TEATHER & GREENWOOD
Childcare Corporation 4
Aim: To provide capital growth by building and operating up to 16 children's nurseries in the UK.
Minimum investment: £2,000.
Closing date: April 5, 2001.
Charges: Initial 6.5 per cent.
Commission: Initial 2.5 per cent.
Tel: 0207 426 3204.
Investment philosophy 7.0
Past performance 6.3
Company's reputation 6.0
Product literature 6.8
Teather & Greenwood has brought in Childcare Corporation 4, the fourth version of its enterprise investment scheme (EIS). The product develops and builds children's nurseries all over the country, with the actual running of the nurseries being entrusted to specialist childcare operators Busy Bees.
Looking at how well the product fits into the market, Spendlove says: “Assuming that EIS approval is granted, the product will fit into the market very well. One reason is that there is very little competition against it.”
Woodward says: “The Childcare EIS scheme is the latest in a successful line of similar offerings from Teather & Greenwood, and is a single company investment, as opposed to the portfolio approach offered by others.”
Graham says: “This is an interesting alternative to the alternative investment market or to equity based schemes.”
Moving on to the type of client that the product will be most suitable for, Woodward says: “This product will have its main use for the higher risk, higher rate taxpayer investor who has capital gains tax (CGT) liabilities that he wishes to defer and who is willing to tie up his capital for three years. There is also no limit to the amount of CGT which can be deferred, as opposed to the limit of £100,000 in a venture capital trust.”
Graham says: “This is suitable for the investment orientated client who is interested in diversifying his investments away from equities.” Spendlove says: “The product is suitable for those with an existing broad spread of investments and who are willing to undertake a very high investment risk while also looking for CGT deferral.”
The panel are divided over the types of marketing opportunities that the product provides. Graham says: “This gives a chance to revisit clients who have wide ranging investments in place.”
Woodward says: “This product offers good marketing opportunities for higher risk, higher rate taxpayers. The asset backing will appeal to clients who are looking for this type of investment.”
However Spendlove says: “There are very limited marketing opportunities. EIS investments rarely fit comfortably into a client's investment portfolio. This has been evidenced by a number of EIS's being withdrawn due to a lack of demand.”
Moving on the to the main strong points of the product, Woodward says: “The strong points of the product include the record of the management company and the fact that the asset backing is strong, and should revalue to a higher figure than the cost on opening of the nursery. This will help sales. Also in the current market it will provide a good property-based investment, which might well appeal to clients who bought technology offerings last year and have now become more cautious. Lastly the incentive package for the management should help in the delivery of results to investors.”
Spendlove says: “There are four main useful features. Firstly it offers income tax relief, secondly it offers CGT deferral, thirdly it invests in the growing market of childcare and lastly it has a low initial investment level of £2,000.”
Graham says: “This product is not equity linked, so it is good for diversification. It is also linked to what is a strongly growing sector that is independent of conventional economic growth.”
Examining the products bad points, Spendlove says: “The product has a lack of diversification. It is also very high risk, due to the risk of property prices falling as well as the chance that the childcare places are not completely filled in each nursery. There is also the lack of a medium to longer-term track record and the fact that it has high fixed setting up and running costs. Another drawback is that it is not covered under the investors compensation scheme.”
Graham comments: “This product is heavily dependent on political decisions on child care. It is also reliant on the willingness of property developers to adopt the scheme. Property prices are also rising.”
Woodward says: “The main disadvantage is that this is a single company single sector investment, which raises the investment risk. The exit route is also a little vague.”
Evaluating the investment strategy, Graham says: “The investment strategy takes a sensible and enterprising view of social trends without taking an undue risk.”
Woodward says: “For investors who understand the risk profile of this type of company, Childcare Corporation 4 will look attractive and although single companies are often higher risk, this has what looks to be a well tried formula in an area which enjoying high demand. The improvement in the property value, if it comes through in the way outlined in the prospectus, will help to gain investments.”
Spendlove feels that the investment philosophy is potentially very rewarding in a market that is undergoing rapid expansion.
Casting an eye over the reputation of Teather & Greenwood, Graham views the company as being good and reliable. Woodward says: “Teather & Greenwood is a well respected stockbroker and sponsor of EIS schemes, although I suspect that its name is not widely known amongst private investors.”
Spendlove is more cautious. He adds: “Although Teather & Greenwood is known in the market as reputable stockbrokers, Childcare One was only launched back in 1999, so the company has not really been able to build up a reputation as EIS specialists.”
Viewing the past performance record of Teather & Greenwood, Woodward says: “Previous offering in this series have been good, and other original offerings have been made, which are different in as much as Teather & Greenwood seems to try to reduce the risk profile as much as possible.”
Graham says: “The company has a good past performance record, especially in portfolio schemes that are good at spreading investments.”
Identifying the products that will provide the main competition to the Teather & Greenwood EIS, the panel again disagrees. Graham feels that it has no direct competitors, but Spendlove says: “Competition will come from most recent launches, such as English Country Inns or HiLife Holdings.”
Woodward says: “I see competition as coming from venture capital trusts offered by other specialists. Close Brothers, LeggMason, Singer & Friedlander and Artemis are all strong players in this market.”
Looking at the charges, Woodward and Graham think that these are fair and reasonable for these types of product. However Spendlove says: “Although some of the charges are capped, fixed setting up costs of 6.5 per cent of the funds raised and running costs of 3.75 per cent of the funds do appear a touch expensive.”
Turning to the product literature, the panel again disagree. Graham says: “The literature is very good, being clear and well presented.” Woodward says: “The product literature is very well laid out, is pretty easy to read and follows a pretty good structure.”
However Spendlove says: “I think that the literature is not very user-friendly. It uses small print and is very bland.”
Summing the product up, Woodward says: “The product's asset backing and formula will be attractive, as indeed will be the incentive package for the management. I think it should sell well to the right clients.”
Eric Woodward, managing director, EP Ward Investments, Mark Spendlove, associate director, Bowland Financial Management, Robert Graham, associate partner, Scottish Financial Independence Group