REG - AVI Global Trust PLC - Monthly Factsheet

AVI Global TrustAnnouncement

05/09/2024 12:30

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RNS Number : 1050D  AVI Global Trust PLC  05 September 2024

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

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

 

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

https://www.assetvalueinvestors.com/content/uploads/2024/09/AGT-AUGUST-2024.pdf
(https://www.assetvalueinvestors.com/content/uploads/2024/09/AGT-AUGUST-2024.pdf)

 

Performance Total Return

 

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

 

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

                           to date
 AGT NAV            -2.1%  6.1%         17.6%  25.5%  69.0%  162.4%
 MSCI ACWI          0.2%   12.5%        19.0%  23.9%  64.3%  193.1%
 MSCI ACWI ex US    0.5%   7.9%         14.0%  11.5%  33.4%  94.7%

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV declined -2.1% in August.

 

Entain (+39bps), Reckitt (+23ps) and Dai Nippon Printing (+18bps) were the
most significant contributors. We endured weakness in Japan. In total our
Japanese small cap holdings detracted -113bps and we focus on this below.
FEMSA suffered the newsletter curse and shaved off -42bps, whilst Symphony
cost us -29bps.

 

Japan

 

On the 31st of July the BOJ raised interested rates and attempted (!) to pave
the way for further hikes to come and leading to an associated strengthening
of the Yen. This resulted in considerable volatility in global equity markets
generally, and Japanese equity markets specifically, where the magnitude of
decline was only comparable to days in 1987. It is hard to overstate the
extent of this, with the VIX index, or so-called "fear gauge", seeing its
largest ever one day spike, with the unwind in the carry trade at least partly
responsible for this.

 

Over the course of the month our Japanese names (excluding Softbank) cost us
-113bps in performance. This was comprised of an estimated -89bps allocation
effect (our "overweight" Japan vs. the index) and a -24bps selection effect
(our companies fell by more than the Japanese companies in the index).

 

Such moves are devoid of fundamentals and likely fuelled by algorithmic
trading. We took advantage of this volatility, adding approximately 300bps
(£33m) to several Japanese names at prices few would have thought possible
just a matter of days before.

 

Interestingly, trading data suggests that Japanese domestic investors were
also buyers in the days that followed, which is an important and overlooked
development for the long-term health of the Japanese equity market.

 

Fundamentally very little has changed, and we believe the thesis of governance
reform, corporate activity and activism remains a highly valid one that is
still in a relatively early innings.

 

Indeed, it is worth noting that in late August the convenience store operator
Seven & i Holdings received an unsolicited takeover bid from Canadian firm
Alimentation Couche-Tard. Although it remains to be seen if a deal will be
completed (we remain sceptical!), we believe this is interesting for two
reasons: it marks a watershed moment for foreign M&A in Japan; and it
highlights that recent volatility does little to deter corporate activity for
highly sought after Japanese assets.

 

Over the last 18 months there has been increased evidence and growing
acceptance of what we have been saying since 2017 - Japan is changing. The
events of the last month do little to dampen our enthusiasm and we remain
excited about the opportunity and the high prospective returns that can be
unlocked through thoughtful, long-term orientated engagement.

 

ENTAIN

 

Entain was the most significant positive contributor over the month, with the
shares having risen +25% since the company reported interim results on the 8th
of August.

 

Results were encouraging, with a top-line "beat" and an increase in full year
guidance. Most importantly, the Online Operations positively surprised with
+1.0% constant currency organic growth, which compared favourably to the -2.6%
consensus had pencilled in. Results were flattered by one off sporting events
in terms of the Euros and Copa America, but even accounting for these, result
would have been ahead of consensus. It appears that the business has started
to turn the corner, with improving KPI's across many geographies, and most
notably Brazil.

 

In the UK & Ireland performance remains subdued, but management are
encouraged by +12% growth in online activities and a stabilisation of spend
per head, as the business benefits from a redesign of the Ladbrokes front-end
UI and steps taken to simplify player journeys. With easing comps and a
levelling of the regulatory playing field, a return to growth in the second
half of the year looks in sight.

 

At the results presentation management talked about the inherent lag between
"good inputs" and "good outputs". Markets generally find this lag difficult to
price and in the case of companies like Entain - where investor confidence and
trust has been broken - are even less willing to look forward. The onus is on
management to deliver the outputs. As and when this occurs the revaluation,
can be quite sharp - to which Entain's recent share price chart attests.

 

We are, however, not out of the woods just yet. Whilst there are encouraging
signs from Entain's wholly owned operations performance of the 50:50 BetMGM JV
remains a work in progress. Growth rates have disappointed, market share has
been lost, and profitability targets have been pushed back.

 

Notwithstanding this, we remain sanguine and believe patience is needed, as
similarly to Entain's other operations, there are lags between inputs and
outputs. Most pertinently, we believe the 2023 acquisition of Angstrom Sports
significantly improves BetMGM's in-play bet offering and will make the company
more competitive. Moreover, the launch of a Nevada single wallet feature,
creates further differentiation from DraftKings and FanDuel, which should help
support a recovery in market share. We believe the upcoming NFL season will
serve as a test case for this, and are encouraged by the enthusiasm of Entain,
MGM and IAC management.

 

Returning to Entain, the shares remain lowly valued, trading at an -38%
discount to our estimated NAV. This can be cut a number of ways: deducting our
estimated value of the 50% stake in BetMGM implies the wholly owned stub is
trading at an implied 6.3x NTM EBITDA vs. average peer multiples of 9.6x and
recent M&A transactions above 10x; alternatively, this can be interpreted
as assigning a negative value for BetMGM. We do not consider either such
implications to be remotely fair!

 

With a new highly incentivised CEO in-place, a new Chair who has shown herself
to be a highly capable operator as interim CEO, and improving fundamental
momentum, we believe the ground is set for strong performance. Since
initiation in Dec-2023, Entain has been a bruising investment for us - and one
where we have had to average down time and again. However, as we look ahead,
we are optimistic about prospective returns.

 

Contributors / Detractors (in GBP)

 

 Largest Contributors  1- month contribution  % Weight

                       bps
 Entain                39                     3.1
 Reckitt Benckiser     23                     4.0
 Dai Nippon Printing   18                     2.7
 D'Ieteren             17                     6.0
 Bollore               16                     5.1

 

 Largest Detractors               1- month contribution  % Weight

                                  bps
 FEMSA                            -42                    4.4
 Kyoto Financial Group            -40                    1.7
 Nihon Kohden                     -30                    2.4
 Symphony International Holdings  -29                    1.7
 Apollo Global Mgmt.              -27                    3.4

 

 

Link Company Matters Limited

Corporate Secretary

 

5 September 2024

 

LEI: 213800QUODCLWWRVI968

 

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