Merchants Share Discussion Threads

[panshanger1] 08/12/2020 12:19

Thanks for posting

[zac0_4] 08/12/2020 11:30

pj fozzie - here you go - Investment trust shares are often hit disproportionately hard in market sell-offs but, equally, they can do particularly well when markets are on the up – as happened in November. When vaccine news propelled the FTSE 100 index to its greatest monthly gain in 30 years many investment trusts made even greater share price gains. These included UK equity income fund Merchants Trust (MRCH), whose share total return of 24.3 per cent for the month to 30 November put it well ahead of both the FTSE All-Share and FTSE 100 indices.

However, 2020 has not been plain sailing for this trust. Its value bias – among other factors – mean that it has faltered more generally, and made a share price total return loss of nearly 13 per cent over the 12 months to the end of November.

Despite this, its investment team has stuck to its target of generating a high and rising income with a good total return. Simon Gergel, the trust’s manager, notes that a focus on good yields in the medium term has added some portfolio continuity, meaning no fire sale of holdings that suspended or cut their dividends.

“We look at companies with good yields in line with the market in the next 18 months – not just today,” he explains. “The reason for that, almost exemplified by this crisis, is companies can cut dividends. We’re not forced to sell just because [a company] has cut its dividend.”

The trust will receive a “significantly lower” income from its holdings this year due to dividend cuts, according to its board. But the board has also vowed to use its revenue reserves to cover any shortfalls. Merchants was recently trading on a 6.5 per cent yield.

Mr Gergel, like many investors, also expects a return to dividend payments in selected sectors and has not deviated from the portfolio’s slight value bias. But a challenging 2020 has inevitably forced some changes.



2020 changes

The trust's asset allocation has changed this year, with Mr Gergel making it more defensive while also trying to capitalise on “anomaliesR21; and mispricings in the market. This has involved taking money out of some cyclical names, for example, the coronavirus outbreak prompted Mr Gergel and his team to call time on positions in Prudential (PRU) and Sirius Real Estate (SRE). They also remain wary about companies with uncertain business models in post-pandemic life.

“We held Informa (INF), which runs trade shows and exhibitions,” he says. “[But] there’s a question mark, long term, about whether people will still go to trade shows. Companies might send people to a trade show but they won’t send 10 – they might send five. Where we have companies with a question mark, unless we’re confident they’re very cheap, we’ve been looking to get out. So we sold Informa.”

This caution extends elsewhere. In a year when share price tumbles have meant that some weak companies trade on high dividend yields, Mr Gergel notes that much of his team’s time has been spent “trying to avoid value traps”. They never buy holdings purely for income, but instead seek solid businesses that look under priced. Doing this has led them back to a variety of high-profile UK names this year, and they have a preference for businesses that look resilient and defensive. They added Next (NXT) amid the retail slowdown earlier this year, with a view that online sales have become “a dominant part of the profits”.

And Mr Gergel believes that Next will pay dividends in the future.

He also bought Vodafone (VOD) and BT (BT.A), stocks he had not held for around half a decade and previously viewed as value traps. Mr Gergel argues that sector consolidation, politicians now acknowledging the importance of fibre optic cables and broadband, and the possibility of lighter regulation have changed this sector's outlook.

“Having been under huge pressure from competition and regulation, the sector might have more benign regulation and competition, and looks cheaper,” he explains. “They have defined earning streams – customers stay with them unless they leave. It’s not like a retailer where you have zero sales unless someone comes to your store or website.”

Mr Gergel and his team have also topped up a position in Imperial Brands (IMB). They believe that prices in the tobacco sector have grown more attractive in the past 18 months. They also added to National Grid (NG.) and SSE (SSE) in the belief these are “resilient businesses and monopolies”, even if some regulatory pressures remain.

They have favoured housebuilders but grown cautious on debt heavy businesses, prompting a move out of Vistry (VTY) and into Bellway (BWY). And they hold DFS Furniture (DFS) – a pandemic-oriented play.

“We like things associated with house building,” he says. “People have sat on their sofas a lot and might realise they’re not that comfortable any more. We want businesses that are defendable against the internet: it’s hard to sell sofas on the internet [as] people want to touch them, but also you need people to deliver them.”

[pj fozzie] 07/12/2020 14:51

Hi Speedsgh,

Are you able to post a synopsis of what Gergel said? (for the benefit of those of us who do not subscribe to IC)

Cheers,
PJ

[speedsgh] 07/12/2020 13:24

Recent written interview with Simon Gergel in Investors Chronicle...

Merchants' Gergel: We spend lots of our time trying to avoid value traps -

[tim 3] 04/12/2020 21:59

Still at a discount to NAV.

Be nice if GSK pulled its weight!

[ctrader3] 04/12/2020 14:35

if u look at the long term chart in the header, the 450p area was support in the
past.
TA states that support areas may offer resistance and vice versa.
At least one piece of TA worth paying attention too > support and resistance areas.
likely to have another attempt to break thru next week, otherwise profit
takers may arrive.

[escapetohome] 03/12/2020 23:46

Glad i kept my full holding

But regretting i didnt top up.

[escapetohome] 03/12/2020 23:45

Yup , underperforming? Its just timing of purchase with a top quality trust like this.

Now outperforming.



MERCHANTS TRUST PLC
TOP 10 HOLDINGS AS AT 30 NOVEMBER 2020
LEI: 5299008VJFXCUD2EG312


Stock Name Market Value %
------------------------------------------- ------------------ -------
GBP
GlaxoSmithKline Plc 35,019,940 5.63
Imperial Brands Plc 28,581,000 4.59
British American Tobacco Plc 26,390,000 4.24
BAE Systems Plc 24,156,898 3.88
Barclays Plc 23,541,000 3.78
SSE Plc 23,132,250 3.72
Royal Dutch Shell Plc B Shs 22,873,429 3.68
BP Plc 19,855,257 3.19
National Grid Plc 19,725,300 3.17
IG Group Holdings Plc 19,674,476 3.16

[gateside] 03/12/2020 20:33

TATE and WPP fall out of their Top 10 Holdings and are replaced by RDSB and BP.

[tim 3] 02/12/2020 16:35

Yes so glad I kept these. Sold many of my other UK share holdings in the sell off to gain some US exposure but something told me to keep this one although was questioning my decision at times lol.

Chart looks a lot more positive now too!

[mister md] 02/12/2020 15:30

... and that was yesterday - more FTSE gains today to add to that NAV

[mister md] 02/12/2020 14:51

The Merchants Trust PLC announces that at close of business 01 December 2020:

1) based on the par value of the company's long term debt and preference shares, the capital net asset value per ordinary share was 439.44p.