Review: Triple Point 2011 VCT
Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.
This limited life VCT is looking to raise £10 million, with the possibility of a further £10 million to invest in Combined Heat & Power (CHP) generators. If the full £20 million is raised, the manager expects to invest in at least four projects – all CHP generators with the view to winding up the VCT soon after the fifth anniversary.
- Investing in Combined Heat & Power generators
- Predictable revenue
- Large scale projects
- Placing them in tomato-growing glass houses
Triple Point was set up in 2004 to take advantage of the attractive VCT tax breaks on offer at the time. Since then Triple Point has expanded into EIS and Inheritance Tax Products too. In total Triple Point manages approximately £330 million. Claire Ainsworth is managing partner and chief investment officer and is supported by an investment team totalling approximately 25 people.
Target return and strategy
The target return is £1.14 based on the original £1 invested per share. In addition, there is a dividend target of 5p per share from 2019 onwards. This is a limited life VCT and looks to return capital after the fifth anniversary.
Approximately 80% of the funds raised will be invested into Combined heat and power (CHP) generators. A CHP is simply a small gas-fired power station. The plan is to install CHPs with companies that grow produce (such as tomato growers) and site them near their glasshouses (where everything is grown). The CHP will run off mains gas and the electricity generated will be sold to the grower. By-products of the process are heat and CO2, both produced for free and very valuable commodities to those growing fresh produce. The sale of electricity generated merely breaks even, and it is the heat and CO2 that has the real value according to the manager. The heat is stored and then used as hot water in the evening, when the CO2 is also pumped into to the glasshouses to help increase the crop yield. The heat and CO2 generated will typically be sold on a long term contract.
Each project will need between £4 million and £8 million to develop and construct.
The balance of 20% will be invested in Triple Point’s Navigator investment. This is part of their IHT service that aims to deliver an annual return of 4%-6%. It invests in four different strategies, but the main ones are a property bridge finance business and a business that does small value lease finance to small and medium sized enterprises.
The exit strategy is fairly simple; the manager would expect to sell the assets to an infrastructure investor looking for long term predictable revenues. They will look to sell the VCT assets alongside their EIS CHP investments as one package – overall Triple Point will have over £100 million of CHP investments to sell in a few years’ time. Triple Point has already achieved a sale of infrastructure investments with their sale of solar farms at a combined value of over £50 million. A back up option is to refinance with debt and pay out large dividends to shareholders.
The VCT is taking counterparty risk with the grower – however the manager believes there would be many buyers looking to acquire the project (i.e. glasshouse and CHP generator) in the event of financial difficulties. The generation of electricity is designed to break even rather than be profitable so the risk of a big change in the gas and electricity price should be minimised.
There is a 5.5% initial charge and an annual fee of 1.9%, in addition to an annual admin fee up to £50,000. As this is a new share class of a larger VCT some other costs are shared. The total annual running expenses are expected to be 2.5%. As is fairly common with these projects, the VCT manager works with a developer to find and develop these specialist projects. Normally the developer takes a large fee upfront, however in this instance, it happens at the back end. Once investors have received a £1.14 priority return, the developer receives 70% of any further upside and the investor receives 30%. Triple Point management receive no performance fee.
Combined Heat & Power generation is one of the in vogue investments this tax year. Triple Point has an advantage in that it has a number up and running already. These are fairly large scale projects, but with fairly predictable revenue streams. Whilst unexciting, this VCT has a high probability of delivering its objectives. Triple Point has a solid record in delivering the stated objectives in their previous limited life VCTs.
Read more about Triple Point VCT
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