REG - Merchants Trust. - Half-year Report
29/09/2025 07:00
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RNS Number : 0778B Merchants Trust PLC 29 September 2025
LEI: 5299008VJFXCUD2EG312
THE MERCHANTS TRUST PLC
Half-Yearly Financial Report
For the six months ended 31 July 2025
Chairman's Statement
I am pleased to present the Merchants Trust half-year report for the six
months to 31 July 2025. Strong income growth from our portfolio has once again
enabled the Board to raise the dividend, extending an unbroken record of 43
consecutive annual increases.
The UK stock market delivered healthy returns in the first half of the year,
with the Company's net asset value (NAV) total return rising by 5.4%* over the
period. This lagged the 7.5% return of the FTSE All-Share Index, for reasons
outlined in the Manager's Report. Shareholder returns were lower at 1.5%,
reflecting a widening discount to NAV, against a backdrop of continued
outflows from UK equity funds.
While relative performance and the discount widening are disappointing, the
Board is monitoring both closely. We continue to promote the Company actively
through media engagement and direct shareholder communication. Encouragingly,
the portfolio recently temporarily exceeded £1 billion in value for the first
time, placing Merchants among the larger and more liquid trusts in its sector,
enhancing its appeal to wealth managers. Our Manager continues to find
attractive opportunities in a polarised UK market, and both the Board and
Manager remain optimistic about prospects for future income and capital
growth.
* Debt at fair value
Background
Although Merchants is primarily invested in UK equities, global developments,
particularly in the United States, have had a significant influence during the
period. Financial markets have been shaped by policy decisions and
geopolitical actions during President Trump's second term, underlining the
continuing influence of the US economy and trade policy on global markets.
By contrast, the UK environment was more stable, though persistently high
inflation prevented meaningful interest rate cuts. Economic growth, a key
priority for the new government, remained modest though better than many large
economies, with fiscal challenges weighing on the Chancellor and
administration. Despite this, UK equities as a whole posted respectable gains.
However, market leadership remained narrow, and investor sentiment was
tempered by concerns over domestic growth and global uncertainty.
Performance and portfolio
Merchants delivered a NAV total return of 5.4% over the six-month period,
compared with 7.5% for the FTSE All-Share Index. Absolute returns were
positive, though relative performance lagged the benchmark and some peers.
This was largely due to the narrowness of market leadership: as in the US,
certain groups of companies drove the market higher.
Some of these leading stocks did not align with our Manager's long-term value
approach. Instead, greater emphasis has been placed on attractively valued
domestic cyclicals, which have underperformed in the recent low-growth
environment. While this positioning has weighed on short-term results, we
remain convinced that it provides the best foundation for long-term returns.
The Board has reviewed the Manager's strategy in detail and continues to
support this disciplined, value-focused approach.
Portfolio activity reflected evolving opportunities, with an unusually high
number of new investments compared with a typical half-year. Selective
purchases were made where valuations and income prospects were attractive,
while holdings with more limited capital growth potential were reduced.
The share price return of 1.5% reflected a widening discount to NAV, in line
with a broader trend across UK investment trusts as international investors
reduced exposure to UK equities. The Board, together with advisers and the
Manager, monitors this closely and retains the option of share buybacks if
appropriate. Meanwhile, we remain active in shareholder engagement and
marketing to improve awareness and demand.
Earnings and dividends
Total income from the portfolio was £28.8m, 2.5% higher than the £28.1m
generated in the first half of last year. Earnings per share rose by 3.5% to
17.7p (2024: 17.1p). This strong income performance provides confidence both
in the sustainability of the dividend and in rebuilding revenue reserves.
With the final dividend for the 2025 financial year now approved, Merchants
has increased its dividend for 43 consecutive years - earning the Company
"Dividend Hero" status from the AIC. The Board has declared a second interim
dividend of 7.3p per share, payable on 20 November 2025 to shareholders on the
register at 10 October 2025. This brings the total dividend for the first half
of the current financial year to 14.6p, compared with 14.5p last year - a
year-on-year increase of 0.7%.
Shareholder engagement
In May we held our AGM in a hybrid format, with shareholders able to attend
both in person and online. I was delighted to see such strong participation.
For those unable to join, a recording of my introduction and our Lead
Portfolio Manager Simon Gergel's update is available on our website under
"Videos, Podcasts & Reading."
We remain committed to clear and regular communication. Our podcast series A
Value View and other articles, videos, and interviews are available on our
website and through streaming platforms.
Board developments
As noted in our Annual Report, Timon Drakesmith retired from the Board at the
May AGM. We thank him warmly for his significant contribution. In July, we
welcomed Neil Galloway as a new Director. Neil brings over 30 years of
experience in banking and finance, including senior leadership roles in listed
companies. He is currently a Non-Executive Director and Chair of the
Management Engagement Committee at AVI Global Trust PLC. We look forward to
his contributions to the Board.
