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In April, we reinitiated an investment in Jardine Matheson (JM), now 2.6% of AGT NAV, the Hong Kong based holding company of the Keswick family, which currently trades at a -27% discount. Longer-term followers of AGT will remember that we have invested in JM and other parts of the group structure at various points over the last 25 years, and it is a name we know well.

The company’s history dates back to 1832 as a leading trading house, heavily involved in goods like cotton, tea, and silk. Almost 200 years later, and now on the fifth

generation of family control, the company has vastly expanded, with interests spread across property, hotels, retail, autos and financial services. Much of these are through controlling stakes in listed asset such as Hongkong Land (30% of NAV), Astra (via Jardine Cycle & Carriage (28% of NAV)), DFI Retail (14% of NAV) and Mandarin Oriental (9% of NAV).

The company, and wider Jardine group, are currently undergoing gradual but significant changes in their path to modernising as a holding company – in many ways aping changes we saw in European holding companies some twenty or so years ago – moving away from an owner-operator model, to one of an engaged shareholder.

Since Ben Keswick took over as Chairman in 2019, the owner-operator approach has changed with multiple portfolio companies appointing external candidates to senior leadership positions, with JM wanting to bring in highly experienced sector specialists to run the businesses, replacing long standing JM employees.

JM will move away from the direct, day to day management of the portfolio companies, focussing instead on  board representation, reviewing growth strategies and capital allocation policies of the portfolio companies while allowing the experienced, professional management to run day-to-day operations.

With the new CEOs looking dispassionately at their businesses, we are starting to see positive developments, with strategic reviews initiated at Hongkong Land and Mandarin Oriental, focussing on simplifying their structures, and asset realisations at DFI.

At Hongkong Land, a pivot into asset management and a focus on mixed use projects in Asian gateway cities, while planning an exit from their build to sell residential business, should lead to a more stable, higher quality earnings stream and be rewarded with a higher multiple (and thus narrower discount). Execution is key here, with plans to recycle c. $10bn of assets already underway with the  partial sale of Exchange Square in Hong Kong at a reported cap rate of 3.1%.  The company has earmarked 20% of recycled capital for buybacks.

Mandarin Oriental’s new CEO is turbo charging change, with a long string of new management contracts announced as they move to a capital light model, undertaking sale-leaseback transactions, with the first significant asset sale announced last year as they sold their Paris hotel for $383m.

We believe much of the real estate portfolio is available for sale-leaseback, none more so than the famous Causeway Bay site which nears practical completion. This was last valued at c. US$2bln vs Mandarin’s US$2.6bln market cap, with JM being very clear this mixed-use commercial building has no place in Mandarin Oriental’s portfolio.

As they sell off their valuable real estate and hit their aim of 100 hotels under management, the company should screen much better on a return-on-equity basis, which we believe should lead to significant share price improvement.

DFI Retail has been through a process of portfolio realisations under the new CEO, Scott Price. Stakes in companies in which they did not have significant influence have been jettisoned such as Robinsons Retail and Yonghui, with the proceeds paying down debt and distributed to shareholders via a special dividend of US$600m of which JM received c. US$465m.

Further portfolio improvements are expected with Astra International embarking on a strategic review in the next year as they review their conglomerate structure and decide which assets (which range from autos, to property to mining) belong under the same roof.

There have also been significant and exciting changes at JM itself. Lincoln Pan has been appointed as incoming CEO from December, replacing the outgoing John Witt who oversaw many of the positive steps outlined above. Lincoln provides a wealth of private equity experience joining from PAG, where he built up their non-China business. Lincoln’s appointment has been further bolstered by the hire of Ming Lu, formerly of KKR, to the Board to enhance their private equity and portfolio management capabilities.

We expect JM to be debt free in the short term, giving the new hires a clean slate to better align the portfolio to the new model and we expect Lincoln Pan and team to communicate their views in the coming months.

To date, it has been a successful investment for AGT, generating a total return of +36% in a little over four months. Looking ahead, with many portfolio companies undertaking measures that should lead to positive share price movements, we believe prospects for NAV growth are compelling.

In April, we reinitiated an investment in Jardine Matheson (JM), now 3.4% of AGSS NAV, the Hong Kong based holding company of the Keswick family, which currently trades at a -27% discount. Through our investment trust, AVI Global Trust, we have invested in JM and other parts of the group structure at various points over the last 25 years, and it is a name we know well.

The company’s history dates back to 1832 as a leading trading house, heavily involved in goods like cotton, tea, and silk. Almost 200 years later, and now on the fifth generation of family control, the company has vastly expanded, with interests spread across property, hotels, retail, autos and financial services. Much of these are through controlling stakes in listed asset such as Hongkong Land (30% of NAV), Astra (via Jardine Cycle & Carriage (28% of NAV)), DFI Retail (14% of NAV) and Mandarin Oriental (9% of NAV).

The company, and wider Jardine group, are currently undergoing gradual but significant changes in their path to modernising as a holding company – in many ways aping changes we saw in European holding companies some twenty or so years ago – moving away from an owner-operator model, to one of an engaged shareholder.

Since Ben Keswick took over as Chairman in 2019, the owner-operator approach has changed with multiple portfolio companies appointing external candidates to senior leadership positions, with JM wanting to bring in highly experienced sector specialists to run the businesses, replacing long standing JM employees.

JM will move away from the direct, day to day management of the portfolio companies, focussing instead on  board representation, reviewing growth strategies and capital allocation policies of the portfolio companies while allowing the experienced, professional management to run day-to-day operations.

With the new CEOs looking dispassionately at their businesses, we are starting to see positive developments, with strategic reviews initiated at Hongkong Land and Mandarin Oriental, focusing on simplifying their structures, and asset realisations at DFI.

At Hongkong Land, a pivot into asset management and a focus on mixed use projects in Asian gateway cities, while planning an exit from their build to sell residential business, should lead to a more stable, higher quality earnings stream and be rewarded with a higher multiple (and thus narrower discount). Execution is key here, with plans to recycle c. $10bn of assets already underway with the  partial sale of Exchange Square in Hong Kong at a reported cap rate of 3.1%.  The company has earmarked 20% of recycled capital for buybacks.

DFI Retail has been through a process of portfolio realisations under the new CEO, Scott Price. Stakes in companies in which they did not have significant influence have been jettisoned such as Robinsons Retail and Yonghui, with the proceeds paying down debt and distributed to shareholders via a special dividend of US$600m of which JM received c. US$465m.

Further portfolio improvements are expected with Astra International embarking on a strategic review in the next year as they review their conglomerate structure and decide which assets (which range from autos, to property to mining) belong under the same roof.

There have also been significant and exciting changes at JM itself. Lincoln Pan has been appointed as incoming CEO from December, replacing the outgoing John Witt who oversaw many of the positive steps outlined above. Lincoln provides a wealth of private equity experience joining from PAG, where he built up their non-China business. Lincoln’s appointment has been further bolstered by the hire of Ming Lu, formerly of KKR, to the Board to enhance their private equity and portfolio management capabilities.

We expect JM to be debt free in the short term, giving the new hires a clean slate to better align the portfolio to the new model and we expect Lincoln Pan and team to communicate their views in the coming months.

To date, it has been a successful investment, generating a total return of +35% in a little over four months. Looking ahead, with many portfolio companies undertaking measures that should lead to positive share price movements, we believe prospects for NAV growth are compelling.