Merchants Share Discussion Threads

[tim 3] 11/7/2018 22:06

Hi goldpig

I don't particularly class myself as an ethical investor.

However I do feel uncomfortable investing in funds/trust that have a lot of tobacco stocks in their portfolio as smoking kills so many and is just about the worst thing you can do to your body.

Problem is so many of the best funds and of course any FTSE tracker will have them in.

So I try to compromise and look for ones with a smaller tobacco holding and was refreshed when MCH said on their previous update they had got rid of all tobacco holdings.

Anyway on the shares I agree under £5 it’s a buy to me too its also about where the yield tips over 5%.

Unfortunately missed the last opportunity as was invested elsewhere but got some some on one side if/when we see it again.


Also bought some VIN recently,they too have an excellent dividend track record.

Good luck.

Edited for clarity!

[goldpiguk] 11/7/2018 18:42

Hi Tim 3,

Thanks for pointing out Imperial is back as a top ten holding. Not a share I would personally buy but it looks like another good Gergel investment decision.

Lloyds are out of the top ten after a chunky final dividend, replaced by Imperial with its quarterly dividends, which should enhance dividend income for the Trust this financial year.

I now feel quite lucky to have bought in here at an average in the 480's but I agree Merchants does look quite pricey at the moment. I have an initial target holding of 10,000 shares (currently holding 8,500 in my ISA). I am waiting for a pullback before adding here, and with Brexit uncertainties, trade 'wars' and reverse quantitive easing, good buying opportunities should occur over the coming months.

Any downside here though might be limited if oil prices stay strong, due to a large weighting in Shell and BP. At the moment I would be happy to add if the price falls back below £5.00.

Goldpig

[tim 3] 07/7/2018 10:31

On my watch list but a bit pricey here imo.

I see they have Imperial back in their top 10 holdings.

Disappointing as one of the things I liked about them compared with many of their peers was they had got rid of their tobacco stocks.

[bluemango] 05/7/2018 11:40

Q1 quarterly dividend declared at 0.064p, planned to "at least maintain" at this level for remainder of year, giving annual div 25.6p, an increase of 3.2%.

[speedsgh] 05/6/2018 11:47

Many thanks, Goldpig. Am gradually working my way through the AGM presentation. Some very useful stuff in there.

I am also going through the Annual Report alongside the presentation. I note that they have two further debt instruments due for repayment in 2023 & 2029. The first one is very expensive again (see see pg93-94 of the AR) with a 9.25125% interest rate. Shame that can't be refinanced now; who knows what the debt markets will be like in 2023.

Fintrust Debenture - Fixed rate interest loan repayable in May 2023. Principal amount £42m. Interest rate 9.25125% p.a.

Secured bonds repayable in Dec 2029. Principal amount £30m. Interest rate 5.875% p.a.

[goldpiguk] 04/6/2018 20:47

Hi speedsgh,

The 2018 MRCH AGM presentation is now available on the Merchant Trust website. Like last year very well worth watching.

hxxps://www.merchantstrust.co.uk/Media-Hub#videos/2437/Merchants Trust - 2018 AGM Presentation

Goldpig

[speedsgh] 24/5/2018 13:41

Hi Goldpig.

"Last year I took the decision not to buy RDSB or BP.directly in my ISA. I feel far happier holding them indirectly through the Merchants Trust. MRCH would be able to maintain its dividend if there was another major oil spill, for instance.

Although I might miss out on some of the upside, there is some protection against downside. This is an important consideration in a market that is becoming more volatile and increasingly difficult to read."

This chimes very closely with my current line of thought. Am actively trying to manage risk by moving away from direct holdings and increasing weightings in a portfolio of ITs that give expoure to a variety of different themes. As you say, happy to forego some of the upside in return for some protection against excessive downside. That's the theory in any case!

[speedsgh] 23/5/2018 09:41

Latest Edison research note...

FY18 outperformance continuing in FY19 -

[tim 3] 01/5/2018 16:37

Looking strong recently.

[topvest] 14/4/2018 18:15

It’s much better placed now that the first slug of high cost debt has been repaid. The final high cost debt goes in 2023. A steady trust with improving prospects. I will continue to hold mine indefinitely as well. Only a small holding for me so may add.

[goldpiguk] 09/4/2018 21:20

Hi,

Today I added 2,500 MRCH shares using part of my 2018-19 ISA subscription. I had to pay a little more than I had hoped but Merchants Trust is a core long term holding in my ISA portfolio which I expect to hold indefinitely. With the current market volatility I am hoping to accumulate more on any dips and as funds permit.

Goldpig

[speedsgh] 29/3/2018 07:51

Final Results -

Highlights of the year

· A rising dividend for 36 consecutive years
· Second highest yield in its sector
· Investment performance ahead of benchmark
· New borrowing secured at much lower interest rate

In a key development during the year, the company announced the refinancing of the first tranche of its long-term borrowings, replacing it with new borrowings at a much lower interest rate. This has many potential benefits for shareholders, such as enhancing earnings per share and the flexibility to grow the dividend faster...