Outlook
UK GDP growth forecasts for 2025 have been revised slightly upwards but remain
modest. Inflation is expected to average 3.4%, with energy and labour costs
elevated. Further interest rate cuts are anticipated but not assured, while
unemployment is forecast to rise gradually. Consumer spending remains
cautious, though savings rates are higher and mortgage refinancing pressures
appear to be easing.
Globally, geopolitical risks remain high. US trade policy continues to reshape
global commerce, while conflicts in Ukraine, Gaza, and elsewhere add to
volatility. Meanwhile, advances in AI and automation are reshaping industries
and labour markets, with profound implications for productivity and
employment.
In such an environment, macroeconomic predictions are fraught with
uncertainty. We believe this favours active, bottom-up investors such as our
Manager, who focus on the fundamentals of individual businesses rather than
short-term macroeconomic noise. UK equities continue to offer compelling
value, particularly for income-focused investors, and we believe Merchants is
well-positioned to benefit from any broadening of market leadership and
improving sentiment.
The Board remains confident in the Trust's strategy and the Manager's
disciplined approach. We thank shareholders for their continued support and
look forward to reporting further progress in our full-year results.
Principal Risks and Uncertainties
As identified in the Annual Report, the principal risks are now considered to
be geopolitical risks, followed by investment risks, including those relating
to strategy and performance.
The principal risks and uncertainties facing the company, together with the
board's controls and mitigation, are those described in the Annual Report for
the year ended 31 January 2025 published in April 2025 and are listed below:
· Investment strategy, for example, asset allocation or the level
of gearing may lead to a failure to meet the company's objectives, such as
income generation and dividend growth.
· Investment performance, for example poor stock selection for the
portfolio leads to decline in the rating and attraction of the company.
Risks such as significant geopolitical risks and climate change risks, have
become progressively more prevalent and are no longer classified as 'emerging
risks'.
The board's approach to mitigating these risks and uncertainties is set out in
the explanation with the Risk Map in the Annual Report. In the board's view
these will remain the principal risks and uncertainties for the six months to
31 January 2026.
Going Concern
The directors have considered the company's investment objective and capital
structure both in general terms and in the context of the current
macro-economic background. Having noted that the portfolio is liquid as it
consists mainly of securities which are readily realisable, and through
continuous assessment of the company's financial covenants, the directors have
concluded that the company has adequate resources to continue in operational
existence for the foreseeable future. The directors have also considered the
continuing risks and consequences of macroeconomic and unanticipated shocks on
the operational aspects of the company and have concluded that the company has
the ability to continue in operation and meet its objectives in the
foreseeable future. For this reason, the directors continue to adopt the going
concern basis in preparing the financial statements.
Responsibility Statements
The directors confirm to the best of their knowledge that:
The condensed set of financial statements contained within the half-yearly
financial report has been prepared in accordance with FRS102 and FRS104, as
set out in Note 2, the Accounting Standards Board's Statement 'Half-Yearly
Financial Reports'; and
The interim management report includes a fair review of the information
required by The Financial Conduct Authority's (FCA) Disclosure Guidance and
Transparency Rule 4.2.7 R of important events that have occurred during the
first six months of the financial year and their impact on the condensed set
of financial statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year; and
The interim management report includes a fair review of the information
concerning related parties transactions as required by the Disclosure Guidance
and Transparency Rule 4.2.8 R.
Colin Clark
Chairman
26 September 2025
Performance - half-year review
Revenue
Six months ended 31 July 2025 2024 % change
Income (£m) 28.8 28.1 +2.5
Revenue earnings attributable to ordinary shareholders (£m) 26.3 25.4 +3.5
Revenue earnings per ordinary share 17.7p 17.1p +3.5
Dividends per ordinary share in respect of the period 14.6p 14.5p +0.7
Assets
31 July 31 January Capital return Total return(1)
2025
2025
% change
% change
Net asset value per ordinary share with debt at par 588.5p 572.6p +2.8 +5.3
Net asset value per ordinary share with debt at market value (capital) 599.2p 582.4p +2.9 +5.4
Ordinary share price 550.0p 556.0p -1.1 +1.5
FTSE All-Share 4,957.2 4,710.6 +5.2 +7.5
Discount of ordinary share price to net asset value (debt at par) -6.5% -2.9% n/a n/a
Discount of ordinary share price to net asset value (debt at market value) -8.2% -4.5% n/a n/a
(1) NAV total return reflects both the change in Net Asset Value per ordinary
share and the net ordinary dividends paid.
A Glossary of Alternative Performance Measures (APMs) can be found at the end
of this document.
