Pembroke VCT

Pembroke VCT focuses on backing early-stage businesses led by exceptional founders and management teams. It targets three sectors: consumer, B2B business services, and technology.

The VCT has net assets of £213.9 million and a portfolio of approximately 45 companies (September 2023). To date, it has achieved three profitable exits, generating £28.8 million in proceeds, against a cost of £6.9 million.

In the five years to 31 December 2023, the VCT delivered a NAV total return (including dividends) of 25.8%. Past performance is not a guide to the future.

• Seeking to raise up to £40 million, with a £20 million overallotment facility
  
• Targets annual dividends of 5p per share – not guaranteed
• Available for the 2024/25 tax year
• Minimum investment of £5,000
• Next deadline: 28 June 2024 (3pm) for final allotment in 2024/25 tax year

The manager

Pembroke VCT plc is managed by Pembroke Investment Managers LLP (“Pembroke”), part of Oakley Group, a privately owned asset management and advisory group founded by serial entrepreneur Peter Dubens. The group comprises private equity, venture capital and corporate finance operations, and has c.€9 billion under management.

Oakley Capital was founded in 2002 to help companies develop from early-stage to established businesses. Pembroke was founded in 2013 to support the development of smaller, early-stage high-growth businesses.

Pembroke is led by CEO Andrew Wolfson. Andrew has first-hand business experience, having worked with Peter Dubens since the early 1990s, including with several of Oakley’s earlier-stage portfolio companies such as luxury gym KX and premium fashion brand James Perse. Before joining Oakley, Andrew ran several businesses in sectors ranging from hospitality to manufacturing and telecoms. Andrew sits on the board of several of Pembroke’s current investee companies and provides support to founders and management teams.

Chief Investment Officer, Jamie Kennell, is responsible for overseeing the trust’s investment and portfolio strategy. Jamie joined Pembroke in May 2022, initially as Head of Investment Portfolio, having previously worked at NatWest, KPMG, 3i and Beringea, manager of the ProVen VCTs. He is supported by the wider Oakley group as well as a dedicated investment team of eight.

Investment strategy

The VCT invests in a diversified portfolio of smaller, mainly unquoted companies operating in sectors the team knows well, and where it can use its experience to add value. Its target sectors include consumer, B2B business services, and technology.

The VCT’s strategy centres on finding and selecting strong founders. The investment team spends considerable time meeting and fostering potential deals, often well before companies consider fundraising. 

Pembroke looks to back ambitious entrepreneurs developing either consumer brands with premium pricing potential or those using technology to challenge incumbents. At this stage, companies should already have an early customer base and will typically have annualised revenues of £1 million or more.

The VCT aims to take a significant stake in each company to influence strategy and maximise value. It will then provide funding in “steps”, with each tranche allocated toward a specific growth period and proving the next stage of the business. 

Approximately two thirds of funds raised under this new offer are expected to be invested in follow-on opportunities, supporting the growth of the existing portfolio.

Current portfolio overview

Pembroke VCT had net assets of £213.9 million and a portfolio of 44 companies (September 2023). The VCT is fairly concentrated, with the top 10 holdings accounting for 61.2% of the portfolio. 

In the six months to September 2023, Pembroke VCT invested £6.3 million in five follow-on investments. Post period-end, the VCT made one additional follow-on investment for £1.3 million.

The portfolio is divided across three sectors: B2B business services, technology, and consumer.

Sector breakdown (%)

Examples of portfolio companies

LYMA — largest holding

LYMA was founded by husband-and-wife team Lucy and Simon Goff in 2017. 

The company started out offering a premium dietary supplement, developed alongside some of the world’s leading nutritional scientists. It has since created its own skincare brand (which currently has 30,000-person waitlist) and the world’s first medical-grade beauty laser which received FDA approval in May 2022. On launch day, LYMA received over $1.5 million in orders for its laser and counts Hollywood A-listers including Kate Hudson, Kim Kardashian, and Naomie Harris, among its customers.

Since launch in 2017, the business has expanded into over 70 countries and doubled revenue every year, reaching £23.2 million in 2022. The business ranked 11th in the 2023 Sunday Times Top 100 list of fast-growing UK private companies. LYMA is now focused on expanding its brand and launching additional products. 

Pembroke invested £2 million in February 2019. That position is now valued at £29.7 million and accounts for 13.9% of net assets (September 2023). Past performance is not a guide to the future.

Seatfrog – recent investment

According to Seatfrog, major European trainlines only sell around 25-30% of their first-class tickets, leaving roughly 570 million seats unsold every year. 

Seatfrog aims to address this by making it easier to upgrade, switch, and buy train tickets. Its live auctions allow passengers to bid on upgrades, often at significantly reduced prices, right up until the train departs. Since launching in 2018, Seatfrog claims to have saved travellers over £43 million in ticket fares while also increasing operator revenues. 

The company now has more than one million customers and has secured long-term contracts with every major rail company in the UK. In 2022, it grew revenues by over 800% and is now focusing on expanding into Europe, having recently signed terms with Trenitalia, Italy’s national train operator. 

The VCT invested £3 million in February 2023 as part of a £6 million funding round alongside Praetura and Octopus Ventures.

Exit track record

Pembroke VCT launched in 2013. The B Share class first allotted shares in 2015. To date, it has achieved three profitable exits: Pasta Evangelists, the fresh pasta delivery service, Plenish, the plant-based drinks brand, and women’s fashion brand ME+EM (below). The latter two exits achieved returns of 2.3x and 16.1x respectively. Past performance is not a guide to the future. 10 investments have been written off. 

