Edison Investment Research - Mercia Asset Management (MERC) Mercia Asset Management - Sustainable model remains undervalued

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Edison Investment Research

Richard Williamson

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).

14/12/2021 1 EN

Underlying

Mercia Asset 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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GB00BSL71W47 London Stock Exchange United Kingdom

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Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisors and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting.

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Analysts

Richard Williamson

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Mercia Asset Management - Sustainable model remains undervalued

A rarity in the sector: Revenue +19%, EBITDA +34%

Positive trading, discount-to-NAV being addressed

A deeply undervalued specialist in private markets

Accsys Technologies - Upgrading guidance for the full year

Topps Tiles - Market outperformance again in FY24

Nabaltec - Resilience and margin expansion

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