Amati AIM VCT
Amati AIM VCT is the new name for Amati VCT 2 plc, which merged with Amati VCT plc in May 2018. The VCT invests predominantly in AIM stocks and offers a mixed portfolio of mature, revenue-generating companies together with earlier-stage life science and software investments.
The current offer looks to raise up to £25 million with a £20 million overallotment facility.
- Mature AIM-focused VCT
- Target dividend of 5%–6% of NAV – dividends variable and not guaranteed
- Diversified portfolio, plus exposure to TB Amati UK Smaller Companies fund
- No performance fee
- Minimum investment £4,000
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Amati Global Investors, based in Edinburgh, is a specialist smaller-companies fund manager. It was founded in 2010 as a management buyout of Noble Fund Managers. The VCT's fund managers are Paul Jourdan, David Stevenson, Anna Macdonald and Gareth Blades.
Mrs Macdonald joined Amati in 2018 to replace Douglas Lawson, one of the founders of Amati, who left the team to concentrate on running a data analytics company he co-founded the previous year. She previously led the research department of Adam & Company as well as its AIM IHT portfolio service.
Dr Blades is one of the more recent team additions. An Oxbridge graduate, Dr Blades is a specialist analyst within the life sciences sector. He previously worked in corporate finance at PharmaVentures as well as the spin-out division of Edinburgh University. His experience should help fortify the VCT’s position within the life sciences sector and expand outside of its current limits.
Amati is majority owned by its staff although Mattioli Woods, an AIM-listed wealth manager, took a 49% stake in Amati Global Investors in February 2017. Amati manages just under £450 million total assets between the VCT and its two other services, TB Amati UK Smaller Companies Fund and Amati AIM IHT Portfolio.
Previously known as Amati VCT 2, the VCT was formed through the merger of Amati VCT and Amati VCT 2 in May 2018. In total, the VCT has been through several iterations over the years and can trace its origins back to 1998.
Like all VCTs, Amati has had to adapt to the 2015 rule changes. However, due to its focus on AIM stocks, the majority of the VCT’s qualifying investments were in growth-style companies. As such, the investment team believes the VCT strategy was appropriate.
Amati primarily targets businesses it envisages holding for 3-5 years and those that have valuable IP with a proven ability to commercialise it. Investee companies should have the potential to grow quickly, a competitive advantage, and an experienced management team. Each company will be assessed for a number of ‘red flags’ or weaknesses which can include significant liabilities, poor profit or cash conversion and aggressive accounting. Typically, the VCT would also avoid companies with valuations lower than £15 million as these are considered too small.
The strict investment criteria, combined with VCT rules, means AIM VCTs can often have a limited ‘investable universe’ as opportunities are typically reliant on qualifying companies raising fresh capital. This issue is further complicated as the number of AIM IPOs and new share issues have decreased significantly in recent years. So far in 2019, only nine IPOs have been announced and of these, not all are qualifying businesses.
Despite this, Amati is confident there is sufficient deal flow to justify fundraising. In the 12 months to October 2019, the VCT invested £13.5 million across ten investments. This level of investment is expected to continue with an average of 40 proposals each year being reviewed by the investment team. However, Amati anticipates competition will increase, particularly for the best opportunities.
Amati has introduced a £15 million cap on the current offer until 31 January 2020, at which point it will pause the fundraising and reassess.
Current portfolio overview
The VCT has a portfolio of around 65 companies with a net asset value of £130 million (as at October 2019).
A good proportion of the portfolio is held in mature, revenue-generating companies. The top ten investments currently represent over 50% of the VCT’s value. Of these, nine are profitable and eight pay dividends. In many ways, these companies form the backbone of the VCT and act as key differentiators from other funds. Consequently, the investment team may be reluctant to dispose of these assets as finding a comparable replacement is difficult, particularly in terms of maturity.
For new investments, Amati will target life sciences and early software companies. However, it will not rule out other sectors if it sees an attractive opportunity. Indeed, three of the VCT’s most recent investments were in renewable energy, retail and oil & gas.
The VCT will also occasionally invest in non-qualifying holdings to help provide diversification, liquidity and access to potentially higher dividend yields. Exposure to non-qualifying investments will mainly be achieved through the TB Amati UK Smaller Companies Fund, which is currently the largest holding within the VCT, representing 9.14% of total assets (as at September 2019).
Across the whole portfolio, the weighted average market capitalisation is £327 million. The maximum holding per investment is 10%.
Source: Amati, as at September 2019.
Source: Amati, as at September 2019.
Examples of portfolio companies
AB Dynamics plc
AB Dynamics is the VCT’s largest qualifying holding representing 7.38% of the portfolio as at 30 September 2019.
Originally a vehicle engineering consultancy, AB Dynamics is one of the world’s most renowned suppliers of advanced testing software for vehicles. Typically, this technology is used for safety testing and improving driving control.
Amati selected the company on the back of its financial merits and because it believed it represented a good diversification option. Since then the business has continued to grow, in part due to its specialism and capability with driver-assisted systems and autonomous vehicles.
The company now employs over 160 people and is looking to open a new site to complement its existing headquarters. It already has facilities in North America and multiple locations throughout Asia.
