REG - AVI Global Trust PLC - Half-year Report
13/06/2025 07:00
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RNS Number : 6762M AVI Global Trust PLC 13 June 2025
AVI GLOBAL TRUST PLC
('AGT' or the 'Company')
LEI: 213800QUODCLWWRVI968
Announcement of unaudited results for the half-year ended 31 March 2025
Half-Year Financial Report for the year ended 31 March 2025
A copy of the Company's Half-Year Report for the half year ended 31 March 2025
will shortly be available to view and download from the Company's website,
https://www.aviglobal.co.uk. Neither the contents of the Company's website nor
the contents of any website accessible from hyperlinks on the Company's
website (or any other website) is incorporated into, or forms part of, this
announcement.
Dividend
The Directors have declared the payment of an interim dividend of 1.50 pence
per Ordinary Share for the period ended 31 March 2025, which will be paid on
25 July 2025 to Ordinary shareholders on the register at the close of business
on 27 June 2025 (ex-dividend 26 June 2025).
Interim results presentation
An investor presentation, open to all existing and potential shareholders,
will take place via Microsoft Teams on 16 June 2025 at 11:30 GMT. It will be
hosted by Joe Bauernfreund, Portfolio Manager and CEO/CIO at Asset Value
Investors, alongside Tom Treanor, Head of Research. In this webinar, Joe and
Tom will provide insights into AVI Global Trust's performance over the period
and discuss key engagements with portfolio companies. There will be an
opportunity for Q&A following the presentation.
Please register by clicking here
(https://events.teams.microsoft.com/event/374c4326-884b-4811-b903-efa275d8f897@b703f59b-ec98-4e1e-9fa6-f159e3a704d4)
or contacting info@assetvalueinvestors.com
(mailto:info@assetvalueinvestors.com) .
The following text is copied from the Half-Year Report and Accounts:
OBJECTIVE
The investment objective of the Company is to achieve capital growth through a
focused portfolio of investments, particularly in companies whose shares stand
at a discount to estimated underlying net asset value.
FINANCIAL HIGHLIGHTS
- Net asset value ('NAV') total return per share increased +1.0%
- Share price total return +0.8%
- Benchmark index(±) increased on a total return basis +1.5%
- Interim dividend increased to 1.50p
PERFORMANCE SUMMARY
Six months to Six months to
31 March 2025 31 March 2024
Net asset value per share (total return) (1)* +1.0% +13.9%
Share price total return* +0.8% +16.0%
31 March 2025 31 March 2024
Discount* (difference between share price and net asset value)(2) 9.2% 9.4%
Earnings and Dividends
Investment income £15.98m £9.99m
Revenue earnings per share 2.75p 1.38p
Capital earnings per share* (1.78)p 30.28p
Total earnings per share 0.97p 31.66p
Ordinary dividends per share 1.50p 1.20p
Ongoing Charges Ratio (annualised)*
Management, marketing and other expenses as a percentage of average 0.85% 0.88%
shareholders' funds
High Low
Period Highs/Lows
Net asset value per share 267.26p 250.04p
Net asset value per share (debt at fair value) 270.37p 252.40p
Share price (mid market) 249.00p 227.00p
(1) As per guidelines issued by the Association of Investment Companies
('AIC'), performance is calculated using net asset values per share inclusive
of accrued income and debt marked to fair value.
(2) As per guidelines issued by the AIC, the discount is calculated using the
net asset value per share inclusive of accrued income and with the debt marked
to fair value.
Buybacks
During the six months ended 31 March 2025 the Company purchased 12,700,000
Ordinary Shares for cancellation for an aggregate consideration of
£30,390,000 adding +0.3% to AGT's NAV.
*Alternative Performance Measures
For all Alternative Performance Measures included in this Report, please see
definitions in the Glossary in the Half-Year Report and Accounts.
(±) MSCI All Country World Index, please refer to the Glossary in the
Half-Year Report and Accounts for further information.
CHAIRMAN'S STATEMENT
The NAV return for the first half of our accounting year was +1.0%, whilst the
share price total return was 0.8%, both compared with +1.5% for our comparator
benchmark. As ever, these statistics, based on snapshots of data as at the end
of September and March, do not tell the whole story. From the end of September
to mid-February the share price and NAV followed a generally upward trend with
relatively low volatility, as markets were unusually calm. This was then
undone by growing concerns over moves by the United States to become more
protectionist and isolationist in its dealings with the rest of the world. It
all came to a head just after the end of our reporting period when President
Trump announced a sweeping range of tariffs on imports to the United States.
There has since followed a period of continuing uncertainty and high
volatility in share prices.
While markets have been heavily affected by geopolitics and the potential
effect on economic growth, our investment managers adhere resolutely to their
focus on investing in companies whose assets and future potential are
undervalued by their share price. There has been no shortage of interesting
situations in the portfolio over the last few months, as set out in their
report.
Revenue and dividend
Revenue earnings for the period were 2.75 pence per share. The Board has
elected to pay an interim dividend of 1.50 pence per share, which is an
increase of 0.30 pence per share compared with last year. While it is too
early to predict revenue earnings for the full accounting year, the Board
intends to at least maintain the final dividend, absent any unforeseen events,
so that the total dividend with respect to the current accounting year will be
at least 4.05 pence per share.
The Board recognises that a dividend which is steady and able to rise over
time is attractive to many shareholders and, while we do aim to grow the
dividend over the long term, I will repeat my previous statement that the
portfolio is managed primarily for capital growth.
Share price rating and marketing
AGT has a substantial marketing budget and the Board works closely with AVI as
it seeks to generate demand for AGT shares. Each month AVI produces an
informative factsheet which is available on our website and I encourage you to
register to receive these when they are published. AVI is also active in the
media - both traditional and increasingly social media - as we seek to promote
our investment proposition to a growing investor base.
