Unaudited Interim Results
19 June 2024
HARGREAVE HALE AIM VCT PLC
(the “Company”)
Unaudited Interim Results
The Company announces its half-year results for the six months
ended 31 March 2024.
These half-year results will be available on the Company's
website at
https://www.hargreaveaimvcts.co.uk/document-library/.
In accordance with Listing Rule 9.6.1, a copy of this document
will also be submitted to the UK Listing Authority via the National
Storage Mechanism and will be available for viewing shortly
at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Additionally, the interim report can also be
found here: HHV 2024 Interim Report
Financial highlights
Net asset value
(NAV) per share |
|
NAV total
return |
|
Tax free dividends
paid in the period |
|
Share price total
return |
|
Ongoing charges
ratio |
43.64p |
|
-2.59% |
|
1.50p |
|
1.63% |
|
2.45% |
- £5.9 million invested in Qualifying Companies in the
period.
- 93.48% invested by VCT tax value in Qualifying Investments at
31 March 2024.
- Offer for subscription closed having raised £20.3 million. The
Board decided to utilise the over-allotment facility only to the
extent that valid applications were received by 5pm on 22 March
2024.
- Final dividend of 1.50 pence per share paid 15 February
2024.
- Interim dividend of 1 penny and special dividend of 1.50 pence
per share will be paid on 26 July 2024, with an ex-dividend date of
27 June 2024 and a record date of 28 June 2024. The payment of the
special dividend reflects the receipt of proceeds from the sale of
Abcam plc and Instem plc.
Summary financial data |
Six months
ending
31-Mar-24 |
Six months
Ending
31-Mar-23 |
Year
ending
30 Sept-23 |
NAV (£m) |
155.74 |
174.72 |
151.92 |
NAV per share (p) |
43.64 |
52.84 |
46.34 |
NAV total return (%) |
-2.59 |
-5.57 |
-14.70 |
Market capitalisation (£m) |
150.60 |
165.35 |
140.96 |
Share price (p) |
42.20 |
50.00 |
43.00 |
Share price discount to NAV per share (%) |
-3.30 |
-5.37 |
-7.21 |
Share price 5 year average discount to NAV per share (%) |
-5.83 |
-5.56 |
-5.64 |
Share price total return (%) |
1.63 |
-13.94 |
-23.51 |
Loss per share for the period (p) |
-1.22 |
-3.72 |
-9.32 |
Dividends paid per share (p) |
1.50 |
4.00 |
5.00 |
Ongoing charges ratio (%) |
2.45 |
2.17 |
2.24 |
Investment Manager’s report
Overview
In the first quarter the inflation outlook continued to moderate
in the UK, US and elsewhere, with headline inflation falling more
quickly than many had expected. Dovish comments from the US Federal
Reserve raised the prospect of potential cuts in the base rate.
Improving sentiment and substantially easier financial conditions
helped to push markets higher in the run up to Christmas. In
contrast, inflation fell more slowly than anticipated in the second
quarter, particularly in the US where the steep declines of last
year were replaced by a modest uptick in March 2024.
Whilst the situation is much improved, recent trends have not
supported the original market expectations of multiple rate cuts in
the US this year. The current expectation is just one. Borrowing
costs in the US, which fell so sharply in late 2023, have reverted
to levels that caused significant alarm in the autumn of 2023. For
now, equity and credit markets remain calm with financial
conditions in the US now more accommodating than at any point since
the Russian invasion of Ukraine. The foreign exchange markets have
not been so relaxed, with the dollar strengthening significantly
against other major global currencies.
Whilst still high, UK wage growth has started to moderate,
falling from a high of 8.0% in September 2023 to 5.7% in March
2024. Along with steep falls in the cost of energy, this has taken
UK inflation (CPI, Consumer Price Index), sharply lower from 6.7%
in September 2023 to 3.2% in March 2024. Further falls are expected
in the coming months.
News that the UK had endured a short and very shallow recession
in late 2023 briefly halted the recovery in UK consumer confidence
that had been underway since late 2022. However, the UK economy has
since returned to growth in the 3 months to March with improving
conditions in the service, construction and manufacturing sectors.
UK consumer confidence has reverted to its improving trend with
employment markets remaining healthy and real wage growth strongly
positive.
AIM was particularly strong in the first quarter, gaining 5.68%
in the three months to December 2023. Inevitably, this was followed
by a period of consolidation in which AIM retreated 2.29% in the
three months to March 2024. The net outcome was a gain of 3.26%
over the six months under review. Low levels of liquidity and
continued fund outflows from the UK equity markets continue to make
it difficult for a broader rally to take hold.
