Pembroke VCT

3p dividend – apply by 23 September 2020 (noon)

The board has announced a dividend of 3p, expected to be paid on 29 October. The ex-dividend date is 24 September 2020. New investors in the current offer could qualify if they apply by 23 September 2020 (noon, cleared funds) – not guaranteed.  

Pembroke VCT is focused on growth investing, typically backing consumer brands with premium pricing potential. It invests mainly in six sectors: wellness; food, beverage & hospitality; education; design (previously “apparel & accessories”); media; and digital services. 

The original Pembroke VCT Ordinary Shares launched in 2013 and the B Ordinary Shares launched in 2014. The two shares classes merged on 26 August 2020. The Ordinary Shares and B Ordinary Shares followed the same investment strategy and held many of the same holdings. On 26 August 2020 Ordinary Shares were converted to B Ordinary Shares. 

The combined VCT has net assets of £106.5 million and a portfolio of 40 active companies (as at 31 March 2020).

The current offer is seeking to raise up to £20 million with a £20 million overallotment facility. 

Past and current directors have so far invested £2.23 million in the VCT and intend to invest a further £100,000 in aggregate in the current offer. Members of the manager intend to invest a further £200,000 to £300,000 under the offer.

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

  • Strong emphasis on capital growth
  • Focus on six sectors: wellness; food, beverage & hospitality; education; design; media; and digital services
  • Past and current directors have so far invested £2.23 million in the VCT and intend to invest a further £100,000 in aggregate in the current offer
  • Annual rebate of 0.15% for three years
  • Early bird incentive: 1% bonus shares until 31 October (or the first £5m raised)
  • Available for this tax year (2020/21) and next tax year (2021/22)
  • Minimum investment of £5,000 – you can apply online

The manager

Pembroke VCT plc (“Pembroke”) is managed by Pembroke Investment Managers LLP (formerly Oakley Investment Managers LLP), part of the Oakley Group, a privately owned asset management and advisory group founded by serial entrepreneur Peter Dubens. The group comprises private equity, venture capital and corporate finance operations, and has €3.0 billion under management.

Oakley Capital was founded in 2002 to support companies through investment, whether they are early-stage companies or established businesses. Pembroke was founded in 2013 to support the development of smaller, early-stage high-growth businesses.

The VCT is managed by a small but expanding team of nine, which can benefit from the support of the wider Oakley group. Chief Investment Officer Andrew Wolfson heads up the team. Andrew is responsible for selecting, monitoring investments, and advising portfolio companies. As well as being a fund manager, Andrew has first-hand business experience.

Andrew has been cooperating with Peter Dubens since the early 1990s and has worked with a number of Oakley’s earlier-stage portfolio companies including KX and James Perse. Before joining Oakley, Andrew ran a number of businesses in sectors ranging from hospitality to manufacturing and telecoms. His experience in this could be beneficial to the VCT's portfolio companies. 

Andrew sits on the board of a number of Pembroke’s current investments and helps the founders and management teams.

Investment strategy

The VCT invests in a diversified portfolio of smaller, unquoted companies operating in sectors which the team knows well, and where it can use its experience to add value.

The VCT seeks to back companies run by ambitious entrepreneurs who are developing consumer brands with premium pricing potential.

There are six sectors in which the VCT is focused:

  • Wellness
  • Food, beverage & hospitality
  • Education
  • Design (previously referred to as “apparel & accessories”)
  • Media
  • Digital services

The VCT seeks to take a significant stake in each company, so as to be able to influence its strategy and maximise value. 

The VCT will primarily invest in unquoted companies, although it may also consider investments in NEX or AIM-quoted companies.

Exit track record

The Pembroke VCT first launched in 2013. To date it has has yet to achieve any profitable exits. 

It has made some investments that didn't work out. One example is Chilango, an award-winning chain of quick-service Mexican restaurants. Pembroke initially invested £550k into the business in 2013 via its Ordinary shares and followed on with a further £85k investment via its Ordinary B shares in the year to March 2016. At the time of the initial investment, the business operated six outlets in London. The management team subsequently decided to pursue an aggressive expansion plan for the business, including a regional roll-out. The business entered into a CVA in 2019, at which point the holding value was written down to zero. Chilango was subsequently sold via a pre-pack administration process in the summer of 2020. 

Covid-19 impact

The manager of the VCT has assessed the impact of Covid-19 on all the companies in its portfolio and placed them into three camps. 

1. “Strong performers”

These are businesses which continue to exceed expectations, generate revenue growth or attract funding from third parties. Importantly, any spike in demand as a result of Covid-19 has not been used to mark up the valuation of the business. The three largest holdings within the Pembroke VCT (Plenish, Five Guys and Popsa) have been put in this category and cumulatively account for 22.8% of its net assets. Recent investments such as Stitch & Story and Pasta Evangelists also fall into this category.