The investment trust industry came under a lot of pressure during the period
under review, as many trusts experienced wide share price discounts to their
underlying NAV, leaving them vulnerable to corporate action. We continue to
use share buybacks when AGT's share price discount is unnaturally wide and
when the Board believes that buying back shares is in the best interests of
shareholders. This is also an approach that our Investment Manager encourages
for many of our investee companies. There are periods when, working closely
with our brokers, we buy back shares on most working days. During the six
months under review, 12.7 million shares were bought back, representing 2.9%
of the shares in issue as at the start of the period. Share buybacks benefit
shareholders by limiting the discount at which they could sell shares if they
so wish. Buying back shares at a discount also produced an uplift in value to
the benefit of continuing shareholders, of approximately 0.3%.
Annual General Meeting
All resolutions at the Company's AGM on 19 December 2024 were passed by a
large majority. I would like to thank shareholders for their continuing
support. As usual, it was good to meet a number of shareholders in person at
the meeting. We welcome the opportunity to engage with shareholders and if you
have any questions or points that you would like to raise with the Board,
please send an email to aviglobal_cosec@cm.mpms.mufg.com or write to: The
Company Secretary, AVI Global Trust PLC, 19th Floor, 51 Lime Street, London,
EC3M 7DQ.
Outlook
While predictions are often difficult to make, and equally often prove not to
be very accurate, I wrote last November in our 2024 Annual Report "The level
of geopolitical uncertainty could be exacerbated by the result of the US
election". That certainly proved to be accurate but, looking forward, market
movements are anything but easy to predict. We experienced an extreme negative
reaction to the initial announcement of widespread tariffs imposed by
President Trump, followed by a recovery which may in large part have been due
to the President stepping back from more extreme measures due to the market
reaction. The President has modified or put most of the proposed tariffs on
hold but much uncertainty remains.
Against this unusually high level of background noise, our investment managers
continue to focus their resources on what they do best, seeking undervalued
assets with the potential to unlock that value.
Graham Kitchen
Chairman
12 June 2025
INVESTMENT MANAGER'S REPORT
Performance Review
Over the interim period, AGT's NAV returned +1.0%, which compares to a return
of +1.5% for our comparator benchmark, the MSCI AC World Index (£).
The lag between the end of the interim period and the publication of the
report often sails by with no major change of note. The same cannot be said
for this year, as investors have grappled with an erratic, uncertain and
quickly changing global trade environment, as instigated by President Trump.
This has led to considerable volatility in equity, bond and currency markets,
since the end of the interim period.
Moreover, recent events have served to undermine the supposedly impervious
nature of "American exceptionalism", which had become accepted as a (supposed)
unequivocal truth. Whether the end of 2024 marked the crescendo of US equity
dominance remains to be seen. Certainly, the economic, geopolitical and
financial market events of the last few months, have served to remind
investors of the powers of diversification and the wider opportunities in
equity markets.
In this context, we note that since the end of January 2025 relative
performance has swung +420bps in AGT's favour. Of course, we do not optimise
for such short time frames, and we do not believe "less bad" relative
performance is anything to write home about. Over the five years to 31 March
2025, AGT has achieved a total NAV return of +122%, or some +28% ahead of the
benchmark.
As we have explained in recent years the niche, overlooked and misunderstood
areas of the market upon which we focus continue to be largely ignored by
investors, resulting in wide discounts.
This has created a fertile and opportunity rich environment for us, and one
where a focus on activism, catalysts and events to unlock value has become
more important than ever. These traits are evident in your Company's largest
holdings, D'Ieteren, News Corp and Chrysalis Investments.
One interesting feature of the current environment is that we are finding an
abundance of ideas across all areas on which we focus - Holding Companies,
Closed-end Funds and Japan. The latter - Japan - is worth elaborating on, with
our exposure (excluding the hedged investment in Softbank Group) now
accounting for 23% of NAV, compared to 16% a year ago.
Indeed, eight years into our Japan journey, we are as optimistic as we ever
have been. There is a developing market for corporate control, management
teams are increasingly proactive, and the governance reform agenda is
permeating both small and large cap stocks. Combined with low valuations, we
believe that Japan stacks up very attractively, and is a market where our
constructive approach to active engagement can yield real results.
As well as new and existing names in Japan, we have also added new positions
elsewhere. We have invested in Vivendi, the French holding company controlled
by Vincent Bollore, which is now, in essence a mono-holding company for its
stake in Universal Music Group, and Gerresheimer AG, a German conglomerate
currently undergoing a strategic review. To fund these purchases, we have
actively rotated capital and note that we exited two of the top five
contributors (Apollo +178bps and Reckitt Benckiser +56bps) during the period,
following significant re-ratings in their discounts.
Reflective of the broad opportunity set, our gearing currently stands at 9.5%.
The macro path ahead remains uncertain (as it always is!), but it is fair to
say that risks appear more elevated than when we last wrote to you.
Our experience shows that timing the market is largely a futile exercise, and
as such we remain focused on the bottom-up opportunity set, the underlying
fundamentals, and potential catalysts and events, which includes our own
activism.
Discounts remain historically wide, as indicated by the 39% portfolio weighted
average discount. Aside from a handful of days during the COVID-2020 sell-off,
this is the widest level on record.
Whilst we do not expect this to provide protection in the event of near-term
market weakness, it makes us optimistic for prospective returns over the
medium term. We continue to believe that hard work, activism and events will
be crucial to unlocking value. We are also cautiously optimistic that the
weight of capital retreating from the US generally, and the so-called
Magnificent 7 specifically, has the potential to be a tailwind for narrowing
discounts in our universe. As such, whilst the near-term view is hazy, we are
confident that we have the right ingredients to deliver strong returns into
the future.
