Monthly Update

RNS Number : 1015A

AVI Global Trust PLC

27 May 2021

 

This is a correction to the announcement published at 16:08pm on 21 May 2021 (RNS number 4920Z) which incorrectly stated that the link to supporting materials regarding a recent campaign with Symphony International Holdings could be found at 'www.savesyphony.com'. The correct link to the supporting materials is www.savesymphony.com . All other information remains unchanged. The full corrected announcement is included below.

AVI GLOBAL TRUST PLC

Monthly Update

AVI Global Trust plc (the "Company") presents its Update, reporting performance figures for the month ended 30 April 2021.

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

https://www.aviglobal.co.uk/commentary-updates/monthly-newsletters/  

Performance Total Return

This investment management report relates to performance figures to 31 April 2021.

	Month	Financial Yr * to date	Calendar Yr to date
AGTNAV1	3.1%	30.7%	11.3%
MSCI ACWI Ex US3	2.6%	16.4%	5.2%
MSCI ACWI1	4.0%	16.9%	7.8%

* 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.

1 Source: Morningstar. All NAV figures are cum-fair values.

2 Source: Morningstar. Share price total return is on a mid-to-mid basis, with net income re-invested.

3 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.

Manager's Comment

AVI Global Trust (AGT)'s NAV gained +3.1% in April, driven primarily by growth in underlying net asset values. Portfolio discount tightening and sterling weakness both provided a minor boost to returns. Significant contributors included Christian Dior, KKR, and Third Point Investors. Detractors included Sony Group, Godrej Industries and Naspers.

Christian Dior  

Christian Dior (CDI) is a holding company whose sole asset (100% of NAV) is a 41% stake in LVMH, the European luxury goods conglomerate. CDI is 98% owned by Bernard Arnault, CEO of LVMH and Europe's richest man. As a single-asset holding company, CDI typically traded at a tight discount to NAV; however, the market volatility in March last year saw the discount widen. We took advantage of this to initiate a position in CDI at discounts of 20-25%. LVMH is the owner of a collection of luxury houses, across such diverse areas as Fashion & Leather, Wine & Spirits, hard luxury, specialty retail and beauty. Its brands - to name but a few: Louis Vuitton, Moët & Chandon, Dom Pérignon, Christian Dior, Bulgari, and, more recently, Tiffany - have long heritages spanning hundreds of years, and as such cannot be replicated. This translates into high demand for its products, pricing power, attractive margins, and superior returns on capital. The pandemic has had a harsh impact on the luxury industry. However, our thesis was that high-quality brands would emerge stronger, having entered the crisis with strong balance sheets, more flexible cost structures, and a greater capacity to invest in digital. This appears to be playing out. During the month LVMH reported first quarter sales well ahead of consensus expectations, with sales growing +30% year on year (+8% versus 2019). Pent-up consumer demand appears very strong, and we expect healthy growth to continue through the year as physical economies continue to re-open and travel restarts. CDI was, and remains, a classic AVI investment. LVMH is a high-quality asset with great growth potential, and we also expect to benefit from discount tightening, either through a continued normalisation of the CDI discount to the pre-COVID range or a collapse of the holding structure completely. We remain enthusiastic shareholders

Sony Group  

Sony Group reported full year results towards the end of the month, posting profits of almost JPY1 trillion - an all-time high for the company. Barring the Images & Sensors division, average profits for each segment grew by +39%. As a reminder for investors, Sony's four core businesses are: Gaming, Music, Pictures, and Images & Sensors. We estimate that these segments account for c. 80% of the value of the group. The best-performing division was the Gaming segment, where sales grew by +15% and margins expanded from 10% to 13%, driving total profit growth of +44%. This was achieved despite the launch of the new PS5 console, which is typically a costly affair. As we have been saying for some time, Sony's Gaming division is transitioning from a hardware-driven, cyclical business model to a digital-focused model that emphasises recurring transactions. It was therefore encouraging to see a further shift away from physical CDs: digital games accounted for 65% of total sales, up from 53% last year. PlayStation Plus also saw subscriber numbers grow +15% to 48 million. As this transition continues, we expect further profit growth, driven by a higher mix of digital downloads and recurring transactions, which are higher margin. These types of revenues are also likely to be awarded a higher multiple by the market given their increased stability and visibility. Despite good performance from the group, Sony's shares fell in the days following the results, reflecting management's guidance that profits would be -4% below consensus estimates for the following year. However, it is worth noting that Sony has a conservative bent in its estimates: over the past five years, Sony's profits have, on average, been one-third higher than management's forecast. We initiated a position in Sony approximately two years ago, since when it has generated an IRR of +39%. Today, Sony trades on an EV/EBIT multiple of 13x, or a discount of c. -30% to our estimate of net asset value. We believe that Sony deserves to trade at a permanently tighter discount to NAV for a number of reasons: (1) the growth prospects and quality of the four core businesses; (2) the quality of management, which successfully launched the PS5 in the face of criticism that consoles are dying out; transitioned the Gaming division to a higher-quality model; and improved margins at the Pictures and Electronics divisions; and (3) the ability to drive synergies between divisions, which argues for the group remaining whole rather than being run as separate businesses. We retain high conviction in the stock and its weighting in AGT's portfolio, viewing it as a core, long-term holding.

