Mercantile Investment Trust announced its annual results for the year ended January 31 2023. NAV fell 8.5% for the year, while shares fell 12.6% for a total return of -11.0%, trailing the UK medium and smaller companies benchmark which fell 7.5%. There was some notable improvement in the second half of the year, however, with the company outperforming the benchmark by 3.9%.
While 2022’s performance was disappointing, management was keen to stress this in context.
”This year’s underperformance follows a year of very strong absolute returns during the financial year ended 31st January 2022, and outperformance over five years and the longer term. The company’s average annualised return over the ten years ended 31st January 2023 was 8.8% per annum on a net asset total return fair value basis and +9.1% in share price terms, both returns outpacing the benchmark’s return of +6.9%.”
Commenting on the outlook, chairman, Angus Gordon Lennox noted;
“Even though there has been significant disruption in the global financial sector recently, following the collapse of some US regional banks and the takeover and rescue of Credit Suisse in Europe, and therefore the resultant jitters in markets, I am pleased to say that the outlook for your company and our investments appears considerably brighter now than when I sat down in October last year to write my statement for the company’s half year report. As our investment managers have said, credit markets may tighten somewhat but the financial sector in the UK and our companies in particular are in a much healthier position. Although the tragic war in Ukraine drags on, its impact on energy and commodity prices is beginning to ease. There are signs that inflation may be peaking, and while central banks are unlikely to begin easing monetary policy any time soon, interest rates may stabilise, while monetary authorities take time to assess the medium-term inflation outlook. In addition, forecasts suggest that the UK economy, will, at worst, experience a mild recession this year. Furthermore, the UK’s political climate has calmed considerably, with an improvement in relations with the EU and a new Pan Pacific trade agreement. The potential for UK companies to increase business is encouraging.
“The UK market remains attractively priced relative to many of its global counterparts, and with sterling still weak, the market is likely to see continued interest from foreign investors, and private equity firms and others seeking to acquire UK companies. These factors should continue to support the market.
“The recovery in your company’s fortunes in the second half of the financial year suggests that the portfolio is well-positioned to continue benefitting from the improving economic and market environment, and the board shares the investment managers’ confidence in their strategy, the portfolio and the company’s prospects for capital and dividend growth over the coming year and over the long term.”
MRC : Game of two halves for Mercantile Investment Trust
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