REG - AVI Global Trust PLC - Monthly Update

AVI Global TrustAnnouncement

19/07/2022 11:45

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RNS Number : 9875S  AVI Global Trust PLC  19 July 2022

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting
performance figures for the month ended 30 June 2022.

 

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

https://www.assetvalueinvestors.com/agt/content/uploads/2022/07/AGT-June-2022.pdf
(https://www.assetvalueinvestors.com/agt/content/uploads/2022/07/AGT-June-2022.pdf)

 

 

Performance Total Return

 

This investment management report relates to performance figures to 30 June
2022.

 

                     Month  Fiscal Yr(*)  Calendar Yr

                            to date       to date
 AGT NAV(1)          -5.9%  -7.3%         -12.9%
 MSCI ACWI Ex US(2)  -5.2%  -7.8%         -9.0%
 MSCI ACWI(1)        -5.0%  -5.5%         -11.0%

( )

 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.

 * All return figures in GBP. AVI Global Trust financial year commences on the
 1(st) October. All figures published before the fiscal results announcement
 are AVI estimates and subject to change.

 

Manager's Comment

 

AVI Global Trust (AGT)'s NAV declined -5.9% in June.

 

Following much higher than anticipated inflation figures, the consensus has
now become that central banks will do "whatever it takes" to rid us of
inflation - with the "whatever" part including causing a recession. Meanwhile
inflation and higher energy prices are squeezing consumer budgets and putting
pressure on corporate profit margins. All of this provides an uncomfortable
backdrop for equities.

 

Within this context, performance was weak across the board, as NAV declines
compounded by a widening of the portfolio weighted average discount from 32.3%
to 34.1%. Five holdings - Sony, Wacom, KKR, EXOR and Aker - all detracted
50-115bps from returns, with local share price returns of between -8% and
-16%.

 

EXOR

 

EXOR was a meaningful detractor, knocking 81bps off returns. The shares
declined -13% as a -6% decline in NAV was compounded by a widening of the
discount from 42% to 47%.

 

Starting with the NAV side of the equation, the key culprit was Stellantis
(20% of NAV), shares in which declined -15% over the month, bringing year to
date returns to -24%. Investors have grown increasingly cautious over the
state of the global economy generally, and the US consumer specifically,
whilst there is a broader debate in autos as to whether current record high
margins and low dealer incentives will stick when volumes (hitherto restricted
by shortages of semiconductor chips) return. Stellantis now trades at 3x
consensus 2022 earnings - a ~40-60% discount to Ford and GM once adjusting for
accounting differences. As one sell side analyst put it in a recent note:
"What does the market fear? Clearly the answer is "a lot". With such low
expectations there appears ample room for surprise on the upside - much to the
benefit of EXOR's NAV.

As we have noted at various points this year, whilst discounts have been
widening in the main they haven't yet reached the screamingly cheap levels
observed in other market corrections. At a 47% discount EXOR on the other hand
is now approaching that stage. The maths of discount returns from extreme
levels are powerful: a return to the 35% five-year average takes the shares
+23% higher, whilst a re-rating to the low 20s (where EXOR traded, albeit
rather briefly, pre-pandemic) yields a return of +50%.

So what events might lead to this happening? In our view, it likely all comes
down to the allocation of the ($9bn) Partner Re proceeds. Holding companies
must give investors a "reason" to own their shares and as such diversification
into attractive quality unlisted assets is an important step in sustainably
reducing the discount at which EXOR trades. Shortly after quarter-end it was
announced that EXOR will invest €833m (3% of NAV) for a 10% stake in
Institut Mérieux, the unlisted healthcare-focused holding company of the
Mérieux family. The vast bulk (~80%) of Institut Mérieux's value lies in a
59% listed stake in bioMérieux, the in vitro diagnostics business focused on
infectious diseases. We expect EXOR to continue to allocate capital to higher
growth, less cyclical and industrial assets such as this, which over time will
help shift investor perception and the discount. Combined with the prospects
for NAV growth, prospective returns appear attractive.

Fujitec

 

At the end of June we released a public statement questioning whether
Fujitec's current outside directors were acting in the best interests of
shareholders. Subsequent to the public release of our presentation in May
2020, we have conducted all our dialogue privately, making excellent progress
on several issues. However, Fujitec's response to legitimate concerns raised
by Oasis Management in May regarding related-party transactions between
Fujitec and former President Mr Uchiyama fell a long way short of what we
expect from a listed company.

 

Despite the Board's efforts to exonerate Mr Uchiyama of any wrongdoing, we
remain entirely unconvinced that the numerous related-party transactions
undertaken by Mr Uchiyama and his family do not pose a problem for corporate
governance. In recognition of that, we voted against Mr Uchiyama's
reappointment at Fujitec's 2022 AGM along with three other outside directors.

 

However, in what we think was an effort to conceal a low approval rating for
Mr Uchiyama's reappointment, the motion to reappoint him as President was
withdrawn one hour before the AGM. Then, shortly after the AGM, Mr Uchiyama
was reappointed as Chairman without the approval of shareholders.

 

We are astounded by the clear disregard for shareholder rights and Fujitec's
blatant effort to circumnavigate the AGM voting process. We are not alone -
two other shareholders holding almost 16% of the shares released a public
statement following the AGM debacle and we know from private conversations
that many shareholders share the same views.

 

The Board has lost the support of its shareholders and the current situation
cannot continue. As we discussed in our public statement, we are proactively
evaluating our next steps to protect shareholder value. What form that might
take is still being decided but we won't sit idly by while shareholder rights
are being ignored.

 

Trading activity

 

During the period we started to build a new position in a European holding
company that is currently trading ~60% below its 52-week high, with attractive
quality assets and potential for significant value unlocking corporate events.
We are still accumulating shares across our funds but expect to discuss the
company in due course.

 

Contributors / Detractors (in GBP)

 

 Largest Contributors   1- month contribution  % of NAV

                        bps
 Fondul Proprietatea    47                     4.2
 Fujitec                21                     2.1
 Swire Pacific Ltd 'B'  7                      2.6
 Daiwa Industries       4                      0.6
 Teikoku Sen-I          2                      0.4

 

 Largest Detractors  1- month contribution  % of NAV

                     bps
 Aker ASA            -115                   6.1
 EXOR                -81                    6.4
 KKR                 -69                    5.3
 Wacom               -56                    3.5
 Sony Group          -53                    5.1

 

 

 

Link Company Matters Limited

Corporate Secretary

 

19 July 2022

 

LEI: 213800QUODCLWWRVI968

 

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