Merchants Trust (MRCH) - Annual Report 2025

[Itsallaguess]

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I often like to cast my eye over the glossy Annual Reports of my IT holdings, or should I say the PDF versions of them, as they almost always show useful information in a much more digestible way than the technical 'numbers' provided in the official RNS of the related results, and with Merchants Trust (MRCH) releasing their 2025 Annual Report this week, I thought I'd show a couple of useful charts that demonstrate how they've used their Revenue Reserves over the years, to help achieve their remarkable record of 43 years of dividend growth -



Source - https://www.merchantstrust.co.uk/-/medi ... 1-2025.pdf

The left hand chart above shows how the 2008 Financial Crash and 2020 COVID periods were handled by utilising Revenue Reserves to back-fill dividend payments, to help smooth out bumps in the road and continue to deliver on their long-term dividend-payment provision, where light-green areas denote Revenue Reserve replenishment periods, and darker blue areas showing where Revenue Reserves have been utilised.

It should be noted that in this year's report, earnings per share of 29.4p were only marginally ahead of the 29.1p dividend paid out, but later in the report they have this to say about the current Revenue Reserve level -

At the year end, revenue reserves per share were up 3.9% at 18.8p (18.1p).

It is encouraging to note that total revenue reserves, at £27.9m, have built considerably from £20.4m in 2022, the low point in the pandemic.

Reserves now stand just 12% below the pre-pandemic high of £31.8m in 2020.

It will be interesting to see how the broad market of income-oriented Investment Trusts navigate their way through the current market turmoil and deal with the fall-out of what feels like a long-term shift in global trade, but I thought the above charts were a good indication that those of us who are seeking robust, smooth dividend payouts from our income-investments can often rely on the internal Revenue Reserve processes available to Investment Trusts to at least minimise, as best they can, any disruption to inter-year earnings that might affect those dividend payments to some degree.

The full 2025 report from Merchants Trust can be downloaded via the following link -

https://www.merchantstrust.co.uk/-/media/allianzgi/eu/merchants-trust/docs/annual-financial-report/annual-report-the-merchants-trust-plc-31-01-2025.pdf

Cheers,

Itsallaguess

[Arborbridge]

IAAG's publishing of those charts does seem to be telling a story: that the Merchants is a pretty competently run IT if we want steady income. A useful pension provider for me and one of my top half dozen holdings.

[mike]

Sorry, I'm going to rain on the parade a bit here, as I feel MRCH's marketing department are blowing their own trumpet by omission.

It is encouraging to note that total revenue reserves, at £27.9m, have built considerably from £20.4m in 2022, the low point in the pandemic.
Reserves now stand just 12% below the pre-pandemic high of £31.8m in 2020.

I have looked at the report, and this quotation is just that, nothing following to give more information.

What they don't say is that the £31.8m of revenue reserve in Jan 2020 was in relation to a dividend total of £29.2m, whereas the £27.9m of RR now is in relation to a dividend of £42.6m. So it is only around 60% of where it was pre-pandemic.

MRCH are by no means alone in the UK income sector regarding RR in relation to dividends paid before and after the pandemic, and of those I keep an eye on, it is only AEI that come anwhere close at 81%.

[Itsallaguess]

What they don't say is that the £31.8m of revenue reserve in Jan 2020 was in relation to a dividend total of £29.2m, whereas the £27.9m of RR now is in relation to a dividend of £42.6m.

So it is only around 60% of where it was pre-pandemic.

That's a fair criticism of their stated position, where it should be expected that with a hopefully rising dividend, we'd clearly need to see an associated rising Revenue Reserve level through which to even maintain the same proportion of 'reserve level' for any given overall dividend payout, but with a £27.9m Revenue Reserve against last years total dividend payout of £42.6m, then at 65.5% it's somewhat short of their differently-calculated ratio when they're just comparing two Revenue Reserve levels.

Overall though, given the scale of the COVID-period reserve usage shown in the left hand chart, I think I'm more concerned with the poor earnings per share in this year's report, and it'll be interesting to see how broad income-IT's cope with any fall-out from the current market shenanigans, given the current recovery of reserves since COVID.

One thing stands out from that first set of charts though, in that Merchants long-term stewardship of dividend-payouts for shareholders who look for dependable hands-off income in the form of dividends has stood firm for a very long period, and so they deserve some credit and trust for the potentially rocky years ahead of us...

Cheers,

Itsallaguess