TIDMAGT
RNS Number : 4867T
AVI Global Trust PLC
14 November 2019
AVI GLOBAL TRUST PLC
Monthly Update
AVI Global Trust plc (the "Company") presents its Update,
reporting performance figures for the month ended 31 October
2019.
This Monthly Newsletter is available on the Company's website
at:
https://www.aviglobal.co.uk/content/uploads/2019/11/AVI-Global-Trust-2019-OCT.pdf
Performance Total Return
This investment management report relates to performance figures
to 31 October 2019.
Month Financial Calendar
Yr * Yr
to date to date
AGT NAV(1) -1.6% -1.6% 12.4%
MSCI ACWI Ex US(2) -1.4% -1.4% 13.6%
MSCI ACWI Ex US Value(1) -1.6% -1.6% 8.8%
MSCI ACWI(1) -2.2% -2.2% 17.5%
Morningstar Global Growth(1) -1.9% -1.9% 15.8%
* 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) From 1(st) October 2013 the lead benchmark was changed to
the MSCI ACWI ex US (GBP) 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 fell by -1.6% in October, with
underlying NAV declines more than offsetting the positive impact
from a tightening portfolio discount (in from 33.0% to 32.5%).
Currencies were a powerful headwind over the month, with GBP
strengthening against all major currencies on the back of the UK's
Withdrawal Agreement reached with the EU. Contributors for the
month include EXOR, the Japan Special Situations basket, and Cosan
Ltd. Detractors include Riverstone Energy, Pershing Square
Holdings, and Third Point Offshore Investors (all three of which
suffered from a weaker USD, the most pronounced of the major
currency moves against GBP).
EXOR was your Company's largest contributor, adding 43 basis
points (bps) to returns as the NAV rose by +6%. The discount
tightened from 31% to 28%, resulting in total share price returns
of +12%. Fiat Chrysler Automobiles (FCA), 28% of EXOR's NAV, was
the star performer with a share price rise of +17% following the
announcement of its merger with Peugeot. A large part of our thesis
for EXOR has been the consolidation of FCA with a large competitor.
Under the terms of the deal, FCA shareholders will receive c. 30%
of the pre-announcement share price in the form of a special
dividend as well as a distribution of Comau shares (a company
specialising in industrial automation in which FCA holds a stake),
and will own 50% of the combined entity post-merger. Taking just
50% of the expected annual synergies adds 31% to FCA's earnings,
highlighting the accretive nature of the deal.
The deal will create the fourth largest autos manufacturer
globally, with annual sales of 9m vehicles. We view the combination
as eminently sensible, given the complementary nature of each
company's geographic operations (e.g. PSA has a large, profitable
business in Europe, but low exposure to the Americas; FCA is much
stronger in the US than it is in Europe), and the ability to
generate cost savings through scale and increased purchasing power.
The Agnelli family behind EXOR - particularly John Elkann - has a
history of savvy capital allocation at FCA, such as the spin-out of
Ferrari and CNH Industrial to unveil hidden value, the sale of
parts manufacturer Magneti Marelli to KKR/Calsonic Kansei, and now
the planned merger with Peugeot. By aligning AGT's capital with the
Agnelli's holding company, EXOR, we benefit from this long-term
view and disciplined, value-creating approach to capital
allocation. At the current 28% discount, we continue to see
considerable value in the shares with multiple levers of value
creation available, including a spin-out of Maserati & Alfa
Romeo from FCA, the planned split of CNH Industrial (16% of EXOR's
NAV) into two specialised companies, and the use of special
dividends to conduct NAV-accretive buybacks at the EXOR level.
The Japan Special Situations basket was October's second-largest
contributor, adding 32bps to NAV. The 17 stocks in the basket
returned an average of +7% (in JPY terms), outperforming both the
TOPIX and TOPIX Small (+5% and +6% respectively) along the way.
Notable performers in the basket include Fujitec (+14%), with
strong upward revision in profit forecasts, and Sekisui Jushi (+5%)
which announced a buyback of 7% of outstanding shares. The level of
total buybacks in Japan has been increasing strongly, with JPY12
trillion of announced buybacks in 2019 (year to date), which
compares to JPY6 trillion in 2018.
