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.”
