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RNS Number : 3841V  AVI Global Trust PLC  14 August 2025

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting
performance figures for the month ended 31 July 2025.

 

This Monthly Newsletter is available on the Company's website at:
AGT-JULY-2025.pdf
(https://www.assetvalueinvestors.com/content/uploads/2025/08/AGT-JULY-2025.pdf?mc_cid=241a775058&mc_eid=335e1499b3)

 

This investment management report relates to performance figures to 31 July
2025.

 

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

                           to date
 AGT NAV            5.8%   6.7%         8.7%   39.6%  98.8%  194.7%
 MSCI ACWI          5.0%   5.6%         12.5%  40.8%  81.0%  207.2%
 MSCI ACWI ex US    3.3%   11.3%        11.4%  31.3%  53.4%  113.6%

 

Manager's Comment

 

AVI Global Trust's (AGT) NAV increased +5.8% in July.

 

Vivendi (+100bps) was the top contributor over the month as the French
financial markets authority, the AMF, declared that Bollore is obligated to
make an offer for the company at a "fair price". This helped push the shares
up +14% over the month and we discuss the situation further below. Other
strong performers over the month included Chrysalis (+83ps) which reported a
quarterly NAV update showing +13% growth in Q2 led by Starling (42% of NAV);
and Entain (+54bps), where BetMGM (32% of NAV) raised guidance for the second
time this year.

 

On the other side of the ledger, Gerresheimer (-43bps) was the most
significant detractor as it was announced that talks with potential private
equity bidders have ceased. Post month-end, the company announced the
conclusion of the strategic review of its Moulded Glass business, with a
stated intention to sell the asset. We are pleased to see management take
accelerated steps to unlock value (indeed, this was one of the central
suggestions in our public letter). We continue to engage privately with both
management and the Supervisory Board. D'Ieteren (-27bps) was the other notable
detractor.

 

Vivendi:

 

In December 2024 we introduced a new position in Vivendi. At the time, Vivendi
had just emerged from a process in which the historic sprawling media
conglomerate had just split itself into four separately listed business:
Canal+, Havas, Louis Hachette and Vivendi.

 

The last piece - Vivendi - remained home to a 10% listed stake in Universal
Music Group ("UMG"), which accounted for c.90% of NAV, as well as a small
collection of other (almost entirely) listed assets, and net debt.

 

We started to build a position in December 2024 on the day of the split and
continued to add to the position throughout 2025 such that at the start of
July, Vivendi was our fourth largest position and a 6.6% weight.

 

In many ways, Vivendi can be thought of as a quintessential AVI stock: 1)
through UMG it offered exposure to a high quality and growing business, where
we thought the prospects for NAV growth were appealing; 2) it traded at an
inordinately wide discount of close to 50%; 3) although uncertain, there were
potential catalysts for the discount to narrow.

 

In July 2025 the AMF ruled that Bollore is deemed to have effective control of
Vivendi and as such is obligated to make a mandatory offer within 6 months.
This follows an April 2025 court ruling that asked the AMF to revisit the case
and the circumstances of the Vivendi split in 2024. In turn Vivendi and
Bollore are currently appealing the Court of Cassation, and Bollore has also
appealed the AMF ruling itself. It is our understanding that the appeals
processes should run until December 2025 and that a dual-track process of
cooperation with the AMF will occur in the interim.

 

The AMF ruling states that, in the event of an offer, Bollore must offer a
"fair price". Since December 2024 Vivendi has published its own NAV - although
- rather comically - we note no such figure was reported in their half year
results published at the end of July 2025. The asset value is fairly
indisputable, with the NAV being nearly entirely listed, and Gameloft being
the only unlisted asset, for which they report(ed) a carrying value of €234m
/ 5% of NAV).

 

There are, however, two areas of uncertainty: 1) how to treat the central
corporate costs (which run at ~€85m annually), 2) whether or not a "fair
price" should incorporate a fair/holding company discount.

 

We do not intend to profess any great precision into exactly how these two
issues will be treated, but instead highlight the 2017 at-NAV offer from the
Arnault family for Christian Dior SE as a case study for the AMF ensuring fair
value is offered.

 

Nonetheless, the prospects for a buyout offer are meaningfully higher than
they were a month ago. This has been in part at least reflected in the
narrowing of the discount - with the shares now trading at an a low 30s -
discount to our pre-corp cost NAV. At this level we continue to see meaningful
upside in the discount.

 

Turning to the NAV side of the equation, UMG shares have been weak of late
following the publication of results at the end of July and the announcement
that Cyrille Bollore is to step down from the board. This has pushed the stock
-14% since from a recent late July peak to the time of writing (4th August).

 

In terms of Q2 results these were something of a mixed bag. On the positive
side, UMG has demonstrated 8.9% Subscription growth in H1, with only a modest
tailwind from price rises. We continue to believe that the market is
underestimating the extent to which this will further accelerate in 2026 under
so-called Streaming 2.0 - with a guaranteed step-up in minimum per subscriber
fees, and increased tiering of pricing allowing for greater stratification in
spending between average consumers and those with propensity to spend more.
All told, we believe UMG is well positioned to benefit from the continued (re)
monetisation of music supporting strong long-term topline growth.

