Canaccord lowers target price on Mercia, maintains 'buy' rating
Analysts at Canaccord Genuity lowered their target price on specialist alternative asset manager Mercia from 53p to 46p on Monday, but noted the group's "attractive" corporate structure still provided for a de-risked and complementary investment approach.
Financial Services
14,129.27
16:59 23/04/24
FTSE AIM All-Share
754.87
17:14 23/04/24
Mercia Asset Management
34.50p
16:55 23/04/24
Canaccord said Mercia offered "a powerful combination" of high-margin recurring revenues through its growing third-party fund management business, and the ability to generate attractive cash returns through realising investments made directly by its own balance sheet.
The Canadian broker, which maintained its 'buy' rating on Mercia, highlighted the fact that the group's balance sheet investments were picked from those which had been seeded by its funds management division and had reached "key development milestones", thereby reducing risks for its shareholders.
"To date, the group's track record has been strong," said Canaccord.
"For example, the Rising Stars Growth fund (£30.5m assets under management), which was fully wound down by March 2019, delivered a 15% investor internal rate of return and a 428% return on invested capital."
The analysts also noted that four balance sheet exits to date had delivered an aggregate £14.5m in cash proceeds, which equates to a 21% ROIC.
"Mercia's path to sustained profitability is being driven by the development of its third-party fund management business. Funds under management has grown from £22m at time of IPO in 2014, to £381m at the end of FY19.
"It is widely recognised in the industry that getting to the first £1bn of FUM is the hardest task. Given historic performance, both organic and acquisitive, we would not be surprised if the key inflexion point of sustained profitability on a cash basis (excluding fair value movements) is achieved ahead of our forecast."