2. “Mothballed and ready”

These are businesses in the portfolio such as the gym operators (Boom Cycle, KX Gym, KXU) and restaurant operators (Five Guys, Sourced Market, Chucs Bar & Grill) that were forced to close sites during lockdown. Each has seen a reduction in its holding value. Together they account for 20.4% of the net assets of the VCT. These businesses have focused on minimising costs and preserving cash.

3. “Pivot-trading”

“Pivot-trading” businesses are those that have had to adjust the way they operate in response to the changing situation. This category includes companies such as women’s fashion retailer ME+EM, which closed its physical stores following lockdown and refocused on developing its online and catalogue business.

Overall, the impact of Covid-19 counteracted some of the growth within the portfolio. The net asset value per share fell from 115.12p per share in September 2019 to 110.29p per share as at 31 March 2020. Past performance is not a guide to the future.

Current portfolio overview

The Pembroke VCT has made investments into 45 companies. 40 are currently active and are valued at £95.4 million. The VCT has net assets of £106.5 million (31 Mar 2020). 

The VCT remains concentrated following the merger of the two share classes. The top 10 holdings account for 52.4% of the value of the VCT.

In the 12 months to March 2020, the Pembroke VCT invested £7.8 million in seven new investments and a further £17.3 million in 16 follow-on investments. 

The portfolio has a skew towards food, beverage & hospitality, design, and media businesses. Within the sector breakdowns, a number of the underlying companies have been reliant on the high street to generate some of their sales. They have been impacted by lockdown. Where possible, these businesses have sought alternative distribution channels. 

Source: Pembroke VCT plc, 3 September 2020. The sector breakdown includes audited valuations up to 31 March 2020, and investment activity following this date.

Examples of portfolio companies

Plenish – Pembroke VCTPlenish (largest holding)

Plenish, founded in 2012, is one of the UK’s leading providers of nut milks. Plenish is now stocked in all but one of the major supermarkets in the UK. Its range includes five different milks as well as a ‘grab-and-go’ offering. Plenish also produces a range of cold‑pressed juices, which are 100% raw, organic and unpasteurised.

The business continues to grow strongly. Overall revenues to June 2020 were up 30% over the previous year. Pembroke expects revenues to continue to grow strongly as the business benefits from an increasingly health-conscious consumer, particularly in a post Covid-19 world. 

Following the merger of the two share classes, and the continued strong performance of the business, Plenish is now the largest holding within the VCT. The holding is valued at £9.2 million, equivalent to 8.7% of net assets. The Pembroke VCT owns a 37.7% stake in the business.

Pasta Evangelists – Pembroke VCTPasta Evangelists (recent investment)

Pasta Evangelists, which counts Great British Bake Off’s Prue Leith as a founding shareholder, delivers high-quality fresh pasta, sauces and garnishes direct to customers’ homes nationwide. Ingredients are sourced seasonally and sustainably from a network of small farmers and growers across Italy. The company is expanding its retail channel with concessions at Harrods and M&S. Its products are also available on Deliveroo, Ocado and Amazon. 

The business has seen a surge in demand and following the changing consumer habits brought on by the Covid-19 outbreak, revenues have now exceeded £1 million per month, up tenfold on last year: past performance is not a guide to the future.

In February 2020, Pembroke VCT invested £2 million into Pasta Evangelists alongside the Guinness EIS fund as part of a £3.5 million funding round. Pembroke VCT has a 13% stake in the business. The value of the investment remains unchanged since the initial investment (March 2020).

Pembroke VCT – Five GuysFive Guys

Five Guys was founded in 1986 in the US. It’s a restaurant chain serving handmade burgers cooked on a grill, along with fresh-cut fries, served with unlimited toppings. 

Pembroke became involved even before Five Guys had its first UK site and provided growth capital to fund the UK roll-out. Five Guys was also backed by Sir Charles Dunstone, founder of Carphone Warehouse and an investor in Pembroke. 

The chain now has over 100 outlets in the UK as well as sites across Europe. Whilst lockdown forced the business to close its outlets to walk-in trade, many of the sites remained open to click-and-collect and takeaway orders. Five Guys has been a beneficiary of the growth in demand for delivery platforms such as Deliveroo. In fact, a cheeseburger from Five Guy’s Clapham store was London’s most popular dish ordered on the Deliveroo platform in 2019. 

The business is in a strong cash position, and Pembroke expects the business to generate revenue growth this year despite Covid-19 disruption.

