Mercia Asset Management — Another good exit: 4.2x ROI, 72% IRR

Mercia Asset Management (LN: MERC)

Last close As at 20/11/2024

23.75

0.00 (0.00%)

Market capitalisation

GBP106m

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Research: TMT

Mercia Asset Management — Another good exit: 4.2x ROI, 72% IRR

Mercia Asset Management has completed the sale of its second largest holding, Faradion (a leading sodium-ion battery technology company), for £100m to Reliance New Energy Solar, a subsidiary of India’s Reliance Industries. Mercia will receive total cash proceeds of £19.4m from the sale, including initial unrestricted cash proceeds of £18.6m, plus a further £0.8m ringfenced for three months. The sale value represents an uplift of approximately 50% over Faradion’s conservative carrying value of £12.9m at 30 September 2021, an NAV uplift of c 1.5p per share. Based on the unrestricted cash proceeds, the sale delivers a 4.2x return on Mercia’s direct investment cost of £4.4m and an IRR of c 72%.

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Written by

TMT

Mercia Asset Management

Another good exit: 4.2x ROI, 72% IRR

Portfolio exit

Investment companies

6 January 2022

Price

40.25p

Market cap

£177m

Net cash (£m) at 30 September 2021

52.1

Shares in issue

440.1m

Free float

69%

Code

MERC

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

Business description

Mercia Asset Management is a regionally focused specialist asset manager. Its stated intent is to become the leading regional provider of supportive balance sheet, venture, private equity and debt capital in transaction sizes typically below £10m.

Analysts

Richard Williamson

+44 (0)20 3077 5700

Rob Murphy

+44 (0)20 3077 5700

Mercia Asset Management is a research client of Edison Investment Research Limited

Mercia Asset Management has completed the sale of its second largest holding, Faradion (a leading sodium-ion battery technology company), for £100m to Reliance New Energy Solar, a subsidiary of India’s Reliance Industries. Mercia will receive total cash proceeds of £19.4m from the sale, including initial unrestricted cash proceeds of £18.6m, plus a further £0.8m ringfenced for three months. The sale value represents an uplift of approximately 50% over Faradion’s conservative carrying value of £12.9m at 30 September 2021, an NAV uplift of c 1.5p per share. Based on the unrestricted cash proceeds, the sale delivers a 4.2x return on Mercia's direct investment cost of £4.4m and an IRR of c 72%.

Period end

Net cash* (£m)

Direct
investments (£m)

FUM
(£m)

NAV
(£m)

NAV per share (p)

P/NAV
(x)

03/20

30.2

87.5

658.0

141.5

32.1

1.25

09/20

24.9

101.6

722.0

149.9

34.1

1.18

03/21

54.7

96.2

764.0

176.0

40.0

1.01

09/21

52.1

110.3

762.0

186.4

42.4

0.95

Note: *Includes liquid securities but not funds held on behalf of EIS investors.

As set out in our recent note, Sustainable model remains undervalued, at today’s closing price of 40.25p, Mercia’s shares trade at a c 5% discount to the group’s H122 NAV of 42.4p, before considering the incremental value of the third-party funds business (we estimate 7p per share at 4% of funds under management). Alternatively, as a profitable specialist asset manager, Mercia trades on a P/E of 8x annualised H122 earnings. After a tripling of the H122 interim dividend, we estimate the shares might offer a prospective FY22 yield of c 2%.

The group had net cash of £52m at 30 September 2021, which will be supplemented by the proceeds from the sale of Faradion.

With a proven model, we anticipate Mercia will make further progress in 2022, potentially including further M&A.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

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United States of America

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NSW 2000, Australia

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