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Profits, growth and value

Mercia Asset Management 30 November 2021 Flash note
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Mercia Asset Management

Profits, growth and value

Trading update

Investment companies

30 November 2021

Price

37.0p

Market cap

£163m

Unrestricted cash (£m) at 30 September 2021

52.1

Shares in issue

440.1m

Free float

66%

Code

MERC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

Business description

Mercia Asset Management is a regionally focused specialist asset manager. Its stated intent is to become the leading regional provider of supportive balance sheet, venture capital (VC), private equity (PE) and debt in transaction sizes typically below £10m.

Next events

Interim results

7 December 2021

Analysts

Richard Williamson

+44 (0)20 3077 5700

Rob Murphy

+44 (0)20 3077 5700

Mercia Asset Management is a research client of Edison Investment Research Limited

Mercia reported a strong rise in the NAV of its Northern Venture Trust (NVT) subsidiary, reflecting the IPO of musicMagpie and other successful exits, leading to Mercia receiving a net performance fee of £1.6m. As a result, together with Mercia’s substantially recurring management fees, management expects H122 PAT to exceed £10m, with the FY22 adjusted operating profit (excluding the NVT net performance fee) expected to be materially ahead of market forecasts. The shares trade at a larger discount to NAV than peers and at a discount to the historical FY21 NAV of 40p. They also trade at a material discount to the prospective NAV implied by a strong H122 performance, even without considering the incremental value of the fund management business. As an alternative valuation approach, moving away from NAV, Mercia trades on 8.1x annualised H122 earnings.

Year end

Net cash* (£m)

Direct
investments (£m)

FUM
(£m)

NAV
(£m)

NAV per share (p)

P/NAV
(x)

03/19

29.8

87.7

381.0

126.1

41.6

0.89

03/20

30.2

87.5

658.0

141.5

32.1

1.15

09/20

24.9

101.6

722.0

149.9

34.1

1.09

03/21

54.7

96.2

764.0

176.0

40.0

0.93

Note: *Includes liquid securities but not funds held on behalf of EIS investors.

Management’s guidance for H122 PAT of over £10m suggests that Mercia is off to a good start to meet the initial objectives of the group’s three-year plan in FY22, Mercia 20:20, which targets growth in AUM of 20% per year on average over FY22–24, as well as average annual PBT of £20m over the period.

Based on Mercia 20:20, the company offers an attractive proposition of market-leading prospective growth (20% annualised growth in AUM) and a dividend-paying (FY21 yield of 1.1%) sustainably profitable model (FY22–24: average PBT of £20m) based on substantially recurring management fees (FY21: 85% recurring). Furthermore, the group offers a diversified business (VCT, VC, PE, debt) in a sector that aligns with government’s levelling-up agenda for the regions, as well as government strategy to support high growth private sector enterprise.

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This report has been commissioned by Mercia Asset Management and prepared and issued by Edison, in consideration of a fee payable by Mercia Asset Management. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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United Kingdom

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United States of America

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