Theme and Background
This section primarily addresses investors' concerns about the sustainability of the fund's recent gains and reaffirms Azvalor's investment philosophy: price and value are the only two variables that matter. The report argues that although the fund has posted significant gains for five consecutive quarters, current valuations remain well below intrinsic value, and the revaluation process has only just begun.
Core Thesis
The author's core investment argument: now is not the time to sell, but rather the starting point of a broader and more enduring revaluation process. Despite Azvalor Internacional rising 132% from its low, its annualized return since inception nearly six years ago stands at just 4.5%, far below its target valuation (approximately double the current value). The author believes that if the fund reaches its target price by its eighth year (November 2024), an annualized return of around 15% would be entirely reasonable.
Counterintuitive judgment: Market consensus suggests taking profits after a sustained rally, but the author argues that the fund's portfolio remains significantly undervalued relative to index valuations, and estimated value far exceeds current market capitalization, thus the outlook remains optimistic.
Key Arguments and Data
- Historical return comparison: Since inception, the fund has delivered a cumulative return of 30% (annualized 4.5%), while the target valuation is roughly double the current value. If the target price is reached in the eighth year, the annualized return would be approximately 15%.
- Valuation discount: The international fund currently trades at approximately €130/share, with an estimated value of €290/share; the Iberian fund trades at approximately €95.8/share, with a target price of €200.9/share.
- Uranium investment thesis: Through UPC and Yellow Cake, the fund invests in uranium. Current trading prices carry a premium relative to the spot uranium price ($32/lb), but a substantial discount relative to the industry's sustainable price ($60/lb).
- New position valuations: Línea Directa was purchased at 13x sustainable earnings, slightly above the 10x rule, but justified by its higher business quality; PPC was purchased at below 8x normalized earnings.
Comparative data table:
| Fund |
Current Price (€/share) |
Estimated Value/Target Price (€/share) |
Discount |
| Azvalor Internacional |
~130 |
290 |
55% |
| Azvalor Iberia |
~95.8 |
200.9 |
52% |
Companies/Assets Involved
- Acerinox (new addition to Iberian portfolio, weight <1%): Initiated position during share price weakness, bullish on upside potential.
- Línea Directa (new addition to Iberian portfolio, weight <1%): An excellent insurance company, purchased at 13x sustainable earnings, bullish.
- Range Resources (new addition to international portfolio): One of the largest natural gas producers in the U.S., initiated at ~$9.0/share, has already gained nearly 60%, still bullish but reduced position size.
- Public Power Corp (PPC) (new addition to international portfolio): Former state-owned electricity monopoly in Greece, purchased at <8x normalized earnings, bullish.
- UPC / Yellow Cake (permanent holdings in Iberian portfolio): Uranium investment vehicles, bullish (based on the industry's sustainable price of $60/lb).
- Fully sold: Applus, Cementos Molins, Codere, Euskaltel, Zegona, 2020 Bulkers, Genco, Golden Ocean, Hyundai, IOG, Mota, Prosegur (mostly sold due to liquidity or acquisition reasons, all at a profit).
- Sonaecom / Elecnor (combined 11% of Iberian portfolio): The author believes their value is double the current price; due to poor liquidity, they may experience sharp short-term rallies, bullish.
- Tubacex (10% of Iberian portfolio): Dragged down by weakness in the energy sector and labor issues, but the author believes these problems will be resolved, bullish.
Investment Implications
- For existing investors: Do not sell due to short-term gains; the fund's valuation remains far below intrinsic value, and the revaluation process could last for years. The historical annualized return of 4.5% is far below the target; now is a time to add positions, not reduce them.
- For new investors: Both the Iberian and international funds offer significant margins of safety (discounts exceeding 50%), and some companies in the portfolio (e.g., Sonaecom, Elecnor) may deliver short-term explosive returns due to poor liquidity.
- Specific directions: Focus on the long-term revaluation opportunity in uranium investments (UPC/Yellow Cake); valuation recovery in natural gas producer Range Resources and Greek power company PPC; and the rebound in Tubacex after the resolution of labor issues in the Iberian portfolio.
Theme and Background
This section focuses on the portfolio characteristics and valuation status of two funds under Azvalor—Azvalor Blue Chips and Azvalor Managers. The author aims to illustrate that, despite the market having risen, the investment portfolios remain deeply undervalued, providing a foundation for future excess returns.
Core Thesis
The author's core investment argument is that the current valuation discount of Azvalor Managers (approximately 50% relative to global equity markets) is rare since the fund's inception, laying a solid foundation for outperforming the market in the coming years. For Azvalor Blue Chips, the author emphasizes its similarity to Azvalor Internacional but distinguishes it through larger market capitalizations, fewer holdings, and higher concentration.
Key Arguments and Data
- Azvalor Blue Chips:
- Per-share value of EUR 251.
- Portfolio characteristics: Weighted average market capitalization of EUR 20 billion; 40 holdings (vs. 70 for Azvalor Internacional); top 15 holdings account for nearly 65% (vs. 50% for Azvalor Internacional).
- Azvalor Managers:
- Return of 9.8% in the second quarter of 2021, with a cumulative return of 36.8% in the first half of the year.
- Valuation discount: Approximately 50% relative to global equity markets (Morningstar data), a level the author considers rare since the fund's inception.
- Portfolio structure: 70%-75% allocated to small and micro-cap companies, covering a wide range of industries and regions; stock selection is managed by four international investment management boutiques.
Comparison Data Table:
| Indicator |
Azvalor Blue Chips |
Azvalor Internacional |
| Weighted Average Market Cap |
EUR 20 billion |
Not specified (but smaller) |
| Number of Holdings |
40 |
70 |
| Top 15 Holdings Weight |
Approximately 65% |
Approximately 50% |
Companies/Assets Involved
- Azvalor Blue Chips: The fund itself, with holdings highly similar to Azvalor Internacional but focused on larger-cap companies (weighted average market cap of EUR 20 billion), with fewer and more concentrated holdings. The author does not explicitly state a bullish or bearish view but implies its valuation logic aligns with Azvalor Internacional.
- Azvalor Managers: The fund itself, currently with a significant valuation discount (approximately 50%), with a portfolio primarily composed of small-cap companies. The author is explicitly bullish, believing the current discount level provides favorable conditions for future market outperformance.
Investment Implications
- For Azvalor Blue Chips: Investors should note its similarity to Azvalor Internacional but be aware that its higher concentration (top 15 holdings at 65%) may lead to greater volatility. The current valuation (per-share value of EUR 251) serves as a benchmark for measuring potential returns.
- For Azvalor Managers: The current valuation discount of approximately 50% represents a historically rare buying opportunity. Investors should hold patiently, waiting for the market to reprice, as deep undervaluation in small-cap companies typically takes time to correct, but once corrected, the return potential is substantial.