Edison reviews on The Law Debenture Corporation
London, UK, 1 March 2019
Edison issues review on The Law Debenture Corporation (LWDB)
The Law Debenture Corporation (LWDB)'s NAV total return outperformed its benchmark FTSE All-Share Index in FY18, protecting investors from c 40% of the market decline. While returns for the year were negative, LWDB has performed well in absolute terms over three, five and 10 years to 31 January 2019, producing strong NAV and share price total returns under managers James Henderson and Laura Foll. The independent professional services (IPS) business, which makes up c 14% of LWDB's NAV on a fair value basis, performed strongly in its first full year under the new executive team of Denis Jackson (CEO) and Katie Thorpe (CFO), with 9% net revenue growth after seven years of broadly flat returns, contributing c 37% of LWDB's revenue earnings per share. With c 75% of LWDB's assets invested in the UK, a planned move from AIC Global to a UK sector should facilitate comparison with more similarly invested funds.
LWDB's current discount to cum-income NAV (with both debt and the IPS business at fair value) is 10.9%, which is broadly in line with recent history, and wider than the AIC Global, UK All Companies and UK Equity Income sector averages. While the market tends to apply a discount to trusts perceived to have 'complicating' factors, our view is that the important revenue contribution from IPS should support a narrower, not a wider discount. LWDB currently has net gearing of 3.0% and yields 3.2%, based on the FY18 total dividend, which was up 9.2% year-on-year.
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