MIDAS SHARE TIPS: Pershing Square Holdings could help your funds take off

Giles and Nick English grew up with airplanes. Their father was an ex-RAF pilot and flying is in their blood. Timepieces are too, with the English senior often bringing home old clocks for his sons to tinker with and repair. In 2002, the brothers combined these two passions with the launch of Bremont, a company specializing in watches for pilots and military personnel.

Today, Bremont timepieces sell for thousands of pounds and are worn not only by aircraft and defense personnel, but also by wealthy citizens who enjoy the way the watches tick.

Bill Ackman is one such person. He loved Bremont so much that last week he acquired a multi-million pound stake in the company. By any standards, Ackman is a wealthy man. With a personal fortune of more than $3 billion (£2.4 billion), the 56-year-old American investor doesn’t have to work. But he does it, run PERSHING SQUARE COMPANIESa UK-listed company that buys shares of large, publicly traded US and Canadian companies and holds them, usually for several years.

Many of these companies are household names, such as Universal Music, Hilton Hotels and restaurant chain Chipotle, and investments are limited to between nine and twelve at any one time. That means there’s plenty of time to thoroughly research new ideas and monitor investments closely after buying the shares.

Ackman started his company in 2004 as a private fund for professional investors. However, in 2017, Pershing Square Holdings was listed in London, giving British investors the opportunity to benefit from Ackman’s magic touch.

Today the shares are £28.95. They’ve risen since listing, but the value of the group’s investments has risen even more, with the company’s latest update showing its assets valued at £44.12 per share. In other words, there is a 34 percent discount between Pershing Square stock and the investments it owns.

By almost any measure, this discount suggests the stock is cheap, not helped because federal law means Ackman and his team can’t discuss Pershing Square with U.S. investors, even though the investments are all North American.

Back in the day, Pershing was known for taking key positions in failing companies and aggressively pushing for change. The strategy yielded some great successes, but it earned Ackman a reputation as a cage rattler.

Recently, however, Pershing’s approach has shifted from pugilistic to paternal. Today, companies welcome Ackman to their share register as much as they care about his impact on their company. He still takes an active investment stance, but the strategy focuses more on collaboration than confrontation, with board members suspecting Pershing’s presence could do wonders for their share price.

Today, it includes Burger King-owned Restaurant Brands, DIY retailer Lowe’s, and Howard Hughes Corporation, which is developing mini-cities each housing an average of 150,000 people, with shops, restaurants, bars, movie theaters, schools, and churches.

Some companies have been part of Pershing’s portfolio for years, others for much less time. In both cases, however, Ackman and his team meet each week to discuss whether the stock still has potential or whether it’s time to sell.

Sometimes they are ruthless, buying Netflix stock in January 2022 and selling out just three months later. In most cases, however, the group holds on to its investments believing they are resilient enough to get through and thrive even if the US economy stumbles.

Ackman has another asset up his sleeve: he uses advanced financial instruments to boost returns in difficult times. For example, in February 2020, Pershing spent $27 million on credit default swaps – basically betting that the world was about to get seriously concerned about risky investments. The group sold them for more than $2.5 billion a few weeks later.

In 2021, with many economists looking elsewhere, Ackman warned that inflation was about to rear its ugly head. To hedge against this, Pershing invested in swaptions, a way of betting that US Treasury yields were about to rise. The strategy has delivered good results to date and continues to generate returns.

Pershing also pays a quarterly dividend – with 47.5 cents (38p) paid in 2022, declared in dollars but paid to British investors in pounds and pence. An annual meeting on Feb. 9 should preview the dividend for 2023, which is expected to be close to 50 cents.

Midas verdict: Pershing Square Holdings is a FTSE 100 company, valued in the stock market at over £7 billion. Yet it remains relatively unknown and the share price has suffered as a result.

That should change. Ackman has proven his acumen over many years, having spent over £400m of his own money on Pershing shares and may have some ideas on how to boost the share price. At £28.95 the shares are a buy.

Traded on: Main market ticker: PSH Contact: pershingsquareholdings.com or Camarco on 020 7357 4989