Amati AIM VCT

Update (16 Oct 2020): Offer closed

Please note, this offer is now closed. Any applications already submitted will be processed on a first come, first served basis.

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 as well as earlier-stage ones. It focuses on the healthcare and technology sectors, both of which have fared comparatively well in the current pandemic crisis, although past performance is not a guide to the future.

The current offer launched in October 2019 and initially closed in April 2020 after raising £25 million. However, due to the resilience of the portfolio and the VCT’s current deployment rate, the board has decided to use the VCT’s £20 million overallotment facility. 

Important: The information on this website is for experienced investors. It is not advice nor a research or personal recommendation to invest. If you’re unsure, please seek advice. Investments are for the long term. They are high risk and illiquid and can fall as well as rise in value, so you could get back less than you invest.


Highlights

  • 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
  • Only available for this tax year (2020/21)
  • Minimum investment £4,000

The manager

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 healthcare 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 healthcare 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 £600 million total assets (as at 31 July 2020) between the VCT and its two other services, TB Amati UK Smaller Companies Fund and Amati AIM IHT Portfolio.

Investment strategy

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 has decreased significantly in recent years. So far in 2020, only five IPOs have been announced and of these, not all are qualifying businesses.

Covid-19 impact 

Throughout the crisis, Amati has remained committed to its strategy of ‘running the winners’ and has continued to back its strongest performers. While the market has been sparse in terms of IPOs, the team has compensated by focusing on supporting its existing portfolio, particularly those companies it believes can make the most of the difficult economic circumstances, such as businesses within the healthcare sector. 

While Amati did experience a dip in deal opportunities towards the end of 2019 (as a result of Brexit and election uncertainties), 2020 has so far delivered in line with the team’s expectations. The VCT has already deployed £11.4 million this year (compared to £11 million across the whole of 2019), split between six follow-on deals and two new investments. Given the unexpected resilience of the deal pipeline, the board has authorised the use of the VCT’s overallotment facility to help the investment team maintain the current rate of deployment. 

Current portfolio overview

The VCT has a portfolio of around 62 companies with a net asset value of £162.83 million (as at July 2020).

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, eight are profitable and five 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 healthcare and early technology companies, currently already the two largest sectors within the portfolio (representing 28.2% and 22.5% respectively – July 2020). However, it will not rule out other sectors if it sees an attractive opportunity. 

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 7.4% of total assets (as at July 2020).

Across the whole portfolio, the weighted average market capitalisation is £427 million. The maximum holding per investment is 10%.

Source: Amati, as at July 2020.

Source: Amati, as at July 2020.

Examples of portfolio companies

Frontier – Amati AIM VCTFrontier Developments

Frontier Developments is the VCT’s largest qualifying holding, representing 7.4% of the portfolio as at July 2020. 

The company, founded by David Braben, is one of the UK’s leading independent game developers. Frontier began life as a “work-for-hire” studio, designing and releasing games for well known publishers such as Atari and Microsoft. While this was a relatively low margin strategy, it helped establish Frontier in the industry, allowing the studio to transition to a self-publishing model. 

Without the oversight of a larger publisher, Frontier has been free to develop its own IP. The company looks to target underserved genres, as it believes this could allow it to dominate a sector if it can develop an appealing game. The aim, as Braben put it “is to be a Rolls-Royce, not a Ford”, releasing quality games that the company continues to support with new content. 

Amati invested in the company two months before it floated on AIM in 2013. At the time, video game companies were not overly popular due to a number of previous market failures. However, the investment team decided to back Frontier due to its ability to transition from a game developer into a publisher.

Polarean – Amati AIM VCTPolarean Imaging Plc 

Historically, MRI scans on lung health could only provide limited information. Polarean has looked to address this by developing a drug-device combination which provides a stronger signal.

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 could be vital for early disease detection as well as progression monitoring.

In 2019 the company successfully completed of its Phase III Clinical Trials and is now moving towards applying for approval from the US Food and Drug Administration (“FDA”). 

The company believes its technology could become increasingly important in analysing and understanding how pulmonary function can be affected by Covid-19 thanks to its unique ability to visualise and quantify lung function at the alveolar and capillary level.

The VCT has invested a total of £1.9 million into the company. Polarean represents 4.8% of the portfolio and is the fourth largest holding (as at July 2020).

Velocys – Amati AIM VCTVelocys plc

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.

appScatter Group

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 6.55p (dividends are variable and not guaranteed). 

Amati, as at August 2020. 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
Performance fee
Annual rebate from Wealth Club

More detail on the charges

Deadlines

This offer is now closed.

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 5-10% 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.

Annual rebate when you invest through Wealth Club

There is no annual rebate for Wealth Club investors.

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. 

Our view

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 an opportunity for experienced investors willing to take a longer-term view and ride out the current economic uncertainty. Equally, it could mean a bumpy ride and there is no guarantee of success.

The trust invests in 62 portfolio companies across a range of sectors with a bias towards healthcare and technology, which together account for just over 50% of the portfolio. Over the last five years the trust has performed well, notwithstanding the volatility of AIM, thanks largely to several successful stock picks. 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. 

Thirdly, the application process may require more documentation than other VCTs. You can complete 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.

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.

The details

Type
AIM
Target dividend
-
Initial charge
-
Initial saving via Wealth Club
-
Net initial charge
-
Annual rebate
-
Funds raised / sought
£42.4 million / £45.0 million
Deadline
CLOSED
Last updated: 16 October 2020

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