The Mercantile Investment Trust has published results covering the 12 months ended 31 January 2025. It managed to beat the return on its benchmark (the All-Share ex FTSE 100 and investment companies) over the period, delivering an NAV return of 4.1% compared with 12.3% for that index. The return to shareholders was 18.9%.

The dividend rose by 3.3% to 7.9p and has now risen every year for 10 consecutive years.

The discount narrowed from 12.6% to 9.2%, helped by share buybacks totalling 35,388,374 shares, amounting to 3.7% of the shares in issue. These were acquired at an average discount of 11.6%. Since its year end, the company has purchased a further 14,447,631 shares.

Extract from the manager’s report

Spotlight on stocks

Winners

Performance this year was again aided by a strong outturn from several of our longer-standing investments, led by our substantial holdings in the financials sector. Private equity group 3i continued to deliver better than expected results, driven by continued excellent sales and profit growth at its discount retailer Action, which now represents about 70% of its investment portfolio, while the financial performance of Intermediate Capital, an alternative asset manager, remained strong on the back of continued healthy fund-raising. A new holding in this sector, the trading platform operator Plus500, also delivered healthy gains as it successfully grew its customer base further while continuing to generate strong profitability and return cash to shareholders.

Another major highlight for the portfolio this year was our longstanding holding in Nottingham-based Games Workshop. This company designs, manufactures and sells war-gaming figurines and has a relentless focus on the continuous development of intellectual property to make the Warhammer hobby ever better. This has allowed the company to build a global and growing base of fans, who are passionate supporters and loyal customers. The recent agreement with Amazon to develop films and television series based upon its content illustrates just some of the potential for the future. Meanwhile the business continues to grow, and enjoys strong economics, with high profit margins and healthy cash generation.

Losers

On the negative side, the largest detractor from performance was the software and computer services sector, an area in which we have historically had better success. The major culprit was our holding in Bytes Technology, one of the UK’s leading value-added technology resellers, whose shares came under pressure following the sudden and unexpected resignation of the CEO, as well as due to the weaker environment for corporate demand. Given the long-term growth opportunity from increased corporate spend on technology more broadly, alongside the potential accelerant from increased adoption of generative AI solutions, we have retained our holding. While it was pleasing to see the company just report a reacceleration in growth through the second half of the year, we will continue monitoring progress even more closely than usual.

Our next two largest individual detractors from performance came from ‘sins of omission’: companies that we did not hold but which performed particularly well. St. James’s Place, the provider of financial advice, delivered a strong acceleration of net inflows, which drove the shares back up into the FTSE 100, while Burberry, the luxury fashion brand, was deleted from the FTSE100 but experienced a dramatic increase in its share price from a depressed base, following results that were ahead of low expectations.

From a relative performance perspective, the portfolio also suffered from the surge in the number of companies that were subject to takeover bids at substantial premia. While we benefited from this in the two instances of Britvic and Redrow, in which we held shares, there were a greater number where we had no holding, including Direct Line, Hargreaves Lansdown and Darktrace.

MRC : Good stock selection helps Mercantile beat its benchmark