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(Sharecast News) - The Merchants Trust reported an 18.9% net asset value total return for the year ended 31 January on Thursday, as a resurgence in UK equities supported strong absolute performance, although returns lagged the broader market.
The FTSE 250 trust said its benchmark, the FTSE All-Share Index, delivered a total return of 21.1% over the same period, reflecting a rally in UK stocks after a prolonged period of underperformance relative to global markets.
"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%," said chairman Colin Clark.
Net asset value per share rose to 653.3p from 572.6p a year earlier, while total net assets increased to 964.5m from 849.8m.
Profit after tax attributable to shareholders climbed to 162.4m, compared with 104.3m in the prior year, driven by capital gains of 117.1m.
Revenue earnings per share rose to 30.6p from 29.4p, supporting a total dividend of 29.5p per share, up 1.4% year-on-year.
The trust extended its record of consecutive annual dividend increases to 44 years.
"This represents an increase of 1.4% on the previous year and marks the 44th consecutive year of dividend growth for Merchants," Clark said.
The board proposed a final dividend of 7.5p per share, payable on 27 May.
Revenue reserves stood at 20.3p per share at the year end.
Despite the strong absolute performance, the trust underperformed its benchmark in what it described as a "highly polarised market environment", where returns were concentrated in sectors such as technology, defence and banks.
Clark said the board remained supportive of the manager's value-focused approach.
"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 trust noted a broader shift in global equity markets, with international equities outperforming the US over the period, as investors reassessed valuations and reduced exposure to highly concentrated US technology stocks.
"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," Clark said.
During the year, the trust repurchased 792,017 shares for 4.4m as its shares traded at an average discount of 5.7% to net asset value, ending the period at a 5.4% discount.
The portfolio, valued at 1.06bn, remained focussed on UK equities with a tilt towards large-cap stocks, although the manager increased exposure to mid-cap names, which it described as "a once in a generation opportunity" given relative valuations.
Looking ahead, the board said it remained confident in the portfolio and the outlook for UK equities despite geopolitical risks.
"2025-2026 has been a year of strong absolute returns and of vindication for Merchants' investment philosophy," Clark said.
"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."
However, the trust noted that its net asset value had fallen by 7.9% since the year end as of 30 March amid heightened market volatility linked to escalating tensions in the Middle East.
At 0935 BST, shares in the Merchants Trust were down 0.03% at 597.79p.
Reporting by Josh White for Sharecast.com.
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