London, UK, 3 March 2021

Mercia Asset Management (MERC): The UK's top regional investor

The £30.7m cash exit from Oxgene underlines management's success in building a sustainably profitable specialist asset manager, delivering high levels of contracted revenue and providing a filtered pipeline of opportunities for Mercia's direct investment portfolio. Based on progress to date, we believe Mercia will achieve its three-year strategic plan ahead of time (grow operating profitability, expand assets under management (AUM) to £1bn and 'evergreen' the balance sheet by end FY22). By the end of H121, AUM had risen to £872m (15% from FY22 target), with fee-earning funds under management (FUM) of £722m. Despite progress, Mercia's shares continue to trade at a material 21% discount to net assets (0.79x) or a 30-35% discount when we include the third-party funds business (worth 4.9p at 3% of FUM). This is a substantial discount to its peers.

Although profitable and dividend paying, with a mature, evergreen balance sheet, and scaling AUM, Mercia still trades at a 21% discount to its H121 NAV (34.1p per share) and a significant discount to its peers. Together with its fund management arm (5-8p per share), the overall valuation rises to 39-42p per share, implying a discount of closer to 31-36%. Catalysts for a re-rating include further scaling of the business, continuing revenue/earnings growth, commercialisation of the direct investment portfolio and/or successful exits. 
 

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