Lindsell Train Regulatory News (LTI)

15 Aug 2006 09:50

Lindsell Train Investment Trust PLC15 August 2006 The Lindsell Train Investment Trust PLC As at 31 Jul 2006Fund ObjectiveTo maximise long-term total returns subject to the avoidance of loss of absolute value and with a minimum objective tomaintain the real purchasing power of Sterling capital, as measured by the annual average yield on the 2.5%Consolidated Loan Stock. Net Asset Value GBP 135.78Share Price GBP 129.50Premium (Discount) (4.6%)Market Capitalisation GBP 25.9mnBenchmark (21/2% Con Ann Avg Yield +4.3%) +0.4Source: Bloomberg; NAV-Lindsell Train. Share Pricequoted is closing mid price. See Benchmark definition. Performance History (based in 2001 2002 2003 2004 2005 YTD 2006GBP)Net Asset Value TR% +3.2 -9.6 +3.1 +23.7 +16.5 +2.9Share Price TR% +18.5 -19.8 -8.7 +20.6 +27.5 +2.4Source: LTL and S&P Micropal. Performance years listed Jan - Dec. Launch date 22 Jan 2001. TR=Total Return (withdividends reinvested) *Source: Lindsell Train Ltd. Past performance is not a guide to future performance. The price ofunits and the income from them may go down as well as up. Investors may not get back what they invested. 2005 Performance Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecNet Asset Value TR% +1.4 +0.3 +1.7 +0.2 +3.4 +2.9 +0.0 +0.2 +1.0 -1.5 +2.3* +2.9Share Price TR% +8.6 +3.5 -3.4 +1.8 +2.6 +9.3 +0.4 -2.3 +2.4 -3.9 +1.2 +4.0Source: LTL and S&P Micropal unless otherwise indicated. Performance years listed Jan - Dec. Launch date 22 Jan 2001.TR=Total Return (with dividends reinvested) *Source: Lindsell Train Ltd. 2006 Performance Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecNet Asset Value TR% +0.9 +1.9 +1.2 -1.8 -2.0 +1.8 +1.7Share Price TR% -3.0 +7.5 +1.5 +3.4 -1.5 -2.6 +3.2Source: LTL and S&P Micropal unless otherwise indicated. Performance years listed Jan - Dec. Launch date 22 Jan 2001.TR=Total Return (with dividends reinvested) *Source: Lindsell Train Ltd. Past performance is not a guide to future performance. The price of units and the income from them may go down as wellas up. Investors may not get back what they invested. Industry Breakdown % of NAVBonds 19.0Preference Shares 13.6Equity - Media 12.2Equity - Banks & Investment Co. 6.0Equity - Leisure & Ent. 12.1Equity - Food & Beverage 29.2Equity - Consumer Goods 1.8Equity - Internet 0.9Investment Fund 20.5Cash & Equivalent (15.3)Total 100.0Source: Lindsell Train Top 10 Holdings % of NAVBarr AG 10.6HBOS 9.25% Non Cum 10.5Lindsell Train Global Media (Dist) 10.05Diageo 8.1Cadbury Schweppes 7.521/2% Consolidated Loan Stock 7.1US Gov Treasury 6.25% 6.4Wolverhampton & Dudley Breweries 6.1Lindsell Train Ltd 6.0Nintendo 6.0Source: Lindsell Train Fund Exposure Bonds Prefs Equity Funds Cash % of NAVUK % 12.5 13.6 29.3 4.4 (15.5) 64.3USA % 6.5 - 2.2 - 5.3 14.0Europe (ex UK) % - - 4.7 - (2.5) 2.2Japan % - - 6.0 5.6 (2.6) 9.0Global % - - - 10.5 - 10.5Total 19.0 13.6 62.2 20.5 (15.3) 100.0Source: LindsellTrain Fund Manager's Comments We bought a new stock this month, funded, as in the past, from our fixed interest holdings. The company is eBay and wecommitted 0.9% of shareholder capital to it, selling a piece of our US Treasury bond, 6.25% 2030. Since we made thetrade the equity has fallen by 10.0% and the bond gained nearly 2.0%. Fortunately, we still own 7.0x as much of thelatter as the stock and intend to make further additions to eBay on weakness. The rally in the Treasury bond is explained by a downward shift in US inflation expectations, where GDP growth is nowcertainly slowing, to 2.5% in Q2, from 5.6% in the first. We still see 25 year US bond yields of over 5.0% asattractive compared to current rates of inflation and the possibility that the slowdown develops into somethingnastier. A lot of market capitalisation worldwide hangs on the resilience of the US consumer, which is being tested byrising interest rates and energy costs. Gasoline, at $3.0 per gallon in July 2006, is 32.0% dearer than a year ago.Perhaps it is no surprise that Ford's domestic truck sales are down 34.0% over the same period. Turning to the UK, wenote that the long gilt has also rallied, up 3.0% from April lows. Again, there is a tension in the UK economy, betweenenergy costs up 29.0% year-on-year and, say, the 80.0% increase in UK personal bankruptcies in Q1 2006 over last year.There must be a possibility that the tension is resolved by consumer slowdown, which we expect to boost gilt prices.Conventional gilts have outperformed UK equities over 5 and 10 years now, to end Q2 2006, as have