MIDAS SHARE TIPS UPDATE: Patience will pay off for young tech entrepreneurs at Mercia

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There has been a lot of talk about ‘patient capital’ lately, not least in Chancellor Philip Hammond’s Budget last month. 

The phrase trips off the tongue with ease – investing in businesses for the long term to allow them to grow and fulfil their potential – but it can be much harder to put into practice.

Mercia Technologies is a case in point. The group invests in young, innovative companies based in the Midlands, the North and Scotland. 

They are in industries ranging from healthcare to gaming but they all use state-of-the-art technology and have the potential to become much bigger than they are today.

Speedy: One company the group invests in makes Aston Martin car parts

These are precisely the types of companies that should help keep Britain on the front foot in the digital era and shareholders in Mercia are contributing to their ultimate success. 

They are not having an easy time, however, as the short-term performance of the stock has been disappointing. 

Mercia joined Aim in December 2014 at 50p and Midas recommended the shares two years later, by which time they had fallen to 44½p. Today, the price is 36p.

The fall is unjustified. Interim results last week showed that businesses in Mercia’s stable are doing well and should do even better next year and beyond.

Mercia’s activities are divided into two related areas. First, it oversees a collection of around 350 junior businesses, which are funded by external investors such as wealthy individuals, regional funds and the Government. 

Mercia monitors these firms closely, supports them and receives a fee for doing so. It then selects the most promising candidates and invests in them directly.

There are now 25 such businesses, expected to increase to around 40. The selection includes nDreams, a virtual reality pioneer, Impression Technologies, which designs high-strength, lightweight aluminium parts for cars such as Aston Martins, and VirtTrade, which has turned the traditional schoolboy habit of card collecting and trading into a digital game.

Last week’s figures – for the six months to 30 September – revealed that Mercia’s assets rose almost 8 per cent to £123 million year-on-year. Yet the company is valued on the stock market at £108 million.

The discount is unfair and it should unwind, as Mercia adds to its portfolio and sells some businesses at a profit.

Midas verdict: A falling share price is particularly unfortunate when Mercia is trying to help the sorts of companies that the Government most wants to support. 

Shareholders should keep the faith. New investors with a long-term horizon may also consider buying shares at 36p. 

MIDAS SHARE TIPS UPDATE 2: Cinema group lines up a £4.3bn blockbuster deal

As blockbusters go, Cineworld’s proposed $5.8 billion (£4.3 billion) acquisition of US cinema giant Regal Entertainment is up there with the best.

Regal is almost three times the size of Cineworld and the British chain needs to raise £1.7 billion in a rights issue and take on £3 billion of debt to fund the deal.

Midas recommended Cineworld in March 2015 when the shares were 452¼p. 

By January this year, they were 586½p and, before rumours surfaced about the Regal deal, they had risen to 694p. On Friday, however, they closed at 525p.

Midas verdict: Most brokers believe that Cineworld will be able to make a success of Regal but it will take time. 

In the short term, this deal is so large that it will have to be put to a shareholder vote. Details will only be published in January.

Until then, all but the most impatient should hold on to their stock.