2024
January
In January, we met with the CEOs and management of 40 companies from a dozen emerging markets. We noticed improving business sentiment, which bodes well for earnings of companies in our fund’s universe.
This month, the fund invested in a $1.5b cement producer in Saudi Arabia which benefits from an exceptionally strong long-term demand outlook in light of the massive pipeline of megaprojects in the country along with construction activities for the Expo 2030 and 2034 FIFA World Cup. The largest domestic producer, this business has been growing output capacity in the last few years by installing highly efficient brand new production lines made in Germany; it uses clean energy as opposed to diesel, thus having escaped the enormous recent diesel price hike of 53% which affected its competitors and triggered cement prices to increase over 40% in the past month – a positive for our company as the price increases go directly to its bottom line; and with a 15x LTM P/E valuation, it has cemented its place as the cheapest among peers. In addition to the perfectly aligned fundamentals and increasing cement prices, there is even more to this investment case: it comes with an extraordinary catalyst. The company has recently transferred its old factory out of Riyadh and the vast 4.7m sqm land plot under the old factory – which the company fully owns – will soon become available for sale or joint venture real estate development. Market price of this land in Riyadh is over $1b, or more than two thirds of the company’s market cap! Clearly, a lot of shareholder value is waiting to be unlocked soon.
The fund also bought a $75m home appliances firm in Pakistan trading at a forward P/E of only 5x, which guides for over 150% earnings growth this year on the back of strong demand and relaxation of import rules. This firm’s stock price had already doubled for our fund nearly a decade ago and we are looking for a repeat.
At the end of the month, the news came out that the government of Saudi Arabia instructed Saudi Aramco (the world’s largest oil company) to halt a capex-heavy project of expanding its daily oil output capacity from 12m to 13m barrels a day. The same day, our largest portfolio position which comes from Saudi Arabia and has the word “Pipes” in its name, lost 10%. To us, this was a clear example of how our $300m company with no analyst coverage and with no active investor relations presence is misunderstood by the market: the vast majority of the company’s backlog and production is in pipes for gas projects and has nothing to do with oil exploration and drilling. Gas-related projects are a major focus of Saudi Arabia as it aims to produce more environmentally friendly energy, and there seems to be no stopping those projects in the years to come. As such, the fundamental standing of our company – which trades at its all-time-low valuation of 9x LTM P/E despite having bagged a record-high backlog last year that will drive record-high earnings in the next two years – is not affected by this news. One day of erroneous market perception would never define our long-term investment outlook; in fact, we actually quite like such misunderstood cases: it takes time for the market to understand them, but when it finally does recognize the value, the returns can be outsized. The stock has delivered nearly 50% return to the fund in the last quarter, and we estimate it has potential to double in the next 12 months.
February
In February, we made an investment journey through Malaysia on our touring bicycles, meeting with the CEOs of 26 companies in 10 cities along our route from the southern state Johor to the northern island Penang. In total, we pedaled 1,380km, fully immersing ourselves in Malaysian life on the ground, capturing local consumer sentiment, and identifying promising investment opportunities. We also met with – and impressed – the famous “investment biker” Jim Rogers, our investment nomad predecessor who rode his motorcycle around the globe in the early 1990s investing in companies along the way. While our transportation mode is slower than his, it appears to be healthier and more environmentally friendly.
We also made a trip to Azerbaijan where we met with the head of the stock exchange and the CEO of the largest bank in the country to learn about this obscure market we haven’t explored before. We were interested in the state's plans to privatize and list assets, and we were particularly inquisitive about the steps the bourse is taking to increase market liquidity.
This month, we increased three positions in the fund which all trade below 12x LTM P/E and stand to double earnings this year: a $150m Indonesian industrial city developer, and two Turkish companies – a $150m venture capital firm and a $200m electrical contractor turned EV charger manufacturing champion.
The fund also invested in a $75m company in Kuwait. This is a special situation: the business was established over 40 years ago and was listed 20 years ago, and throughout all that time it had operated as a classic “boring” real estate investment company. However, recently a new board was formed, and a new management team joined led by a CEO educated in Australia for his PhD who published on emerging markets in academic journals and has worked as a professor of finance. The company’s strategy has fully transformed to start making private equity investments in healthcare, education and lifestyle, combining the investment models of Berkshire Hathaway and Brookfield. This transformation has so far gone unnoticed by the market with investors still thinking the company is the same uneventful real estate business it ever was. Quite unusual for Kuwait is the visionary CEO’s intensive focus on ESG: not only did the company become the signatory to both the UN PRI and the UN Global Compact, its stated mission is to lead responsible investments in frontier markets.
March
In March, we met in person with 29 companies from 19 countries. We made a research trip to Sri Lanka where we met local companies and assessed the post-crisis economic recovery on the ground by speaking with analysts and the former central bank governor, walking the busy streets of Colombo, and visiting the new tax-free economic zone which promises to be the Dubai or Singapore of South Asia once completed.
