Scottish Mortgage Investment Trust Plc

Scottish Mortgage Investment Trust Plc (LON: SMT) is an FTSE 100-listed closed-end investment Company, with an objective to maximise the total return to investors, while generating real dividend growth through a diversified portfolio.

Investment Highlights – Scottish Mortgage Investment Trust Plc – Expensive at GBX 1,151.49

• The Company has shown a strong financial performance in H1 FY2021, while the operating expenses are increasing, which could hamper the profitability margins in the near future.
• The Company has lower liquidity in H1 FY2021, with a current ratio of 0.26x, reflecting insufficient current assets to pay its short-term obligations.
• From the technical standpoint, shares were trading below the short-term support level of 50-day (GBX 1,224.15) simple moving average prices, which reflects a downtrend in the stock.

Key Risks

• Due to uncertainties regarding the Brexit and Covid-19, the consumer confidence dampened and affected the business operations.
• In the recent past, the Company faced challenges due to currency fluctuations in sterling.

Financial Highlights – H1 FY 2021 (30 September 2020) (released on 6 November 2020)

(Source: Interim Report, Company Website) 

• In the first half of the financial year 2021, the Company has delivered a higher gain on investment, which resulted in significantly higher net return/ ordinary share.
• Driven by higher net return, the Company proposed a higher dividend for the period as compared to H1 FY2020.
• The Company’s cash position increased significantly to £77,956 thousand as on 30 September 2020, along with well-positioned balance sheet.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

The Company has shown a strong financial performance in the first half of the financial year 2021 while delivering on the quantified objectives. The political instability in the UK has reduced transaction activities, while prospects of London market still seems to be bright in the long-term. In the short-term, the portfolio remains challenging, due to covid-19 crisis, while the Company is optimistic about the underlying and aggregate progress of the portfolio. SMT is focussed on identifying attractive prospects to deploy the excess liquidity. The stock made a 52-week low and high of GBX 536.00 and GBX 1,418.57, respectively.

Based on the factors as highlighted above, we believe the stock of Scottish Mortgage Investment Trust Plc is “Expensive” at the current price of GBX 1,151.49 (as of 01 April 2021 at 11:59 AM GMT) with support from few catalysts needs to be evaluated at a later stage such as decent prospects of London market and improved investors sentiments.

M&G Plc

M&G Plc (LON: MNG) is an FTSE 100 Index listed Savings and Investment Company, which has been serving individual savers since 1848, including, Insurance Companies and Pension Funds.

Investment Highlights - M&G Plc - Expensive at GBX 208.50

• Despite the improved performance in the financial year 2020 and higher demand, the Company is not able to provide any guidance for the financial year 2021.
• As per valuation metrics, the EV/Sales and Price/Cash Flow multiples of the M&G Plc are currently higher as compared to the corresponding multiples of the Investment Banking & Investment Services industry, reflecting overstretched valuations.
• From the technical standpoint, 14-day RSI is currently supporting downward movement (around 54 level), which means the stock price could decline in the short term.

Key Risks

• The fluctuations in exchange rates and interest rates can impact the investment portfolio.
• There is a substantial corporate liquidity risk with challenging UK domestic and global economic and business conditions.

Recent News

On 11 March 2021, Hyde had announced strategic partnership with the Company to attract new sources of responsible capital into shared ownership housing.

Financial Highlights – FY2020 (31 December 2020) (released on 9 March 2021)

• The Company’s adjusted operating profit before tax of £788 million and PAT (Profit after tax) on IFRS basis increased to £1,142 million for the period.
• The total capital generation for FY2020 stood at £995 million and Solvency II coverage ratio strengthened further to 182%.
• The Company maintained its policy of a stable or increasing dividend, and declared an ordinary dividend of 12.23 pence.
• The AUMA increased to £367.2 billion, reflecting the acquisition of Ascentric made in September 2020.

One Year Share Price Chart

(Source: Refinitiv, Thomson Reuters) 

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Conclusion

The Company has delivered a resilient performance in its first year as an independent company, despite the challenging operating environments. The Company has a well-diversified and integrated business model and is committed towards its target of generating total capital of £2.2 billion by end of 2022. MNG has a strong balance sheet, which is further boosted by dividend policy and capital generation. The Company has strong future pipeline; however, it is anticipating further volatility in markets while the Covid-19 virus remains a threat. Notwithstanding, the stock appears to be overstretched which raises doubts over the further upside potential. The stock made a 52-week low and high of GBX 102.23 and GBX 231.70, respectively.

Based on the factors as highlighted above, we believe the stock of M&G Plc is “Expensive” at the current market price of GBX 208.50 (as of 01 April 2021 at 11:49 AM GMT) with support from demand for investment solutions and high-value savings needs to be evaluated at a later stage.

*Dividend Yield may vary as per the stock price movement.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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