TIDMAGT
RNS Number : 8995S
AVI Global Trust PLC
19 March 2021
AVI GLOBAL TRUST PLC
Monthly Update
AVI Global Trust plc (the "Company") presents its Update,
reporting performance figures for the month ended 28 February
2021.
This Monthly Newsletter is available on the Company's website
at:
https://www.aviglobal.co.uk/content/uploads/2021/03/AGT-FEB-2021.pdf
Performance Total Return
This investment management report relates to performance figures
to 28 February 2021.
Month Financial Calendar
Yr * Yr
to date to date
AGTNAV(1) 2.8% 20.4% 2.5%
MSCI ACWI Ex US(3) 0.2% 10.6% -0.1%
MSCI ACWI(1) 0.5% 8.0% -0.4%
* 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 Source: Morningstar. Share price total return is on a
mid-to-mid basis, with net income re-invested.
3 From 1st 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 gained +2.8% in February. Returns
were driven by a combination of underlying NAV growth and a
tightening of the portfolio discount (32% to 31%), with sterling
strength acting as a headwind. Significant contributors included
SoftBank Group, KKR and Sony. Significant detractors included VNV
Global, Kinnevik and Nintendo.
SoftBank Group
SoftBank's strong performance over the month (share price +22%
in JPY) was driven primarily by a significant tightening in the
discount. We initiated a position in SoftBank in February 2020 and
added to the position at discounts in excess of 75% during the
following month's market rout. Since that date, SoftBank has
undertaken a series of transformative actions, including: (1)
realising JPY5.5 trillion through asset sales; (2) conducting a
JPY2.0 trillion NAV-accretive buyback, with plans for another
JPY0.5 trillion; (3) reducing gearing; (4) improving corporate
governance through the appointment of two new independent
directors; and (5) enhancing transparency over the Vision Fund.
Successful IPOs from the Vision Fund (notably Doordash and, after
month-end, Korean e-commerce play Coupang) have boosted its track
record and, arguably as importantly in terms of Softbank's
discount, helped shift the narrative around the fund and
management's investing prowess.
The market has reacted well to these actions, with SoftBank now
trading on a discount of 27% to our estimated NAV (at the time of
writing). Reflecting the tighter discount and associated reduced
upside, and notwithstanding a long pipeline of prospective IPOs
from the Vision Fund, we have reduced Softbank's weight in AGT by
approximately half. To date, the investment has generated an IRR of
+76% and a multiple on cost of 1.64x.
VNV Global
VNV's share price fell -6% in February following sharp gains
over previous months, making it the single-largest detractor from
returns. This was despite reports that key healthcare technology
asset Babylon (55% of NAV using AVI's valuation) is exploring a US
listing. In our view, Babylon is held at a conservative valuation
in VNV's NAV, reflected in part by the shares trading at a premium
to the last reported NAV. Our own estimate re-values Babylon using
a basket of listed peer multiples and puts VNV on an estimated
discount of almost 30%.
VNV had become an outsized position on the back of strong
performance (up +67%) since our initial investment in Jun-20, and
we recently reduced our investment to a size that better reflects
some of the business execution and regulatory risks around
Babylon.
Tilting the Portfolio
We talked in the latest Annual Report about how we took
advantage of the March 2020 sell-off to 'tilt' the portfolio
towards companies with robust, defensive earnings streams, strong
balance sheets and high levels of cash flow generation. In other
words, we shifted the portfolio towards higher quality companies
with clear secular growth prospects and, as a consequence, away
from more cyclical and economically sensitive stocks. This
re-positioning of the portfolio put us in good stead, with many of
these types of companies being strong drivers of AGT's returns in
2020.
Since the second half of 2020, we have been re-balancing AGT's
exposure back towards cyclical and economically sensitive stocks,
initiating positions in companies that we expect will benefit from
a return to normality as economies re-open. These include companies
such as Associated British Foods (the UK conglomerate that owns
Primark), those operating in the London office and retail property
and leisure markets (Capital & Counties, Secure Income REIT,
Shaftesbury), Jardine Cycle & Carriage, and Berkshire Hathaway.
These new positions build on the reflation beneficiaries we already
had in the portfolio such as Aker, Exor and many of the small-cap
names we hold in Japan.
Nintendo
AGT has initiated a new position in Nintendo, the Japanese
listed video-game company. The investment thesis for Nintendo is
predicated on its high-quality and unique IP (e.g. Super Mario,
Pokémon), net cash and investments covering approximately a quarter
of market cap, as well as a digital transformation of its business
that reminds us strongly of Sony during the PlayStation 4 cycle.
The insights garnered from our deep-dive research into Sony's
gaming division allowed us to spot similarities between it and
Nintendo's business, highlighting how insights in one area can be
leveraged or ported over to another.
As a reminder, the video game business has historically been
characterised by earnings cyclicality, with revenues and profits
driven by the periodic release of new consoles. Sony transformed
its own gaming business by introducing a subscription service,
microtransactions, platform fees and streaming services, reducing
reliance on hardware sales, and introducing highermargin, recurring
(sticky) revenue streams which are prized by the market for being
stable and highly visible.
In our view, Nintendo is at the beginning of a similar process.
In 2020, management took large strides in shifting its videogame
business towards an attractive, digitally focused model by
introducing both subscription revenues and downloadable content
onto the Switch platform. The pandemic served as a catalyst to move
consumers online, making the digital subsegment the fastest growing
part of Nintendo, now accounting for 42% of software sales and
helping drive operating margins to 37% (+11% over last year). In
addition to the digital transformation, Nintendo has the option to
further monetise its world-class IP by expanding into new areas -
for example, through opening its first-ever theme park and the
release of a new Super Mario movie, slated for 2022.
Despite the deep moat given by IP and the ongoing transformation
of the business, Nintendo trades at c. 10x operating profits, which
we believe reflects fears that management will attempt to re-invent
the wheel with each hardware cycle, meaning that profits will
continue to be cyclical and the business will always be exposed to
the risk of an unsuccessful console launch - for example, the
introduction of the Wii (highly successful) and the Wii U (less
successful). In our view, this risk is overstated, and we believe
there is strong evidence to suggest that Nintendo is moving away
from unpredictable hardware cycles, towards the Switch becoming the
sole platform, upgraded each cycle, similar to the PlayStation. The
release of the Switch Lite in 2019 and the upcoming release of the
Switch Pro, with upgraded hardware, highlights Nintendo's desire to
extend the Switch lifecycle, offering consumers a better experience
on refreshed versions of the platform. Furthermore, the
introduction of microtransactions, subscription services, and
different price point consoles suggests that Nintendo is starting
to build an ecosystem where consumers will store their Switch game
data on the cloud and in turn, upgrade their console every few
years.
We are excited about Nintendo as an investment opportunity and
believe that it holds out the prospect of both significant earnings
growth and valuation upside as the market comes to appreciate the
new and improved business model.
Contributors / Detractors (in GBP)
Largest Contributors 1 month contribution Percent of
bps NAV
Softbank Group 79 2.9
KKR 57 4.2
Sony 36 5.5
Exor 30 5.0
Swire Pacific Ltd 'B' 28 2.5
Largest Detractors 1 month contribution Percent of
bps NAV
VNV Global -33 2.2
Kinnevik B -25 3.0
Nintendo -19 3.0
Japan Special Situations** -16 14.3
Hipgnosis Songs -11 1.9
Link Company Matters Limited
Corporate Secretary
19 March 2021
LEI: 213800QUODCLWWRVI968
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