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Inheritance Tax bill cut by 12%, or £710m, through investing in unlisted companies including AIM – record high

A new report from national accountancy group UHY Hacker Young highlights the tax saving benefits of investing in AIM quoted companies – there are considerable investment benefits as well!

According to UHY Hacker Young, HMRC forecasts show that the value of “Business Property Relief” is expected to rise 8% in 2017/18, from £655m in 2016/17.

Taxpayers are expected to reduce their Inheritance Tax (IHT) bills by 12% over the next year, or a record £710m in 2017/18, through investments made in unlisted companies and other business assets, says UHY Hacker Young.

Investments in qualifying AIM listed companies, Enterprise Investment Schemes (EIS) and other private companies have become increasingly popular over recent years as these assets are often exempt from IHT.

Investors have also benefited from exceptional investment gains as AIM has materially outperformed the main stock market over the past few years. This is reflected in the outstanding performance of AIM portfolios managed by Fundamental Asset Management and other providers.

– Scope to use BPR further

Latest figures show that taxpayers paid £5.3bn in inheritance tax in the last year to February 28 2018, up from £4.7bn in 2016/17*, suggesting that there is scope to use BPR to further lessen tax bills.

Mark Giddens, Partner at UHY Hacker Young, says: “The Government has reduced the scope of legitimate tax planning opportunities over the years especially for higher earners – so the few that are left are increasingly popular.”

“Encouraging investment in AIM shares and other unlisted companies is good for the broader economy as they create growth and jobs.”

“High inheritance tax bills have become a concern but there are steps that can be taken to cut the tax bill.”

The Publications section of our website contains more information on our high performing AIM portfolio service

 

 


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Fundamental IG AIM portfolios – video update

In this video with IG markets Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, comments on recent changes to the AIM for Inheritance Tax portfolios created for IG.

Chris discusses first quarter’s performance from the Standard Fundamental IG AIM Portfolio, which was developed for IG in September 2016, and the subsequent Higher Yielding Fundamental IG AIM Portfolio created at the start of 2018.

Chris also comments on changes to the portfolios, including the sale of the position in Restore (financial reporting that borders on the dishonest), review of the new IG portfolio position in Focusrite (a stock held by Fundamental since not long after IPO) and a replacement share for the higher yield portfolio following a dividend cut from one of the previous holdings – as anticipated, the higher yielding AIM portfolio is providing plenty of excitement!

Other companies discussed include Patisserie Holdings (AIM:CAKE), RWS Holdings (AIM:RWS), K3 Capital Group (AIM:K3C), Safestyle UK (AIM:SFE), NAHL Group (AIM:NAH), Epwin Group (AIM:EPWN) and Zytronic (AIM:ZYT).

 

After a challenging first quarter in 2018 for equities, Fundamental Asset Management AIM portfolios have seen strong performances from several portfolio companies over recent weeks, supported by excellent results and updates.


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The key to AIM success

Chris Boxall, co-founder of AIM specialist Fundamental Asset Management, writes in this week’s Investors Chronicle.

The article ‘The key to Aim success’ suggests how the AIM Admission Document should be essential reading for any investor in AIM companies, yet large parts of this vital document are often ignored.

The disastrous performance of Conviviality (CVR) and Accrol Group Holdings (ACRL), suggest many investors – both large and small – missed the warning signs in the admission documents of both these companies that may have prevented a substantial loss of capital.

Subscribers to Investors Chronicle can read the article by visiting the link here

Be wary of Buy and Build!
We are increasingly wary of the so-called ‘Buy and Build’ strategies adopted by some companies on AIM, led by corporate managers with little real equity participation; Conviviality being one such example of this. Many of these businesses seem to address low growth markets and are struggling to make real progress, flattering their reported returns through large ongoing exceptional items and restructuring costs, with signs of trouble often reflected in poor cash flow. To quote Warren Buffett, ‘Only when the tide goes out do you discover who’s been swimming naked.’ On this measure Conviviality could be likened to a nudist colony!


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How to work out if a company is in trouble?

In this video with IG markets Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, comments on the lessons to be learned on the fall in Conviviality, the wholesaler and distributor of alcohol and impulse whose shares are now suspended as it considers the anticipated impact on its funding position.

Chris suggests the signs were there long before the most recent news and all it took was simple common sense to steer clear of the impending disaster.

More positively, Chris discusses what Fundamental looks for in a growing smaller quoted company.

Fundamental Asset Management has been successfully investing in AIM for more than 14 years and therefore has plenty of experience in sorting the good from the bad! 

