The Scottish Mortgage Investment Trust (LSE:SMT) share price has risen 3.5% since the start of 2024. Given its performance over the past decade or so, this is disappointing.
However, it would’ve been higher (approximately 13%) had it not been for the tech stock wobble in July and August. That’s because it only invests in high-growth companies. The likes of Nvidia, Tesla, and Meta Platforms have a big influence on the trust’s valuation.
However, there’s one of its holdings that I find particularly interesting. And that’s its stake in Space Exploration Technologies (SpaceX), the group that sends rockets into orbit. One of its subsidiaries is Starlink Services, which aims to provide broadband in parts of the world where presently there isn’t any.
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What’s it worth?
Based on the trust’s own assessment, at 31 August 2024, the investment accounted for 4.8% (£636m) of its £13.26bn assets.
Unfortunately, SpaceX is a private company and there’s no way of knowing how many shares it has in issue. However, we do know that at 30 June, Scottish Mortgage owned four different classes of stock. I’m not sure what rights are attached to each but I’m going to assume they all rank equally.
Forbes published an article on 27 June, based on leaked details of a round of fund raising, suggesting that SpaceX was worth $210bn. If the trust’s fund manager places a similar valuation on the company, we can assume that Scottish Mortgage owns 0.3%.
But valuing private companies is difficult as there’s no market for their shares. Earnings can also be volatile. Liquidating these holdings into cash (should the need arise) can also be problematic.
And this could be one of the reasons why the trust has lagged behind the FTSE 100 this year. At the end of June, 51 of its 93 holdings were in unlisted companies. Although they only accounted for 24.8% of the total value, they’re an important part of the portfolio.
Out of this world
Ron Baron, the billionaire investor, reckons SpaceX could be worth $500bn by 2030. Others are forecasting a valuation closer to $1trn.
If Baron is right, Scottish Mortgage’s stake could be valued at $1.5bn (£1.13bn) by the end of the decade, possibly adding 5% to its market cap.
The truth is nobody knows what it’s likely to be worth. And in some respects it doesn’t really matter. The point of having a stake in an investment trust is that it’s possible to have interests in lots of stocks through a single shareholding. This helps spread the risk. It also increases the possibility of finding a winner.
But I think now could be a good time for me to invest. The US tech sector appears to have settled down after the recent sell-off. And the trust is currently trading at a discount of 10% to its net asset value. This could be due to its exposure to unlisted businesses. But I’m sure volatility in the sector is also one of the reasons.
However, I’m convinced that it has a portfolio of high-quality companies that should deliver over the longer term. Also, its manager has a good track record of delivering impressive returns for shareholders. I’m therefore going to keep the stock on my watch list for when I’m next able to invest.
