Albion Development - Interim

[onslow]

Interim report more interesting for the developments that occurred after the period end - they mention they have sold part of their interest in the
"Radnor House" school investment. No further details provided, and it appears to be only 1 of the Radnor House schools.

First I've seen any Albion VCT sell an interest in the schools, which I view as a steady & reliable income stream. I'd much prefer they keep these sorts of investments while putting new funds towards new investments(....I know....I'm a radical thinker...)

Anybody else aware of Albion selling these types of investments...have I missed something? Or is this a surprise to others?

Granted, there may be a specific circumstance for this transaction...i.e. an offer they cant refuse?

[flyer61]

How about the end of Private Education under a Labour government.....surprised it has taken them so long.

[james188]

We were told at the Albion shareholder event yesterday that the Radnor portfolio had been "restructured" (interesting description), in that the Twickenham school had been sold recently, with the Sevenoaks school retained. Across the Albion VCTs, the sale apparently achieved a 3.75x multiple on cost, equating to an annual IRR of 19.6% and a net profit of circa £24 million. The stated reason for the disposal was that the sale price was as good as Albion thought it would ever get.

[Mainwaring]

Interesting news thank you.
However if I find that the manager and puppet Board of AAVC has just wheedled through a performance fee reset at NAV whilst having knowledge of an uplifting transaction....well I’ll be very cross. Very suspicious of the timing. They’ll get no more of my money, asset backed VCT or not.
More details required Albion.

[barchid]

Mainwaring
You make a very good point re AAVC & their shennanigans, I fully agree.
One aspect though, I realise that VCT's sometimes save news of their disposals to the 6 monthly statements but most managers make a RNS to draw attention to a sale if it is of some significace, sizewise, to their portfolio (Maven are especially good at this), given Radnor House is in, I believe, all their VCT's, even in the Technology VCT it is 17% by value according to FT website, I find it odd that it has not been highlighted, even if it is a partial sale of the company.
Albion always used to have a very good attitude towards shareholders, this certainly seems to be changing with the new guard in charge.

[BusyBumbleBee]

We were told at the Albion shareholder event yesterday that the Radnor portfolio had been "restructured" (interesting description), in that the Twickenham school had been sold recently, with the Sevenoaks school retained. Across the Albion VCTs, the sale apparently achieved a 3.75x multiple on cost, equating to an annual IRR of 19.6% and a net profit of circa £24 million. The stated reason for the disposal was that the sale price was as good as Albion thought it would ever get.

Well,well, well

The annual report says that AAVC owned 15.3% of the voting rights of Radnor House School (Holdings) Limited and that Albion managed companies owned 50% of this investment. So roughly 30% of the net profit of £24 million goes to AAVC.

The total amount owned by Albion seems to have been worth about £19.203 at the time of the annual report and they still have the Radnor School. so this is a material uplift in value.

I echo the comments about the 'serendipity ' of the bonus revision and the lack of an RNS pointing this out this major event.

Can someone please check my figures? and define what 'sold recently' means? and confirm that if has been bought by Richmond West Schools Trust ?

kind regards - BBB

[thebarns]

James188,

I am trying to do some old fashioned diligence on their accounts to work out a bit more about the Radnor transaction and existing balance sheets, pre the transaction.

I do not have all the information to hand and indeed will be missing the split of cost and valuation between the two schools, which will limit what can be gleaned.

I note that you were at the recent shareholder update when as per your posting, you stated that management informed all that a profit of £24M had been realised across the Albion stable, representing a 3.75 multiple on original cost.

(Albion stable held 50% of Radnor ( the two schools) and this was split, AAVC (7.1j, Albion Tech (15.3j, AADV (8.8), CRWN (9j and AAEV (9.8).)

Are you absolutely sure the meeting stated that the profit was £24m and not that the gross sale proceeds were £24M ?

I see the matter reported in the 30 September interim management statements of both AAVDV and Albion Tech, referred in their post balance sheet notes to the Radnor transaction and stated that the investments in Radnor were “sold generating proceeds” of £6.5M and £4M respectively.

This was not an entirely clear or helpful note from Albion as “generating proceeds” is not a clear accounting term I recognise. It could mean the sales price or it could also be interpreted as profits, two entirely different things. The Albion note should have clearly stated the impact on the existing balance sheet and the further profit uplift due from the current carrying valuation of the Twickenham school, otherwise it is a fairly meaningless and unhelpful note.

Albion should have stated the profit on the transaction, sale proceeds less cost, and also made clear how much of this profit was baked into the balance sheet valuation already and how much is to come through, which looks as though it may be a significant number and uplift, depending on the split between the two schools. Albion should not be making investors have to guess at this process.

As your note states that the profit was £24M and the combined proceeds is £10.5M of a combined 24% holding out of 50%, then something does not make sense here, probably as a result of careless accounting terminology and an inadequate post balance sheet note re the true financial impact of the transaction as impacts the existing balance sheets.

[timbo003]

I spoke to Will Faser-Allen for 10 minutes or so immediately after the Seminar on Friday, the main topic of conversation was the recent sale of Radnor House. I asked about the buyer (assuming it would be Private Equity or similar) and was surprised to learn that it was an individual.

