Unicorn AIM VCT

Unicorn AIM VCT is the largest AIM VCT and the fifth largest of all VCTs, with net assets of £214.7 million (December 2023). 

It invests predominantly in AIM stocks: a blend of more mature cash-generative companies and earlier-stage businesses across a variety of sectors. The VCT also occasionally invests in unquoted companies currently accounting for c.15% of net assets. The VCT’s largest holding, Hasgrove, which is unquoted, represents 13.3%.

Managed by highly regarded smaller-company investor Chris Hutchinson, the VCT has an established track record and a recent history of paying generous dividends funded by successful exits. For instance, in 2022 the VCT paid a total of 45.5p per share in dividends. Dividends are variable and not guaranteed. In the 10 years to December 2023, Unicorn AIM VCT has delivered a total return of 53.0% including dividends (December 2023), making it the best-performing AIM VCT in the period – please note, past performance is not a guide to the future.

• Seeking to raise up to £15 million with a £5 million overallotment facility 
  
• The VCT does not specify a dividend target – dividends are variable and not guaranteed
• Minimum investment £3,000

The manager

Unicorn Asset Management Ltd (“Unicorn”) is a specialist fund manager with a bias towards smaller companies. Lead fund manager Chris Hutchinson joined Unicorn in 2005 and has more than 25 years’ experience covering UK small and mid-sized equities. Alongside this VCT, Mr Hutchinson is also the lead manager of Unicorn Outstanding British Companies Fund (an OEIC). Chris is supported by four UK equity fund managers and two investment analysts. Collectively, the team is responsible for managing Unicorn’s suite of investment funds as well as its AIM IHT service. 

Unicorn is independently owned and managed. Over 50% of the company’s equity is owned by the directors, managers and family members. It has c.£800 million under management (December 2023), with around £300 million invested in AIM-quoted companies. The wider fund group allows the manager to continue supporting businesses when they are no longer VCT eligible, potentially making Unicorn AIM VCT attractive as a partner to investee companies. 

Investment strategy 

Unicorn AIM VCT seeks to invest in largely AIM-quoted companies with the following characteristics:

• Experienced and well motivated management teams
• Products and services supplying growing markets
• Sound operational and financial controls
• Potential for good cash generation

In the past, the manager has also invested a smaller proportion of the fund in unquoted smaller companies.

Chris Hutchinson favours companies where the management owns a significant stake in the business and with a demonstrable track record of making money for shareholders. He is a firm believer that if the management has a big stake, they will be focused on the dividends as they are beneficiaries themselves. 

Unicorn has a cautious, “bottom-up” stock-picking approach, which favours spending time with investee companies and fully understanding them before investing for the long term.

Mr Hutchinson has in the past said: “Over 20 years, what I’ve learnt more than anything is that it’s not so much getting the ones that go up tenfold, but more about avoiding the ones that will blow up. You can only do that if you take a cautious approach, buying proper businesses with profit and cash flow.”

The non-qualifying portion of the portfolio is invested in a mixture of cash, OEICs, non-qualifying AIM-quoted companies, and blue-chip shares listed on the main market.

Portfolio overview

The Unicorn AIM VCT portfolio contains more than 80 qualifying companies. The portfolio is concentrated: the 10 largest holdings account for c.45% of net assets, largest holding Hasgrove alone, detailed below, accounts for 13.3% (December 2023) . 

Investment activity for the financial year to September 2023 was affected by a drop in both the number and quality of new qualifying opportunities, only three new investments were added to the portfolio in the period, alongside four follow-on investments, totalling a combined £7.6 million. Post-period end, an additional three qualifying investments were made for a total of £4.5 million. 

The current portfolio is spread across diverse sectors, with a bias towards software & computer services and pharmaceuticals & biotechnology businesses. 

Asset allocation (%)

Sector breakdown (%)

Example portfolio companies

Hasgrove – largest unquoted holding (unquoted)

Hasgrove’s only operating subsidiary, Interact, is a leading provider of corporate intranet solutions. An intranet is a private network used within an organisation to securely share internal information and resources.

