuing demand for shares” in the trust. As if to underline that, it cited “ongoing demand” as it issued 75,000 new shares at 896p yesterday.
ADVICE Hold
WHY Demand in the market suggests that upward momentum in share price could continue. Just don’t expect a dividend soon
Purplebricks
Whether you are believer in Purplebricks and its model for selling a house or if you are a sceptic, you can’t deny that the company’s expansion has been rapid (Tom Knowles writes).
Purplebricks was launched in 2012 as an online operation. It had no physical branches but offered on-the-ground agents. Yet its biggest selling point was price: Purplebricks charged customers a flat, upfront fee of £849 to sell their home in the UK (£1,119 in London and surrounding areas), significantly cheaper than traditional agents, which typically charge between 1 per cent and 3 per cent of the selling price. Fast forward six years and Purplebricks has spread widely across the UK, has opened in Australia, four states in America and has bought an operation in Canada.
The Aim-listed company is 27 per cent-owned by funds managed by Neil Woodford, the renowned investor, while Axel Springer, the largest digital publishing house in Europe, invested £125 million in March to take an 11.5 per cent stake. Yesterday, Axel lifted that to 12.5 per cent. Purplebricks’ market cap stands at £971 million, seven times higher than Countrywide’s £130 million, despite the latter being the biggest owner of estate agents in Britain.
Tempus believes that this company is moving too fast and spreading itself too thinly. Last week, it unveiled a £21.3 million operating loss for the year, up from £5.1 million. In part, this was because of the £42.1 million it spent in advertising in three countries, but Peel Hunt, its broker, has said that Purplebricks’ break-even point will not be until 2021. The company has a valuation of 35 times its estimated profits before tax and other items in 2019.
Scratch deeper and things get more worrying still. The company has been reprimanded by the Advertising Standards Agency eleven times in the past three years over misleading adverts. In addition, when it comes to reviews, Purplebricks may have a 9.5 out of 10 rating on the comparison website Trust Pilot, but it has such a bad rating on Allagents, a rival website, that it has resorted to sending legal letters claiming that some of them are fake.
ADVICE Avoid
WHY Spreading itself too thinly and has widening losses at a time of growing issues in Britain and Australia
