Review: Albion VCTs

This £32 million top-up offer is an opportunity to invest in five of Albion’s VCTs: Albion Development, Albion Enterprise, Albion Technology & General, Crown Place and Kings Arms Yard. Each VCT has a minimum of £1,200 and investors are free to choose into which they invest, subject to an overall £6,000 minimum. 

VCT Funds sought
Albion Development VCT £6 million
Albion Enterprise VCT £6 million
Albion Technology & General VCT £6 million
Crown Place VCT £6 million
Kings Arms Yard VCT £8 million
Albion Venture Capital Trust Suspended

Highlights

  • Existing, mature portfolio of around 60 unquoted businesses with an asset value of approximately £276 million
  • Experienced manager with strong track record 
  • Target tax-free income of around 5.4% per annum* – this is variable and not guaranteed
  • If all five VCTs are chosen, dividends could be expected in every month except January and July
  • The portfolio includes loan stock secured on the assets of investee companies
  • Minimum investment £6,000 
  • Early bird discount: existing shareholders can save 1% on the initial charge and new investors 0.5%, available until 31 October 2017 or until the VCTs raise £10 million, whichever happens first

*based on the latest announced net assets values and current annual dividend targets for the Albion VCTs as at 14 September 2017, and an equal investment across all five VCTs. Note the offer for the Albion Venture Capital Trust has been suspended. 

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The manager

Albion Capital is the investment manager and has managed VCTs since the launch of Albion Venture Capital Trust in 1996. As at 30 June 2017, Albion managed approximately £340 million on behalf of the Albion VCTs. It is one of the largest VCT managers. 

Albion Capital also provides staff to run Albion Community Power PLC, a renewable energy power generation company; manages Albion Care Communities, which develops luxury care homes for the elderly; manages and administers the UCL Technology Fund, which has raised £50 million to commercialise University College London’s world-class research output; and owns OLIM Investment Managers, a fund manager which specialises in UK quoted equities for charities, an investment trust and private clients. Across its businesses, Albion has approximately 40 staff.

Investment strategy

Albion looks to find potential for growth in areas or sectors where the status quo is changing. Across both its asset-backed and growth investments it favours the education and health sectors because it believes demand for both will never fade.

It tends to avoid companies with external borrowing.

Funds raised by this top-up offer will be invested in line with each VCT’s investment policy and provide it with working capital. The VCTs co-invest in many of the same companies.

A breakdown of the current portfolio is shown below. 

However whilst the overarching objective of all five VCTs is to achieve long-term growth, each VCT adopts a different approach. The track records are markedly different. Investors can either choose to invest in a specific VCT or VCTs or simply invest across all five.

Like many of the other VCT top-up offers also currently available, an investment in the Albion VCTs provides exposure to a mature portfolio, often in areas that are no longer available for new investment by the VCT. A further benefit is that the percentage held in loans to the underlying companies, rather than equity, is typically higher as older VCT rules allowed more debt. This can help reduce risk somewhat and could also help fund the regular dividend.

Below are more details of each of the five VCTs currently available. Note the offer for the Albion Venture Capital Trust is currently suspended.

VCT Current target dividend Total dividends paid Total return before tax relief (p)
Albion Development VCT
(launched 1999)
4p 89.75p 161.05p
It aims to offer predictable dividend income and the potential for long-term capital growth. Up to two-thirds of the portfolio is invested in loan stock secured with a first charge on the investee company’s assets – this should help fund dividend payments. The rest is in higher-risk investments in sectors such as software and computer services alongside medical technology and should help with capital growth. Performance has so far been average. Over five years it is the fourth best-performing of the Albion range and mid-table against its other generalist VCT peers, according to figures from the AIC.
Albion Enterprise VCT
(launched 2007)
5p 33.85p 134.64p
Like Albion Development, the aim is to give a balance between growth and stability. Risk is mitigated through diversification and loan stock investments. The portfolio has done reasonably well on a five-year view. It’s been Albion’s second best and is 15th against its peers based on NAV total return over 5 years.
Albion Technology & General VCT
(launched 2001)
4p 92p 164.10p
This is Albion’s highest-risk VCT. The VCT-qualifying part of the portfolio is invested 40% in unquoted UK tech businesses and the balance in UK non-tech unquoted companies. Up to two-thirds of the portfolio is invested in loan stock secured with a first charge on the investee company’s assets. Over 5 years it has under-performed – it ranks the lowest of the Albion VCTs over 5 years based on NAV total return. However short-term performance is more encouraging.
Crown Place VCT
(launched 1998)
2p 28.80p 137.76p
This VCT majors on asset-backed investments giving a strong income stream. A smaller proportion of the portfolio invests in growth businesses. Performance over the past five years has been average compared to its peers.
Kings Arms Yard VCT
(launched 1996)
1p 6.17p 168.55p
The focus for Kings Arms Yard is healthcare, environmental and leisure. The intention is, over time, to move half the portfolio into asset-backed opportunities across these three sectors with the aim of giving stability and income. The growth part of the portfolio is instead across a variety of sectors ranging from more stable, income-producing businesses to a limited number of higher-risk technology companies. Kings Arms Yard has been Albion’s best performer over five years to date. Against its generalist peers it ranks 8th, based on NAV total return.
Source: Albion and the aic. Table above shows data for Ordinary shares. Please remember, past performance is not a guide to the future. Dividends are variable and not guaranteed. Tax benefits depend on circumstances and tax rules can change. Aic data as at September 2017, based on NAV total return over 5 years for 46 Generalist VCTs. **Total dividends are calculated from when Albion Capital took over the management of Crown Place VCT (April 2005) and Kings Arms Yard (January 2011) and NAV for both has been rebased to 100 as at these dates.