Portfolio Managers' report
Simon Gergel
Lead Portfolio Manager
Richard Knight
Portfolio Manager
Andrew Koch
Portfolio Manager
Economic and market background
We said at the start of the year that the outlook was particularly uncertain,
especially in the USA, because of President Trump's approach to trade and
tariff negotiations. On 2 April, the self-proclaimed "Liberation Day",
President Trump unveiled a swingeing range of tariffs on other countries'
goods, ranging from 10% to over 40%. This led to heightened anxiety amongst
governments and companies and extreme volatility in financial markets during
April. Frantic negotiations took place in the subsequent days, and China
responded with reciprocal tariffs in an escalating trade war, which led to
potential tariffs with China of well over 100%. President Trump also
threatened to try to remove the chairman of the Federal Reserve Bank, as he
was frustrated by interest rate policy. However, under considerable pressure
from the US Treasury market, he soon backed away from this threat, deferred
many of the tariffs for up to 90 days and excluded specific goods, pending
trade discussions.
Over subsequent weeks, financial markets regained their poise and volatility
declined, as tariffs tensions abated somewhat. Eventually, the US announced
far more modest tariffs on most countries, including 10% on most UK goods and
15% for the EU. Although, as these were still well above previous prevailing
rates, they will likely raise US inflation and reduce growth.
Over the six-month period, most equity markets shook off the policy concerns
and rose, producing healthy total returns of around 7.5% in the UK for the
FTSE All-Share and just under 6% for the US S&P Index. However, the US
dollar weakened notably, even with a partial recovery in July, in response to
this trade uncertainty and a massive US stimulus package. This drop in the
currency wiped out the gains in the S&P Index for investors based in the
UK.
Whilst overall stock market gains were solid, individual sector and stock
moves were more extreme in both directions. In general, the movements of
individual share prices and stocks seemed to depend more on investors crowding
into "winning" stocks, and rewarding positive earnings momentum, i.e. whether
earning expectations were being upgraded or downgraded, rather than changes to
intrinsic values. The UK stock market continued to see large outflows from
investment funds, which likely exaggerated the market trends, as there was
less active money to exploit opportunities among falling stocks. We also saw a
large number of share buy-back announcements from companies, which were
generally welcomed by investors looking for liquidity.
The strongest major sector in the UK stock market was aerospace & defence,
which rose by nearly 60%. This was driven by prospects of increasing defence
spending, but also by the strong operational recovery at Rolls Royce which
raised earnings guidance materially. Life insurance, tobacco and banks were
also strong sectors. The weakest large sector was finance & credit
services, where London Stock Exchange Group fell heavily. Several cyclical
sectors were also weak, including general industrials, media and
housebuilding, although the defensive beverages sector also declined.
Investment performance
The total return on Merchants' investment portfolio was 5.2%, below the strong
7.5% market return. Our investment philosophy is based on identifying
undervalued companies in the expectation that, over time, undervalued
companies will outperform the broader stock market. Whilst there is
considerable evidence that a value driven approach should outperform in the
long term, it can also have periods of underperformance. Paradoxically though,
these periods often increase the opportunities that a value-driven style can
exploit. When stock markets are driven by momentum trading, such as in recent
months, shares that are lowly priced compared to their intrinsic value can lag
behind those that are seeing strong current trading.
The companies that made the biggest positive and negative contributions to
relative performance. The dispersion of individual stock returns in the first
half of the year was very high, as certain companies in favour with investors
outperformed markedly, and many of those out of favour fell heavily.
Not owning the aerospace & defence stocks Rolls Royce and BAE Systems
accounted for virtually all of the underperformance. Rolls' 78% rally alone
added 1.5% to the index return. Whilst the recovery in profitability and cash
generation at Rolls has been notable, the shares have also re-rated
considerably, as investors have favoured stocks with strong momentum. Rolls
only recommenced paying dividends this year after a five-year pause, so it is
not a natural holding for Merchants' high yield strategy. BAE Systems shares
rose 49% on the back of strong performance and optimism about rising defence
budgets. Merchants had owned BAE previously, but we sold it in 2023, on
valuation grounds.
We have to acknowledge, however, that our holding in WPP has been very
disappointing. The marketing services company reported weak results and
lowered guidance several times in recent months. We had believed that a major
repositioning of the business under CEO Mark Reed, simplifying the corporate
structure and investing in digital and AI capabilities, would lead to improved
performance. However, the business has continued to underperform peers,
notably Publicis. We took the difficult decision to sell the position in July,
despite a depressed valuation, on concerns that there would have to be further
restructuring of the business under a new chief executive. We decided to focus
on investments where we have higher conviction.
The remaining negative contributors had lower individual impacts and broadly
fit into three categories. First, there are companies that have disappointed
investors for idiosyncratic reasons. These included distribution company DCC,
which received less than expected for the sale of its healthcare business,
fund manager Man Group, which earned lower performance fees from one of its
major strategies, and Conduit, which reported poor reinsurance results,
despite a solid industry backdrop. In these cases, we continue to have
confidence in the medium-term outlook and believe the shares are significantly
undervalued.
Second, several companies have found trading conditions tougher than
anticipated, but we believe conditions will improve in due course. Some of
these are in the housing related sectors (although only Barratt Redrow is
among the top ten contributors). We would also include Tate & Lyle and
B&M in this category. Finally, there are shares that are not in the
portfolio but have lifted the index return, most notably HSBC.
