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RNS Number : 2211Q  AVI Global Trust PLC  08 July 2025

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting
performance figures for the month ended 30 June 2025.

 

This Monthly Newsletter is available on the Company's website at:
AGT-JUNE-2025.pdf
(https://www.assetvalueinvestors.com/content/uploads/2025/07/AGT-JUNE-2025.pdf?mc_cid=cfcae97891&mc_eid=335e1499b3)

 

This investment management report relates to performance figures to 30 June
2025.

 

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

                           to date
 AGT NAV            1.6%   0.8%         3.7%  38.8%  87.7%  179.2%
 MSCI ACWI          2.8%   0.6%         7.2%  43.2%  71.0%  197.5%
 MSCI ACWI ex US    1.7%   7.7%         8.6%  31.3%  46.1%  107.9%

 

Manager's Comment

 

AVI Global Trust's (AGT) NAV increased +1.6% in June.

 

For the second month in a row, Entain was the top contributor adding +82bps as
the shares rose +20%. The shares have now risen >80% since the April lows
and we are pleased to see the incongruous gap between the improving
fundamentals and the share price start to close (having written about it in
the March 2025 newsletter
(https://www.assetvalueinvestors.com/content/uploads/2025/04/AGT-MAR-2025.pdf)
). We continue to see considerable upside but trimmed the position toward the
end of the month to free up capital for new ideas. Chrysalis (+67bps) and Aker
(+37bps) also contributed positively.

 

Gerresheimer issued a profit warning at the start of June and the shares
subsequently declined -24% over the month making it the largest detractor
(-137bps) by a wide margin. As noted previously, we published a public letter
to the Supervisory Board
(https://www.assetvalueinvestors.com/content/uploads/2025/06/AVI-Gerresheimer-Public-Letter-June-2025.pdf)
during the month and continue to engage with the board and management
privately. We added to the position over the month. The other detractors were
much more modest in nature.

 

Korea:

 

Korea is a market that we have long followed given the prevalence of companies
with complex holding structures and the country's deep equity market, which is
home to many companies that are global leaders in a number of industries.

 

With that said, although we have episodically made investments in Korea over
the last 15 years, it is generally a market we have struggled to become
excited about. Corporate governance, particularly from the Chaebols, has been
atrocious and this has been a stumbling block.

 

We are not alone in having such concerns, and in turn this has led to a
yawning gap between the country's spectacular economic performance and its
much more pedestrian stock market performance.

 

Investors have priced a material "Korea discount" with 70% of stocks in the
KOSPI trading <1x book value and 40% <0.5x book value (for reference in
Japan, the US and Europe only 45%, 4% and 15% trade <1x book and only 8%,
1%, 4% <0.5x). Korea is an after-thought at best for most global equity
investors, accounting for less than 1% of the MSCI AC World Index. The local
market and a significant portion of trading volumes are dominated by retail
investors, with generally low allocations to equities by local pension funds.
Such characteristics provide a fertile environment for mispricing.

 

As we have built our reputation as engaged activist investors in Japan over
the last 8 years, many investors have asked us what "the next Japan" is in
terms of corporate governance. Stuck in the thralls of the Japan governance
revolution we have generally been quite dismissive of such a thing existing
and certainly have been reluctant to point to Korea as being it. "Choinomics"
certainly proved to be a damp squib compared with Abenomics - such that we
expect many readers will have forgotten the moniker!

 

With that said, we have watched from afar as Korean governance reform agenda -
both the good and the bad - have plodded along. In February 2024 we increased
our research efforts and conducted a trip to Korea following the announcement
of the Corporate Value-up Program.

 

As the dust settled it became clear that, whilst well intentioned, the Program
was relatively ineffectual, relying too heavily in voluntary compliance,
enacting a weak tradeoff for investors versus the more powerful Chaebol
families, and failing to properly target the underlying incentives for
Chaebols and other companies.

