Mercantile Investment Trust PLC · LSE:MRC
Mercantile Investment Trust — The Mercantile Investment Trust — Shareholder Meeting (May 2024)
40 slides from Mercantile Investment Trust's shareholder meeting presentation, May 2024
Slide 1: The Mercantile Investment Trust plc Annual General Meeting – May 2024
The Mercantile Investment Trust plc Annual General Meeting – May 2024 The home of tomorrow’s UK market leaders Guy Anderson Portfolio Manager This is a marketing communication. Please refer to the legal documents and the KID before making any final investment decisions. Image source: J.P. Morgan
Slide 2: Agenda
Agenda • The case for UK mid & small caps • Portfolio strategy • Performance review • Outlook and positioning 2
Slide 3: The case for UK mid and small caps
01 The case for UK mid and small caps 3
Slide 4: Long term outperformance of UK mid and small caps
Case for UK mid and small caps Long term outperformance of UK mid and small caps Cumulative returns S&P 500 FTSE 250 (ex IT) MSCI Europe (ex UK) FTSE 100 MSCI Emerging Markets TOPIX 3,000 2,500 2,000 1,500 1,000 500 0 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '1
Slide 5: Recent performance driven by valuation de-rating
Case for UK mid and small caps Recent performance driven by valuation de-rating Cumulative returns S&P 500 FTSE 100 FTSE 250 (ex IT) 180 160 140 FTSE 250 (ex IT) FTSE 250 (ex IT) forward P/E 15x forward P/E 11x 120 100 80 60 Dec 2019 Dec 2020 Dec 2021 Dec 2022 Dec 2023 Source: J.P. Morgan Asset Mana
Slide 6: Opportunities for extraordinary growth
Case for UK mid and small caps Opportunities for extraordinary growth Nimble Innovators Rapidly business or growing models disruptors markets WH Smith Rotork Chemring Image source: Shutterstock. The securities above are shown for illustrative purposes only. Their inclusion should not be interpreted
Slide 7: Value creation through M&A
Case for UK mid and small caps Value creation through M&A Proportion of index acquired (% of index starting market cap) 16% FTSE 100 FTSE 250 FTSE Small Cap FTSE 100 avg. FTSE 250 avg. FTSE Small Cap avg. 14% 12% 10% 8% 6% 4% 2% 0% '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19
Slide 8: Portfolio strategy
02 Portfolio strategy JPMorgan ASSET MANAGEMENT
Slide 9: Mercantile: the home of tomorrow’s UK market leaders
Portfolio strategy Mercantile: the home of tomorrow’s UK market leaders The Mercantile Investment Trust plc Annualised return % (net of fees) vs benchmark 8% Mercantile Benchmark ● Disciplined investment process Specialist ● Fundamental analysis Team 6.1 ● 350+ management meetings per annum 6% 4.5 4
Slide 10: Strong long-term investment performance…
Portfolio strategy Strong long-term investment performance… A track record of outperformance Cumulative returns – August 2012 to April 2024 400 NAV Share Price FTSE All Share ex 100 ex IT FTSE 100 350 +227% 300 +179% 250 +140% +121% 200 150 100 2012 2013 2014 2016 2017 2018 2019 2020 2021 2023 2024
Slide 11: …complemented by a strong track record of income generation
Portfolio strategy …complemented by a strong track record of income generation Dividend policy smoothing income return 10.0 Dividend Special dividend Earnings per share Net revenue reserves 9.0 8.0 7.0 Pence per share 6.0 5.0 4.0 3.0 2.0 1.0 0.0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
Slide 12: Our investment philosophy
Portfolio strategy Our investment philosophy Rigorously identifying investments with specific characteristics Is it a good Is the outlook Is it attractively business? improving? valued? We consider the quality of the Assessing the operational We look at a company’s valuation company through its prof
Slide 13: Fundamental characteristics
Portfolio strategy Fundamental characteristics 13.9% Mercantile Benchmark 9.6% High quality ROIC 1.8% Promising outlook 0.1% EPS %Chg 7.5% Attractively valued 6.6% Hist FCF yield Source: J.P. Morgan Asset Management, Bloomberg. Data as of 30 April 2024. Benchmark is the FTSE All-Share (ex FTSE 100,
Slide 14: The investment process in action – Hill & Smith plc
