Mercia Asset Management Share Discussion Threads

[p1nkfish] 26/10/2019 10:28

I'm not positive whilst buying this, contrarian to my own emotions. I'm expecting the "winter" we are entering will force change but downside will now have a limit here.

[pavey ark] 26/10/2019 09:42

wan, that was the point I was making for most of yesterday.
I added to my holding (twice) yesterday but at least I was positive about the share while I was adding.
I don't know what the management plan is here but things can't be as blindingly obvious and simple as this :

Make Link/Blackrock an offer of 28p /share for their 20%....cost £17m

Place shares in treasury.

NAV is increased by over 8%

With a 20% discount to NAV the share price would be 34p

As someone once said ...."Is it me ?!!!"

[p1nkfish] 26/10/2019 09:30

I think it's a hold nose, buy 1/3rd of a target holding, prepare to buy a couple more times on weakness, hold for 3-5 yrs.

No more sophisticated than that.

Quick bounce would be great but where will demand come from and there is an overhang.

[wan] 26/10/2019 05:58

The Woodford AIM shares patient investors should monitor
by Andrew Hore from interactive investor | 25th October 2019

Mercia Asset Management (LSE:MERC) has undoubtedly been hit by the overhang. There was a small stake in the investment company, but this appears to have been sold because the remaining 19.99% has all been transferred to Link.

The specialist asset manager had a NAV of 41.6p a share at the end of March 2019, whereas the share price has continued to decline and has reached 24.3p. That includes unrestricted cash of £29.8 million – more than one-fifth of NAV.

Admittedly, Mercia has a predominantly unquoted portfolio so, just like the Woodford portfolio, the valuation of unquoted companies in the Mercia portfolio could be questioned. Even so, Mercia has a good track record and a 42% discount to NAV is too harsh. Revenues cover nearly 90% of admin expenses.

Full article -

[pavey ark] 25/10/2019 16:04

Ah well, if this little exchange has told me anything it is that I now know why the price has fallen from its two year average of c.32p to 24p and I now know it has nothing to do with the company or its management or its assets.

For what it's worth the last three "exits" were buys.

[weatherman] 25/10/2019 15:00

Including AM side, the NAV is over 50p - more than twice where it is now.
hxxps://www.edisongroup.com/publication/scaling-regional-powerhouse/24555/

[rambutan2] 25/10/2019 14:54

So balance sheet cash at 31/03/19 ye was £30m, having invested £19.4m. There were no realisations. No talk of investment rate slowing. So unless a big realisation, which I'm struggling to see, they will be needing new cash by this time next year. Woodford in no longer available as an easy option, and Invesco also perhaps not.

Agree that option repricing was a disgrace.

Only notable exit achieved and also plastered over their presentations was Blue Prism. But that was not a MERC investment. Was in a fund that they bought. So rather cheeky to use it, imho.

Nav growth has been glacial.

The only plus point are the FUM fees which pretty much cover their costs. But they don't provide any growth.

imho.

[p1nkfish] 25/10/2019 14:39

In a downtrend since float around Dec 2014 during a golden period for start-ups and early stage.

Granted one day it will turn but that might be a while off and it bounce around for a very long time in the interim.

Management matters and they have not proven themselves yet.

[p1nkfish] 25/10/2019 14:32

Pavey, look at the exits.

[pavey ark] 25/10/2019 14:14

That is rather illogical as it suggests that the current sellers and reluctant buyers know something that is not in the public domain.

If a price falls and you can see the most likely cause is something that you do not consider significant enough to cause the fall you have an opportunity to make money.

If you wait until everything is crystal clear and has been fully factored in it is impossible to make money.

If there is no additional factor that is causing this fall then the shares are grossly underpriced.

[p1nkfish] 25/10/2019 14:04

Or there's something not obvious at work.
It's what you don't know that bites you in the ass.

[pavey ark] 25/10/2019 12:12

Their model does seem to be working but the time scale is punishing early investors.

My point isn't based on the long term merits of their model but simply that the only thing that has changed is the Woodford collapse and the subsequent uncertainty over the 20% holding.

If there are no other factors involved and the business is materially the same as it was say six months ago then there should be buying at this level and not collective small investor whinging.

