Monthly Update December 2003
Lindsell Train Investment Trust PLC
20 January 2004
The Lindsell Train Investment Trust PLC
As at 31st December 2003
Fund Objective
To maximise long-term total returns subject to the avoidance of loss of absolute
value and with a minimum objective to maintain the real purchasing power of
Sterling capital, as measured by the annual average yield on the 2.5%
Consolidated Loan Stock.
Share Price GBP 85.50
Net Asset Value GBP 94.82
Premium (Discount) (9.8%)
Market Capitalisation GBP 17.1mn
Source: Bloomberg; NAV - LTL
Performance (based in GBP) Dec YTD Since Launch
NAV +0.9% +1.6% -5.2%
Share Price +6.2% -10.0% -14.5%
Monthly Benchmark (21/2% Con Ann +0.4%
Avg Yield +5.0%)
Source: Bloomberg. Based in GBP.
Top 10 Holdings
% NAV
US Gov Treasury 6.25% 17.8
Lindsell Train Global Media (Dist) 11.1
Lindsell Train Japan (Dist) 10.1
HBOS 9.25% Non Cum 9.2
21/2% Consolidated Loan Stock 8.9
Barr AG 8.4
Glenmorangie plc A&B 7.2
UK Treasury 2.5% 6.9
Cadbury Schweppes 6.4
HBOS 6.125% Non Cum 5.2
Industry Breakdown
% NAV
Bonds 33.5
Preference Shares 14.4
Equity - Media 10.0
Equity - Banks & Investment Co. 4.7
Equity - Leisure & Entertainment 11.4
Equity - Food & Beverage 24.1
Investment Fund 21.2
Cash & Equivalent (19.3)
Total 100.0
Geographical Breakdown
% NAV
Bonds 33.5
UK 15.7
US 17.8
Preference 14.4
Shares 50.2
Equities UK 38.2
US 5.1
Japan 4.7
Europe 2.2
21.2
Funds LT Japan 10.1
LT Global Media 11.1
(19.3)
Cash &
Equivalent
Total 100.0
Currency Exposure
% NAV
USD 48.2
JPY 1.3
EUR 0.2
GBP 50.3
Total 100.0
Fund Manager's Comments
It proved to be another month where positive returns achieved in both bonds and
stocks were largely offset by the continued weakness in the US Dollar. It is
surprising that the best performing share during the month was Cadbury Schweppes
a business with a particularly large proportion of US dollar earnings. Cadbury's
rally, it turns out was due to US 'value' house, Templeton building a 6.0% stake
in the company. We agree with Templeton that Cadbury is one of the best value
major companies we know anywhere in the world. We made one change to the
portfolio last month. We bought the beginnings of a position in Reed Elsevier, a
share that we have been monitoring for some time. Reed is a publisher with four
distinct business areas. It sells educational publications to schools and
universities, mainly in the USA. As well as organising trade exhibitions, it has
a series of specialist industry publications, again mainly sold in the USA.
These two businesses have been under pressure because of the squeeze on state
funding and the advertising recession respectively, although the pressures
should wane through 2004/5. But the majority of Reed's business is focussed on
scientific and legal publications worldwide. The users of these publications,
lawyers and scientists, are heavily reliant on them, as an integral part of
their affairs, meaning these earnings are not cyclical. Reed's market share is
high in both areas, having the leading global position with Science Direct of
25% more than the size of its nearest competitor, and a duopoly with Thomson in
legal. Margins are good, as well, averaging 25.0% at the operating level. We
regard Reed's collection of businesses, most based on subscriptions, as
wonderful franchises to participate in. What makes them especially appealing
today is the enhancement that new technology brings to the distribution and
utility of the publications. Clearly, distributing them over the internet is a
major cost saving and increase in efficiency for Reed, but the access that
customers gain to the database of past publications and relevant material is
another wholly new utility that the company can offer its customers. Reed
Elsevier has made big investments in technology over the last 5 years, to
improve its product offering to its customers and this is already having a
material effect on revenues and costs. Indeed we cannot think of another
European business where the use of the internet has such scope to transform
revenues and profits. What is ironic is that the market has been prepared to pay
ludicrous prices to access the equity of other businesses which claim similar
reliance on the internet, yet in most cases, profits derived from these
opportunities are but a distant dream. Reed announced earlier this month a five
year deal with the University of California that delivers 3.6mn articles and
59mn abstracts to graduates and faculty. No other company in the world could
deliver this service.
