Monthly Update

RNS Number : 7276W

AVI Global Trust PLC

12 December 2019

 

AVI GLOBAL TRUST PLC

Monthly Update

AVI Global Trust plc (the "Company") presents its Update, reporting performance figures for the month ended 30 November 2019.

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

https://www.aviglobal.co.uk/content/uploads/2019/12/AVI-Global-Trust-2019-NOV.pdf

Performance Total Return

This investment management report relates to performance figures to 30 November 2019.

	Month	Financial Yr * to date	Calendar Yr to date
AGT NAV1	2.2%	0.6%	14.9%
MSCI ACWI Ex US2	0.9%	-0.5%	14.7%
MSCI ACWI Ex US Value1	0.2%	-1.4%	9.0%
MSCI ACWI1	2.5%	0.3%	20.4%
Morningstar Global Growth1	2.7%	0.8%	17.9%

* 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 From 1^st 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 rose by +2.2% in November, driven by a combination of underlying NAV growth and a tightening portfolio discount (from 32.5% to 32.1%). Currencies detracted modestly from returns. Major contributors over the month include the Japan Special Situations Basket, Oakley Capital Investments, Eurocastle Investment, and Kinnevik 'B'. Detractors include Wendel, Jardine Strategic and Riverstone Energy.

The Japan Special Situations basket added 113 basis points ('bps') to returns, with the average stock in the portfolio returning +7%, versus +2% from the TOPIX and +3% from the TOPIX Small. The strong performance was driven in the main by Toshiba Corp's offer to acquire two of its listed subsidiaries, both of which were held within AGT. NuFlare Technology and Toshiba Plant received bids from their parent at significant premia to the prevailing share prices. Both Toshiba Plant and NuFlare have been successful investments for AGT, earning IRRs of +26% and +89% respectively.

We have been attracted to the "parent-child" subsidiary theme for some time, believing that listed subsidiaries would either be sold off, or bought in by the parent company. The Abe administration has been critical of parent-child arrangements, bringing government pressure on the companies involved.

Despite the strong performance of the Japan basket over the month, valuations remain compelling, with 91% of market value covered by net cash and investment securities, and an EV/EBIT multiple of just 4.4x. We see increasing evidence of excess capital being returned to shareholders in corporate Japan, as companies begin to focus more on improving balance sheets and corporate governance. Furthermore, with a free cash flow yield of 5% and a focus on quality businesses, we are being paid to wait for the evolution towards a more efficient Japan.

The second-largest contributor over the month was Oakley Capital Investments (OCI), adding 46bps to NAV as the discount tightened from 29% to 24% with the share price up +6% on the back of an overhang of stock being cleared. OCI also conducted an opportunistic, albeit small, buyback of 1% of shares outstanding. With the raise of the manager's Fund IV now complete, we believe there are several assets in Fund III likely to be sold over the short to medium term which should be a catalyst for further NAV growth and - potentially - discount contraction.

Eurocastle Investment (ECT) added 26bps to returns, making it AGT's third-largest contributor. The company announced a de facto liquidation which involves selling its Italian NPL portfolio and returning the cash proceeds along with its stake in Italianlisted NPL servicer doValue via a tender offer. Real estate investments form the bulk of the residual rump assets, and further cash will be returned to ECT shareholders as and when these are realised.

Having begun building up our position in ECT in April of this year to ultimately reach an 18% stake in the company acquired at an average 21% discount to NAV, we were pleased to able to work with the Board to produce a beneficial outcome for all shareholders. AVI, along with other key shareholders accounting for over three-quarters of the register between us, has committed to tender all our ECT shares in full and to receive excess doValue shares in lieu of cash to the extent the tender is undersubscribed.

Despite the headwind from doValue's share price decline over our holding period, the investment in ECT has generated an IRR of over 18% to date. We believe doValue's weak share price has more to do with technical issues (low free float; overhang perceptions from ECT's shareholding) and - earlier in the year - an unjustified correlation with other Italian financials than with its stand-alone investment merits.doValue's acquisition of Altamira in early-2019 has diversified its business outside Italy, and the company's balance-sheet light model and associated high free cash flow provides it with firepower for further accretive M&A opportunities likely to arise across Southern Europe over the next year. Trading on an attractive low-to-mid-teens free cash flow yield, we look forward to benefitting from doValue's growth and share price recovery over time free from the fees that would have applied when the investment was housed within ECT's portfolio.

Kinnevik 'B' was AGT's fourth-largest contributor in November, adding 23bps to returns. During the month Kinnevik distributed its holding in Millicom - the Latin American-focused telecoms company which the Stenbeck family founded some thirty years ago - to shareholders. Kinnevik's shareholders received 0.14 Millicom shares for every Kinnevik share held, equivalent to a dividend of 18% of the pre-distribution NAV, netting AGT approximately £7.2m. The distribution reinforces Kinnevik's objective of dedicating a higher portion of its portfolio to disruptive, technology-enabled businesses. Having attended the capital markets day back in September we believe this to be an attractive move.

Detractors were few, with Wendel being the most significant. It detracted 14bps from returns on the back of a widening of the discount from 29% to 33%, while Jardine Strategic, the second most significant, detracted 11bps on NAV weakness.

Contributors / Detractors (in GBP)

Largest Contributors	1 month contribution bps	Percent of NAV
JAPAN SPECIAL SITUATIONS**	113	17.8
OAKLEY CAPITAL INVESTMENTS	46	7.2

Largest Detractors	1 month contribution bps	Percent of NAV
WENDEL	-14	2.7
JARDINE STRATEGIC HLDGS LTD	-11	5.7

** A basket of 16 stocks: Daiwa Industries, Fujitec Co, Kanaden Corp, Kato Sangyo Co, Konishi Co, Mitsuboshi Belting, Nakano Corp, Nishimatsuya Chain Co, NuFlare Technology, Pasona Group, Sekisui Jushi Corp, SK Kaken, Tachi-S Co, Teikoku Sen-I Co, Toagosei Co, Digital Garage

Link Company Matters Limited

Corporate Secretary

12 December 2019

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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