Arisaig’s June 2017 Diary

Arisaig Partners recently released their letter for June, which is available for download from their website. Their Asia Consumer Fund is now up 24.8% year to date, broadly in line with the MSCI Asia ex-Japan index, which is up 22.8% over the same period.

Some highlights below:

  • The portfolio remains heavily weighted towards India (~47%). Average current valuations are ~2.8x EV/sales and ~34.8x PER rolling 12m. 
  • The fund’s biggest contributor this year has been Future Retail, which is up some ~200%. In their view, this run up merely reflects a normalisation of valuations from a very low base. Shares still trade at ~0.9x EV/sales, not unreasonable for a dominant emerging markets retailer.
  • Their investment team spent some time last month visiting companies in Pakistan. They reported a tangible sense of optimism driven by improvements in national security and stability as well as increased capital investment from China. From an investment perspective, they think both industry structures and valuations are more favourable versus across the border in India:
    • Most consumer categories in Pakistan are duopolistic or oligopolistic in nature and dominant players tend to have high market shares.
    • Nestle and Colgate in India trade at ~51x and ~45x earnings respectively. Their Pakistani counterparts trade at ~33x and ~36x respectively, despite being of comparable quality.
  • The team also provided some updates on their investment holdings in the Philippines:
    • Philippine Seven, the local 7-Eleven operator, plans to transform its loyalty program (currently with ~5m registered users) into a mobile wallet and e-commerce platform. It’s a credible vision because the company has the best logistics infrastructure in the country and a footprint of 2,071 stores, which can be used as pick-up points.
    • Universal Robina had a difficult 2016 but management sees 2017 as a “reset” year. One area of focus is to extract more value from their impressive suite of JVs, including those with Calbee, Danone and Vitasoy. The long term goal for the latter (JV with Vitasoy) is to double the soy milk market in the Philippines and increase market share.