Azvalor Managers FI: Update No

Dear co-trader:

November marks the 3rd yr anniversary of the Azvalor Supervisors fund. It has presently over 500 co-traders and far more than 40 million euros underneath administration. We wish to thank all the co-buyers for their have faith in and for earning the fund’s consolidation probable.

Considering the fact that our previous letter in September the fund has sent a considerable return, in line with that witnessed previously in the calendar year, and the cumulative return given that inception in late 2018 stands at +34.22% (data as of most up-to-date NAV, Nov 25^th 2021). Seeking further than previous returns, the most appropriate subject is the place the fund presently stands in phrases of valuation, and for that reason what the efficiency expectation is for coming decades. In advance of delving into this dilemma, we will have to mention various current developments at the portfolio level:

• Numerous of the corporations in our portfolio whose share selling prices just lately elevated are benefitting from sizeable development in earnings and hard cash flows, which will make their valuation multiples nonetheless attractive.
• In other circumstances, the portfolio administrators offered off providers whose share charges had risen drastically and got nearer to fair benefit. They applied the proceeds to acquire advantage of new options that nevertheless offer hefty special discounts, therefore trying to keep the portfolio in a regular point out of “rotation”, in buy to keep its upside prospective.
• Finally, many corporations in the portfolio were being qualified for takeovers at much increased selling prices than our common price. This capital was utilized to get providers whose share costs remained much from good worth, in line with the aforementioned “rotation.”

Therefore, the fund’s valuation ratios still replicate a discount of in excess of 50% to the global fairness market place. In accordance to Morningstar facts the Azvalor Administrators fund is trading at 9.26 situations earnings (index at 18.16 periods) and 1.08 times book value (index at 2.63 occasions). The adhering to desk places these valuation ratios into historical viewpoint, showing how the ratios appeared like in preceding several years:

As it can be noticed, P/BV has mildly amplified currently but P/E has found minor modify or is even somewhat reduced. Although this is just a simple way of evaluating the combination current market valuation of the portfolio, we believe that it reveals the sizeable price reduction at which it is however trading.

It have to be famous that a lot of of the portfolio organizations experienced been materially penalised in price around the past 5 and ten many years. A scenario in level: The common share selling prices of the portfolio companies at this time are 47% down below the highs they have respectively registered at some position in the last 10 years. The the latest upturn in price tag is just a partial recovery of what the portfolio professionals estimate is their reasonable benefit, so there is still important home to deliver returns. In summary, with a prolonged-time period point of view we assume the portfolio delivers a margin of basic safety to produce stable returns and to outperform the industry in coming yrs.

But, how are the Administrators in a position to find this sort of undervalued opportunities in a industry in which certain indices are at all-time valuation highs? The primary purpose is that our Professionals evaluate businesses that are not broadly recognized (75% of the portfolio is in little and micro-cap businesses), and they have a contrarian mentality as a result of which they appear into unpopular segments of the market, implementing expenditure procedures that have been productively proved for decades. In a context in which the divergence of valuation among in excess of-priced and beneath-priced businesses remains at an extraordinary (see chart down below), we consider this is the most prudent way of investing for the prolonged-time period. The very last time this divergence was so broad (in the late 1990s), it marked the onset of a number of many years of value investing beating the market.

We take care of the fund as if it ended up our individual capital since, in reality, it is. Our motivation to the fund is mirrored in the point that Azvalor’s group and their family members keep 18% of the fund’s belongings.

And lastly, see listed here an posting about the Azvalor Administrators fund lately posted on the fiscal journal Expansión. Once again, we thank you for your rely on and we welcome any questions or comments to our Investor Relations team.

Sincerely,

Azvalor SGIIC