Portfolio strategy The investment process in action – Hill & Smith plc Hill & Smith – Total Return High quality ● Vertical integration 180 Hill & Smith Benchmark business ● High and improving returns on capital 160 Added to Initial Purchase position 140 Promising ● Infrastructure investment tailwind
Slide 15: The investment process in action – Cranswick plc
Portfolio strategy The investment process in action – Cranswick plc Cranswick – Total Return ● Long-term growth via market share gains 160 High quality Cranswick Benchmark business ● Attractive and consistent return on capital 150 140 Initial Purchase 130 120 Promising ● New proteins and distributio
Slide 16: Performance review
03 Performance review 16 JPMorgan ASSET MANAGEMENT
Slide 17: Performance improvement following a challenging period
Performance review Performance improvement following a challenging period Mercantile NAV versus Benchmark (FTSE All Share ex 100 ex IT) 115 UK enters then Mercantile exits recession Benchmark 110 SVB collapse and Credit Suisse acquired by UBS China re-opening 105 Conflict in Middle East 100 UK infla
Slide 18: Performance breakdown
Performance review Performance breakdown Contributors to total return Mercantile versus Benchmark (FTSE All Share ex 100 ex IT) for 12 months to 31 January 2024 8% 6% 4% 6.1% 5.4% 4.9% 4.5% 2% 1.8% 0% Source: PAT, J.P. Morgan Asset Management, Morningstar. All figures are on a total return basis. Pe
Slide 19: Performance attribution
Performance review Performance attribution Stock attribution for one year ending 31 January 2024 Mercantile NAV versus Benchmark (FTSE All Share ex 100 ex IT) 3i Group (o) 1.46% Bytes Technology (o) 1.07% Intermediate Capital (o) 1.00% Bellway (o) 0.86% TUI (u) 0.64% Marks & Spencer (u) -0.47% Big T
Slide 20: Outlook and positioning
04 Outlook and positioning 20
Slide 21: High inflation led to a rapid tightening of monetary policy
Outlook and positioning High inflation led to a rapid tightening of monetary policy Median of economists’ forecasts for headline CPI Bank of England policy rate expectations % % 12 7 Recession 10 6 5 8 4 6 Forecast 3 4 2 2 1 UK US Eurozone 0 0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 '24 '26
Slide 22: The UK economy has been more resilient than anticipated
Outlook and positioning The UK economy has been more resilient than anticipated UK 2024 GDP consensus forecast vs 2022 (2022 = 100) %* 101 100 99 98 Aug-22 Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 Feb-24 Apr-24 Sources: Panmure Gordon, HMT, Bank of England. Data from August 2022 to Ma
Slide 23: The domestic outlook continues to improve
Outlook and positioning The domestic outlook continues to improve UK real wage growth UK consumer confidence % Index level 12 20 UK real average weekly earnings (%YoY, 3 month average) UK nominal average weekly earnings (%YoY, 3 month average) 10 10 UK CPI inflation (%YoY) 8 0 6 -10 4 -20 2 -30 0 -4
Slide 24: Early signs of inflection in the global industrial outlook
Outlook and positioning Early signs of inflection in the global industrial outlook Manufacturing PMIs 70 65 60 55 50 45 40 US Markit Manufacturing PMI Eurozone Manufacturing PMI China Manufacturing PMI UK Manufacturing PMI 35 30 May-21 Aug-21 Nov-21 Feb-22 May-22 Aug-22 Nov-22 Feb-23 May-23 Aug-23 N
Slide 25: UK mid caps trading at a rare discount to large caps
Outlook and positioning UK mid caps trading at a rare discount to large caps FTSE 250 (ex. IT) versus FTSE 100 forward P/E 25x 100% FTSE 250 premium (RHS) FTSE 250 FTSE 100 80% 20x 60% 15x 40% 10x 20% 5x 0% 0x -20% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Slide 26: Sector positioning
Outlook and positioning Sector positioning Sector actives – 31 January 2023 Sector actives – 30 April 2024 Industrials 9.1% Consumer Discretionary 6.0% Consumer Discretionary 4.8% Industrials 4.7% Technology 3.8% Technology 4.3% Financials 2.2% Consumer Staples 2.0% Consumer Staples 1.8% Financials
Slide 27: Sub sector positioning
