TIDMAGT
RNS Number : 3600C
AVI Global Trust PLC
14 June 2019
AVI GLOBAL TRUST PLC
Monthly Update
AVI Global Trust plc (the "Company") presents its Update,
reporting performance figures for the month ended 31 May 2019.
This Monthly Newsletter is available on the Company's website
at:
https://www.aviglobal.co.uk/content/uploads/2019/06/AVI-Global-Trust-2019-MAY.pdf
Performance Total Return
This investment management report relates to performance figures
to 31 May 2019.
Month Financial Calendar
Yr * Yr
to date to date
AGT NAV(1) -0.4% -1.2% 10.5%
MSCI ACWI Ex US(2) -2.0% -1.5% 8.6%
MSCI ACWI Ex US Value(1) -2.2% -3.1% 5.9%
MSCI ACWI(1) -2.6% -1.2% 10.5%
Morningstar Global Growth(1) -3.4% -3.6% 10.0%
* 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
AGT's NAV fell by -0.4% during May, driven by both declining
NAVs and widening discounts as the portfolio discount moved from
32.1% to 33.4%. Currencies were a positive contributor over the
month, with GBP being particularly weak against JPY, EUR and USD.
Good performance was generated from the Japan Special Situations
Basket, Fondul Proprietatea, and Cosan Ltd. Detractors included
Riverstone Energy and Tokyo Broadcasting.
The Japan Special Situations Basket contributed 50 basis points
(bps) to returns over the month, making it the largest contributor
to AGT in May. Four stocks, out of a total of eighteen in the
basket, generated the majority of the returns. Fujitec (share price
+5% in JPY) appointed another new director to its Board, leading to
a Board of Directors that is now majority independent; another
strong contributor, SK Kaken (+4%), abolished its poison pill. For
the other two major contributors (Kanaden, Digital Garage), there
was little major news over the month, although Kanaden bought back
4% of its outstanding shares in February. Since we initiated the
Japan basket in June 2017, we have observed a continuation of the
trend towards increasing levels of dividends, buybacks and
shareholder proposals, which we interpret as confirmatory evidence
of our initial thesis - that corporate Japan is undergoing a
secular change in its attitude to governance and capital
allocation. We believe that the potential risk-adjusted returns
from such a shift in attitudes will be highly attractive.
Fondul Proprietatea (FP) was one of the largest contributors for
the second month running, adding 45bps to returns. The NAV rose +1%
over the month which, together with a +4% increase in the share
price, led to a tightening of the discount from 33% to 31%. The
recent European elections saw a good performance from the
pro-business, pro-EU, reform-minded USR (Union to Save Romania)
party, indicating that Romania is not veering towards a Hungary- or
Poland-style drift from the EU and, furthermore, that the potential
for USR to take seats in the upcoming local and general elections
will goad the dominant political parties to adopt more pro-business
and anti-corruption policies. The Bucharest Stock Exchange Index
rose +6% from its May lows on the back of these developments. The
potential for an IPO of key assets such as Hidroelectrica (40% of
NAV) and Bucharest Airport (9% of NAV) is arguably now more likely
than before, which we believe would lead to a large amount of value
being unlocked for shareholders. With a high dividend yield
comprised of recurring ordinary and special dividends, attractive
valuations for the unlisted assets, a steep discount, and a policy
of distributing realisation proceeds, we continue to believe that
FP offers considerable value.
Cosan Ltd (CZZ) was the third-largest contributor over the
month, adding 26bps to AGT's returns. Cosan's NAV rose by +5% in
May, although this was tempered somewhat by a 1% widening of the
discount, with an overall share price gain of +3%. Cosan SA (71% of
NAV) posted consensus-beating EBITDA growth of +11%, although sugar
prices continue to weigh on the company's results. Comgás posted
EBITDA growth of +14% and the fuel distribution business continues
to grow volumes strongly and outperform peers. On a lookthrough
basis (i.e. valuing the holding companies underneath CZZ at NAV
rather than market price, as these companies too attract
discounts), CZZ trades on a 49% discount to NAV. We view this as
extraordinary given the quality of the underlying businesses and
management's ongoing attempts to tackle the discount. Examples of
management's adept capital allocation include share buybacks,
cancelling a large proportion of treasury shares, and the recent
tender offer by Cosan SA for the portion of Comgás that it does not
own. Over the medium-term, we estimate that the returns from
de-complexifying CZZ's holding structure would be in the order of
49% which, together with NAV growth from the underlying holdings,
would result in compelling returns for shareholders.
The oil price (WTI) declined -16% over the month, hitting
Riverstone Energy (RSE) which was the largest detractor from
returns over the month, reducing AGT's NAV by 52bps. RSE released a
quarterly NAV at the end of April, which contained write-downs that
were somewhat unexpected given the recovery of oil prices from
December lows. Sole listed holding Centennial Resource Development
(CDEV; 9% of NAV) continued to perform poorly, down -25% over the
month. We commented previously that negative/confused production
guidance from CDEV's management was poorly received by the market,
and recent oil price declines have evidently compounded negative
sentiment against the company.
Tokyo Broadcasting System (TBS) detracted 37bps from returns
over the month, in a month where Japanese equities performed
particularly poorly (TOPIX down -9%). Overall, the share price fell
by -14% in May driven by a -6% decline in the NAV and a widening of
the discount from 35% to 40%. TBS' underlying holdings - Tokyo
Electron (20% of NAV) and Recruit Holdings (21% of NAV) - had mixed
months, being down - 16% and up +4% respectively. In addition to
the weak background and poor performance of its holdings, TBS also
reported a negative outlook for next year's profitability. The
headline dividend payout ratio of 23%, below the stated policy of
30%, also appears to have caused some consternation despite its
decline being solely the result of a distortion from one-off gains
and being previously flagged by the company. While the recent
performance has been underwhelming, it is important not to lose
focus of the fact that TBS' balance sheet is replete with cash (13%
of NAV), listed securities (54%), and prime Tokyo real estate
(29%). While TBS has to date been distinctly ambiguous about what
it plans to do with these assets, we firmly believe that were it to
announce a definite strategic policy to reduce its massively
over-capitalised balance sheet, the market would reward the company
with a much higher share price. To that end, we remain in constant
dialogue with TBS' Board of Directors to produce a desirable
outcome for all stakeholders.
Trading activity was limited over the month, with profit-taking
in some positions.
Contributors / Detractors (in GBP)
Largest Contributors 1 month Percent of
contribution NAV
bps
JAPAN SPECIAL SITUATIONS
*** 50 18.7
FONDUL PROPRIETATEA 45 6.1
Largest Detractors 1 month Percent of
contribution NAV
bps
RIVERSTONE ENERGY LTD -52 3.7
TOKYO BROADCASTING SYSTEM -37 3.8
*** A basket of 18 stocks: Fujitec Co, Kato Sangyo, Tachi-S,
Nishimatsuya Chain, Pasona Group, Daiwa Industries, SK Kaken Co,
Kanaden Corp, Toshiba Plant, Nissan Shatai, Teikoku Sen-I, Nakano,
Mitsuboshi Belting, Sekisui Jushi Corp, Nuflare, Toagosei, Konishi,
Digital Garage.
Link Company Matters Limited
Corporate Secretary
14 June 2019
LEI: 213800QUODCLWWRVI968
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END
DOCLZLFFKQFXBBK
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