Mercia's specialisation carries the weight

The interim results season has been a punishing one for many asset managers, but Mercia Asset Management (MERC) conformed to the emerging trend that smaller, more specialised firms are achieving generally solid results. Mercia can point to its private market investments focus and a diversified investor base that includes public sector institutions. All of which means the company is not exposed to either public market asset risk, or panicky redemptions from investors.

Inflows totalled £45mn, with retail inflows of £20mn and the balance coming from public institutions. Total assets under management were 1.7 per cent higher at £1.5bn, just shy of the company’s target for the year end. Mercia realised £52mn from the sale of investments, and accounting for the post-period disposal of its nDreams business, the net cash balance will be pushed up to £60mn. Sales helped to fund an announced share buyback of £5mn.

Chief executive Mark Payton noted the stability of the business model, with diversification of asset type being a key factor in its success. He added that rising rates had so far been a positive for Mercia insofar that banks had withdrawn from parts of the market and created an opportunity for private lending. He also said that the syndication risk was rising this year as venture capital raises fewer funds.

Broker Canaccord Genuity reckons that Mercia's shares are currently valued at 0.6 of its NAV for what is a debt-free business. Mercia is well-run and still manages to thrive in an under-performing sector. We stick to our recommendation. Buy.

Last IC view: Buy, 26p, 3 Aug 2023