Octopus Apollo VCT

Early bird saving of 2% on the initial charge - deadline 15 Dec 2020

The Octopus Apollo VCT initially launched in 2006 and has since merged with six other VCTs to create a large and diverse investment portfolio. Today, it has assets of more than £140 million and a portfolio of 50 companies, making it one of the largest single VCTs available. 

The VCT’s transition to a growth capital investment strategy is now well underway and more than 50% of Apollo’s invested assets are now in new growth capital investments.  These were the largest contributors to performance in the financial year to 2020, and the portfolio has recently experienced its first exit: note past performance is not a guide to the future. 46% of the trust is now invested in technology businesses. 

The VCT has maintained its dividend policy and seeks to pay shareholders a dividend yield equivalent to 5% of its net asset value, not guaranteed. 

The current offer seeks to raise up to £25 million, with an overallotment facility of £10 million.

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.

Read important documents and apply

Highlights

  • Large and diverse portfolio of over 50 companies
  • Managed by the largest VCT manager
  • Aims to invest in more established businesses than its stablemate, Octopus Titan Over 50% of the portfolio is now invested in new growth capital deals
  • Mixture of debt and equity
  • Targeting a regular annual dividend of 5% of NAV – not guaranteed
  • 0.10% annual rebate for three years when you invest through Wealth Club
  • Available for 2020/21 and 2021/22 tax years
  • Minimum investment £5,000, you can apply online

The manager

The VCT is managed by Octopus Investments, the UK’s largest VCT manager. Octopus was launched in 2000 out of the front room of one of the three founders. Today it has more than 750 employees and manages £9 billion (June 2020) on behalf of over 55,000 retail investors, charities and institutions, including pension funds, fund-of-funds and family offices.

The Development Capital team at Octopus Investments is responsible for the management of the Apollo VCT. This team is not to be confused with the Octopus Ventures team, which manages Apollo’s larger stablemate, Octopus Titan VCT, and follows a different investment strategy. The Development Capital team consists of nine investment professionals with a combined 75 years’ experience. Richard Court, who heads up the team, joined Octopus in 2017. He has been an investor in UK and international SMEs since 2006 and has experience in a number of roles within investment banking and private equity. Richard is supported by two investment directors, two investment managers, and four investment associates. 

Octopus continues to invest in the new team, increasing headcount from six to nine investment professionals in the twelve months to August 2020. 

Investment strategy

Until recently, the VCT invested in more established and often already profitable companies as well as Management Buyouts. Most of the investments included a secured debt element with pre-agreed interest payments, which could support dividends by generating a more reliable income stream than equity investments. The VCT also invested in renewable energy assets. 

However, changes to the VCT rules in 2015 mean those types of deal are no longer allowed for new investments.

Apollo now seeks to back UK SMEs with investments of £2-£10 million via a mix of unsecured debt and equity. The team will focus on more commercialised businesses with a bias towards B2B business models. Investee companies should have revenues exceeding £1 million – typically range between £3 and £8 million in annual revenues – with a preference for recurring revenue. Businesses must have a proven proposition with evidence of significant revenue growth and a broad customer base. 

The investment team intends to steer clear of the startups favoured by its stablemate Octopus Titan VCT. 

To highlight the difference between Apollo’s historic MBO investments and the new B2B growth investments, we have looked at the average revenue growth in the portfolio. Based on 2019 financial results, on average, the B2B growth investments had revenues of £5 million, growing at 33% per annum, whilst the legacy MBO investments had revenues of £15 million, growing at 8% per annum. The new B2B growth investments now account for more than 50% of invested assets.

Exit track record

In the last financial year to January 2020, Octopus Apollo VCT disposed of five investments for total sale proceeds of £17.8 million, generating a realised gain of £4.8 million. Four of these investments were from the legacy portfolio. The other, City Pantry Limited, marks the first exit from the new investment strategy. Please note, past performance is not a guide to the future. 

City Pantry – Octopus Apollo VCTCity Pantry Limited – recent exit

City Pantry is a technology-driven B2B corporate catering company – think of it as Deliveroo for corporates. City Pantry has created a marketplace which helps businesses order food from a range of restaurants and caterers. The company delivers food to over 400  companies from over 600 restaurants.

