Edison Investment Research - Mercia Asset Management (MERC) Mercia Asset Management - The hybrid model - halfway home

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Edison Investment Research

Richard Williamson

Mercia Asset Management - The hybrid model - halfway home

Mercia has demonstrated real progress on its three-year strategic plan to achieve operating profitability, expand AUM to £1bn and ‘evergreen’ the balance sheet by end FY22. AUM have increased to £872m, with third-party, fee-earning FUM of £722m. The group delivered an operating profit of £8.0m (H120: £2.1m), an adjusted operating profit (ex-realisations, fair value gains, etc) of £1.1m (H120: £0.6m loss) and H121 EPS of 1.87p (H120: 0.69p). Revenues are sustainable, with 87% recurring, allowing Mercia to initiate a progressive dividend policy, with a maiden interim dividend of 0.1p per share. Despite progress, Mercia’s shares continue to trade at a material 20% discount to NAV (0.80x), before considering the incremental value of the third-party funds business (we estimate at 3% of FUM, or 4.9p).

03/12/2020 7 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 - The hybrid model - halfway home

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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