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JPMF MERCANTILE INVESTMENT TRUST PLC DELIVERS +33% TOTAL RETURN TO SHAREHOLDERS

Apr 11, 2007

Financial highlights :

• JPMF Mercantile Investment Trust plc has total assets of £ 1.9 billion (source: AIC, 28/02/07).  It is now the 4th largest conventional investment trust in the sector (source: AIC, 28/02/07), making it the largest and best-performing UK-focused investment trust
• JPMF Mercantile Investment Trust was launched in 1884, and is one of the oldest closed-ended investment vehicles.  Martin Hudson is the Trust’s lead manager
• The Company’s total net asset return was +30.2%, which compares favourably with a return of +24.3% from the Company’s benchmark index, the FTSE All-Share (excluding FTSE-100 constituents and investment trusts) for the year ending 31st January 2007
• A fourth quarterly dividend of 11.50p will be paid on 1st May 2007; Announced on 11th April 2007, ex div 18 April 2007, record date 20th April 2007
• Earnings per share increased by 29.3% for the year, from 21.79p to 27.52p.  The Company has paid three interim dividends of 4.50p per ordinary share.  This in addition to the declared fourth quarterly dividend which gives a total dividend of 25.00p for the year and represents an increase of approximately 15% on 2006
• The share price rose by 30.4% during the year and including dividends paid, the total return to shareholders was +33.1%
• The Company’s financial performance was a result of maintaining its overweight stance in larger mid sized companies where compelling value opportunities were found, as well as its overweight position in very small companies with attractive new technologies or growth prospects.  Currently, the Company holds approximately 160 stocks; 90 of which are mid sized and 70 smaller.  By value, 85% of the portfolio is in mid sized stocks and 15% in smaller stocks, which is broadly in line with the benchmark
• The year to 31 January 2007 generated strong returns for shareholders, with small and mid sized companies once again, outperforming their larger counterparts.  As at 31 January 2007, the Company’s portfolio had a forward price earnings ratio (PER) of 14.0x, with earnings forecast to grow by analysts at 12.8% over the next year.  This strong earnings growth combined with a reasonable valuation means that small and mid sized UK companies are well positioned to deliver another year of positive returns

Excluding loss making companies.
Source: UBS Global Research 31/01/07

• The Company is constantly looking for both value and growth opportunities and this is reflected in the portfolio aggregates; the portfolio has a lower PER than the benchmark, trading on 14.0x versus 15.3x, and also shows more growth with 12.8% forecast compared with 11.0% for the benchmark.  Furthermore, dividends are forecast to grow by analysts at 9.8%, beating the 9.3% for the benchmark (see above table)

So why do investors favour the UK small and mid cap market?  

1. Portfolio diversification - JPMF Mercantile Investment Trust is invested in a broadly diversified portfolio of mid and small sized companies, holding a total of 160 companies; 90 of which are in the mid cap universe and 70 in the smaller.

In comparison to the large cap universe, the mid and smaller cap sections of the market are characterised by a wide range of stocks operating in all areas of the economy.  The FTSE All Share is dominated by five sectors – oil and gas, basic materials, pharmaceuticals, telecommunications and banks – which account for more than 50% of the quoted companies.  In the universe that JPMF Mercantile Investment Trust invests, the FTSE All Share (ex FTSE-100 and Investment Trusts), these five sectors account for less than 6% of the index.

Martin Hudson, lead manager of JPMF Mercantile Investment Trust, believes that UK small and mid cap stocks continue to represent good growth and value opportunities, and should continue to outperform their large cap counterparts.

2. “Best of British plc” - By investing in JPMF Mercantile IT, investors have access to “Best of British plc”.  This means that with a robust UK economy, forecast to grow 2.5% in 2007, the UK economic environment should provide a stable platform from which companies can drive earnings forward. 

The UK small and mid cap sector is set for further growth, and this is reflected in the strong forecast earnings growth of 11% for mid and smaller companies, which are more geared into the fortunes of the UK economy than FTSE 100 companies, which generate the majority of their earnings overseas.

With this, Hudson believes that the UK market outlook remains positive, as both growth and value opportunities exist within the mid and smaller companies universe and these companies can continue to deliver positive shareholders returns.

How is the portfolio positioned?

JPMF Mercantile Investment Trust plc holds key overweight positions in Housebuilders, Real Estate and Media, and is underweight Support Services, Industrial Engineering and Technology.  The Company’s largest overweight position is in the housebuilders sector because Hudson believes this sector continues to offer good value and is well poised to maintain its outperformance.

Hudson believes there is scope for a further re-rating of the Housebuilders because the companies’ land banks remain attractive and the stocks demonstrate strong cash generation characteristics.

The overweight in the Media sector is reflected in the two top ten investments in EMI and Daily Mail & General Trust.

Ten largest holdings as at 31 January 2007