THE MERCHANTS TRUST PLC
LEI: 5299008VJFXCUD2EG312
FINAL RESULTS FOR THE YEAR ENDED 31 JANUARY 2026
The following comprises extracts from the company’s Annual Report for the year ended 31 January 2026. The full Annual Report is being made available to be viewed on or downloaded from the company’s website at www.merchantstrust.co.uk. Copies will be posted to shareholders shortly.
MANAGEMENT REPORT
Highlights:
- Merchants achieved an 18.9% absolute return* for the year and 31.1% over three years.
- Total dividend for the year: 29.5p, up 1.4%. This marks the 44th consecutive year of dividend increases.
* Net Asset Value Total Return with debt at fair value (2025: 13.5%)
Benchmark Total Return (FTSE All-Share Index) 21.1% (2025: 17.1%)
Chairman’s Statement
A strong year for UK equities
After a long period of negative sentiment and underperformance relative to many markets, during the Merchants financial year ended January 2026 the UK stock market experienced a notable resurgence, and delivered a very strong return of 21.1%. By comparison, the US market (as exemplified by the S&P 500 Index) rose a more modest 5.7% in sterling terms. The past year has provided something of a vindication for those who have maintained conviction that the UK market as a whole was undervalued and that there were well managed businesses with attractive valuations listed in the UK which could offer strong positive returns.
This resurgence in the UK stock market is welcomed by your board. In various reports to shareholders over the past few years, we have emphasised the need for patience and our manager has spoken of maintaining discipline in our investment style, confident that it would be rewarded in due course by strong returns. Our portfolio managers’ investing approach is based on the belief that they can create a portfolio for shareholders of good companies which are undervalued and which can provide sustainable and growing income alongside capital growth. During this recent year, we have seen the beginning of a recognition of the genuine value available in UK equities, by both domestic and international investors, and capital has finally started to identify at least certain areas of the UK market. The Board is pleased to report that against this background Merchants has benefitted from the renewed interest in the market and delivered strong absolute returns while continuing to grow the dividend – something that has been central to our appeal to investors for over four decades.
A twenty-year perspective
It is always valuable to place any single year’s performance in a longer-term context. Our investment manager at Allianz Global Investors, Simon Gergel, this year celebrates his twentieth as the lead manager of The Merchants Trust. A shareholder who invested at the beginning of his tenure in January 2006 would have seen significant share price appreciation and consistently growing dividends, which when combined, exceeded the value of their initial investment. In other words, Merchants shareholders today who have held their initial shares for twenty years effectively now have this shareholding for free! You can read more on this in the Portfolio Managers’ Report on pages 13 to 14 of the Annual Report.
Such portfolio manager longevity is not unique, but it is unusual, and it is of enormous value in creating stability and consistency for the Company. The Board would like to thank Simon for the past twenty years’ service to Merchants’ shareholders, and recognise his insight, skill and dedication to managing the portfolio which has provided such strong long-term returns for the benefit of our shareholders.
Strong absolute returns in a polarised market
Merchants delivered absolute returns of 18.9% during the financial year to 31 January 2026, with three-year cumulative returns of 31.1%.
We acknowledge that in a highly polarised market environment, where returns have generally been concentrated in a narrow band of stocks such as technology, defence and banks, Merchants’ relative performance has lagged the exceptionally strong index return (21.1% over the year). Whilst we have to monitor short term performance against the index and hold the manager to account, we also expect there will be periods like this from time to time. The Board continues to support our manager’s commitment to a consistent, value-oriented investment approach that avoids over concentration, speculative bubbles or growth or momentum style runs. The Portfolio Managers’ Report provides a more detailed explanation of the drivers of relative performance against the index, and the Board remains confident that this disciplined value-led approach, generally avoiding highly rated ‘growth’ stocks will deliver sustainable, long-term capital growth and income to our shareholders.
Earnings and dividend
Revenue earnings per share for the year were 30.6p, compared to 29.4p in the previous year. The Board is proposing a final dividend of 7.5p per share, payable on 27 May 2026 to shareholders on the register on 17 April 2026. The ex-dividend date is 16 April 2026 and the last date for election for the Dividend Reinvestment Plan (DRIP) will be 5 May 2026. This final dividend, together with the interim dividends already paid, will bring the total dividend for the year to 29.5p per share. This represents an increase of 1.4% on the previous year and marks the 44th consecutive year of dividend growth for Merchants, which therefore also retains its place in the AIC’s prestigious list of ‘Dividend Heroes’ – those investment trusts which have consistently delivered a rising dividend stream to shareholders for over twenty years. The total dividend for the year is fully covered by revenue earnings, allowing reserves to be further rebuilt. At the end of the financial year, revenue reserves stood at 20.3p per ordinary share.