Contributors and Detractors for the six months ending 31 March 2025
Contributors Contribution*
Apollo Global Management Inc 178bps
D'Ieteren Group 164bps
Aker ASA 88bps
News Corp 65bps
Reckitt Benckiser Group 56bps
Detractors
Rohto Pharmaceutical -185bps
Entain -93bps
Gerresheimer AG -59bps
Dai Nippon Printing -54bps
Christian Dior -51bps
* Contribution is the percentage amount that a position has added to the
Company's net asset value over the six-month period.
CONTRIBUTORS
Apollo Global Management
Classification: Holding Company
% of net assets: Nil
Discount: N/A
% of investee company: N/A
Total return on position HY25 (local): 42%
Total return on position HY25 (GBP): 49%
Contribution (GBP): +178bps
ROI since date of initial purchase: 165.4%
Apollo was our largest contributor over the interim period (+178bps), with a
local currency total return of +42%. We exited the position in the first half
of December 2024 for a +165% return and an IRR of +41% over our three-and
a-half year holding period vs. +28%/+9% for the S&P 500 and +42%/+13% for
the MSCI ACWI.
We bought Apollo in 2021, at a time when we believed that the alternative
asset manager ("AAM") sector was misunderstood and undervalued; when
valuations for balance sheet heavy companies like Apollo and KKR (note AGT
also had a very successful investment in KKR which we sold in mid-2024) within
the sector were overly penalised; and when Apollo's share price was suffering
from the scandal surrounding former CEO Leon Black's links to Jeffrey Epstein.
Our thesis was that the market viewed the companies as levered plays on
financial markets when, in fact, the bulk of their value resides in their
high-quality, visible, recurring and predictable streams of fee-related
earnings derived from management fees charged on long duration capital.
In the specific case of Apollo, there were also concerns ahead of its merger
with its sister life insurance company, Athene. Life insurance businesses are,
understandably, often lowly rated by the market. However, the reasons why they
are so - unpredictable liabilities with tail risks (e.g., long-term care) and
hard-to-hedge liabilities such as variable annuities - simply do not apply to
Athene which has a highly focused business model, predominantly centred on
fixed annuities.
As such, Athene can be looked at as effectively a spread-lending business,
earning a spread between the rates paid on annuities and the yields earned on
its investments. Its fixed income portfolio (95% of total assets) is 96%
investment-grade, with Athene seeking to earn a return premium from complexity
and illiquidity rather than from taking duration or additional credit risk and
targeting a mid-to-high teens return on equity. Life insurance businesses are
also correctly perceived as being capital intensive, and this was a source of
some disquiet when the Apollo/Athene merger was announced. But capital
intensity is not a bad thing if one is earning high returns on that capital;
and, as we understood at the time, a material proportion of Athene's growth
was likely to be funded by third-party "sidecar" vehicles.
Over November 2024, Apollo's shares soared by +22%, buoyed first by stellar Q3
results and then - just a day later - by a US election result that poured
rocket fuel on the US financials sector as a whole - and the AAMs in
particular - on optimism around a revival of deal activity and the prospect of
a more benign regulatory environment. We believe that Apollo's share price led
the post-election charge amongst its peers for two specific reasons.
Firstly, there had been growing concerns that Athene (more accurately
described as Retirement Services), may become subject to increased regulatory
oversight given an increasing media focus on "private equity owned insurers".
While even this label is highly misleading, suggesting as it does that
insurers like Athene either sit within limited life funds - they do not -
and/or that their balance sheets are loaded with private equity investments
managed by their owner - in most cases, certainly in Athene's, they are not -
the fact is that the election result reduces the probability of tightened
regulation to close to zero.
Secondly, there is a heightened prospect of alternative investments being
allowed into the $12trn US 401(k) pension market. While there are no legal
restrictions on such pension plans investing in private assets, fears of
litigation have prevented any such moves to date. Such fears are likely to be
diminished under a more permissive regulatory regime.
We note Apollo CEO Marc Rowan's comment some time ago that "we are likely one
administration away" from changes here. It is very possible that the US
election result may mean that administration has arrived. With its experience
in retirement services, via its ownership of Athene and having been first to
identify what Rowan terms the Fixed Income Replacement Opportunity (replacing
a portion of the ~$40trn public investment grade market with private
investment grade credit), Apollo is the best placed of all its peers to
capitalise on an opening up of the 401(k) market.
While consensus estimates of forward earnings increased over our holding
period, the bulk of our returns came from multiple expansion, as the market
favourably reassessed the company's earnings quality and the duration of its
growth opportunity. That said, the shares have de-rated materially since we
exited, and we continue to monitor for an opportunity to re-establish a
position in what we believe is still a misunderstood high-quality business.
D'Ieteren
Classification: Holding Company
% of net assets: 7.0%
Discount: -51.0%
% of investee company: 1.1%
Total return on position HY25 (local): 19%
Total return on position HY25 (GBP): 19%
Contribution (GBP): +164bps
ROI since date of initial purchase: 30.3%
D'Ieteren added +164bps to NAV over the interim period, with the position
returning +19% inclusive of £35m of dividends received.
In last year's annual report, we highlighted that in September 2024 the
company announced an extraordinary €74 per share special dividend,
equivalent to 39% of the company's market cap at the time. Selling pressure
from tax-sensitive investors - who faced Belgian Withholding Tax rates of up
to 30% vs. AGT's 10% net rate - pushed the shares down from €226 to a low of
€188. During this period, we increased our position by more than 70% at an
average price just shy of €200 per share.
This made D'Ieteren the largest position in the portfolio at a 9.3% weight on
9 December 2024, when the shares closed at €200 per share. On 10 December
2024, the company traded ex-dividend of the €74 per share special dividend,
yet closed the day at €160 i.e. some +27% above the implied ex-dividend
price of €126. Net of 10% tax, AGT received proceeds of £35m, equivalent to
3.1% of its NAV.