 

In 2025, the pace of the governance reform agenda has been faster and
potentially much more profound. Most notably, newly elected President Lee
Jae-myung has embarked on making legislative changes to the Commercial Act,
which will enhance previously lacklustre shareholder rights by expanding board
members' fiduciary duties to include protecting shareholder interests, not
just those of the company. Boards may now be forced to secure stronger
independent oversight, delaying M&A timelines and raising the risk of
litigation if deals are perceived to favour insiders. There are also a number
of other strands, with proposed enhanced disclosure requirements from the
Financial Services Commission (FSC) and planned reforms to the tax system.

 

Importantly, this push from the government and regulators is augmented by a
rise in shareholder activism, with the number of companies receiving
shareholder proposals up from just 10 in 2020 to over 60 in 2024. Our
experience in Japan shows that the role of activists is key, and that change
occurs when pressure rises from different stakeholders concurrently.

 

In light of this changing environment we have started to build positions in a
handful of Korean companies. These currently account for 3% of NAV and we
would expect this figure to trend upwards over the coming months. On a
weighted average basis these companies trade at a 51% discount to our
estimated NAV.

 

Although there is a clear thematic governance overlay to this - just as there
was to our initial Japanese net cash basket in 2017 - our approach is such
that each investment has to stand upon its own two feet. That is to say, the
Korean holdings in which we are investing exhibit "typical" AVI traits:
durable growing earnings, protected by some form of moat or competitive
advantage; strong balance sheets; an alignment of interest with key
shareholders or families, and a focus on competent management teams. We intend
to discuss the individual names in future newsletters as their weight
increases and the portfolio stabilises.

 

Our lessons from Japan are that the road to governance reform is a long and
winding one, with many wrong turns, false dawns and disappointments along the
way. The prize however is great, and we believe that nimble, focused,
bottom-up fundamental investors, with experience of actively engaging with
companies are best positioned to capture this price. Clearly it is far too
early to say whether Korea can be "the next Japan" - but we are far more
enthused by the opportunity set than we have been historically.

 

Christian Dior:

 

Christian Dior is the French-listed mono-holding company through which the
Arnault family control LVHM. The shares currently sit a little more than 50%
below their 2023 which has been almost entirely driven by a decline in the
NAV, with the discount largely unchanged at 18%.

 

Since LVMH was momentarily crowned Europe's first $500bn company in the spring
of 2023, the business has faced a plethora of issues that have curtailed
growth, reduced margins and lead to material cuts to earnings estimates.
Consensus expectations for 2025e EBIT and EPS are -35% and -38% vs.
expectations at the end of 2022. Consensus operating margin expectations for
this year have contracted >800bps over this period to sub-2019 levels.
Indeed, recent commentary from the company, followed by Q2 earnings previews,
have led to a further leg down in earnings revisions (and the shares!) since
mid-May, with mid-term growth expectations for recovery much more muted than
prior crises (SARs, GFC, anti-grifting).

 

Generally speaking the business has suffered a cyclical post COVID
normalisation, following a period of unprecedentedly strong growth (from 2018
to 2022 the all-important Fashon & Leather Goods ("F&LG") business saw
organic growth of +200%).

 

This normalization has been exacerbated by the increased importance of new /
occasional customers, who are more aspirational in nature compared to prior
cycles, as interest rates and negative wealth effect impaired spending power.
At the same time we have seen a prolonged slowdown in the Chinese economy
(with the Chinese cluster accounting >30% of the industry revenues). This
has also coincided with the end of a period of super-normal growth for Dior,
where revenues and operating profits went from ~€2.6bn and ~€500m in 2018
to ~€8.6bn and ~€3.4bn in 2023 (we estimate that, despite only being a
single digit proportion of F&LG EBIT at the start of the period it
accounted for somewhere between a quarter and a third of the growth). Finally,
there is a sense of design fatigue across Louis Vuitton and Dior, as well as
excessive price taking without commensurate innovation.

