REG - AVI Global Trust PLC - Monthly Update

AVI Global TrustAnnouncement

16/08/2022 14:00

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RNS Number : 2135W  AVI Global Trust PLC  16 August 2022

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

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

 

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

https://www.assetvalueinvestors.com/agt/content/uploads/2022/08/AGT-July-2022.pdf
(https://www.assetvalueinvestors.com/agt/content/uploads/2022/08/AGT-July-2022.pdf)

 

 

Performance Total Return

 

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

 

                     Month  Fiscal Yr(*)  Calendar Yr

                            to date       to date
 AGT NAV(1)          5.2%   -2.4%         -8.4%
 MSCI ACWI Ex US(2)  3.2%   -4.8%         -6.1%
 MSCI ACWI(1)        6.8%   0.9%          -5.0%

( )

 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 increased by +5.2% in July.

 

Performance was broad-based as global markets rallied. The extent to which
this is a relief rally or something more meaningful is yet to be seen. There
are lots of reasons to think it is the former, but we remain open-minded.

 

Six companies - KKR, EXOR, Pershing Square Holdings, Oakley Capital
Investments, Christian Dior and Apollo Global Management - all contributed
between 55bps and 103bps. IAC, FEMSA and Third Point Investors were notable
detractors.

 

Over the course of the month the portfolio weighted average discount narrowed
slightly, from 34.1% to 33.2%.

 

Christian Dior ("CDI") was a meaningful contributor to returns during a period
in which LVMH (100% of CDI NAV) reported a strong set of results for the first
half of 2022. The shares and NAV returned +17% and +16% over the month, with a
slight narrowing of the discount to 15%.

Even with a headwind of continued restrictions in China, the business is
performing at a very high level. Sales were up +21% organically and operating
profits increased by more than one third to €10.2bn - some +6% better than
consensus analyst expectations. The all-important Fashion & Leather
division - home to Louis Vuitton and Christian Dior - achieved a 41% operating
margin, with profits well more than double their 2019 level. Management
believe that a >40% margin is the "new normal" - with Christian Dior an
increasingly integral part of this.

We have noted in the past that we expect "mega-brands" to outperform given the
considerable scale advantages in luxury. Recent results seem to re-affirm
this. We also note the recent proposal for Tods, the Italian-listed luxury
shoemaker, to be taken private by the founder. Tods has more than tripled
sales over the last twenty plus years as a public company, but profits have
barely budged - highlighting how hard it is for small luxury goods companies
to compete. Our expectation is that winners will continue to win, and that
LVMH will continue to drive attractive returns.

Shares in LVMH are down -6% year to date, yet operational performance and the
reporting of three sets of strong results have forced consensus expectations
higher, with EBIT estimates for this year and the next two years increasing
+16% / +14% / +18% year to date. The multiple has thereby compressed, with
LVMH trading at an EV/EBIT multiple of 17.1x, back below its long-term
average.

At 15% CDI's discount is slightly wider than where it started the year. Our
expectation is that over time the Arnault family will collapse the structure,
having taken numerous steps to simplify their group holding companies in
recent years. As such we view the fair discount as zero. In the meantime, time
is our friend as we expect the NAV to keep compounding at an attractive rate.

FEMSA:

FEMSA was a detractor as the shares declined -8% during a month in which the
company launched a tender offer to acquire Swiss convenience store and food
service operator Valora, for $1.2bn in cash (3% of NAV). The market reacted
negatively - with the shares down -12% in the three days following the
announcement.

We share the markets' concerns and view the proposed acquisition as a
frustrating unforced error, which complicates the equity story and as such the
probable discount / stub multiple at which FEMSA will trade. From a returns
perspective it also seems highly dubious that this is a better use of capital
than buying back shares.

 

With that said, investing is an expectations game - not an academic exercise
of absolutist judgements - and expectations are currently very low. In our
view, the above concerns are more than reflected in the share price, with the
stub trading under 6x forward EBITDA, a new low and a record (~60%) discount
to Walmex.

 

Operational performance - which in the long-run should translate to
shareholder returns - remains strong. Indeed, results at the end of July
showed the Proximity Division (Oxxo) to be growing sales +18% organically,
with +34% growth in operating profit as margins reached a new high for the
second quarter (10.2%). Coupled with the upcoming completion of the strategic
review, and the possibility of strategic or equity partnerships for Spin,
their digital wallet, there are a number of potential catalysts to reset the
narrative and drive the shares higher.

 

We modestly added to the position in July.

 

Trading activity

 

Having reduced gearing during the second half of 2021 we have considerable
firepower to invest in new and existing ideas. So far this year we have been
cautious and patient in our approach, although in July we started to build a
number of smaller positions.

 

Contributors / Detractors (in GBP)

 

 Largest Contributors        1- month contribution  % of NAV

                             bps
 KKR                         103                    6.0
 EXOR                        77                     6.8
 Pershing Square Holdings    75                     8.5
 Oakley Capital Investments  73                     6.6
 Christian Dior              60                     4.7

 

 Largest Detractors     1- month contribution  % of NAV

                        bps
 IAC/InterActiveCorp    -34                    2.9
 FEMSA                  -30                    3.5
 Third Point Investors  -27                    3.1
 Swire Pacific Ltd 'B'  -24                    -
 Fondul Proprietatea    -14                    0.5

 

 

 

Link Company Matters Limited

Corporate Secretary

 

16 August 2022

 

LEI: 213800QUODCLWWRVI968

 

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