Octopus Titan VCT announced a new Net Asset Value (NAV)1 of 91.3p per share when it released its interim results. This represents a decrease in NAV of 14.4p per share (13.6%) versus a NAV of 105.7p per share as at 31 December 2021 (adjusted for dividends paid in the period).
The decline in Octopus Titan VCT’s NAV is disappointing, especially having enjoyed consistent growth over the past ten years, and particularly strong growth over the last three years. However, it is reflective of new headwinds and a valuation that takes into account the global macro-economic situation. This includes things like the health of the UK economy, geopolitical tension such as the war in Ukraine, energy shortages and the cost of living crisis.
Despite the recent decrease in NAV, Titan’s total value per share has increased by 10.6% in the last two years, from 168.5p per share in June 2020 to 186.3p in June 2022. Shareholders have received 16p per share of dividends in this period. Titan has declared an interim dividend of 2p per share to be paid to shareholders on the register on 9 December 2022.
It’s important to remember that when money is invested in Octopus Titan VCT, capital is at risk and investors may not get back the full amount they invest.
2021 was an exceptional year for Titan, especially given the challenging and ever-changing backdrop created by the Covid-19 pandemic. In such successful periods, it’s fantastic to see outperformance of a few portfolio companies reflected in the overall fund performance. This supports the team’s investment strategy, to invest conservatively to begin with and only invest further when they see the potential to enhance returns. This strategy also aims to offset potential downside, meaning in more difficult periods such as 2022 so far, the portfolio is well diversified to help mitigate a downturn in one or more sectors. Macro-environmental factors can of course have a more wide-ranging impact, but the investment team believes periods of instability like this will continue to create opportunities, especially for early-stage, agile businesses as we have seen before. VCTs should be considered a long-term investment.
Octopus Titan VCT’s 5-year performance
|Year to 30 June||2018||2019||2020||2021||2022|
|Annual total return||4.31%||3.29%||2.27%||32.85%||-10.18%|
|Annual dividend yield||5.25%||5.30%||5.41%||5.59%||2.63%|
|Total value per share||163.3p||166.4p||168.5p||197.9p||186.3p|
Past performance is not a reliable indicator of future results and may not be repeated.
The performance information above shows the total return of Titan for the last five years to 30 June. The annual total return for Titan is calculated from the movement in NAV (the combined value of all the assets owned by the VCT after deducting the value of its liabilities) over the year to 30 June, with any dividends paid over that year then added back. The revised figure is divided by the NAV at the start of that year to get the annual total return. The performance shown is net of all ongoing fees and costs.
Outlook for the venture capital market
Several of Titan’s portfolio companies have been affected by the challenges the economic backdrop has presented, with rising costs causing a decline in consumer confidence and spending, and valuations have been reappraised in line with such factors. However, as Titan invests in early‑stage businesses with high growth potential, many of these types of companies thrive in challenging periods, so as barriers to adopting new technologies lessen, there is a greater acceptance of change and talent availability improves.
We continue to meet with, and invest in, extraordinary businesses led by ambitious entrepreneurs across all five of our investment themes, at different stages of their growth journey. In fact, we’ve scaled the Octopus Ventures team significantly this year, to expand our reach and sourcing of investments even further. Periods of change can often allow small businesses to gain better traction in markets over the incumbents and energise entrepreneurs to start their next business. We want to be at the forefront of finding the very best of those opportunities, especially as lower valuation trends impact not only our current portfolio, but also the price at which we’ll be able to make new investments.
Good exit opportunities remain available for the right companies. Titan has made a number of profitable exits recently, including Digital Shadows in July (which was acquired for $160 million)2 and Glofox in August (representing a 3x return).3 It’s important to remember, however, that not every company we invest into will be successful.
Good investment opportunities are also available. Titan invested £77.5 million in the six months to 30 June 2022 across both new and follow-on funding.3 The majority of which was invested into exciting new businesses, which we believe offer great potential for medium-to-long term returns to Titan.
Focus on Octopus Titan VCT
Titan now owns shares in 117 businesses3 across our five areas of investment focus. These companies range from very early stage to much more mature businesses, due to the vintage of Titan. This means shareholders gain immediate access to a portfolio potentially capable of delivering successful exits much quicker than other less mature VCTs, whilst maintaining the advantage of holding a large number of new investments in the interest of targeting long-term growth.
When markets are volatile, it’s important to look closely at the stability of our portfolio companies. Cash runway will be really important, as running out of cash in this economic climate will be determinative of distress. Our companies are even better funded than pre-Covid – 85% of our portfolio (in terms of NAV) has a cash runway of more than 12 months.3
Support for businesses within the portfolio will also be important. Octopus Ventures is large enough to have a dedicated in-house talent recruitment team. The expertise they offer to portfolio companies looking for support to scale and develop is especially relevant during the turbulent and competitive market conditions in which they are all operating.
Please remember, the value of an investment in a VCT and any income returned from it, can fall as well as rise and investors may not get back the full amount invested. VCT shares could fall or rise in value more than other shares listed on the main market of the London Stock Exchange. They may also be harder to sell. Tax treatment depends on individual circumstances and is assumed as per current legislation and interpretation, which may change in the future. Tax reliefs depend on the VCT maintaining its qualifying status.
This document is an advertisement and not a prospectus. Any decision to invest should only be made on the basis of the information contained in the prospectus and the Key Information Document (KID) available at octopusinvestments.com.
1The Net Asset Value (NAV) is the combined value of all the assets owned by the VCT after deducting the value of its liabilities.
2ReliaQuest snaps up UK-based Digital Shadows for $160m, The Stack, January 2022.
3Titan interim report, June 2022.