Less taxing high risk/reward investing with VCT funds
Part 1 : An Investment Series by Jon Levinson
Is there a Tax Payer not seeking to pay less tax ? Is there an Investor not looking for a 10 bagger?…..
Even if there are such people this could be a chance to reconsider and why we are initiating an Investment Series on EIS (Enterprise Invest Scheme) and VCT (Venture Capital Trust).
As the series progress you will become more familiar with the terms. There have been a lot of rule changes for both schemes over the last three years, all with a similar theme of pushing the qualifying investments towards smaller, higher risk businesses.
Here we start with a brief background to VCT and a recommendation.
VCTs are fully listed funds with attractive Tax incentives to invest and you get to follow the price on the screen. Investing in a VCT new issue, is a straight forward and low hazzle, which gives income tax relief of 30% on up to £200,000.
This is given as a tax credit against total income tax liability, though the shares need to be held for at least five years to keep the relief. Any dividends from the VCTs are paid out tax free and no capital gains tax is paid on disposal.
In the last Tax year to April 2018, the VCTs market raised £745m, since then to January 2019, the amount raised was 23% lower on the compatible period.
As the increased risk of the qualifying investments, coupled with Brexit uncertainty may be putting investors off. In this background Companies seeking investment will accept lower valuations.
Just as Fund managers are being pushed to look for growth in companies perhaps at the expense of a dividend therefore fund managers and investors should get better bang per buck invested.
We think Calculas VCT is worthwhile. It is a relatively small fund raising £15m with no Initial fee. The strong established and prize winning Venture Capital team have delivered well in the past.
The Fund aims to generate sufficient returns to maximise tax-free dividends while growing the capital over the medium to long term. The current fund raising is for Ordinary shares, which will have an income target of 4.5% of NAV.
Returns will be generated by investing in a portfolio of mainly unquoted companies across different industries. Since being founded an average realised 9% IRR is still credible but with the current wind behind them could do better.
VCTs are at the lowest risk end of this investment spectrum while investing in a single EIS qualifying company is at the highest end. To be continued ……
Marks & Spencer and Ocado agree £750m delivery deal
Marks & Spencer and Ocado have agreed on a joint food delivery venture.
Under the deal, Marks & Spencer is set to pay £750 million to acquire a 50% share of Ocado’s retail business.
The venture is set to be in operation by the September 2020 at the latest, after Ocado terminates its current agreement with Waitrose.
Steve Rowe, Marks & Spencer’s chief executive, said he had “always believed that M&S Food could and should be online” and combining M&S’s food with Ocado’s technology and delivery network was a “win-win” and “compelling proposition to drive long-term growth”.
He added: “Our investment in a fully aligned joint venture with Ocado accelerates our food strategy as it enables us to take our food online in an immediately profitable, scalable and sustainable way.”
Tim Steiner, the chief executive of Ocado, described the deal as a “transformative moment in the UK retail sector” that would combine “two iconic and much-loved retail brands set to provide an unrivalled online grocery offer”.
Almost two years ago Marks & Spencer announced its intention to enter the food delivery service market, in a bid to attract online consumers.
In recent years, the retailer has been struggling amid weaker Christmas sales and slower sales for its clothing ranges.
As a result, M&S announced plans to limit the amount of store space dedicated to clothing, in a bid to streamline costs.
Shares in Marks & Spencer (LON:MKS) are currently -9.70% as of 10:35AM (GMT).
Meanwhile, Ocado shares (LON:OCDO) are +3.64%.
Brexit: UK and US agree derivatives trading deal
The UK and US have agreed a major derivatives trading deal to ensure “bridge over Brexit”.
The Bank of England, Financial Conduct Authority (FCA) and the US Commodities and Futures Trading Commission made a joint announcement on Tuesday, unveiling the agreement.
In a boost to the city, the deal will mean that derivatives trading between New York and London will continue, regardless of the outcome of Brexit.
Governor of the Bank of England, Mark Carney, said:
“Derivatives can seem far removed from the everyday concerns of households and businesses, but they are essential for everyone to save and invest with confidence.
