Mercia Asset Share Price (MERC)

Equity Development initiates coverage today on Mercia AM as they announce a strategic shift to focus on highly profitable and fast growing fund management

Full research report with audio summary here: https://www.equitydevelopment.co.uk/research/a-deeply-undervalued-specialist-in-private-markets-1

"A deeply undervalued specialist in private markets"

Mercia is one of the largest investors in ‘regional’ (ex-London) UK growth businesses. Its primary focus is managing funds of around £1.6bn for third parties (FUM) in structures such as Venture Capital Trusts, EIS funds and funds for institutional investors. The business is scaling. FUM has more than doubled in two years. Record net flows exceeded £0.5bn in FY24. And growth is by far the highest among a London-listed peer group.

FY24 revenue grew 18% y-o-y to £30.4m, EBITDA 7% to £5.5m, a margin of 18.2%, likely to ratchet up over the longer term as the business scales further. Indeed, the newly announced Mercia 27:100% growth strategy aims to reach £3bn AUM (FUM + proprietary capital) and £11m EBITDA in 3 years.

Mercia also invests its own capital into a portfolio of ‘direct investments’ (NAV: £189m on 31 Mar 24). Its record is impressive.

A strategic change is to be proposed at the 2024 AGM - to focus primarily on highly profitable and fast-growing fund management, and to stop making new direct investments (while supporting existing investments). This allows Mercia to reclassify from an investment company to a trading company under AIM rules, allowing gains made on shares to be IHT-exempt (under certain conditions).

With a fundamental value 65% above the share price, we see potential for a significant rerating.

Mercia Asset Management PLC (AIM: MERC), the proactive, regionally focused specialist asset manager with over £1.5billion of assets under management, re-confirms that it will announce its preliminary results for the year ended 31 March 2024 on Tuesday 2 July 2024.

Will they allay lingering fears and put Marc back on track?

Loss of 2p I make that a decline of 4.4% of NAV

ie not so small

Merc. sp holding up well despite yesterdays bad news concerning Impression Tech. :-

Mercia Asset Management PLC (AIM: MERC), the proactive, regionally focused specialist asset manager with over £1.5 billion of assets under management, announces that it has made the decision to cease further funding for one of its direct investments, Impression Technologies Limited ("ITL").

Mercia first invested in ITL via its thirds-party funds in 2014 and it became a balance sheet direct investment in 2015. During the period of Mercia's investment, ITL developed its novel Hot Form Quench ("HFQ®") technology, established a low volume manufacturing facility, secured its first production customers, signed licences with several automotive sub-contractors and developed its technology to be transferable across industry sectors e.g. aerospace.

However, despite this considerable technological and commercial progress, ITL has been unable to reach breakeven. As announced on 28 November 2023, Mercia reduced its direct investment carrying value in its interim results, reflecting increased uncertainty following a sale process which did not ultimately succeed. Since that time, ITL has continued to explore options including further funding or a sale. Ultimately however, no successful new external funding or a sale of ITL has been achieved. Given that ITL's pathway to profitability remains highly uncertain, Mercia has also decided to cease further funding. It is now anticipated that ITL will enter into an insolvency process in the near future.

Mercia will now reduce the carrying value of its investment in ITL as at 31 March 2024 to zero, resulting in a small reduction in the Group's net asset value per share of c.2 pence, compared with the net asset value per share of 45.3 pence as at 30 September 2023

Share price has enjoyed a good run over the past month and no pumpers & dumpers on the BB which is a relief! The value proposition for owning more MERC shares seems strong according to Schanhorst. Inclined to agree, will add more this week.