We also visited Qatar and enjoyed its world-class infrastructure. We arrived in Qatar's airport (among the best airports in the world) on the country's flag carrier (among the best airlines in the world), took smooth traffic-light rides on well-planned highways to our meetings in Doha, and attended swimming world championships and a football game at impressive sports facilities. Qatar's recent decision to increase its liquefied natural gas (LNG) production capacity by 85% by 2030 will reinforce the country's place as the world's dominant gas supplier amid the global push to decrease reliance on oil, and will supercharge its economic growth. We met and invested in one of the beneficiaries of this imminent LNG production boom: a diversified $1.4b holding trading at 12x LTM P/E which essentially has a monopoly on helicopter services for gas projects.
This month, we started a special month-long research journey through Sub-Saharan Africa. We will share more details next month.
April
In April, we concluded our special month-long research journey through Sub-Saharan Africa, the region we haven’t explored in depth until now. We met with cheap, growing, high-quality companies in eight diverse countries: Angola, Botswana, Côte d’Ivoire, Namibia, Senegal, South Africa, Zambia and Zimbabwe. We also met stock exchange leadership in each country. We believe the best companies in these markets will represent an ever-growing investment opportunity in the future, owing to solid demographics, improving institutions, and use of technology.
We were particularly impressed with Namibia – one of the most developed and least corrupt countries in Africa. Namibia has recently found oil, which will greatly benefit its economy and stock market. A local $500m bank trading at 7x LTM P/E and growing earnings by over 20% which we met is at the forefront of the upcoming economic boom.
We also made a trip to southern Europe for due diligence on five cruise ports of our $300m portfolio company from Turkey that owns the world’s largest cruise port operator running 33 ports across the globe, including the world’s 4th-busiest cruise port in Nassau, Bahamas, and Europe’s largest (and 5th-busiest in the world) cruise port in Barcelona. The cruise industry keeps smashing passenger records, and the managers of all ports we visited were highly upbeat about this and next year’s prospects.
May
In May, we completed a research trip to Turkey, a market where small cheap growing high-quality companies run by world-class operators are always in abundance. We met with the most interesting firms – including a $200m luxury leather goods maker which recently opened a new factory in Italy and whose stock has already gone up 10x since we invested two years ago – and learned that local businesses are still faring well in the new era of economic orthodoxy marked by 50% interest rates aimed at curbing chronic inflation and currency depreciation. We also visited the Istanbul stock exchange, where we met with senior management who exuded positive market outlook.
This month, the fund bought a $150m truck distributor in Vietnam trading at 9x LTM P/E with a strong pick-up in earnings growth and favorable demand outlook. This is a highly obscure company: it took us half a year of multiple attempts to connect via email, website forms, calls, social media, and personal connections on the ground to finally secure a meeting with the CEO.
The fund also purchased shares in a $200m auto lubricant company from Thailand. Using proceeds from a recent IPO, this market-leading firm reduced debt and made substantial investments in marketing, which can result in an astounding earnings growth of over 50% this year, implying a forward P/E ratio of under 10x – quite cheap given such bright prospects.
June
In June, we made research trips to Indonesia and Myanmar. In Indonesia, we toured assets and met with the CEO of a $300m industrial land developer trading under 10x forward P/E. The company recently sold 108 ha of land in its newly developed industrial park near Jakarta to an anchor tenant – the world’s largest EV manufacturer from China – and sees a huge number of inquiries for land from global industrial conglomerates as well as leading technology players planning to build data centers. It also owns growing hospitality and construction businesses, and its current market cap is only 30% of its sum-of-the-parts valuation. The CEO has been buying shares in the business, heralding very strong earnings expansion.
We also met with the CEO of a $100m Indonesian gold jewelry retailer and manufacturer which has been growing earnings for several years in a row and trades at a mere 5x LTM P/E. Having recently started exports to India, the UAE, and Europe, it now stands to grow even faster.
We made a two-day deep dive into the assets of a $250m diversified holding in Myanmar trading under 10x forward P/E. Despite political issues in the country, the company successfully manages to grow earnings, has reduced debt from $326m to $36m in the last 2.5 years, and its sizable real estate project backlog for the next 12-18 months implies substantial future earnings growth. Listed in Singapore, the stock offers global investors the only way to buy a cheap, growing, high-quality hidden gem from Myanmar.
The Evli Emerging Frontier Fund finished H1 2024 with a performance of +16.1%. The fund is on track for its fifth consecutive top-quartile year, and has outperformed more than 99% of all emerging market funds listed on Bloomberg over 3, 5, and 10 years.
July
In July, the fund bought a $150m vehicle manufacturer in Pakistan trading at 8x LTM P/E. The business has recently started producing a hybrid model under a Chinese brand, and it has proven highly successful. The company’s monthly sales have been steadily growing due to overwhelming demand for the new model, while its factory still has a lot of capacity to keep ramping up production: we expect a 40%+ output growth next year. The automaker is a true hidden gem the likes of which we are hunting for across the globe: notwithstanding that it is very cheap, growing fast, and has net cash, it clearly is flying under the radar of big investors due to its size and geography; even its earnings calls are still conducted in Urdu – a rare occurrence for Pakistani companies which have switched to English long ago.