As host of the world’s largest and most sophisticated derivative markets, the US and UK have special responsibilities to keep their markets resilient, efficient and open. The measures we are announcing today will do that. Market participants can be confident that the clearing and trading of derivatives between the UK and US will maintain the high standards of today when the UK leaves the EU”
J. Christopher Giancarlo, Chairman of the CFTC, said:
“London is, and will remain, a global center for derivatives trading and clearing.” He added that the measures would “provide a bridge over Brexit through a durable regulatory framework upon which the thriving derivatives market between the United Kingdom and the United States may continue and endure.”
Meanwhile, the Chancellor of the Exchequer, Philip Hammond said:
“The US and UK are fundamental to the smooth functioning of the world’s multi-trillion pound derivatives markets, with around 97% of the centrally cleared interest rate derivatives market located in London. The action we have taken today with our partners in the US will ensure that markets can continue to thrive without disruption, and is yet another example of the special relationship between our two countries.”
The Chancellor is set to present his Spring Statement Speech on the 13th of March.
The Chancellor’s speech will come just ahead of the government’s official Brexit deadline the 29th of March.
Shefa Yamim announces completition of jewellery collection with Yossi Harari
Shefa Yamim has announced the completion of a collection with jewellery designer Yossi Harari using the exploration company’s gemstones.
In a statement, Shefa Yamim said that the collection, which has been named “Heaven on Earth” is comprised of 13 pieces of jewellery.
The Israel-based explorer said that the jewellery was created from gemstones found in the Kishon Mid-Reach area.Yossi Harari commented on the new collection:
“This collection is inspired by the dream and realisation of finding such rare and stunning precious gems in the soil of the Holy Land. Combining these gems with timeless materials with a modern aesthetic, the jewellery uses a blend of different metal and texture combinations, glass shaker beads, and innovative stone settings in my signature style to create an unforgettable design. I am honoured to have been chosen by Shefa Yamim to create this collection and I look forward to continued collaborations with Shefa Yamim in this amazing enterprise.”
Earlier this month, Shefa Yamim shares soared after the company announced it had received a technical evaluation for Zone 1 of its Kishon Mid-Reach project.
The evaluation’s findings revealed that the mine has the potential to process a total of 1.5 million tonnes of gravel over an 11-year mine life.
Shefa Yamim is a multi-commodity gemstone mining exploration company, focused in Northern Israel.
Shares in the company (LON:SEFA) are currently -4.35% as of 10:34AM (GMT).
Hotel Chocolat first-half profits up, shares rise
Hotel Chocolat (LON:HOTC) posted a jump in first-half profits on Tuesday, sending shares up.
Pre-tax profit climbed 7% to £13.8 million in the six months to December 30, with revenue of £80.7 million, an increase of 13% on a year ago.
The company attributed growth to a strong performance over the Christmas period, as well as the launch of two new stores in New York and Tokyo.
The retailer also opened an additional 14 new stores across the UK and Ireland, which led to a 4% rise in sales.
In addition, the company saw around 500,000 customers join its new VIP Me Rewards scheme.
Chief executive Angus Thirlwell commented:
“Growth in the UK continued to deliver improvements in profitability which have enabled us to invest in the launch of two new start-ups in New York and Tokyo, both of which are showing encouraging early signs, in terms of customer response and the initial store sales performance,”
He added:v“Recent trading, including the Valentine’s period, is in line with the Board’s expectations and we continue to make good progress against our key strategic objectives of opening more stores, improving our digital capability and increasing our production capacity whilst testing and learning in two large new territories.”
Hotel Chocolat was founded back in 1988 and is headquartered in Hertfordshire. It is the only UK company to grow its own cocoa on its own plantation.
Hotel Chocolat shares (LON:HOTC) are currently +1.63% as of 12:04PM (GMT).
Persimmon annual profits surpass £1bn
Persimmon pre-tax profits for 2018 surpassed £1.1 billion, with the company benefiting in particular from the government help-to-buy scheme.
Persimmon reported annual profits of £1.091 billion, up 13% from £966 million in 2017. This was largely as a result of help-to-buy, which accounted for almost half of all homes sold.
However, the housing minister has now launched a review on the scheme, particularly in light of Persimmon’s soaring profits.
The housebuilder also announced that interim chief executive Dave Jenkinson would remain in his role heading the company.
