Monthly Update

RNS Number : 3250I

AVI Global Trust PLC

13 April 2022

 

AVI GLOBAL TRUST PLC

Monthly Update

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

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

https://www.assetvalueinvestors.com/agt/content/uploads/2022/04/AGT-MAR-2022.pdf

Performance Total Return

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

	Month	Fiscal Yr* to date	Calendar Yr to date
AGT NAV1	4.4%	1.3%	-4.9%
MSCI ACWI Ex US2	2.1%	-1.4%	-2.7%
MSCI ACWI1	4.1%	3.4%	-2.6%

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.

* AVI Global Trust financial year commences on the 1stOctober.  All figures published before the fiscal results announcement are AVI estimates and subject to change.

Manager's Comment

AVI Global Trust (AGT)'s NAV returned +4.4% in March. Key contributors were Pershing Square Holdings, Aker and Oakley Capital Investments, whilst IAC and Godrej Industries were the notable detractors. The portfolio weighted average discount narrowed 100bps over the month to stand at 28.3%.

The end of March marks the half way point in AGT's financial year. For the first half of FY22 AGT achieved a NAV total return of +1.3%, which compares to an -1.4% return for the MSCI AC World ex-US index, the comparator benchmark, and +3.4% for the broader MSCI AC World. The interim report is due to be published in June.

Pershing Square Holdings:

Pershing Square Holdings ("PSH") was the most significant contributor to performance, adding +91bps to returns. This was driven by strong NAV growth (+10%), which was partially offset by a slight headwind of discount widening to 30%, resulting in a local (USD) return of +9%. Dollar strength vs Sterling improved returns experienced by AGT shareholders to +11%.

Largest holding Universal Music Group ("UMG") - which we estimate accounts for 27% of PSH's NAV - was the greatest contributor to NAV growth in March, as the shares returned +19%, following a period of weakness. Our prior research on UMG when it was owned by Vivendi, and on Sony Music given our large position in Sony Group Corp, led us some time ago to appreciate the secular growth attractions of the music industry and the advantaged positioning of content owners in the value chain. Streaming has transformed the industry in terms of both growth and quality of earnings. We see a long growth runway ahead as streaming subscription services penetrate further into emerging markets and as subscription prices rise in developed markets, and as music becomes increasingly monetised on social media and in gaming with the profits from such inuring disproportionately over time to UMG and other content owners. Readers should note that AGT owns a direct position in UMG in addition to our indirect exposure via PSH.

PSH's discount remains anomalously wide (30% at period end) for a company with such a strong performance track record and deft employment of hedges over the past five years. PSH remains AGT's largest position.

Fujitec:

Fujitec - the Japanese elevator & escalator company - was a meaningful contributor in March, with the shares up +16%.

Across AVI funds we have been invested in Fujitec since July 2018 and one where we have dedicated significant engagement resources. Over our holding period, we have sent six letters and met with the Company almost 30 times, and in May 2020 we released a 73-slide public presentation highlighting Fujitec's underperformance and undervaluation.

Fujitec has reacted positively to our engagement by announcing several improvements, including abolishing its anti-takeover measure, appointing a majority independent board, cost-cutting initiatives, launching new products to expand sales and improving IR disclosure. However, Fujitec took a step backwards when in December it announced a confusing and unambitious mid-term plan. We sent a presentation and draft press release to the Company in January, showcasing the plan's flaws, putting forward solutions and, importantly, threatening to take our grievances public. To our delight, management responded to all eight of our recommendations and released a supplementary mid-term plan at the start of March.

The most important response was on capital allocation, a glaring issue that had not been addressed since our original campaign. Not only did management commit to a higher ROE target of 12% (from 10%), but they mapped out a clear capital allocation framework for the next three years which will see up to 16% of Fujitec's market cap distributed via dividends and buybacks, and measures taken to reduce working capital and utilise debt to fund growth CAPEX and potential M&A.

While there is room for further improvements, Fujitec management has wholeheartedly listened to our, and other shareholders' feedback. We applaud Fujitec for that and the humility it took to re-publish its mid-term plan. It bodes well for our future engagement, and we have developed an even closer relationship.

Fujitec has been a hugely successful investment and showcases the power of shareholder engagement. Since the launch of our public campaign in May 2020, Fujitec has returned +110% vs the MSCI Japan Small +26% and peers +10%. Fujitec's EV/EBIT valuation has rerated to 14x vs under 10x when the Fund first invested, and the actions taken by management over the past years will lead to a long-term improvement in profitability and growth potential. While the valuation discount to peers has become less compelling, we still believe there is further upside and will continue to engage with the Company.

IAC:

IAC the north American internet-focussed holding company controlled by Barry Diller - was the most significant detractor. The shares declined -13% in March, as the NAV declined by -10% and the discount widened from 30% to 33%.

Starting with the NAV, the key issue here was Angi, the US homeservices platform which accounts for 19% of IAC's NAV, whose shares declined -18%, as the correction in US internet / tech multiples combined with weaker than expected results created the perfect storm. Investors are highly sceptical as to whether (relatively) new CEO Oisin Hanrahan can successfully execute on the fixed price strategy and reinvigorate growth. We admit the jury is still very much out, but note that IAC management - arguably one of the most experienced builders of internet businesses - are seeing enough traction in the KPIs to keep investing in the strategy, and there is significant downside protection in the form of restoring profitability. We believe the risk-reward from here to be highly attractive.

Turning to the discount, from the time of the Vimeo spin in May 2021, IAC's discount has widened from 8% to 33% - a 26% headwind. Given IAC's history of spinning assets to shareholders, which acts as a pull to par, we believe the fair discount is close to zero. We are optimistic about prospective returns from discount narrowing, as well as NAV growth, with, on our estimates, a dollar invested in Silver King (the precursor to IAC) when Barry Diller took control in 1995 having grown to $33 today, compared to $14 for the S&P 500 over the same period.

Contributors / Detractors (in GBP)

Largest Contributors	1- month contribution bps	% of NAV
Pershing Square Holdings	91	9.0
Aker ASA	77	6.2
Oakley Capital Investments	52	6.1
Fondul Proprietatea	38	5.3
Fujitec	33	2.9

Largest Detractors	1- month contribution bps	% of NAV
IAC/InterActiveCorp	-47	3.7
Godrej Industries	-30	2.9
DTS Corp	-11	2.3
Apollo Global Mgmt.	-11	3.3
Christian Dior	-10	4.2

Link Company Matters Limited

Corporate Secretary

13 April 2022

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.

 

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