Crown Place AGM (2018)

[timbo003]

I recently attended the Crown Place VCT AGM, which was held on Thursday November 29th 2018 commencing at 11.00 at the City of London Club, 19 Old Broad Street, London EC2N 1DS.

The link to the annual report for year ending June 30th 2018 can be found here:
https://www.albion.capital/sites/defaul ... 202018.pdf

The IMS for the three months ending September 30th 2018 was released just before the AGM; it reported a NAV of 34.56 pence per share, an increase of 1.06 pence per share (3.2 per cent) since 30th June 2018 (after taking into account the payment of dividends).
https://www.investegate.co.uk/crown-pla ... 0420H8375/

For this year’s AGM there were around 30 ordinary shareholders in attendance. The meeting began with a portfolio review given by Emil Gigov (Albion partner and investment manager) which also included a short Q&A session. We then had a presentation (with Q&As) by Emma Kafton, Director and co-founder of one of the new Albion investee companies, Evewell. This was followed by the formal AGM and then lunch, which consisted of a selection of sandwiches with a choice of red or white wine and soft drinks.

Manager’s presentation and portfolio review:

Emil began with a brief review of the year’s performance where the total return was 4.6p/share (2p/share paid as dividends and a 2.6p/share increase in NAV). Most of the gains (circa 90%) were through capital increases (rather than revenue)
There were four exits during the year returning £6m (Grapeshot, Hilson Moran, Relayware and the Crown Hotels) with exit multiples of 10X, 3X, 1X and 1X respectively. There were investments in four new companies and follow on investments in five established companies. Quantec, Egress and G Network received name checks in the growth portfolio and in the asset backed portfolio Renewables and Healthcare were both cited as doing well.
The rules on VCT asset backed investments were briefly explained and we were told that this will necessitate a change in investment policy, which we would be asked to vote on later (Resolution 6). Emil finished off by telling us the annual dividend objective remained at 2p/share and VCT would be participating in the forthcoming Albion share offer, looking to raise £6m with a possible £2m over allotment.


Q&As:

Q: Is there any pressure from HMRC for a timely disposal of the asset backed investments or has there been any indication that they may set a time limit on how long you can continue to hold?
A: No

Q: You have said that with time, the asset backed investments will be sold, is there any sort of order in which you will sell them and which asset class will be the last man standing?
A: The timing for most of the asset backed disposals will depend very much on market conditions, but we do not envisage selling the renewable energy assets for some time yet so they may be the last ones out.

Q: Over the last few years HMRC have made changes to when they will let investors reclaim tax following VCT investments. A few years ago they stopped taking into account how much you invested in previous years to work out a tax code for the year ahead, furthermore, starting from last year they will now only provide rebates in the same tax year as you made the VCT investment up to December, any claim made thereafter is not dealt with until you submit your PAYE tax return some time after April 6th. These changes mean that it would be better for tax payers if VCTs had their offers much earlier in the tax year. Will you look into doing this?
A: We did not know this was a problem (for some investors), but we will look into it.
(Post meeting note: some (most?) VCT managers, allow investment over 2 tax years, so this should not be too much of a problem)

Q: The quoted companies in the portfolio go down every year and they are drag on the rest of the portfolio, why don’t you just sell them?
A: It is useful to keep some losers as they retain their higher (acquisition) value for the purposes of calculating VCT qualifying criteria, for example 70% of assets must be held in qualifying investments (which will be 80% next year), keeping the losers means that we can go outside of these limits.
Q: I read in the press that there is a wall of (VCT) money looking to invest does this raise asset prices and are we over paying?
A: We don’t think so. There has also been an increase in both quantity and quality of investment opportunities, so there is still a good balance of supply and demand

Q: Can we still buy businesses which own some with assets, for example a freehold property?
A: It is not specifically excluded, but what HMRC will not allow, are investments where they consider there is little or no risk to capital.