Apollo Global Management

During the month, we initiated a position in Apollo Global Management (APO), the US-listed alternative asset manager. The APO investment thesis is built on several pillars:

1.  Cheapness: APO trades on the lowest valuation of its peers despite a strong recovery from the lows seen in late 2020. We estimate that the fund management business is being valued by the market at an implied 23 times feerelated earnings with no value assigned to future carried interest/performance fees. APO's share price has lagged peers due in part to the associations of now-departed founder Leon Black with Jeffrey Epstein, which came on top of concerns surrounding the hit to accrued carry as a result of the H1-20 market falls.

2.  High quality earnings: 60% of APO's assets under management are permanent capital, the highest among its listed peers, leading to predictable visible earnings that in our view are deserving of a higher multiple than peers.

3.  Exposure to Athene: Athene Holding is a listed fixed annuity provider currently ~30% owned by APO, with APO being the appointed investment manager for Athene's investment portfolio. Over the course of its listed life, Athene has suffered from generalised market concerns about life insurers (which we believe were unfairly applied to Athene), and specific concerns about conflicts of interest between Apollo's role as manager and as its largest shareholder. In Mar-21, APO announced an all-stock merger between itself and Athene to be completed later this year. Athene is an attractive business, operating in a sector with strong demographic tailwinds and with a strong balance sheet free from legacy liabilities that will continue to allow it to play a central role in restructuring across the life insurance industry. We know Athene well, having owned it via our successful investment in AP Alternative Assets several years ago.

4.  High visibility on future growth: Athene has a significant amount of excess capital which can be invested to earn returns. We estimate that Athene's USD8 billion of excess capital could support USD80-100 billion of additional investments. The fee-related earnings from this would significantly boost APO's bottom line.

5.  Exposure to a re-inflating economy: While we primarily are invested in APO because of its attractive long-term earnings potential, it also offers the opportunity to benefit from a re-inflating economy. This is true for two reasons: (1) Its private equity portfolio is, in our view, firmly in the "value" camp in terms of valuation and sector exposures, and should benefit disproportionately as the US economy re-opens; and (2) Athene should be a beneficiary of higher rates by virtue of the sector in which it operates and due to its overweight position in floating-rate loans.

6.  Index Inclusion: It is likely that, following the removal of its dual share-class structure, APO will be eligible for S&P 500 inclusion. This will spark buying from index funds which, at the margin, is supportive of the share price.

APO sits comfortably in the AGT portfolio, adding to the exposure already provided by KKR. As a reminder to readers, we believe the alternative asset management industry to be a fundamentally attractive long-term investment opportunity, with defensive, high-quality earnings from long-duration assets under management, and growth prospects underpinned by institutional investors' growing demand for alternative assets. Within this secular trend, we expect larger managers to continue to take market share.

Symphony International Holdings

At the end of the month, we launched a public campaign to remove and replace the Board of Directors of Symphony International Holdings (SIHL). Our rationale for doing so, along with supporting materials, can be found at www.savesymphony.com . We encourage all SIHL shareholders to get in touch with us at [e-mail] .

Contributors / Detractors (in GBP)

Largest Contributors	1 month contribution bps	Percent of NAV
Christian Dior	77	4.2
KKR	66	4.7
Third Point Investors	41	5.6
Kinnevik	40	3.3
Pershing Square Holdings	34	6.1

Largest Detractors	1 month contribution bps	Percent of NAV
Sony	-28	4.9
Godrej Industries	-27	3.0
Naspers	-20	3.8
Symphony International Holdings	-18	1.9
EXOR	-15	4.7

Link Company Matters Limited

Corporate Secretary

21 May 2021

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

 

 

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