REG - AVI Global Trust PLC - Monthly Factsheet

AVI Global TrustAnnouncement

09/11/2023 16:30

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RNS Number : 9962S  AVI Global Trust PLC  09 November 2023

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting
performance figures for the month ended 31 October 2023.

 

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

https://www.assetvalueinvestors.com/content/uploads/2023/11/AGT-OCTOBER-2023.pdf
(https://www.assetvalueinvestors.com/content/uploads/2023/11/AGT-OCTOBER-2023.pdf)

 

Performance Total Return

 

This investment management report relates to performance figures to 31 October
2023.

 

 Total Return (£)   Month  Calendar Yr  1Y    3Y     5Y     10Y

                           to date
 AGT NAV            -5.3%  4.0%         6.6%  37.9%  48.2%  126.7%
 MSCI ACWI          -2.4%  5.8%         4.8%  29.4%  51.0%  155.8%
 MSCI ACWI Ex US    -3.6%  0.1%         6.3%  16.6%  24.8%  70.2%

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV declined -5.3% in October.

 

Performance was weak across the board, with eight holdings detracting between
-44bps (Hipgnosis Songs Fund) and -95bps (Schibsted). Godrej Industries and
FEMSA were rare bright spots (+38bps and +20bps).

 

We contend that it is a challenging and uncertain environment for equities. It
is, however, an environment we relish. Discounts, as evidenced by the 37%
portfolio weighted average discount, have widened considerably to levels
comparable to those observed in the global financial crisis and the Eurozone
crisis. We believe that stock picking, active engagement, and a focus on
investments with explicit catalysts stand us in good stead to drive healthy
absolute and relative returns. So, whilst the near-term is uncertain, we are
increasingly enthused about long-term prospective returns.

 

Hipgnosis Songs Funds

 

During the month we declared a 5.0% stake in Hipgnosis Songs Funds ("SONG")
ahead of the company's AGM and EGM that were held on the 26th October. We also
published a public letter (which can be found here
(https://www.assetvalueinvestors.com/content/uploads/2023/10/AVI-Public-Letter-SONG.pdf)
) urging fellow shareholders to vote against the proposed asset sale to a
related party of the Manager and against the continuation resolution. Both the
resolutions were opposed by shareholders (by 84% and 83% of shareholders,
respectively).

 

We continue to engage with all stakeholders and believe a reconstituted board
can drive significant upside.

 

Bollore

 

Over the last few months, we have started to build a new position in Bollore
SE ("Bollore"), the French holding company controlled by the mercurial Vincent
Bollore. It is currently a 2.0% weight.

 

Bollore trades at a 45% discount to our estimated NAV, which is principally
comprised of listed stakes in Universal Music Group (28% of NAV) and Vivendi
(10%), cash (23% pro-forma of the sale of Bollore Logistics) and
self-ownership loops (32%) given the companies' notoriously complex Breton
Pulley ownership structure.

 

We have invested in both Bollore SE and Vivendi at various points over the
last 15-plus years (and indeed, UMG more recently). However, we contend that
we are now at a particularly interesting juncture. Having extracted the crown
jewel asset (UMG) from Vivendi and monetised both Bollore Africa Logistics and
Bollore Logistics for >€10bn, we are entering a period of value
harvesting.

 

Pro-forma for the completion of the sale of Bollore Logistics, Bollore is
sitting on €6bn of net cash. It is our expectation that over time, Bollore
will look to own more of Vivendi, the French media conglomerate. This had been
something of a crowded hedge fund trade, however - as he is prone to - Mr
Bollore upset the apple cart earlier this year, partially reducing his stake
in Vivendi to stay below the 30% threshold that would require a mandatory
offer and allocating capital toward buying back Bollore shares.

 

This has sent Vivendi shares nearly 20% below their April peak, with the
company now trading at a 43% discount to NAV. Indeed, at current prices the
market is ascribing Vivendi's unlisted stub assets, the largest of which are
Canal + and Havas, a value of just €3.3bn (net of debt & other
liabilities). This equates to a little over 4x 2024e operating profits.

 

We expect Bollore to exploit Vivendi's lowly valuation - much to the benefit
of Bollore's NAV. Importantly, is often his modus operandi, this can be done
with relatively minimal capital outlay. There are many different forms this
can take, but the most obvious one to us is a monetisation of Vivendi's
€4.2bn stake in UMG, which accounts for 48% of Vivendi's market cap (gross
of any taxes). The proceeds of this could be used to launch a tender offer,
thereby significantly reducing the remaining free float for which Bollore
would be mandated to make an offer. Vivendi's NAV excluding UMG stands at
-€11bn, and there are scenarios where Bollore can own 100% of this for an
incremental capital outlay <€3.5bn (assuming a 25% premium).

 

When investing in Vivendi historically we always viewed these assets as the
ugly duckling alongside the swan that was UMG. That said, the earnings power
has proved relatively stable, and the businesses have ridden secular and
cyclical challenges better than we would have expected. In particular, Canal+
is in much better shape than it was 5-6 years. The French pay TV business has
entrenched its position as an aggregator and is growing its subscriber base
once again with a sticky offering of sports and films; and outside of France,
particularly in Africa but also in other parts of Europe and Asia, the
business has built a subscriber base that looks increasingly strategically
valuable.

 

Of course, as this year evidences, Mr. Bollore is famously difficult to
predict and he has a history of dumbfounding investors and taking the opposite
path to the one assumed. We are under no illusions that we are any different
and are very open to the fact the above might well not occur. However, we
believe that being invested higher up the holding company structure at the
Bollore - not Vivendi - level gives us the alignment of interest and patience
required when events invariably take longer to come to fruition than initially
anticipated.

 

Moreover, the significant net cash position at the Bollore level raises the
prospect of capital returns and structural simplifications. In 2023 we have
already seen a tender offer and some tinkering transactions at other parts of
the structure. Exactly what the endgame is remains to be seen but further
tender offers and eventual share-based transactions between the different
holding levels seem quite plausible. Given the wide levels of discount
involved, such moves would be highly accretive.

 

Vincent Bollore has shown himself to be an astute capital allocator
compounding shareholder returns at +12.5% p.a. since the turn of the
millennium, outstripping the MSCI Europe (+3.6%) and the MSCI AC World
(+4.9%). The prospect of aligning capital with such an operator, at a time
where there are numerous corporate catalysts, makes for an attractive
investment.

 

Contributors / Detractors (in GBP)

 

 Largest Contributors  1- month contribution  % Weight

                       bps
 Godrej Industries     38                     3.7
 FEMSA                 20                     6.1
 Shiga Bank            14                     1.3
 News Corp             11                     4.4
 Fuji Soft             9                      0.0

 

 Largest Detractors       1- month contribution  % Weight

                          bps
 Schibsted 'B'            -95                    8.1
 Apollo Global Mgmt       -71                    4.7
 KKR                      -53                    5.1
 Princess Private Equity  -53                    6.1
 IAC                      -50                    3.0

 

 

Link Company Matters Limited

Corporate Secretary

 

09 November 2023

 

LEI: 213800QUODCLWWRVI968

 

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