 

 

 


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IG AIM for High Yield – January 2018

In this video with IG markets Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, introduces a new High Yield AIM portfolio created for IG markets.

The average yield for this basket of 14 Inheritance Tax qualifying AIM stocks is nearly 6%, with one company offering a forecast dividend yield of 8%.

Chris considers the ability of the selected companies to continue to pay out hefty dividends and also discusses the merits of focusing on Free Cash Flow when assessing dividend payers. Stocks discussed in this interview include K3 Capital Group, Manx Telecom, Shoe Zone and NAHL Group.


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Will 2018 bring changes to the Inheritance Tax qualifying rules for AIM shares?

In this video with IG markets Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, comments on the rules governing the Inheritance Tax qualifying status of AIM companies.

Chris considers whether the Business Property rules have become too generous and which companies could be most at risk of losing their Inheritance Tax qualifying status.

Fundamental’s associated business Investor’s Champion provides a research tool to help identify qualifying AIM companies. You can access the research tool from the link here.


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IG AIM portfolio update – December 2017

In this year-end video with IG markets Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, provides an update on the AIM portfolio created for IG Markets which continues to perform strongly.

Stocks discussed in this interview include Fulcrum Utility Services, Patisserie Holdings, XL Media, Character Group and Atlantis Resources. The portfolio delivered excellent returns in 2017, with a particularly strong performance from one of the companies discussed in the video here. Chris also offers his thoughts for 2018.


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A tale of investment in AIM – a disastrous start becomes highly rewarding!

A recent meeting with the management of AIM quoted CVS Group (AIM:CVS) offered a useful reminder of the benefits of patient investing and staying the course. Hopefully the veterinary group will offer plenty more excitement over the coming years as it dominates the UK market and expands overseas.

We first invested in CVS Group at the time of its IPO in October 2007 at a price of 205p. The IPO saw selling shareholders place £92.6m value of shares with the market capitalisation on IPO approx. £105m. It should be remembered that 2007 was the year that AIM saw a flurry of IPOs with AIM reaching a peak of 1694 companies in the year.

There was no new money raised by CVS and the Group arrived on the market carrying £28m of net debt and a shareholders deficit of £1.5m. However cash generative and appealing the business model might appear, negative market sentiment was clearly not going to be good news for a business with a somewhat fragile balance sheet of this type!

When it joined AIM CVS was already one of the leading veterinary service providers in the UK, operating 45 veterinary practices (consisting of 128 individual surgeries) nationwide and three veterinary diagnostic laboratories. It was also the UK’s largest employer of vets with 271 employed, representing 2.2% of all vets estimated to be registered and practising in the UK.

The business was established in 1999 with financial backing from funds managed by Sovereign Capital Partners LLP with the objective of consolidating the fragmented UK veterinary services market. It had already completed acquisitions costing approximately £32.9m.

Turnover for the year ending June 2007 prior to admission was £38.9m and operating profit £2.9m.

Simon Innes had been appointed Chief Executive in 2004 and remains in the role to this day. Prior to CVS he was Chief Executive of Vision Express from 2000 to 2004, over which time he built the business up to £220m turnover and 205 practices. The growth strategy that was successful at Vision Express formed the model of that being implemented by CVS.

Notwithstanding the apparent defensive qualities of the veterinary sector CVS subsequently saw its share price tumble from 242p to a low of 79p, a near 70% sell-off. While we didn’t feel brave enough to whole heartedly commit further client funds we retained a position in the CVS for many of our clients and as things started to look more assured started buying again.

Fast forward 10 years to 2017 and CVS has just reported record results.

Group revenue for the year ending 30 June 2017 leapt 24.6% to £271.8m, with like-for-like sales growth for the Group of +6.3%. Of this The Veterinary Practices Division contributed the lion’s share, growing revenue 25% to £247.9m.

Operating profit rose 46.2% to £17.2m, cash generated from operations increased 10.8% to £37.2m and profit before tax increased 58.4% to £14.5m. Basic Earnings per share increased 59.5% to 18.5p.

CVS acquired 62 surgeries in the financial year and now own 432 surgeries in the UK and the Netherlands. In the UK the equine business has also expanded strongly.

The business is now managed across four divisions: Veterinary Practice, Laboratories, Crematoria and Animed Direct. The Veterinary Practice Division remains the core but all areas are performing well.

