Canaccord Genuity nudges up target price on Mercia Asset Management

Analysts at Canaccord Genuity nudged up their target price on diversified financial outfit Mercia Asset Management from 52.0p to 55.0p on Friday following the firm's sale of Faradion for a total enterprise value of £100.0m.

Canaccord Genuity noted that the sale of Faradion to Reliance New Energy Solar led to the group receiving £18.6m in cash proceeds, with a further £800,000 also being ring-fenced for three months.

The Canadian bank pointed out that the unrestricted proceeds of £18.6m resulted in a profit of £5.7m above the asset's holding value of £12.9m, as of 30 September 2021, with the additional £800,000 of temporarily restricted proceeds only be further accretive to this.

"Our valuation methodology remains unchanged. We take the average of two scenarios, the first of which blends a value of 1.0x for net asset value plus 4% of funds under management. The second attributes 1.0x to historic NAV and applies a 20.0x price-to-earnings multiple to the fund management profits," said Canaccord.

"Given the increase to our adjusted pre-tax profits and net asset value forecasts, this results in a new target price of 55.0p, a 6% increase to our prior target of 52.0p. The new target of 55.0p offers 38% potential upside and thus Mercia remains a conviction 'buy' for us."