London, UK, 26 November 2018
Edison issues review on The Merchants Trust (MRCH)
The Merchants Trust (MRCH) is managed by Simon Gergel, chief investment officer of UK equities at AllianzGI. He says the current uptick in volatility in the UK stock market is providing a lot of opportunities for active stock pickers, with a wide divergence between the valuation of shares in companies with steady growth characteristics and those whose earnings outlook is less clear. Although MRCH's annual dividend has increased in each of the last 36 years, growth in the years following the global financial crisis has been modest. However, the manager says the refinancing of a large tranche of the trust's high-cost debt in January 2018, coupled with higher levels of portfolio income, means the board has increased confidence in growing the dividend at a faster rate, from a starting yield of more than 5%.
MRCH's discount has been in a narrowing trend in recent months; its current 0.1% share price premium to cum-income NAV (with debt at market value) compares with a c 6% discount in mid-August 2018. Average discounts over the last one, three, five and 10 years range from 2.3% to 5.4%. The trust has a distinguished dividend history; the annual distribution has increased for the last 36 consecutive years. MRCH currently offers an above-average dividend yield of 5.4% (Exhibit 12).
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