The development of their referrals business has been a key priority of late and in October 2015 they opened Lumbry Park in Hampshire, a 13,000 square foot state-of-the-art multi-disciplinary referral centre. This provides a full range of specialisms, using the most modern equipment including both a CT and an MRI scanner. Early teething problems have now been resolved and profitability is now around the corner for Lumbry.

The Group has its MiPet own brand range of products and dual language packaging (English and Dutch) has begun to be introduced so that they can also sell their own brand products in the Netherlands.

The Healthy Pet Club loyalty scheme saw over 53,000 pets added to the scheme increasing membership by 20.9% and bringing the total membership to 306,000. The scheme provides preventative medicine to their customers’ pets as well as a range of discounts and benefits. The Group gains from improved customer loyalty, the encouragement of clinical compliance, protecting revenue generated from drug sales, and bringing more customers into their surgeries. Monthly subscription revenue generated in the year increased to £32.5m (2016: £24.0m) and at the year end, the monthly run rate represented 13.4% (2016: 12.3%) of practice revenue.

CVS also now has 14 emergency out-of-hours sites thereby reducing reliance on third parties for the 24-hour cover that vets are required to provide.

The ten sites in the Netherlands are likely to be joined by others in the short term. This will provide a base from which to establish an integrated business in the Netherlands in a similar way to the UK; the Netherlands is 20% the size of the UK market.

The buying group was enhanced by the acquisition of VetShare and they have now negotiated additional annual rebates for members and sell own brand products to them. We anticipate plenty more gains from improved buying terms over the coming years.

The Group also launched its own MiPet Cover insurance in August 2017 with the initial plan to establish the product in their own practices before considering wider marketing.

A MiNurse Academy was launched in January 2015 and has now helped over 300 nurses learn specialised skills.

A vet graduate training scheme continues to grow and 375 graduates have gone through the scheme in the past three years. The scheme is designed to assist newly qualified vets make the challenging transition from university to day-to-day practice.

Other smaller divisions also performed well as the Group is able to benefit from a broader offering with all divisions serving the practices.

As you can gauge from the above, this business is really starting to dominate all aspects of the veterinary market in the UK.

With plenty more growth to go for in the UK, the Netherlands acquisition strategy in its infancy and ancillary activities such as Laboratories, Crematoria and Animed Direct really now starting to come through, the future looks very bright for CVS.

Those brave enough to have bought shares around the 79p level and held on until now will have enjoyed a 1700% return to date.

Investors in many high flying high growth companies such as ASOS or Amazon and Monster Beverage in the US will have similar stories to tell of multiple share price sell-offs before confidence sets in and the share price and valuation moves to another level. Thankfully CVS’ dip was relatively soon after IPO but no doubt there will be other psychological challenges ahead for investors.

Casting an eye back to the IPO and what went wrong in the early days on AIM, we remain wary that CVS doesn’t overdo the gearing. Net debt at June 2017 year end was £100m and there remained plenty of headroom following an agreed £37.5m increase to its existing credit facility. Thankfully the cost of debt is also considerably cheaper now than 10 years ago. Free cash flow of £23.8m highlights the attraction of the business model and evidently if they stopped acquiring there would be plenty of cash available to pay down debt in quick time.

We anticipate further equity raises to support the likely acquisitions in the UK and Netherlands.

Hopefully investors in CVS will continue to be rewarded for their patience!

If you are interested in investing in high growth companies or AIM shares for Inheritance Tax planning please contact Chris or Stephen at Fundamental Asset Management by visiting the link here.

Our associated research business Investor’s Champion has covered CVS Group since IPO – please visit the link here for their research

 


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Which shares are exempt from UK Inheritance Tax?

In this video with IG markets Chris Boxall of AIM specialist Fundamental Asset Management highlights what to be wary of when assessing AIM shares for Inheritance Tax planning purposes – there are plenty of problem areas to trip up investors!

August 2017 saw AIM’s market value breach £100bn. This Investor’s Champion Blog compares AIM of August 2017 with the market in 2007, the last time it hit the magical £100bn level – it’s certainly a very different market now!  You can read the Blog from the link here.


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IG AIM portfolio update – September 2017

In this September 2017 video with IG markets Chris Boxall, co-founder of specialist investment manager Fundamental Asset Management, provides a quarterly update on the AIM portfolio created for IG Markets which continues to perform strongly. Stocks discussed in this interview include Atlantis Resources, Bioventix, H&T Group, RWS Holdings, Smart Metering Systems and Watkin Jones. Chris reflects on their investment credentials and what to look out for from these high growth small caps.