Investment planning update: EIS; FTSE 100

Investment update 

 

• EIS subscriptions fell in 2018/19
• A shuffling of the FTSE 100

 

 

EIS subscriptions fell in 2018/19

(AF4, FA7, LP2, RO2)

HMRC has just released their latest statistics for the Enterprise Investment Schemes (EIS) and the Seed Enterprise Investment Schemes (SEIS). These take us up to 2018/19 and also update earlier data. For example, the amount raised under EIS in 2017/18 was originally put at £1,929m by 3,920 companies, but has now been revised to £2,001m and 4,080 companies. The upward adjustment means that comparing 2018/19 provisional data with the revised 2017/18 may give a slightly distorted picture as the final numbers for 2018/19 could be 3%-4% higher.

With that caveat in mind, the main points to note are:

EIS

• The provisional total amount of EIS funds raised in 2018/19 was £1,824m, down 9% on the revised amount for the previous year. The number of companies raising EIS monies also fell very slightly to 3,905. 2018/19 saw the risk-to-capital measures take effect following on from the summer 2017 Patient Capital Review. As HMRC notes, the drop in total investment “may be as a result of the introduction of the new condition”.

Despite the decline, which eventually may prove to be nearer 5%, the EIS still raised over two and a half times as much as VCTs in 2018/19. As the graph below shows, the move in 2011/12 from 20% to 30% tax relief gave a major boost to EIS sales which has been largely sustained.

 

• Do the maths” and the average EIS raised £467,000 in 2018/19, a markedly smaller figure than the VCT average. A little over half of all EIS companies raised no more than £250,000 – very much in business angel territory.

• The Information and Communication sector was, as usual, the most popular, accounting for 30% of all EIS investment in 2018/19. Also following the pattern of earlier years, London and the South East attracted the lion’s share of monies - 65% of total funds in 2018/19.

• The available data on tax relief to date shows 34,145 EIS investors making claims, with an average overall EIS investment of just under £37,750.

• Once again, the 80/20 rule nearly applied: 71.84% of total subscriptions were made by 16.65% of those investors.

SEIS

• The provisional total amount of SEIS funds raised in 2018/19 was £163m, down 16% on the previous year, although again the previous provisional figure was increased, this time by 3.3%. The number of companies raising SEIS monies also fell to 1,985 from a (4.8% upwardly) revised 2,430.

• The average SEIS therefore raised about £82,000, slightly over half the maximum figure that can be raised under the SEIS rules.

• As with its bigger brother, the Information and Communication sector was the most popular, accounting for 34% of all SEIS investment in 2018/19. This time London and the South East attracted 67% of total funds.

• The available data on tax relief to date shows 7,480 SEIS investors making claims, with an average investment of slightly less than £16,200.

• Given the lower investment limits, the 80/20 rule breaks down somewhat on SEIS: 19.05% of investors accounted for 60.33% of total investment.

The introduction of risk-to-capital rules did not hit EIS/SEIS investment as hard as was feared.

Source: HMRC Collection - Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Social Investment Tax Relief statistics – dated 29 May 2020

A shuffling of the FTSE 100

(AF4, FA7, LP2, RO2)

The latest quarterly review of the FTSE 100 constituents is an interesting snapshot of Covid-19’s impact revealing that three of the four demoted companies have a travel theme in common:

Carnival is a company that runs – or rather used to run – several large fleets of cruise ships, including Princess Cruises and P&O Cruises. Its share price has cratered: having started 2020 at 3644p, it is now 1174p. Even that is nearly double the 605p it sunk (sic) to at the start of April.

easyJet needs no introduction. While it is one of the more efficient airlines, it cannot escape the impact of the groundings across its European base. Its share price has nearly halved since mid-February. A dispute with its largest shareholder and founder, Sir Stelios Haji-Ioannou, has not helped matters.

Meggitt is not a well-known name, but its woes are obvious when you look at its main business - supplying parts to the aerospace industry, notably for the Boeing 737 Max. Again, its share price has more than halved since February.

Centrica is not involved in the travel industry, making it the odd one out. Its main business is British Gas, the long ago privatised utility company. Utility price caps, and a slashed and subsequently suspended dividend, made it only a matter of time before Centrica parted company with the FTSE 100. Its share price has also halved since February.

The new entrants are more diverse, although it can be argued that home is their underlying theme:

Avast is a supplier of anti-virus and security software and has benefited from all the homeworking that has been a theme of Covid-19.

GVC Holdings is an Isle of Man based betting and gaming company, which took over Ladbrokes in 2018, having previously acquired Sportingbet and bwin. It was ejected from the FTSE 100 in March after its share price halved in the wake of the Government’s crackdown on Fixed Odds Betting Terminals and sporting fixtures disappearing. The prospect of sport gradually returning has lifted the shares by 150% above their March low.

Homeserve, as the names suggests, operates in the domestic environment, supplying emergency and repair services in the home. Its share price nearly halved in March, but has since recovered to previous levels on the back of better than expected profits and business from stay-at-home customers.

Kingfisher, owner of B&Q, returns to the Footsie three months after being ejected. It too has benefited from the furloughed millions with time on their hands, as well as DIY retailers being one of the earliest sectors to reopen.

The FTSE 100 changes in June, which take effect at close from 22 June, are an interesting mirror on changing life patterns. It will be interesting to see whether September’s revision continues the trend.   

Source:  FTSE Russell 3 June 2020