Katherine Garrett-Cox puts her trust in Alliance investors

Published on Monday 19 April 2010 20:09

KATHERINE Garrett-Cox, chief executive of Alliance Trust, yesterday dismissed concerns over the £400 million discount between its shares and its assets, claiming the loyalty of wealthy investors in the company would help make it resistant to takeover.

• Katherine Garrett-Cox: Shrugged off concerns over the shares to assets ratio. Picture: Complimentary

She argued that the trust was "different" from others, due mainly to its size and the 21 per cent shareholding in the group by wealthy savers through its bank division, which makes it an unlikely target of hedge funds and other "arbitrageurs" that have affected the fortunes of other trusts.

Yesterday, the Dundee-based company revealed it had made a pre-tax profit for the year ended 31 January of 466.4m, reversing a 523.2m net loss in the previous year, when the value of its investments fell.

Despite benefiting from an uplift in the value of its assets – mainly global equities – Alliance's performance last year was in the lowest quartile of its peer group, ranking 34 out of a total of 43 in its sector.

Net asset value improved by 16.8 per cent, while the total return advanced 22.2 per cent. This compared to the FTSE All-World index which returned 28.4 per cent.

In a note, analysts at Numis said that similar funds have an "active buy-back programmes to reduce discount volatility and enhance NAV performance" and that "we find it hard to understand why it would not consider smaller more regular repurchases that would have greater impact on the marginal supply/ demand balance".

Currently, Alliance's discount to NAV is more than 18 per cent, while the average for the sector is about 11 per cent.

But Collins Stewart analyst Alan Brierly said the argument about whether Alliance should buy back shares was "done to death" and that the discount was "only a problem if you are a seller".

He argued that the same conservatism which had caused the trust to underperform last year had made it a more attractive investment in more subdued markets – or another downturn.

"I actually think markets are close to peak now. In more challenging markets, Alliance Trust will perform very well in there," said Brierly.

"It should be a classic buy and hold stock – you buy it and put it in the bottom drawer and forget about it.

"It is never going to have these sex and violence stocks and structures other companies would have. It is all about quality growth and gives investors exposure to that."

Garrett-Cox admitted that the company's under- performance was due in part to its commitment to pay out income to its shareholders.

"Because we tended to stay longer in some of the high-yielding stocks during last year, we probably did give up some of the capital returns from other companies in the very early part of the year," said Garrett-Cox.

But she said the board "pays a huge amount of attention" to the firm's dividend policy.

Yesterday the company announced that its annual dividend was 8.15p, up from initial estimates it would be 8.1p

Garret-Cox said the company intends to raise its dividend to 8.25p by 2011.