Amati AIM VCT
Offer fully subscribed (22 Feb 2021)
The board of the VCT has announced the Offer has become fully subscribed. In accordance with the terms of the Offer investors whose subscriptions are received after the Offer became fully subscribed will have their subscription monies returned.
The allotment of New Shares under the Offer is expected to be on or around 8 March 2021. Dealings in the new ordinary shares issued pursuant to the Offer will become effective on or around 12 March 2021.
The Company reserves the right to decline to allot shares on uncleared funds and will not bear any responsibility if New Shares are not allotted to applicants as a result. The deadline for receipt of cleared funds is 12 noon on 5 March 2021. Applicants should allow at least three days for funds to clear.
The Amati AIM VCT invests predominantly in AIM stocks and offers a mixed portfolio of mature, revenue-generating companies as well as earlier-stage businesses with the potential for significant growth. The VCT favours 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 VCT is managed by Amati Global Investors, a specialist fund management business focused exclusively on UK smaller companies with over £850 million under management. The VCT has a track record of delivering attractive returns to investors and has paid steady dividends – dividends are variable and not guaranteed.
Over the past 10 years to December 2020, Amati AIM VCT has produced a NAV total return of 158.7%: note past performance is not a guide to the future.
The board has now decided to launch a top-up offer to raise £7 million for the 2020/21 tax year. This is a relatively small offer and is expected to fill quickly.
The offer has opened on Friday 19 February. Applications will be processed from Monday 22 February on a first-come, first-served basis.
- 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
- Small top-up offer £7 million
- Available in the current (2020/21) tax year only
- Minimum investment £4,000 – you can apply online
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, having joined in 2019. 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-quoted wealth manager, took a 49% stake in Amati Global Investors in February 2017. Amati manages in excess of £850 million (December 2020) between the VCT and its two other services, TB Amati UK Smaller Companies Fund and Amati AIM IHT Portfolio.
Amati primarily targets businesses it is happy to hold for five years or longer. It seeks to invest in businesses with the following characteristics:
- An experienced management team
- Valuable intellectual property with a proven ability to commercialise it.
- A competitive advantage
- The potential to grow quickly, preferably internationally
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. Importantly, businesses will need to be well funded, Amati does not invest in companies with market capitalisations below £15 million or those it deems inadequately financed.
The VCT operates a team-based investment approach, preferring collaborative and consensus views to generate ideas and challenge positions. The team seeks out opportunities regardless of market conditions. It does not favour one valuation technique to the exclusion of others.
The strict investment criteria, combined with VCT rules, means an AIM VCT’s ‘investable universe’ is typically reliant on qualifying companies raising fresh capital. The ebb and flow of companies coming to AIM to raise funds may therefore affect the breadth of investment opportunities available to the VCT.
Throughout the crisis, Amati has remained committed to its strategy of ‘running the winners’ and has continued to back its strongest performers. The team has focused 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 experienced a dip in deal opportunities towards the end of 2019 (as a result of Brexit and election uncertainties), 2020 delivered in line with the team’s expectations. In the period February 2020 – January 2021 the VCT deployed £16 million into 12 deals, split between seven follow-on deals and five new investments. The board is aware of a particularly healthy deal pipeline heading into 2021 and, as a result, it has now authorised a further £7 million top-up offer.
The VCT showed strong performance through 2020, achieving a NAV total return of 37.2%. Past performance is not a guide to the future.
Current portfolio overview
The VCT has a portfolio of 62 companies with a net asset value of £238.3 million (January 2021).
A good proportion of the portfolio is held in mature, revenue-generating companies, 22.7% is invested in companies with market capitalisations of £1 billion or greater. That said, a number of recent successful investments into earlier-stage growth companies such as Ilika and Maxcyte, have become more significant positions within the portfolio (4.7% and 2.7% respectively). The top ten investments currently represent over 50% of the VCT’s value.
