The Merchants Trust Plc

The Merchants Trust Plc (LON: MRCH) is a closed end investments company engaged in the business of providing above-average income growth to its shareholders for the long-term period through investing in the United Kingdom-based higher-yielding companies. The group’s investment portfolio consisting of companies of a variety of sectors such as general retailers, construction and materials, support services, beverages and banks etc.

The group is projected to organise the shareholder meeting on 27^th April 2020.

Recent News
16^th April 2020: The group reported that the net asset value as 355.00 pence per ordinary share. It was based on the par value of the MRCH’s preference shares and long-term debt while at the market value it was 338.74 pence per ordinary shares.

16^th April 2020: The board of MRCH announced the fourth-interim dividend of 6.8 pence per ordinary shares. Hence, the total dividend for FY2020 is 27.1 pence, representing an increase of 4.2 per cent against the previous year.

Covid-19 Update
On 16th March 2020, The Merchants Trust released an update on the impact of coronavirus outbreak on the Market performance. The outbreak has led to sharpest falls of the stock market since 1987 and Stock, and bond markets across the globe have significantly declined. The group feel that responses taken by the UK central bank and government related to support to the banking sector, lower interest rates, infrastructure investments and fiscal spending might be able to reduce the increased economic impact. Due to theoil price crisis between Russia and OPEC may also help in economic growth. The group expect strange moves and few anomalies in the stock prices and will would create growth opportunities for active investors. The group is primarily focused on long-term growth potential, competitive position and technology, cash generation ability and fundamental qualities of companies before making investments. With the outbreak, the company think to look into the financial position is important to look at. The group expect every business will be impacted by the coronavirus and one with a weak balance sheet might not be able to survive. The group is still assessing the impact of an outbreak on its portfolio and is constantly updating it to provide higher returns to shareholders.

Share Price Performance

Daily Chart as of April17^th, 2020, after the market close (Source: Thomson Reuters)

The Merchants Trust Plc shares closed at GBX 390.50 after the market close on 17^th April 2020. Stock's 52 weeks High is GBX 569.00 and Low is GBX 293.00.

Price Performance
MRCH’s price performance over the 3 months, 6 months, 9 months and 12 months have been negative, which stood around -30.51 per cent, -19.06 per cent, -19.44 per cent and -20.95 per cent, respectively.

Conclusion
With the outbreak of Covid-19, many countries-imposed restrictions on travel and resulted in a sharp fall in the stock markets globally. The negative economic shock will keep downward pressure on the rate of interest, and central banks globally are cutting rates, including the bank of England for economic impact mitigation.The Covid-19 has resulted in increased volatility and reduced the liquidity, which has resulted in a decline shares of the company. Moreover, the company’s stock is trading on the higher side, raising doubts at its upside potential at the current price level.

Therefore, based on the above rationale, we have given a “Watch” recommendation at the closing price of GBX 390.50 (as on 17^th April 2020), while we look for any upcoming catalysts in the near term.

Schroder European REIT Plc

Schroder European REIT Plc (LON: SERE) is a UK based real estate investment trust engaged in the business of making an investment in the property in the Continental European region. The group’s objective is to provide regular income with long-term capital and income growth. The company held an investment in properties located in Hamburg, Stuttgart, Berlin and Paris. The group primarily make an investment in properties with creditworthy tenants and low vacancy, which include light industrial property, logistics property, retail property and office property.

The group will release its interim results for FY 2020 in June 2020.

Company Update
On 15^th April 2020, Schroder European Real Estate Investment Trust released an update on the impact of Covid-19 on the market performance. The group, with its highly diversified portfolio, is well-positioned to mitigate the short-term market volatility. The company’s primary focus is to protect the long-term interests of its shareholders and is working closely with its employees, suppliers, tenants and customers across Europe. The group has a diversified portfolio of 13 assets located in Continental Europe and around 100 tenants. The company has received its 75 per cent of monthly rents for the month of April 2020 as on 7^th April and expect the rate to rise further. Through rents, the group is managing to recover its working capital. The company has an LTV (net loan-to-value) of around 30 per cent and free cash of EUR 10 million as on 31^st December 2019. The group has 7 drawn debt facilities ranging from EUR 3.7 million to EUR 17 million. The group based on current situation has decided to reduce or postpone its dividend until the condition stabilises.

Share Price Performance

Daily Chart as of April17^th, 2020, after the market close (Source: Thomson Reuters)

Schroder European REIT Plc’s shares closed at GBX 68.80 after the market close on 17^th April 2020. Stock's 52 weeks High is GBX 120.87 and Low is GBX 59.00.

Conclusion
The company has received around 75 per cent of its rent for the April month in the first week of April and expect remaining rent in the mid of April. The group is able to recover its working capital from its rental income. The group need to manage its operating expenses more effectively as it can result in a decline in the profitability in the near future. In the financial year 2020, the group remained focused on due diligence, and quality of the propertyand the group might face issue in meeting growing regulatory requests. With the outbreak of Covid-19, many countries have imposed restrictions on travel and resulted in a sharp fall in the stock markets globally. The group might face a delay in rental revenue as a result of lockdown.

Therefore, based on the above rationale and uncertainties in near-term due to Covid-19 pandemic, we have given a “Watch” recommendation at the closing price of GBX 68.80 (as on 17^th April 2020), while we look for any upcoming catalysts in the near term.

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