REG - AVI Global Trust PLC - Monthly Update

AVI Global TrustAnnouncement

10/01/2023 14:15

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RNS Number : 2833M  AVI Global Trust PLC  10 January 2023

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

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

 

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

https://www.assetvalueinvestors.com/agt/content/uploads/2023/01/AGT-December-2022.pdf
(https://www.assetvalueinvestors.com/agt/content/uploads/2023/01/AGT-December-2022.pdf)

 

Performance Total Return

 

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

 

                     Month  Fiscal Yr(*)  Calendar Yr

                            to date       to date
 AGT NAV(1)          -4.2%  5.0%          -8.6%
 MSCI ACWI Ex US(2)  -1.7%  6.1%          -5.4%
 MSCI ACWI(1)        -4.9%  1.9%          -8.1%

( )

 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 -4.2% in December. Performance was
generally weak, with Brookfield Asset Management / Corporation, EXOR and KKR
the worst detractors. Digital Garage - discussed below - contributed
positively, and more generally our Japanese holdings benefited from Yen
strength following the Bank of Japan's monetary policy adjustment.

 

Digital Garage

 

Digital Garage (DG) saw a +14% increase in its share price over the month
(+20% in GBP) in what was a difficult market environment. This was driven
entirely by discount narrowing from 28% to 13%, as DG's 20% stake in listed
Kakaku.com, accounting for 39% of its market cap at the start of the period,
fell by - 13%.

 

DG is a holding company whose key assets are its stake in Kakaku.com and DG
Fin Tech, Japan's third largest payment service provider. We have been
engaging with DG intensively since February 2021 when we sent a detailed
presentation outlining several issues that we believed were contributing to
DG's undervaluation. We called for a review of the confusing holding structure
and greater focus on the payments business. Management responded favourably to
our suggestions outlining a clearer strategy, improving shareholder
communications, and concentrating on the payments business through a new
initiative called "DG FinTech Shift".

 

While the share price had already reacted favourably to management's
improvements, it was buoyed further over the month when a Hong-Kong based
activist investor launched a public campaign calling on DG to sell its stake
in Kakaku.com and restructure into two entities, in keeping with the
suggestions we made in private.

 

While DG's discount has narrowed, we believe the upside could be over 50% in a
scenario where DG splits into two entities (a more likely event with two
shareholders engaging on the same topic).

 

D'Ieteren:

 

One new position purchased in 2022 that we have not yet discussed is
D'Ieteren, a seventh-generation Belgian family-controlled holding company
whose crown jewel asset is a 50% stake in Belron, the global no.1 operator in
the Vehicle Glass Repair and Replacement ("VGRR") industry.

 

We have invested in D'Ieteren across our other funds since 2018 however
liquidity was historically insufficient for AGT to build a meaningful stake.
In March 2022, following the publication of disappointing full year results,
the shares fell -11% on a day the MSCI Europe index was up +6%. We initiated a
position the very same day and added to the position shortly thereafter.

 

The bulk (68%) of D'Ieteren's NAV is accounted for by Belron, which readers
might be more familiar with as Autoglass (UK), Safelite (US) or Carglass (EU).
Belron is many multiples larger than competitors with >40% US market share,
giving it significant scale advantages in terms of purchasing economies of
scale and cost leadership, relationships with insurance partners who are
industry gatekeepers, and technological investment, which has become
increasingly relevant.

 

Increased windshield complexity and the requirement for Advanced Driver
Assistance System ("ADAS") cameras to be recalibrated upon replacement has
re-accelerated top-line growth and taken margins from 6% in 2018, when we
visited the European Distribution Centre in Bilzen, to 19% in 2021. We expect
Belron to keep riding this wave, with ADAS set to become a larger proportion
of the global car parc, supported by a legislative tailwind. Over the
medium-term sales should grow at a high single digit level with margin
expansion translating to mid-teens growth in EBIT, and even higher free cash
flow growth as capex spend moderates. Longer-term a possible IPO will likely
help crystalise value, with the recent appointment of Carlos Brito - who built
AB InBev into a global behemoth - perhaps indicative of this plan.

 

As well as this, D'Ieteren owns a collection of other smaller assets 1) a 40%
stake in TVH Parts, a spare parts distributor focussed on forklifts and other
industrial machinery; 2) a 100% stake in D'Ieteren Autos, which distributes VW
brands in Belgium; 3) a 100% stake in Moleskine, the luxury notebook group;
and 4) a 100% stake in PHE, a European automotive spare parts distributor
focussed on the Independent Aftermarket (IAM). Both TVH and PHE are more
recent acquisitions, and appear highly attractive, with strong market
positions and the potential for accretive bolt-on acquisitions.

 

Over AGT's nine months holding the investment has generated a +46% ROI and an
+85% IRR. The discount has narrowed materially and now stands at 21%. However,
the defensive and resilient nature of the underlying asset's earnings and the
prospect for NAV growth remain attractive.

 

AVI Global Trust 2022 Annual General Meeting:

 

AGT's AGM was held in December. The presentation can be found here
(https://www.assetvalueinvestors.com/agt/how-to-invest/investor-information/annual-general-meeting/)
.

 

 

 

Contributors / Detractors (in GBP)

 

 Largest Contributors  1- month contribution  % of NAV

                       bps
 Digital Garage        20                     1.3
 Nihon Kohden          14                     2.8
 SK Kaken              9                      1.4
 Fujitec               8                      2.1
 Hipgnosis Songs       5                      0.9

 

 Largest Detractors    1- month contribution  % of NAV

                       bps
 Brookfield/Short SPY  -70                    4.8
 KKR                   -65                    5.3
 EXOR                  -51                    7.6
 Apollo Global Mgmt.   -39                    4.2
 Aker ASA              -38                    7.3

 

 

Link Company Matters Limited

Corporate Secretary

 

10 January 2023

 

LEI: 213800QUODCLWWRVI968

 

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