For new investments, Amati continues to favour healthcare and early technology companies, currently the two largest sectors within the portfolio (representing 30.9% and 23.7% respectively – January 2021). 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. The VCT has one non-qualifying holding at present, the TB Amati UK Smaller Companies Fund, which is currently the third largest holding within the VCT, representing 6.4% of total assets (January 2021).
Source: Amati, as at 31 January 2021.
Source: Amati, as at 31 January 2021.
Examples of portfolio companies
Frontier Developments is the VCT’s largest qualifying holding, representing 8.3% of the portfolio (January 2021).
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.
Frontier has benefited from increased demand throughout lockdown. Despite the release of no new titles, the company announced a 15% rise in revenue to £36.9 million in the six months to November 2020. 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 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.
The company has continued to make good progress towards commercialisation. It successfully completed its Phase III trial and lodged its pre-new drug application with the US Food and Drug Administration (“FDA”) in October 2020. The FDA is expected to make a decision towards the end of 2021.
Polarean believes its technology could become increasingly important in analysing and understanding how pulmonary function can be affected by Covid-19. It is currently working on a study with Oxford University to assess the respiratory impact of Covid-19.
The VCT initially invested £1.9 million into the company, it has since participated in an £8.4 million funding round, investing a further £2 million. Polarean represents 7% of the portfolio and is the second-largest holding (January 2021).
A spinout from the University of Southampton, Ilika has pioneered technology for solid-state batteries.
Solid-state batteries generate high energy, charge quickly, and have a long cycle and storage life. Initially, the company focused on the development of novel materials, securing partnerships with a portfolio of blue-chip companies such as Shell, Toyota, and Applied Materials. However, following the release of its product, Stereax, the world’s first micro solid-state battery, it has started to focus solely on the manufacturing of solid-state batteries.
Currently, there are no substitutable alternatives to Stereax. These batteries typically sell for around £100 each and are used in industrial processing or machine monitoring, such as leadless pacemakers. The technology also has potential uses for consumer electronics.
Amati has invested just over £2 million into the company, it is currently the seventh-largest holding, representing 4.7% of the portfolio (January 2021).
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 AIM market has been turbulent in recent years and the Amati AIM VCT has not been immune to this volatility, as investors might expect.
2020 was a particularly challenging year. The VCT started the year with a Net Asset Value per share of 155.67p, following the onset of the pandemic, the trust saw its NAV fall to a low of 109.12p on 19th March 2020.
However, aided in part by a very strong performance from a select number of quoted holdings, particularly Frontier Developments, Polarean Imaging, Ilika and Maxcyte, the VCT has recovered strongly, ending the year with a NAV per share of 203.75p after paying 7.75p of dividends.
Over the previous ten years to December 2020, the Amati AIM VCT has produced a NAV total return of 158.7%. Past performance is not a guide to the future; dividends are variable and not guaranteed.
The VCT targets an annual dividend of between 5% to 6% of NAV. Over the past five years, the average dividend payment has been 7.55p.
Source: Morningstar, as at 31 December 2020. Performance is calculated on a NAV to NAV basis, net of fees, assuming dividends are reinvested, excluding tax reliefs. Past performance is no 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. The full initial charge for existing shareholders is 1%.
|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
First Allotment: on or around 8 March 2021
Final closing date for application: 12pm 31 March 2021
The Offer will close earlier than indicated if the maximum subscriptions are received. The Offer may also be extended at the discretion of the Directors.
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.
Amati is a well known, highly regarded fund manager with a good track record of investing in smaller quoted businesses in the UK.
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, it has become one of the top-performing VCTs over the past five and ten years to December 2020. This is thanks largely to several successful stock picks, and Amati’s focus on growth companies, particularly within the technology and healthcare sectors. Remember, past performance is not a guide to the future.
In our view, the Amati AIM VCT is a high-quality offering for experienced investors comfortable with the volatility of the AIM market.
This is a small top-up offer of £7 million, and it is expected to fill quickly.
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
- Initial charge
- Initial saving via Wealth Club
- Net initial charge
- Annual rebate
- Funds raised / sought
- £7.0 million / £7.0 million