Mercia’s FY19 results reflect continued progress across the portfolio, with the company in good shape for further growth. Net assets rose 2% to £126.1m, but FUM fell 5% to £381m due to the winding up of the successful RisingStars Growth Fund (15% IRR, TVPI of 528%). The direct investment portfolio increased to £87.7m, with £19.4m of cash invested in 17 companies, as well as £3.9m of fair value uplift. Mercia remains well positioned for further progress in FY20 with key portfolio companies strategically well placed, together with firepower from the group’s £168m of free cash and £30m of unrestricted balance sheet cash. The shares continue to trade at a significant discount to NAV (0.77x), even before considering the embedded value of Mercia Fund Managers (10p+).
Mercia reported FY19 net assets of £126.1m (FY18: £123.5m). The direct investment portfolio grew by 32.7% to £87.7m. In Mercia Fund Managers, FUM fell 5% to £381m with the winding up of the successful RisingStars Growth Fund (15% IRR, TVPI of 528%). Net expenses rose to £1.4m (FY18: £0.4m), largely due to a one-off performance-related fee received in FY18, and staff and administrative expenses rose 13.9% as headcount was expanded to manage mandates won in FY18. Management reiterated its intention to achieve a sustainable position in the medium term, where revenue covers expenses before realised gains and fair value movements.
Mercia has changed its name to Mercia Asset Management to better reflect the balance of the business. Its stated intent remains to become the leading regional provider of supportive balance sheet, venture, private equity and debt capital in transaction sizes typically below £10m. Historically, Mercia has been closely associated with IP commercialisation. However, this categorisation no longer reflects the growth of the business, the diversity of its deal sourcing or the breadth of its investment portfolio, both debt and equity. IP commercialisation remains an important element of Mercia’s investment proposition, but today represents one of five principal sources of deal flow.
Mercia’s shares continue to trade at a discount to NAV (0.77x), even before considering the embedded value of Mercia Fund Managers, which we believe should add 10p+ to NAV. Catalysts for a re-rating include meaningful commercialisation of the direct investment portfolio and/or further successful exits.