The Investment Column: Electra

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ELECTRA INVESTMENT Trust has had a tumultuous year. Michael Stoddart, its chairman and founder, was one month into his retirement when he was rudely disturbed by the news that 3i, Electra's big venture capital rival, wanted to kidnap his baby. After a six-week war of words he persuaded a majority to reject the bid in favour of liquidating the trust over the next five years. Were shareholders right to support him?

As ever with investment trusts, the issue is the discount. Before the 3i bid, Electra's market value was 10 to 15 per cent less than the estimated value of its assets. Electra argued the discount would close as the trust wound up, and promised to buy back 40 per cent of its shares.

Shareholder returns would be even larger, Mr Stoddart said, because the unlisted assets had been valued too conservatively.

The interim results gave little support to the argument, covering only the period to 31 March. But Electra also evaluated its net assets per share as at 31 May, after 3i dropped its bid. At 845p a share they are 25 per cent up over the past eight months. The shares rose 2 per cent yesterday to 756p. Given that 3i was only offering around 725p, shareholders can feel pleased with their votes.

The shares are still on an 11 per cent discount to NAV, too large given the effect of the forthcoming wind-up. True, there are risks. After borrowing pounds 500m for the buyback, Electra's gearing is over 50 per cent. Success in the winding-up depends on buoyant demand for the companies it has invested in.

But Electra's recent sales suggest the 845p figure may be conservative. It realised pounds 38m selling a stake in a German company, Wap Reiningungssysteme, which cost it just pounds 10.3m a year earlier. If it can sustain these returns, Electra's shares could prove one of the most rewarding plays on the market.

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