We had a similar situation recently with BPM when the share price plunged to ridiculous levels over a problem with one of their investments.
Shares could be bought for c.208p but it took Simon Thompson in the IC to say "FFS people get grip this is totally disproportionate" I paraphrase slightly.
He also pointed out that efficient markets should not act in this way and that is my point here.
If people can't come up with a logical cogent reason for the share price fall other than the obvious then this is a very silly price.

[p1nkfish] 25/10/2019 10:42

31M dumped 21/7/19 set the scene.

[p1nkfish] 25/10/2019 10:37

One altetnative explanation, market works but doesn't see proof that Mercia model does.

[pavey ark] 25/10/2019 09:52

Cash and a discount of over 40% to NAV.

No matter what the overhang/uncertainty is over the Woodford holdings I can't really see the market allowing this situation to continue

If the market can't step in here then we must conclude that we simply don't have a viable working market in the UK.

I don't know of any other issue that would produce this anomaly but would be glad to hear any suggestions.

[wan] 23/10/2019 10:00

Brad...Exactly, and these opportunities/situations do not come along very often (if ever). So conversely, not taking the opportunity up, in at least some measure (when you have the resources), would also signal management do not put as much weight on the NAV/prospects or indeed the business model, which would obviously be a very poor signal to the market/investors.

So the big question is; with the authority and cash resource in place, will management utilise it and in a meaningful way?

Previously the management have been swift in 're-calibrating' their options. So the ultimate answer to the above question will be crucial in my view (and could help towards meeting those options!), in terms of the robustness of the reported NAV, the prospects/business model and indeed the calibre of management.

Time will tell!

[brad_k] 23/10/2019 08:32

wan, in your post 263 you seem to have muddled your figures. The 30m Mercia shares equates to 10% of (Mercia) share in issue, as you state, but 50%(approx) of the WIM holding.
I think what we are both driving at is that as things stand MERC has a nasty share overhang which could depress the share price for months, some action by the BOD along the lines suggested above would firstly help to reduce that overhang but as you suggest it should also encourage other parties to consider taking a slug of the WIM shares themselves, they would no doubt be getting the shares at a very considerable discount to the new NAV.

[wan] 23/10/2019 07:46

I also note the RNS after the market closed that Invesco reduced from 29.50% to 28.98%.

It is perhaps notable that if Mercia did repurchase (cancel) the ex WIM shares, that that would take Invesco over 30% and trigger a mandatory offer for Mercia. By my calculations, that reduction (by Invesco) is still not enough for Merc to use their full authority (to repurchase circa 30m shares), but Invesco's reduction may 'accommodate' a decent slug to be purchased, which would still send a message to the market and as Brad_K asks above; the situation may present an opportunity that's a good result for both management and investors.

[wan] 22/10/2019 17:22

Apologies, I made an mistake above regarding the percentages. Mercia's existing authority would account for circa 50% on the ex WIM holding (if my sums are correct this time!)

[wan] 22/10/2019 10:05

Brad_K...With the last reported net asset per share of 41.6p per share, it's certainly something that crossed my mind. However, in order to buy all of those Ex WIM shares it would require a new resolution/authority, as the most Mercia can currently repurchase is 30m shares (according to special resolution 8 in the AGM notice), which would only be circa 10% of the Ex WIM holding. But even a 10% repurchase would surely send a signal to the market in terms of the apparent discount to NAV, not to mention signalling confidence in the business/model.

[brad_k] 22/10/2019 09:29

At the time of the results in July Mercia had "Unrestricted cash and short-term liquidity investments GBP29.8million". I wonder how much of that is actually free cash.
Would it not make sense for Mercia to buy the 20% (60.5 million) ex WIM shares and cancel them, RAV (Raven Russia as was) did exactly this, in fact they bought the shares directly from WIM back in August.
What I am suggesting is that they offer say 20p per share (it is a fire sale!), which would cost them £12m approx. On cancellation of the shares the NAV would increase by 25% to 50p+ ... that's a good result for both management and investors isn't it?

[wan] 18/10/2019 09:19

Situations/steep discounts attract attention, whether that is to acquire a cheap 20% holding, or the whole company remains to be seen, time will tell.

[p1nkfish] 18/10/2019 08:42

But Merc is itself made up of illiquid holdings and the likes of IPO and others are in no shape to acquire even more illiquidity.