Mercantile Investment Trust PLC · LSE:MRC
Mercantile Investment Trust — The Mercantile Investment Trust — Shareholder Meeting (May 2023)
32 slides from Mercantile Investment Trust's shareholder meeting presentation, May 24, 2023
Slide 1: The Mercantile Investment Trust plc
The Mercantile Investment Trust plc The home of tomorrow’s UK market leaders Annual General Meeting – 24 May 2023 Guy Anderson Portfolio Manager This is a marketing communication. Please refer to the Company’s KIID 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) MSCI Emerging Markets FTSE 100 TOPIX 2,500 2,000 1,500 1,000 500 0 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Slide 5: 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 Mercantile S&P 500 FTSE 250 (ex IT) MSCI Europe (ex UK) MSCI Emerging Markets FTSE 100 TOPIX 2,500 2,000 1,500 1,000 500 0 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '
Slide 6: Portfolio strategy
02 Portfolio strategy JPMorgan ASSET MANAGEMENT
Slide 7: 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 15% Mercantile Benchmark ● Disciplined investment process Specialist ● Fundamental analysis 10% 8.2 Team 6.9 ● 350+ management meetings per annum
Slide 8: Strong long-term investment performance…
Portfolio strategy Strong long-term investment performance… A track record of outperformance Cumulative returns – August 2012 to January 2023 400 Share Price NAV FTSE All Share ex 100 ex IT FTSE 100 350 300 +185% 250 +154% +126% 200 +100% 150 100 Aug 12 Aug 13 Aug 14 Aug 15 Aug 16 Aug 17 Aug 18 Aug
Slide 9: …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 9 Dividend Special dividend Earnings per share Net revenue reserves 8 7 6 5 4 3 2 1 0 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22
Slide 10: 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 11: Portfolio characteristics demonstrate disciplined investment process
Portfolio strategy Portfolio characteristics demonstrate disciplined investment process Fundamental characteristics Mercantile Benchmark 16.0% 15.2% 10.6% 10.3% High quality business ROIC ROE 7.6% Promising outlook 1.9% 0.9% -1.1% EPS UD EPS %Chg 8.3% 8.4% 7.0% 4.6% Attractively valued Fwd earnings
Slide 12: The investment process in action – Telecom Plus
Portfolio strategy The investment process in action – Telecom Plus Telecom Plus - Total Return ● Structural competitive advantage High quality 350 Telecom Plus Benchmark business ● Long-duration customer base 300 Added to position Trimmed 250 position Added to ● Scope to grow customer base significa
Slide 13: The investment process in action – IMI
Portfolio strategy The investment process in action – IMI IMI - Total Return ● Structurally solid but historically Improving underperforming business 150 Added to business ● New management team promoting position IMI Benchmark 140 commercial focus Trimmed 130 Added to position position Added to 120
Slide 14: Performance review
03 Performance review 14 JPMorgan ASSET MANAGEMENT
Slide 15: Market performance reflects a volatile environment
Performance review Market performance reflects a volatile environment Mercantile NAV versus Benchmark (FTSE All Share ex 100 ex IT) 110 Growth sell-off Russian 105 invasion of Ukraine Mini-budget, SVB collapse and Credit sterling weakness Suisse acquired by UBS 100 95 90 85 Omicron variant 80 China
Slide 16: Performance breakdown
Performance review Performance breakdown Contributors to total return Mercantile NAV versus Benchmark (FTSE All Share ex 100 ex IT) 0% -2% -4% -7.5% -8.5% -11.0% -6% -11.8% -12.3% -8% -10% -12% -14% Source: PAT, J.P. Morgan Asset Management, Morningstar. All figures are on a total return basis. Perf
Slide 17: Performance attribution
Performance review Performance attribution Stock attribution for one year ending 31 January 2023 Mercantile NAV versus Benchmark (FTSE All Share ex 100 ex IT) Brewin Dolphin (o) 0.69% 4imprint (o) 0.69% Telecom Plus (o) 0.67% Man Group (o) 0.60% 3i Group (o) 0.57% Softcat (o) -0.55% Harbour Energy (