Outlook and positioning Sub sector positioning 20 31 January 2023 30 April 2024 15 Bellway Pets at Home 10 Vistry Londonmetric Howden Joinery Jet2 Shaftesbury Trainline Tritax Big Box 5 0 Household Goods and Home Media Construction and Materials Finance and Credit Services Industrial Support Service
Slide 28: Portfolio positions
Outlook and positioning Portfolio positions The Mercantile Investment Trust plc as of 30 April 2024 Benchmark FTSE All-Share (ex FTSE 100, ex Inv Companies) Top 10 holdings Stock Sector Portfolio weight (%) Intermediate Capital Grp Investment Banking And Brokerage Services 4.7 Bellway Household Good
Slide 29: Gearing reflects positive view
Outlook and positioning Gearing reflects positive view The Mercantile Investment Trust plc as of 30 April 2024 Historic gearing levels vs benchmark 20% 10000 Month end gearing levels - LHS FTSE All Share ex 100 ex IT (total return index) - RHS 15% 10% 8000 5% 0% 6000 -5% -10% 4000 2013 2014 2015 201
Slide 30: Summary
05 Summary 30 JPMorgan ASSET MANAGEMENT
Slide 31: Summary
Summary Summary ● Mercantile: disciplined investment process and strong long-term investment performance ● Moderating inflation and improving consumer environment underpin growing optimism ● Focus on strong businesses and attractive valuations provide compelling long-term opportunity The Mercantile
Slide 32: Appendix
06 Appendix JPMorgan 32 ASSET MANAGEMENT
Slide 33: Integrating ESG into our investment process
Appendix Integrating ESG into our investment process Systematic consideration of financially material ESG factors* Systematically capturing our Our JPMAM Fundamental ESG Score is informed by ESG insights our proprietary research and Environment Fundamental company engagements. Our Insights analysts
Slide 34: Differentiated geographic positioning
Appendix Differentiated geographic positioning Geographic revenue mix As of 31 December 2023 FTSE 100 FTSE All-Share ex 100 ex IT The Mercantile Investment Trust plc 9.6% 5.1% 3.5% 21.2% 11.6% 14.6% 14.7% 15.5% 13.1% 56.9% 26.8% 56.7% 27.7% 13.3% 9.8% United Kingdom Emerging Markets United Kingdom E
Slide 35: Capital structure
Appendix Capital structure Financing Principal Rate Maturity Annual NAV cost £2,000m Debt £175m Debenture Stock £174,355,241 6.13% 25-Feb-30 0.57% £1,500m Perpetual Debenture £3,850,000 4.25% - 0.01% Private Placement £54,887,457 1.98% 08-Sep-41 0.06% £1,000m Equity Private Placement £49,893,903 2.0
Slide 36: Portfolio turnover
Appendix Portfolio turnover The Mercantile Investment Trust plc Rolling portfolio turnover 50% 6 month turnover 12 month turnover 40% 30% 20% 10% 0% Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Source: J.P. Morgan Asset Management. Data from December 2016 to December 2023. Turnover is cal
Slide 37: Performance
Appendix Performance The Mercantile Investment Trust plc Market Value As of 29 February 2024 The Mercantile Investment Trust plc GBP 2.2bn Performance, net of fees (%) Three Six One Three Five Ten YTD months months year years p.a. years p.a. years p.a. Mercantile NAV (cum income, debt at par value)
Slide 38: Share price discount
Appendix Share price discount The Mercantile Investment Trust plc Net Asset Value (NAV) vs. Share Price 350 Net Asset Value Last Price 300 250 200 150 100 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Premium/Discount to NAV (%) 15% 10% 5% 0% -5% -10% -15
Slide 39: Investment objective and risk profile
Appendix Investment objective and risk profile The Mercantile Investment Trust plc (the Company) as of 31 December 2023 INVESTMENT OBJECTIVE The Company aims to achieve capital growth through investing in a diversified portfolio of UK medium and smaller companies. It pays quarterly dividends and aim
Slide 40: Important information
Appendix Important information This is a marketing communication and as such the views contained herein do not form part of an offer, nor are they to be taken as advice or a recommendation, to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole d
The Mercantile Investment Trust — Shareholder Meeting (May 2024) on 6ix