... New borrowing at much lower interest rates

Towards the end of the financial year we refinanced a debenture taken out in 1987 (when the Bank of England base rate stood at 8.375%) with new borrowing at a much lower interest rate (2.96%). This replacement of the expensive debenture with lower cost borrowing is significant for the company. Not only does it reduce interest payment costs significantly (the weight average cost of debt decreased from 8.5% to 6.1%), enhancing the revenue earnings per share, but it also reduces capital costs and presents the possibility of growing the dividend faster in the future.

The debt refinancing allows the investment manager to invest with a long-term view. Having secured the new borrowing for the next 35 years at an interest rate of just under 3%, the investment manager is able to invest in a selection of higher yielding stocks listed on the FTSE All-Share Index, whose average dividend yield is 4% at the time of writing.

Outlook

When I wrote to shareholders at the end of September, in the Half-yearly Report, I noted the rising risk profile for the UK economy and these concerns remain as valid now as they were six months ago. There remain further 'speed bumps' in the form of geopolitical and economic risks that will create short-term volatility along the way. High levels of consumer debt and the impact of inflation on real earnings, as well as uncertainty in the corporate sector caused by Brexit are all concerns. However, interest rates, although nudging upwards, remain very low by historic standards. Add to this the weak pound (which helps exporters), historically high employment levels and the fact that the UK stock market is predominantly exposed to economies outside the UK, and one can begin to understand why markets have remained near to all-time highs since September.

In uncertain times, it is useful to remember that The Merchants Trust will celebrate its 130th anniversary in 2019 and that the company has a long and distinguished history of delivering income and capital returns through many uncertain periods over the years. The investment manager continues to invest in a portfolio comprising solid businesses with good prospects for growth and attractive dividends that are priced at a level from which they can deliver good total returns for shareholders.

Looking ahead we think it's vital to continue doing what we've always done at The Merchants Trust. We leverage Allianz Global Investors' investment expertise to ensure The Merchants Trust always has a portfolio of attractive UK stocks. Above all, we believe that the company is well positioned to continue meeting its objectives of paying a high and growing dividend yield and delivering attractive total returns, for both existing and new investors, for many years to come.

[goldpiguk] 27/3/2018 23:41

Hi speedsgh and tim 3

Very interesting comments with which I largely agree. Until now I have only used Investment trusts for foreign investments and currently have Henderson Far East Income in my ISA. I will take a closer look at the City of London which is on my radar but MRCH is my current UK top pick. I hope to write a post about why in the near future.

According to my notes Merchants publishes its final figures tomorrow. Should be interesting given the sharp sell off on the Dow at the close this evening.

Goldpig

[tim 3] 25/3/2018 15:15

Thanks speed,the mail really seems to like mrch.

Am a big covert to IT's I believe in many cases they are a better option than OEIC's,they have many advantages including lower charges and not having to worry about redemptions.

Mrch is my second favourite IT pick,it has a great dividend record and performs ok if not spectacularly well against the equity income sector.

It does have fairly high gearing at 120% so may get hit slightly more in a market downturn.

It also,like many in the sector has high exposure to finance at 20%,although one thing I do like is it has no tobacco comanys in its top 10 holdings.

My favourite in the sector is cty,very boring but consistent performance and with 50 years dividend growth AND has outperformed the sector (and mrch) over 10 years.It also has lower gearing at 109% which I prefer although the yield is lower at 4.2%.

I think like many they have both got a little ahead of themselves with around 50% rise since 2016.

mrch trades at around 5.5 disc to nav and cty trades at 2% premium but this is not unusual.

Looking at buying some in this latest dip but I dont think the selling is over yet but its always hard to get timing right!

IMO dyor ect.

[speedsgh] 25/3/2018 11:37

MIDAS SHARE TIPS: Merchants Trust... the leading lights for investment growthHTTP://www.thisismoney.co.uk/money/investing/article-5540033/MIDAS-SHARE-TIPS-Merchants-Trust-leading-lights-investment-growth.html

[tim 3] 08/2/2018 23:13

Well done goldpig I have done a lot of research and these look pretty good to me too and they have increased their dividend for 34 years so lets hope it continues!

I just felt the price got a bit carried away but looking more attractive now.

[goldpiguk] 08/2/2018 11:26

Hi speedsgh,

I have been following MRCH for several months and today bought 6,000 shares in my ISA. These appear as a sell on the trades board.

It was my intention to start accumulating MRCH in the new tax year but sold my holding in RMG which has risen strongly in recent weeks instead. As you point out dividend increases seem likely here following a reduction in its interest bill and it gives a good spread of shares I like which I do not already own within my ISA.

This is a very quiet board which is great!

Goldpig

[speedsgh] 25/10/2017 20:56

Merchants eyes dividend increases after repaying 14%, 30-year mortgage -

[speedsgh] 23/10/2017 08:42

Long term fixed rate borrowing -

The Merchants Trust PLC (the Company) has today priced an issue of a £35 million fixed rate 35 year secured private placement note at a coupon of 2.96% (the Notes).

