Review: Pembroke VCT
When you look at the current offers, Pembroke VCT stands out: it is markedly different from – but potentially complementary to – most others.
It is a relatively new VCT (originally set up in 2013) and from the start focused on growth capital investments. This means that unlike many long-standing VCTs it hasn’t had to adjust its strategy after VCT rules changed. At the same time, unlike other newer VCTs, it already has a significant portfolio – £39 million across 34 companies.
Interestingly, some of those companies are in sectors, such as niche retail and hospitality, which are often neglected by other VCTs.
But what in our view makes this VCT worth considering is the quality of both the manager, Andrew Wolfson, and some of the portfolio companies.
A manager with a long pedigree
One might say entrepreneurship runs in Mr Wolfson’s blood. His ancestors were instrumental in turning Great Universal Stores into a retail giant. His brother is the long-serving Chief Executive of Next.
Instead of joining the family businesses, Mr Wolfson cut his teeth in building up businesses of his own. From the early Nineties, he’s worked with serial entrepreneur Peter Dubens, whose first venture was selling T-shirts that changed colour when exposed to heat. Five years later, the company was sold for £8 million to Coats Viyella.
A number of successful ventures followed, eventually leading to the creation of Oakley Capital and, in 2013, the launch of the Pembroke VCT.
A hands-on approach
Mr Wolfson’s background is apparent when he talks about the VCT’s investee companies. And his involvement clearly goes far beyond taking a seat on the board and reading quarterly updates. He refers to the founders by first name. He knows the businesses inside out, from revenue figures to the exact address of any outlet.
If things are not going to plan, as can be expected with high-risk young companies, he doesn’t stay on the sidelines. For instance, he recently replaced the CEOs of two portfolio companies operating in the same sector with a single high-calibre CEO and merged their back office. Short term, this delivered significant cost savings. Long term, it could transform the fortunes of both companies, although only time will tell.
What kind of companies are in the portfolio?
The management team tends to focus on sectors it knows and usually takes 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 niche and often high-end 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. As with all VCTs, your capital is at risk.
What about performance?
Pembroke VCT is still relatively young. This, combined with its focus on early-stage companies, means there haven’t been any significant exits yet.
That said, the VCT’s early traction has been promising, and investors have been rewarded with NAV growth and dividend payments (from 2017), as the figures to the right show. As ever, past performance is not a guide to the future and dividends are not guaranteed.
Source: Pembroke Investment Managers/The AIC. Past performance is not a guide to the future. Performance is based on latest available NAVs. Dividends are variable and not guaranteed. Pembroke B Ordinary Share class was launched in 2015. The bar chart shows Net Asset Value and cumulative dividends (paid out) over ﬁve years, to 30 September each year, pence per share. The table shows the cumulative historic total returns for the VCT over each time period, dividends reinvested, not taking expenses into account, as at 30 September 2019.
The main reason for the NAV growth is the number of portfolio companies that have experienced material valuation uplifts, resulting in total paper gains of £5.2 million. Three holdings in the B Ordinary Share class portfolio seem to have driven this (as at 31 March 2019):
ME+EM, a contemporary women’s fashion brand which sells online and from five stores in London, is the second-largest holding and makes up 8% of the value of the net assets. Revenues have grown from £4.2 million in 2016, to £11 million in the latest accounts. Pembroke VCT invested £0.89 million (2015) and its stake is now valued at £3.4 million.
Five Guys UK is the UK franchise of the US premium burger restaurant chain. In two years store count has risen from 59 to 88, and revenues have grown from £86 million to £150 million. Pembroke VCT originally invested in 2013 through its Ordinary Share Class and has invested over £2 million, of which £570,000 through the B Ordinary Share Class. This is now valued at £1.7 million.
Beryl is an urban cycling technology company. Its first product, the Laserlight, was created to tackle the problem for city cyclists of being caught in the blind spot. Since then it has launched other cycling safety products and its own bike share system in London, Bournemouth and Hereford. Pembroke B Shares initially invested £0.35 million (2015). Following a series of successful funding rounds, the stake is now valued at £1.1 million.
Secret Food Tours – recent investment
From the Tin Hau area of Hong Kong to the oldest covered market in Paris and the cobbled streets of vibrant Trastevere in Rome, Secret Food Tours helps travellers experience the best and most delicious foods a city has to offer with experienced, local, foodie guides. Each tour is fun, highly rated, and completely unique to its destination — no two tours are the same.
The company was founded in 2013 by friends Nico Jacquart and Oliver Mernick-Levene with food tours in Paris and London.
Pembroke VCT invested just over £1 million in August 2018 via its B Ordinary Share class. At the point of investment the company had 60,000 customers annually and operated in 27 cities across three continents. Since then Secret Food Tours' offering has expanded to around 50 cities across six continents. It is valued at £1.25 million (March 2019).
This review first appeared in our investment newsletter published on 17 November 2019. Please remember, VCTs invest in smaller companies, which are high risk: you could lose all the capital you invest.
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