Review: Pembroke VCT
Since its launch in 2013, the Pembroke VCT has focused on growth investing, typically backing consumer brands with premium pricing potential. It invests mainly in five sectors: wellness, hospitality, education, apparel & accessories and media & technology. Its 2019/20 share offer is open for subscription and aims to raise up to £20 million in its B Ordinary share class (with a £20 million overallotment facility).
- Strong emphasis on capital growth
- Preference for profitable companies – approximately 31% of portfolio companies are trading profitably (not a guide to the future)
- Focus on five sectors: wellness; hospitality; education; apparel & accessories; and media & technology
- Portfolio companies include Second Home, Five Guys and Chilango restaurant chains
- Past and current directors have so far invested £1.95 million in the VCT and intend to invest a further £50,000 in aggregate in the current offer
- Annual rebate of 0.15% for three years
- Low minimum investment of £3,000
The Pembroke VCT is managed by Pembroke Investment Managers LLP (formerly Oakley Investment Managers LLP), part of the 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 manages over €1.5 billion in aggregate.
Peter Dubens was a multi-millionaire by age 27, having sold his first two companies for £8 million and £16 million respectively.
He was the “Pete” in the “Pete & Johnny's” — PJ Smoothies — range, eventually sold to PepsiCo for £20 million. After that, he brought ukbetting (now renamed 365 Media Group) to the market for £6.5 million and sold it to Sky for £106 million. That was followed by Palmer Capital, Pipex (most of this was sold for £330 million in 2007) and Oakley Capital.
Mr Dubens, formerly a Director of the VCT, is no longer involved in the day-to-day running of the VCT, but still plays a role in deal origination.
The VCT is managed by a small but expanding team of seven (when including the CFO) which can benefit from the support of the wider group.
Chief Investment Officer Andrew Wolfson heads up both Pembroke and Pembroke VCT. He is responsible for selecting, monitoring investments, and advising portfolio companies. Like Peter Dubens, he's not just a fund manager, he also has first-hand business experience.
Andrew has been cooperating with Peter Dubens since the mid-Eighties and has worked with a number of Oakley’s earlier-stage portfolio companies including KX, Tom Aikens and James Perse. Before joining Oakley, Andrew ran a number of businesses in sectors ranging from hospitality to manufacturing and telecoms. This experience could be highly beneficial to the VCT's portfolio companies.
Andrew sits on the board of a number of Pembroke’s current investments and helps the founders and management teams.
Since inception, the VCT has focused on capital growth, so the new more restrictive VCT rules did not require any drastic changes.
The aim has always been – and still is – to back companies the manager believes have significant growth potential, run by ambitious entrepreneurs, with the objective of generating significant returns – not guaranteed.
The connection to Oakley Capital and Peter Dubens means the team has good access to deals and also that it can co-invest in larger deals.
Because of the management team’s entrepreneurial background, it tends to focus on sectors in which it has a track record and tends to take significant stakes in each company, so as to be able to influence the company’s strategy and maximise the value it adds.
As a result, the portfolio is biased towards consumer-facing businesses, typically with an established brand in five sectors: wellness, hospitality, education, apparel & accessories, and media & technology – from startups to more mature businesses.
Exit track record
Because it is still a relatively young portfolio, there haven’t been any significant exits yet.
Overall, the 34-company B Share portfolio is currently valued at £46.5 million, which represents a 1.2x return on investment (Mar 2019). This also includes the investee companies which have to date been exited at a loss.
An example of failure is Cheekfrills. Founded in 2012, it was a women’s underwear brand focusing on premium everyday knickers. Pembroke VCT invested £205k in 2015. It soon became apparent that despite its strong list of retail partners the founders were unable to develop the business within the constraints of the fashion cash cycle. In December 2015 it was decided to put the business into liquidation and the VCT’s investment was written off.
Current portfolio overview
Pembroke has to date invested £53 million in 40 companies, across its Ordinary Share and B Ordinary Share classes.
The VCT has net assets of £67.8 million across its two share classes, as at March 2019.
Currently the total B Ordinary Share portfolio comprises 34 investments.
In the 12 months to March 2019, Pembroke VCT invested £5.6 million in five new investments and a further £5.7 million in the form of debt and equity in 13 existing portfolio companies.
Approximately 31% of the investments (by value) made to date have been in businesses that are now trading profitably at the operating profit level, although please remember past performance is not a guide to the future.
Examples of portfolio companies
Five Guys was founded in 1986 in the US. It’s a restaurant chain serving handmade burgers cooked on a grill, along with fresh cut fries, served with unlimited toppings.
Pembroke became involved even before Five Guys had its first UK site and provided growth capital to fund the UK roll-out. Five Guys was also backed by Sir Charles Dunstone, founder of Carphone Warehouse and an investor in Pembroke.
The chain now comprises 88 restaurants in the UK and 29 across France, Germany and Spain with further sites in the pipeline.
In 2018 UK revenue was £149.5 million (up from £122 million the previous year) and operating profit was £5.8 million (up from £5.1 million in 2017).
Pembroke originally invested in 2013 through its Ordinary Share Class and has invested over £2 million, of which £570,000 was through the B Ordinary Share Class. At the latest valuation (Mar 2019), B Ordinary Share class holdings were valued at £1.47 million (a 3x unrealised return). Because of the company’s size, Pembroke VCT is precluded from making any further investment. However, the holdings remain part of the existing portfolio, so new investors could benefit from any further growth and an eventual exit.