Octopus Apollo VCT first invested £2.2 million in March 2018 in a blend of ordinary shares and loan stock. This was supplemented with further investment (into preferred shares) bringing the total investment to £3.1 million. The funding allowed the business to grow revenues by 50% by doubling the number of customers.  

In July 2019, City Pantry was acquired by Just Eat, the takeaway delivery platform. Just Eat paid an initial cash consideration of £16 million, plus a further sum based on the next three years of performance. Apollo VCT received total proceeds of £4.9 million, representing an IRR in excess of 40%.  Past performance is not a guide to the future.

Spiralite – example of previous failure

Investing in VCTs is not without risk and there have been failures in the portfolio, one example is Spiralite.

Spiralite developed a patented air duct design for use in commercial property. Its specialist ducting was believed to be more effective in terms of airflow and energy efficiency compared to rival solutions. However, the business struggled to gain the required commercial traction and, despite further efforts to improve sales and external funding, the company was placed into administration in 2017 and the holding was written down to zero.

The investment had originally been made through the Eclipse VCT and was therefore inherited by Apollo via the merger in 2016. While disappointing, the investment does not represent Apollo’s own historic or current investment strategy.

Covid-19 impact

Despite the impact Covid-19 has had on financial markets, the Apollo VCT has been resilient, having now fully recovered from the initial impact of Covid-19. Prior to the Covid-19 outbreak, the VCT had a net asset value of 45.7p per share as at 31 January 2020. On 2 April 2020, the board reviewed the portfolio in detail and concluded the net asset value should be adjusted to 42.9p per share, a fall of 6.1%. In September, the board announced its net asset value for 31 July 2020 of 46.1p (or 45p after factoring in the 1.1p dividend announced for August 2020). 

The board believes the portfolio’s resilience is due to its investment strategy that favours businesses with recurring revenue models. In addition, the portfolio has limited exposure to the most adversely affected sectors, such as hospitality, leisure, and consumer spending, and has £30 million in cash. 

The team believes there is an uplift in investment opportunities as a result of Covid-19 and will continue to analyse potential investments (new and follow-on) to ensure companies continue to meet its criteria prior to making an investment.

Current portfolio overview

The Octopus Apollo VCT has net assets of £141.3 million  (July 2020). The investment portfolio comprises 50 companies with a mixture of legacy, co-investment and new B2B growth capital deals. In the year to July 2020, the VCT has invested £21 million into five new investments and four follow-on investments. 

As at 31 July 2020, the VCT had invested assets of £110.5  million, and cash and cash equivalents of £30.8  million. The sector breakdown is shown below.

The largest sector in the portfolio is now technology at 48%. This is in stark contrast to previous years, where the largest sector was Apollo’s energy investments. Energy now accounts for 9% of the portfolio (July 2020). The Energy assets have historically acted as a drag on portfolio performance.

Source: Octopus Investments. As at 31 July 2020.

Example portfolio companies

Natterbox – Octopus Apollo VCTNatterbox (largest investment)

Established in 2010, Natterbox is a cloud-based telephony system which provides solutions to common call centre problems.

By operating through a cloud-based system, Natterbox removes the need for expensive IT and phone infrastructure allowing businesses to easily scale without upgrading servers. The software can also integrate into most Client Relationship Management (CRM) programs, enabling automatic call capturing and information recording.

For the VCT’s investment team, this is a great example of the type of company it targets. The business is growing fast, it has a strong management team and a relatively consistent recurring revenue base.

Octopus Apollo VCT first invested £5 million in March 2018 to increase sales and improve product development. Since then, reported revenues have grown considerably, up by 42% in 2019  and the company has opened a US office to expand its target audience. Apollo VCT has provided follow-on funding in March 2019 and March 2020, bringing the total investment to date to £10.5 million. The holding is currently valued at £16.9 million and accounts for 12% of the net assets of the VCT.  Past performance is not a guide to the future.

