Octopus AIM VCT 2 NAV Total Return 0.8% in Iran War Period

Octopus AIM VCT 2 plc posted a net asset value total return of 0.8% for the six months to May 31, a period that included the outbreak of the Iran war and a sharp equity selloff in March. The FTSE AIM All Share rose 9.7% and the FTSE All Share gained 8.8% over the same stretch. The portfolio's lack of exposure to energy and mining stocks, which are outside VCT qualifying criteria, explains much of the divergence. Those sectors accounted for more than 75% of the AIM index's performance, the Company said.

After adding back dividends of 5.4p per share paid during the period, the NAV total return of 0.8% reflected an encouraging recovery from the flat performance at the prior year end, the Board said. The portfolio benefited from stable earnings across several holdings and the successful realisation of investments that crystallised net profits of £11.0 million over original cost, an average uplift of 26 times.

The biggest positive contributors were Abingdon Health, Popsa, Animalcare and TPXimpact Holdings. Abingdon Health, a developer of rapid diagnostic tests, saw its shares rise sharply on renewed interest in smaller healthcare diagnostics. The company launched its LVOne Stroke Triage Test in the UK and satisfied the earn-out on its IVDeology acquisition after hitting the maximum two-year revenue target. Popsa, the largest remaining unquoted holding, continued to scale with strong revenue growth. The US division is gaining market share, the Investment Manager said. Animalcare, a veterinary health business, agreed a £235.2 million takeover bid from Charterhouse Capital Partners at 336p per share, a 36% premium. TPXimpact Holdings won several public-sector contracts and upgraded earnings guidance.

Craneware and Beeks Financial Cloud Group were the main drags. Craneware's share price underperformed during a broader derating in global technology valuations, despite solid operational performance. After the period end, the stock was further affected by news that US drug manufacturers restricted access to certain drugs in hospitals, delaying a planned rebate pilot programme. Beeks Financial Cloud saw gross margins decline from 38% to 30% as the business invested in infrastructure ahead of customer launches and moved to revenue-share models for Exchange Cloud contracts. Equipmake, a developer of electric drivetrains, also weighed on returns despite receiving a £3 million strategic investment from Caterpillar in February. The market continued to focus on its loss-making profile and future cash requirements, the manager noted.

The Board welcomed the VCT rule changes announced in the November 2025 Budget and effective from April 6, 2026. The qualifying gross asset threshold rose to £30 million before investment from £15 million, and to £35 million after investment from £16 million. The annual fundraising limit increased to £10 million, or £20 million for knowledge-intensive businesses. Lifetime limits rose to £24 million and £40 million respectively. The income tax relief rate dropped from 30% to 20%. The deal pipeline has strengthened materially since the reforms took effect, the Company said.

Unquoted holdings fell to 6.3% of net assets at May 31 from 17.1% at November 30, largely due to the disposal of Hasgrove following a bid from Castik Capital. That transaction, completed in January, realised a profit of £9.1 million. Popsa remains the largest unquoted holding.

The Board declared an interim dividend of 1.1p per share, payable November 26 to shareholders on the register November 6. The Company paid a special dividend of 3.6p per share on April 1, following exceptional profits from the sale of Breedon Group and Learning Technologies Group, among others. A final dividend of 1.8p per share was paid May 29. The Board now targets an annual dividend of 6% of opening NAV, with flexibility to pay additional special dividends when there are significant portfolio realisations.

The Company bought back 7,005,971 ordinary shares in the period for £2.369 million.

The Board said valuations across UK smaller companies remain subdued, reflecting an extended period of investor caution rather than any fundamental weakening in underlying business performance. Interest rates were held at 3.75% over the period. Expectations for further rate cuts were revised lower after higher energy prices pushed inflation forecasts. UK GDP growth for 2026 is forecast at 0.8% to 1.4%.

"We believe valuations within the UK smaller companies universe remain highly attractive, both in historical terms and relative to global peers," the Board said.