Pembroke originally invested in 2013 through its Ordinary share class and has invested over £2 million across both share classes. Because of the company’s size, Pembroke VCT is precluded from making any further investment. Following the merger of the VCT share classes, Five Guys is the second-largest holding within the VCT, accounting for 6.8% of net assets (March 2020).

Performance and dividends

The net asset value of Pembroke VCT has been impacted by Covid-19. The VCT has delivered modest NAV appreciation, combined with a consistent 3p dividend per annum. 

Chucs Bar & Grill was the largest detractor over the 12 months to March 2020, contributing £5 million of losses for the combined VCT. Second Home, the flexible office space provider, saw its value fall by £3.75 million. Heist Studios, the underwear company, saw its value fall by £2.8 million. 

There were a number of positive contributors which offset some of these losses. Plenish, the nut milk manufacturer, saw its holding value increase by £3.7 million. Popsa, the photobook retailer, increased in value by £3.3 million, and ME+EM, the women’s fashion retailer, increased by £1.8 million. These top three contributors make up three of the largest four holdings within the combined VCT and account for 20.8% of its net asset value. The three worst contributors account for 4.3%. Please note, past performance is not a guide to the future.

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 Dec 2014 – 30 Jun 2020. Correct as at 31 August 2020.

The VCT targets an annual dividend of 3 pence per share. There is also the potential for special dividends where realisations occur from the sale of the portfolio assets. Please remember, returns are not guaranteed.

On 24 July 2020, the board announced a dividend of 3p is to be paid on 29 October, with an ex-dividend date of 24 September 2020. Investors in the current offer could qualify if they apply by 23 September 2020 (noon, cleared funds). 

Source: Pembroke. Dividends paid in calendar year. Dividends are not guaranteed and past performance is not a guide to the future.

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.

As this is a relatively new VCT with no legacy portfolio of investments made under the older rules, investors might have to wait longer for returns to be realised– note 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 5.5%
Early bird discount 1%
Wealth Club initial saving 2.5%
Existing shareholder discount
Net initial charge through Wealth Club (new investors) 2.0%
Net initial charge through Wealth Club (existing shareholders) 2.0%
Annual management charge 2%
Annual administration charge
Performance fee 20%
Annual rebate from Wealth Club (for three years) 0.15%

More detail on the charges

Deadlines

  • Deadline for next allotment: 23 September 2020 (noon)
  • Deadline for 1% early bird incentive – 31 October (or first £5m raised, whichever is sooner)
  • Deadline for final allotment in 2020/21 tax year – 1 April 2021 (3pm)
  • Deadline for final allotment in 2021/22 tax year – no later than 2 September 2021, unless the offer has been fully subscribed by this date.

Share buybacks

Pembroke 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. 

Dividend Investment Scheme (DIS)

There is a Dividend Investment 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.

Annual rebate when you invest through Wealth Club

The 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 0.15% of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.

Our view

Following the merger of the VCT’s two share classes and a number of successful years of fundraising, the Pembroke VCT now has assets in excess of £100 million, and a portfolio of 40 underlying companies. 

The increasing size of the VCT has enhanced its appeal, in our view. It is this growth which has enabled the VCT to diversify and mitigate what could otherwise have been a challenging year for the VCT. The portfolio includes a number of promising companies whose success during the period to March 2020 has helped to offset some of the losses generated from the more mature investments within the portfolio. This remains a concentrated portfolio with over 50% of the VCT's assets held in its top ten investments.

Pembroke’s investment strategy, to back passionate entrepreneurs building premium consumer brands, is differentiated from the wider cohort of VCTs. Andrew Wolfson and the team’s experience means they know first-hand what it takes to build a successful business. As a result, they tend to take a much more active role in their investee companies than some other VCT managers. Pembroke will often take a significant stake in its investee companies in order to help shape the strategic direction of the business. 

Andrew Wolfson is an experienced entrepreneur and fund manager and benefits from the wider resources and presence of Oakley Capital. The close-knit team at Pembroke and the wider resources of Oakley Capital could be a good blend. The sectors in which the Pembroke VCT invests tend to be overlooked by most other VCTs, and so Pembroke could be a good diversifier with a VCT portfolio. However, although, a number of companies in the portfolio are flourishing in the current environment, others are struggling. Investors should note key sectors in the portfolio are under considerable pressure at the current time.

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.

The details

Type
Generalist
Target dividend
3p per share
Initial charge
5.5%
Initial saving via Wealth Club
3.5%
Net initial charge
2.0%
Annual rebate
0.15%
Funds raised / sought
£20.0 million sought
Deadline
23 Sep 2020 for next allotment
Last updated: 3 September 2020

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