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Alliance Trust

ALLIANCE TRUST (ATST) – BUY

Alliance Trust IMS – attractive discount to net assets.

Alliance Trust’s confident IMS (29th October) reiterated progress in terms of growth in third party (AUM £1.8bn) and the savings business (AUM £6.1bn) with scale benefits occurring in the latter.

The board reported QTR net asset value (NAV) total return gain of 1.1% to 517p with the discount to net assets of 12.5%. The discount narrowed from a high of 14.5% ahead of the Scottish referendum vote. Gearing fell 0.1% to 13.4% (£380m total debt) and net assets of £2.855bn in part reflecting the £12.6m stock buyback representing 0.52% of share capital.

ATST

ATST

ATSTATST

12.65% discount to NAV

Alliance Trust discount to net asset value per share is wide at 12.65% – we attribute the discount size to the high non UK exposure in the portfolio, typically US blue chips, Visa, Walt Disney, CVS Health Caremark, Pfizer, Accenture, Google, Qualcomm (the top 7 holdings  (18% portfolio) are US companies) and the use of modest gearing (13.4%). We are not particularly concerned about the £380m debt load, though some guidance on how/when the leverage levels might vary in current circumstances would be helpful in understanding the board’s thinking.

The Alliance Trust has concentrated sector exposure with Financial, Healthcare and IT stocks comprising 53.3% of overall exposure. This is part of its “unconstrained global trust” high conviction individual stock selection approach with consideration of environmental, social and governance factors. The Trust is committed to invest for the long term and deliver a consistently higher but sustainable dividend.

The very wide 12.65% discount to net assets offers an attractive entry for investors with a 6 months plus time horizon. The trust has a solid 5 year return of 70%.

Alliance Trust 31/12/13 31/3/14 30/6/14 30/9/14 10/11/14
NAV (p) 517p 506.8p 513.3p 517.4p 532.4p
Share Price (p) 450p 457p 445.6p 448.7p 465.0p
Disc. to NAV (%) 12.94% 9.82% 13.18% 13.28% 12.65%

Source: CSS Investments Ltd

Recent management changes/ cost savings positive longer term.

The Board announced the creation of a single equity investment team, with a loss of five former team members which should save £2m pa. Alliance Trust Savings, a deposit business (£6.12bn / 73,442 accounts) has experienced 32% growth attracted by a flat fee structure.

CONCLUSION

2014 has seen higher levels of stock specific risk, a number of profit warnings, and a blue chip index with significant China/ commodity related exposure. The 2015 General Election is on the horizon and could deliver another messy hung parliament. Alliance Trust offers good diversity via a broad global spread, with the additional benefit of low management costs. It should be considered as part of a diversified portfolio.

52 week Alliance Trust (ATST)

ATST

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