Formal AGM

The list of resolutions for approval were fairly boilerplate with the exception of Resolution 6, which was to authorize a change in investment policy to reflect the recent changes in VCT rules which now exclude new investments in low risk, asset back enterprises.
There were no questions of any significance regarding the resolutions and they were all passed with large majorities (>90%), with the resolution concerning disapplication of pre-emption rights attracting the largest opposition (8%). The number of shares voted for each resolution was disappointingly low (circa 9.5m, which corresponds to approximately 5.7% of the total voting shares)
https://www.albion.capital/sites/defaul ... 202018.pdf


Evewell

Website: https://www.evewell.com/about/
Evewell was set up in November 2017 by leading London Gynecologist Mr Colin Davis and associates, soon thereafter they signed up for a 20 year lease on 61 Harley Street.
The founder’s vision is to establish an independent London based gynecology and fertility clinic for women offering all services in a bespoke and luxury environment.
Fertility treatment is currently an underserved and growing market. One in seven different sex couples are affected, yet fertility treatment is not at the top of the NHS’s priorities. The potential market in the UK has been estimated at £600m.
The company currently employs 2 doctors, 6 nurses, 6 admin and 3 embryologists in addition to the four founders. They opened their doors for business in October and have just had their first pregnancy. Revenues were £138k for October were and £210K in November. The forecast is that they will be cash flow positive by November 2019.


Q&As

Q: How do you differentiate Evewell from the competition?
A: It is not the norm for a private fertility clinic to have a full team of NHS trained gynecologists; furthermore Colin Davis has an extremely good reputation. We also offer a complete gynecology/fertility service which is unusual, so for example we would offer several rounds of fertility treatment and we are able to diagnose and rectify most problems which may be a direct cause of the infertility, some of which could involve minor surgery.

Q: How do people pay for the service?
A: Private Medical insurance does not normally cover fertility treatment, so unless they have specific insurance patients will self-fund.

Q: Are you getting any overseas enquiries?
A: We have seen some, with Colin Davis often the reason given for why they want to travel. There has also been interest from overseas for the treatment of gynecological conditions such as endometriosis.

Q: Why did you and the other founders get involved with this venture?
A: The other founders were approached by Colin Davis with the idea and we went from there.

Q: We briefly heard about another Albion investment earlier, G-Networks, who have just installed fiber broadband in Harley Street, have you signed up as a customer yet?
A: Yes we have and we are very happy with the service.


Lunch:

Over lunch, I managed to talk to Emma from Evewell and her colleague Kristi Flax (also at the meeting) and managed to learn a bit more about the business.
I asked whether they would ever offer finance as part of the overall service, apparently this is a tricky area, for example, what would happen if a round of fertility treatment was financed through a future payment plan and then the pregnancy was terminated, or there was a still birth?
The landlord is the Howard de Walden Estate ( https://www.hdwe.co.uk/medical-property-to-let.aspx ) they own most of Harley Street and they are fully committed to maintaining its reputation as a medical centre of excellence. The lease is renewable and the terms for renewal are fair and reasonable.

[UncleEbenezer]

Thanks Tim. Great report, as ever.

I think fellow-fools may be particularly interested in this. Coming from a stable that doesn't tend to raise obscene amounts and hold excessive cash balances, I find a measure of reassurance in it. On the other hand, when sentiment is so positive may be when the market is deluded?

Q: I read in the press that there is a wall of (VCT) money looking to invest does this raise asset prices and are we over paying?
A: We don’t think so. There has also been an increase in both quantity and quality of investment opportunities, so there is still a good balance of supply and demand.

[BusyBumbleBee]

CRWN published its half year report yesterday - quite good figures : see https://www.investegate.co.uk/crown-pla ... LC%20Alert

NAV up

net asset value as at 31 December 2018 was 35.26 pence per share (30 June 2018: 33.50 pence per share)

and they show how they got there in a very helpful table entitled "financial highlights" : for example share buy buy backs and new issues contributed .02 of a penny to the NAV.

