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2023

January

In January, we started a research trip to Latin America to meet with the CEOs of over a dozen companies in Mexico, Colombia and Chile, and undertake multiple site visits to assess their assets and operations.

Our first rendezvous was with our second-largest portfolio holding, a $4b regional commercial bank in the Mexican state of Guanajuato whose stock price increased by 73% since we invested in July 2022. We spent an entire day with the bank’s executive team and had 5 meetings (one-on-one with the CEO; executive team lunch; meetings with the digital transformation, SME, and agriculture teams) as well as two site visits. We toured the bank’s headquarters in Leon and were impressed by the employee amenities: free on-site childcare, affordable canteen, petting zoo, recreation rooms. Guided by the ex-governor of Guanajuato and ex-mayor of Leon, we also visited an industrial park in the logistically advantaged state of Guanajuato and witnessed the massive “nearshoring” unfolding in Mexico as many major global conglomerates are building new plants or relocating production facilities from Asia to Mexico. Our bank benefits from this nearshoring trend – on top of its stellar organic growth through digital initiatives – and conservatively guides its 2023 earnings growth at over 30%, all at a valuation of only 10x LTM P/E.

February

In February, we finished our trip to Latin America, meeting over a dozen companies in Mexico, Colombia and Chile.


This month, the world witnessed a tragic earthquake in southeastern Turkey. Our fund owns four portfolio companies in Turkey, and right after the earthquake we reached out to all four to express our condolences and asked if there was any impact on their operations. We were relieved to learn that besides one portfolio company which had to close 5 shops out of 118 (representing only 1% of its annual sales) there was no impact on our holdings as they largely operate in Istanbul and globally, and from February 6th (earthquake date) to the end of the month they all had positive returns of up to 7%.

 

To avoid a panic sell-off and to boost stock prices, Turkish capital markets authorities and the government implemented a highly substantial support package: the stock market was closed for trading for 5 days; pension funds were mandated to increase their exposure to Turkish equities from 10% to 30%; a special government fund was set up to buy Turkish stocks; tax waivers on share buybacks were enacted (which led to dozens of companies buying back shares); and short selling was banned on dozens of stocks. This effectively helped calm the panic in the market. We believe the government will continue doing whatever it takes to support equities this election year.

March

In March, we met a dozen companies we had never met before, hailing from Malaysia, Thailand, Kuwait, South Africa, Vietnam, and Poland. The prevailing sentiment we captured from this sample of businesses was that the world is possibly heading into recession this year as most companies are currently experiencing softening demand. Nonetheless, an $800m regional car distributor in Kuwait stood out for its optimistic growth outlook, cheap valuation and unique competitive advantages, further supplemented by the firm’s obscurity in the market due to its recent IPO.

This month, we sold a Philippines-based land holding company after our earlier meetings on the ground and a forensic accounting analysis by our local CPA revealed significant corporate governance concerns such as the founder buying shares for free a few years ago and a lack of sufficient disclosures to verify intercompany and external deals. We never tolerate governance problems and are quick to act when we identify them. We also sold a Vietnamese air cargo handling business on deteriorating growth prospects caused by a substantial decrease in Vietnam’s trade.

After banking issues at SVB and Credit Suisse came to light, we reached out to all our portfolio companies and asked about any impact of the banking crisis on their operations. None of our companies see any direct impact.

April

In April, we took a deep dive into the port assets of one of our largest portfolio holdings – a $250m Turkish diversified investment group which owns the world’s largest cruise port operator, a highly profitable business with a 70% EBITDA margin. We met with the management of Barcelona (largest cruise port in Europe), Catania, Bar, and Venice ports and learned that the expected number of ships and passengers this year by far surpasses the 2022 and even 2019 figures, while docking fees are set to increase after multi-year freezes. With such strong tailwinds and with five other growing subsidiaries, our holding which trades at only 4x LTM P/E is a bargain.

We also visited a brand new factory of our $150m Turkish luxury leather goods maker, which was set up in Italy. Conveniently located right next to the company’s clients, world’s top luxury brands, this factory opens a plethora of growth opportunities for our company – especially now amid the recovery of China’s luxury market. Regardless of the macro noise in Turkey, our companies generate substantial profits denominated in foreign currency, and we estimate that both have the potential to surprise the markets by doubling earnings this year.

The modern-day Marco Polos, we also went to Uzbekistan for the first time. We met with the stock exchange CEO and learned about his plans to increase liquidity in this up-and-coming market.