Slide 18: Outlook and positioning
04 Outlook and positioning 18
Slide 19: Credit conditions are tightening
Outlook and positioning Credit conditions are tightening US credit conditions % of banks tightening lending standards 100 For consumers For small firms For large and medium firms 80 Recession 60 Lending standards tightening 40 20 0 -20 -40 '90 '93 '96 '99 '02 '05 '08 '11 '14 '17 '20 Source: Federal
Slide 20: High inflation has eroded consumer confidence
Outlook and positioning High inflation has eroded consumer confidence UK headline and core inflation (%YoY) UK consumer confidence 12 10 Core inflation Headline inflation 11 10 0 9 -10 8 7 -20 6 5 -30 4 3 -40 2 GFK headline consumer confidence 1 -50 0 -1 -60 '07 '09 '11 '13 '15 '17 '19 '21 '23 2014
Slide 21: Global industrial outlook has softened
Outlook and positioning Global industrial outlook has softened Manufacturing PMIs Global Manufacturing PMI new orders and inventories 70 65 New orders Inventories 65 60 60 55 55 50 50 45 45 40 40 US Markit Manufacturing PMI China Manufacturing PMI 35 35 UK Manufacturing PMI Eurozone Manufacturing PM
Slide 22: UK equity valuations are heavily depressed
Outlook and positioning UK equity valuations are heavily depressed UK market valuation relative to DM equities 10 0 Median -10 -20 -30 -40 -50 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Sources: J.P. Morgan Asset Management using data from MSCI, I/B/E/S, Morgan Stanley Research. Based on PE (
Slide 23: However, the domestic GDP outlook has started to improve
Outlook and positioning However, the domestic GDP outlook has started to improve 2023 GDP projections (% growth year-on-year) 2.5 HMT Consensus Bank of England 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2 Feb-22 May-22 Aug-22 Nov-22 Feb-23 May-23 Sources: Panmure Gordon, HMT, Bank of England. Data from February 20
Slide 24: Portfolio positions
Outlook and positioning Portfolio positions The Mercantile Investment Trust plc as of 31 March 2023 Benchmark FTSE All-Share (ex FTSE 100, ex Inv Companies) Top 10 holdings Stock Sector Portfolio weight (%) Inchcape Industrial Support Services 3.9 Watches of Switzerland Group Personal Goods 3.9 IMI
Slide 25: Gearing level reflects confidence in portfolio prospects
Outlook and positioning Gearing level reflects confidence in portfolio prospects The Mercantile Investment Trust plc as of 30 April 2023 Historic gearing levels vs benchmark 20% 10000 Month end gearing levels - LHS FTSE All Share ex 100 ex IT (total return index) - RHS 15% 8000 10% 6000 5% 4000 0% 2
Slide 26: Summary
05 Summary 26 JPMorgan ASSET MANAGEMENT
Slide 27: Summary
Summary Summary ● A challenging year, but continued confidence in disciplined investment process ● Inflation and monetary tightening, compounded by geopolitics, impacting economic growth ● Focus on resilient businesses and attractive valuations provide compelling long-term opportunity The Mercantile
Slide 28: Appendix
06 Appendix JPMorgan 28 ASSET MANAGEMENT
Slide 29: Performance
Appendix Performance The Mercantile Investment Trust plc Market Value As of 30 April 2023 The Mercantile Investment Trust plc GBP 1.8bn Performance, net of fees (%) Three Six One Three Five Ten Y.T.D. months months year years p.a. years p.a. years p.a. Mercantile NAV (cum income, debt at par value)
Slide 30: Differentiated geographic positioning
Differentiated geographic positioning Geographic revenue mix As of 30 April 2023 FTSE 100 FTSE All-Share ex 100 ex IT The Mercantile Investment Trust plc 10.8% 6.1% 4.2% 20.3% 12.9% 12.6% 13.3% 19.9% 14.8% 52.4% 51.4% 26.6% 29.1% 14.2% 11.7% United Kingdom Emerging Markets United Kingdom Emerging Ma
Slide 31: Investment objective and risk profile
Appendix Investment objective and risk profile The Mercantile Investment Trust plc (the Company) as of 30 April 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 aims t
Slide 32: 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 2023) on 6ix