THE MERCANTILE INVESTMENT TRUST PLC
HALF YEAR REPORT & FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
31ST JULY 2025
Legal Entity Identifier: 549300BGX3CJIHLP2H42
Information disclosed in accordance with the DTR 4.1.3
The Mercantile Investment Trust plc (the ‘Mercantile’ or the ‘Company’) announces its half year results for the 6-months ended 31st July 2025.
Highlights
- NAV total return of +6.0% (with debt at fair value1) for the six months ended 31st July 2025, compared with +7.2% for the FTSE All-Share Index (excluding FTSE 100 and investment trusts) (the ‘Benchmark’). Share price total return of +6.0%.
- Three years ended 31st July 2025, NAV total return (with debt at fair value1) of +31.9% compared with +23.0% for the Benchmark. Share price return of +38.7%.
- Five years ended 31st July 2025, NAV total return (with debt at fair value1) of +65.5% compared with +58.9% for the Benchmark. Share price return of +65.1%.
- Ten years ended 31st July 2025, NAV total return (with debt at fair value1) of +93.2% compared with +61.3% for the Benchmark. Share price return of +104.1%.
- Second quarterly interim dividend of 1.55p per share declared, payable on 3rd November 2025. Total dividends for the year so far: 3.10p per share (up from 3.00p for the equivalent period last year).
- The Company repurchased 26.8 million shares into Treasury during the period to help manage the discount, at an average discount to NAV of 9.7%.
1 J.P. Morgan/Morningstar, using cum income net asset value per share.
Rachel Beagles, Chair, commented:
“The Board continues to believe that investing in quality businesses in growing markets, at attractive valuations, will generate index beating returns over the long term… While ongoing risks from global policy uncertainty and potential UK tax increases may dampen short-term confidence and investor appetite for UK equities, UK corporate and consumer balance sheets remain healthy, so once the Budget is delivered and uncertainty fades, both business investment and consumption could rise. The government has also announced measures to boost growth through regulatory cuts, planning reform and infrastructure spending: any evidence of progress here would support the outlook. Finally, the UK market offers compelling valuations, particularly among medium and smaller companies.”
Guy Anderson & Anthony Lynch, Portfolio Managers, commented:
“The outlook is always uncertain, and this year is no different, with valid reasons to be apprehensive: the international geopolitical landscape appears primed for generating unanticipated shocks… However, there are also reasons for optimism. Despite well-known headwinds to growth, and widespread caution heading into the upcoming budget, portfolio companies are mostly performing well, and yet the valuation of the UK market remains at a marked discount to both its own history and relative to other developed markets… We believe that a portfolio of companies with these characteristics offers the best prospect of delivering compelling returns and outperformance for our shareholders over the long-term, just as it has done in the past.”
CHAIR’S STATEMENT
Introduction and Market Background
It gives me pleasure to present my first half yearly report as the incoming Chair of The Mercantile Investment Trust plc: a trust with a rich history spanning over 140 years and one which has delivered great returns to its shareholders over the long term.
The six months ended 31st July 2025 were a turbulent time. Whilst the UK market finished up in substantially positive territory, this masked huge volatility over the period as UK equities sold off sharply in March and April in response to President Trump’s ‘Liberation Day’ tariffs, only to rebound strongly when he delayed their implementation pending further negotiations with the U.S.’s trading partners.
Performance
During the six months ended 31st July 2025, the Company delivered a +6.0% return on both net assets and share price (with dividends reinvested), albeit this was slightly behind the benchmark. The Company’s long term track record of attractive absolute returns and outperformance remains positive. Over the ten years to 31st July 2025, the Company’s NAV has delivered an annualised total return of +6.8% with debt at fair value, while the Company’s share price returned an annual average of +7.4%, both well ahead of the benchmark’s annualised total return of +4.9%.
The Portfolio Managers’ Report on page 14 in the Half Year Report provides details of the drivers of recent returns and portfolio changes implemented during the review period. Their report also discusses the market outlook over the remainder of this year and beyond.
Dividends
The Company aims to provide shareholders with long-term dividend growth at least in line with the rate of inflation over a five- to ten-year period, and it has fulfilled this commitment. Over the ten years to 31st January 2025, the Company’s dividend grew at a rate of 6.8% per annum, well ahead of CPI inflation of 3.1% per annum over the same period.
The Company has increased its dividend for more than ten consecutive years, making it an AIC next-generation dividend hero, and it is on track to maintain this record. A first quarterly interim dividend of 1.55 pence was paid on 1st August 2025 and a second quarterly interim dividend of 1.55 pence per share has been declared by the Board, payable on 3rd November 2025 to shareholders on the register at the close of business on 26th September 2025. This brings the dividend for the year so far to 3.10 pence, up from 3.00 pence for the equivalent period last year. A third quarterly interim dividend will be announced in December 2025. The level of the fourth quarterly interim dividend will depend on income received by the Company for the full financial year.
