Gresham House

.../> So buyers beware of Gresham House Investment Trust – Dangerous to buy after exceptional performance. Of course we all know the warnings that share prices can rise or fall. Perhaps in this case it should state the price could rocket and suck in new investors and then fall dramatically allowing the Directors to repurchase at a discount price?

I have one golden rule when investing in high-risk shares. Simply if the share price ...
...automatically sell to minimise any loss. In this Trust at the current prices quoted I would buy at 160p and immediately set my sell limit at 128p.

Before posting this I have just checked the current price it is down 20p today already quote 135p –140p. The price range has narrowed but I could have bought at 160p 10 minutes ago.

Avoid; avoid no trust in this Trust.

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I am fond of investments and like a gamble on the stock market. Having read an opinion on this trust I just could not resist giving one of my opinion. Please note that I do not intend to give any advice and you should not buy or sell based upon my opinion.

What are the latest results – half year ended 30th June 2002.
(Final year results not due until 29th April 2003)
The trust declared its results on 25th September 2002 and these showed a return on ordinary activities after tax for the Revenue account of £430,000, compared with £522,000 for the comparable period last year. The value of the trusts underlying investments fell in line with the stock market and, not unexpectedly, it produced a loss of £1.767m for the Capital account. The whole trust is valued at £6.98 million so this was a substantial fall in value.

Revenue streams have remained steady compared to last year, although there has been a decrease in interest received as a result of generally falling rates and lower cash balances. Rental income from properties also fell slightly as a result of vacant units while they are being refurbished. The shortfalls in gross revenues were largely offset by lower operating costs.

All major stock exchanges performed adversely throughout the period under review. The trust made a very poor investment in Transense Technologies plc although they still believe that the longer-term prospects for this investment remain attractive, well they would say that wouldn’t they. Conversely Image Scan Holdings plc performed well as this was introduced to the AIM market in April 2002 and showed a substantial increase on the trusts original investment.

The Trust is lead by Alfred Patrick Stirling who states that they continue to seek out innovative early stage investments in companies, which appear to have real growth prospects in the longer term. This usually means that they don’t expect anything to happen in the short term.

Do the Directors own shares?
Alfred Patrick Stirling owns 372,015 shares which is a reasonable amount (over 8% of the Trust) and he does not appear to be selling any at present.
Brian Hallett is the Finance Director & Company Secretary and has no significant holding. No confidence perhaps.
Thomas Jeremy Rowe, a non-executive director, on the other hand sold shares on 4th November 2002 at £3.60. This is a sign to follow the Directors and sell.

Who owns the Trust?
Newinnhall Trust Ltd own 38.92% of all the trusts shares. Interesting the Directors of Newinnhall list one Alfred Patrick Stirling and the parent is Rowe Trust. Yet another interesting fact is that 2 non-executive directors are named Rowe. Is this a trust within another trust or what, is this actually a private company run trust. This incestuous behavior leaves the rest of us investing public in the minority and we have little control over what they can or cannot do.

What to do today?
Today the shares are valued at £1.40 to sell and £1.60 to buy so if you had followed the Director selling you could now buy back the shares in the trust at the lower price of 160p.

The spread (the difference between the price you buy and sell) is very wide with this trusts share price, i.e. 20p, which means it will have to rise by this amount before you are into profit. This puts me off completely in investing in such shares.

The reason for the wide spread is that there are only 2 market makers to enable you to buy shares in this investment trust, Winterflood Securities Limited and KBC Peel Hunt Limited. You can also buy shares via your stockbroker for an extra fee.

Dividends, Net Asset Value (NAV)
For the year ended 2001, the dividend was 3.1pence; a payout of 6.49%, the NAV was 519.9 pence
(2000 1.5p, 1.3%, 527.8p) (1999 1.0p, 6.02%, 202.0p) (1998 0.52p, 0.19%, 94.8p)
From the latest half year figures the basic Net Asset Value (NAV) per ordinary share decreased from 552.2p to 518.9p, a fall of 6.0% This compares favorably to the fall in the FT 100 Index for the same period of 11.1%

Share Price
The share price traditionally traded under 100p around 80p for several years up to Dec 1999. Successful long-term investments matured and the shares rocketed upwards. At end 2000 reaching 350p and at the end of 2001 reaching 500p. It was almost 700p in April 2002 it then went into free fall to 500p in July, followed by 350p in October to 250p in January of this year. The share price has not finished dropping like a stone currently you get 140p to sell this usually indicates a major problem. The market does not like the trust.

My Opinion.
This is a high-risk investment trust that invests in high risk innovative companies that are in their early stages of development. Some of the companies this trust invests in will be profitable but others will not succeed at all. This is clearly demonstrated by the rise in NAV from 94.8p in 1998.

The current NAV must be taken as a pinch of salt as this is an historic valuation and the true current NAV is not known. Indeed the only way this could be tested is if the Trust is liquidated and under such circumstances the values actually achieved very rarely reach those stated in the published accounts.

So buyers beware of Gresham House Investment Trust – Dangerous to buy after exceptional performance. Of course we all know the warnings that share prices can rise or fall. Perhaps in this case it should state the price could rocket and suck in new investors and then fall dramatically allowing the Directors to repurchase at a discount price?

I have one golden rule when investing in high-risk shares. Simply if the share price falls by 20% below the price I paid then I automatically sell to minimise any loss. In this Trust at the current prices quoted I would buy at 160p and immediately set my sell limit at 128p.

Before posting this I have just checked the current price it is down 20p today already quote 135p –140p. The price range has narrowed but I could have bought at 160p 10 minutes ago.

Avoid; avoid no trust in this Trust.

 

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