REG - AVI Global Trust PLC - Monthly Factsheet

AVI Global TrustAnnouncement

07/08/2024 14:15

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RNS Number : 5976Z  AVI Global Trust PLC  07 August 2024

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

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

 

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

https://www.assetvalueinvestors.com/content/uploads/2024/08/AGT-JULY-2024.pdf
(https://www.assetvalueinvestors.com/content/uploads/2024/08/AGT-JULY-2024.pdf)

 

Performance Total Return

 

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

 

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

                           to date
 AGT NAV            1.0%   8.3%              20.9%  31.2%  66.8%  172.2%
 MSCI ACWI          0.0%   12.2%             17.2%  28.0%  61.0%  203.9%
 MSCI ACWI ex US    0.7%           7.3%      9.9%   14.2%  29.3%  98.0%

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV rose +1.0% in July

 

D'Ieteren (+36bps), IAC (+29bps) and Chrysalis (+28bps) were the most
significant contributors. Christian Dior (-31bps) was the largest detractor
during a month in which LVMH reported half year results, followed by Entain
(-27bps) and Partners Group Private Equity (-21bps).

 

August

 

Over the last few trading days, we have seen considerable volatility in global
equity and currency markets.

 

In Japan, the Yen has moved from a near 40-year low against the dollar of 162
to 143 at the time of writing (5th August). In turn Japanese equities have
been hit very hard by indiscriminate selling, with the TOPIX having fallen
more than -20% in very short order. There are clear signs of panic selling and
unwinding of leveraged positions, but the ongoing rally in Yen and heightened
levels of risk aversion could extend the panic to other areas of the market -
particularly where assets are excessively priced.

 

History tells us that as uncomfortable as such environments are whilst they
play out, they also present highly attractive opportunities at prices few
imagined possible just a few weeks ago. We have been adding to several
positions.

 

FEMSA

 

We last wrote about FEMSA in the May 2023 newsletter
(https://www.assetvalueinvestors.com/content/uploads/2023/06/AGT-MAY-2023.pdf)
. At the time the shares stood at around $100. From this point they rose to a
high of a little above $140. Over this time, we exited nearly 30% of our
position at an average price of $118 and as high as $133. The shares have
subsequently fallen back, and we have recently been re-adding to the position
below $110.

 

As readers may remember, we initiated a position in FEMSA in 2021, with an
investment case predicated on the highly attractive nature of FEMSA Comercio -
which operates Oxxo-branded convenience stores, and other small-format retail
stores, across Mexico and Latin America. The business is expertly managed,
with strong unit economics, earning high returns on capital with a long growth
runway.

 

Despite these attractions, FEMSA traded at an unduly low valuation reflecting
its conglomerate group structure, and we believed the market was mispricing
the potential for management to take steps to unlock value.

 

Over time this was indeed what occurred, with management conducting a
strategic review which concluded in 2023 in the exiting of Heineken and other
non-core asset sales totalling >$11bn. This has simplified the group
structure and the equity story and has allowed for excess capital to start
flowing back to shareholders, with the company launching the first buyback in
its history.

 

However, in recent months the shares have come under pressure. The Mexican
presidential election saw a sharp selloff in Mexican equities and with FEMSA
accounting for ~13% of the MSCI Mexico the shares got whacked.

 

More recently, Q2 results published in July fell short of expectations, with a
deceleration in Oxxo's Same Store Sales (SSS) growth to +4.1% (from 9.7% in
Q1), with both traffic and ticket size decelerating (from +2.2% to -0.6% for
traffic and from +7.3% to +4.7% for ticket). As management explained "the
second quarter was an atypical one… where each month reflected a unique set
of mixed effects generally more negative than positive".

 

We concur that this recent disappointment is temporary in nature reflecting
short-term headwinds and expect SSS growth will recover in the second half of
the year and into 2025. Bigger picture, management indicate that going forward
they believe SSS growth can likely exceed the old rule of thumb of +5%
achieved prior to 2019. As well as this, we see a long growth runway for new
stores, with current new store openings running at +1,621 over the last twelve
months (+7.3% yoy), with further growth on top of this from Brazil (where Oxxo
operate in a JV with Cosan's Raizen) and the US (where the company recently
announced a small but strategic acquisition).

 

In recent years there has been considerable progress in terms of gross margin
expansion (Q2 +400bps vs. 2019) however this has been absorbed by higher
operating expense with operating profit margins essentially unchanged. Over
time we see scope for this to improve, driving higher rates of growth in
operating profit, which we think can compound in the teens for a number of
years ahead.

 

Despite the significant strides management have taken to simplify the group,
the shares still trade at a significant discount, with the stub trading at
9.2x NTM EBITDA vs. a historic long-term average of c.13x. We believe this to
be a highly attractive valuation and see the scope for better-than-expected
capital returns, with management already having returned 60% of the $3bn
billed to be returned by 2026, and further returns of capital required to meet
management's leverage target.

 

To date the investment in FEMSA has generated a +49% ROI / +21% IRR versus
+24% / +9% for the MSCI AC World Index (all figures in £).

 

Contributors / Detractors (in GBP)

 

 Largest Contributors   1- month contribution  % Weight

                        bps
 D'Ieteren              36                     5.8
 IAC                    29                     2.9
 Chrysalis Investments  28                     4.0
 Rohto Pharmaceutical   28                     2.9
 Harbourvest Global     23                     3.9

 

 Largest Detractors               1- month contribution  % Weight

                                  bps
 Christian Dior                   -31                    2.8
 Entain                           -27                    2.7
 Partners Group PE                -21                    5.6
 Symphony International Holdings  -17                    1.9
 News Corp                        -14                    8.4

 

 

Link Company Matters Limited

Corporate Secretary

 

7 August 2024

 

LEI: 213800QUODCLWWRVI968

 

The content of the Company's web-pages and the content of any website or pages
which may be accessed through hyperlinks on the Company's web-pages, other
than the content of the Newsletter referred to above, is neither incorporated
into nor forms part of the above announcement.

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