 

Known for his demanding management style, Bernard Arnault has responded with
numerous personnel changes. Most notably on the creative side Jonathan
Anderson has replaced Kim Jones as Creative Director of Dior Men, uniting the
men's and women's role for the first time since Christian Dior himself.
Elsewhere LVMH's (very!) straight talking former CFO, Jean-Jacques Guiony, has
been appointed CEO of Moet-Hennessy (where profits have halved), and we have
seen a new CEO and deputy CEO at Louis Vuitton, as well as a new head of Louis
Vuitton China.

 

As well as material cuts to earnings expectations, LVMH shares have suffered a
significant de-rating and now trade at 14x 2025e EV/EBIT and 19x 2025e PE
(6.3% FCF yield).

 

Having underperformed traditional luxury peers, this places the shares on the
widest discount to peers in more than 15 years, with the group's conglomerate
discount receiving increased attention from investors.

 

Indeed, our reverse sum-of-the-parts analysis suggests one is paying ~12x
2026e EV/EBIT for Louis Vuitton. This seems exceedingly good value for a
business with strong pricing power (prices up 2x GDP over the last 20 years),
high margins (c.40%) and irreplicable brand equity that is reinforced by a
100% owned direct retail network and advertising and promotions budget that
dwarfs competition (LVMH accounts for ~2/3rds of industry A&P spend and LV
is likely ~20% of industry).

 

The outlook remains uncertain and uninspiring, with a difficult macro
environment and a lack of brand momentum. However, we believe that, as in past
cycles, LVMH will likely emerge stronger, as the leader in a structurally
attractive industry. This bodes well for future NAV growth, with room for
Christian Dior's discount to narrow if and when the mono-holding structure is
collapsed, acting as a further kicker. As such, we have added to the position
in recent weeks.

 

Toyota Industries:

 

In the April 2025 newsletter
(https://www.assetvalueinvestors.com/content/uploads/2025/05/AGT-APR-2025.pdf?mc_cid=e60a4ba982&mc_eid=de375d3133)
we wrote about Toyota Industries and how the proposed take-private by Akio
Toyoda "implicitly acknowledges, ratifies, and supports the mantra of both
activists and Abenomics advocates….At the same time, the actions of Toyoda
dissolve a symbolic bastion of resistance to the wave of corporate governance
reform, opening the floodgates for that wave to spread its influence
throughout the market"

 

Today such proclamations read a little premature, as the speculated >40%
premium turned out in reality to be a much more modest one and at a level that
severely undervalues Toyota Industries. The valuation process for the offer
has been something of a black-box; the Board independence and representation
minority shareholders has been called into question; and the for "majority of
the minority" rule has proven flawed in so far as Toyota affiliates with clear
conflicts of interest are permitted to cast their votes as minorities. Suffice
to say we do not believe this is a good or fair outcome for minority
shareholders. Indeed, this has left large swathes of the shareholder register
disgruntled at what has been a disappointing result - both in and of itself
and in the wider reform agenda context.

 

We managed to sell approximately half our position at a price some +6% above
the offer price of Yen 16,300 and have generated a ROI / IRR of +24% / +29%
since (re) introducing the position to the portfolio in late 2023.

 

Contributors / Detractors (in GBP)

 

 Largest Contributors             1- month contribution  % Weight

                                  bps
 Entain                           82                     4.3
 Chrysalis Investments            67                     7.8
 Aker                             37                     4.5
 Cordiant Digital Infrastructure  28                     4.7
 Oakley Capital Investments       25                     5.1

 

 Largest Detractors  1- month contribution  % Weight

                     bps
 Gerresheimer AG     -137                   5.3
 Toyota Industries   -25                    1.8
 Frasers Group       -13                    1.7
 Symphony            -13                    1.9
 Kyocera Corp        -11                    2.6

 

 

MUFG Corporate Governance Limited

Corporate Secretary

 

08 July 2025

 

LEI: 213800QUODCLWWRVI968

 

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