Monthly Factsheet

AVI Global Trust PLC

05 September 2024

 

AVI GLOBAL TRUST PLC

Monthly Update

AVI Global Trust plc (the "Company") presents its Update, reporting performance figures for the month ended 31 August 2024.

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

https://www.assetvalueinvestors.com/content/uploads/2024/09/AGT-AUGUST-2024.pdf

Performance Total Return

This investment management report relates to performance figures to 31 August 2024.

Total Return (£)	Month	Calendar Yr to date	1Y	3Y	5Y	10Y
AGT NAV	-2.1%	6.1%	17.6%	25.5%	69.0%	162.4%
MSCI ACWI	0.2%	12.5%	19.0%	23.9%	64.3%	193.1%
MSCI ACWI ex US	0.5%	7.9%	14.0%	11.5%	33.4%	94.7%

Manager's Comment

AVI Global Trust (AGT)'s NAV declined -2.1% in August.

Entain (+39bps), Reckitt (+23ps) and Dai Nippon Printing (+18bps) were the most significant contributors. We endured weakness in Japan. In total our Japanese small cap holdings detracted -113bps and we focus on this below. FEMSA suffered the newsletter curse and shaved off -42bps, whilst Symphony cost us -29bps.

Japan

On the 31st of July the BOJ raised interested rates and attempted (!) to pave the way for further hikes to come and leading to an associated strengthening of the Yen. This resulted in considerable volatility in global equity markets generally, and Japanese equity markets specifically, where the magnitude of decline was only comparable to days in 1987. It is hard to overstate the extent of this, with the VIX index, or so-called "fear gauge", seeing its largest ever one day spike, with the unwind in the carry trade at least partly responsible for this.

Over the course of the month our Japanese names (excluding Softbank) cost us -113bps in performance. This was comprised of an estimated -89bps allocation effect (our "overweight" Japan vs. the index) and a -24bps selection effect (our companies fell by more than the Japanese companies in the index).

Such moves are devoid of fundamentals and likely fuelled by algorithmic trading. We took advantage of this volatility, adding approximately 300bps (£33m) to several Japanese names at prices few would have thought possible just a matter of days before.

Interestingly, trading data suggests that Japanese domestic investors were also buyers in the days that followed, which is an important and overlooked development for the long-term health of the Japanese equity market.

Fundamentally very little has changed, and we believe the thesis of governance reform, corporate activity and activism remains a highly valid one that is still in a relatively early innings.

Indeed, it is worth noting that in late August the convenience store operator Seven & i Holdings received an unsolicited takeover bid from Canadian firm Alimentation Couche-Tard. Although it remains to be seen if a deal will be completed (we remain sceptical!), we believe this is interesting for two reasons: it marks a watershed moment for foreign M&A in Japan; and it highlights that recent volatility does little to deter corporate activity for highly sought after Japanese assets.

Over the last 18 months there has been increased evidence and growing acceptance of what we have been saying since 2017 - Japan is changing. The events of the last month do little to dampen our enthusiasm and we remain excited about the opportunity and the high prospective returns that can be unlocked through thoughtful, long-term orientated engagement.

ENTAIN

Entain was the most significant positive contributor over the month, with the shares having risen +25% since the company reported interim results on the 8th of August.

Results were encouraging, with a top-line "beat" and an increase in full year guidance. Most importantly, the Online Operations positively surprised with +1.0% constant currency organic growth, which compared favourably to the -2.6% consensus had pencilled in. Results were flattered by one off sporting events in terms of the Euros and Copa America, but even accounting for these, result would have been ahead of consensus. It appears that the business has started to turn the corner, with improving KPI's across many geographies, and most notably Brazil.

In the UK & Ireland performance remains subdued, but management are encouraged by +12% growth in online activities and a stabilisation of spend per head, as the business benefits from a redesign of the Ladbrokes front-end UI and steps taken to simplify player journeys. With easing comps and a levelling of the regulatory playing field, a return to growth in the second half of the year looks in sight.

At the results presentation management talked about the inherent lag between "good inputs" and "good outputs". Markets generally find this lag difficult to price and in the case of companies like Entain - where investor confidence and trust has been broken - are even less willing to look forward. The onus is on management to deliver the outputs. As and when this occurs the revaluation, can be quite sharp - to which Entain's recent share price chart attests.

We are, however, not out of the woods just yet. Whilst there are encouraging signs from Entain's wholly owned operations performance of the 50:50 BetMGM JV remains a work in progress. Growth rates have disappointed, market share has been lost, and profitability targets have been pushed back.

Notwithstanding this, we remain sanguine and believe patience is needed, as similarly to Entain's other operations, there are lags between inputs and outputs. Most pertinently, we believe the 2023 acquisition of Angstrom Sports significantly improves BetMGM's in-play bet offering and will make the company more competitive. Moreover, the launch of a Nevada single wallet feature, creates further differentiation from DraftKings and FanDuel, which should help support a recovery in market share. We believe the upcoming NFL season will serve as a test case for this, and are encouraged by the enthusiasm of Entain, MGM and IAC management.

Returning to Entain, the shares remain lowly valued, trading at an -38% discount to our estimated NAV. This can be cut a number of ways: deducting our estimated value of the 50% stake in BetMGM implies the wholly owned stub is trading at an implied 6.3x NTM EBITDA vs. average peer multiples of 9.6x and recent M&A transactions above 10x; alternatively, this can be interpreted as assigning a negative value for BetMGM. We do not consider either such implications to be remotely fair!

With a new highly incentivised CEO in-place, a new Chair who has shown herself to be a highly capable operator as interim CEO, and improving fundamental momentum, we believe the ground is set for strong performance. Since initiation in Dec-2023, Entain has been a bruising investment for us - and one where we have had to average down time and again. However, as we look ahead, we are optimistic about prospective returns.

Contributors / Detractors (in GBP)

Largest Contributors	1- month contribution bps	% Weight
Entain	39	3.1
Reckitt Benckiser	23	4.0
Dai Nippon Printing	18	2.7
D'Ieteren	17	6.0
Bollore	16	5.1

Largest Detractors	1- month contribution bps	% Weight
FEMSA	-42	4.4
Kyoto Financial Group	-40	1.7
Nihon Kohden	-30	2.4
Symphony International Holdings	-29	1.7
Apollo Global Mgmt.	-27	3.4

Link Company Matters Limited

Corporate Secretary

5 September 2024

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