May

In May, we bought a $150m long-haul low-cost airline based in Malaysia. With Southeast Asia having exited the pandemic restrictions later than other parts of the world, the steep post-pandemic air travel rebound is felt particularly profoundly in the region now. After a period of restructuring, our company – a household name in Malaysia known for its innovative spirit and bold business moves – is already showing better results in some metrics than in 2019 and is sure to generate substantial profits this year.

We also visited South Korea where we met with a $140m language data and translation services company. The firm benefits from the intensified demand for language data by the largest global tech companies and keeps growing its sales and order sizes every quarter. According to the CEO, the expansion of all things data and AI is further speeding up his company’s rapid growth.

This month, Turkey had presidential elections, and as we expected the incumbent remained in power. Our fund’s Turkish holdings are primarily exporters with hard-currency-denominated profits and our Turkish lira position is fully hedged. As such, we were fully prepared for either outcome of the elections. From May 14th when the first round of elections took place to the end of the month, our four Turkish stocks returned +6%, +8%, +12% and +17% (in EUR) respectively, while the local index was negative.

June

In June, we bought a $1.5b toll road operator in Indonesia. Trading at 9x LTM P/E, this company’s highways are experiencing a strong pick-up in traffic as the world’s fourth-largest population is hitting the road like never before, helping drive the economy toward a solid 5% GDP growth target.

We also bought a $900m airline in Thailand serving domestic routes between the capital city Bangkok and seaside tourist destinations. The airline is recovering swiftly after being grounded during the Covid era and is benefitting from a profound rebound in international tourism (with over 1,000% more international visitor arrivals to Thailand in Q1 2023 vs Q1 2022) which used to contribute over 10% to the country’s GDP before the pandemic.

This month, we increased our position in a $900m car distributor based in Kuwait which posted 47% net income growth in Q1 and shows no signs of stopping on the back of dissipating bottlenecks in global auto manufacturing. We also increased our stake in an $80m Turkish electrical contractor trading at 6x LTM P/E which is supported by several currents: the government’s post-earthquake rebuilding program, metro extension for the upcoming local elections, $50b in construction contracts awarded to Turkish builders by Saudi Arabia, and increase in domestic investment appetite after the presidential elections. The company fixes 85% of its contracts in EUR terms.

July

In July, we bought a $125m Indonesian jewelry manufacturer and retailer. Trading very cheaply at only 6x LTM P/E, the company posted 40% earnings growth in both Q1 and Q2, started exporting its products to India, and intends to further grow exports to the UAE and Europe. We also acquired shares in a $500m mid-tier brokerage in Vietnam which after a period of market turbulence became profitable again in Q2. The majority of Vietnamese companies that used to be superstar performers prior to 2022 (the year when the market collapsed -33%) are too expensive as they still do not produce meaningful – or any – earnings growth. However, we observe a strong pick-up in trading volumes driven by the local and foreign investors “hoping for a strong 2024”, and our new portfolio addition stands to capture this trend of increased market liquidity – the best leading indicator for brokerage earnings.

This month, we also made a research trip to the Mexican cities of Leon and the capital Mexico City where we met with the CEOs of two of our portfolio companies.

Our portfolio of cheap, growing, high-quality companies trades at an average P/E ratio of 7x (vs 13x for the EM index), with an LTM earnings growth of 53% (vs -8% for the EM index) and an ROE of 25% (vs 12% for the EM index). We are currently seeing the greatest number of highly compelling investment opportunities since mid-2021.

August

In August, we made a research trip to Indonesia, meeting half a dozen companies: a $150m jewelry retailer and exporter whose three factories, a jewelry exhibition, and an impressive customer event that gathered 500 of its distribution partners we visited; a $100m industrial estate developer building a manufacturing hub near Jakarta which we toured with the company’s management; a $2bn toll road operator seeing people hit the road like never before; an $800m home improvement retailer recovering its pandemic-hit growth beyond expectations; a $350m taxi operator surpassing its 2019 profit records; and a $2bn industrial holding developing an industrial port in Surabaya, the country’s second-largest city. These businesses trade at very cheap valuations and most delivered Q2 earnings growth of at least 40%.

This month, we bought shares in a $2bn investment holding in the Philippines. Driven by its banking and Toyota dealership businesses, the company grew earnings 150% in Q2, is positioned to continue strong growth next year, and still trades at an ultra-cheap 4x P/E valuation.

We also bought a $350m manufacturer and supplier of electrical products in Saudi Arabia trading at 13x P/E (a cheap valuation relative to the Saudi market) with Q2 earnings growth of 250%. Lastly, we acquired shares in a $600m bank in Pakistan trading at only 3x P/E while delivering over 100% earnings growth and over 50% return on equity.

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