The Merchants Trust (LSE: MRCH)

Last close As at 12/06/2024


−5.00 (−0.86%)

Market capitalisation


Edison Investment Research is terminating coverage on The Merchants Trust (MRCH). Please note you should no longer rely on any previous research or estimates for this company. All forecasts should now be considered redundant.

Equity proposition

Below are the four key points of its investment story.

1. MRCH offers the prospects of an above-average level of income and income growth as well as long-term capital appreciation.

Launched in 1889, MRCH is a well-established fund offering an attractive dividend yield, which is consistently appreciably higher than that of the UK market. The trust now has 41 consecutive years of annual dividend increases, earning it 12th place in the AIC’s prestigious list of 20 dividend heroes, which are funds that have achieved at least 20 consecutive years of higher dividends. Reflecting the board’s confidence in MRCH’s income generation, the trust’s dividend growth rate is on course to accelerate from a relatively low level in FY23.

2. MRCH’s manager, Simon Gergel at Allianz Global Investors, employs an unconstrained approach, seeking high-quality companies that are trading at a discount to their estimated intrinsic value.

The manager has demonstrated a disciplined approach, adhering to his successful long-term investment process, even during periods when there have been strong performance headwinds. Gergel’s fundamental stock-selection strategy is based on three pillars: fundamentals (a focus on a company’s industry structure and competitive position, its financial metrics and ESG factors); valuation (in absolute and relative terms, along with dividend yield); and themes (industry and secular issues, the macroeconomic outlook and the stage of the business cycle). The manager cites data that show over the long term, higher-yielding stocks outperform those with lower yields; however, his focus is on a company’s total return potential rather than dividend yield alone.

3. MRCH has a commendable performance record and there is high demand for its shares.

MRCH has outperformed its broad UK market benchmark over the medium and long term. The trust’s NAV total returns also rank near the top of its AIC UK Equity Income peer group, which contains a relatively large number of funds, over the last three and five years. In an uncertain economic environment, where investment company discounts are wider than historical averages, MRCH regularly trades at a premium and there is regular share issuance, indicating strong investor demand.

4. The UK market looks very attractively valued.

The UK has been out of favour with investors in recent years, which has resulted in very attractive valuations in both absolute and relative terms. Gergel highlights the dispersion in valuations within the UK market, with companies trading at the high and low end of the range with relatively few in between. The manager is genuinely excited about the wide range of interesting opportunities available, with many attractive businesses trading on modest valuation multiples.

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Share Price Performance

Price Performance
% 1M 3M 12M
Actual 2.1 10.7 3.6
Relative 0.9 2.8 (4.6)
52 week high/low 591.0p/477.5p


The Merchants Trust’s (MRCH’s) manager, Simon Gergel at Allianz Global investors, is very excited about the number of reasonably priced opportunities available in the UK market. Also, good income generation from the trust’s portfolio of high-quality companies with robust fundamentals enabled MRCH to record another consecutive dividend increase in FY24; it now has a 42-year track record. The trust’s attractive 5.1% dividend yield is one of the highest in the 19-strong AIC UK Equity Income sector and its NAV total return over the last three, five and 10 years is superior versus the peers with a higher yield. MRCH could be seen as a good income play in a scenario of improving investor sentiment towards UK companies, which Gergel envisages given the more stable political environment (as the two main political parties’ policies are now less divergent) and signs of improvement in the UK economy.



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