Nick Train: we’re ‘losing the plot’ but Diageo gin deal helps


Lindsell Train’s Nick Train is backing Diageo’s (DGE) purchase of a celebrity-backed gin but warns that markets are at risk of ‘losing the plot’, as is he, as the coronavirus crisis drags on. 

In the monthly market update for his £6.2bn Lindsell Train UK Equity fund and £1.8bn Finsbury Growth & Income investment trust (FGT), Citywire A-rated Train said ‘market participants are in danger of losing the plot – I know I am’ as working from home means fund managers are bombarded with misinformation and too much volatility.

After a period of reflection that led to a catch-up with companies in which he invests, Train said he was pleased to find they are ‘investing in their own business’.

This includes drinks giant Diageo, which has bought craft gin brand Aviation American Gin in the US, which is part-owned and endorsed by Canadian actor Ryan Reynolds, star of the Deadpool Marvel comic films. Although Train claimed he ‘hadn’t heard of him’, the fund manager was pleased the deal – which sees Diageo shell out an initial $335m (£257m) and could payout another $275m over 10 years – showed Diageo was ‘robust’ enough to make acquisitions in a tough market. 

‘It is a reassuring sign that boards aren’t just in fire-fighting mode and that balance sheets and liquidity are in good enough shape to make investments for the future,’ he said. 

He said the deal wasn’t ‘trivial’ as Aviation had been in ‘exponential growth’ and Diageo was ‘paying 20x sales for the right to try and take the brand to another level’. It has parallels with the sale of George Clooney-backed tequila brand Casamigos for $1bn last year.

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Train (pictured) said although the Casamigos ‘raised eyebrows at the time, including ours’ due to the high cost, the deal looked ‘smarter and smarter as the US spirits boom continues’. 

Diageo accounted for 9.1% of FGT at the end of August, its fifth biggest position, and 9.9% of the UK Equity fund, its second-biggest holding.

Scientific and medical publisher Relx (REL), which made up 9.9% of the fund and 9.3% of the trust, also made an acquisition in August, snapping up SciBite, a private Cambridge-based company that creates software for the pharmaceutical industry, including AstraZeneca (AZN), Glaxosmithkline (GSK), and Novartis (NOVN.SX).

Although the terms were not disclosed, Train said the deal was rumoured to be worth £65m.

‘This is not a transformative deal for Relx, but a classic one nonetheless, adding to its capabilities in science and pharma research,’ said Train. 

The latest purchases is part of the £800m Relx has spent this year in ‘reinforcing its position as a global leader in the provision of important information and tools to important and growing industries’.

‘In due course and in happier times we’d wager that newly bullish stock market investors will ascribe billions of pounds of new value to this short £1bn of 2020 acquisitions Relx has made,’ he said.  

Train made his comments after FGT lifted its net asset value by 0.4% last month, lagging its FTSE All Share benchmark which rose 2.4%. Over the course of the eight months, the trust has done better, declining 7.4% against the index’ 18.5% slide. Over five years to 31 August shareholders enjoyed a 65% total return, way ahead of the 17.3% from the All Share.

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Similarly, although the UK Equity fund was flat in August, its year to date decline of 6.9% underpinned an index-beating 63.7% investor return over five years, with dividends included. 

 



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