Mercia Asset Management - Sustainable model remains undervalued
After 18% growth in FY21, H122 assets under management (AUM) was up only marginally to c £948m, with nine exits resulting in distributions to investors of £39m. Net assets and NAV per share rose by 6% during the period to £186.4m and 42.4p, respectively. Revenue (excluding £2.6m of performance fees) increased 21% y-o-y to £10.1m (88% contracted and recurring) with EPS rising 35% y-o-y to 2.53p, leaving the group with net cash of £52m. Confidence in the sustainability of Mercia’s hybrid model allowed the board to triple the interim dividend to 0.3p per share - we estimate that the shares might offer a prospective FY22 yield of c 2% assuming a more conservative uplift in final dividend than in FY21. Mercia trades on a P/E of 7.3x annualised H122 EPS and at 0.87x H122 NAV, before considering the incremental value of the third-party funds business (we estimate 7p per share at 4% of funds under management).Mercia Technologies is an investment group focused on the creation/identification, funding and scaling of technology businesses from the U.K. regions. Co. directly invests across four sectors: Software & the Internet, which consists of cyber security, software as a service analytical tool, Adtech and artificial intelligence; Digital & Digital Entertainment, which consists of virtual reality, augmented reality, mixed reality and serious games; Electronics, Materials & Manufacturing/Engineering, which consists of energy and communications, value electronics, and manufacturing applications; and Life Sciences & Biosciences, which consists of diagnostics, digital health and medical devices.
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