Change to the LTL Valuation Methodology

7 April 2022

The Lindsell Train Investment Trust plc

(the “Company” or “LTIT”)

Change to the Lindsell Train Limited (“LTL”) Valuation Methodology

The Independent Directors of The Lindsell Train Investment Trust plc (“LTIT”) have conducted a review of the methodology in respect of the valuation of LTIT’s holding in LTL and have agreed to adopt a new methodology after taking professional advice. It will apply to monthly valuations starting on 31 March 2022.

In adopting the new methodology the Board seeks to capture the changing economics and prospects for LTL’s business. It is designed to be as transparent as possible so that shareholders can themselves calculate how any change to the inputs would effect the resultant valuation. 

The new methodology is simpler as it has a single component based on a percentage of LTL’s FUM, with the percentage applied being reviewed monthly and adjusted to reflect the ongoing profitability of LTL. After the end of each month the ratio of LTL’s notional annualised net profits* to LTL’s FUM is calculated and, depending on its result, the percentage of FUM is adjusted according to the table below.

Notional annualised net profits*/FUM (%)	Valuation of LTL -Percentage of FUM
0.15 – 0.16	1.70%
0.16 – 0.17	1.75%
0.17 – 0.18	1.80%
0.18 – 0.19	1.85%
0.19 – 0.20	1.90%
0.20 – 0.21	1.95%
0.21 – 0.22	2.00%
0.22 – 0.23	2.05%
0.23 – 0.24	2.10%
0.24 - 0.25	2.15%
0.25 - 0.26	2.20%
0.26 - 0.27	2.25%

At the 31 March 2022 LTL’s annualised notional net profits were £42.6m and its FUM was £20.45bn. The ratio between the two as a percentage was calculated at 0.208 resulting in a percentage of FUM of 1.95% and a valuation of LTL of £15,024.84 per share.

The Board believes that a change from the old methodology was necessary as in recent years the valuation difference between its two components has widened considerably. This reflected the effect of the operating leverage in LTL’s business as its FUM increased.

The old methodology has been a simple average of two components:

• 1.5% of LTL’s most recent funds under management (‘FUM’); and
• LTL’s net profits (adjusted for a notional increase in staff costs to 45% of revenues excluding performance fees) calculated with reference to LTL’s most recent end month’s FUM, divided by the annual average redemption yield on the longest dated UK government fixed rate bond, currently UK Treasury 1.625% 2071, calculated using weekly data, plus a premium of 0.5%, subject to a minimum yield of 4%, plus an equity risk premium of 4.5%.

In making this change, the Board notes that the new methodology correlates closely to the result of the old one (when the average of the two components in the old methodology is expressed as a percentage of FUM) both on 31st March 2022 and historically as depicted in the graph, which can be downloaded by opening the following hyperlink. At the 31 March 2022 LTL’s valuation based on the old methodology would have been £15,219.25, a difference of just 1.3% from the valuation using the new methodology, detailed above. 

https://mma.prnewswire.com/media/1782444/Chart.pdf

The Board will continue to monitor a number of alternative approaches to the valuation of LTL to ensure that the result of the new valuation methodology makes sense in the context of the future prospects for LTL and also when it is compared with similar businesses.

In summary, the Board’s view is that this new methodology simplifies the valuation of LTL whilst capturing the changing operating leverage of the business and is also historically consistent with results from the old one.

*LTL’s notional net profits are calculated by applying a fee rate (averaged over the last six months) to the most recent end-month FUM to produce annualised fee revenues excluding performance fees. Notional staff costs of 45% of revenues, annualised fixed costs and tax are deducted from revenues to then produce notional annualised net profits.

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Contact information: 

Victoria Hale
Frostrow Capital LLP
Company Secretary
Telephone: [phone]