Looking at the top positive contributors to relative performance, the largest
were also companies that were not owned in the portfolio. London Stock
Exchange Group fell back on disappointing subscriber growth, whilst spirits
company Diageo has seen concerns about US tariffs and weaker sales in certain
regions. AstraZeneca also underperformed, largely due to concerns about
potential changes to US pharmaceutical industry regulation and pricing. The
underweight position in Unilever also helped relative performance.
Of the stocks owned in the portfolio, Lloyds and OSB (OneSavingsBank) rallied,
as rising bank profitability, cash generation and cash returns continued to
find support with investors. Assura, the real estate company that owns
healthcare assets, like GP surgeries, received competing takeover bids from a
private equity consortium and their sector peer Primary Health Properties.
There was another property company among the top ten positive stocks, Sirius
Real Estate, which benefited from strong trading performance and optimism
about German industrial and defence spending, which should benefit their
German industrial properties.
British American Tobacco saw a strong re-rating from a low level, as investors
warmed to the opportunities for their "reduced harm", next generation nicotine
products, in particular. Elsewhere, the gambling company Entain, saw its
shares rally by over 45%. Entain was helped especially by very strong growth
and upgraded expectations for its BetMGM joint venture in America, which is
benefitting as online gaming and sports betting is progressively legalised in
many US states.
Portfolio changes
The wide dispersion of share price moves provided many new investment
opportunities. We added eight new companies to the portfolio, a much higher
level of change than in recent years, as we were able to identify strong
businesses, trading well below our assessment of their fair value. Conversely,
several portfolio companies' share prices appreciated towards fair value, and
we sold these to fund the other stocks, where we had higher conviction. In
total we sold nine companies, leaving a portfolio of fifty two companies at
the end of July.
The new investments span a range of industries and have different drivers, but
they were typically shares trading well below historic average valuations,
often with recovery potential in their business, and generally paying an
attractive dividend yield.
Sirius Real Estate, mentioned above, is a well-managed industrial property
company, operating in Germany and the UK. It provides an interesting example
of the inefficiency of the stock market. Merchants sold out of Sirius five
years ago, at a higher price than we were now able to reinvest at. From 2020
to 2024, the company's book value per share had risen over 50% and the
dividend by nearly 70%. The shares were trading at an unusual discount to book
value, despite the benefits of the large, expected increase in German defence
spending.
Another business set to benefit from higher defence spending is Serco, the
government outsourcing company operating in justice, immigration and defence.
Following recent acquisitions, defence spending now represents approximately
half of group profits, and the order book is growing rapidly. Unlike other
defence related companies, the valuation was very modest, as the overall group
has been going through a short-term hiatus in growth, due to a few specific
contracts ending or scaling down.
In the consumer area we added Reckitt and B&M European Value Retail.
Reckitt owns many leading household brands like Dettol, Finish, Durex and
Nurofen. The shares were depressed, primarily due to litigation in the USA
over infant formula milk, which seemed to be overly discounted in the
valuation, even on pessimistic assumptions. B&M is a value retailer that
has an excellent long-term growth record, but has more recently seen earnings
come back from an exceptional period during the Covid-19 pandemic. This led to
a sharp drop in the valuation of the business. We believed this was unduly
pessimistic, as the company remains differentiated, is highly cash generative,
and has plans to reinvigorate growth.
RS Group is a high service distributor of hundreds of thousands of industrial
and electronic components to over a million customers. A period of weak
industrial activity provided an opportunity to invest at an unusually
attractive price, whilst a relatively new management team is also transforming
the business to enhance profitability and growth. Begbies Traynor is a small
domestic insolvency and property services company. It has an excellent record
of organic and acquisition led growth. The insolvency business is
counter-cyclical, as it should benefit from stress in the economy. This
provides a useful diversification benefit for the portfolio.
The final new investments were both global businesses but listed on the French
stock exchange. Michelin, the tyre manufacturer, is a leader in the industry
and is benefiting from structural trends, such as the growth in higher
specification, premium tyres and speciality off-road vehicles. General
concerns about the automotive industry have depressed the shares, but tyres
are predominantly a replacement product, less susceptible to new car sales.
Sodexo is a leader in food services and facilities management, serving more
than 100m people in over 40 countries. The business is economically defensive
and should deliver steady growth. At time of purchase, the shares were paying
a 5% dividend yield, well covered by cash generation, and the valuation was at
a substantial discount to its historic averages, as well as to its peers.
We sold two retailers from the portfolio. Next is an exceptional retailer,
which has built an impressive online operation serving its own and third-party
brands. Our investment played out, as the stock market rewarded the online
growth opportunity and resilience of the physical shops and the shares moved
close to our assessment of fair value. Tesco was a similar case, as the market
started to recognise Tesco's industry-leading performance and commanding
position in food retail. In these and other cases, we aim to differentiate
between great companies and great investment opportunities. Next and Tesco
remain great, or at least good companies, but at the valuations they reached,
we found more compelling investment opportunities elsewhere.
