About two years ago, Bill Ackman rediscovered his investment mojo and he has barely looked back since. In many ways, this is just as well, as the billionaire activist investor in charge of the portfolio at Pershing Square Holdings had suffered three years of woeful performance and must surely have been trying investors’ patience.
As part of the back-to-basics approach he adopted in early 2018, Mr Ackman, 53, shed some of his previous day-to-day responsibilities — meeting investors and the like — to concentrate exclusively on managing the investment trust’s money. He stopped taking short positions, or betting on company share prices falling, and re-embraced his own stockpicking style and hands-on approach to engaging with company managements.
He has been rewarded with a prolonged period of much-improved investment returns and a strong recovery in the trust’s share price. He pleased his investors still further just over a year ago by introducing dividends, paid quarterly. Yet despite also having a rolling share buyback programme most recently set at $100 million, Pershing Square Holdings’ shares still trend at a yawningly wide discount to the net value of its assets of about 24.4 per cent.
Pershing Square Holdings was set up by Pershing Square Capital Management, Mr Ackman’s Delaware-incorporated hedge fund manager, in 2012 and the shares were listed in late 2014. Its compact portfolio, which consists of only about ten stocks, is made up entirely of companies listed in North America. During a relative flurry of portfolio activity last year, Mr Ackman offloaded some long-held positions — including Automatic Data Processing, a payroll software group, and United Technologies, the conglomerate owner of the Pratt & Whitney engines maker — and took out a new position, buying shares in Berkshire Hathaway, the investment group led by Warren Buffett, 89, to which he was attracted in particular by the scale of its insurance operations. The trust won’t disclose the exact size of its holding in Berkshire Hathaway, which it is still building, but it is safe to assume that it will be significant.
The wideness of the Pershing Square Holdings discount is something of a conundrum. The recent performance doesn’t merit it. Over the year to the middle of last August, for example, the trust lifted its net asset value per share by 48.9 per cent, massively outperforming its benchmark share index, the S&P 500, which gained 18.2 per cent over the period. Although it suffered a monthly dip in October, that outperformance continued: at the end of the year the trust’s asset value had risen by 58.1 per cent and the S&P’s by only 28.5 per cent. Nor is it merited by the portfolio companies, all of which are straightforward, solid and often global businesses that do not deserve the discounts they are ascribed in the portfolio.
It is likely that the memory of the sustained underperformance is still holding back a full-blooded return to confidence among shareholders. When, in February, this column recommended buying the shares, the price stood at £12.74. With the shares up 26p, or 1.7 per cent, at £15.30 yesterday, those investors that followed the call will have notched up a gain of just under 20 per cent on the value of their holding.
Pershing Square Holdings remains convinced that there is plenty more value to be had from its portfolio, but it also has shown how willing it is to cut and run if that view changes. The arrival of dividend payments, generating a yield of a little above 2 per cent, adds to the attractions of the trust, which is still worth buying.
ADVICE Buy
WHY Investment manager is back on form, pays a dividend and the shares are cheap
Learning Technologies
Tell an audience that Learning Technologies is a specialist in corporate training videos and you might struggle to hold their attention. Tell them it’s a company that, in its most recent interim results, unveiled an 85 per cent increase in revenue and a more than fivefold rise in profit and they might look up. Add that it is also the self-styled consolidator of a fragmented market and they may start taking notes.
Learning Technologies was created in 2013, when Epic, an electronic learning company, reversed into In-Deed, an Aim-listed cash shell. It develops the software that helps big businesses to train their staff in, for example, cybersecurity or the impact of new data privacy rules and is listed on London’s junior market.
Its deal to buy Peoplefluent, which makes software for HR managers, in April 2018 for $150 million signalled a change of emphasis. As well as developing training programmes, Learning Technologies began to embed itself further into staff management by producing software that, for example, will identify which employees, and when, need of a knowledge or skills refresher. It now makes about 68 per cent of its revenues from software and sytems, although it is targeting acquisitions in both areas and in the United States, in particular.
Growth has been rapid and analysts reckon that Learning Technologies is on course to make profits before tax and interest of nearly £38.6 million on revenues of £129.5 million over the year to December 31. That would put it well on track to hit its target of £200 million of run-rate revenues and at least £55 million of adjusted core profits by the end of next year.
The share price hasn’t hung around, either, almost doubling over the past two years. When this column last looked at Learning Technologies in November 2018, it avoided the shares, since when the price has risen by 12.5 per cent. The shares, up a further 1¾p, or 1.4 per cent, to 135p yesterday, are valued at 30.7 times Berenberg’s forecast earnings and yield only 0.5 per cent. While this company seems to have the wind behind it, those metrics are not tempting for this observer.
ADVICE Avoid
WHY Interesting growth story, but shares are expensive