Review - Guinness EIS
With renewable energy businesses no longer permitted as qualifying EIS investments, many providers have been searching for opportunities with similar defensive characteristics in different sectors and areas. Guinness believes it has found a raft of businesses with asset backing that qualify for EIS and could deliver this offer’s key target of capital preservation.
- New offer from established EIS manager Guinness
- Targeting asset backed or asset rich businesses, e.g. nurseries and crematoria
- Focus on capital preservation
- £1.25 per £1 invested target after 5-6 years
- Raising £20 million
- Aims to be invested in the 2016/17 tax year, in time to claim tax relief for this or the last tax year
Guinness Asset Management is a specialist fund manager with approximately £60 million invested in EIS funds and particular skills in the asset-backed energy sector, both quoted and unquoted. Five key people, including Edward Guinness and Shane Gallwey, work in the asset backed team, which manages the sustainable infrastructure investments (IHT and EIS) and this new EIS.
With this new EIS offer the key aspect is some form of asset backing to underpin part of every investment.
The managers are considering investments in three areas:
- Businesses that own property and land, e.g. nurseries, crematoria gyms and pubs
- Businesses with high value stock and equipment, e.g. luxury goods dealers, or businesses with tradable assets such as logistics and freight
- Businesses with assets and associated long-term contracts, e.g. waste management or recycling businesses with long term contracts
The management team has already identified a raft of businesses in the above areas and is already in negotiations with six. These include:
- An existing nursery in London that is looking to expand to a new site and purchase the freehold. The nursery already has an annual revenue of £1.6 million with profit before tax of £400,000;
- Two new crematoria to be built in the North of England. Planning permissions and the management team are already in place and construction partners and equipment providers have been identified. The value of the UK funeral-related services market is estimated at £2 billion;
- An animal carcass processing plant to be built next to an existing abattoir. Planning permission is already in place. The abattoir currently has to pay £23 per ton to dispose of the carcasses. The carcass processing plant would buy the carcasses from the abattoir and process them to produce fat, stock and fertiliser. This, according to Guinness, can produce highly visible and predictable revenue streams;
- A dry bulk shipping business. With day rates at an all-time low, it may seem an odd time to consider investing, however Guinness believes ship values closely correlate to the day rate, indeed vessel prices are at historic lows with no new ships being built. The asset-backing is provided by the scrap metal of the vessels.
These are just some of the investments Guinness is currently considering. The manager says the pipeline of deals is strong with over £20 million at advanced stages and a further £50 million if demand was very strong.
Guinness only invests in equity, avoiding businesses with high leverage as the manager wants to have claim over the cashflow of the business to help mitigate risk.
Please remember, no investment strategy - no matter how cautious - will eliminate risk. All investments can fall as well as rise in value, so you could get back less than you invest.