BR report 2018

30 31 AIM VS. NON-AIM BR AIM has been called the world’s leading growth market, quoting companies that are central to innovation, job creation and economic growth. And there is no denying that it has had a strong two years. In mid-2017, the FTSE AIM All-Share index climbed past the 1,000 level for the first time since the summer of 2008. The volatility for which, rightly or wrongly, the AIM index is famous has often been a match or less fractious than comparable main markets. There is no doubt that these are complicated and unpredictable times, but it is also clear that firms, especially smaller, younger ones, continue to need affordable finance, investors continue to look for value and growth and advisers continue to search for solutions to their clients’ financial planning dilemmas. The increasing number of AIM based offers in the BR market, stimulated particularly by the introduction of AIM shares’ eligibility to be held within ISAs in 2013, is a reflection of the interest taken by companies, investors and advisers in the benefits of BR opportunities on AIM. Access to tax efficient investments, particularly BR products, remains a conspicuous driver to AIM business. Some research estimates that up to a third of all the money invested in AIM is from IHT planning services – in 2017 that would have equated to £0.7bn. This may seem surprising, but BR services are well-placed to engender the type of long-term growth that AIM quoted companies need and that the government has been vociferously encouraging recently; while they only need to be held for two years to qualify for BR, shares in BR qualifying companies must also be held at the time of death of the owner to achieve the relief. As a result, they may well be held not just for a two year period, but for the entire time until the AIM AND BR AS IT STANDS CASE STUDIES ANALYSIS OF KEY METRICS AIM-QUOTED BR QUALIFYING BUSINESSES The following is a look at various AIM-quoted companies that are known to have been BR qualifying and are examples of the types of assets that BR portfolio managers seek out. Scapa Group plc is a global supplier of bonding solutions and manufacturer of adhesive-based products for the Healthcare and Industrial markets. Scapa has a global footprint, with production sites in Asia, Europe and the US. The firm is focused on sustainable growth and innovation, applying its knowledge in advanced material technology and process solutions. 26 The company came to AIM in August 2006 and its current market cap is £735.58m. 27 Interim Results for H1 2017 released 21 November 2017 revealed a robust and growing company with revenue growth of 7.5% to £145.6m, trading profit increasing by 31.5% to £16.7m, operating profit increasing by 71.6% to £16.3m and adjusted profit before tax improving by 33.1% to £16.1m. At this time, Investors Chronicle described the vast majority of Scapa’s revenues as “stable and visible”. 28 SCAPA GROUP PLC 5 YEAR SHARE PRICE PERFORMANCE The underlying trade is not a thriller, but the performance is strong, based on disciplined cost controls and successful completion of key projects, suggesting a well-run business. Its international presence in Africa, Asia, Europe, India, North and South America is proving a useful insulator against the uncertainty of currency volatility, Brexit and other political considerations. SOURCE: SCAPA GROUP PLC, 20 MARCH 2018 2014 2015 2016 2017 2018 600 400 200 0 515.50 68.00 TEXT TEXT TEXT investor dies – which could be a far longer period. Head of AIM, Marcus Stuttard, stated after the 2017 Autumn Budget, when the government recognised the job done by BR: “we are pleased that the Chancellor has acknowledged the important role that BR plays in supporting family-owned businesses, and growth investment in AIM and other growth markets.” AIM FOCUSED BR OFFERS Of the 62 open BR offers at March 2018, 28 (51%) are AIM focused. 61% of AIM BR offers target Growth and 39% target Growth & Income as their objectives. There are 23 managers with open AIM BR offers and those offers have an average minimum subscription of £42,804. The lowest minimum subscription is £15,000, but the mode is £100,000, with eight products requiring this minimum investment amount. There are also eight offers with minimum entry levels of £20,000 or below – low enough to fit within the stocks and shares ISA limit. This allows people with only a relatively small amount of IHT liability to utilise BR offerings available on AIM. This is important, as a client with only £20,000 of assets liable to a charge to IHT may find other IHT planning methods are either too expensive or too time consuming to put in place. Instead, the client can simply invest their IHT liable asset into an AIM BR product that has a low initial entry requirement and also benefits from tax free growth and income. The majority – over two thirds – of AIM BR offers do not charge an Initial Charge – to either the investor or the investee company. The most common Initial Charge for those offers that apply it is 1%. All AIM BR offers charge an AMC. The average is 1.3% per year, with the majority at 1.25% or 1.5%. NON-AIM FOCUSED BR OFFERS Of the 62 open BR offers at March 2018, 30 (51%) are non-AIM focused. 19 of these offers (two thirds) have a strategy of Capital Preservation & Growth, while 7 (23%) have a Capital Preservation & Income objective. There are 21 managers with open non-AIM BR offers and those offers have an average minimum subscription of £43,096. The lowest minimum subscription is £10,000, but the mode is £25,000, with 17 products requiring this minimum investment amount. There is only one offer, with a £10,000 minimum subscription, that is low enough to fit below the annual stocks and shares ISA limit of £20,000. Only three non-AIM BR offers don’t charge an Initial Charge – to either the investor or the investee company. The most common Initial Charge for those offers that apply it is 2%. All but two non-AIM BR offers charge an AMC. The average is 1.43% per year. CONCLUSIONS The risk profile of AIM BR offers is different to that of AIM listed BR offers. AIM listed stocks carry market risk, while unlisted stocks have greater potential issues with the likes of liquidity, transparency and manager risk. Opportunities to access ISAs along with BR investment are largely only available through AIM BR offers.