As we look ahead, we expect investors to retune their focus on D'Ieteren's
fundamentals, and Belron specifically. 2024 was characterised by a more
difficult operating environment, particularly in the US, where volumes in the
insured market (on which Belron focuses) suffered from so-called "claims
avoidance", whereby, following large increases in insurance premiums,
consumers are eschewing making insurance claims and instead use the cash
market (to which Belron is underexposed). Despite this headwind, operating
profit grew by +11% in 2024, with strong margin expansion to 21%. As we look
ahead, the big-picture dynamics of the last few years remain in place, with
trends toward windshield complexity and advanced driver-assistance systems
penetration driving significant value growth. Margins are expected to eclipse
23% in 2025, with a mid-teens level of growth in operating profit.
D'Ieteren shares currently trade at €159, which represents a 51% discount to
our estimated NAV. In October 2024, we saw a transaction between Belron
minority shareholders which valued the company at a €32.2bn enterprise value
("EV"). This pegs D'Ieteren's 50% equity stake at €221 per D'Ieteren share.
This valuation was higher than we had modelled - having previously estimated
Belron to be worth €24.5bn EV, or 17x our estimate for 2024 EBIT. It does,
however, put a line in the sand for future, more meaningfully sized
transactions in Belron's equity, such as an IPO or further private equity
sales. As and when these occur, we expect this to be a positive catalyst for
D'Ieteren's very wide discount to narrow.
To date, D'Ieteren has been a successful investment, generating an ROI/IRR of
+33%/+25% (local), however, we are optimistic that there is much more still to
come.
Aker ASA
Classification: Holding Company
% of net assets: 4.5%
Discount: -25.7%
% of investee company: 1.4%
Total return on position HY25 (local): 19%
Total return on position HY25 (GBP): 23%
Contribution (GBP): +88bps
ROI since date of initial purchase: 73.6%
Aker was the third largest contributor (+88bps), with a total return of +23%.
This was the result of strong NAV growth, with the discount largely unchanged
at 26%. The +380bps appreciation of the Norwegian Krone ("NOK") versus
Sterling, was an additional tailwind.
NAV growth was led by Aker BP (54% of NAV), which returned +17%. Earlier in
2024, investors had grown cautious on the plateauing of production at the
Johan Sverdrup oilfield, and the company's longer-term production profile. The
performance of Johan Sverdrup has exceeded expectations, and in February 2025
the company issued encouraging new long-term guidance. Management expects
production to increase from 439k barrels per day in 2024 to 525k in 2028 and
then remain above 500k into the 2030s. Aker BP's assets remain some of the
highest quality globally, as evidenced by production costs of $6 per barrel
(down from $10 in 2017). This supports a targeted +5% annual growth in the
company's dividend which, combined with the current starting yield of 11%,
bodes well for further NAV growth.
Elsewhere in Aker's portfolio, it has also been a busy period, as the company
has made a concerted effort to unlock value, realise capital and push
dividends to the holding company level. In 2024, this saw Aker Biomarine sell
its Feed Ingredients Business, as well as corporate transactions at Aker
Carbon Capture, Aker Solutions and a number of other smaller assets. In total,
this saw NOK 9.3bn/16% of NAV paid up to Aker as dividends in 2024 - more than
twice that of the prior year. As well as this, Aker announced a revised
capital allocation framework, which now targets an annual dividend of 4-6% of
NAV. At current prices, this equates to a yield for shareholders of over 8%.
We believe this to be good value.
News Corporation
Classification: Holding Company
% of net assets: 7.1%
Discount: -41.0%
% of investee company: 1.0%
Total return on position HY25 (local): 3%
Total return on position HY25 (GBP): 8%
Contribution (GBP): +65bps
ROI since date of initial purchase: 17.8%
News Corp was a meaningful contributor over the period adding +65bps to NAV.
This was largely a function of the position's large weight (8% average
weight), and US dollar strength, which turned a +3% local return to a +8%
return in GBP.
During the period, News Corp sold its unlisted, 65% stake in Foxtel, the
Australian pay-tv business, to DAZN. The transaction occurred at an enterprise
value of $2.1bn, or approximately 7x EBITDA, with News Corp debt and equity
holding coming in at $1.1bn, or 4%/8% of then NAV/market cap.
We view this as a highly attractive valuation, for one of News Corp's less
desirable assets and highlights the lunacy of the implied valuation of News
Corp's other (more attractive) unlisted stub assets - trading at an implied
5.1x EBITDA. With that said, our enthusiasm is somewhat tempered, as the
payment (for the equity) has been made in unlisted DAZN stock (with News Corp
also seeing its inter-company loan repaid).
More importantly however, we believe that the Foxtel sale clears management's
plate for more meaningful strategic and structural changes, with management
commenting on a recent earnings call "our consideration of the appropriate
structure does not end with that (Foxtel) significant decision". The elephant
(or perhaps golden goose?) is REA Group, the 61% stake in which accounts for
72% of News Corp's market cap.
We believe that the market continues to overlook the possibility of structural
simplification and value being unlocked. As and when this occurs, the
prospects of a re-rating are considerable. In the meantime, we benefit from
attractive NAV growth prospects, most notably from Dow Jones (34% of NAV).
Indeed, this reinforces the importance and attraction of owning durable
growing businesses in an event-focused strategy. Time is our friend, with
intrinsic value/NAV compounding whilst we wait for the main event, which - as
is invariably the case, takes longer to come to fruition than one would have
originally hoped.
News Corp remains one your Company's largest positions at 7% of NAV.
Reckitt Benckiser
Classification: Holding Company
% of net assets: Nil
Discount: N/A
% of investee company: N/A
Total return on position HY25 (local): 14%
Total return on position HY25 (GBP): 14%
Contribution (GBP): +56bps
ROI since date of initial purchase: 16.6%
Reckitt Benckiser ("Reckitt") was a meaningful contributor over the period, as
the discount narrowed significantly and we exited the position. Overall, it
was a relatively short and successful investment, generating an ROI/IRR of
+17% and +26%, which compares to an ROI of +14% and +7% for the MSCI AC World
Index and FTSE 100 over the holding period.