 

On the other hand, how this translates into margins and free cash flow is
causing more debate. Margins have not expanded as much as one would have
expected with 2025 adjusted EBITDA margins likely to be ~22.8% vs. consensus
expectations of ~25.0% at the time of the IPO. As demonstrated in the most
recent results, incremental margins have remained subdued in the high 20s and
operational leverage has been held back. Part of this is mix effect, but there
is also some investor scepticism as to how creative and capitalist traditions
of UMG and financial markets meld, and the extent to which management are
disciplined on cost and focus on the share price (which wasn't helped by
Lucien Grainge's post prospectus compensation package).

 

The free cash flow picture also remains muddied, both in terms of Royalty
Advances and Catalogue Investments. In H1 we with an exceptionally large
(€377m) Royalty Advance Net of Recoupments outflow in H1 and guidance that
this will not normalise to a lower FY figure (as was the case last year). The
bears would argue that this is indicative of the pendulum of power swinging in
the favour of artists, who are negotiating a harder and better settlement in
what is a relatively zero-sum game. The more bullish interpretation is that
UMG is simply fuelling future growth and higher advances today result in
higher recoupments / earnings / free cash flow in the future. The truth
probably lies somewhere between the two and we believe management can do a
better job explaining this, as well as more generally improving communication
and disclosure with the market. Indeed, we some analogies between UMG - still
earlier in its life as a listed company, leading in a nascent asset class -
and how the Alternative Asset Managers were misunderstood a decade ago.

UMG shares are currently only a little above where they closed following the
September 2021 IPO (whilst the MSCI Europe has returned >50% and Spotify
>200%). Indeed, the current enterprise value (€44bn) is only ~25% higher
than the one (€35bn) at which Pershing Square invested in 2021, despite
sales and EBITDA being ~44% and ~77% higher. Net of its €4.5bn in Spotify
and other listed equities, UMG has a core equity value of just €22 per
share, or a just under 20x 2026 earnings. We believe this to be good value for
approximately a 30% share of global music, at a time when the industry is
being transformed, with better monetisation and improving earnings quality.

 

The combination of UMG's attractiveness, and the near-term potential catalyst
in Vivendi's discount, make us optimistic for prospective returns.

 

Korea

 

In last month's newsletter
(https://www.assetvalueinvestors.com/content/uploads/2025/07/AGT-JUNE-2025.pdf)
we wrote about Korea, the changing corporate governance landscape, and the
excitement we have for this "theme" in the portfolio.

 

In July we continued to add to new and existing holdings in Korea, such that
they now make up +5.8% of NAV spread across 7 names. We would expect this
exposure to keep rising in the coming months and see it as indicative of AGT's
agile and bold approach to capturing opportunities. Sometimes this can be
reflected by taking large positions in single names, or alternatively, as is
the case with Korea and before that Japan, by spreading our exposure across
several names but in such size that they collectively move the needle.

 

The governance reform agenda is continuing with rapid pace. During the month,
a second set of amendments to South Korea's Commercial Act passed the National
Assembly's Legislation and Judiciary Committee subcommittee overnight, this
time mandating cumulative voting and expanding separate election of audit
committee members for large, listed companies with assets over KRW2tn (c.
$1.5bn). If this amendment passes the full National Assembly plenary session
and is brought into law, at least two audit committee members will need to be
separately elected and cumulative voting would be mandated to strengthen
minority shareholder influence.

 

As we have learnt from Japan, progress is never linear. In this sense, poorly
received news on the Securities Transaction Tax is not entirely surprising
given the government's on-going fiscal challenges and trade-offs that must be
made. We continue to focus on the broader picture and the potential for
further legislation, such as rules on mandatory treasury stock cancellation
and corporate governance protections, which remain under review at this time.

 

In order to fund our growing Korea exposure, we have continued to raise
capital from other parts of the portfolio. Beady eyed readers will note that
our exposure to Japan decreased from 18% to 16% over the month. This was
largely on account of two exits, TSI Holding and Konishi - where in both cases
we exited into company buybacks, allowing us to free up capital from less
liquid parts of the portfolio. TSI - the apparel holding company - was
initiated as a position in 2023 and generated a local currency ROI/IRR of +84%
and +41%. We had held Konishi since 2018 and returns were more pedestrian
(+73%/+11%). We remain deeply enamoured by the opportunity set in Japan, as is
indicated by our considerable overweight.

 

Contributors / Detractors (in GBP)

 

 Largest Contributors        1- month contribution  % Weight

                             bps
 Vivendi                     100                    7.3
 Chrysalis Investments       83                     8.2
 Entain                      54                     4.3
 Aker                        48                     4.8
 Oakley Capital Investments  42                     5.3

 

 Largest Detractors     1- month contribution  % Weight

                        bps
 Gerresheimer AG        -43                    4.6
 Dieteren               -27                    6.7
 Wacom                  -8                     1.5
 Amorepacific Holdings  -5                     1.5
 Irish Residential      -5                     1.7

 

 

MUFG Corporate Governance Limited

Corporate Secretary

 

14 August 2025

 

LEI: 213800QUODCLWWRVI968

 

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