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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.

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