Apparently there was now little scope to expand much further and they received a good price, also there are no current plans to sell the second school. I learned later (over lunch) that David Paton, the entrepreneur behind Radnor House, has children attending the Seven Oaks facility and they still have a number of years to go before leaving , so that suggests to me that he would be in no hurry to sell.

Given my interest in the School, Will has subsequently sent me a few further details, the salient points are outlined below

1. Our investment in Radnor House Twickenham has been a hugely successful investment for investors in our VCTs. This partial exit has delivered total cash proceeds (including loan stock interest) of £32.7m representing a profit of £24m over our investment cost of £8.7m. A cash on cash return of 3.75x
2. The price achieved was a very full price and one from where we could not see any upside. Importantly the valuation in our VCTs already reflected this outcome so there is no expected uplift to reported NAV. Consequently there was no requirement to make a separate RNS announcement and indeed it would have been inappropriate to have done so.
3. Given the sale valuation was already reflected in NAV it does not contribute to any payment under the performance incentive scheme for Albion Venture Capital Trust PLC.
4. To enable an exit from Radnor House Twickenham a legal restructuring was required to separate it from its sister school in Sevenoaks and was critical to our ability to continue to be invested in the second school
5. Given the anti-private school posturing by the Labour Party and to some extent the Conservative Party a reduction in exposure to the sector is prudent.

I bumped into Richard Glover (AAVC chairman) over lunch at the Seminar. We mainly talked about Macro subjects, including UK politics and how the outcome of the general election may adversely affect independent schools. We also briefly talked about the consultation process arising from the large vote at the AGM against the introduction of the new performance fee. Apparently the consultation is now more or less complete and the Directors will discuss the input received at their next board meeting (at the end of November )and then communicate with Shareholders before the end of the year.

Finally, I also had a chance to talk to one of the Kings Arm Directors at the meeting and that conversation confirmed what I already suspected, i.e the KAY directors have no intention of following some of the other Albion VCTs in adopting a 2%, 20% fee structure.

[Mainwaring]

Where would we be without Timbo. Thank you for the information.
I do still think that something as large as this could have been advised to shareholders. They often feel the need to advise us of small new investments of little immediate consequence. This was a very significant liquidity event and the Board are still in my doghouse. Thanks again Tim.

[barchid]

Tim
Thank for your update on Radnor, as usual it's timely and forensic which is of great assistance to all Albion watchers.
One point that perhaps I'm misunderstanding though, is the fact that in para 2 of W F-A's response he says that it was a very full price and that the price was already reflecting in vct valuations hence no RNS was necessary, does this imply that Albions valuations as shown for all vct's are all very full and not leaving much room for upside ?
I understand that if the deal is almost done the full price might be given in the accounts, but given that Radnor is in most of the Albion stable, which all have different year ends I found his statement rather odd.
Am I misreading this somehow ?

[flyer61]

Full price for a 'school'....wonder what it is worth as a development site for housing?

[thebarns]

Thanks for the further information Timbo.

Across the 5 Albion VCTs, their cumulative most recent cost versus valuation figures, for the two schools together, were a cost of £15M v valuation of £37M, so an unrealised gain of £22M.

It is probably fair to assume all of the uplifted valuations related to the sold Twickenham school, with nothing for the still maturing SevenOaks one.

I see there have been some loan stock repayments over the years, so some of the £8.7M stated as total cost, will have been repaid prior to the final sale (I have not spent further time tracking this all down as I trust their figures). There were some reasonably loans made early on to Twickenham.

So if one wanted to be very broad brush, and to make figures work, it could be assumed that there is say £8M of Equity cost in that £15M ( thus assuming £0.7M of loan stock repaid over the years), and that SevenOaks is carried at both a cost and a valuation of £7M.

So £30M of valuation comes out with £8M of cost which will equal the stated 3.75 times gain.

I know this is not perfect as the stated accounting gain is £24M and there will have been income received on loan stock over the years, but broad brush it does make some sort of sense - the accounts do not allow me to track down everything to a more detailed breakdown, I actually think the loan stock was larger and will have impacted on the calculations.

On a more general point, it does show that they were perhaps showing aggressive uplifts in valuations over the years - if they actually considered this sale to be as good as it ever gets, what would have happened if they had only managed to achieve a good sales price....write downs would have been inevitable down the line.

However I agree with their approach to sell for what is a very good price on a very large asset in their balance sheets, which removes the element of subjectivity in the valuations and turns it into cash, at a time when independent schools, whilst not necessarily facing existential threats, are facing cost and profitability issues down the line.

So it is a lot of cash flowing into Albion coffers, allied to the this year’s current fundraise as well.

They could consider a special distribution.....

[UncleEbenezer]

One point that perhaps I'm misunderstanding though, is the fact that in para 2 of W F-A's response he says that it was a very full price and that the price was already reflecting in vct valuations hence no RNS was necessary, does this imply that Albions valuations as shown for all vct's are all very full and not leaving much room for upside ?

If you're misunderstanding then so am I, for that very point mildly bothered me too. But I couldn't be [expletive deleted] to check back whether and how the valuation on Albion's books has varied in recent times.

Of course it could be that Albion judge it to be a sinking market, so their once-conservative valuation now looks full. Especially now with all political options pointing to the well-to-do-but-less-than-global-super-rich becoming quite a lot poorer.