Several other companies were sold as they performed very well and approached
our assessment of fair valuation; Haleon, Keller and Imperial Brands. We also
sold the automotive engineering business Dowlais, which attracted a takeover
bid from its rival American Axle.
Other sales included Drax, which was another strong performer. However, the
sale also reflected a change in our investment view, as we believe the
prospects for the UK government to subsidise their proposed Bio-Energy Carbon
Capture and Storage (BECCS) project have diminished. WPP was also a change of
view, as explained above. Finally, we sold Bank of Ireland. The shares had
performed well, and whilst the valuation remained modest, we believed the
outlook for domestic banks was better, given differences in interest rate
policy between the UK and the EU.
Income
Dividend income grew modestly during the period, with total income up around
2.5% to £28.8m (£28.1m), and revenue earnings per share up 3.5% to 17.7p
(17.1p). We have seen a few dividend cuts in the period, generally when
companies have experienced challenging trading conditions, but many companies
continued to steadily increase their dividends. A number of companies have
also taken advantage of depressed share prices to allocate surplus capital to
share buybacks, rather than to higher dividend growth. Where shares are
clearly undervalued, this can make good sense from a capital allocation
perspective, and we are generally supportive. However, we expect boards to be
disciplined on price and only buy back shares when the company is undervalued.
We will continue to monitor this trend.
Portfolio income also benefits from our general policy, of reducing positions
in investments as share prices rise towards fair value (when yields have
typically gone down) and adding to investments which fall further below fair
value (when yields have typically gone up).
In aggregate, the payout ratio of the UK stock market - the proportion of
company earnings needed to cover dividend payments - is low compared to recent
history. This is partly due to a higher preference for buy-backs, and it
should mean that dividend payments will be more resilient if there is any mild
deterioration in trading conditions.
Outlook
It is easy being based in the UK to be concerned about anaemic growth rates, a
large government deficit and high national debt. There has been a lot of
commentary about the difficulties that Rachel Reeves, Chancellor of the
Exchequer, faces in trying to fund spending increases while staying within her
fiscal rules, and not raising income tax, VAT or national insurance. However,
the UK is not alone in this challenge. Economic growth of 1.2% in the second
quarter of 2025, compared to a year earlier, was actually one of the higher
growth rates among the leading G7 economies. Also, the UK budget deficit and
government debt levels are lower than many other G7 countries, with the
notable exception of Germany.
So, although the outlook for the UK economy is lacklustre, it is not
especially weak on a global basis. Furthermore, the Bank of England has been
cutting interest rates for over a year, and the benefits of lower funding
costs will gradually feed through to consumer mortgage rates and corporate
borrowing costs. It is also important to remember that the UK stock market is
not the UK economy. A large majority of sales and profits of UK-listed
businesses comes from overseas, so that the global outlook is at least as
important.
Where the portfolio does have a large domestic exposure, there are also
reasons for optimism. The banks sector is seeing improving profitability and
cash generation, after being fundamentally restructured in the 15 years since
the global financial crisis. There is a positive outlook for the real estate
markets that the portfolio is exposed to, whilst property yields seem to be
peaking (i.e. valuations troughing). Elsewhere, one of the biggest domestic
exposures is to the housing market, either directly via housebuilders, or via
building products and materials manufacturers or distributors. It is a
government priority to increase the level of house building in the UK. There
are early signs that planning reforms should ease some of the constrains on
housebuilders, and falling mortgage costs should stimulate demand. These
factors should support a recovery in building activity over the next few
years.
Taking a step back, though, our role is not to forecast economic growth, or
even the short-term outlook for various industries. Out role is to identify
and build a portfolio of mis-priced assets that can deliver superior capital
returns and a high and rising income stream, for investors, over the medium
term. To do that successfully, we need the following things to come together.
First, we need an inefficient stock market, where it is possible to identify
strong businesses trading below their intrinsic value. At present, the UK
market is not only cheap compared to its history and other markets, but it is
also highly polarised. Outflows of money from actively managed funds and the
momentum driven market we described earlier, have created a fertile
opportunity set for investors with a longer-term mindset to exploit.
Second, we need a clear investment philosophy, a disciplined investment
process and an experienced team of investment professionals, backed by a
well-resourced investment platform. As investors, we need to constantly
challenge ourselves both on our stock selection process and on individual
investment decisions. We will make mistakes along the way, and markets will
move in cycles, but we have shown historically that we can make the strongest
returns after periods when our approach has been out of favour.
In summary, we are confident that there are considerable inefficiencies in the
UK stock market. These inefficiencies can be exploited by owning a diversified
collection of strong businesses, trading well below their fair value and
paying a high dividend stream. We believe that Merchants' portfolio can
deliver strong capital returns and income to meet the company's objectives.
