AVI Global Trust (AGT ) has made a new investment in News Corp, believing shares in Rupert Murdoch’s publishing group trade at less than half their underlying value, making them ‘one of the most misvalued and misunderstood companies in our investment universe’, according to fund manager Joe Bauernfreund.

Half-year results this week showed the £1bn global investment trust has ploughed 3.1%, or £36m, of its assets into the Murdoch family-controlled owner of the Wall Street Journal and The Times in the hope that the company will be broken up to release shareholder value. 

This made News Corp the 13th biggest position in the trust, which specialises in buying investment companies and listed family businesses trading on steep discounts to net asset value (NAV). Its biggest holding at 8.5% of assets is private equity fund Oakley Capital Investments (OCI ). In third place, at 6.3%, is Aker ASA, the Norwegian industrial and energy investment company.

Nasdaq-listed News Corp was formed in 2013 when Murdoch (above), now 92, split his media empire in the aftermath of the News of the World hacking scandal, with his broadcast interests hived into 21st Century Fox.  

From a March 2021 peak of $27.63, News Corp shares have fallen to $18.58 and stand on a 53% discount to asset value which value investor Bauernfreund found impossible to ignore. 

Dow jewel in crown

Bauernfreund, chief executive of Asset Value Investors in London, described Dow Jones, the financial publisher behind the Wall Street Journal, as the group’s ‘crown jewel asset’. He said the ‘thriving’ digital consumer business accounted for 39% of News Corp and warranted a premium valuation for its ‘growing, high margin, sticky, recurring revenues’.

That currently wasn’t the case with Dow Jones worth almost three times the ‘stub’ value of the remainder of its businesses, which include a 64% listed stake in REA Group, the Australian real estate classified marketplace, and HarperCollins, the book publisher that makes up 13%.

Bauernfreund (above) told investors the stub traded at just 2.3 times earnings that were expected to grow at an annual rate of 9% for the next three years. This compared to companies in the US communication services and information services sectors that were valued at median multiples of 10.4 and 22.3 times.

He noted that ‘management are highly aware of, and dissatisfied with, the current valuation’ and said this year’s attempted sale of REA’s property listings business Move indicated ‘a willingness to make structural changes to unlock value.’

‘Whilst timing is uncertain, the attractive underlying nature of the NAV [net asset value] means that we can afford to be patient and makes time our friend,’ he said.

March pain

AGT itself stands on a 10% discount, reducing its market value to £897m, after increasing its NAV by 5.3% in the six months to 31 March. This underperformed its benchmark, the MSCI AC World ex US, which rose 10.3%, and the better-known MSCI AC World index, which gained 6.3%.

The trust had been ahead of its benchmarks a month before the half-year-end, but the selloff in March of financial stocks after the collapses of Silicon Valley and Credit Suisse banks unfairly hit its positions in US alternative investment managers KKR, Apollo and new holding Brookfield Corporation.

Its best performers were luxury brand owner Christian Dior, Oxxo convenience store operator Femsa, Oakley Capital Investments after its ‘stellar’ 2022 results, and Exor, the Agnelli family holding company that owns Fiat and Ferrari.

Weighing on returns were Aker, which fell in response to weaker oil and energy prices, Indian real estate company Godrej Industries and US hedge fund Third Point Investors (TPOU ) after its ‘woeful underperformance’ in both public and private equities.

Unlike last year, Bauernfreund is seeing plenty of value as discounts widen in response to the economic uncertainty. In a busier period the manager added US manufacturing company Spectrum Brands and Singaporean group Haw Par, a holding company with interests in healthcare and leisure products.

The manager, who also runs AVI Japan Opportunities (AJOT ), also bought a position in a basket of heavily overcapitalised Japanese regional banks that should benefit as the country starts to tighten its long-standing, ultra-loose monetary policy.

The board, which is chaired by former Invesco fund manager Graham Kitchen following the retirement of Susan Noble last year, bought back 11.9m , or 2.4%, of shares as their discount to NAV widened. 

Shares in the growth fund have remained under pressure since March, falling 5.4% in the past three months and are flat over one year. Over three years, however, shareholders have received a total return of 51.8%, the best of any global equity trust and ahead of the 33.1% gain in the MSCI AC World index, according to data from Numis Securities. The trust won a Citywire performance award with AJOT last November.