Merchants Trust, managed by Simon Gergel (pictured) has announced its annual results for the year ended 31 January 2016. In what its Chairman, Simon Fraser, describes as a difficult year for equity markets, the trust has provided an NAV total return of -5.0% thereby modestly beating its FTSE All-Share benchmark, which provided a total return of -6.5%. In terms of performance attribution, the company says that the main contributors were strong relative performance from the equity portfolio and the benefit of the fall in the market value of debt, as it approaches maturity. The main negatives were the impact of gearing, in a period where market returns were negative, and the cost of finance. The company’s share price fell by 14.5% from 484.0p to 414.0p over the year and, reflecting this, the discount to NAV on the shares widened. On a total return basis, the value of the shares fell 9.5%, thereby underperforming the benchmark. However, the trust offers one of the higher yields amongst its peers and the company says that, within the UK Equity Income sector, its yield of 5.8% was the third highest as at 31 January 2016. The trust also says that, it is recommending a final dividend of 6.0p, which brings the total dividend for the year to 24.0p (an increase of 0.8%). This dividend is fully covered and provides Merchants will have an unbroken record of 34 years of consecutive dividend growth.
In terms of a more detailed look at the underlying portfolio, this has not been possible as the investment manager’s review wasn’t available at the time of writing. However, looking forward, the board say that they will be looking in detail at plans to refinance the proportion of the trust’s debt that reaches its maturity in 2018. They also say that, whilst the stock market has been volatile in recent months, the underlying economic outlook has changed little over the last year, in their view. They say that a slow recovery from the global financial crisis is continuing, although there are specific risks, such as slowing growth in emerging markets and the “Brexit” referendum but that the managers are finding opportunities to invest in what they see as promising businesses on favourable valuations.
34 consecutive years of dividend growth for merchants trust : MRCH