Square deal that keeps getting better
BILL Ackman built his reputation as a firebrand, agitating for change in some of the most high-profile corporate bust-ups of the past 20 years. Recently, he has been putting his pugilistic skills to use in academia, calling out antiSemitism at US colleges and fighting plagiarism allegations levelled against his wife, Neri Oxman, a former university professor.
These pitched battles have earned Ackman new friends and fierce enemies. Luckily for shareholders in Pershing Square Holdings, however, they do not seem to have affected the American billionaire’s ability to make money.
Midas recommended Pershing Square in January 2023, when the shares were £28.95. They have risen almost 40 per cent since then to £40.10 – and moves are afoot to drive the price still higher.
Pershing Square invests in large, listed businesses, such as Hilton Hotels, Universal Music and Mexican fast-food chain Chipotle. The portfolio is deliberately small, comprising between eight and 12 holdings at any one time, but individual stakes are big and managers spend months deliberating on new investments.
Last year, the group made one new purchase, acquiring stock in Alphabet when the shares were depressed, and benefiting as the price recovered. One or two fresh investments are likely this year, alongside a couple of sales.
Ackman sold out of US DIY chain Lowe’s last autumn at an average sales price of $221 (£175) per share, compared to the $86 price at which stock was purchased in 2018. Not every Pershing investment generates such fleshy returns. But there are more successes than failures.
Over the past five years, the value of the group’s assets has risen by an average of more than 30 per cent annually, outstripping the FTSE 100 index and the S&P 500 in America.
Returns can also be boosted by opportunistic hedging tactics, such as protecting the portfolio against risk just before Covid-19 took on pandemic status or guarding against inflation last year.
Critics have complained that Pershing Square fees are too high, particularly a performance fee given to investment managers if shares in the portfolio do well.
Returns are calculated net of fees but Ackman is now responding to critics, through a series of initiatives that should reduce costs substantially over time.
Despite a robust track record, Ackman is also looking for private businesses to take public. Pershing Square Holdings will invest in these firms, if Ackman succeeds.
Pershing Square trades at a 27 per cent discount to the value of its assets. These are collectively valued at £54.91 a share, compared to the £39.86 stock market price. The discount has narrowed over the past year but Ackman remains dissatisfied. Fee cuts may help, buttressed by persistent results from the companies in Pershing’s portfolio. Traded on: Main market Ticker: PSH Contact: pershingsquareholdings.com or Camarco on 020 7357 4980
MIDAS VERDICT: Pershing Square has proved its merits over the past year and some investors may choose to head for the exit now. But Ackman remains heavily invested in this business and recent initiatives should bear fruit. That makes the stock worth holding at £39.86.