ASF header


AFC Uzbekistan Fund July 2022 Update


Dear Investors and Friends,

July saw second-quarter earnings season commence with some positive results for the AFC Uzbekistan Fund. Further, during the month, the fund exited one of its smaller positions after the company was privatized by the government of Uzbekistan. Muted activity during the month saw the fund end July nearly flat, with the July 2022 fund NAV falling to an estimated USD 1,787 (-0.3%) or +78.7% since inception on 29th March 2019. 


AFC Uzbekistan Fund valuations as of 31st July 2022:

 Estimated weighted harmonic average trailing P/E (only companies with profit):

 Estimated weighted harmonic average P/B: 1.06x
 Estimated weighted portfolio dividend yield: 2.63%


Uzbekistan’s economy is humming

First half 2022 statistics for the Uzbek economy have been published and the results are very positive. During the period, GDP grew 5.4% and the Central Bank increased its full-year 2022 GDP estimate from 3.5% - 4.5% to 5% - 5.5%. Exports surged 40.5% to USD 9.92 bn (22.5% of which were gold exports), while import growth moderated to 27.4%, or USD 14.57 bn. Real income of the population also rose by 10.8%, while the average salary increased 20% to UZS 3.54 mln or USD 323.

On Central Bank policy, they raised the policy rate by 300 basis points when the conflict between Russia and Ukraine broke out, and have since subsequently lowered by 200 basis points, to 15%, as of July 2022. The reduction in the policy rate has occurred while inflation has remained relatively stable at 11%, encouraging when one looks at other developed and developing countries which are experiencing inflationary shocks, largely due to a lack of control over their food and energy supply, something which Uzbekistan is well positioned for.

Second-quarter earnings season begins

Second-quarter earnings season kicked off in July with overall positive results. The standout was a glass producer which saw its profits surge by 599% after several years of poor performance due to the company undergoing a signficant capacity expansion which included them borrowing about USD 70 mn which saddled the company with debt service costs impacting profitability. Year-over-year debt decreased by 32% with the company’s debt-to-equity ratio now standing at a comfortable 1.04x. The company ended the month trading at a P/E ratio of 2.71x and a P/B ratio of 0.75x.

Another fund holding which performed well during the quarter was a chemical company which saw its earnings and book value per share growing by 22% and 56% respectively. The company ended the month trading at a P/E ratio of 5.66x and P/B ratio of 2.06x.

One underperformer was the fund’s second largest holding, Qizilqum Cement (TSE: QZSM) which suffered due to a gas shortage in the first quarter 2022. Uzbekistan’s cement industry has been powered by natural gas since the Soviet times and in the fourth quarter of 2021 and into 2022, the country experienced a natural gas shortage which impacted the entire cement sector, forcing production to be curtailed. The effects of the gas shortage carried into the beginning of second-quarter 2022, but nevertheless the company only reported earnings decrease of 10% year-over-year. As the gas shortage has been resolved for this year with winter behind us, the company is now operating at full capacity and should be inaugurating its new 1.1 mn ton per year production line later this year. The company ended the month trading at a P/E ratio of 14.48x and a P/B ratio of 0.70x. The P/E ratio should compress markedly during the second half of the year as trailing twelve-months earnings were negatively impacted by a bad Q4 2021 and Q1 2022 due to the shortage of gas.

Exiting a position

In July, the AFC Uzbekistan Fund exited a position in an oil and gas logistics company as the majority share in the company had recently been privatized with the new shareholder looking to buy out minority investors in order to take the company private. Preferring to not hold shares in the company, especially with the share price trading around our average cost, we were able to negotiate the sale of our block of shares at a 27% premium.



AFC Uzbekistan Fund Marketing Information as of the end of June 2022