James Beard
4 min read
Scottish Mortgage Investment Trust (LSE:SMT) prides itself on owning stakes in the world’s “most exceptional” growth companies. At the end of May, it had positions in approximately 100 of them, with its most valuable being Space Exploration Technologies, or SpaceX, as it’s more commonly known.
With Elon Musk’s company soaring in value after its successful IPO, it stands to reason that Scottish Mortgage should see a rise in its share price. However, by lunchtime on 19 June, it had only risen by 1.7% since trading in SpaceX commenced on 12 June.
Significantly, it means the trust’s shares are trading at a discount. Let me explain.
A knock-down price?
The table below shows Scottish Mortgage’s closing share price and its net asset value (NAV) per share over the past few days.
|
Date |
Share price (pence) |
Net asset value (pence) |
Share price discount (%) |
|---|---|---|---|
|
11 June |
1,426 |
1,438 |
0.8 |
|
12 June |
1,450 |
1,496 |
3.1 |
|
15 June |
1,450 |
1,598 |
9.3 |
|
16 June |
1,486 |
1,625 |
8.5 |
|
17 June |
1,495 |
1,597 |
6.4 |
|
18 June |
1,477 |
1,607 |
8.1 |
|
19 June (lunchtime) |
1,450 |
1,607 (18 June) |
9.8 |
It reveals that before SpaceX’s IPO, the trust’s shares were changing hands broadly in line with its NAV per share. However, since then, it’s failed to keep up with the rise in the value of its investments, much of which is attributable to SpaceX.
But what does this mean?
Specifically, it suggests that buying shares in Scottish Mortgage gives investors a stake in some of the world’s fastest-growing companies at a near-10% discount. In theory, it’s a bit like being given a money-off coupon.
However, we mustn’t get carried away.
Back down to earth
Previously, much has been written about the extraordinary valuation of SpaceX. Indeed, for a company that’s loss-making, its market cap is truly breathtaking. Investors in Scottish Mortgage might be of the view that the hype could soon evaporate and that the space, connectivity, and AI group’s stock price will soon fall back to a more reasonable level.
Also, it must be remembered that as a major shareholder, Scottish Mortgage is subject to lock-in restrictions. Consequently, it can’t dispose of all of its shares (assuming it wants to) for a period of 180 days post-IPO.
I do not want to focus on quarterly earnings. I’m not saying we’re not going to do right by our investors, but what folks who invest in SpaceX need to know is that what we’re doing is very futuristic.
Gwynne Shotwell, President, SpaceX
The biggest and best?
Away from SpaceX, a significant proportion of the trusts’s investments are in unquoted companies. Generally, these are difficult to value. And although its fund manager follows the appropriate industry guidelines, there’s always an element of doubt over valuations when a company’s shares aren’t actively traded.
