REG - AVI Global Trust PLC - Monthly Factsheet

AVI Global TrustAnnouncement

09/04/2024 16:00

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RNS Number : 9089J  AVI Global Trust PLC  09 April 2024

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

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

 

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

https://www.assetvalueinvestors.com/content/uploads/2024/04/AGT-MAR-2024.pdf
(https://www.assetvalueinvestors.com/content/uploads/2024/04/AGT-MAR-2024.pdf)

 

Performance Total Return

 

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

 

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

                           to date
 AGT NAV            1.9%   5.2%         24.6%  30.7%  74.4%  171.0%
 MSCI ACWI          3.3%   9.2%         20.6%  33.6%  73.2%  202.9%
 MSCI ACWI ex US    3.3%   5.6%         10.9%  15.7%  37.8%  100.2%

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV increased +1.9% in March.

 

D'Ieteren (+78bps), Hipgnosis Songs Fund (+57bps), Schibsted (+44bps) and Aker
(+31bps) were the most significant positive contributors. We continued to
average down in Entain which we wrote up last month and which shaved off
-24bps from performance. A fellow newer holding Chrysalis Investments
detracted -21bps whilst our long standing (and long suffering!) holding in IAC
detracted -20bps.

 

March marks the halfway point in AGT's financial year.  For the interim
period AGT achieved a NAV total return (£) of +13.6%. This lagged the MSCI AC
World index, which returned +16.1%.  The interim report will be published in
June.

 

News Corp

 

We started building a position in News Corp last year and wrote it up in the
April 2023 newsletter, highlighting the deeply discounted valuation and the
overlooked quality and prospects for Dow Jones generally, and its Professional
Information Business ("PIB") specifically. In recent months we have added to
the position such that it is now our largest position (6.7% of NAV).

 

In February, News Corp reported a solid set of results which have seen the
shares rise +8% subsequently.  For the quarter ending December 2023, group
EBITDA (which includes the consolidated stake in REA Group) increased by +16%,
some +12% ahead of consensus expectations.

 

Results showed the strong continued evolution of Dow Jones (37% of NAV), where
revenues grew +4% and EBITDA +17% as margins expanded +320bps to 27.9%. The
key driver here was PIB, where revenues grew +13%, led by Dow Jones Risk &
Compliance and Dow Jones Energy.

 

We argued last year that that these assets were overlooked by the market and
misunderstood by the sell side, who carried Dow Jones at derisorily low
multiples in their sum-of-the-parts ("SOTP") models, and for whom the ramp up
in margin and evolution of business quality was missed. The margin impact is
coming through and investors - aided by improved disclosure - are starting to
appreciate the attractive nature of these sticky, largely recurring and high
margin revenue businesses. We note that sell side analysts have started to
increase the multiple at which they carry Dow Jones in their SOTP models, but
the prospects and value of these businesses remains overlooked by many.

 

Indeed, we certainly do not believe these attractions are captured in News
Corp's current valuation, with the company trading at a 38% discount to our
estimated NAV.

 

Adjusting for the stake in REA, the stub trades at an implied value of $5.4bn,
or approximately 4.7x next year's EBITDA. We estimate that Dow Jones alone is
worth ~1.6x the implied stub value and note that the New York Times at 15x and
Info Services peers which trade between 19-29x.

 

Management have become increasingly vocal about the undervaluation.  As CEO
Robert Thomson described on the last earnings call, the company is engaged in
"serious introspection about structure… and  how to fully monetize a
precious, prestigious portfolio that has an obvious growth trajectory. That is
indeed not an evolution, but a revolution".

 

At current prices, the market is seemingly ascribing a low probability to "a
revolution", with significant upside if management do indeed take concrete and
tangible steps to unlock value. Combined with strong operating and earnings
momentum, prospective returns appear attractive.

 

D'Ieteren

 

D'Ieteren was the top contributor during a month in which the company reported
full year results. The shares rose +16% adding +78bps to AGT's NAV. We had
been adding to the position during January and February, which combined with
strong share price performance has pushed the company to be our third largest
position (5.8% of NAV).

 

Although in our last update we wrote more extensively about D'Ieteren's newer
holdings TVH and PHE, the bulk of the value and crux of the investment case
lies in Belron, the global no.1 operator in the Vehicle Glass Repair and
Replacement ("VGRR") industry which accounts for 61% of our estimated NAV.

 

Belron continues to benefit from structural trends toward increased windshield
complexity and the proliferation of Advanced Driver Assistance Systems
("ADAS"), with recalibrations now accounting for 36% of replacement jobs.
Belron is many multiples larger than competitors with >40% US market share
and this results in significant scale advantages in terms of purchasing
economies of scale and cost leadership, as well as relationships with
insurance partners who are industry gatekeepers and account for c.70% of jobs.
Moreover, scale has allowed for technological investment, which has become
increasingly relevant as ADAS recalibrations - which require more expensive
capital equipment - have grown to become a larger proportion of replacement
jobs. Mom and pop operators are increasingly ill-suited to meet the increased
technical complexity required for new vehicles. As such we expect Belron to
continue taking share and driving growth.

 

For FY23 Belron grew sales +9% organically with a further boost of +2% for
M&A. Positive mix effect and price increases saw operating margins
increase +226bps to 20.5%, which led operating profits to increase +22% year
on year. For the year ahead, management are forecasting sales to grow at
mid-to-high-single digits and margins to continue towards what for some time
now has appeared a relatively modest 2025 margin target of 23%. We expect
Belron to provide updated targets at next year's Capital Markets Day - which
will be the first since Carlos Brito became CEO.

 

As readers may remember, in 2021 a consortium of private equity investors (led
by Hellman & Friedman) became minority shareholders in Belron at a €21bn
enterprise value. We estimate the EV is closer to €24.5bn today (17x our
2024e EBIT), and D'Ieteren's 50% equity interest accounts for 61% of
D'Ieteren's NAV. In due course we expect a liquidity event for these investors
to help highlight Belron's significant value, and like situations such as this
where we are aligned with highly incentivised PE co-owners and management
teams. As such we see scope for a further narrowing of D'Ieteren's 33%
discount, as well as NAV growth underpinned by strong earnings growth
prospects.

 

Contributors / Detractors (in GBP)

 

 Largest Contributors  1- month contribution  % Weight

                       bps
 D'Ieteren             78                     5.8
 Hipgnosis Songs       57                     5.5
 Schibsted ASA 'B'     43                     5.1
 Aker ASA              30                     4.9
 FEMSA                 23                     4.8

 

 Largest Detractors       1- month contribution  % Weight

                          bps
 Entain                   -24                    2.6
 Chrysalis Investment     -21                    3.4
 IAC                      -20                    3.1
 News Corp                -14                    6.7
 Keisei Electric Railway  -14                    1.1

 

 

Link Company Matters Limited

Corporate Secretary

 

9 April 2024

 

LEI: 213800QUODCLWWRVI968

 

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than the content of the Newsletter referred to above, is neither incorporated
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