A Transformative Move Amid Solid Gains
European Assets Trust (EAT) has delivered a headline-grabbing update: a proposed merger with The European Smaller Companies Trust (ESCT) following robust half-year results. This isn’t just administrative shuffling – it’s a strategic play to create the largest trust in the AIC European Smaller Companies sector. The numbers tell part of the story, but the real intrigue lies in what this means for shareholders navigating today’s volatile markets.
Half-Year Performance: Beating the Drum but Lagging the Index
For the six months to 30 June 2025, EAT posted a net asset value (NAV) total return of 13.0%. Respectable? Absolutely. But it trailed its benchmark – the MSCI Europe ex-UK Small Mid Cap Index – which surged 19.3%. More strikingly, the share price total return hit 18.9%, reflecting a significant narrowing of EAT’s discount as news of the merger leaked. Key figures:
- NAV per share: 100.76p (Dec 2024: 91.82p)
- Share price: 93.00p (Dec 2024: 80.80p)
- 2025 dividend: 5.52p per share (paid quarterly at 1.38p), yielding 5.8% at recent prices
Winners and Losers in the Portfolio
Performance was a tale of two quarters: a tough Q1 (-7.8% vs benchmark) partially offset by a stronger Q2 (+2.3%). Defence stocks soared on geopolitical tensions and Germany’s relaxed debt rules – Rheinmetall (+204%) and Renk (+99%) led the charge. Banks like Bank of Ireland (+46%) and infrastructure play Heidelberg Materials (+68%) also thrived.
But tariff fears hit hard: packaging firm Smurfit Westrock (-26%) suffered due to its Mexico-US supply chain, while chemical distributor IMCD (-16%) and hydraulic specialist Interpump (-13%) faced cyclical headwinds.
The Merger: Why ESCT and What’s On Offer
On 23 June, EAT announced its proposed combination with ESCT via a Section 110 scheme of reconstruction. If approved (votes expected October 2025), EAT shareholders will receive shares in the enlarged ESCT – now managed by Janus Henderson’s Ollie Beckett. The rationale?
- Performance reboot: EAT’s “sustained underperformance” contrasted with ESCT’s stronger track record.
- Scale benefits: Larger assets mean lower fees, tighter discount control, and better liquidity.
- Cash exit option: Up to 15% of shareholders can exit at a 2% discount to NAV.
- New dividend policy: ESCT will target payouts of at least 5% of prior-year NAV (paid quarterly).
Simply put: EAT’s board sees this as the best path to revitalise shareholder returns. The market agrees – the discount narrowed sharply post-announcement.
Dividend Certainty Amid Transition
Despite the potential merger, EAT confirmed its final 1.38p quarterly dividend for 2025, payable 24 September. This maintains the full-year 5.52p payout. It’s a classy touch – honouring commitments even while potentially winding down the trust.
Looking Ahead: A New Chapter for Shareholders
If approved, this merger closes EAT’s 45-year story but opens a compelling new volume. The combined entity offers scale, a proven manager, and a refreshed income focus. For investors, it’s a chance to swap past underperformance for future potential in European smaller companies – a market showing renewed vigour after years in the doldrums. The vote in October will be one to watch; smart money’s already pricing in a “yes”.
