Monthly Update

RNS Number : 2833M

AVI Global Trust PLC

10 January 2023

 

AVI GLOBAL TRUST PLC

Monthly Update

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

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

https://www.assetvalueinvestors.com/agt/content/uploads/2023/01/AGT-December-2022.pdf

Performance Total Return

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

	Month	Fiscal Yr* to date	Calendar Yr to date
AGT NAV1	-4.2%	5.0%	-8.6%
MSCI ACWI Ex US2	-1.7%	6.1%	-5.4%
MSCI ACWI1	-4.9%	1.9%	-8.1%

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 -4.2% in December. Performance was generally weak, with Brookfield Asset Management / Corporation, EXOR and KKR the worst detractors. Digital Garage - discussed below - contributed positively, and more generally our Japanese holdings benefited from Yen strength following the Bank of Japan's monetary policy adjustment.

Digital Garage

Digital Garage (DG) saw a +14% increase in its share price over the month (+20% in GBP) in what was a difficult market environment. This was driven entirely by discount narrowing from 28% to 13%, as DG's 20% stake in listed Kakaku.com, accounting for 39% of its market cap at the start of the period, fell by - 13%.

DG is a holding company whose key assets are its stake in Kakaku.com and DG Fin Tech, Japan's third largest payment service provider. We have been engaging with DG intensively since February 2021 when we sent a detailed presentation outlining several issues that we believed were contributing to DG's undervaluation. We called for a review of the confusing holding structure and greater focus on the payments business. Management responded favourably to our suggestions outlining a clearer strategy, improving shareholder communications, and concentrating on the payments business through a new initiative called "DG FinTech Shift".

While the share price had already reacted favourably to management's improvements, it was buoyed further over the month when a Hong-Kong based activist investor launched a public campaign calling on DG to sell its stake in Kakaku.com and restructure into two entities, in keeping with the suggestions we made in private.

While DG's discount has narrowed, we believe the upside could be over 50% in a scenario where DG splits into two entities (a more likely event with two shareholders engaging on the same topic).

D'Ieteren:

One new position purchased in 2022 that we have not yet discussed is D'Ieteren, a seventh-generation Belgian family-controlled holding company whose crown jewel asset is a 50% stake in Belron, the global no.1 operator in the Vehicle Glass Repair and Replacement ("VGRR") industry.

We have invested in D'Ieteren across our other funds since 2018 however liquidity was historically insufficient for AGT to build a meaningful stake. In March 2022, following the publication of disappointing full year results, the shares fell -11% on a day the MSCI Europe index was up +6%. We initiated a position the very same day and added to the position shortly thereafter.

The bulk (68%) of D'Ieteren's NAV is accounted for by Belron, which readers might be more familiar with as Autoglass (UK), Safelite (US) or Carglass (EU). Belron is many multiples larger than competitors with >40% US market share, giving it significant scale advantages in terms of purchasing economies of scale and cost leadership, relationships with insurance partners who are industry gatekeepers, and technological investment, which has become increasingly relevant.

Increased windshield complexity and the requirement for Advanced Driver Assistance System ("ADAS") cameras to be recalibrated upon replacement has re-accelerated top-line growth and taken margins from 6% in 2018, when we visited the European Distribution Centre in Bilzen, to 19% in 2021. We expect Belron to keep riding this wave, with ADAS set to become a larger proportion of the global car parc, supported by a legislative tailwind. Over the medium-term sales should grow at a high single digit level with margin expansion translating to mid-teens growth in EBIT, and even higher free cash flow growth as capex spend moderates. Longer-term a possible IPO will likely help crystalise value, with the recent appointment of Carlos Brito - who built AB InBev into a global behemoth - perhaps indicative of this plan.

As well as this, D'Ieteren owns a collection of other smaller assets 1) a 40% stake in TVH Parts, a spare parts distributor focussed on forklifts and other industrial machinery; 2) a 100% stake in D'Ieteren Autos, which distributes VW brands in Belgium; 3) a 100% stake in Moleskine, the luxury notebook group; and 4) a 100% stake in PHE, a European automotive spare parts distributor focussed on the Independent Aftermarket (IAM). Both TVH and PHE are more recent acquisitions, and appear highly attractive, with strong market positions and the potential for accretive bolt-on acquisitions.

Over AGT's nine months holding the investment has generated a +46% ROI and an +85% IRR. The discount has narrowed materially and now stands at 21%. However, the defensive and resilient nature of the underlying asset's earnings and the prospect for NAV growth remain attractive.

AVI Global Trust 2022 Annual General Meeting:

AGT's AGM was held in December. The presentation can be found here .

Contributors / Detractors (in GBP)

Largest Contributors	1- month contribution bps	% of NAV
Digital Garage	20	1.3
Nihon Kohden	14	2.8
SK Kaken	9	1.4
Fujitec	8	2.1
Hipgnosis Songs	5	0.9

Largest Detractors	1- month contribution bps	% of NAV
Brookfield/Short SPY	-70	4.8
KKR	-65	5.3
EXOR	-51	7.6
Apollo Global Mgmt.	-39	4.2
Aker ASA	-38	7.3

Link Company Matters Limited

Corporate Secretary

10 January 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.

 

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