Discount/premium and share buybacks
Shareholders will be aware that, like all investment trusts, Merchants’ shares trade at either a premium or a discount to its Net Asset Value (NAV). The board has an active programme to consider the issuance of new shares when our shares trade at a premium to NAV and a programme of share buy backs when they trade at a discount to NAV.
After many years of issuance, during this year, Merchants’ shares traded at an average discount of 5.7% to the net asset value per share. The discount ranged from a high of 8.7% in September 2025 to a low of 1.2% in April 2025. During the year, the board monitored this situation closely and Merchants performed a modest aggregate buyback of 792,017 shares at a total cost of £4.4 million to help reduce the discount when the UK market was particularly out of favour. Merchants ended the financial year with a discount of 5.4%, which compares favourably with many of our peers.
The resurgence of the UK market
The UK market’s performance over the past year should be viewed within the context of a significant global rotation in investor sentiment. UK and European equities led global markets in early 2025, with the outperformance in the first calendar quarter marking the strongest relative performance in 25 years. International equities in aggregate significantly outperformed the United States over the reporting period, with the MSCI All Country World ex-USA Index gaining 23.3% compared to the S&P 500’s 5.7% return, and this represents a notable shift after years of US market dominance. This also reflects a fundamental shift away from the heavy concentration of returns in a small number of US technology stocks that has characterised recent years, as investors became increasingly nervous about the lofty valuations and concentrations of returns in a few companies, largely around the single central theme of AI.
Importantly though, despite this strong performance, our manager believes that the UK market continues to be significantly cheaper than its US counterpart. The valuation gap between the two markets has begun to narrow, but, as many market observers have noted, there remains a long way to go. The rotation towards value-oriented markets may have further to run, and this represents a compelling opportunity for Merchants.
The portfolio manager has long maintained that concerns about the UK’s political and economic background are frequently overstated. In a market dominated by large multinational companies generating substantial revenues overseas, UK-specific issues often have less impact on underlying business performance than market pricing might suggest. This pattern was evident again over the past year. Despite the market’s strong overall performance, sentiment weakened sharply in the run-up to – and immediate aftermath of – the UK’s Autumn Budget, prompting a broad retreat from UK equities on a scale not seen for some time. For disciplined value investors such periods of indiscriminate selling can create compelling opportunities. As the portfolio managers highlight in their review, markets have become increasingly short-term and momentum-driven, a dynamic that can give rise to pronounced valuation anomalies. Our strategy is specifically designed to identify and capitalise on this mispricing.
Our portfolio managers have moved more of the portfolio into mid-cap stocks than has been the case before (though Merchants remains predominantly invested in large cap stocks). This move reflects his view of “a once in a generation opportunity”, with the mid-cap index now yielding more than large caps, something that hasn’t happened within the past twenty years, and that is an unusual scenario given the typically more growth-oriented business models of mid-caps vs. more mature large-caps. This is an interesting signal of potential under-valuation. In the short term this has been an additional headwind to Merchants’ relative performance against the index, as these mid-cap stocks in general have still not gained substantial investor attention. However, our manager remains convinced this is where the most significant value in the UK market currently lies, and therefore we are confident that this positioning is a strong one for the future success of the Merchants portfolio.
The UK government has taken steps to make the London Stock Exchange (LSE) more attractive. Recently introduced capital market reforms include simplified listing procedures, faster Initial Public Offering (IPO) timelines, and new initiatives to broaden retail investor participation. These reforms, described by the LSE as “the biggest in a generation”, are already showing some early signs of success. When combined with the global reassessment of the appeal of US assets, it suggests that investor interest in UK equities may be entering a new, more positive phase.
The Merchants Trust proposition: a compelling case for income and growth
The Merchants Trust offers shareholders a distinctive proposition, built on several enduring strengths.
The dividend: 44 years of unbroken growth
At the heart of Merchants’ appeal is our dividend policy. Subject to shareholder approval of our proposed final dividend, we will have now achieved 44 consecutive years of dividend growth which is a remarkable testament to the quality and resilience of our portfolio companies. Merchants’ yield is substantially higher than the broad market average, yet the dividend is typically fully covered by the income generated by our holdings. This is not a yield built on capital depletion; it is backed by genuine earnings growth.