By way of background, we built the position in the spring/summer of 2024, at a
time of deep investor pessimism, when the shares traded at a c.40% discount to
our estimated NAV, at a decade-low 11x price/earnings ratio and at a record
wide discount to peers. Already trading at a discounted valuation, in March
2024 the company was hit by a litigation shock. The company's US infant
nutrition business, Mead Johnson, was ordered to pay $60m compensation to the
mother of a baby who died of Necrotising Enterocolitis ("NEC") - a bowel
disease that mainly affects premature babies - who had been fed Enfamil
pre-term baby formula. This led to a -15% one-day decline in Reckitt's share
price as investors struggled to price the potential liability and capitulated.
Whilst we were humble in our inability to assess potential legal liabilities
with greater accuracy than the market, we felt that the market's implied
c.$10bn gave a large margin of safety versus expert estimates.
It was our contention that the noise around the litigation allowed long-term
orientated investors to buy a collection of trusted brands which exhibit
meaningful barriers to entry, high margins, and attractive growth prospects at
a much-reduced price. Moreover, we felt that management were under increased
pressure to unlock value, with the business having explored splitting itself
up some years earlier.
Indeed, shortly after we initiated our position, management launched a
sweeping overhaul, with plans to exit the Essential Home business and Mead
Johnson and to boost margins. Combined with positive news flow on the NEC
litigation, this helped the shares to re-rate from a c.40% discount to one in
the low 20s.
From the current discount level, we view the risks as more balanced,
particularly regarding operational complexity and dyssynergies of asset sales,
and a growing concern over the valuation at which Essential Home can be
monetised.
As such, we took the opportunity to exit the position. We believe the
investment demonstrates AVI's contrarian approach to investing in companies
undergoing structural and strategic change to unlock discounted valuations.
DETRACTORS
Rohto Pharmaceutical
Classification: Asset-backed Special Situation
% of net assets: 4.1%
Discount: -56.1%
% of investee company: 1.6%
Total return on position HY25 (local): -31%
Total return on position HY25 (GBP): -32%
Contribution (GBP): -185bps
ROI since date of initial purchase: -25.4%
Rohto Pharmaceutical ("Rohto") was the most significant detractor over the
period, reducing performance by -185bps, as its shares returned -31% in local
terms. Rohto is the number one player in Japan's domestic self-selection
skincare and eye-drop markets. We first invested in Rohto in June 2024, and at
the reporting period-end, the position represented 4.1% of the AGT portfolio.
Despite the underlying quality of the core businesses, skincare and eye drops,
the company has seen its share price fall significantly due to management's
persistent investment in the non-core, unprofitable regenerative medicine
business, which exhibits no clear path to success, but which management views
as one of several 'growth investment businesses'.
It has been a turbulent six months for Rohto.
At the start of the fiscal year, Rohto signalled a reluctance to increase
product prices, which left the market with a negative impression. Alongside
this, the company maintained high R&D expenditure in its unprofitable
healthcare segment, despite investor pushback. The market had also expected an
increase in shareholder returns, to which the company announced a large
acquisition at a high valuation instead. And, on top of this, the company
announced a likely dilutive convertible bond issue out of the blue, with
management likely naive regarding the message that this issuance would send to
the market.
Elsewhere, Rohto's share price was caught up in the broader cosmetic market
sell-off, with investors concerned over the outlook for the Chinese market,
despite Rohto's low exposure to this market.
We believe that a combination of clearer investor communication, combined with
Rohto's superior operational performance to peers, can drive a re-rating and
help to rectify the undervaluation.
Shortly after the period end, AVI launched a public campaign highlighting 17
constructive suggestions in a detailed 100-page presentation, which can be
found here (https://www.assetvalueinvestors.com/campaign/awakening-rohto/) .
AVI firmly believes that the keys to achieving sustainable business growth lie
in refocusing management on the core business and conducting a strategic
review of 'growth investment businesses,' while enhancing IR communications,
capital efficiency and board independence. By taking these steps, Rohto can
demonstrate 'that management is conscious of the cost of capital and share
price,' in line with the Tokyo Stock Exchange's request. Specifically, AVI's
engagement is focusing on reallocating R&D spending from unprofitable
business areas such as the prescription drug business and regenerative
medicine business, towards high-value, high market share product lines, such
as Rohto's skin care products. AVI also highlights the need to improve IR
communications, which contributes to Rohto's significant relative
undervaluation.
Despite the company's 14% operating margin outperforming the peer average of
5%, Rohto trades at an EV/EBITA multiple of 11.6x vs the peer average 16.2x.
EV/EBITA is used for comparability as it focuses on operational performance,
excluding pharmaceutical companies' amortisation of intangible assets such as
patents, licences and IP.
Rohto's fundamental performance remains strong, and combined with AVI's public
campaign, our conviction remains steadfast in the opportunity to streamline
the equity story. Whilst we have taken our engagement agenda public, AVI's
private engagement with the company continues in earnest. We look forward to
further discussing our suggestions with management as we seek to unlock
sustainable value for all stakeholders.
Entain
Classification: Holding Company
% of net assets: 3.5%
Discount: -52.2%
% of investee company: 1.0%
Total return on position HY25 (local): -20%
Total return on position HY25 (GBP): -20%
Contribution (GBP): -93bps
ROI since date of initial purchase: -27.1%
Over the interim period Entain detracted -93bps from your Company's returns,
as the shares fell by -20% on a total return basis. This decline can be
attributed to discount widening, moving from -31% to -52%, with returns being
cushioned marginally by NAV growth of +10%.
We believe that there are two main factors which have contributed to discount
widening over the reporting period.
