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Five of my best ever EIS investments
on Feb 05, 2013 at 13:00
Calculus chair Susan McDonald has been smoking out opportunities in the Enterprise Investment Scheme market for a number of years and here she highlights five of her best picks.
High risk, high reward
Higher rate taxpayers have been draw to the Enterprise Investment Scheme (EIS) industry with its high growth potential and substantial tax relief offering a heady concoction.
However, investing in unlisted companies - especially at the smaller end of the market, is not for the faint-hearted, even if the government effectively underwrites a capital guarantee which caps losses at 35p for taxpayers on the current 50% rate.
Susan McDonald (pictured), chair of EIS fund manager Calculus Capital, seeks to mitigate risk by investing in larger and more mature businesses with dependable income streams and proven success. This strategy was boosted by recent government changes to the EIS regime that increased the size (measured by headcount and gross assets) of companies that are eligible for EIS funding.
'EIS funding plays a genuinely vital role in helping small and medium-sized UK businesses grow and is therefore important to the economy as a whole. Fortunately, the tax reliefs and investment returns also make a well-managed EIS fund a very compelling proposition for investors too,' McDonald explains.
To demonstrate her point, McDonald highlights the following five EIS investments as among her most profitable since the financial crisis took hold in 2008.
- Return of 11.97x or 1,097% tax-free
- Held for 7 years between 2001 to 2008
- Egdon Resources is an oil and gas exploration and production company focused on onshore UK and mainland Europe
McDonald says: 'Egdon is an interesting business, with UK production in Keddington, Avington, Kirkleatham and Ceres and licences to explore for oil and gas in onshore locations across the UK, as well as Europe. Since its flotation on AIM in 2004 it has attracted some very high profile investors and is now firm favourite among small cap investors.'
Tellings Golden Miller Group
- Return of 1.51x or 51% tax-free
- Held for 4.5 years between 2003 and 2008
- Tellings has a fleet of over 400 buses and coaches which provide services for airports, bus routes and private chartering
McDonald: 'EIS investing is very much at the coalface of the UK economy, dealing with all sorts of small and medium-sized businesses that collectively play a very important role in providing employment, generating GDP growth and tax revenues and –often – important services directly to the public.
Tellings Golden Miller Group was originally founded more than 40 years ago as small coach company. Our funding allowed it to grow significantly in its specialist area of providing public transport at airports. It now operates from numerous UK centres. We exited when it was bought by Arriva, one of Europe’s largest commercial transport companies.”
- Return of 3.22x or 222% tax-free
- Held for 5 years between 2007 and 2012
- EpiStem is a biotechnology company specialising in epithelial tissue and stem cell analysis
McDonald says: 'One of the many interesting and enjoyable aspects of being an EIS fund manager is investing in genuinely innovative and important businesses. We exited this pioneering stem cell therapy company through the placement of blocks of shares on AIM.'
- Return of 5.85x or 485% tax-free
- Held for 4 years between 2008 and 2012
- Scancell develops novel therapeutic vaccine platforms for the treatment of cancer and infectious diseases
Says McDonald: 'We invested in Scancell days before the financial crisis erupted in 2008. We were therefore extremely pleased to deliver such a handsome return to investors following such a volatile period in global markets.
Our investment philosophy dictates that we exit investments as soon as it is commercially sensible to do so – provided the shares have been held for the minimum three-year EIS qualifying period. Scancell is another company that continues to deliver for investors and is making genuinely ground-breaking advances in cancer treatment.'
- Return of 1.17x or 17% tax-free
- Held for 3 years between 2007 and 2010
- Mount Engineering provides civil and environmental consultancy services, specialising in spill prevention, control and countermeasure practices for oil and oil related products.
McDonald says: 'We exited this company in November 2010 via a trade sale to US company Cooper Industries, which followed a brief takeover battle with a UK-based rival, Redhall Group. While it may now be US-owned, York-based Mount continues to provide jobs in the UK and showcase the quality of British engineering around the globe.'