Mercia trebles dividend as exits open door to confident future

Regional investment firm Mercia Asset Management has trebled its dividend on the back of another “strong set of results” and a number of successful exits.

It expects more exits to follow in the months ahead as it continues to deliver on its ambition to build a “scaling, profitable, attractive business”.

Mercia made nine full exits in the six months to September, which generated a combined return on investment capital of 2.4x. Last month it also reported a £2.5m performance bonus from its subsidiary Northern Venture Trust after a number of successful exits and the IPO of musicMagpie.

Mark Payton, chief executive of Mercia, said: “This is a strong set of results but it comes on the back of a previous strong set of results. This time last year was maiden dividend territory. We’re now on this progressive dividend policy now and we see that positive momentum continuing going forward.”

The asset manager increased post-tax profits by 35% to £11.2m, while revenue increased 21% to £10.1m.

Payton said: “We have this internal vision which is ‘first choice for investees, investors, and employees’. We think if you get those three things right, you have a scaling, profitable, attractive business and I believe that’s what we’re building.

“What these results show is, we’re frankly on the beginning of our journey and we expect a lot more to come from this business over the coming year.”

Assets under management increased only slightly, up 0.9% to £948m, but this was because of the number of exits which produced £39m in distributions to fund investors and shareholders.

Mercia’s chief investment officer Julian Viggars described the distributions as “the acid test of successful investment performance” and is confident there are more to come.

He said: “These exits have been building over time, they don’t happen overnight.

“10 last year, nine to date in this six months, and I think it’s fair to say that trend will continue into the second half.”

It has also continued to grow its portfolio to more than 400 companies, with 38 of the 74 deals done in the six-month period to business new to Mercia.

Payton said they “remain confident in achieving our three-year objectives”, which launched last year, to grow assets under management by 20% per year and deliver a cumulative £60m in pre-tax profits.

Mercia’s own shareholders have also their confidence in the asset manager’s ability to deliver, with its share price increasing 150% from its early pandemic lows 18 months ago and getting close to a four-year high.

Last night’s closing share price of 36.5p gave Mercia a market cap of £160m, which is being driven by institutional investors becoming attracted by the income stream from dividends and the capital growth of the shares against net asset value (NAV) per share.

Martin Glanfield, chief financial officer at Mercia, said: “The share price does appear to be linked to net asset value per share, so we’re not linked to earnings per share or sector multiples. The profitability is great, but what the profitability does is drives the increase in net asset per share.

“Given that we’ve said over the next three years, we expect to generate £60m of pre-tax profits then, with the exclusion of dividends and perhaps we might pay a bit of tax down the line, that’s £50-60m of increase in net asset value which will translate into net asset value per share. So, theoretically, the share price still has a long way to run.”