Witan Investment Trust — Merger with Alliance Trust offers many benefits

Witan Investment Trust (LSE: WTAN)

Last close As at 10/10/2024

GBP2.66

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Market capitalisation

GBP1,580m

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Research: Investment Companies

Witan Investment Trust — Merger with Alliance Trust offers many benefits

In June 2024, the boards of Witan Investment Trust (WTAN) and Alliance Trust (ATST) announced plans for a combination of the two companies to create Alliance Witan. Details of this transaction have now been released and suggest that the combination will hold several potential benefits for the shareholders of WTAN, ATST and the new Alliance Witan trust. Alliance Witan will have combined net assets of almost £5bn, offering significant liquidity, economies of scale and eligibility for UK 100 index inclusion. The new trust will aim to deliver a real return over the long term through a combination of capital growth and a rising dividend. It aspires to be the UK’s leading ‘one-stop shop’ for global equity investment, at the core of retail investors’ portfolios. Subject to shareholder approval, the deal is expected to be finalised in early October.

Joanne Collins

Written by

Joanne Collins

Analyst, Investment Trusts

Investment Companies

Witan Investment Trust

Merger with Alliance Trust offers many benefits

Investment trusts
Global equities

23 September 2024

Price

271.0p

Market cap

£1,611.5m

AUM

£1,889.0m

NAV*

286.07p

Discount to NAV

5.3%

*Including income. As at 19 September 2024.

Yield*

2.3%

*Prospective yield based on a FY24 dividend of 6.28p.

Ordinary shares in issue

595.0m

Code/ISIN

WTAN/GB00BJTRSD38

Primary exchange

LSE

AIC sector

Global

52-week high/low

276.0p

210.5p

NAV* high/low

287.4p

232.8p

*Including income

Net cash*

9.6%

*As at 31 August 2024.

Fund objective

Witan Investment Trust aims to achieve an investment total return exceeding that of its benchmark over the long term together with growth in the dividend ahead of inflation. The trust’s composite benchmark with effect from 1 January 2020 is 15% UK and 85% world (including the UK).

Analyst

Joanne Collins

+44 (0)20 3077 5700

Witan Investment Trust is a research client of Edison Investment Research Limited

In June 2024, the boards of Witan Investment Trust (WTAN) and Alliance Trust (ATST) announced plans for a combination of the two companies to create Alliance Witan. Details of this transaction have now been released and suggest that the combination will hold several potential benefits for the shareholders of WTAN, ATST and the new Alliance Witan trust. Alliance Witan will have combined net assets of almost £5bn, offering significant liquidity, economies of scale and eligibility for UK 100 index inclusion. The new trust will aim to deliver a real return over the long term through a combination of capital growth and a rising dividend. It aspires to be the UK’s leading ‘one-stop shop’ for global equity investment, at the core of retail investors’ portfolios. Subject to shareholder approval, the deal is expected to be finalised in early October.

NAV total return performance versus benchmark over five years

Source: LSEG Data & Analytics, Edison Investment Research

Background to the proposal

The forthcoming combination follows a review of WTAN’s investment management arrangements, which was triggered by the retirement announcement of its CEO, Andrew Bell.

The proposed deal ensures the continuation of WTAN’s active multi-manager approach and a broadly similar investment strategy. ATST invests primarily in global equities across a wide range of industries and sectors.

WTAN’s board has unanimously recommended the deal to shareholders.

Subject to shareholder approval at meetings scheduled for 30 September 2024 and early October, the transaction is expected to be finalised on 9 October and the shares of the new, combined trust will begin trading on 10 October 2024.

The board of this new vehicle will initially comprise 10 members, including four members of WTAN’s board, and will be chaired by ATST’s chairman, Dean Buckley. WTAN’s chair, Andrew Ross, will be deputy chair.

The number of Alliance Witan board members will be reduced to eight in spring 2025 at the new trust’s first AGM.

Benefits of the transaction for all shareholders

In the circular announcing the details of the proposed deal, Witan’s board notes a number of attractions offered by the combination with ATST:

Best-in-class investment management: the enlarged portfolio will be invested in ATST’s multi-manager strategy, providing access to best-in-class managers globally, many of whom are not otherwise accessible to UK retail investors. ATST’s portfolio consisted of the selections of 10 stock pickers (as at 6 September 2024), with different investment styles, and centrally held cash or cash equivalents. Each stock picker is unconstrained by the benchmark, the MSCI All Country World Index (MSCI ACWI) and only buys a limited number of stocks in which they have strong conviction.

