I'm a long term holder of both WAM and WAX. Bought years ago at a discount to NTA and have been pleasantly amazed at the investment performance, the growing dividends, Geoff Wilson and co's straight forward and honest leadership .... and of course the large premiums new shareholders have been willing to pay to get a slice of this LIC.
Such high premiums have always tempted me to sell (as per Friday's at 24% above end Jul NTA) but when I calculate the premium I'd get after CGT (9%) it's a much tighter call.
I'd always thought new shareholders paying such high premiums were nuts... but after considering potential logic, I no longer think this and I thought I'd share this for others to comment on.
Valuation thesis, WAM is worth:
- current NTA
- PLUS an investment out-performance premium
- MINUS costs, management and performance fees
- PLUS (for some investors) franking credits held
The forth dot point I'll ignore as don't have the current numbers and also value depends on an individuals tax position and whether Shorten changes all that!
Based on this I've constructed a table using a simple model to values the shares based on assumed Outperformance and EBITDA multiples for the outperformance. I've used actual performance for 1, 3, 5 etc periods and EBITDA valuation multiples. of 5, 6 and 7. For fees I've used the management contract fees of 1% NTA + 20% of out-performance + GST.
On actual performance for any period except the last 12 months, the model indicates that the shares are worth their current price or more (providing Wilson's continue to outperform the market by similar margins). Hence, I no longer think new shareholders are nuts for paying the premium ... And, I think I'll continue to make it difficult for them to buy a piece of this wonderful LIC by continuing to hold!
Others thoughts?
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WAM's big premium - is it worth it?
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