A big winner was ELE Advanced Technologies Limited which is 41.9% owned by CRWN which is the only Albion VCT investor

There was £9.596 million cash and cash equivalents out of total of £58.446 million. i.e. 16.4% but this does not (apparently) take into account the new money raised. It would seem, therefore, that any allotment will be at the new NAV thus diluting existing shareholders less than it would have done at the previous NAV prior to the release of these results.

[barchid]

BBB
I am sure you are spot on, I noticed that no Albion top up shares have yet been issued so clearly existing shareholders will not be overtly diluted.
As an existing holder, and also a current applicant for AAVC & CRWN, I am pleased to see the fairness shown to everyone by this policy.
I think Albion & Amati are probably 2 of the best managers from the point of view of looking after shareholders

[BusyBumbleBee]

I think Albion & Amati are probably 2 of the best managers from the point of view of looking after shareholders

Totally agreed and of course Amati have gone one step further with their latest offer where "Existing Shareholders have a pre-emption entitlement". Hope that we can persuade Albion to do that as well.

Of course you can always use the DRIS which gives you shares at NAV with no charges. After years of investing in tax free pots coupled with some recent very nice tax breaks from the Chancellor, I find I have precious little tax to save so do not buy any more VCT shares in the 'Annual Offers' and just use the DRIS on a few houses to eradicate any tax I might have to pay. I have also had to move some shares into a nominee account to avoid buying too many - cos it is still cheaper to buy in the market if you are not going to get a tax break.

kind regards - BBB

[BusyBumbleBee]

Noted today that Albion Enterprise has gone up by 6.6% today (7 pence - per share) - interesting to find out the cause and to see if NAV increases before the allotments. Will cross post.

[BusyBumbleBee]

So today the share price ticks up by 1.60 pence (bid/offer 33/35) - just about equal to the increase in NAV.

net asset value as at 31 December 2018 was 35.26 pence per share (30 June 2018: 33.50 pence per share)

Glad I topped up on the day of the results.

[BusyBumbleBee]

Glad I topped up on the day of the results.

but not so pleased to find that CRWN "purchased 216,000 ordinary shares at 31.71 pence per share on 22 February 2019" - see RNS.

Albion should - in my opinion - manage the bid/offer spreads a little better - as AMATI seem to do, where the spread is just one penny on a 130 p share and most trades reported go through within the spread. A 2 pence spread on a 35p share is excessive and even more so on Kings ArmsYard which is a 22 p share. The other Albion VCTS - all priced lower than AMATI - have/had a 2 p spread.

Of course it can be worse on other VCTs : Any ideas?

[UncleEbenezer]

It's not so long ago Amati (1 - which I held - now merged into 2) had a spread of 20p+ on a mid price that fluctuated either side of about 70p.

[scotia]

Of course it can be worse on other VCTs : Any ideas?

It can be a major problem on small VCTs with very little liquidity.
E.G.Oxford Technology 3 (OTT) is currently quoted with a bid/offer spread of 45/80p, with a NAV (30th November) of 82.6p
Looking at large generalist VCTs (Maven, Mobeus, Northern, Baronsmead) a 2p spread is common. This is reasonable on larger NAVs, but not on smaller NAVs. With very little trade in VCTs, its difficult to know if these spreads are realistic. Looking at Kings Arms Yard trades during February, all seem to have been at 20, 20.5 or 21p, although the quoted spread remained at 21/23. Looking at Crown Place, the quoted spread remained 31.4/33.4, and most trades appeared to fall between these limits. The recent CRWN purchase seems to have bumped up the mean price while retaining the 2p spread. It is now 33/35 - closer to the December NAV of 35.26.
Thinking this over - it looks like the market makers like to deal in margins of two pence - no matter the actual NAV. Maybe an inverse split - e.g. 1 for 5 in Kings Arm Yard, so bringing the price up to around 100p would provide a cure!

[barchid]

BBB
I am sure you are aware of the continued rise in CRWN, 33/35 today, small volume again though on my feed, but an encouraging push northwards !