AVI GLOBAL TRUST PLC

Monthly Update

AVI Global Trust plc (the "Company") presents its Update, reporting performance figures for the month ended 31 August 2021.

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

https://www.aviglobal.co.uk/content/uploads/2021/09/AGT-AUG-2021-1.pdf 

Performance Total Return

This investment management report relates to performance figures to 31 August 2021.

* 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 (£) 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 +2.4% in August. Contributors included the Japan Special Situations basket, Third Point Investors and Pershing Square Holdings. Detractors included Christian Dior, Nintendo and Aker

Japan Special Solutions

Share Price: +6%

NAV: +5%

Discount: -39%

The Japan Special Situations basket was the single-largest contributor to returns, adding 96 basis points (bps), more than double the next-largest contributor. Notable performers in the basket were Pasona and Fujitec, who alone were responsible for over half of the basket's performance.

Pasona's share price rose +20%, driven in the main by a +23% share price gain from Benefit One, in which it owns a 50% stake and accounts for a remarkable 320% of Pasona's market cap. While the market is understandably focused on Benefit One's performance, we believe that the improved profitability of Pasona's core business (HR-related services) is being overlooked: indeed, it recently reported its highest-ever operating profits, helping to dispel arguments that Pasona's core business would be permanently lossmaking. Currently, Pasona trades on a -77% discount to NAV, reflecting in part this perception. To highlight the magnitude of the discount, if it were to close to zero - an event we admittedly regard as unlikely - we could stand to make a return of +335% from discount contraction. The potential for NAV growth and a tightening of the discount to less extreme levels holds out the prospect for very attractive returns from here.

Fujitec was the second-largest contributor, with its share price gaining +12% over the month. August saw it report strong earnings growth, with operating profits growing +163%. Compared to the same quarter pre-COVID, operating profits are now +94% higher. Furthermore, efforts to improve the company's margin structure appear to be working - gross margins were 25%, above the long-term average of 21%. Despite strong fundamentals, Fujitec continues to trade on a 12x EV/EBIT multiple compared to peers on an average of 25x. We believe there may be more upside to be had, notwithstanding the +130% share price gains over the past two years.

In early September, Prime Minister Suga announced that he would not run for re-election. While too early to comment on the likelihood of various potential successors, we believe nonetheless that the corporate governance reform agenda is well and truly entrenched. Therefore, we expect progress with reform to continue. The basket trades on a 5x EV/EBIT which, given: (a) the strong earnings recovery seen to date; (b) the continued improvements we are seeing in governance and regard for shareholder returns; and (c) the high-quality nature of the businesses, seems excessively low.

Christian Dior

Share Price: -7%

NAV: -7%

Discount: -12%

Christian Dior was the largest single detractor from returns in August, with the share price falling -7%. The proximate cause of the share price weakness was the regulatory environment in China. Investors have been skittish following comments regarding the need to promote "Common Prosperity" by President Xi Jinping at the 10th Meeting of the Central Committee for Financial and Economic Affairs on August 17th. China, as a key growth region for the luxury goods sector, is closely watched for any signs of change in the regulatory environment.

The ideal of common prosperity has appeared frequently in events and speeches in recent years. However, in the context of 2021 and a seemingly more invasive approach to regulation and the promotion of social goals, investors are pondering whether the ideals of the CCP might dampen growth for the luxury goods sector.

As several luxury goods CEOs have pointed out, the ambition to grow the middle class, and reform taxes, is prima facie beneficial for the luxury industry over the long term. What is less clear, however, particularly in the shorter term, is whether displays of wealth and conspicuous consumption become less socially acceptable. This remains largely unknowable in the short term.

We would however reject comparisons between today's situation and historic anti-grafting initiatives, where the luxury goods sector was specifically targeted. More than that, we would note that regulatory actions over the last 18 months have been distinctly pro-luxury, most notably with regard the development of Hainan as a duty-free luxury hotspot, and last year's tripling of the tax-free shopping quota to ¥100k. Certainly the promotion of the luxury goods industry and the repatriation of spend would fit with goals to boost domestic consumption.

In the context of the above we continue to monitor the situation. We note that Mr. Arnault has used the share price weakness to modestly increase his stake in LVMH.

Aker

Share Price: -7%

NAV: +0%

Discount: -22%

Aker also detracted from returns. The NAV was flat over the month however a widening of the discount from 15% to 22% saw the shares decline -7%.

Whilst the NAV was flat overall, under the surface there was divergence between Aker BP (which declined -5% shaving ~3% off NAV) and Aker Horizons (which returned +14% adding ~3% to NAV). Concerns about the spread of the Delta variant - and as such global growth - saw the oil price decline -5% over the month. As is often the case over short periods, Aker BP's share price tracked this fall. In turn we attribute Aker's discount widening to the misconception that Aker is an "oil holding company", with investors doubly punishing the oil price weakness in the form of a wider discount.

We believe such a view is misguided and ignores the evolution of Aker's NAV to a more diverse range of higher quality assets. Indeed, just in the last year Aker have: (1) listed krill company Aker Biomarine (6% of NAV); (2) built and listed a renewable energy holding company Aker Horizons (23% of NAV); and (3) demonstrated the value of industrial application software company Cognite (11% of NAV), following investments from Accel and TCV.

Since listing in 2004 Aker has compounded returns at +20% per annum. We remain excited about the prospect of continuing to align our capital with such skilled and active value creators.

Contributors / Detractors (in GBP)

Link Company Matters Limited

Corporate Secretary

21 September 2021

LEI: 213800QUODCLWWRVI968

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