REG - AVI Global Trust PLC - Monthly Factsheet

AVI Global TrustAnnouncement

08/02/2024 14:15

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RNS Number : 5347C  AVI Global Trust PLC  08 February 2024

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting
performance figures for the month ended 31 January 2024.

 

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

https://www.assetvalueinvestors.com/content/uploads/2024/02/AGT-JANUARY-2024.pdf
(https://www.assetvalueinvestors.com/content/uploads/2024/02/AGT-JANUARY-2024.pdf)

 

Performance Total Return

 

This investment management report relates to performance figures to 31 January
2024.

 

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

                           to date
 AGT NAV            1.2%   1.2%         13.5%  36.2%  75.6%  169.7%
 MSCI ACWI          0.7%   0.7%         10.9%  28.8%  67.6%  189.9%
 MSCI ACWI Ex US    -0.9%  -0.9%        2.4%   11.5%  33.9%  94.9%

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV increased +1.2% in January.

 

Godrej Industries (+57bps) was the standout contributor, with the shares up
+21% over the month as the discount continues to narrow. Apollo (+38bps),
Schibsted (+33bps) and FEMSA (+24bps) were also strong performers. Oakley
Capital Investments detracted -54bps as the shares declined -7%, and Aker
shaved off -47bps with the shares -6%.

 

Shares in Christian Dior, the mono-holding company through which Bernard
Arnault controls LVMH, rose +4% during a month in which LVMH reported full
year results.

 

When we last wrote about Christian Dior in January 2023
(https://www.assetvalueinvestors.com/content/uploads/2023/02/AGT-JAN-2023-1.pdf)
there was near universal excitement about the prospects for the luxury goods
sector, and the impact of the "re-opening" of China's economy on growth. In
the spring of 2023 LVMH rose to become the first $500bn market cap company in
Europe. Shortly after this we sold ~1/3rd of our position (in Christian Dior)
at a price of €809. As 2023 progressed, growth in China underwhelmed and
concerns mounted over a slowdown in luxury spending following the elevated
global demand observed during COVID. This allowed us to modestly add back to
the position at an average price of €678 during the latter half of 2023. The
shares currently trade at €737.

 

The consensus view toward luxury goods today is much more sceptical than it
was a year ago. However, we believe LVMH is well positioned both in the nearer
term and longer term.

 

We wrote last year that Louis Vuitton was underearning, with high levels of
"investment" in operating expenses depressing earnings in the near-term but
building brand desirability and entrenching dominance. The benefits of this
were evident in the 2023 full year results, with sales growing +13%
organically and operating profit increasing by +8%. Importantly, the scaled
cost structure offers considerable flexibility, with sales and marketing
expenditure flat year on year in the second half of the year, having grown
+26% in the first half.

 

Smaller mono-brands that have underinvested and have less flexible cost
structures will likely find the path to a post COVID normalised world more
challenging, with LVMH growing at roughly twice the rate of the overall
industry in Q4. It is our contention that such outperformance will likely
endure, given the considerable scale advantages in an industry with relatively
high fixed costs. In previous cycles LVMH has emerged stronger - the bigger
get bigger - and we expect this to be the same once again, with optionality
around countercyclical M&A given LVMH's pristine balance sheet.

 

Looking further ahead we believe LVMH offers exposure to an irreplicable
collection of competitively advantaged brands operating in a sector with
attractive long-term growth prospects and strong underlying economics, returns
on capital and cash generation.

 

These advantages and attractions do not seem to excessively reflect in LVMH's
valuation. The shares trade at a 17x 2024 EV/EBIT and a 2024 FCF yield of
~4.5%. In the context of other luxury goods companies this is a middle of the
pack valuation for a company that has consistently performed ahead of the pack
and reflects a considerable conglomerate discount (34% on our numbers).

 

Returning to Christian Dior, the shares currently trade an 18% discount to
NAV. At some point of the family's choosing the mono-hold co structure will
likely be collapsed, providing an additional kicker to returns, which have and
will be principally a function of NAV growth. To date the investment in
Christian Dior has generated an ROI and IRR of +110% and +27%, respectively.

 

Portfolio activity

 

During the month we fully exited our investment in Pershing Square Holdings
(PSH). The position had been held since 2017 and generated an IRR of +21% vs.
+9% for the MSCI ACWI ex-US. With our universe throwing up some of the most
attractive opportunities we have seen in many years, we began reducing our
shareholding in PSH over 2023 to fund investments where we see greater scope
for attractive event-driven returns over shorter time-frames.

 

One such example is our position in Bollore, which shares with PSH a common
exposure in Universal Music Group (directly via Bollore's 18% stake and
indirectly via Vivendi's 10% stake), and which we added to using a portion of
the sale proceeds from PSH.

 

Since we wrote the company up in the October newsletter
(https://www.assetvalueinvestors.com/content/uploads/2023/11/AGT-OCTOBER-2023.pdf)
it has been announced that Vivendi - the media conglomerate in which Bollore
owns just shy of a 30% stake - will be broken up into four different
businesses in an effort to reduce the sum-of-the-parts discount at which it
trades.

 

This is interesting for several reasons. Firstly, this is the only time a
Bollore company has openly and proactively tried to address the issue of a
discount. Secondly, and more tangibly, this raises the prospects of further
tender offers and simplifications higher up the Bollore structure.

 

It had previously been our expectation that some or all Bollore's (soon to be)
€6bn net cash balance would be deployed into Vivendi shares. However,
buybacks and tender offers seem probable in the absence of this. The 10% April
2023 tender offer at €6 per share (inclusive of the €0.25 of contingent
consideration in anticipation of the closing of the sale of Bollore Logistics)
only saw 34% uptake. We believe future tender offers will likely be struck at
a meaningfully higher price (with the NAV up +11% in the interim) and view
this as a near-term catalyst for the shares. Beyond that there is scope for
further transactions in one of Europe's last byzantine corporate structures.
We believe it is an interesting time to align capital with a flush Vincent
Bollore and that the market is under-pricing the potential for value to be
unlocked.

 

As well as this we have been busy elsewhere in the portfolio. In recent months
we have added to existing positions in News Corp and D'Ieteren. We have slowly
started to build a position in a UK conglomerate and have built a starter
position in a UK-listed special situation that we came across via one our
existing investments. As well as this we have established new positions in two
London-listed closed-end funds.

 

Contributors / Detractors (in GBP)

 

 Largest Contributors  1- month contribution  % Weight

                       bps
 Godrej Industries     57                     3.1
 Apollo Global         38                     5.1
 Schibsted ASA 'B'     33                     5.5
 FEMSA                 24                     6.1
 KKR                   22                     5.2

 

 Largest Detractors          1- month contribution  % Weight

                             bps
 Oakley Capital Investments  -54                    7.0
 Aker ASA                    -47                    5.2
 Molten Ventures             -26                    1.6
 Hipgnosis Songs             -20                    4.7
 Frasers Group               -14                    1.5

 

 

Link Company Matters Limited

Corporate Secretary

 

8 February 2024

 

LEI: 213800QUODCLWWRVI968

 

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