Complete your registration today for a chance to win £50 John Lewis vouchers in our weekly draw Enter now
Fund Profile

Disclaimer

Disclosure – Independent Investment Research

This is independent research issued by Kepler Partners LLP. The analyst who has prepared this research is not aware of Kepler Partners LLP having a relationship with the company covered in this research report and/or a conflict of interest which is likely to impair the objectivity of the research and this report should accordingly be viewed as independent.

Overview
A new version of this profile is available. View Latest
Overview

Law Debenture (LON:LWDB) is a trust with a long history, having been launched way back in 1889. It is unique amongst its UK equity income peers in that there are two distinct elements to it. One element is a traditional diversified investment portfolio run by Janus Henderson’s James Henderson and Laura Foll (see Management section), who have an objective to deliver long-term capital growth in real terms and steadily increasing income.

The other part of LWDB is the wholly owned Independent Professional Services (IPS) business (see Portfolio section). IPS makes up c. 19% of LWDB’s NAV. It is a collection of professional services businesses involved in pensions, corporate trust and corporates services with an international presence. These businesses are characterised by having steady and high-margin cash flows and have over the past ten years contributed around 36.4% of LWDB’s dividends. This allows the investment portfolio managers to run a more flexible portfolio with a wider set of opportunities than if they were to solely focus on generating income.

LWDB is benchmarked against the FTSE All-Share, which it has comfortably outperformed over the medium and long term (see Performance section). To some extent this might be expected as IPS is a small business, and so the growth rate of its earnings has been much higher than that of the earnings of the UK market overall. Debt issuance in 2021 has given LWDB a lower-cost debt profile, and gearing is at 11% (as at 31/10/2022). In the past few years the discount has narrowed and now hovers around par while its historical dividend yield is around 3.8%. Its OCF is 0.5%, one of the lowest amongst the peer group.

Analyst's View

While the structure of LWDB is not common, we believe that the different strategies pursued by IPS and the investment portfolio have proved complementary and together have helped generate material outperformance against both the index and peer group over the medium to longer term. We believe the performance record is appreciated by investors, which in turn has led to LWDB trading at or around par for much of the past few years. IPS’s businesses and income stream offers a defensive element through the high-margin cash flows, but the value of the business has also grown significantly, with an NAV growth of 111% over the past five financial years to £163m. However, investors should bear in mind that IPS is effectively a large single-holding for LWDB. Unlike a stock in the traditional investment portfolio, it can’t be easily sold or added to and adds stock-specific risk to the portfolio.

The bulk of LWDB (c. 81%) is made up of the investment portfolio, which trades at just 8.2x forward earnings and backs up the managers’ view that UK stocks are cheap. The portfolio is diversified by sector and is afforded the ability to invest in more growth-focussed stocks than other income funds. This contributes to its lower dividend yield compared to the peer group, but investors have been more than compensated through strong total returns over the medium to longer term. We believe LWDB’s performance track record and low charges are attractive for investors seeking exposure to a predominantly UK equity portfolio.

Bull

  • Dividend supported by revenues generated by IPS business
  • Strong performance track record over medium and long term
  • One of the most cost-effective trusts in the AIC UK Equity Income sector

Bear

  • Currently has a lower yield than many peers, although its dividend is growing
  • Effectively, IPS represents a large exposure to a single company for the trust
  • Structural gearing can exacerbate downside as well as upside
Continue to Portfolio

Welcome to Kepler Trust Intelligence

Please enter a valid email address
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid email address
{{item.msg}}
Please check your email. If an account exists you'll be sent instructions on how to reset your password.
To ensure that we are able to provide content which is appropriate for you, please tell us a little about yourself.
Please choose an option
{{item.msg}}
Please enter a company name
{{item.msg}}
Please enter a location name
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a platform
{{item.msg}}
Please choose an option
{{item.msg}}
Please enter a trust
{{item.msg}}
?
The information contained herein is not for distribution and does not constitute an offer to sell or the solicitation of any offer to buy any securities in the United States to or for the benefit of any United States person (being residents of the United States or partnerships or corporations organised under the laws thereof). The investment funds referred to herein have not been registered in the United States under the Investment Company Act of 1940 and units or shares of such funds are not registered in the United States under the Securities Act of 1933.
Please confirm
{{item.msg}}
Please select an option
{{item.msg}}
See benefits
A free Kepler Trust Intelligence account allows you to access premium content including the ‘Kepler View’ – our verdict on the trusts we cover – and historical research so you can see how our view has changed over time. An account also unlocks useful facilities like the ‘follow’ button which lets you keep track of the trusts you’re interested in and as a logged in user you can also download PDFs of our research, and choose the layout of the page you’re reading to suit your preference. We will not share your details unless you give us permission to do so, and we won’t bombard you with emails – we only send one a week.
Please select an option
{{item.msg}}
Please enter your first name
{{item.msg}}
Please enter your last name
{{item.msg}}
Please enter a valid email address
An account already exists with this email - have you forgotten your password?
{{item.msg}}
Please enter a valid password
{{item.msg}}
Please enter a valid password
{{item.msg}}
How will this information be used? Your answers help us to tailor our content to relevant investment trusts, and to ensure that the asset allocation and portfolio strategy research we produce is appropriate to our userbase.
Our Website uses Cookies Cookies are small text files held on your computer. They allow us to give you the best browsing experience possible and mean we can understand how you use our site. Some cookies have already been set. You can delete and block cookies, but parts of our site won’t work without them. By using our website you accept our use of cookies. For further information please refer to the Kepler Privacy Notice.
Need help?

One more thing...

Did you know, you can 'follow' individual trusts on Kepler Trust Intelligence? Use the functions below to set up alerts and we'll send you research and updates on your chosen trusts.

Suggested trusts to follow

Browse all funds
Need help?
Current Site Kepler Trust Intelligence is produced by the investment companies team at Kepler Partners and is the UK’s premier source of detailed qualitative research on investment trusts. Absolute Hedge is a market leading UCITS research database providing proprietary research on funds, themes and strategies in the UCITS space. Kepler Liquid Strategies is a Dublin domiciled UCITS fund platform featuring a number of best-of-breed fund managers. Kepler Partners is a corporate advisory and asset raising boutique specialising in the regulated funds market in Europe and investment trusts in the UK.