Performance 

Source: Albion Capital. Shows net asset value plus cumulative dividends. Past performance is not a guide to the future. All numbers are stated in pence per ordinary share.

Dividend history

Source: Albion Capital, Sept 2017. Dividends are variable and not guaranteed. Past performance is not a guide to the future.

Examples of portfolio companies

To give investors a flavour of what to expect – and what’s in the portfolio now – below we describe a growth deal and an asset-backed investment.

Growth capital - DySIS

One of Patrick Reeve’s favourite investments made by the Albion VCTs is DySIS. The company has developed an imaging device that increases the reliability of cervical cancer examinations from 50% to 90%.

When Albion invested, the company was a research-based organisation headquartered in Greece. The technology worked but it needed serious investment to recruit, train and deploy a direct sales force. Albion helped DySIS establish a base in the UK from which it could hit the European and US markets. The business won accreditation from the UK medical guidance body NICE and it now has a direct sales force in the US. It moved from being a research-led business to being marketing and sales driven. Over 30,000 patients have now been scanned.

Albion invested because they found a good team with a good technology in a growing market. In the case of DySIS, there was a clinical need for innovation.

Asset-backed - Radnor House School

Radnor House is Britain’s first venture capital backed school. Albion invested £9 million in 2010, alongside David Paton, former Head of Sixth Form at the Harrodian School in South West London. The building, known as Pope’s Villa, is sited on the riverbanks of Thames in Twickenham, and was once home to the 18th century English poet Alexander Pope. Mr Paton and the founding Headmaster, Bob Cook, opened the doors to Radnor House in 2011. Since then, the school has grown to 400 pupils in size.

Five years after the first Albion investment, the group announced in 2015 its intention to invest up to £9.5 million to fund the acquisition of Combe Bank School in Sevenoaks. In 2016, the school was renamed Radnor House Sevenoaks and now has 380 pupils.

Radnor House, according to Emil Grigov, Partner at Albion, fits Albion’s objective to create long-term, income-generative investments for VCT investors.

Exit strategy and examples

Exits are a feature of all VCTs, however Albion does tend to try and hold investments for longer than average in order to deliver higher returns to investors. The VCTs had £18 million worth of exits in 2016. Remember, past performance is not a guide to the future.

We’ve highlighted two previous exits Albion has had from its VCT portfolios. Again, we’ve picked a growth capital investment and an asset-backed deal. Please remember, past performance is no guide to the future. Investors in the current offer will be unlikely to have exposure to either of the companies described here. 

Haemostatix – growth investment exited in 2016

Haemostatix is a spin out from the University of Leicester. It was established to commercialise a new technology which uses a specific peptide sequence that binds to fibrinogen – a protein pivotal in clotting. In plain English, the technology stops bleeding during and following surgery. 

In May 2016 Ergomed – a Guildford-based clinical trial service provider – struck a deal to purchase Haemostatix and its pipeline of treatments for surgical bleeding. The most promising treatment, PeproStat, stops 95% of bleeds within three minutes. This compares favourably with competitors such as Floseal which stops 96% of bleeds within ten minutes.

Oakland Care Centre – asset-backed investment exited in 2014

In 2010 Albion funded the setup of a specialist dementia care facility in Chingford, Greater London. Oakland acquired a freehold site and developed a purpose-built facility for 45 residents with dementia. The care centre – named Bayfield Court – was recognised at the 16th National Care Award for ‘Best Care Home UK.’ Part of the investment rationale was the long-term demographic trend for demand for dementia care. At the point of investment it was estimated that the need for dementia care would double over the next 25 years.

For the VCTs, the company gave an attractive yield and capital growth. After four years, the company was sold to one of the largest industry consolidators.

Risks

Please remember your capital is at risk. VCTs are high risk investments and are not suitable for everyone. Investors should not invest money they cannot afford to lose. 

The risks and investment objectives are different with each VCT, but with a significant proportion of the combined portfolios invested in asset-backed deals, investors are also highly exposed to commercial property.

Tax rules can change and tax benefits depend on individual circumstances.

Venture capital schemes, including VCTs, are currently the subject of a Treasury consultation. The “Patient Capital” review is designed to review the options for ensuring access to long-term investment for young, innovative firms. The proposals are expected to be announced in the Autumn budget. Albion believe the could have an effect on the investment policies of the VCTs, and on the levels of tax reliefs that are available.

Fees

The initial charge for these offers is 2.5%. Existing shareholders subscribing for the first £10 million (by 31/10/17) will receive an additional discount of 1%, whilst new investors will receive a discount of 0.5%.

The annual management fee varies between 1.75% and 2.5%, depending on the VCT. Annual charges are capped at 2.75% to 3%, depending on the VCT.

Albion is also entitled to a performance fee and administration and secretarial fees on all five VCTs. Performance fees differ ranging from base rate plus 2% as a hurdle; an RPI linked hurdle; and a dividend distribution-linked one. Please read the Securities Note to fully understand the fee structure of each VCT. Some of the performance fee arrangements seem in our view overly generous towards the manager as they are linked to a small out-performance of the base rate. The manager may also receive deal completion and monitoring fees. 

Summary

Although this is not one of our featured offers, there are several compelling reasons to consider investing in the Albion VCTs. These include the manager’s experience, the mature existing portfolio and the prospects of regular income (not guaranteed). For wealthy or sophisticated investors looking for a shot at high growth whilst receiving a regular income this may be worth a look.

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.15.09.2017