The Law Debenture Corporation (LWDB) has reported another strong set of results for its independent professional services (IPS) business in H120, with EPS growth remaining in the target mid- to high single-digit range despite a more challenging economic backdrop. With the trust’s largely UK investment portfolio having been hit by the widespread stock market sell-off in February and March, IPS has provided a larger than average contribution to revenue returns. This means fund managers James Henderson and Laura Foll can continue to search for attractive total return opportunities in a broad range of sectors, while maintaining LWDB’s focus on both capital appreciation and above-inflation dividend growth.
The COVID-19 pandemic has had a marked impact on business and the economy, and while many share prices have recovered well from the March 2020 lows, there is still value to be found in a broad range of UK and global companies, particularly for investors who are able to look through the current round of dividend cuts.
◼ Unique structure has proved its worth in H120, with resilient IPS business providing c 64% of revenues.
◼ Flexibility to invest in low- or non-yielding stocks has boosted capital performance and means the trust is well placed for a recovery in dividends.
◼ The board has committed to delivering a 42nd year of maintained or increased dividends in FY20 (helped by LWDB’s strong revenue reserve position), with payments now made quarterly.
◼ Highly experienced management teams on both portfolio management and IPS business sides to help navigate through difficult market conditions.
At 3 August 2020, LWDB’s shares traded at a 4.2% premium to cum-income NAV (with debt and the IPS business at fair value).Recently the discount has been much narrower than historical averages (broadly in a range of c 7–9% over one, three, five and 10 years), which may reflect a degree of market reassessment of the trust, given the contribution of IPS to total revenues and the higher quarterly dividends. Based on the current share price, LWDB has a yield of 4.8%.