Firstly, in December 2024, it was announced that the Australian anti-money
laundering regulator (AUSTRAC) had commenced civil proceedings against
Entain's Australian subsidiary. The investigation began in 2022 and relates to
17 accounts (out of more than 1 million) alleging that Entain had inadequate
systems in place. As our industry is fond of saying, "past performance is not
indicative of future results", however, we note that AUSTRAC's largest ever
fine equates to c.£225m, equivalent to c.4% of Entain's pre-announcement
market cap. We don't claim any great insight beyond this, but that is the
ballpark which we are in.
Secondly, in February 2025 it was announced that Entain's CEO, Gavin Isaacs,
would step down with immediate effect. Here we have more sympathy with the
market's despondence. A CEO departing after only five months in the job
announced via a vague press release is hardly confidence inspiring. That being
said, with a competent and experienced (temporary) replacement waiting in the
wings, in the form of Stella David (who had previously been interim CEO before
Mr. Isaacs' appointment) there is no great disruption. Moreover, our
investment case is (largely) centred on the potential to unlock value from the
BetMGM JV, and we believe that a strong board and capital allocation committee
is of central importance from a governance perspective.
On the NAV side of the equation, it has been a difficult couple of years,
predominantly due to subpar navigation of a changing regulatory landscape in
Entain's largest market, the UK. The Online Operations (76% of portfolio)
returned to double-digit organic revenue growth in Q4, driven by a strong, and
earlier than expected, reacceleration of growth in the UK. This helped
contribute to an overall organic top-line growth of +6% over 2024, having
previously guided to a decline at the start of the year.
The turnaround in financial results is very pleasing to see. However, what we
believe to be more encouraging are the internal input drivers into these
financials. The most important of these inputs is that player retention is
back above the ~85% level which sits at the heart of the Entain's organic
growth algorithm, having been below this level for a considerable period of
time.
Looking ahead, Entain believe that they can sustain and build upon this player
base, with early positive evidence within the UK as, for the first time since
Q1 2021, spend-per-head increased. We expect that from here, growth should at
least match that of the underlying markets (c.5% on a weighted average basis)
with potential upside to this, as market share shifts back away from
third-tier operators.
The other engine of growth for Entain is BetMGM (12% of its portfolio). It was
around this time last year, that management outlined that 2024 was to be a
"year of investment", after a difficult 2023. It was pleasing to see that
these investments were not in vain, as BetMGM ended 2024 as a fundamentally
stronger business. Almost every key performance indicator saw significant
improvement, gaining momentum over the year and which has continued into 2025.
In 2025, management expects EBITDA to be positive, materially ahead of analyst
consensus which was expecting another negative year. We believe that this
earlier-than-expected inflection adds credence to management's medium-term
aspiration of $500m in annual EBITDA.
However, in the current structure we believe that this value is being entirely
discounted, with BetMGM trading at a negative implied valuation on our
numbers. Alternatively, stripping out our (conservative) carrying value for
BetMGM, the stub of Entain trades at 5x forward EBITDA, versus peers closer to
10x and historic M&A transactions above this level.
We believe this to be an unduly low valuation, for a company operating in a
structurally growing industry and with significant barriers to entry.
Gerresheimer
Classification: Holding Company
% of net assets: 6.1%
Discount: -47.4%
% of investee company: 3.2%
Total return on position HY25 (local): -9%
Total return on position HY25 (GBP): -9%
Contribution (GBP): -59bps
ROI since date of initial purchase: -9.0%
During the period we built a new position in Gerresheimer AG ("Gerresheimer"),
which detracted -59bps over the period.
Gerresheimer is a £2bn German conglomerate, that offers exposure to a leading
player in the oligopolistic pharmaceutical primary packaging market with high
barriers to entry and attractive growth prospects.
These merits are not currently reflected in the group's valuation, with the
company trading at a 47% discount to our estimated NAV. We see multiple
potential paths to improve the depressed valuation and unlock value, with the
company currently undertaking a strategic review of its Moulded Glass division
(22% of its NAV). In recent months, the company has been in discussions with a
number of private equity houses regarding a potential take private
transaction, with reported non-binding offers in the region of €90 per
share. In March it was announced that KKR are no longer part of the consortium
looking at a deal, and the shares have reacted negatively to this, now trading
at ~€55, or just over 10x this coming year's earnings.
Whether or not a bid emerges from other parties remains to be seen, but we are
encouraged by the numerous levers that the company has and with which it could
enact change and create value for its shareholders, most notably the ongoing
Moulded Glass strategic review. We own a little more than a 3% stake in the
company and believe that there is significant value to be unlocked.
Subsequent to the interim period end, in early June, Gerresheimer issued a
profit warning leading to a -23% one day decline in the share price.
Following this we published an open letter to the Supervisory Board setting
out the steps required to secure and unlock value.
The full letter can be found here: Gerresheimer - a shot of new medicine is
required
(https://www.assetvalueinvestors.com/content/uploads/2025/06/AVI-Gerresheimer-Public-Letter-June-2025.pdf)
We continue to actively engage with management and the board in the pursuit of
realising Gerresheimer's considerable value.
Dai Nippon Printing
Classification: Asset-backed Special Situation
% of net assets: 2.7%
Discount: -48.3%
% of investee company: 0.5%
Total return on position HY25 (local): -14%
Total return on position HY25 (GBP): -14%
Contribution (GBP): -54bps
ROI since date of initial purchase: 6.8%
Dai Nippon Printing ("DNP") - the Japanese conglomerate which owns a
collection of competitively advantaged component businesses - was one of your
Company's largest detractors in the interim period, with AGT's position
returning -14% in GBP. This was driven by a -550bps widening in the discount
and a -10% decline in the NAV.