A robust investment performance track record: WTAN investors may also benefit from the investment expertise evidenced by ATST’s strong investment performance track record. Over the seven years since the appointment of Willis Towers Watson (WTW) as ATST’s investment manager in April 2017, to 31 August 2024, its NAV total return was 102.2%, versus 101.7% for its benchmark, the MSCI ACWI (Exhibit 1). However, relative performance has been challenged in recent years by the focus on a few fast-growing technology giants that dominate global equity indices.

Exhibit 1: ATST’s cumulative performance to 30 August 2024

Year-to-date (%)

One year (%)

Three years (%)

Five years (%)

Since 01/04/2017* (%)

Total shareholder return

9.1

17.0

24.0

67.2

102.9

NAV total return**

9.5

16.7

23.1

67.3

102.2

MSCI ACWI total return***

12.5

19.0

23.9

64.3

101.7

Source: WTW, Juniper Partners, Morningstar, MSCI. Note: *1 April 2017 was the date on which WTW’s predecessor, Towers Watson Investment Management (Ireland), was appointed investment manager of ATST. **NAV total return is based on NAV including income with debt at fair value, after all manager fees and allows for any tax reclaims when they are achieved. Cumulative for periods above one year. ***MSCI All Country World Index net dividends reinvested.

An attractive and progressive dividend policy: WTAN shareholders will receive an increased dividend over both 2024 and 2025. ATST intends to increase its third and fourth interim dividends for the financial year ended 31 December 2024 (FY24) to 1.51p, commensurate with WTAN’s first interim dividend. Given that WTAN’s second interim dividend for FY24 was 1.75p, this amounts to a full year dividend of 6.28p for WTAN shareholders, a 4% increase over the 6.04p WTAN paid in respect of 2023. This represents a prospective yield of 2.4% based on the current share price. This would mark 50 consecutive years of annual dividend growth for WTAN shareholders and 57 years for ATST investors. Furthermore, it is expected that ATST’s dividend for FY25 will increase compared with the prior financial year.

Greater scale and the prospect of UK 100 index inclusion: the new vehicle is expected to have net assets of c £4.8bn on completion of the transaction, meaning that the enlarged trust may be eligible for inclusion in the UK 100 index in due course. This would bring the benefit of an improved profile and should help attract new investors and improve secondary market liquidity.

A lower management fee: the deal also includes a new, more competitive management fee structure than is currently enjoyed by either WTAN’s shareholders or the shareholders of ATST. The fee will amount to 0.52% on the first £2.5bn of Alliance Witan’s market capitalisation, 0.49% between £2.5bn and £5.0bn, and 0.46% on market cap above this level.

Lower ongoing charges: the new management fee structure, combined with greater economies of scale derived from the larger investment vehicle, is expected to lead to lower ongoing charges for shareholders in the new vehicle. ATST will target an ongoing charges ratio in the high 50s in basis point terms, in future financial years, an improvement on both WTAN’s and ATST’s current ongoing charges of 76bp and 62bp, respectively.

A liquidity opportunity: WTAN shareholders are being given the opportunity to elect a cash exit at a discount of 2.5% relative to WTAN’s NAV per share for some or all of their holding. This may appeal to some WTAN shareholders given that the current share price discount to NAV is 6.1% and has averaged over 4.0% over the past 10 years.

A significant contribution to costs from WTW: this contribution is estimated at approximately £7.1m based on the estimated unaudited net asset value of the assets to be transferred to ATST as at 6 September 2024. Combined with the benefit of the discount on cash exit, this contribution means that WTAN shareholders who roll into the new vehicle are expected to suffer minimal or no dilution, depending on the level of take-up of the cash option discussed above.


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This report has been commissioned by Witan Investment Trust and prepared and issued by Edison, in consideration of a fee payable by Witan Investment Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Witan Investment Trust and prepared and issued by Edison, in consideration of a fee payable by Witan Investment Trust. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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