index-linked giltsand property. We expect equity outperformance to reassert itself, but worry, a bit, that so does everyone else. eBay is a business we have admired for many years, but have not, until very recently, been able to make any sense ofthe valuation. The company is forecast to earn $1.0 or more in calendar 2006, which meant the share price that got to$58 in early 2005 was discouraging to investment, to say the least. However, since that all-time high - interestinglyeBay did not peak in 2000 - the shares have more than halved, to $23.60, as this note is written. At this level, ofcourse, the stock is valued on an earnings yield of over 4.0%, which we regard as a snip, if eBay can grow from here.Currently there are doubts amongst investors about that growth rate, with a definite deceleration apparent in the USauction business, the most mature part of the group and unquantifiable concerns that competition from Google willundermine eBay's business model - which, after all has less than 10 years history as a quoted entity. The counter,bullish case, can be made by a brief review of trends in eBay's most recent quarterly. Here, total revenues were stillahead 30.0% year on year, with active users of the auctions up 20.0%. Meanwhile, the two newer sources of growth, thePaypal online payments service and Skype, for VOIP free telephony, saw registrations up 29.0% y-o-y and 19.0% q-o-q.Skype's user base has more than doubled to 133 million since eBay purchased it last year. Perhaps most intriguing though, is the fact that in Q1 2006, online transactions in the US still only accounted for2.6% of total retail sales, suggesting that there is much more to come. We think eBay will share in this growth andprosper for as long as consumers value the accuracy of an auction process in establishing the "correct" price for goodsand we can't think of a more purchaser-friendly means of doing so. In addition, auctions are fun - not a trivialconsideration. eBay has $4.0 billion of net cash, built up over remarkably few years. In a decisive break from history to date, thecompany announced it will use half that cash to institute a share buyback programme - for the first time. Investorstend to take the sight of "growth" companies retiring equity as a sell signal, because it implies that organicinvestment opportunities have dwindled. Perhaps so, but, to our eyes, there is a distinct difference between eBaybuying back shares in itself at $58 and $24. At $24 the stock is cheap and the buyback likely highly accretive. Thisevidence that management allocates capital rationally makes us more enthusiastic to be owners of part of this business. Fund Manager Launch Date DenominationNick Train 22 Jan 2001 GBP Year End Dividend Benchmark31st Mar Ex Date: June The annual average yield on the 21/2% Payment: August Consolidated Loan Stock. The Board Management Fees Registered AddressRhoddy Swire Standard Fee: 0.65% Lindsell Train Investment TrustDonald Adamson Performance Fee: 10% of annual increase Springfield Lodge, Colchester RoadDominic Caldecott in the share price, plus dividend, Chelmsford above the gross annual yield of the 2 ESSEX CM2 5PWMichael Lindsell 1/2% Consolidated Loan Stock.Michael Mackenzie ISIN Secretary ListingGB0031977944 Phoenix Administration Services Limited London Stock Exchange BloombergLTI LN DisclaimerThis document is intended for use by persons who are authorised by the UK Financial Services Authority ("FSA") andthose who are permitted to receive such information in the UK. The information contained in this document does notconstitute 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 arenot guaranteed. Past performance cannot be used as a guide or guarantee of future performance. You may not get back theoriginal amount you have invested. Changes in foreign exchange rates may cause the value of your investment to go up ordown. Some funds with higher gearing may be subject to higher volatility and the investment value may changesubstantially. The net asset value (NAV) performance of an investment trust is not the same as its market share priceperformance. Issued by Lindsell Train LimitedAuthorised and regulated by the Financial Services Authority14 Aug 2006 LTL 000-038-6b Lindsell Train Limited 35 Thurloe Street, London SW7 2LQ Tel. +44 20 7225 6400 Fax. +44 20 7225 6499 enquiry@lindselltrain.com www.lindselltrain.com Lindsell Train Limited is authorised and regulated by the Financial Services Authority. This information is provided by RNS The company news service from the London Stock Exchange