Portfolio breakdown
at 31 July 2025
Name Principal activities Value % of listed Benchmark weighting
holdings
£'000s
British American Tobacco Tobacco 47,862 4.9 3.0
GSK Pharmaceuticals & Biotechnology 46,990 4.8 2.2
Lloyds Banking Group Banks 46,961 4.8 1.8
Shell Oil, Gas & Coal 38,652 4.0 6.3
Barclays Banks 33,974 3.5 2.1
BP Oil, Gas & Coal 32,732 3.4 2.5
Rio Tinto Industrial Metals & Mining 30,846 3.2 1.8
SSE Electricity 28,744 3.0 0.8
DCC Industrial Support Services 27,727 2.8 0.2
Tate & Lyle Food Producers 26,239 2.7 0.1
National Grid Gas, Water & Multiutilities 25,330 2.6 2.0
Reckitt Benckiser Group Personal Care, Drug & Grocery Stores 24,976 2.6 1.5
Legal & General Life Insurance 24,425 2.5 0.6
IG Group Investment Banking & Brokerage 23,673 2.4 0.1
Whitbread Travel & Leisure 23,348 2.4 0.2
Inchcape Retailers 22,904 2.4 0.1
Man Group Investment Banking & Brokerage 19,898 2.0 0.1
Pets At Home Group Retailers 18,491 1.9 0.0
Energean Oil, Gas & Coal 18,300 1.9 0.0
Assura Real Estate Investment Trusts 18,249 1.9 0.1
Barratt Redrow Household Goods & Home Construction 18,069 1.9 0.2
Harbour Energy Oil, Gas & Coal 18,039 1.9 0.0
Sirius Real Estate Real Estate Investment & Services 17,938 1.8 0.1
Land Securities Group Real Estate Investment Trusts 17,741 1.8 0.2
B&M European Value Retail Retailers 17,436 1.8 0.1
Serco Group Industrial Support Services 17,347 1.8 0.1
Grafton Group Industrial Support Services 17,123 1.8 0.1
OSB Group Finance & Credit Services 16,826 1.7 0.1
Unite Group Real Estate Investment Trusts 15,569 1.6 0.1
Entain Travel & Leisure 14,717 1.5 0.2
Lancashire Holdings Non-Life Insurance 14,687 1.5 0.1
RS Group Industrial Support Services 14,266 1.5 0.1
Morgan Advanced Electronic & Electrical Equipment 13,891 1.4 0.0
Unilever Personal Care, Drug & Grocery Stores 13,885 1.4 4.2
Bellway Household Goods & Home Construction 13,496 1.4 0.1
Atalaya Mining Precious Metals & Mining 13,416 1.4 0.0
Michelin(1) Automobiles & Parts 11,622 1.2 0.0
SCOR(1) Non-Life Insurance 11,489 1.2 0.0
Marshalls Construction & Materials 11,234 1.2 0.0
Aena(1) Industrial Transportation 11,219 1.1 0.0
Sodexo(1) Travel & Leisure 11,072 1.1 0.0
Close Brothers Group Banks 10,998 1.1 0.0
Burberry Group Personal Goods 10,647 1.1 0.2
DFS Furniture Retailers 10,189 1.0 0.0
SThree Industrial Support Services 8,503 0.9 0.0
Norcros Construction & Materials 8,394 0.9 0.0
PZ Cussons Personal Care, Drug & Grocery Stores 8,339 0.9 0.0
Conduit Holdings Non-Life Insurance 7,229 0.7 0.0
CLS Holdings Real Estate Investment & Services 4,810 0.5 0.0
Begbies Traynor Group Investment Banking & Brokerage 4,376 0.4 0.0
Duke Royalty Finance & Credit Services 4,270 0.4 0.0
XP Power Electronic & Electrical Equipment 3,977 0.4 0.0
Total invested funds 973,135 100.0
(1) International stock
Income Statement
for the six months ended 31 July 2025
For the six months ended For the six months ended
31 July 2025
31 July 2024
Revenue Capital Total Return Revenue Capital Total Return
£'000s
£'000s
£'000s
£'000s
£'000s
£'000s
Notes 1 1
Gains on investments held at fair value through profit or loss - 22,523 22,523 - 93,385 93,385
Losses on foreign currencies - (77) (77) - (17) (17)
Losses on derivatives - (413) (413) - (328) (328)
Income from investments 28,112 - 28,112 27,523 - 27,523
Other income 723 - 723 597 - 597
Investment management fee (586) (1,089) (1,675) (574) (1,067) (1,641)
Administrative expenses (648) (2) (650) (549) (1) (550)
Profit before finance costs and taxation 27,601 20,942 48,543 26,997 91,972 118,969
Finance costs: interest payable and similar charges (1,045) (1,902) (2,947) (1,008) (1,833) (2,841)
Profit on ordinary activities before taxation 26,556 19,040 45,596 25,989 90,139 116,128
Taxation (234) - (234) (578) - (578)
Profit after taxation attributable to ordinary shareholders 26,322 19,040 45,362 25,411 90,139 115,550
Earnings per ordinary share (basic and diluted) 4 17.73p 12.83p 30.56p 17.13p 60.77p 77.90p
Statement of Changes in Equity
Called up Share Capital redemption reserve Capital Revenue reserve Total
share
premium account
£'000s
reserve
£'000s
£'000s
capital
£'000s
£'000s
£'000s
Notes
Six months ended 31 July 2025
Net assets at 1 February 2025 37,106 228,726 293 555,757 27,940 849,822
Revenue profit - - - - 26,322 26,322
Dividends on ordinary shares 3 - - - - (21,670) (21,670)
Capital profit - - - 19,040 - 19,040
Net assets at 31 July 2025 37,106 228,726 293 574,797 32,592 873,514
Six months ended 31 July 2024
Net assets at 1 February 2024 37,081 228,174 293 495,155 26,819 787,522
