Merchants Trust (MRCH) 494p

Loss to date: 6.9%

Original entry point: Buy at 531p, 30 September 2021

While the shares of Merchants Trust (MRCH) have slipped below our entry price from September 2021, the trust has continued to add to its long-term track record of market outperformance despite the trickier market conditions which have prevailed in 2022.

WHAT’S HAPPENED SINCE WE SAID TO BUY?

The trust delivered a marginally positive first half to 31 July with an NAV total return of 1.3%, ahead of the market return of -0.1%. The outperformance was driven by stock specific factors rather than the choice of sectors.

The biggest positive contribution came from household repair and improvement services company Homeserve (HSV) which received a private equity takeover approach at a large premium to the share price.

Merchants said it has seen several such takeovers in recent years reflecting the extent to which fundamentally sound UK businesses ‘continue to trade at cheap valuations.’

Looking forward manager Simon Gergel said he believes investors have priced in ‘considerable uncertainty’ particularly in cyclical sectors.

Consequently, while many defensive sectors continue to provide a firm foundation for the portfolio, Gergel has been building positions in an increasing number of cyclical businesses which offer ‘compelling long-term value’.

Gergel acknowledges it may take some time for value to be recognised in market conditions which highly sentiment driven.

A key part of Merchants focus is on paying a high and rising dividend. The board recognise the importance of providing a steady income as well as the compounding effects of reinvesting income into more shares.

Dividend champion Merchants has raised its dividend for the last 40 consecutive years.

For the first half of the 2023 financial year the aggregate dividend has been increased by 0.7% to 13.7p per share.

WHAT SHOULD INVESTORS DO NEXT?

Market uncertainty and investor skittishness is providing increased opportunities for Merchants to find mispriced shares, while the 5.7% dividend yield is supportive, so we remain positive.

‹ Previous2022-10-13Next ›