REG - AVI Global Trust PLC - Monthly Update

AVI Global TrustAnnouncement

13/04/2022 17:15

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220413:nRSM3250Ia&default-theme=true

RNS Number : 3250I  AVI Global Trust PLC  13 April 2022

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting
performance figures for the month ended 31 March 2022.

 

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

https://www.assetvalueinvestors.com/agt/content/uploads/2022/04/AGT-MAR-2022.pdf
(https://www.assetvalueinvestors.com/agt/content/uploads/2022/04/AGT-MAR-2022.pdf)

 

Performance Total Return

 

This investment management report relates to performance figures to 31 March
2022.

 

                     Month  Fiscal Yr(*)  Calendar Yr

                            to date       to date
 AGT NAV(1)          4.4%    1.3%         -4.9%
 MSCI ACWI Ex US(2)  2.1%   -1.4%         -2.7%
 MSCI ACWI(1)        4.1%    3.4%         -2.6%

( )

1 Source: Morningstar. All NAV figures are cum-fair values.

2 From 1st October 2013 the lead benchmark was changed to the MSCI ACWI ex US
(£) Index. The investment management fee was changed to 0.7% of net assets
and the performance related fee eliminated.

* AVI Global Trust financial year commences on the 1stOctober.  All figures
published before the fiscal results announcement are AVI estimates and subject
to change.

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV returned +4.4% in March. Key contributors were
Pershing Square Holdings, Aker and Oakley Capital Investments, whilst IAC and
Godrej Industries were the notable detractors. The portfolio weighted average
discount narrowed 100bps over the month to stand at 28.3%.

 

The end of March marks the half way point in AGT's financial year. For the
first half of FY22 AGT achieved a NAV total return of +1.3%, which compares to
an -1.4% return for the MSCI AC World ex-US index, the comparator benchmark,
and +3.4% for the broader MSCI AC World. The interim report is due to be
published in June.

 

Pershing Square Holdings:

 

Pershing Square Holdings ("PSH") was the most significant contributor to
performance, adding +91bps to returns. This was driven by strong NAV growth
(+10%), which was partially offset by a slight headwind of discount widening
to 30%, resulting in a local (USD) return of +9%. Dollar strength vs Sterling
improved returns experienced by AGT shareholders to +11%.

 

Largest holding Universal Music Group ("UMG") - which we estimate accounts for
27% of PSH's NAV - was the greatest contributor to NAV growth in March, as the
shares returned +19%, following a period of weakness. Our prior research on
UMG when it was owned by Vivendi, and on Sony Music given our large position
in Sony Group Corp, led us some time ago to appreciate the secular growth
attractions of the music industry and the advantaged positioning of content
owners in the value chain. Streaming has transformed the industry in terms of
both growth and quality of earnings. We see a long growth runway ahead as
streaming subscription services penetrate further into emerging markets and as
subscription prices rise in developed markets, and as music becomes
increasingly monetised on social media and in gaming with the profits from
such inuring disproportionately over time to UMG and other content owners.
Readers should note that AGT owns a direct position in UMG in addition to our
indirect exposure via PSH.

 

 

PSH's discount remains anomalously wide (30% at period end) for a company with
such a strong performance track record and deft employment of hedges over the
past five years. PSH remains AGT's largest position.

 

Fujitec:

 

Fujitec - the Japanese elevator & escalator company - was a meaningful
contributor in March, with the shares up +16%.

 

Across AVI funds we have been invested in Fujitec since July 2018 and one
where we have dedicated significant engagement resources. Over our holding
period, we have sent six letters and met with the Company almost 30 times, and
in May 2020 we released a 73-slide public presentation highlighting Fujitec's
underperformance and undervaluation.

 

Fujitec has reacted positively to our engagement by announcing several
improvements, including abolishing its anti-takeover measure, appointing a
majority independent board, cost-cutting initiatives, launching new products
to expand sales and improving IR disclosure. However, Fujitec took a step
backwards when in December it announced a confusing and unambitious mid-term
plan. We sent a presentation and draft press release to the Company in
January, showcasing the plan's flaws, putting forward solutions and,
importantly, threatening to take our grievances public. To our delight,
management responded to all eight of our recommendations and released a
supplementary mid-term plan at the start of March.

 

The most important response was on capital allocation, a glaring issue that
had not been addressed since our original campaign. Not only did management
commit to a higher ROE target of 12% (from 10%), but they mapped out a clear
capital allocation framework for the next three years which will see up to 16%
of Fujitec's market cap distributed via dividends and buybacks, and measures
taken to reduce working capital and utilise debt to fund growth CAPEX and
potential M&A.

 

While there is room for further improvements, Fujitec management has
wholeheartedly listened to our, and other shareholders' feedback. We applaud
Fujitec for that and the humility it took to re-publish its mid-term plan. It
bodes well for our future engagement, and we have developed an even closer
relationship.

 

Fujitec has been a hugely successful investment and showcases the power of
shareholder engagement. Since the launch of our public campaign in May 2020,
Fujitec has returned +110% vs the MSCI Japan Small +26% and peers +10%.
Fujitec's EV/EBIT valuation has rerated to 14x vs under 10x when the Fund
first invested, and the actions taken by management over the past years will
lead to a long-term improvement in profitability and growth potential. While
the valuation discount to peers has become less compelling, we still believe
there is further upside and will continue to engage with the Company.

 

IAC:

 

IAC the north American internet-focussed holding company controlled by Barry
Diller - was the most significant detractor. The shares declined -13% in
March, as the NAV declined by -10% and the discount widened from 30% to 33%.

 

Starting with the NAV, the key issue here was Angi, the US homeservices
platform which accounts for 19% of IAC's NAV, whose shares declined -18%, as
the correction in US internet / tech multiples combined with weaker than
expected results created the perfect storm. Investors are highly sceptical as
to whether (relatively) new CEO Oisin Hanrahan can successfully execute on the
fixed price strategy and reinvigorate growth. We admit the jury is still very
much out, but note that IAC management - arguably one of the most experienced
builders of internet businesses - are seeing enough traction in the KPIs to
keep investing in the strategy, and there is significant downside protection
in the form of restoring profitability. We believe the risk-reward from here
to be highly attractive.

 

Turning to the discount, from the time of the Vimeo spin in May 2021, IAC's
discount has widened from 8% to 33% - a 26% headwind. Given IAC's history of
spinning assets to shareholders, which acts as a pull to par, we believe the
fair discount is close to zero. We are optimistic about prospective returns
from discount narrowing, as well as NAV growth, with, on our estimates, a
dollar invested in Silver King (the precursor to IAC) when Barry Diller took
control in 1995 having grown to $33 today, compared to $14 for the S&P 500
over the same period.

 

 

Contributors / Detractors (in GBP)

 

 Largest Contributors        1- month contribution  % of NAV

                             bps
 Pershing Square Holdings    91                     9.0
 Aker ASA                    77                     6.2
 Oakley Capital Investments  52                     6.1
 Fondul Proprietatea         38                     5.3
 Fujitec                     33                     2.9

 

 Largest Detractors   1- month contribution  % of NAV

                      bps
 IAC/InterActiveCorp  -47                    3.7
 Godrej Industries    -30                    2.9
 DTS Corp             -11                    2.3
 Apollo Global Mgmt.  -11                    3.3
 Christian Dior       -10                    4.2

 

 

Link Company Matters Limited

Corporate Secretary

 

13 April 2022

 

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.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  DOCEXLFFLZLEBBV