Revenue profit - - - - 25,411 25,411
Dividends on ordinary shares 3 - - - - (21,062) (21,062)
Capital profit - - - 90,139 - 90,139
Net assets at 31 July 2024 37,081 228,174 293 585,294 31,168 882,010
Balance Sheet
As at As at As at
31 July
31 July
31 January
2025
2024
2025
£'000s £'000s £'000s
Assets and liabilities
Investments held at fair value through profit or loss 973,135 977,158 954,514
Net current assets (liabilities) 17,610 (28,250) 12,089
Total assets less current liabilities 990,745 948,908 966,603
Creditors: amounts falling due after more than one year (117,231) (66,898) (116,781)
Total net assets 873,514 882,010 849,822
Capital and reserves
Called up share capital 37,106 37,081 37,106
Share premium account 228,726 228,174 228,726
Capital redemption reserve 293 293 293
Capital reserve 574,797 585,294 555,757
Revenue reserve 32,592 31,168 27,940
Equity shareholders' funds 873,514 882,010 849,822
Net asset value per ordinary share 588.5p 594.6p 572.6p
The net asset value as at 31 July 2025 is based on 148,424,887 ordinary
shares.
The net asset value as at 31 July 2024 is based on 148,324,887 ordinary
shares.
The net asset value as at 31 January 2025 is based on 148,424,887 ordinary
shares.
Cash Flow Statement
Six months ended 31 July Six months ended 31 July 2024
2025
£'000s
£'000s
Operating activities
Profit before finance costs and taxation(1) 48,543 118,969
Less: gains on investments held at fair value (23,214) (93,956)
Add: losses on derivatives 395 328
Add: losses on foreign currency 77 17
Purchase of fixed asset investments held at fair value through profit or loss (164,232) (101,113)
Sales of fixed asset investments held at fair value through profit or loss 176,848 93,956
Transaction costs (691) (571)
Increase in other receivables (2,070) (839)
Increase in other payables 82 188
Less: overseas tax suffered (234) (578)
Net cash inflow from operating activities 35,504 16,401
Financing activities
Interest paid (2,901) (2,794)
Dividend paid on cumulative preference stock (21) (21)
Dividends paid on ordinary shares (21,670) (21,062)
Net cash outflow from financing activities (24,592) (23,877)
Increase (decrease) in cash and cash equivalents 10,912 (7,476)
Cash and cash equivalents at the start of the period 15,604 22,886
Effect of foreign exchange rates (77) (17)
Cash and cash equivalents at the end of the period 26,439 15,393
Comprising:
Cash at bank and in hand 26,439 15,393
(1) Cash inflow from dividends was £27,841,000 (2024: £26,930,000) and cash
inflow from interest was £180,000 (2024: £147,000).
Notes to the Financial Statements
for the six months ended 31 July 2025
1. Financial statements
The half-yearly financial report has been neither audited nor reviewed by the
company's auditors. The financial information for the year ended 31 January
2025 has been extracted from the statutory financial statements which have
been delivered to the Registrar of Companies. The auditors' report on those
financial statements was unqualified and did not contain a statement under
section 498 of the Companies Act 2006. The total return column of the Income
Statement is the profit and loss account of the company. All revenue and
capital items derive from continuing operations. No operations were acquired
or discontinued in the period. Allianz Global Investors UK Ltd acts as
Investment Manager to the company. Details of the services and fee
arrangements are given in the latest annual report of the company, which is
available on the company's website at www.merchantstrust.co.uk.
2. Accounting policies
The Company presents its results and positions under 'The Financial Reporting
Standard applicable in the UK and Republic of Ireland' (FRS 102), which forms
part of the Generally Accepted Accounting Practice ('UK GAAP') issued by the
Financial Reporting Council.
The condensed set of financial statements has been prepared on a going concern
basis in accordance with FRS 102 and FRS 104, 'Interim Financial Reporting',
the Companies Act 2006 and the Statement of Recommended Practice - 'Financial
Statements of Investment Trust Companies and Venture Capital Trusts' (SORP)
issued by the Association of Investment Companies in July 2022. The context of
the current macro-economic background has been thoroughly considered and the
directors have concluded that there are no material uncertainties related to
going concern. They have also been prepared on the assumption that approval as
an investment trust will continue to be granted.