DNP faced multiple headwinds in the period. First, on 11 November 2024 the
company filed its shareholder register alongside its quarterly results. This
showed that a large activist investor, with over a 3% position, had exited the
company. This investor had been a key driving force behind DNP's large step
forwards in governance and capital allocation. Investors were clearly
pessimistic that the company's management would maintain their stance on
shareholder returns and capital allocation in the absence of a large activist,
and the shares fell by some -17% in the subsequent two weeks. Compounding
matters, the company then announced a buyback and secondary offering on 29
November 2024, with the JPY20bn buyback significantly smaller than the one
announced in previous periods. This saw DNP's stub multiple decline from 8.0x
forward EBIT to a lowly 5.6x.
AVI has had subsequent conversations with DNP, who explained that their
capital allocation policy is unchanged and that the timeline for the secondary
transaction had been planned since August 2024, with the timing of the press
release due to regulatory reasons.
Despite the market's pessimism, our underlying thesis remains unchanged.
As a reminder, DNP is a 150-year-old Japanese printing company whose
conglomerate structure, and overexposure to the declining traditional printing
industry, obscures the quality of its Electronics segment, which has
compounded operating profits at +16% year-over-year ("YoY") for ten years,
generates a 25%+ margin, and accounts for over 70% of consolidated operating
profit.
AVI's attraction is to the "crown jewel" fine metal mask business, which we
estimate accounts for c. 75% of the Electronics segment's profits. A fine
metal mask ("FMM") is a critical component used to manufacture the smaller
OLED panels in smartphones, tablets and laptops. While critical to the
production process, each FMM only represents about 10% of the total
manufacturing cost. DNP's patented technology and operational expertise means
that the company boasts effectively 100% market share in FMMs and generates
operating margins of around 35-40% on each metal mask. The market for FMMs is
predominantly smart phone OLED panels, which are estimated to have around 50%
market penetration.
The opportunity for DNP over the next five years, however, is in larger FMMs
for tablets and laptops, which have under 5% market penetration, and the
demand of which is expected to grow +32% YoY to 2030. Given the higher level
of technical expertise required to produce a larger FMM, DNP charges a higher
price per square inch, generating an estimated operating margin of between
40-50% on each larger FMM. As such, we are anticipating a combination of
significant earnings growth and margin expansion at DNP over the next five
years, with DNP one of the key beneficiaries of the switch to OLED from LCD.
Elsewhere, DNP has a further JPY130bn (15% of current market cap) of its
shares to buy back over the next two years, a portfolio of listed securities
worth a further 33% of market cap after tax, and trades at an undemanding
multiple of less than 6x EBIT (versus electronic component manufacturing peers
at c.14x).
We continue to engage with DNP's management in private and remain excited by
prospective future returns.
Christian Dior
Classification: Holding Company
% of net assets: 2.1%
Discount: -20.5%
% of investee company: 0.0%
Total return on position HY25 (local): -18%
Total return on position HY25 (GBP): -17%
Contribution (GBP): -51bps
ROI since date of initial purchase: 71.6%
Christian Dior ("CDI") - the mono-holding company through which the Arnault
family controls LVMH - endured a difficult six months, with the shares
declining by -18%. This was a function of a -17% decline in NAV and -170bps
widening of the discount, to 20%.
This was a volatile period for LVMH and the wider luxury goods industry, as
investors have digested an evolving economic and demand backdrop. From
mid-November 2024 to late January 2025, shares in LVMH rose by some +30%, as
there were signs of an improvement in the performance of the US and
stabilisation in China. Since then, the shares have given this all back and
more and are down -24% from the peak. The threat of tariffs by the US, slowing
consumer demand and the negative effect on wealth from stock market declines
have all contributed to reduced expectations for growth and margins. For
example, analysts' consensus now projects LVMH's 2025 operating profits some
-7% lower than had been expected at the start of the year.
Whilst we remain cautious on the near-term demand outlook, we are enthusiastic
about long-term prospects for LVMH. The company benefits from significant
scale advantage as the owner of multiple mega-brands with irreplaceable brand
equity in an industry with healthy long-term growth prospects. Past crises
have often given rise to new opportunities and LVMH's modestly levered balance
sheet and strong management team add credence to the idea that this will be
the same again. The shares have de-rated and now trade at c.15x 2025 estimated
EV/EBIT - although we concede that there are some risks to these estimates.
Alternatively, we estimate that LVMH trades at a ~30% conglomerate discount.
Over time it remains our expectation that the Arnault family will look to
collapse the CDI structure at NAV, providing an additional boost to returns.
