Monthly Newsletter

 

AVI GLOBAL TRUST PLC

 

Monthly Update

 

AVI Global Trust plc (the "Company") presents its Update, reporting performance figures for the month ended 31 December 2019.

 

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

 

https://www.aviglobal.co.uk/content/uploads/2020/01/AVI-Global-Trust-2019-DEC.pdf

 

Performance Total Return

 

This investment management report relates to performance figures to 31 December 2019.

 

	Month	Financial Yr * to date	Calendar Yr to date
AGT NAV1	2.8%	3.4%	18.1%
MSCI ACWI Ex US3	1.9%	1.3%	16.8%
MSCI ACWI Ex US Value1	2.1%	0.7%	11.3%
MSCI ACWI1	1.1%	1.4%	21.7%
Morningstar Global Growth1	1.5%	2.3%	19.7%

 

* 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 rose +2.8% in December, driven by a combination of underlying NAV growth and a tightening portfolio discount (from 32.1% to 31.6%). Currencies detracted from returns over the month, with Sterling strengthening against most major currencies. Contributors for the month included Oakley Capital Investments, Cosan Ltd, Symphony International and Eurocastle Investment. Detractors included Jardine Strategic and Tetragon Financial.

 

Oakley Capital Investments (OCI) was the largest contributor over the month, adding 95 basis points (bps) to returns. OCI's NAV increased by +8% which, together with a tightening of the discount from 24% to 20%, resulted in share price total returns of +13%. The key event driving NAV growth in December was Oakley's sale of WebPros (9% of NAV prior to sale) to CVC Capital Partners at a +92% uplift to carrying value, adding +8% to its NAV. We estimate that the deal took place at 16-17x EV/EBITDA. OCI will retain exposure by re-investing part of the proceeds into WebPros through Fund IV, keeping exposure at 6% of NAV.

 

WebPros is a provider of web-hosting software solutions to SMEs. Its genesis lies in Oakley's 2017 acquisition - via a corporate carve-out - of Plesk, the number 1 provider of web-hosting solutions in Europe. Plesk had been a product line within a larger group, neglected, starved of capital, and without even a separate set of accounts; part of Oakley's due diligence involved reverse-engineering accounting records from bank statements. As a result of the deal's complexity and unique nature, Oakley was one of the only bidders for the asset and paid a lowly 7x EV/EBITDA multiple. WebPros was the name given to the holding company formed to hold Plesk and several other bolt-on acquisitions.

 

2018 saw a significant development when Oakley backed WebPros' acquisition of a majority stake in cPanel, Plesk's competitor in the US, forming a single company with a commanding share of the US and European markets. The cPanel deal was sourced by two Oakley-associated entrepreneurs who became acquainted with the CEO of cPanel. Both of these examples highlight Oakley's unique approach to private companies: a focus on complex transactions, and the power of an entrepreneurial network to source deals.

 

Overall, Oakley earned a multiple on cost 6.7x, and an IRR of 140% on WebPros - an excellent result for a 2.5-year holding period.

 

Cosan Ltd (CZZ) contributed 61bps to returns, as the NAV rose by +17% and the discount tightened from 15% to 6%, resulting in share price returns of +31%. Underlying holding companies Cosan SA (72% of CZZ's NAV) and Cosan Logística (31%) both performed well, returning +12% and +8% respectively over the month.

 

We initiated our investment in CZZ in July 2017, with a thesis predicated on the quality of the underlying assets, the strong management team in place, and the potential upside from group simplification. It is clear to us that the ultimate intention of CZZ's Board and Management is to directly own its underlying investments through a collapse of its holding structure. In January 2019, CZZ started this process by taking Comgás - a listed subsidiary of Cosan SA - private.

 

The market reacted positively to this transaction, as evidenced by the tightening of the discount from 26% to 6% over the past year. Discount tightening was also supported by share buybacks amounting to 9% of outstanding shares - a move which we applaud given the risk-free accretion to NAV per share it generates for remaining shareholders. Aligning AGT's capital with capital allocation-savvy managers is always an attractive opportunity.

 

Over its lifetime, the CZZ position has been a successful one for AGT's portfolio, with a multiple on cost of 1.7x and an IRR of 36% (local currency). Returns have been driven by a combination of NAV growth (+80%) and a tightening of the discount from 33% (weighted average across purchases) to 6% currently. With the discount at increasingly tight levels, we have been trimming the position on share price strength over the past year, such that CZZ now accounts for 2% of AGT's NAV.

 

Eurocastle Investment (ECT) added 32bps to returns in December, making it one of the largest contributors to AGT's returns. As we discussed in last month's newsletter, ECT announced a de facto liquidation of its portfolio, which involved selling its Italian NPL portfolio and returning the cash proceeds to shareholders, along with its stake in Italian-listed NPL servicer doValue, via a tender offer. In other words, AGT would be receiving the majority of its investment back at a zero discount to NAV. This process was completed in late December, with AGT receiving a mixture of cash and shares.

 

We are pleased with this outcome, having worked with the board of ECT to negotiate an outcome that was beneficial for all parties. The fruits of this effort can be seen in the excellent returns to date, with the position generating a 1.2x multiple on cost and a 31% IRR (using the latest doValue share price) since March 2019. We continue to see scope for further upside from the doValue shares which we now own directly (c3% of AGT's NAV), with earnings growth set to accelerate from its recently-announced acquisition of FPS, the NPL servicing platform owned by Greece's Eurobank. The acquisition positions doValue as the market leader in what will be the most active market for NPL disposals over the next couple of years, and further diversifies doValue outside of Italy (now just under 50% of doValue's Gross Book Value pro-forma for the deal).

 

There were few major detractors over the month, with Jardine Strategic (JS) the only one of note, reducing returns by 34bps as a widening discount (from 37% to 40%) overwhelmed +2% NAV growth.

 

 

Contributors / Detractors (in GBP)

 

Largest Contributors	1 month contribution bps	Percent of NAV
OAKLEY CAPITAL INVESTMENTS	95	8.0
COSAN LTD	61	2.0

 

Largest Detractors	1 month contribution bps	Percent of NAV
JARDINE STRATEGIC HLDGS LTD	-34	5.7
TETRAGON FINANCIAL	-15	3.6

 

 

 

Link Company Matters Limited

Corporate Secretary

 

15 January 2020

 

LEI: 213800QUODCLWWRVI968

 

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