The accounting policies applied in preparation of the condensed set of
financial statements with regard to measurement and classification have not
changed from those set out in the Company's annual financial report for the
year ended 31 January 2025.
3. Dividends on ordinary shares
Dividends paid on ordinary shares in respect of earnings for each period are
as follows:
Six months ended 31 July 2025 Six months ended 31 July 2024
£'000s £'000s
Dividends paid on ordinary shares
Third interim dividend 7.3p paid 19 March 2025 (2024: 7.1p) 10,835 10,531
Final dividend 7.3p paid 29 May 2025 (2024: 7.1p) 10,835 10,531
21,670 21,062
In accordance with FRS 102 section 32 'Events After the End of the Reporting
Period', dividends payable at the period end have not been recognised as a
liability. Details of these dividends are set out below.
Six months ended 31 July 2025 Six months ended 31 July 2024
£'000s £'000s
First interim dividend 7.3p paid 22 August 2025 (2024: 7.2p) 10,835 10,679
Second interim dividend 7.3p payable 20 November 2025 (2024: 7.3p) 10,835 10,828
21,670 21,507
The dividends above are based on the number of shares in issue at the period
end. However, the dividend payable will be based upon the number of shares in
issue on the record date and will reflect any purchase or cancellation of
shares by the company settled subsequent to the period end.
4. Earnings per ordinary share
The earnings per ordinary share is based on a weighted number of ordinary
shares 148,424,887 (31 July 2024: 148,324,887) in issue.
5. Fair value hierarchy
Investments and derivative financial instruments are designated as held at
fair value through profit or loss in accordance with FRS 102 sections 11 and
12. FRS 102 sets out three fair value levels.
Level 1: The unadjusted quoted price in an active market for identical assets
or liabilities that the entity can access at the measurement date.
Level 2: Inputs other than quoted prices included within Level 1 that are
observable (i.e., developed using market data) for the asset or liability,
either directly or indirectly.
Level 3: Inputs are unobservable (i.e., for which market data is unavailable)
for the asset or liability.
With the exception of those financial liabilities measured at amortised cost,
all other financial assets and financial liabilities are either carried at
their fair value or the balance sheet amount is a reasonable approximation of
their fair value.
As at 31 July 2025, the financial assets at fair value through profit and loss
of £972,501,000 (31 July 2024: £976,724,000; 31 January 2025: £954,275,000)
are categorised as follows:
Level 1 Level 2 Level 3 Total
£'000s
£'000s
£'000s
£'000s
Financial assets at fair value through profit or loss at 31 July 2025
Equity investments 973,135 - - 973,135
Derivative financial instruments: written call options - (634) - (634)
973,135 (634) - 972,501
Financial assets at fair value through profit or loss at 31 July 2024
Equity investments 977,158 - - 977,158
Derivative financial instruments: written call options - (434) - (434)
977,158 (434) - 976,724
Financial assets at fair value through profit or loss at 31 January 2025
Equity investments 954,514 - - 954,514
Derivative financial instruments: written call options - (239) - (239)
954,514 (239) - 954,275
For exchange listed equity investments the quoted price is either the bid
price or the last traded price depending on the convention of the relevant
exchange. For written options the value of the option is marked to market
based on traded prices. Financial instruments valued using valuation
techniques level 3 have, in the absence of relevant trading prices or market
data, been valued based on the directors' best estimate.
6. Status of the Company
The company applied for and was accepted as an approved investment trust for
accounting periods commencing on or after 1 February 2013, subject to it
continuing to meet eligibility conditions at section 1158 Corporation Taxes
Act 2010 and the ongoing requirements for approved companies in Chapter 3 Part
2 Investment Trust (Approved Company) (Tax) Regulations 2011 (Statutory
Instrument 2011/2999).
7. Transactions with the Investment Manager and related parties
As disclosed in the annual report, the existence of an independent board of
directors demonstrates that the company is free to pursue its own financial
and operating policies and therefore, under FRS 8: Related Party Disclosures,
the investment manager is not considered to be a related party. The company's
related parties are its directors
There are no other identifiable related parties as at 31 July 2025, 31 July
2024 and 31 January 2025.
8. Comparative information
The half yearly financial report to 31 July 2025 and the comparative
information to 31 July 2024 have neither been audited nor reviewed by the
Company's auditors and do not constitute statutory accounts as defined in
section 434 of the Companies Act 2006 for the respective periods. The
financial information for the year ended 31 January 2025 has been extracted
from the statutory accounts for that year which have been delivered to the
Registrar of Companies. The auditor's report on those financial statements was
unqualified and did not contain a statement under Section 498 (2) or (3) of
the Companies Act 2006.
Enquiries:
For further information, please contact:
Allianz Global Investors UK Limited
Stephanie Carbonneil
Head of Investment Trusts
Tel: 020 3246 7256
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