ME+EM is a women’s fashion label that specialises in well made, on-trend clothes that don’t cost the earth.
Clare Hornby, the founder, started making clothes as a teenager. At 14 she had a market stall selling factory seconds. She eventually decided to start her own fashion business in 2007, when she noticed a gap in the market. At one end of the market, there is high street fast fashion: on-trend clothes made affordable at the expense of quality and fit. At the other end, there are luxury brands offering craftsmanship but at an inaccessible price.
ME+EM was created to offer designer quality at affordable prices with an emphasis on fit. Ten years on, the company has a team of 60, seven stores, a strong online presence and an international customer base, including the Duchess of Cambridge.
Pembroke VCT first invested in the company in 2015 alongside Venrex Fund, Sir Charles Dunstone and several other private investors. To date it has invested £889,646, currently valued at £3.4 million (3.9x unrealised return).
Secret Food Tours (new investment)
Founded in 2013 by friends Nico Jacquart and Oliver Mernick-Levene, Secret Food Tours offers tours with experienced, local, foodie guides who show thousands of people the best and most delicious foods a city has to offer. Each tour is fun, highly rated, and completely unique to its destination — no two tours are the same.
The company started with tours in Paris and London. At the point of investment (August 2018), it had 60,000 customers annually and operated in 27 top tier cities across three continents. Pembroke VCT invested just over £1 million.
Performance and dividends
The B Ordinary Share targets an annual dividend of 3 pence per share – although past performance is not a guide to the future. There is also the potential for special dividends where significant realisations occur from the sale of the portfolio assets. Please remember, returns are not guaranteed.
Source: Pembroke. Dividends are variable and not guaranteed. Pembroke VCT B shares were first issued in March 2015. Past performance is not a guide to the future.
Source: Pembroke. Past performance is not a guide to the future. Dividends are not guaranteed. Charts shows Net Asset Value and cumulative dividends paid to 31 March each year, pence per share.
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.
Tax rules can change and benefits depend on circumstances.
VCTs can now only invest new money in growth capital deals. Management buyouts, replacement capital deals and investments in mature companies are no longer permitted. This results in considerably higher risks.
As this is a relatively new VCT with no legacy portfolio of investments made under the older rules, investors might have to wait longer for returns, although there has been an early uplift in NAV already for existing investors – note past performance is not a guide to the future.
There are two share classes: ordinary and B ordinary shares. The interests of Ordinary Shareholders and B Ordinary Shareholders may not always be aligned although the VCT has a conflict of interest policy in place to manage this.
Fees and charges
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.
|Full initial charge||3.5%|
|Early bird discount||1.25%|
|Wealth Club initial saving||1%|
|Existing shareholder discount||–|
|Net initial charge through Wealth Club (new investors)||1.25%|
|Net initial charge through Wealth Club (existing shareholders)||1.25%|
|Annual management charge||2%|
|Annual administration charge||–|
|Annual rebate from Wealth Club (for three years)||0.15%|
More detail on the charges
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 0.15% of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.
The following deadlines apply.
- Invest by noon on 26 September 2019 (cleared funds required) for the first allotment. Shareholders on the register on 26 September should be eligible for the declared 3p dividend (not guaranteed).
- There is an early bird discount of 1.25% for applications received by 13 December 2019, or the first £5 million if sooner.
Pembroke offers a share buy-back policy. The company may repurchase shares which shareholders wish to sell, at a discount of no more than 5% to net asset value per share, less transaction costs payable to market makers and stockbrokers. Please note, any purchase is at the discretion of the board and is subject to the company having the necessary cash resources and distributable reserves available for the purchase.
Dividend Investment Scheme (DIS)
There is a Dividend Investment Scheme which 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.
This is a relatively new and small VCT, which still hasn’t had the chance to prove itself.
However, there are some encouraging signs. The portfolio includes a number of promising companies that seem poised to achieve significant exits, although there are no guarantees. Moreover, the smaller size could play in favour of investors: a single positive exit is more likely to have an impact than it would in larger portfolios.
Pembroke’s strategy is significantly different from any other current VCT offering and could, therefore, dovetail well with other offers.
Firstly, it invests – although not exclusively – in the hospitality and retail sectors, which tend to be neglected by most other VCTs. So, it could add diversification to an investor’s established VCT portfolio although remember these sectors are under considerable pressure at the current time.
Secondly, Andrew Wolfson and the team’s experience means they know first-hand what it takes to build a successful business. As a result, they tend to take a much more active role in their investee companies than some other VCT managers.
We have met Andrew Wolfson several times and we were always impressed. He runs a £64.7 million portfolio of 34 companies (Mar 2019). Yet he can tell you from the top of his head how many shades of nude tights portfolio company Heist Studios (a hosiery designer and retailer) sells. He can talk just as easily about the rate of sale of Plenish nut milks across Sainsbury’s, Asda, Waitrose and Marks & Spencer. He seems to have a similar depth of knowledge of all the investee companies we have discussed with him.
Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision 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.
Pembroke VCT – apply online
Invest by 12 noon on 26 September 2019 to qualify for the dividend of 3p per shareRead more and apply online