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AVI Global TrustAnnouncement

14/12/2022 16:45

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RNS Number : 7474J  AVI Global Trust PLC  14 December 2022

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting
performance figures for the month ended 30 November 2022.

 

This Monthly Newsletter is available on the Company's website at:

https://www.assetvalueinvestors.com/agt/content/uploads/2022/12/AGT-November-2022-1.pdf
(https://www.assetvalueinvestors.com/agt/content/uploads/2022/12/AGT-November-2022-1.pdf)

 

Performance Total Return

 

This investment management report relates to performance figures to 30
November 2022.

 

                     Month  Fiscal Yr(*)  Calendar Yr

                            to date       to date
 AGT NAV(1)          7.0%   9.6%          -4.6%
 MSCI ACWI Ex US(2)  8.1%   7.9%          -3.7%
 MSCI ACWI(1)        4.2%   7.1%          -3.3%

( )

 1  Source: Morningstar. All NAV figures are cum-fair values.
 2  From 1st October 2013 the lead benchmark was changed to the MSCI ACWI ex US
    (£) Index. The investment management fee was changed to 0.7% of net assets
    and the performance related fee eliminated.

 * All return figures in GBP. AVI Global Trust financial year commences on the
 1(st) October. All figures published before the fiscal results announcement
 are AVI estimates and subject to change.

 

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV increased by +7.0% in November. Performance was
broad-based as markets rallied following better than expected US October
inflation data, which was released near the start of the month and has seen
investor expectations for the pace and peak of interest rate rises decline.
Such a risk-on environment has seen discounts start to narrow, with the
portfolio weighted average discount moving from 36.7% to 32.9% over the month.

 

EXOR was the most meaningful contributor to returns over the month. The shares
rose +10%, as a +6% increase in the NAV was boosted by a narrowing of the
discount from 44% to 42%. Since early September when the discount hit 50%
shares in EXOR have rallied +25%.

 

Ferrari (32% of NAV), Stellantis (22%) and CNH Industrial (19%) returned +6%,
+9% and +17%, respectively. During the month all three companies reported Q3
results that were ahead of consensus expectations, with both Ferrari and CNH
raising full year guidance alongside their results.

 

CNH in particular continues to perform well in its maiden year as a more
streamlined agricultural (AG) equipment company, following the spin-off of
truck maker Iveco at the start of the year. For the third quarter industrial
sales grew +29% and operating profit by +60%. Gross and operating margins
expanded by +260bps and +270bps respectively, with very strong price
realisations more than off-setting increased product input costs. This is in
keeping with performance earlier in the year, and further reiterates the
material pricing power of the AG division, which benefits from low levels of
dealer inventory, a powerful dealer network and relatively strong farm
incomes. With the acquisition of Ag-Tech company Raven last year, CNH are
taking steps to narrow the technological gap versus Deere, the #1 player in
the oligopolistic industry. In turn there is room for the valuation
differential to narrow further, with CNH trading at 10.4x next year's earnings
compared with Deere on 15.7x. CNH are transitioning to US reporting standards
and there are reports that the company might move to a sole US listing, which
should further help in this regard. Combined with the Iveco spin earlier in
the year, this is indicative of corporate actions EXOR take to unlock hidden
value in its portfolio companies.

Turning to the discount - which has narrowed from the depths but remains wider
than average - we remain of the view that re-allocation of the proceeds
following the sale of Partner Re for $9.3bn remains a key determining factor.
EXOR is still (wrongly) perceived by many as a cyclical holding company overly
exposed to Italy. As the portfolio continues to transition to higher quality,
less capital intensive and cyclical assets, we expect the discount to narrow
further. Combined with the prospects for NAV growth, we remain optimistic
about EXOR's prospective returns.

 

We initiated a new position in Brookfield Asset Management (BAM), the US and
Canadian-listed alternative asset manager, which trades at what we believe to
be a dislocated valuation ahead of the upcoming spin of a 25% stake in its
asset management business. Aside from its asset management business, BAM in
its current form includes significant stakes in Brookfield's listed funds
focussed on renewables, infrastructure, and private equity; unlisted real
estate exposures resulting from the 2021 take-private of its then-listed
Brookfield Property Group business; and its insurance business. Post-spin, BAM
will retain a 75% stake in the asset management business.

 

We expect the stand-alone asset manager to trade well given (i) 100% of its
earnings will be from fee-related earnings (FRE), the most highly-prized
alternative asset management earnings stream; (ii) the 90% dividend pay-out
policy and associated high yield; (iii) its advantaged AUM mix weighted
towards real assets with attractive exposures to high growth areas such as
renewables; and (iv) its estimated five year FRE CAGR of +17%.

 

Even after the application of a haircut to BAM's reported valuation of its
real estate exposures and an assumed trading discount to the existing entity,
the implied stub earnings multiple on the asset management business represents
a very hefty discount to asset-light alternative asset management peers and we
see significant upside for the shares from here. Note that given our caution
around increasing our market exposure beyond currently fully invested (but
essentially ungeared) levels, we took on a matching short position in an
S&P 500 index tracker simultaneously to our investment in BAM (both BAM
and the S&P short are held via total return swaps).

 

The spin-off becomes effective in mid-December, and we are sure will be
watched closely by management at KKR (another AGT holding) given the
read-across for its own valuation and strategic options as a currently
"balance-sheet heavy" peer.

 

During the month we fully exited our position in Sony, which we had held since
June 2019. Over the life of the investment we generated a Sterling IRR of +16%
and an ROI of +48%. This compares with a +4% IRR for the MSCI AC World Ex-Us
index and +7% IRR for the MSCI AC World index over the same period (£). Our
overall thesis was that the market misunderstood the high-quality nature of
Sony's assets due to the structure in which they sat, and that Sony
PlayStation was undergoing a step-change in business quality as it became less
cyclically tied to the hardware cycle, with a higher proportion of recurring
revenues. This proved correct and, reflective of that fact, we sold at an
average adjusted forward EV/EBIT multiple of 10.5x versus an entry multiple of
7.3x. In hindsight we should have been more attuned to earnings risks in 2022
and sold earlier, but notwithstanding this we still generated attractive
returns well in excess of broader markets.

 

In terms of other activity we have continued to add to Schibsted and a
Japanese company where we believe we can add value as engaged owners. We have
continued to be nimble in trading our PE/VC basket.

 

 

 

 

 

 

 

 

 

Contributors / Detractors (in GBP)

 

 Largest Contributors        1- month contribution  % of NAV

                             bps
 EXOR                        83                     7.7
 Apollo Global Mgmt.         83                     4.3
 Christian Dior              79                     5.3
 Schibsted ASA               71                     5.1
 Oakley Capital Investments  55                     6.7

 

 Largest Detractors     1- month contribution  % of NAV

                        bps
 Third Point Investors  -37                    4.9
 DTS Corp               -10                    2.2
 Nihon Kohden           -6                     2.0
 Hipgnosis Songs        -6                     0.8
 Cannae Holdings        -4                     1.0

 

 

Link Company Matters Limited

Corporate Secretary

 

14 December 2022

 

LEI: 213800QUODCLWWRVI968

 

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