Review: Pembroke VCT

Pembroke VCT is one of the youngest VCTs, having raised over £48 million since its launch in 2013. It focuses mainly on four sectors – health and fitness, media and tech, hospitality, apparel and accessories. It invests in early-stage companies, typically consumer brands with premium pricing potential.

Pembroke VCT is now raising up to £40 million in its B Ordinary share class (including a £20 million overallotment facility). 

Highlights

  • Strong emphasis on capital growth
  • Preference for companies that are producing profits
  • Focus on four sectors: health and fitness, media and technology, hospitality, apparel and accessories
  • Portfolio companies include Second Home, Five Guys and Chilango restaurant chains
  • Past and current directors have invested more than £1.5 million in previous offers and plan to invest an additional £0.5 million in this offer 
  • Annual rebate of 0.15% for three years
  • Early bird saving of 0.5% until 30 November 2018
  • Low minimum investment of £3,000

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The manager

The Pembroke VCT is managed by Oakley Investment Managers LLP, part of the Oakley Group, a privately owned asset management and advisory group founded by serial entrepreneur Peter Dubens which 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 team which can benefit from the support of the wider group. 

Andrew Wolfson is responsible for implementing the investment strategy and leading the team. He also sits on the board of a number of 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 currently sits on the board of a number of Pembroke’s current investments and helps the founders and management teams.

The past and current directors have invested more than £1.5 million in subsequent offers. The current directors intend to invest a further £100,000 in aggregate under this offer, whilst Peter Dubens is subscribing £400,000.

Portfolio and investment strategy

After raising over £48 million since 2013, Pembroke has invested £35.3 million in 32 companies. The portfolio currently includes 30 companies and has generated a total fair value, including unrealised investments and dividends to date, of £46.5 million.

Since inception, the VCT has focused on capital growth, so the new more restrictive VCT rules did not require any drastic changes. 

Investments are spread across four sectors: hospitality, apparel and accessories, health and fitness and media and technology. These figures are based on valuations as at 31 March 2018. 

Examples of portfolio companies

Pembroke VCT – Five GuysFive Guys

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 over 87 restaurants across the UK with further sites in the pipeline and plans to expand into Europe. It recently ranked eighth in the Sunday Times Fast Track 100 league table of fast-growing companies.

Pembroke 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. At the latest valuation, B Ordinary Share class holdings were valued at £1.3 million (a 2.2x multiple). 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. 

Pembroke VCT – Second HomeSecond Home

Second Home describes itself as “a new type of workspace and creative hub”. It is a place where “fast-growing creative companies” can move in and, if they wish and at short notice, move out. The Evening Standard describes it as “London's coolest shared workspace”. 

The first site opened in 2014 in a former carpet warehouse in Spitalfields, London (near Liverpool Street). It was fully occupied the day it opened. 

Four years on, the original site has expanded by opening a bookshop in a separate building and annexing two further floors of the existing building. In total, there are three operating sites: two in London and one in Lisbon. Five additional sites are being developed – two in London, one in Lisbon, and two in California. There have been some delays, but the company now expects the sites to open in 2019.

Pembroke originally invested in 2014 through its Ordinary Share Class and has invested around £1.5 million in total, of which £960,000 through the B Ordinary Share Class. At the latest valuation, B Ordinary Share class holdings were valued at £1.6 million (a 1.7x multiple). 

Pembroke VCT – Player LayerPlayerLayer

Founded in 2008, PlayerLayer designs and manufactures custom sports kits for universities, clubs and schools. With high-profile customers including the British Speed Skating and England Lacrosse teams, PlayerLayer is already a leader in the premium education market with annual sales of £5 million in 2016/17. 

The success of the company has attracted the attention of the US global mega-brand, Under Armour, to become the exclusive licence partner to distribute their teamwear across Europe. 

Pembroke originally invested just over £1 million into PlayerLayer in December 2017 through the B Ordinary Share class. Given how recent the investment is, there is no current valuation. 

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. Total return includes Net Asset Value and cumulative dividends per share. Pembroke VCT B shares were first issued in March 2015.Past performance is not a guide to the future.

Risks

As this VCT generally invests in earlier-stage deals, it is higher risk. In addition, it is likely returns could be lumpier. Lastly, as it is a relatively new VCT, 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.

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

Fees and charges

A summary of the fees and charges is shown below. The net initial charge shown includes the Wealth Club discount and early bird saving.

Full initial charge 3.5%
Wealth Club initial saving 1.5%
Net initial charge through Wealth Club 2%
Annual charge 2%
Annual rebate (for three years) 0.15%
Performance fee 20%

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.

Share buy-backs

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.

Our view

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. 

With only around 30 companies, it’s easier for the manager to keep a close eye on each investment – indeed, when we met Andrew Wolfson, we were impressed by his detailed knowledge of the portfolio companies and we think his experience in running businesses could prove highly valuable to those companies. 

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. 

Lastly, we believe Pembroke VCT’s investment strategy is markedly different from that of most other VCTs raising money this year and could, therefore, dovetail well with other offers. 

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. 


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