REG - AVI Global Trust PLC - Monthly Update

AVI Global TrustAnnouncement

11/11/2022 16:00

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RNS Number : 2010G  AVI Global Trust PLC  11 November 2022

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

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

 

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

https://www.assetvalueinvestors.com/agt/content/uploads/2022/11/AGT-October-2022-1.pdf
(https://www.assetvalueinvestors.com/agt/content/uploads/2022/11/AGT-October-2022-1.pdf)

 

Performance Total Return

 

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

 

                     Month  Fiscal Yr(*)  Calendar Yr

                            to date       to date
 AGT NAV(1)          2.4%   2.4%          -10.9%
 MSCI ACWI Ex US(2)  -0.1%  -0.1%         -11.0%
 MSCI ACWI(1)        2.8%   2.8%          -7.2%

( )

 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 +2.4% in October.

There were a number of strong performers over the month, with KKR, Apollo,
Pershing Square Holdings, Schibsted and FEMSA all contributing >45bps.
Wacom and IAC were notable detractors, reducing returns by -41bps and -46bps,
respectively.

 

Citywire Investment Trust awards

 

In early November AVI Global Trust won the award of the Best Global Equities
Trust at the Citywire Investment Trust awards 2022. The award is based on the
best risk-adjusted growth in NAV over a three-year period to August 2022. Our
focus has been on buying good quality businesses trading at attractive
valuations, and combining this with active engagement to unlock value at our
portfolio companies; enabling them to thrive. The Trust's performance over the
past three years has been testament to the enduring strengths of the unique
and differentiated strategy we have employed since 1985. This strategy
continues to deliver consistent returns and we remain confident in our
portfolio's long-term prospects.

 

 

Listed PE/VC:

Over the last few months, we have established small positions across several
(mainly London-listed) closed-end funds offering exposure to private equity
and venture capital investments.

These collectively now represent almost 8% of AGT's NAV, and trade at
abnormally wide discounts to NAV. The market is clearly sceptical that NAVs
have been marked down sufficiently but - while perhaps unsatisfying from a
purist's standpoint - the reality has always been that private equity NAVs
tend to lag public markets in both directions: on the way up and, in the
current market conditions, on the way down.

The discounts on our basket of holdings still stand at dislocated levels even
after applying what we believe to be conservative haircuts to valuations,
while activity in the secondary market for LP stakes suggests the gap between
private secondary discounts and those in the listed market has widened
materially. Indeed, we recently saw one of our investee companies use the
proceeds from a secondary sale of some of its underlying interests in private
equity funds to fund a buyback of its own shares. We understand the discount
on the private secondary sale was significantly narrower than the level at
which the share repurchases were made.

On this point, we have been pleased to see several listed private equity funds
announce share buyback programmes. This stands in contrast to the situation
faced by most funds in the wake of the Global Financial Crisis when many were
forced sellers (either of assets in the secondary market or of their own
shares via rescue rights issues) due to overly extended balance sheets. This
time is different in that respect, with commitments and gearing levels at
relatively modest levels, allowing funds to take advantage of the wide
discounts at which their shares are trading. There is usually a decline in
investment activity in times such as these, as buyers and sellers adjust
expectations and take a while to come together at a clearing price. However,
if funds can demonstrate a continued pattern of realisations at premia to
carrying values, we would expect that to act as a catalyst in driving a
re-rating.

 

Wacom:

Over the last year and half AGT has built a position in Wacom, the world's
leading digital writing tablet manufacturer, with an estimated 60% market
share. We wrote about the company in the interim report, when strong share
price performance made the company one of the largest contributors. However
subsequent returns have been weaker, with the shares declining -9% in October
and now -28% calendar year to date. The depreciation of the Yen has further
impaired returns.

While Wacom's B2B business - which boasts Disney and Samsung as customers -
has been resilient with a growing customer base and high adoption of digital
pens, the consumer business has suffered from a demand-led slowdown. Combined
with higher component costs the consumer business is forecast to see full-year
profits decline -92% YoY resulting in total profits forecasted to fall -54%.
This has been a painful adjustment for the market.

However, our belief in Wacom's technology and long-term growth potential is
unchanged, and the market's myopic focus presents an opportunity to take
advantage of the price dislocation. Using normalised earnings, Wacom trades on
only 6x EV/EBIT, a remarkably low valuation considering Wacom's technology and
structural growth tailwinds from the increased adoption of digital writing
solutions. As a top three shareholder across AVI funds, we are working closely
with management to address the recent underperformance and ensure efforts are
being made to maximise shareholder value. Our estimated potential upside to
the current share price is in the order of +100%.

 

 

Contributors / Detractors (in GBP)

 

 Largest Contributors      1- month contribution  % of NAV

                           bps
 KKR                       53                     5.9
 Apollo Global Mgmt.       52                     3.8
 Pershing Square Holdings  50                     9.3
 Schibsted ASA             48                     3.7
 FEMSA                     45                     4.5

 

 Largest Detractors               1- month contribution  % of NAV

                                  bps
 Wacom                            -46                    2.8
 IAC                              -41                    2.3
 Symphony International Holdings  -27                    3.0
 Godrej Industries                -24                    3.2
 Jardine Matheson                 -13                    1.0

 

 

Link Company Matters Limited

Corporate Secretary

 

11 November 2022

 

LEI: 213800QUODCLWWRVI968

 

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