ME+EM – recent exit

Luxury fashion brand ME+EM was founded in 2009 by friends Clare Hornby and Emma Howarth. 

They sought to create “flattering” and “functional” clothes with a timeless “wear-forever” appeal at an accessible price. Unlike many fashion brands, ME+EM designs and produces its collections inhouse. The brand’s sales are almost entirely online, although there are also eight store/concession locations. That helps it keep costs down while maintaining a top-quality product which has attracted high-profile fans, including the Duchess of Cambridge. 

Pembroke first backed the business in August 2015, investing a total of £956,000 over the next five years. In March 2022, the VCT sold its stake to VC firm Highland Europe for £15.4 million, a 16.1x return.

Proceeds from the disposal were used to pay a 5p special dividend in July 2022. 

Stitch & Story – example of previous failure

As is to be expected, not all investments work out. One example is Stitch & Story, an online knitting and craft brand.

Having grown from a weekend workshop, Stitch & Story designed DIY knitting and crochet kits. The business was one of the beneficiaries of the COVID-19 lockdown with sales up by as much as 800% in March 2020 alone. However, following significant supply chain issues, which impacted its ability to fulfil customer orders, the business was forced to enter liquidation in November 2022.

In total, the VCT invested £4.1 million into the business, this holding has since been written down to nil.

Performance and dividends

Over the five years to 31 December 2023, the VCT delivered a NAV total return (including dividends) of 25.8%. 

The VCT paid its first dividend in 2016 and has since paid dividends totalling 35p per share (December 2023). This has been buoyed by special dividends arising from portfolio exits, such as the ME+EM exit detailed above. The VCT is targeting a 5p per annum dividend and has maintained its commitment to continue to pay special dividends as future exits arise. Dividends are variable and not guaranteed.

Note, we show VCT returns over a five-year period as a minimum, where possible. Where a VCT has followed the same investment strategy for longer, we also show returns over 10 years. Whilst Pembroke VCT launched in 2013, the B Share Class (the current share class) first allotted shares in 2015.

NAV and cumulative dividends per share over five years (p)

Dividends paid per calendar year

Dividend Reinvestment Scheme (DRIS)

There is a Dividend Reinvestment Scheme that allows shareholders to reinvest future cash dividend payments in new shares if desired. As these are new shares they should be eligible for tax relief (you will need to claim this on your tax return or directly with HMRC) and the shares will count towards the VCT annual subscription limit. Pembroke VCT also offers a flexible DRIS whereby investors can elect how much of each dividend to take as cash or to re-invest.

Share buyback policy

The board intends to buy back shares at up to a 5% discount to the prevailing net asset value. This is not guaranteed – please see the offer documents for details. 

Discount history

VCT shares are traded on the London Stock Exchange. Similar to investment trusts, the share price can fluctuate and can be different from the VCT’s net asset value (NAV), i.e. the value of the VCT’s underlying investments. The difference between the share price of a VCT, and its net asset value per share, is called a discount.

Based on data from Morningstar, the discount to NAV as at 31 December 2023 was -6.61%. Over the previous five years the average discount to NAV was -7.15%.

The discount history is based on the closing share price of the VCT at the end of each month, divided by the latest net asset value at the time. Past performance is not a guide to the future. Investors looking to sell their VCT shares may get a better price using the VCTs’ share buyback facilities, although this is not guaranteed.

Risks: important

This, like all investments available through Wealth Club, is only for experienced investors happy to make their own investment decisions without advice. 

VCTs are high-risk so should only form part of a balanced portfolio and you should not invest money you cannot afford to lose. They also tend to be illiquid and hard to sell and value. Before you invest, please carefully read the Risks and Commitments and the offer documents to ensure you fully understand the risks. 

To retain the tax benefits, VCTs should be held for at least five years. If you sell VCT shares and reinvest in new shares of the same VCT (including any mergers) within six months, tax relief can be restricted. Tax rules can change and benefits depend on circumstances.

Charges and savings

A summary of the main charges and savings is shown below. The net initial charge shown includes the Wealth Club saving and any early bird discount. The investment may have additional charges and expenses: please see the provider documents including the Key Information Document for more details, offer price and share allotment calculation methodology.

Please note, capacity – for the offer or any early bird savings – can be reached early, and we may not be notified of this by the VCT in real time.

Annual rebate when you invest through Wealth Club

The VCT includes an annual rebate for Wealth Club investors, payable for the first three years. This is a rebate of our renewal commission and should be equivalent to a percentage (shown in the table above) of the net asset value of the offer shares issued to you when you invest. Terms and conditions apply.

Deadlines

• Deadline for final allotment in 2024/25 tax year: 28 June 2024 (3pm)
  

It is intended that allotments of B Ordinary Shares under the Offer will be made every 4-6 weeks during the Offer. 

Our view

The increasing size of the VCT (£213.9 million as at September 2023) has enabled it to diversify its portfolio and provide continued financial support to its companies. The portfolio contains a mix of more mature investments, with 11 companies now valued at over £50 million, as well as smaller positions in recent investments. Strong performance from successful companies and recent sales mean this is now a concentrated portfolio, with 50.3% of assets in its top 10 investments. 

Pembroke’s exposure to consumer businesses continues to differentiate the VCT from the wider cohort. Andrew Wolfson’s experience means he knows first-hand what it takes to build a successful business. As a result, Pembroke tends to take a more active role in its portfolio companies than some VCT managers, aided by Pembroke’s willingness to take a significant stake. 

As the VCT has matured, it has also distributed capital to shareholders following a series of profitable exits. For experienced VCT investors, Pembroke VCT’s distinct investment strategy and investment portfolio could prove to be a good diversifier within a wider VCT portfolio.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.