Last year, its previous chief executive Jeff Fairbun left the firm after a shareholder backlash against a £75 million pay-out.
Tom Brown, Managing Director of Real Estate at Ingenious, commented on the results: “Persimmon’s 2018’s pre-tax profits were broadly in line with forecasts however recent sharp falls in its share price and those of other housebuilders in the UK betray a sector which has a lot to lose from a disorderly Brexit and an economic downturn. The company has been in the firing line since the scandal broke of the bonus awarded to its now ex CEO.
“The government is right to put housebuilders under the spotlight as a condition of their inclusion in the key Help to Buy scheme which has underpinned pricing in the sector since being announced in 2013. Alongside good financial governance, the government should drive best practice across the industry in relation to build quality and after sales service. This coupled with local councils demanding funding infrastructure, can ensure that everyone shares in the benefits that new development can bring to communities.”
Persimmon shares (LON:PSN) are currently trading +1.54% as of 9:50AM (GMT).
Beneficiaries of financial policies unchecked by most British adults
New data has emerged revealing that most British adults do not check the beneficiaries of their financial policies and could therefore be leaving money to the wrong people. As the UK’s departure from the European Union draws closer, it is advised that financial policies are reviewed.
Phoenix Life, Europe’s largest life and pensions consolidator, conducted a study where it emerged that 54% of UK adults are unaware that their pension typically goes to the person who is named in their pension policy rather than their will.
As family structures develop and relationships evolve, it is fundamental that financial policies are regularly updates in order to avoid complications later in life.
Over 2,000 UK adults took part in the study that revealed a significant number of policy holders do not review the recipients of their life insurance policy, critical illness cover, personal pension, income protection and redundancy cover sine they were established.
Additional statistics regarding personal pensions, beyond those found in the Phoenix Life study, show that the number of new female state pension claimants have dropped by over 202,000 per year. With the equalisation of the state pension age coming into motion, the number of female claimants has dropped significantly, though the male recipient figure has increased by 89,000.
“Few people probably know that pensions don’t form part of the estate on death, which means unlike savings, property and investments, pensions aren’t covered by wills,” Customer Director at Phoenix Life, David Woollett, said.
“People will most likely take out a number of different policies over their lifetimes – whether it’s a pension, life insurance, critical illness – and, as well as ensuring the the beneficiaries are updated as circumstances change, policyholders should inform their recipients about the policy, otherwise they won’t know to make the claim,” he continued.
Data from the study also shows that despite 47% of UK adults holding a personal pension policy, these are the least to be reviewed among policies. This is most notably alarming in South West England where 24% have reviewed their pension policy.
The political and economic Brexit-induced chaos is hitting most areas of British finance, including pensions. As uncertainty looms, it would be a good time to check the beneficiaries of your financial policies with the departure date drawing closer. Considering the impact of Brexit on your personal retirement savings is fundamental.
Market fragility caused by Brexit could significantly impact both your pension pot and your retirement income.
At 14:59 GMT Monday, shares in Phoenix Group Holdings (LON:PHNX) were trading at -0.40%.
Karren Brady resigns as chair of Sir Philip Green’s holding company
Baroness Karren Brady has quit as chair of the holding company for Sir Philip Green’s Arcadia Group, Taveta Investments.
The announcement comes just days after saying that she had a “duty” to employees to remain as chairman.
Earlier this month, Karren Brady had said that she would not resign from Taveta following The Telegraph’s reportage of staff complaints. When asked by the newspaper, she said that she would “not be resigning” as chairman, adding “why should I?”
Karren Brady had been chairman since July 2017. She initially joined the company as a non-executive director in 2010.
Taveta Investments is the parent company of Sir Philip Green’s Arcadia Group. Arcadia Group owns the UK high street’s top clothing retailers: Burton, Dorothy Perkins, Evans, Miss Selfridge, Topman, Topshop, Wallis and Outfit. It owns over 2500 UK outlets and hols concessions in British department stores such as Debenhams and Selfridges.
In a statement, the company said:
“Taveta would like to announce that Karren Brady and Sharon Brown (in their respective capacities as non-executive chairman and non-executive director) have resigned from its board.”
“Taveta thanks them for their contribution and wishes them well for the future.”
