Scottish Mortgage (SMT) Share Price Rose 2% on a £1Bn Buyback

The Scottish Mortgage Investment Trust PLC (LON: SMT) share price today rose 2% after the company’s board set aside £1 billion for share buybacks over the next two years. Investors reacted positively to the news, although I expected a much bigger reaction than the slight increase that we got. 

Scottish Mortgage has been witnessing strong operational performances across its varied portfolio, a fact underscored by the doubling of free cash flow from its portfolio entities over the previous year. These companies have efficiently navigated the challenges of increased capital costs, strategically investing in their growth trajectories. 

In light of these developments and subsequent fortification of the Company's financial base, the Board is now poised to actively reduce the persisting discrepancy between the Company's share price and its net asset value.

In its capital deployment strategies, Scottish Mortgage considers various factors such as the degree of leverage, the proportion of investments in private ventures, and prevailing market dynamics. Recently, the Board has enhanced the Company's financial health through debt minimisation, which has adjusted the proportion of leveraged investments to 13% of net assets, with an average interest cost of 3.2%.

Scottish Mortgage continues its commitment to fostering growth, especially in the private sector, which comprises 26.2% of its portfolio. This figure is projected to reach 28.3% following the proposed share buybacks worth £1 billion at current market prices.

Share repurchases are a critical element of the Company's capital management strategy. They offer several advantages to shareholders, such as increased share liquidity, direct enhancement of net asset value per share, and a solid affirmation of the portfolio's intrinsic value.

Over the past two years, Scottish Mortgage has reacquired shares worth approximately £353 million. During this time, the board and management have conducted a concerted evaluation regarding the amplification of share buyback activities.

Tom Slater, Manager of Scottish Mortgage Investment Trust PLC, commented: “In a volatile period for growth investment, we own a portfolio of established companies achieving rapid expansion, propelled by enduring structural trends. Advances in foundational technologies are unlocking exciting new products, services, and business models. These well-funded public and private companies are shaping the future of the economy. The stock market has yet to fully recognise their progress, which creates the opportunity for us to buy the portfolio for less than its market value.”

Scottish Mortgage (SMT) share price. 

The Scottish Mortgage (SMT) share price rose 2.01% to trade at 797.85p from Thursday’s closing price of 782.10p.