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Scottish Mortgage buybacks quizzed as activist investor builds stake

Published 22/03/2024, 14:15
© Reuters.  Scottish Mortgage buybacks quizzed as activist investor builds stake
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Proactive Investors - Elliot Investment Management, the activist investment firm that previously campaigned for change at Alliance Trust (LON:ATST), has declared a 5.04% equity stake in Scottish Mortgage.

Analysts at Stifel noted the timing of the stake building, coming a week after Scottish Mortgage declared a £1 billion share buyback programme.

“The market is likely to suspect the board was aware that some significant trading activity was afoot, though perhaps not knowing which investor was behind it and this was one factor in the timing of the buyback announcement a week ago,” Stifel said of the news.

Analysts suggested that Scottish Mortgage’s board may have been hoping for the company’s share price discount to narrow to put off any activist investor buying shares

“Whilst this has partly worked, with the discount narrowing from 15% a week ago to 10% yesterday, it has failed to stop Elliott reaching the 5% declarable level,” Stifel said.

‌“Part of Scottish Mortgage’s share price weakness was down to the rising interest rate environment as that negatively affected valuations of companies where the story is more about future cash flow than jam today.

“But as the share price fell, there were also suggestions that Scottish Mortgage had been taking too many wild bets on blue-sky companies, ones that had an idea but were miles off making any money.”

Dan Coatsworth, investment analyst at AJ Bell, suggested that Elliott could call on Scottish Mortgage “to focus more on companies that already generate profit or at least have a growing revenue stream rather than simply a concept”.

He added: “That could spell an end to the bonkers ideas which Scottish Mortgage previously bought into, such as flying taxis and 3D-printed rockets. Having fewer unquoted stocks would mean in theory that its portfolio has more liquidity, should it need to exit any positions quickly.”

Earlier this month, Elliott Investment abandoned efforts to take over electronic retailer Currys PLC (LON:CURY).

Read more on Proactive Investors UK

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