A consistent and disciplined approach
Merchants’ investment philosophy is built on consistency and discipline. We adopt a value-oriented, long-term focused, and high-conviction approach to stock selection. The portfolio management team is highly experienced and backed by the considerable resources of Allianz Global Investors, ensuring world-class investment infrastructure, research, and risk management.
Scale and liquidity
Merchants’ portfolio now exceeds £1 billion in value, providing the scale and liquidity necessary to serve even the largest institutional investors. Our Ongoing Charge Figure (OCF) of 0.54% is highly competitive for an actively managed equity portfolio.
The investment trust advantage
The investment trust structure provides The Merchants Trust with distinctive advantages that are particularly suited to a value-oriented strategy.
A differentiated portfolio
The permanent capital structure allows us to maintain a portfolio that could be difficult to fully replicate within an open-ended fund. Whilst the majority of our holdings are in large-cap stocks, Merchants also has a significant exposure to medium and smaller companies, which our manager believes are particularly undervalued. This part of the market is often overlooked by global investors and only modestly invested in by passive funds, creating opportunities for an active manager able to benefit from conviction. The takeovers of portfolio companies Dowlais and Assura during the year are clear examples of how this strategy can unlock value as external parties awaken to the significant value available. We also encourage the manager to invest selectively in international stocks – allowing access to themes under-represented in the UK market, or where there may simply be better opportunities available.
Enhancing returns and income
Merchants employs gearing – in the form of long-term, fixed-rate bonds and loan notes – as a tool to enhance both returns and income. When deployed prudently, gearing amplifies the returns available to shareholders. Merchants also maintains revenue reserves, which are used to smooth dividend payments, providing a predictable income stream even when underlying portfolio income fluctuates. Of course, this leverage can also exacerbate losses in a falling market but, over the long term, when the performance from the portfolio exceeds the cost of debt, the strategy is accretive to shareholder value.
Steady and increasing dividend stream
As already noted, we approach a 44-year record of consecutive dividend increases. This is a record we are proud of, both for ourselves, but also on behalf of the Board members, managers and support teams that have gone before us and contributed to this substantial achievement. It is another factor that would be largely impossible to replicate in an open-ended fund or exchange traded fund, particularly during periods like the pandemic, when market dividends were slashed. Investment trusts though can utilise revenue reserves, squirreling away small amounts of income in bountiful years, to enhance income when there is more of a drought of income from the portfolio’s investments. It is this mechanism and a continual balancing act which has enabled us to achieve this outcome.
Governance and engagement
The Board takes its responsibilities to shareholders seriously, including evaluating the performance of the Manager and the wider AIFM function. In February 2026, just after the financial year end, the Board travelled to Frankfurt to meet with members of the investment and infrastructure teams (including the central trading desk, economics & strategy research, marketing, cyber security and AI) at Allianz Global Investors. This engagement allows the Board to maintain close oversight of the investment process and the considerable resources supporting Merchants.
The Board is also committed to enhancing shareholder engagement. The Annual General Meeting will once again be held in a hybrid format, and Merchants has expanded its marketing efforts, including additional webinars, videos and other activity, with a planned expansion into a wider set of distribution channels, aiming to reach a wider audience of shareholders.
Annual General Meeting (AGM)
The Annual General Meeting will be held at Grocers’ Hall on 19 May 2026 at 12 noon. The Board encourages all shareholders to attend and participate. Held in a hybrid format, shareholders will be welcome to attend and vote either in person or to participate and vote electronically. Further details can be found in the Notice of Meeting on page 87 of the Annual Report.
Outlook: confident in the quality of the portfolio
Looking ahead to the remainder of 2026 and beyond, the Board remains confident in the investment approach and quality of the portfolio and the prospects for Merchants. The portfolio managers continue to believe that, despite the strong performance in 2025, many individual stocks remain significantly undervalued. The global reassessment of valuations, the recognition of the risks inherent in excessive concentration in a small number of US technology stocks, and the supportive policy environment in the UK all suggest that the conditions which have created the opportunity in UK equities may continue, although we have to be mindful of the potential impact from the evolving situation in the Middle East.
For a more detailed discussion of the market environment and portfolio positioning, I would refer you to the Portfolio Managers’ Report starting on page 11 of the Annual Report.
2025/6 has been a year of strong absolute returns and of vindication for Merchants’ investment philosophy. The Board is confident that The Merchants Trust remains an attractive proposition for investors seeking a combination of income, growth, and exposure to the large value opportunity available in the UK equity market.
We are grateful for the continued support of our shareholders and for the dedication of the investment team and we look forward to the year ahead with confidence and optimism.