Performance
In the six months to 31 March 2024 the unaudited NAV per share
decreased from 46.34 pence to 43.64 pence. A final dividend for
FY23 of 1.50 pence was paid on 15 February 2024, giving a NAV total
return to investors of -1.20 pence per share, which translates to a
loss of -2.59%. The NAV total return (dividends reinvested) for the
period was -2.67% compared with +3.25% in the FTSE AIM All-share
Index Total Return and +6.91% in the FTSE AllShare Index Total
Return (also calculated on a dividends reinvested basis). The
Qualifying Investments made a net contribution of -1.90 pence per
share whilst the Non-Qualifying Investments returned +0.93 pence
per share. The adjusting balance was the net of running costs and
investment income.
Qualifying Investments
Positive Contributors
Beeks Financial (+95.5%, +0.46 pence per share) reported
excellent results for the 6 months to December 2023 with revenues
increasing by 25% to £13.0m and EBITDA by 28% to £4.6m. The company
is seeing strong commercial momentum and has announced several
significant contract wins which have driven upgrades to the outlook
for 2025.
Itaconix shares (+82.7%, +0.38 pence per share) moved sharply
higher after the company confirmed that 2023 results would be
in-line with market expectations. However, much of the gains were
surrendered in April after the company reported that it had not
been able to renew a supply agreement with its largest customer.
Although this led to a substantial revision to revenue forecasts
for 2024, low margins meant the impact on EBITDA was less severe.
Management plan to replace the lost revenues over time with higher
margin agreements.
Learning Technologies Group (+32.8%, +0.28 pence per share)
reported 2023 results that were in line with market expectations
with revenues of £562m and EBIT of £99m. Strong cash generation
reduced net leverage by more than expected. Cyclical headwinds
continue to affect its markets, with the company maintaining a
cautious outlook for 2024.
Cohort (+33.3%, +0.22 pence per share) was awarded a £135m
10-year contract from the Ministry of Defence to supply the Royal
Navy with its Trainable Decoy Launcher System. Additional options
and export opportunities may increase the contract value over time.
The new award takes the company’s contract wins within the
financial year to £215m and the order book to more than £500m. FY25
EBITDA expectations were also upgraded by 10%.
Craneware (+49.7%, +0.21 pence per share) reported half-year
results that were in line with expectations with revenues and
EBITDA both increasing by 8% to $91.2m and $27.5m respectively. The
company highlighted a significant increase in sales to existing and
new customers and an improving market backdrop in the US healthcare
sector. In its outlook statement, the company noted good sales
momentum and that US hospitals were increasing their investment in
technology to provide them with additional insight as they
refocused on their strategic priorities following the post-COVID
unwind.
Negative Contributors
Equipmake (-38.9%, -0.87 pence per share) reported a 97%
increase in its revenues for the 6 months to November 2023 to £2.1
million as the company continued to commercialise its EV solutions.
Despite good progress, the company reduced its revenue expectations
for the year to May 2024 to £8.5 million. If achieved, this would
still equate to 57% growth year on year. Cost control has meant the
forecast for operating losses was largely unchanged. The company
has hired a new chief operating officer, a new finance director and
raised additional funding to assist with the delivery of its growth
plan.
Consistent with many online retailers, Kidly (-91.7%, -0.71
pence per share) continues to experience a difficult trading
environment. Although revenues were below budget, operational
efficiencies resulted in significantly lower losses. The company
secured additional funding post period end.
Surface Transforms (-66.7%, -0.53 pence per share) raised £11m
of new equity funding in November 2023 following a significant
reduction in its revenue forecasts to £8.3m for the year to
December 2023 as the company struggled to overcome process issues
as it scaled its manufacturing capacity. Post period end, this was
followed by a second revision to revenue forecasts in FY24 to no
less than £17.5m. Whilst revenue growth of 111% is substantial, the
reduction in forecasts left the company yet again requiring further
funding. £5.7m was raised at 1 pence per share through a round
that was not VCT qualifying, severely diluting our interest in the
company.
Shares in C4X Discovery (-44.5%, -0.23 pence per share) declined
after the company proposed to cancel its AIM listing believing that
the market was not correctly valuing its assets and that it would
be more attractive to potential investors as a private company.
Operational progress has been good, and the company is well funded
with over £20m cash following large milestone payments from
Indivior and AstraZeneca. We have retained our investment.
After delays that contributed to a profit warning in December,
Engage XR (-32.1%, -0.23 pence per share) was able to announce its
first €1m+ contract with a Middle East based education and training
company. The contract was won through its partnership with
PricewaterhouseCoopers International Limited. The publication in
April of the company’s results for the year to December 2023 was
accompanied by a downgrade to its outlook for 2024, with revenues
now expected to increase from €3.7m in 2023 to €5.4m in 2024. The
company reports that it remains funded to break even.
