Scottish Mortgage Investment Trust (LSE:SMT) shares boomed during the pandemic.
The value of the fund’s investments in Amazon, Zoom, and Moderna all increased substantially as people stayed at home and the world was vaccinated. During the year ended 31 March 2021, its share price increased by 99%, to 1,137p.
It’s now down to 690p. But I think it’s the FTSE 100 stock most likely to boom over the next few years. With its focus on quality tech stocks, and the current trend towards artificial intelligence and greater automation, it’s in the right sector at the right time.
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Since the start of 2023, the NASDAQ (the home of most tech companies) has increased by 30%.
Net asset values
Each day, the fund publishes its estimate of the net asset value (NAV) of all its holdings.
Presently, the market cap of Scottish Mortgage is 18% lower than its NAV. For most of 2020 and 2021, the NAV and share price were much more closely aligned. Occasionally, the fund traded at a premium to its asset value.
Closing this gap today would increase its stock market valuation by approximately £1.7bn.
One challenge with the fund is that, at 31 August 2023, 52 of its 99 holdings were privately owned companies. These can be difficult to value accurately.
However, Scottish Mortgage’s managers apply the methodology outlined in the International Private Equity and Venture Capital Valuation guidelines, which gives me comfort that everything is being done properly.
The biggest unquoted holding is in Elon Musk’s SpaceX. There is speculation that the company is currently worth $150bn and that it will go public soon.
According to MarktoMarket, when a company lists, it achieves an average valuation 141% higher than its last funding round.
If SpaceX decides to become a public company, and this uplift in valuation is realised, Scottish Mortgage’s current holding would increase in value by over £850m.
Top 10
The trust’s 10 biggest holdings accounted for 46.1% of all assets at the end of August 2023.
In the table below, I’ve compared the current stock price of nine of these (SpaceX has been excluded) to the median 12-month analysts’ forecast as compiled by CNN Money.
The analysis reveals that if all these stock price targets were realised, Scottish Mortgage’s investments in these companies would be worth £1.8bn more.
| Stock | Current stock price ($) | Median forecast ($) | Potential increase (%) | Current value of holding (£m) | Potential increase to holding (£m) |
| ASML | 586 | 779 | 33 | 1,000 | 330 |
| Moderna | 100 | 167 | 67 | 819 | 549 |
| Nvidia | 448 | 625 | 40 | 700 | 280 |
| Tesla | 255 | 275 | 8 | 700 | 56 |
| MercadoLibre | 1,224 | 1,625 | 33 | 608 | 201 |
| Amazon | 126 | 175 | 39 | 555 | 216 |
| Northvolt | 53 | 61 | 15 | 462 | 69 |
| PDD Holdings | 107 | 119 | 11 | 423 | 47 |
| Ferrari | 298 | 342 | 15 | 343 | 51 |
| Combined | 5,610 | 1,799 |
However, predictions are often wrong. And it would be highly unlikely for all stocks to move in unison towards their price targets.
Also, we’ve been here before.
From 1995 to March 2000, the NASDAQ increased by 800%. By October 2022, it had fallen 740% from its peak.
But my theoretical exercise implies that the potential of these stocks has not been priced in to the Scottish Mortgage share price. Even if these forecasts were halved, there would be a substantial uplift to the trust’s assets.
What does this all mean?
If the gap between the trust’s NAV and the share price was eliminated, SpaceX realised some of its astronomical valuation on IPO, and the trust’s largest holdings achieved the average of analysts’ valuations, its stock market valuation could increase by £4.3bn.
That would be a premium of 46% to today’s share price.
That’s why I think the trust is presently the best bargain in the FTSE 100. Unfortunately, at the moment I don’t have any spare cash to take advantage.
