AVI GLOBAL TRUST
PLC
Monthly Update
AVI Global Trust plc (the "Company")
presents its Update, reporting performance figures for the month
ended 31 March
2024.
This Monthly Newsletter is available
on the Company's website at:
https://www.assetvalueinvestors.com/content/uploads/2024/04/AGT-MAR-2024.pdf
Performance Total Return
This investment management report
relates to performance figures to 31 March 2024.
Total Return (£)
|
Month
|
Calendar Yr
to date
|
1Y
|
3Y
|
5Y
|
10Y
|
AGT NAV
|
1.9%
|
5.2%
|
24.6%
|
30.7%
|
74.4%
|
171.0%
|
MSCI ACWI
|
3.3%
|
9.2%
|
20.6%
|
33.6%
|
73.2%
|
202.9%
|
MSCI ACWI ex US
|
3.3%
|
5.6%
|
10.9%
|
15.7%
|
37.8%
|
100.2%
|
Manager's Comment
AVI
Global Trust (AGT)'s NAV increased +1.9% in
March.
D'Ieteren (+78bps), Hipgnosis Songs
Fund (+57bps), Schibsted (+44bps) and Aker (+31bps) were the most
significant positive contributors. We continued to average down in
Entain which we wrote up last month and which shaved off -24bps
from performance. A fellow newer holding Chrysalis Investments
detracted -21bps whilst our long standing (and long suffering!)
holding in IAC detracted -20bps.
March marks the halfway point in
AGT's financial year. For the interim period AGT achieved a
NAV total return (£) of +13.6%. This lagged the MSCI AC World
index, which returned +16.1%. The interim report will be
published in June.
News Corp
We started building a position in
News Corp last year and wrote it up in the April 2023 newsletter,
highlighting the deeply discounted valuation and the overlooked
quality and prospects for Dow Jones generally, and its Professional
Information Business ("PIB") specifically. In recent months we have
added to the position such that it is now our largest position
(6.7% of NAV).
In February, News Corp reported a
solid set of results which have seen the shares rise +8%
subsequently. For the quarter ending December 2023, group
EBITDA (which includes the consolidated stake in REA Group)
increased by +16%, some +12% ahead of consensus
expectations.
Results showed the strong continued
evolution of Dow Jones (37% of NAV), where revenues grew +4% and
EBITDA +17% as margins expanded +320bps to 27.9%. The key driver
here was PIB, where revenues grew +13%, led by Dow Jones Risk &
Compliance and Dow Jones Energy.
We argued last year that that these
assets were overlooked by the market and misunderstood by the sell
side, who carried Dow Jones at derisorily low multiples in their
sum-of-the-parts ("SOTP") models, and for whom the ramp up in
margin and evolution of business quality was missed. The margin
impact is coming through and investors - aided by improved
disclosure - are starting to appreciate the attractive nature of
these sticky, largely recurring and high margin revenue businesses.
We note that sell side analysts have started to increase the
multiple at which they carry Dow Jones in their SOTP models, but
the prospects and value of these businesses remains overlooked by
many.
Indeed, we certainly do not believe
these attractions are captured in News Corp's current valuation,
with the company trading at a 38% discount to our estimated
NAV.
Adjusting for the stake in REA, the
stub trades at an implied value of $5.4bn, or approximately 4.7x
next year's EBITDA. We estimate that Dow Jones alone is worth ~1.6x
the implied stub value and note that the New York Times at 15x and
Info Services peers which trade between 19-29x.
Management have become increasingly
vocal about the undervaluation. As CEO Robert Thomson
described on the last earnings call, the company is engaged in
"serious introspection about
structure…[and] how to fully monetize a precious, prestigious
portfolio that has an obvious growth trajectory. That is indeed not
an evolution, but a revolution".
At current prices, the market is
seemingly ascribing a low probability to "a revolution", with
significant upside if management do indeed take concrete and
tangible steps to unlock value. Combined with strong operating and
earnings momentum, prospective returns appear
attractive.
D'Ieteren
D'Ieteren was the top contributor
during a month in which the company reported full year results. The
shares rose +16% adding +78bps to AGT's NAV. We had been adding to
the position during January and February, which combined with
strong share price performance has pushed the company to be our
third largest position (5.8% of NAV).
Although in our last update we wrote
more extensively about D'Ieteren's newer holdings TVH and PHE, the
bulk of the value and crux of the investment case lies in Belron,
the global no.1 operator in the Vehicle Glass Repair and
Replacement ("VGRR") industry which accounts for 61% of our
estimated NAV.
Belron continues to benefit from
structural trends toward increased windshield complexity and the
proliferation of Advanced Driver Assistance Systems ("ADAS"), with
recalibrations now accounting for 36% of replacement jobs. Belron
is many multiples larger than competitors with >40% US market
share and this results in significant scale advantages in terms of
purchasing economies of scale and cost leadership, as well as
relationships with insurance partners who are industry gatekeepers
and account for c.70% of jobs. Moreover, scale has allowed for
technological investment, which has become increasingly relevant as
ADAS recalibrations - which require more expensive capital
equipment - have grown to become a larger proportion of replacement
jobs. Mom and pop operators are increasingly ill-suited to meet the
increased technical complexity required for new vehicles. As such
we expect Belron to continue taking share and driving
growth.
For FY23 Belron grew sales +9%
organically with a further boost of +2% for M&A. Positive mix
effect and price increases saw operating margins increase +226bps
to 20.5%, which led operating profits to increase +22% year on
year. For the year ahead, management are forecasting sales to grow
at mid-to-high-single digits and margins to continue towards what
for some time now has appeared a relatively modest 2025 margin
target of 23%. We expect Belron to provide updated targets at next
year's Capital Markets Day - which will be the first since Carlos
Brito became CEO.
As readers may remember, in 2021 a
consortium of private equity investors (led by Hellman &
Friedman) became minority shareholders in Belron at a €21bn
enterprise value. We estimate the EV is closer to €24.5bn today
(17x our 2024e EBIT), and D'Ieteren's 50% equity interest accounts
for 61% of D'Ieteren's NAV. In due course we expect a liquidity
event for these investors to help highlight Belron's significant
value, and like situations such as this where we are aligned with
highly incentivised PE co-owners and management teams. As such we
see scope for a further narrowing of D'Ieteren's 33% discount, as
well as NAV growth underpinned by strong earnings growth
prospects.
Contributors / Detractors (in GBP)
Largest Contributors
|
1- month
contribution
bps
|
% Weight
|
D'Ieteren
|
78
|
5.8
|
Hipgnosis Songs
|
57
|
5.5
|
Schibsted ASA 'B'
|
43
|
5.1
|
Aker ASA
|
30
|
4.9
|
FEMSA
|
23
|
4.8
|
Largest Detractors
|
1- month
contribution
bps
|
% Weight
|
Entain
|
-24
|
2.6
|
Chrysalis Investment
|
-21
|
3.4
|
IAC
|
-20
|
3.1
|
News Corp
|
-14
|
6.7
|
Keisei Electric Railway
|
-14
|
1.1
|
Link Company Matters Limited
Corporate Secretary
9 April 2024
LEI: 213800QUODCLWWRVI968
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