Portfolio structure
The VCT is comfortably through the HMRC defined investment test
and ended the period at 93.48% invested as measured by the HMRC
investment test. By market value, the VCT had a 53.10% weighting to
Qualifying Investments.
Although Qualifying Investment activity was healthy within the
period with £5.9m invested into Qualifying Companies, more broadly
the market remains very subdued with just one VCT qualifying IPO
within the last 12 months. Within the qualifying portfolio we
exited Abcam, Instem, Osirium, Velocys and Smoove through
takeovers. Of these, Abcam and Instem were notable having developed
into global leaders in their respective fields and been a feature
within the qualifying portfolio for more than ten years in each
case. In the case of Abcam, the exit valuation of $5.7bn resulted
in a gain of 5,603% over book cost. The Instem exit valued the
company at £203m, a gain of 376% over book cost. We reduced our
investment in Blackbird and completely exited Renalytix following
sustained underperformance.
Within the non-qualifying equity portfolio we remained cautious
and made adjustments in response to company updates. We exited our
position in Bytes following the CEO’s unexpected departure from the
company. We also exited Diversified Energy, XP Power and Watches of
Switzerland following disappointing trading updates and Energean
due to elevated geopolitical risk in its principal areas of
operations as a consequence of the war in Gaza. We exited our
position in Ashtead over concerns that a weakening US economy and
increasing political risk might impact trading later this year. The
allocation to non-qualifying equities fell from 10.1% to 8.7% of
net assets.
In the non-qualifying fixed income portfolio, we added two net
new investments into short-dated investment grade corporate bonds
issued by Next and Unilever. We also reinvested into a Marks &
Spencer 2026 bond following the redemption of the 2023 Marks &
Spencer bond. We exited our position in short-dated UK Government
bonds, which had been held through a London-listed exchange traded
fund. The allocation to nonqualifying fixed income increased from
12.7% to 13.5% of net assets. The average maturity of the corporate
bonds is 2.5 years with an average yield to maturity of 5.2%. The
portfolio is expected to generate annual income of approximately
£0.9m.
Following the receipt of proceeds from the offer for
subscription, we increased the investment in the IFSL Marlborough
Special Situations Fund and made a series of investments into the
IFSL Marlborough Micro-Cap Growth Fund. The combined investment
across the two funds increased from 5.4% to 12.0% of net assets,
split broadly equally across the two funds. The weighting to cash
was largely unchanged at 12.7%(1) of net assets despite the inflow
from the offer for subscription.
The HMRC investment tests are set out in Chapter 3 of Part 6
Income Tax Act 2007, which should be read in conjunction with this
Investment Manager’s report. Funds raised by VCTs are first
included in the investment tests from the start of the accounting
period containing the third anniversary of the date on which the
funds were raised. Therefore, the allocation of Qualifying
Investments as defined by the legislation can be different to the
portfolio weighting as measured by market value relative to the net
assets of the VCT.
Post period end update
In the 2 months to 31 May 2024, the FTSE AIM All-Share Total
Return Index has gained 8.81%, whilst the FTSE All-Share Total
Return Index has gained 4.90%. The Company’s NAV per share has
increased by 3.67% to 45.24 pence.
As of 18 June 2024, the share price of 43.00 pence represented a
discount of 5.14% to the last published net asset value per
share.
Outlook
Although trading continues to vary quite widely by sector, there
are signs that sectors that struggled in 2023 and early 2024 are
starting to feel more confident. In general, corporate news flow
across the portfolio is improving. UK Purchasing Managers’ Indices
also continue to point to a further expansion of economic activity.
Retail remains a weak spot despite UK consumer confidence reaching
a 2 year high. Defence companies continue to report very strong
trading and rapidly growing order books.
AIM has started to recover, posting two months of strong
performance post period end. There are, at last, signs of a return
of investor interest in small UK companies, with the tone markedly
improved since the March 2024 GDP print. Although fund outflows
from UK equities continue to overshadow the market, the flow
picture is improving for UK small cap managers. Deal flow remains
very quiet; however, there are signs that the market for initial
public offerings is re-opening. It remains early days and we will
need to see several more months of improving sentiment and
increased activity before we can be more confident that the market
is normalising.
END
For further information, please contact:
JTC (UK)
Limited
Uloma Adighibe
Alexandria Tivey |
HHV.CoSec@jtcgroup.com
+44 203 832 3877
+44 203 832 3891 |
LEI:
213800LRYA19A69SIT31
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