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AVI Global Trust (AGT) September.
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If at the start of the month we had been told that D'Ieteren would report a healthy set of half year results and announce a €74 per share extraordinary dividend, our best guess would not have been for the stock to be the largest detractor – but that is exactly what happened. In early September, D’Ieteren announced that there was to be a reorganisation of the controlling family’s shareholding. Nayarit (the vehicle of Nicholas D'Ieteren) is to acquire a 16.7% stake from SPDG (the vehicle of Olivier Périer) at €223.75 per share (the then market price). Concurrently, and to help fund this, D'Ieteren announced their intention to pay a special dividend of €74 per share. At current prices, this equates to a yield of 39%. The dividend will principally be funded via a €3.8bn dividend recapitalisation at Belron (of which €1.9bn will flow to D'Ieteren), as well as a new €1bn debt facility at the holding company level and cash on hand. We view this as highly positive – receiving a large portion of your market cap back at NAV is an inherently good thing and investors suggesting otherwise are missing the wood for the trees. It is our understanding that tax-sensitive Belgian retail investors have been sellers of the shares. In turn, price has led narrative and various negative views have emerged. Some investors have raised concerns about supposed governance failures in so far as the controlling family’s interests are leading to taxable events in the form of the dividend. Not only are taxes a fact of life, but we believe such a view misguidedly focuses on the wrong thing. Indeed, we believe the family have handled the succession between generations (now into the seventh) rather well, and the payment of a dividend to all shareholders and resulting long-term stability in ownership is something to be celebrated. Other investors have queried the increased debt at Belron, which will rise to c.5.5x EBITDA. Yes, this is high by public market standards, but the company is a prodigious cash generator and has a track record of deleveraging following previous dividends. Moreover, the dividend recapitalisation is enterprise value neutral for Belron and – in our view – most likely warrants a tighter, not wider – “fair” level of holding company discount. D’Ieteren has now fallen -16% from the preannouncement level, such the capital return now equates to 39% of D'Ieteren’s market cap (gross of tax). On an ex-dividend basis D’Ieteren is trading at an implied -54% discount to NAV. We believe this to be a highly attractive valuation and have correspondingly increased our position by +57% over the last month such that D’Ieteren is now an 8.2% weight. This will of course naturally reduce as the dividend is paid, with AGT expected to receive dividends, net of tax, of c. £35m. This alone equates to nearly 1.5x AGT’s prior year annual dividend income.