There was a negative note during the month, when the Japanese
government published proposals that altered the ownership level at
which foreign investors in protected industries need to seek
regulatory approval. The proposals appeared, prima facie, designed
to thwart foreign activism in the country; however, the Ministry of
Finance later clarified that foreign investors will be exempted,
provided that they do not seek a director's seat or the sale of key
assets.
Post month end, our thesis that parent-child listed subsidiary
arrangements would come under pressure was confirmed as Toshiba
Corp offered to buy in three of its listed subsidiaries, of which
two are held in the Japan Special Situations basket: Toshiba Plant
& Systems (52% owned by Toshiba Corp) and Nuflare Technologies
(57%). Toshiba Corp offered JPY2,670 and JPY11,900 for Toshiba
Plant and Nuflare respectively, representing increases of +27% and
+45% from the undisturbed share price. Since the end of September,
the tender offer from Toshiba Corp represents a rise of +48% and
+55% for Toshiba Corp and Nuflare respectively.
We consider all these developments to be highly encouraging and
interpret them as being confirmatory evidence of the changing
regime in Japan, with corporations improving their capital
allocation and governance policies to the benefit of all
stakeholders. Furthermore, the government remains supportive of
foreign activism to propel changes in corporate Japan.
Riverstone Energy (RSE) was this month's largest detractor,
reducing returns by 65bps as its share price declined by -26%. We
wrote extensively about RSE in the recently published annual
report.
In summary, RSE has been negatively impacted by the decline in
oil prices over the past year, with West Texas Intermediate falling
-23% since the October 2018 peak, and multiples for listed US
E&P companies falling much more dramatically. RSE's third
quarter statement reveals the extent of the downfall, with the
portfolio currently held at 0.7x cost, compared to 1.4x just one
year ago. Particular pain has been felt at Hammerhead Resources
(11% of NAV), with infrastructure bottlenecks depressing local oil
prices, and listed Centennial Resource Development (CDEV) (7% of
NAV - down -25% in October and -85% over one year). In the case of
CDEV, the current share price - combined with a conservative
valuation placed on each flowing barrel - implies a negative value
being assigned to its undeveloped acreage.
Our investment in RSE has clearly been a difficult one over the
last year. While we are encouraged by the Board's recent
announcement that it was evaluating options to manage the discount,
we believe that structural solutions will be required to
sustainably narrow the discount.
Pershing Square Holdings (PSH) was the second-largest detractor,
reducing returns by 56bps (over half of this due to currency,
however). The NAV fell by -5%, although the discount tightened by
1% to 26%, resulting in share price returns of -4%. Performance at
the portfolio level was mixed, with key holding Chipotle Mexican
Grill (19% of PSH's NAV) falling -7% despite a strong quarterly
earnings report with beats on sales, profits and margins. Concerns
have grown about the company's ability to maintain high same-store
sales growth next year versus more challenging comps, but we
believe the runway from menu innovation and further growth in
digital orders is very long. Restaurant Brands (18% of PSH's NAV)
declined -8% on worries about slowing growth at Burger King and Tim
Hortons. Howard Hughes (8%)'s share price fell -14% as the results
of its strategic review made clear that a quick sale of the
business is unlikely. That said, sales of non-core assets with the
proceeds used for an aggressive buyback programme should prove
supportive.
Trading activity was limited over the month. AGT received a
distribution of GBP8m from Vietnam Phoenix (1.8% of NAV) following
the sale of key asset Greenfeed.
Contributors / Detractors (in GBP)
Largest Contributors 1 month contribution Percent of
bps NAV
EXOR 43 5.1
JAPAN SPECIAL SITUATIONS** 32 18.9
Largest Detractors 1 month contribution Percent of
bps NAV
RIVERSTONE ENERGY -65 1.9
PERSHING SQUARE HOLDINGS -56 7.3
** A basket of 17 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,
Toshiba Plant Systems & Services, Digital Garage
Link Company Matters Limited
Corporate Secretary
14 November 2019
LEI: 213800QUODCLWWRVI968
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END
DOCBLBDBDXBBGCS
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November 14, 2019 11:37 ET (16:37 GMT)
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