The Motley Fool

Is this stock a better buy than Woodford Patient Capital Trust plc?

It’s not too easy for the average private investor to gain exposure to the high-growth potential of unquoted early-stage businesses. One option is AIM-listed Mercia Technologies (LSE: MERC), which has a portfolio of investments in 24 such businesses.

The company released its annual results today and I like the look of its business model, the progress it’s making and its current valuation.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Business model

There are two prongs to Mercia’s business model. It’s an asset manager, running third-party investment funds that nurture young businesses. It receives fees for these and other services by which it aims to cover a large chunk of the plc’s operating costs.

As the young businesses develop, it identifies ‘Emerging Stars’ among them and provides direct investment follow­-on capital from its own balance sheet. This is the portfolio of 24 investments I mentioned earlier. It ultimately aims to exit these investments with rich rewards from lucrative flotations or trade sales.


In today’s results, for its financial year ended 31 March, it reported that funds under management increased to £336m from £220m, with revenue rising to £6.7m from £1.8m. Meanwhile, its portfolio of 24 direct investments increased in value to £52m from £38.1m.

The year also saw Mercia demonstrate the viability and potential gains of the direct-investment element of its business model with the trade sale of Allinea Software to ARM, providing an 88.4% uplift on the group’s direct investment cost. The IPO of Concepta (a digital fertility/pregnancy testing business) was another notable event.


When Mercia listed on AIM in December 2014, it raised a net £66m at 50p a share and had a market cap of £106m. Pro forma net assets were just over £75m (34.4p a share), so it was valued at 1.41 times book value.

It raised a further £40m (gross) at 46p a share in February this year and today reported net assets of £121.4m (40.4p a share) at its March year-end. At a current share price of 34p — up 4.6% on the day — the market cap is £102.2m, so it’s now valued at 0.84 times book value.

Despite its increased scale, emerging proof of its business model and management saying today “we can already see several material value inflexion points arising in the coming year,” Mercia is considerably cheaper than at the time it listed on the stock market. It’s also cheaper than a much-higher-profile stock offering exposure to early-stage businesses: Woodford Patient Capital Trust (LSE: WPCT).


At a share price of 97p and with net assets of 100.3p a share, Patient Capital trades at 0.97 times book value. It also happens that Patient Capital has given Mercia the Neil Woodford seal of approval. It owns a 25% stake in Mercia and both companies are chaired by Susan Searle.

With 76 holdings, Patient Capital can be seen as a lower-risk proposition than this article’s other subject, particularly as only about half its holdings are unquoted businesses, with the portfolio also containing some relatively large and familiar quoted names, such as Purplebricks and US-listed Prothena.

Nevertheless, I see Mercia’s 24 investments as reasonable diversification and the company’s third-party fund management arm as providing a useful degree of relative stability. Both businesses have potential to deliver excellent long-term returns for patient investors and I would rate them as ‘buys’ at their current discounts to book value.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.