Interact offers a suite of services, from planning and launching a custom network through to training and technical consultation. It has more than four million global users and includes clients such as Indeed, Domino’s, and the NBA.

In its latest financial year, Hasgrove reported revenue growth of 28% to £29.4 million and operating profit growth of 30% to £8.1 million. The company benefitted from growth and new opportunities within the US market and an increase in recurring revenue (up 27% in the year). To reflect this, the VCT’s investment has been marked up. 

The VCT currently owns 24.5% of Hasgrove. The holding is valued at £28.6 million on an investment cost of £1.3 million. It accounts for 13.3% of the VCT’s net assets (December 2023). Past performance is not a guide to the future.

Tracsis – largest AIM-quoted holding

Tracsis was spun out from the University of Leeds' School of Computing in 2004, following the development of crew scheduling software for rail services by Dr Raymond Kwan. Tracsis’ scheduling and rostering software (which helps railways run more efficiently) and condition monitoring hardware (which identifies possible issues with rail infrastructure before a costly failure) are now used by virtually all UK train operating companies. 

In the 12 months to July 2023, the business reported revenues of £81.5 million, up 19% year-on-year. The UK rail technology and services division was a key driver of growth, with multiple large-scale contracts secured with rail operators and Network Rail. There was also positive news from the company’s North American operations, with significant growth reported on the back of the US Government’s infrastructure spending bill. 

Tracsis was admitted to AIM in November 2007 at a valuation of £7 million and is now valued at approximately £280 million (December 2023). The VCT’s holding is valued at £15.2 million; the investment cost was £1.5 million (December 2023). Past performance is not a guide to the future. 

The position is the VCT’s second largest holding, accounting for 7.1% of net assets.

Exit track record

Shares quoted on AIM are bought and sold more easily than is the case with private (unquoted) companies. Realisations – particularly partial ones – are common with AIM VCTs, for instance, to rebalance the portfolio. We do not believe they are indicative of a manager’s performance and for this reason we don’t focus on them.

However, the Unicorn AIM VCT also invests a smaller proportion of the fund in unquoted companies. One recent exit from the VCT’s unquoted portfolio is Interactive Investor (detailed below).

Interactive Investor – example of previous unquoted exit

Interactive Investor is the UK’s largest ‘flat-fee’ investment platform with over £50 billion in assets under administration and over 400,000 customers.

Unicorn first invested in November 2013, acquiring a stake while the business was still small and relatively unknown. The platform continued to grow steadily but achieved real pace after the appointment of a new CEO in 2017 and the acquisition of four competitors. 

In May 2022 asset management giant abrdn acquired the company for £1.49 billion and the VCT received approximately £55.1 million in cash proceeds, against a book cost of £3.5 million. The entire realised gain of £51.6 million was subsequently distributed to shareholders as a special interim dividend of 32p in August 2022. Past performance is not a guide to future returns, dividends are variable and not guaranteed.

British Honey Company – example of previous failure

As can be expected, not all investments work out, the British Honey Company (BHC) is an example.

Founded in 2014, BHC was originally a producer of local honey. It later expanded into the craft spirits market, creating honey-infused gin, bourbon, and whiskey.

The business ran into difficulties in 2022, as a result of poor trading conditions, supply chain disruption, and high raw material costs. The company’s attempts to find a buyer and secure long-term funding eventually fell through and it entered administration in April 2023.

Unicorn AIM VCT invested £3.1 million in 2020, the holding has been written down to nil and it is not anticipated there will be any residual value.

Performance and dividends

The AIM market has suffered in the last few years. While more recent performance has been less turbulent, the market fell 6.4% in the year to December 2023 – past performance is not a guide to the future. 

The Unicorn AIM VCT has also been affected and fell by 3.3% in the year to December 2023 (NAV total return including dividends). Over the longer term, the VCT has delivered a NAV total return (including dividends) of 29.7% over five years and 53.0% over 10 years. Past performance is not a guide to the future. 

