Monthly Update

RNS Number : 9875S

AVI Global Trust PLC

19 July 2022

 

AVI GLOBAL TRUST PLC

Monthly Update

AVI Global Trust plc (the "Company") presents its Update, reporting performance figures for the month ended 30 June 2022.

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

https://www.assetvalueinvestors.com/agt/content/uploads/2022/07/AGT-June-2022.pdf

Performance Total Return

This investment management report relates to performance figures to 30 June 2022.

	Month	Fiscal Yr* to date	Calendar Yr to date
AGT NAV1	-5.9%	- 7.3%	-12.9%
MSCI ACWI Ex US2	-5.2%	-7.8%	-9.0%
MSCI ACWI1	-5.0%	-5.5%	-11.0%

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 1st 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 -5.9% in June.

Following much higher than anticipated inflation figures, the consensus has now become that central banks will do "whatever it takes" to rid us of inflation - with the "whatever" part including causing a recession. Meanwhile inflation and higher energy prices are squeezing consumer budgets and putting pressure on corporate profit margins. All of this provides an uncomfortable backdrop for equities.

Within this context, performance was weak across the board, as NAV declines compounded by a widening of the portfolio weighted average discount from 32.3% to 34.1%. Five holdings - Sony, Wacom, KKR, EXOR and Aker - all detracted 50-115bps from returns, with local share price returns of between -8% and -16%.

EXOR

EXOR was a meaningful detractor, knocking 81bps off returns. The shares declined -13% as a -6% decline in NAV was compounded by a widening of the discount from 42% to 47%.

Starting with the NAV side of the equation, the key culprit was Stellantis (20% of NAV), shares in which declined -15% over the month, bringing year to date returns to -24%. Investors have grown increasingly cautious over the state of the global economy generally, and the US consumer specifically, whilst there is a broader debate in autos as to whether current record high margins and low dealer incentives will stick when volumes (hitherto restricted by shortages of semiconductor chips) return. Stellantis now trades at 3x consensus 2022 earnings - a ~40-60% discount to Ford and GM once adjusting for accounting differences. As one sell side analyst put it in a recent note: "What does the market fear? Clearly the answer is "a lot". With such low expectations there appears ample room for surprise on the upside - much to the benefit of EXOR's NAV.

As we have noted at various points this year, whilst discounts have been widening in the main they haven't yet reached the screamingly cheap levels observed in other market corrections. At a 47% discount EXOR on the other hand is now approaching that stage. The maths of discount returns from extreme levels are powerful: a return to the 35% five-year average takes the shares +23% higher, whilst a re-rating to the low 20s (where EXOR traded, albeit rather briefly, pre-pandemic) yields a return of +50%.

So what events might lead to this happening? In our view, it likely all comes down to the allocation of the ($9bn) Partner Re proceeds. Holding companies must give investors a "reason" to own their shares and as such diversification into attractive quality unlisted assets is an important step in sustainably reducing the discount at which EXOR trades. Shortly after quarter-end it was announced that EXOR will invest €833m (3% of NAV) for a 10% stake in Institut Mérieux, the unlisted healthcare-focused holding company of the Mérieux family. The vast bulk (~80%) of Institut Mérieux's value lies in a 59% listed stake in bioMérieux, the in vitro diagnostics business focused on infectious diseases. We expect EXOR to continue to allocate capital to higher growth, less cyclical and industrial assets such as this, which over time will help shift investor perception and the discount. Combined with the prospects for NAV growth, prospective returns appear attractive.

Fujitec

At the end of June we released a public statement questioning whether Fujitec's current outside directors were acting in the best interests of shareholders. Subsequent to the public release of our presentation in May 2020, we have conducted all our dialogue privately, making excellent progress on several issues. However, Fujitec's response to legitimate concerns raised by Oasis Management in May regarding related-party transactions between Fujitec and former President Mr Uchiyama fell a long way short of what we expect from a listed company.

Despite the Board's efforts to exonerate Mr Uchiyama of any wrongdoing, we remain entirely unconvinced that the numerous related-party transactions undertaken by Mr Uchiyama and his family do not pose a problem for corporate governance. In recognition of that, we voted against Mr Uchiyama's reappointment at Fujitec's 2022 AGM along with three other outside directors.

However, in what we think was an effort to conceal a low approval rating for Mr Uchiyama's reappointment, the motion to reappoint him as President was withdrawn one hour before the AGM. Then, shortly after the AGM, Mr Uchiyama was reappointed as Chairman without the approval of shareholders.

We are astounded by the clear disregard for shareholder rights and Fujitec's blatant effort to circumnavigate the AGM voting process. We are not alone - two other shareholders holding almost 16% of the shares released a public statement following the AGM debacle and we know from private conversations that many shareholders share the same views.

The Board has lost the support of its shareholders and the current situation cannot continue. As we discussed in our public statement, we are proactively evaluating our next steps to protect shareholder value. What form that might take is still being decided but we won't sit idly by while shareholder rights are being ignored.

Trading activity

During the period we started to build a new position in a European holding company that is currently trading ~60% below its 52-week high, with attractive quality assets and potential for significant value unlocking corporate events. We are still accumulating shares across our funds but expect to discuss the company in due course.

Contributors / Detractors (in GBP)

Largest Contributors	1- month contribution bps	% of NAV
Fondul Proprietatea	47	4.2
Fujitec	21	2.1
Swire Pacific Ltd 'B'	7	2.6
Daiwa Industries	4	0.6
Teikoku Sen-I	2	0.4

Largest Detractors	1- month contribution bps	% of NAV
Aker ASA	-115	6.1
EXOR	-81	6.4
KKR	-69	5.3
Wacom	-56	3.5
Sony Group	-53	5.1

Link Company Matters Limited

Corporate Secretary

19 July 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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