The reason we bought Reed last month and not before was price. Aside from three
days in mid-March, when the price traded below £4.00, the shares spent most of
2003, trading just under £5.00 with a high of £5.50. Reed's recent trading
statement, when profits undershot market expectations, caused the price to fall
in December. Profits will grow at c7.0% this year because of continued slow
trading conditions in the educational and business publication divisions and
greater than expected investment costs in new technology, rather than the 10.0%
expected. To our mind, 7.0% growth in a zero inflation world is still highly
attractive, especially given the earnings yield we access the shares on, 6.5%.
In buying Reed we are also signalling intent to focus our publishing investments
on this one company to the exclusion of Wolters Kluwer, which we intend to sell
into strength. We funded the purchase though, by selling an equivalent amount of
our US Treasury position, which should not be interpreted a loss of enthusiasm
for fixed interest, nor capitulation about the dollar, after all the majority of
Reed's revenue arise from the US, helping explain recent share price weakness.
Although this purchase of Reed amounted to c1.9% of net assets, shareholders
should be aware that when adjusting for our effective holding in securities,
including those held indirectly by the Lindsell Train Funds, we have higher
'look though' weightings to some shares and in the case of Manchester United a
not unsubstantial 'look though' holding in a stock not owned by the Trust at
all. We have listed below all of these, including any 'look through' holding
above 1% not held directly by the Trust.
US Treasury 19.7%
Nintendo 6.8%
Dow Jones 5.1%
Reuters 4.2%
Reed Elsevier 3.0%
Wolters Kluwer 1.9%
Manchester United 1.9%
Short position in Japanese Government
Bond Futures (2.0)%
Fund Manager Launch Date Denominated Currency
Nick Train 22 January 2001 GBP
Year End Dividend Benchmark
31st March Ex-date: June The annual average yield
Payment: August on the 21/2% Consolidated
Loan Stock.
The Board Management Fees Registered Address
Rhoddy Swire Standard Fee: 0.65% p.a. Lindsell Train Investment
Michael Mackenzie Performance Fee: 10% of annual Trust
Donald Adamson increase in the share price, plus 77A High Street
Michael Lindsell dividend, Brentwood
above the gross annual yield of ESSEX CM14 4RR
the 21/2% Consolidated Loan Stock.
Sedol No Bloomberg
3197794 LTI LN
Disclaimer
This document is intended for use by persons who are authorised by the UK Financial Services Authority ('FSA
') and those who are permitted to receive such information in the UK. The information contained in this
document does not constitute an offer or invitation to buy or sell any investments. Nothing in this document
constitutes investment, legal, tax or other advice. Lindsell Train and/or persons connected with it may have
an interest in this investment.
The value of any investment in securities or funds and the income generated from them may go down as well as
up and are not guaranteed. Past performance cannot be used as a guide or guarantee of future performance. You
may not get back the original amount you have invested. Changes in foreign exchange rates may cause the value
of your investment to go up or down. Some funds with higher gearing may be subject to higher volatility and
the investment value may change substantially. The net asset value (NAV) performance of an investment trust
is not the same as its market share price performance.
Issued and approved by Lindsell Train Limited
Authorised and regulated by the Financial Services Authority
16 January 2004 LTL 000-012-0
Lindsell Train Limited
35 Thurloe Street, London SW7 2LQ
Tel. +44 20 7225 6400 Fax. +44 20 7225 6499
info@lindselltrain.com www.lindselltrain.com
Lindsell Train Limited is authorised and regulated by the Financial Services Authority.
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