Review - Proven VCT

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Proven is a well-established VCT with over £63 million of assets and 41 companies. Currently this portfolio is virtually all fully invested therefore the board has decided to seek up to £40 million in new investment. New investors will benefit from this already diverse portfolio as well as new investments.

Highlights

  • Annual dividend target of 5% (consistently achieved over the last five years)
  • Invests in high growth opportunities
  • Portfolio has a blend of household names such as Maplin and up and coming names such as Watchfinder and Monica Vinader
  • Media sector investment specialists

The manager

Beringea LLP has managed Proven effectively since inception, although both the VCT and manager have changed names during this period. In our view Beringea can be categorised as a media specialist, but with expertise in other areas too. Many of their most successful investments have been in the media sector. For example, this VCT had a very early success with the popular children’s character Thomas the Tank Engine. Other more “grown-up” investment successes include Mergermarket, which was sold at a profit equal to 15 times the original cost. Clearly the latter was an exceptional result; however, Beringea has continued to identify high quality opportunities. Currently Beringea manages £135m.

Target Return and strategy

The board looks to pay an annual dividend of 5% of net asset value and has consistently done this over the last five years. Despite the consistency in the dividend this VCT invests unashamedly in high-growth opportunities.  Beringea looks for companies with rapid growth potential that can be exploited. 

As mentioned above there is a large emphasis on digital media related businesses, however that is not the only focus. Their main consideration is finding a great management team, as this has most influence on the value of the business. 

Of interest currently are software companies that specialise in healthcare. This has been a sector Beringea has looked at for a number of years, however it is only now they consider them truly investable. 

Another sector of interest is where traditional businesses move into the digital age, especially consumer companies. Two in the current portfolio are Monica Vinader, a fashion jewellery boutique with a strong online presence and Watchfinder, an online reseller of high end watches. Both investments were to fund further growth. Household name Maplin (specialist retailer of consumer electronics) joins Monica Vinader in the top 10 holdings.

In total Beringea invested approximately £40m in 2015, of which one third to a half  in existing portfolio companies.

Exit strategy

The team only look to invest where there is an obvious exit strategy within three to four years. Many of their past investments have been trade sales.

Risks

Buying into a fully invested portfolio of higher growth companies means that you are more susceptible to valuation fluctuations – don’t forget earlier stage companies often need additional funding. This risk is mitigated with the large and diverse portfolio of this VCT. Another factor to take into account is the high percentage of media and technology investments in the portfolio – potentially increasing the risk and return.

Fees

As is fairly standard, Beringea receive a 2% annual management fee and the total running costs of the VCT are capped at 3.25%. In the last financial year, the running costs were 2.5% and are expected to fall with the introduction of the new funds. Beringea also receives a performance fee equal to 20% of the outperformance of a hurdle, which rises annually at a rate of 1% over the official Bank of England base rate.  Beringea might also receive deal arrangement and monitoring fees.

Summary

Proven’s manager, Beringea, has consistently identified high growth opportunities with excellent management teams. Not only have they bought, but they have also sold very well over many years and the dividend record has been strong. Beringea’s particular specialism has been in digital media for a long time, and although other sectors are also important, the digital area will likely always feature heavily. Whilst many other VCT managers are now looking at growth opportunities due to recent rule changes, Beringea is already in that area and has excellent contacts and experience. This comes highly commended.