Joe Bauernfreund
Asset Value Investors Limited
12 June 2025
INVESTMENT PORTFOLIO
At 31 March 2025
Company Portfolio classification % of IRR ROI Cost Equity % of net assets
investee
£'000(3 )
company (%, £)(1) (%, £)(2) Exposure(4 )
£'000
News Corp Holding Company 1.0% 12.7% 17.8% 65,652 75,902 7.1%
D'Ieteren Group Holding Company 1.1% 22.9% 30.3% 48,065(5) 74,952 7.0%
Chrysalis Investments Closed-ended Fund 14.6% 14.9% 12.7% 64,460 72,635 6.8%
Gerresheimer AG Holding Company 3.2% nm -9.0% 71,604 65,503 6.1%
Oakley Capital Investments Closed-ended Fund 7.0% 20.4% 121.1% 25,360 57,761 5.4%
Harbourvest Global Private Equity Closed-ended Fund 3.1% 14.5% 9.1% 52,499 57,042 5.3%
Partners Group Private Equity Closed-ended Fund 9.2% 8.3% 15.7% 53,282 54,820 5.1%
Vivendi Holding Company 2.2% 12.6% 2.3% 50,777 52,852 4.9%
Aker ASA Holding Company 1.4% 15.7% 73.6% 49,864 48,667 4.5%
Cordiant Digital Infrastructure Closed-ended Fund 7.0% 41.8% 35.6% 36,385 46,444 4.3%
Top ten investments 517,948 606,578 56.5%
Rohto Pharmaceutical Asset-backed Special Situation 1.6% nm -25.4% 59,930 44,450 4.1%
Entain Holding Company 1.0% -32.0% -27.1% 53,633 37,899 3.5%
IAC/InterActive Corp Holding Company 1.2% -19.1% -44.6% 70,201 35,045 3.3%
Tokyo Gas Asset-backed Special Situation 0.3% nm 6.4% 31,397 33,373 3.1%
Kyocera Asset-backed Special Situation 0.2% -19.8% -12.0% 37,521 32,590 3.0%
Toyota Industries Asset-backed Special Situation 0.1% -1.0% -1.0% 32,263 31,641 2.9%
Dai Nippon Printing Asset-backed Special Situation 0.5% 3.8% 6.8% 29,949 29,459 2.7%
GCP Infrastructure Investments Closed-ended Fund 4.5% 14.5% 16.6% 26,088 27,094 2.5%
Irish Residential Properties Asset-backed Special Situation 6.3% -3.0% -2.8% 28,020 26,350 2.5%
EXOR Holding Company 0.2% 10.0% 38.2% 19,419 24,887 2.3%
Top twenty investments 906,369 929,366 86.4%
Third Point Investors Closed-ended Fund 4.3% 5.1% 28.9% 17,263 24,697 2.3%
Symphony International Holdings Closed-ended Fund 15.7% 4.7% 30.0% 26,636 22,821 2.1%
Kokuyo Asset-backed Special Situation 1.3% nm 0.8% 22,308 22,467 2.1%
Christian Dior Holding Company 0.0% 16.0% 71.6% 24,272 22,328 2.1%
Mitsubishi Logistics Asset-backed Special Situation 1.1% nm -10.8% 17,084 21,629 2.0%
Bollore Holding Company 0.2% nm -5.6% 22,503 20,251 1.9%
Net Lease Office Properties Holding Company 5.0% nm 3.0% 17,402 17,897 1.7%
Tokyo Tatemono Asset-backed Special Situation 0.6% nm -1.1% 17,706 17,320 1.6%
Frasers Group Holding Company 0.6% -21.8% -23.2% 21,920 16,857 1.6%
abrdn European Logistics Income Closed-ended Fund 7.0% 10.2% 10.6% 15,635 16,402 1.5%
Top thirty investments 1,109,098 1,132,035 105.3%
Wacom Asset-backed Special Situation 2.7% -11.8% -29.4% 19,356 11,523 1.1%
Mitsubishi Estate Asset-backed Special Situation 0.1% nm -5.6% 11,672 11,016 1.0%
TSI Holdings Asset-backed Special Situation 2.4% 36.0% 64.8% 6,796 10,654 1.0%
SK Kaken Asset-backed Special Situation 1.3% -5.9% -30.4% 14,638 9,578 0.9%
Konishi Asset-backed Special Situation 1.9% 4.6% 24.8% 7,626 8,169 0.8%
Seraphim Space Investment Closed-ended Fund 2.6% 8.3% 19.3% 2,950 3,464 0.3%
VEF Holding Company 2.3% -10.9% -20.3% 4,525 3,104 0.3%
JPEL Private Equity Closed-ended Fund 18.4% 20.5% 82.6% 1,219 2,650 0.2%
Sumitomo Realty & Development Asset-backed Special Situation 0.0% nm -6.6% 2,775 2,593 0.2%
Better Capital (2009) Closed-ended Fund 17.4% - - 1,962 903 0.1%
Top forty investments 1,182,617 1,195,689 111.2%
Third Point Investors Private Investments Closed-ended Fund 0.0% - - 563 499 0.0%
Ashmore Global Opportunities - GBP Closed-ended Fund 0.0% 3.8% 6.8% 10 82 0.0%
Equity investments at fair value 1,183,190 1,196,270 111.2%
Fair value and gross market exposure of investments(4) Portfolio classification Equity Fair Value £'000 % of net
exposure £'000 assets
Total Return Swaps long positions
Softbank Group Asset-backed Special Situation 25,601 (6,415) -0.6%
Sum of Total Return Swap long positions 25,601 (6,415) -0.6%
Total Return Swap short positions
Arm Holdings Operating Company (14,337) 6,143 0.6%
Coupang Operating Company (634) (19) 0.0%
Deutsche Telekom Operating Company (1,187) (397) 0.0%
Softbank Operating Company (3,794) (403) 0.0%
T-Mobile Operating Company (3,247) (1,082) -0.1%
Sum of Total Return Swap short positions (23,199) 4,242 0.5%
Sum of Total Return Swap long and short positions 2,402 (2,173) -0.1%
Investments and total return swaps 1,185,592 1,194,097 111.1%
Other net current assets less current liabilities 43,372 4.0%
Non-current liabilities (162,079) -15.1%
Net assets 1,075,390 100.0%
(1) Internal Rate of Return. Calculated from inception of AVI Global Trust's
investment. Refer to Glossary in the Half-Year Report and Accounts.
(2) Return on Investment. Calculated from inception of AVI Global Trust's
investment. Refer to Glossary in the Half-Year report and Accounts.
(3) Cost. Refer to Glossary in the Half-Year Report and Accounts.
(4) Notional current equity value of investments and swaps. For a full
description of the exposure to Softbank, please see page 33 of the Annual
Report for the year to 30 September 2024.
(5) Following a return of capital in December 2024 the cost of D'Ieteren Group
has been reduced by £34,582,000.
FURTHER INFORMATION
AVI Global Trust Plc's Half Year Report for the period ended 31 March 2025
will be available today on https://www.aviglobal.co.uk.
It will also be submitted shortly in full unedited text to the Financial
Conduct Authority's National Storage Mechanism and will be available for
inspection at data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) in accordance with
DTR 6.3.5(1A) of the Financial Conduct Authority's Disclosure Guidance and
Transparency Rules.
ENDS
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