Fuse Universal – Octopus Apollo VCTFuse Universal Limited (recent investment)

Fuse Universal is a B2B software provider that has developed a cloud-based learning technology platform for companies wishing to enhance the learning and development of their employees. The platform allows organisations to share insights and knowledge from their top-performing employees to teach and develop their teams worldwide. 

Founded in 2008, Fuse has offices in London, Sydney, Cape Town and Boston. Its platform is used by over 120 companies worldwide, including blue-chip clients such as  Spotify, Adidas, and Vodafone.

Apollo first invested £5 million in the business in August 2019 through a blend of preferred shares and loan stock. The holding is currently valued at £5.2 million.

Performance and dividends

The Apollo VCT has shown resilience through 2020. In September it announced a Net Asset Value of 46.1p for 31 July 2020. The trust appears to have fully recovered from losses made earlier in the year.

In the last financial year to January 2020, the MBO and new growth capital portfolio performed well, contributing £7 million and £9 million respectively to gains. However, the ongoing poor performance of energy assets weighed on Apollo’s total return. Energy assets lost £8 million over the period. However, energy assets continue to decline as a proportion of the overall portfolio and should have a lesser effect on the total return of the trust in future. 

There is a target annual dividend yield of 5% of Net Asset Value, not guaranteed. The average annual dividend for the VCT has been 9.3p, however, this figure is skewed by special dividend payments made in 2016/17. Please note, past performance is not a guide to the future, dividends are variable and not guaranteed.

An interim dividend of 1.2p per share has been announced (due to be paid on 15 January 2021) to shareholders on the register at 29 December 2020. Dividends are variable and not guaranteed.

Source: Morningstar. Past performance is no guide to the future. Dividends are variable and not guaranteed. The bar chart shows net asset value and cumulative dividends per share for the period 31/12/2014 - 30/09/2020.
Source: Octopus Investments. Past performance is not a guide to the future. Dividends are not guaranteed.

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.

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 5.5%
Early bird discount 2%
Wealth Club initial saving 2.5%
Existing shareholder discount 1%
Net initial charge through Wealth Club (new investors) 1%
Net initial charge through Wealth Club (existing shareholders) 0%
Annual management charge 2%
Annual administration charge 0.3%
Performance fee 20%
Annual rebate from Wealth Club 0.10%

More detail on the charges

Share buybacks

The board intends to buy back shares at up to a 5% discount to the prevailing net asset value. This is subject to availability and board and shareholder approval. Please see the offer documents for details.

Dividend Reinvestment Scheme (DRIS)

There is a Dividend Reinvestment Scheme under which allows shareholders to reinvest future dividend payments by way of subscription for 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.

Deadlines

  • Apply before 15 December 2020 (5pm) to receive a 2% early bird discount. Please note, an interim dividend of 1.2p per share has been announced (due to be paid on 15 January 2021) to shareholders on the register at 29 December 2020. Dividends are variable and not guaranteed.
  • Deadline Tax year 2020/21: 5 April 2021 (noon)
  • Deadline Tax year 2021/22: 24 September 2021 (noon)

Annual rebate

The Octopus Apollo VCT includes an annual rebate for Wealth Club investors, payable for the first three years. This is a rebate of our renewal commission and should be equivalent to 0.10% of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.

Our view

With assets of more than £140 million and a portfolio of 50 companies, the Octopus Apollo VCT is one of the largest single venture capital trusts available. 

Its size has provided the budget to build a team devoted to a new growth capital investment strategy. More than 50% of Apollo’s portfolio is now invested in new growth capital investments, and indeed these were the biggest contributor to earnings in the latest financial year, overtaking the MBO investments. The new strategy experienced its first exit in 2019: note past performance is no guide to future performance.

Richard Court and the team seem to be making good progress in transitioning the portfolio. Legacy investments continue to fall as a proportion of total assets, and the new growth capital strategy appears to be adding value. 

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
Generalist
Target dividend
5% of NAV
Initial charge
5.5%
Initial saving via Wealth Club
4.5% (5.5% for existing shareholders)
Net initial charge
1% (0% for existing shareholders)
Annual rebate
0.10%
Funds raised / sought
£7.2 million / £25.0 million
Deadline
15 Dec 2020 for early bird saving
Last updated: 25 September 2020

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