Note, we show VCT returns over a five-year period as a minimum, where possible. Where a VCT has followed the same investment strategy for longer, we also show returns over 10 years.

There is no specific dividend target. Over the last five years, dividend payments have totalled 71.5p, a large portion of which is attributed to two special dividends (32p and 7p) paid following the sales of Interactive Investor (the VCT’s largest holding at the time) and Augean in 2022. Dividends are variable and not guaranteed.

Following the acquisition of Abcam (previously the VCT’s largest quoted holding) in January 2024, the VCT has announced a further 11.7p special dividend, payable in February 2024. New investors in this offer will not receive this dividend.

NAV and cumulative dividends per share over five years (p)

Dividends paid per calendar year

Dividend Reinvestment Scheme

A dividend reinvestment scheme is available if shareholders wish to reinvest dividend payments by way of subscription for new shares. 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

The board intends to buy back shares at a discount, set at the discretion of the board, to the prevailing net asset value. In the year to September 2023, £3.8 million of shares were bought back, with discounts ranging from 12.5% to 15.2%. 

This policy is unlike other VCTs (which typically target a discount between 5-10%) and could mean that investors are unable to sell their shares at a similar discount to other VCTs. However, the share buybacks have the potential to add to the performance of the VCT and benefit remaining shareholders. Please see the offer documents for details.

Discount history

VCT shares are traded on the London Stock Exchange. Similar to investment trusts, the share price can fluctuate and can be different from the VCT’s net asset value (NAV), i.e. the value of the VCT’s underlying investments. The difference between the share price of a VCT, and its net asset value per share, is called a discount.

Based on data from Morningstar, the discount to NAV as at 31 December 2023 was -15.06%. Over the previous five years the average discount to NAV was -14.05%.

The discount history is based on the closing share price of the VCT at the end of each month, divided by the latest net asset value at the time. Past performance is not a guide to the future. Investors looking to sell their VCT shares may get a better price using the VCT’s share buyback facilities, although this is 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. 

To retain the tax benefits, VCTs should be held for at least five years. If you sell VCT shares and reinvest in new shares of the same VCT (including any mergers) within six months, tax relief can be restricted. Tax rules can change and benefits depend on circumstances.

The quantity and quality of investment opportunities available to AIM VCTs is dependent on sufficient VCT-qualifying fundraising activity on the AIM market, which will fluctuate.

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.

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, offer price and share allotment calculation methodology.

Please note, capacity – for the offer or any early bird savings – can be reached early, and we may not be notified of this by the VCT in real time.

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 a percentage (shown in the table above) of the Net Asset Value of the Offer Shares issued to you when you invest. Terms and conditions apply.

Deadlines 

The offer is now closed.

Our view

Unicorn is a highly regarded fund management business that specialises in investing in UK smaller companies. Chris Hutchinson has been lead manager of Unicorn AIM VCT since 2005 and is supported by an experienced fund management team. The team is responsible for several other UK investment mandates, including the £276 million Unicorn UK Income Fund.

It is pleasing to see the investment team’s long-term interests are aligned with investors through equity participation in Unicorn Asset Management.

While difficult market conditions have affected the VCT’s performance over the last few years, it has maintained its track record as the top-performing AIM VCT, delivering a NAV total return of 53.0% over 10 years (to December 2023). Past performance is not a guide to the future.

In that time, the VCT has also had several notable exits, including its stake in Interactive Investor (unquoted) and Abcam (quoted). Combined, these exits have funded 50.7p in special dividends. Dividends are variable and not guaranteed. 

In our view, Unicorn AIM VCT is a high-quality offering for experienced investors to consider. The investment strategy is clearly defined, and the fund management team has a strong long-term track record. In addition, Unicorn is a substantial AIM investor. This could help gain access to high-quality deal flow to support the deployment of funds raised in this offer.

Investors should note the VCT lacks a strict share buyback policy and can trade at a large discount to its net asset value.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.