The fund also added a $600m ecommerce and marketplace leader in Turkey controlling a third of the market. Despite its dominant standing, net cash position, and expected annual sales growth of 40% over the next three years, the company trades at a multiple of only 0.6x P/S – while its global peers trade in the range of 3x to 7x P/S. One explanation for this discount is that the stock is listed in the US where not many care about a Turkish champ. We made a recommendation to the CEO to list the company in Turkey which we believe could unlock tremendous shareholder value.
August
In August, we made a research trip to Turkey. We met with the CEO of a $200m electrical contractor that has grown its backlog 3x larger compared to last year while reducing headcount in half, which resulted in EBITDA margins of over 40%. We also met with the CFO of an $800m ecommerce leader: the company keeps growing sales and is on track to profitability but trades 5-10x cheaper than its global tech peers because its stock is listed on NASDAQ in the US where investors don't pay attention to Turkish bottom-up stories. We reiterated our recommendation to the management to list the company in Turkey to unlock shareholder value.
To catch the CEO of a $150m leather goods company for a meeting, we had to make our way to a town of Canakkale four hours from Istanbul and participate in a cross-continental open water swimming race in which the CEO was also competing: this way, we could ask him our questions both before and after the race as it was the only time he was available. After starting our interview in Europe, swimming great lengths from Europe to Asia, and finishing our meeting in Asia, we realized that we had just completed the first cross-continental CEO meeting in the history of mankind which involved swimming. In the past, we have flown, driven, biked, climbed, and run to get our CEO meetings done, but this was the first time we had to swim. We keep going where others don’t!
In September, we had meetings with the management of companies from Malaysia, Morocco, Thailand and Vietnam, which ranged from $150m to $1b in market capitalization and represented a diverse spectrum of industries such as cocoa processing, private healthcare, rubber production, and real estate development.
This month, the fund completed buying shares in two financial services and banking businesses in Georgia, each $2b in market cap. In addition to their high-quality Georgian operations, one of these two companies has recently acquired a bank in Armenia which should significantly increase the group's earnings, while the other is rapidly expanding its fintech business in Uzbekistan – a highly lucrative underbanked market in Central Asia with a fast-growing population of over 35 million people – for which they hired one of the most successful fintech executives in Eastern Europe. We believe the upcoming parliamentary elections in Georgia have created an unnecessary overhang on these exciting bottom-up cases listed in London, which both produce high return on equity of over 25% while trading only at book value and 3x LTM P/E.
October
In October, we had meetings with the management of companies from Greece, Malaysia, Mexico, Pakistan, Poland, and South Africa. Of particular interest to us was learning through our bottom-up company-focused conversations that business sentiment in South Africa has strongly improved since the elections in May earlier this year, in large part thanks to the country managing to record over 200 days in a row with no electricity outages, which bodes well for the local corporates’ earnings expansion after years of despair.
This month, a rather unique event happened in our fund, as one of our portfolio companies – an ecommerce champion from Kazakhstan – acquired another portfolio company of ours, an ecommerce champion from Turkey. The valuation at which the founders of the Turkish business were bought out by the Kazakh company was significantly higher than the Turkish firm’s valuation on NASDAQ, and despite its instant 60% jump on the news of the deal there still remains a 60% gap between the buyout deal price and the market price. We believe there are two scenarios for minority shareholders of the Turkish firm such as our fund: either the Kazakh business will make a tender offer to buy out all minority shareholders at the same price it paid to the founders and thus take the business private, or it will keep the Turkish company listed – it helps that its growth prospects are stellar.
November
In November, we made research trips to Pakistan, UAE, and Kuwait. In Pakistan, we met three portfolio companies, all growing earnings over 20%: a $100m manufacturer of home appliances and power transformers experiencing a boost in demand for its transformers from the US; a $200m hybrid vehicle producer growing capacity due to popularity of its SUV model and lack of competition; and a $200m smartphone maker benefiting from the transition of Pakistan’s 250m population from feature phones to smartphones. Pakistan has recently made great progress: inflation declined, the central bank is cutting interest rates, the current account started registering surpluses, and currency stabilized.
In the UAE, we met with a highly upbeat CEO of a $12b real estate developer which our fund has owned since 2021 for a total stock price return of nearly 300%. The firm’s Q3 sales growth was 70% – driven by the continued expansion of Dubai’s population – yet the stock still trades at only 6x LTM P/E.
In Kuwait, we ran a sub-4-hour marathon with a $100m investment holding’s CEO to test his endurance in running his business. We then proceeded to do a tour of the company’s assets, which took us from the north of the country to the very south right next to Saudi Arabia. We were impressed by the company’s cutting-edge aquaculture farm in the middle of the desert, as well as its 3D house printing capabilities.