The funding date, subject to final documentation, will be 18 December 2017, with interest payable semi-annually on 18 December and 18 June (first payment on 18 June 2018). The Notes shall be direct secured obligations of the Company and rank pari passu with all other secured indebtedness of the Company.

The purpose of the Notes is to take advantage of the Company's ability to use gearing which is expected to enhance long-term investment performance, and to provide fixed rate long dated financing at a pricing level the Company considers attractive.

The proceeds of the Notes will be used to repay borrowings of £34m (from First Debenture Finance PLC, taken out in 1987) which mature in early January 2018. Following this payment in January 2018, the Company's structural borrowings will be broadly unchanged and at that time the expected weighted average interest payable on the Company's structural borrowings will fall from 8.5% to approximately 6.1%. The lower cost of borrowing will benefit the Company's earnings per share.

[speedsgh] 26/9/2017 09:48

Half-year Report -

NET EARNINGS & DIVIDENDS
Earnings in the first six months of the current year, to 31 July 2017, were 15.05p per ordinary share (2016 - 14.38p). The improvement reflects dividend growth and the benefit of a weaker pound on dividends paid in foreign currencies.

In response to higher earnings, an improved outlook for income generation within the portfolio, and the opportunity to refinance legacy debt this financial year, the board has increased the second quarterly dividend to 6.2p per ordinary share, payable on 16 November 2017 to shareholders on the register at close of business on 6 October 2017...

PROSPECTS
The Brexit negotiation process combined with high levels of consumer debt and rising inflation, have raised the risk profile for the UK economy. However, the outlook for growth in the rest of Europe and other major economies is more positive. UK listed companies offer exposure to a diverse range of industries and markets, with the majority of revenues and earnings coming from abroad. Whilst the UK stock market has made strong gains in recent years, valuations in many cases are still reasonable. Our fund managers are able to identify businesses with strong franchises and sound finances, trading on sensible valuations and paying attractive dividends.

By investing in a portfolio of such stocks, we aim to ensure that Merchants can pay a high yield and consistently rising dividends to shareholders, along with capital growth in the medium term. The board believes that the company's strategy is well suited to the current environment of very low bond yields and interest rates.

[vacendak] 07/9/2017 13:21

I just do not get the obsession with the dividend cover bit. Sure, dividends are safer if the income/reserve is consequent; but in the case of "Income" Investement Trusts, the mandate is to provide dividend/income as the name suggests. As pointed out in the linked article, it is now perfectly legal for ITs to provide income from capital growth.

As long as the manager does not run down his portfolio, i.e. not just pruning but shrinking capital to provide income, a trust like MRCH is just doing the job people investing in it ask it to do: Squeezing the holdings hard for juicy cash, usually at a percent or two above inflation.

I have a bit of my pf in commercial property, FCPT, which pays monthly. The next dividend is never covered by the income, although the cover is improving at the moment, but their mandate is to deliver that 0.5p per share rain or shine. As long as the NAV goes up, which it does, things are fine with me. FCPT, like many property trusts usually trades at a premium too.

The thing to moan about with MRCH might be the expensive debenture/loans that will hopefully be done with by 2018 (see page 71 of the latest AR). They signed some pretty costly financing deals back in 1987.

[joe say] 06/9/2017 16:30

To add to that the 06/09/17 NAV includes

2) based on the market value of the company's long term debt and preference shares, the capital net asset value per ordinary share was 495.43p.

4) based on the market value of the company's long term debt and preference shares, the cum-income net asset value per ordinary share was 508.10p.

that's 12.67p of income in my book for an approximate 7 months - implying an approximate 21.7p for the year but that would exclude dividends paid of 12p odd so adding these on would suggest that the earnings cover the dividends - surely?

[broadgreen] 06/9/2017 16:17

I'm not sure of the accuracy of that report, especially the following:

'Interestingly, Merchants and Scottish Mortgage, both of which paid out more than they earned in the last financial year, feature at the bottom of the reserve cover list: Merchants has cover of 0.43; while Scottish Mortgage is on just 0.16.'

According to the last annual report Merchants had £24.765m in the revenue reserve. The FY dividend cost them £26.095m, so reserve cover is not far short of 1.0x

Merchants revenue per share was 24.1p, while the divi was 24.2p, so contrary to what the author says the trust could continue to dip into its revenue reserve to this limited extend for several years.

My guess is that it would be relatively simple to adjust the portfolio to boost dividend cover (though not necessarily ideal), while the consequences of cutting or freezing the divi for the trust would be dire, from a marketing point of view. SO in the absence of a collapse in corporate earnings across the board the divi is fairly safe.

I hold MRCH, and also hold SMT. The fact that the author mentions the SMT dividend in the same context as the likes of MRCH tells me that the blog post shouldn't be taken too seriously. SMT isn't an income play and I doubt many holders would care if the divi was cut given the capital performance of the trust.