Discount and Share Repurchases
The discount at which the Company’s shares trade relative to its NAV (with debt at fair value) widened slightly, from 9.2% at the previous financial year end to 9.5% at the half year end. During the period, to help manage the discount and its volatility, the Board purchased 26,785,148 shares. These shares are held in Treasury and were purchased at an average discount to NAV of 9.7%, producing a modest accretion to the NAV for continuing shareholders. Since the end of the review period, the Company has purchased a further 14,482,533 shares. The discount currently stands at 9.7%.
Gearing
The Company’s gearing policy is to operate within a range between 10% net cash and 20% gearing under normal market conditions. The Company ended the six-month reporting period with gearing at 14.5% (compared to 14.1% on 31st January 2025), having averaged 15.0% over the period.
Gearing is regularly discussed by the Board and the Portfolio Managers and is implemented via the use of long-dated, fixed-rate financing from several sources, consistent with the Board’s aim to ensure a diversification of source, tenure and cost. Details of these instruments can be found on page 3 of the Half Year Report.
Board
I became Chair of the Board and the Nomination Committee following the conclusion of the AGM in May 2025, having joined the Board in June 2021. I took over from Angus Gordon Lennox who retired following nine years on the Board, the last seven of which he served as Chairman. On behalf of the Board I would like to take this opportunity to thank Angus once again for his dedication to shareholders and insightful leadership during his tenure. Graham Kitchen assumed the role of Senior Independent Director following my appointment.
Broker Review
The Board recently conducted a broker review, inviting several brokerage firms, including the Company’s then existing joint brokers, Cavendish and Winterflood, to submit proposals. After a thorough evaluation of the submissions from these firms, the Board decided to appoint Peel Hunt LLP to work alongside Winterflood as joint broker. It agreed that this combination of brokers would best support the Company in maintaining its market presence, its relationship with investors and in achieving its strategic objectives. This decision underscores the Board’s dedication to optimising broker relationships and shareholder outcomes.
Benefits of Active Investing in UK Medium and Smaller Companies
The medium and smaller companies sector offers access to a diverse set of businesses. Whilst more domestically focussed than FTSE100 constituents, they often have more attractive long term growth prospects than their large cap UK peers due to their smaller size. These companies are generally less well researched by the broader market and consequently lend themselves better to active stock picking rather than passive investing. Skilled portfolio managers with access to in-house research can select those companies with strong business propositions and undervalued shares, sizing positions according to the opportunity and risks, avoiding lower quality or overpriced alternatives. In contrast, passive products allocate capital according to the relative size of the company. In addition, medium and smaller companies are more likely to be targets of takeover activity (and therefore share price outperformance) due to their more digestible size.
Benefits of the Investment Trust Structure
The Company seeks to invest in this attractive subset of UK companies within the investment trust structure. There are several benefits to doing this. Firstly, this structure offers a relatively fixed pool of capital which means that your Portfolio Managers can invest in companies for the long term without worrying about liquidity needs, unlike open ended funds which can suffer from lumpy and unpredictable redemptions. Secondly, this structure allows the use of gearing, which over the cycle, should continue to augment performance, as it has done for your Company in the past. Finally, by being able to build up revenue reserves in the good years, dividends can be supported by reserves in any difficult periods, providing investment trusts such as The Mercantile a greater prospect of delivering attractive and dependable dividend growth throughout investment cycles.
The Mercantile offers active management within this appealing investment space with an attractive cost structure. An ongoing charges ratio of 0.50%1 in conjunction with benchmark beating performance over three, five and ten years, is, in the Board’s opinion, highly competitive against open ended, passive and other investment trust peers.
1 Source: J.P. Morgan/Morningstar.
Stay Informed
The Company delivers email updates on its progress with regular news and views, as well as the latest performance. If you have not already signed up to receive these communications, you can opt in via www.Mercantile-Registration.co.uk, or by scanning the QR code in the Half Year Report.
Outlook
The Board continues to believe that investing in quality businesses in growing markets, at attractive valuations, will generate index beating returns over the long term.
There are, as ever, risks to countenance. The Trump administration’s approach to trade and international relations, and U.S. government policy in general has created uncertainty that is having an adverse impact on economic activity in the U.S., and around the world. Domestically, concerns over tax raising measures in the November Budget are likely to impact on short term consumer and business confidence and may, in the near term, also dampen investors’ appetite for UK equities.
Looking beyond this though, UK corporate and consumer balance sheets remain healthy, so once the Budget is delivered and uncertainty fades, both business investment and consumption could rise. The government has also announced measures to boost growth through regulatory cuts, planning reform and infrastructure spending: any evidence of progress here would support the outlook. Finally, the UK market offers compelling valuations, particularly among medium and smaller companies.
Your Portfolio Managers have a long and successful track record of investing in UK medium and smaller companies. Your Board is confident in their ability to steer the portfolio through any forthcoming challenges, take advantages of investment and valuation opportunities and to keep delivering positive returns and outperformance for shareholders over the long term, as they have in the past.
Rachel Beagles
Chair