“Taveta is in active discussions with individuals who have significant relevant experience and expects to make a further announcement as to the composition of its board shortly.”
Support for the tycoon’s empire has become increasingly controversial as allegations of sexual harassment and racial abuse have been made against him. He denies these allegations.
Last week it was confirmed that Sir Philip Green was facing an investigation for sexual misconduct in the US for having allegedly groped a fitness instructor working at an Arizona wellness resort where he owns a property.
Additionally, the tycoon allegedly kissed, slapped and groped a female employee as well as racially abusing another.
Karren Brady has condemned powerful men who have faced sexual harassment allegations.
Elliott Advisors backs Hammerson’s asset disposals programme
The British shopping centre operator Hammerson has announced that it has won shareholder support on its asset selling programme aimed to reduce company debt. Indeed, shareholder Elliot Advisors has backed the plan to offload more assets as well as expand its board.
Hammerson announced on Monday that it planned to offload more of its assets in 2019, following the sale of assets worth over £570 million the year prior. The sale of additional assets, if entirely successful, aims to target a debt of £3 billion for the 2019 financial year.
The company outlined its plans to appoint an additional two non-executive directors in 2019.
In a separate statement to Hammerson’s financial results for the previous year, the U.S activist investor Elliott Advisors commented:
“Following constructive dialogue with Hammerson’s Board, Elliott welcomes both the Board’s decision to search for two additional independent non-executive Directors, and the formation of a new Investment and Disposals Committee, with oversight and responsibility for the Company’s ongoing disposals programme.”
“This increased focus on strategic disposals, as marked by updated targets for 2019 and a current pipeline of potential sales of over £900 million, signals a positive development in the company’s progress, and its ability to ensure that its portfolio of high quality assets delivers compelling value for all shareholders.”
As of July 5th, Elliott Advisors has held a 5.3% stake in the British shopping centre operator. It has agreed with Hammerson that it would vote for the resolutions proposed by the company at the forthcoming general meeting.
Elliott Advisors has been pressuring Hammerson to fundamentally reshape its portfolio. It is understood that last year, the shareholder used the decline on Hammerson’s share price to strengthen its 5.3% stake.
At 09:34 GMT Monday, shares in Hammerson plc (LON:HMSO) were trading at -1.97%.
Hammerson to offload more sites in 2019
Hammerson has announced that it will offload more of its sites in order to raise over £500 million. Shares in the company decreased by over 2.5% during early trading on Monday.
Birmingham’s Bullring and London’s Brent Cross owner said that a portfolio-wide review in order to accelerate transactions has been beneficial in identifying additional disposal opportunities. In 2018, sales were worth over £570 million at an average disposal price 7% lower than that in December 2017.
If the strategic disposals programme is successful, Hammerson’s net debt would be below £3 billion by the end of the year.
The announcement came in the company’s financial results for the year ended 31 December. The company said that it had made further progress on reducing its net debt, which was down £179 million from 30 June to £3.4 billion.
“Having successfully achieved £570 million of disposals in 2018, we are aiming to dispose of at least £500 million in 2019. We remain committed to exiting retail parks over the medium term and are in active portfolio-wide discussions on transactions of over £900 million, which would add further strength to our balance sheet,” the Chief Executive of Hammerson commented.
The company added that its results were impacted by a weaker investment market, underscoring that UK property values in the second half of last year had decreased 9.3%.
“2018 was a tough year particularly in the UK, Tenant failures, the structural shift in retail and a more considered consumer created a difficult operating environment, putting pressure on property values. Outside of the UK our destinations performed better with a strong contribution from premium outlets,” Chief Executive David Atkins said.
Hammerson is yet another company that has been hit by the growing Brexit uncertainty that has weakened the high street. With less consumer spending on fashion, dining and experience, Hammerson and its rivals are struggling to grow.
2018 saw a variety of failures and rescue deals, such as the well-publicised troubles to hit John Lewis, that damaged the property development and investment company. Indeed, Hammerson posted a £268.1 million bottom line loss after its £388 million profit figure revealed in 2017.
The tough retail climate to hit UK retail has reduced property values.
At 08:54 GMT today, shares in Hammerson plc (LON:HMSO) were trading at -2.56%.