Amati invested in 2013 when the company launched its IPO. At the time, the share price was 86p, it is now around £22 (as at 31 October 2019). Past performance is not a guide to the future.
Polarean Imaging Plc
Historically, MRI scans on lung health could only provide limited information. Polarean has looked to address this by developing an imaging technique which provides a stronger signal.
To do so, patients inhale polarised Xenon, a harmless inert gas. The hyperpolarised gas improves the image signal by a factor of 100,000, allowing clinicians to identify lung structure and ventilation patterns more effectively. This improved visibility is vital for early disease detection as well as progression monitoring.
The VCT has invested a total of £1.9 million into the company. The latest funding will be used support the company through its ongoing Phase III clinical trials. Polarean represents 2.3% of the portfolio and is the 12th largest holding (as at October 2019).
Originally a spin-out from Oxford University, Velocys has developed commercially ready reactors capable of producing advanced biofuels from sustainable carbon sources.
Its integrated end-to-end process converts solid waste into liquid transport fuels. These fuels require no engine or infrastructure adaptations and offer a 70% reduction in greenhouse gas production compared to traditional methods.
The company has formed a consortium with British Airways and Shell to build the EU’s first commercial waste-to-jet fuel plant. The site will be built in North East Lincolnshire and is set to be commercially active by 2024.
Amati invested £2 million into the business in August 2019.
As is to be expected, not all investments work out. appScatter is an example. An app distribution and management platform, appScatter integrates with 50 of the world’s top app stores. The company’s technology can automatically determine suitable stores depending on an individual app’s specifications. The entire process is automated from registration to submission.
Amati originally invested £1.2 million at IPO in 2017. However, it exited its position this year after the company failed to live up to expectations. The investment team will exit any holding where the position is not considered to be recoverable in the short term, particularly for sub-scale investments.
Performance and dividends
The VCT targets an annual dividend of between 5% to 6% of NAV. Over the past five years, the average dividend payment has been 7.1p (dividends are variable and not guaranteed).
Source: Amati, as at 17 October 2019. NAV per share Total Return, assuming dividends reinvested on the ex-dividend date, excluding tax reliefs. Past performance is not a guide to the future. Dividends are variable and not guaranteed.
Source: Amati. Dividends paid in calendar year. Dividends are not guaranteed and past performance is not a guide to the future.
Charges and savings
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%|
|Early bird discount||—|
|Wealth Club initial saving||2%|
|Existing shareholder discount||—|
|Net initial charge through Wealth Club (new investors)||1%|
|Net initial charge through Wealth Club (existing shareholders)||1%|
|Annual management charge||1.75%|
|Annual administration charge||See offer documents|
|Annual rebate from Wealth Club||—|
More detail on the charges
Risks – important
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.
Unlike VCTs investing in unquoted companies, AIM VCTs have a more natural exit route for shares as they are listed. However, dealing in large volumes of shares could be difficult. The size of the VCT could make this more of a problem.
AIM shares can be very volatile and could suffer extreme volatility if the market falls sharply. The difference between the buying and selling price of AIM-listed companies is often wider than those listed on the main market.
The first allotment is expected to take place on or around 25 November 2019 and thereafter allotments are expected to be made monthly.
The directors have set the maximum amount that can be raised under the offer prior to 31 January 2020 at £15 million. The amount to be raised after 31 January 2020 will be £25 million less the amount already raised under the offer (subject to any exercise of the over-allotment facility). If sufficient qualifying investments have been made from the initial proceeds of the offer and the directors believe that there is a pipeline of investments to utilise the funds raised, the board may use the over-allotment facility to raise up to a further £20 million under the Offer.
Dividend Reinvestment Scheme (DRIS)
There is a Dividend Reinvestment 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.
Share buyback policy
Amati 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.
Amati is a well known, highly regarded fund manager with a good track record of investing in smaller listed businesses in the UK.
It’s important to note this is an AIM VCT: conditions within the UK market, particularly within AIM, are expected to remain highly volatile. This could create opportunity for experienced investors willing to take a longer-term view and ride out the current political uncertainty. Equally, it could mean a bumpy ride and there is no guarantee of success.
The trust invests in 66 investee companies across a range of sectors with a bias towards technology. Over the last five years the trust has performed well, thanks largely to several successful stock picks, most notably AB Dynamics, which helped to drive capital growth in addition to dividend yield. Remember, past performance is not a guide to the future.
Three other aspects of this offer are worth highlighting.
Firstly, two of the four key members of the investment team only recently joined the business, Anna Macdonald in 2018, and Gareth Blades in 2019.
Secondly, the VCT is reliant on companies wishing to raise capital on AIM. Changes in market sentiment can influence the quantity and quality of deals seen by Amati. Amati has decided to pause the fundraising in January 2020 to assess deal flow, to try and mitigate the effect of this.
Thirdly, the application process may require more documentation than other VCTs. You can prefill your application online through Wealth Club. However, if you are investing more than £13,000, Amati requires you to send additional documentation for proof of source of funds.
Read important documents and apply
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.
- Target dividend
- 5% to 6% of NAV
- Initial charge
- Initial saving via Wealth Club
- Net initial charge
- Annual rebate
- Funds raised / sought
- £9.5 million / £25.0 million
- 31 Jan 2020