Monthly Factsheet

AVI Global Trust PLC

07 June 2023

 

AVI GLOBAL TRUST PLC

Monthly Update

AVI Global Trust plc (the "Company") presents its Update, reporting performance figures for the month ended 31 May 2023.

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

https://www.assetvalueinvestors.com/content/uploads/2023/06/AGT-MAY-2023.pdf

Performance Total Return

This investment management report relates to performance figures to 31 May 2023.

Total Return (£)	Month	Calendar Yr to date	1Y	3Y	5Y	10Y
AGT NAV	1.0%	1.5%	0.2%	54.1%	40.5%	119.4%
MSCI ACWI Ex US	-2.3%	1.7%	0.3%	23.0%	19.8%	78.1%
MSCI ACWI	0.3%	4.5%	2.6%	33.0%	49.0%	159.8%

Manager's Comment

AVI Global Trust (AGT)'s NAV increased by +1.0% in May.

Schibsted (+17%), FEMSA (+5%) and Apollo (+6%) were the largest positive contributors. Aker (-7%), Digital Garage (- 20%) and Christian Dior (-7%) were the most meaningful detractors.

Spectrum Brands Holdings

During the month we exited Spectrum Brands Holdings ("Spectrum Brands"), the US conglomerate.

As detailed in our January newsletter, we built a position in the company after the shares nosedived as the Department of Justice ("DOJ") attempted to block the sale of its locks business to Assa Abloy. We believed the market was mispricing the probability of the deal passing and awarding an unduly low value to Spectrum Brands' other businesses, even in a scenario where the deal was blocked.

In early May the DOJ relented and settled with Spectrum Brands, approving the deal with completion expected by June 30th. This led to a jump in the shares, and we sold out swiftly as the shares started to better reflect fair value, trading at a 20% discount to our estimated NAV.

Whilst there is still potential for significant capital returns and a long-term re-rating story, we grew more cautious on the earnings outlook of the remaining businesses, particularly for the Homes & Garden division. Moreover, we are cognisant of the extent to which the company still warrants a considerable conglomerate discount until the Household Personal Care (HPC) business is divested - the timeline for which is unclear.

Over the short holding period AGT generated a +13% ROI / +54% IRR vs. +4% / +16% for the MSCI ACWI (both in $). Although the ROI on our initial purchases approached 60%, this was dampened down by more material additions at higher levels (generating~10% returns) as the event drew closer and our conviction and assessed probability of a positive outcome increased. Regardless, we believe the investment highlights how special situation events can generate positive absolute returns over relatively short periods in sideways markets. Moreover, we like the flexibility resulting from converting ~5% of our NAV into cash at a time when new ideas are plentiful.

FEMSA

At the end of May FEMSA took further steps to unlock value, driving the shares +5% higher over the month.

As readers may remember from February's newsletter, early this year the company concluded its strategic review which will see FEMSA simplify its group structure and re-focus on its core businesses; exiting its stake in Heineken and selling other non-core assets.

Kicking the process off, in February FEMSA sold €3.2bn of Heineken/Heineken Holding stock in an accelerated book build and issued a €500m bond exchangeable in Heineken Holding shares.

At the end of May the company took further steps, selling $3.7bn of Heineken / Heineken Holding stock. As such, the company has now fully exited Heineken (bar the shares underlying the exchangeable bond). As well as this FEMSA announced the sale of Jetro Restaurant Depot ("JRD") for $1.4bn.

FMX shares have now moved over +70% off the lows they hit last July (where we averaged down!). The stub has re-rated considerably from the all-time-low 5.7x EV/ NTM EBITDA to 8.2x currently, and earnings have also grown significantly (EBITDA for the next twelve months +21% today versus then).

It is this latter point which is particularly important to us - asset quality and the prospect for NAV growth is key to our style of investing. Q1 results show Oxxo to be in rude health, with the fastest rate of Same Store Sales growth in Mexico in more than 20 years at +19%. Both ticket and traffic contributed to this and there is likely more to come from both, with a continued mix-effect to higher priced items such as spirits and pantry items, where Oxxo started to gain traction during the pandemic, and a continued recovery in traffic. New store openings are now running above >1k on a trailing twelve-month basis once again, and we believe the company can reach c.30k units in Mexico by the end of the decade (from just shy of 22k currently). As well as this we are increasingly encouraged by the company's operations in Brazil, a notoriously difficult market but one where FEMSA and their JV partners are showing a high and consistent level of performance. Success here would significantly extend the growth runway and we expect investor attention to increasingly turn to this as the business scales and disclosure improves.

Despite strong performance we believe the shares remain cheaply priced, trading at a 29% discount to our estimated NAV and with the stub at an inordinately wide discount to Walmex (8.2x vs. 12.0x). Pro-forma of the above transactions, we estimate that net debt to EBITDA stands at c.0.4x vs. management's target of 2.0x. This implies the company has "excess" capital equating to c.15% of its market cap. Investors, not entirely without reason, are cautious over how this will be deployed, and we have been encouraging management to use the proceeds for share buybacks.

Contributors / Detractors (in GBP)

Largest Contributors	1- month contribution bps	% Weight
Schibsted ASA 'B'	92	7.5
FEMSA	35	5.9
Apollo Global Mgmt.	31	4.4
IAC	27	3.2
Spectrum Brands Holdings	25	0.0

Largest Detractors	1- month contribution bps	% Weight
Aker ASA	-55	5.3
Christian Dior	-42	4.2
Digital Garage	-31	1.7
D'Ieteren	-25	4.2
Brookfield/Short SPY	-24	5.0

Link Company Matters Limited

Corporate Secretary

07 June 2023

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.

 

END