AFC Uzbekistan Fund October 2023 Update

Dear Investors and Friends,

October saw many of the AFC Uzbekistan Fund’s holdings file third-quarter 2023 earnings, with continued impressive results. While global markets were roiled again during the month, with investors worried about the U.S. and Japanese bond markets, renewed inflation fears on rising commodity prices, and increasing global conflict, the markets in the New Fertile Crescent region, specifically in Central Asia and Uzbekistan, continue apace at their own drumbeat.

The October 2023 fund NAV rose to an estimated USD 1,785.1 (+1.0%) or +78.5% since inception on 29^th March 2019.

AFC Uzbekistan Fund valuations as of 31^st October 2023:

Uzbek Companies continue to deliver strong earnings

Just as Uzbekistan’s nine-month 2023 GDP growth reached 5.8% (full year 2023 is estimated at 5.6%), Uzbek companies continued their strong growth during the third quarter, with many blue-chip companies the fund holds continuing to perform exceptionally well. As Uzbekistan’s structural consumption, manufacturing, and construction boom continues from a very low base, buttressed by a fast-growing population whose average age is just 30 years with low financial leverage, the economy is on a very good trajectory. Further, inflation data for October came in at 1%, translating to +8.98% YoY, which is better than expected and certainly an improvement from the high teens inflation the country experienced upon its opening in late 2016.

The AFC Uzbekistan Fund’s investment strategy has been to concentrate capital in the highest quality blue-chip companies which are best levered to economic growth and which will be the “go-to” investments for local and foreign investors as fresh capital enters the stock market. The strategy is paying off and below are some of the more notable earnings announcements from our top holdings, three of which are top five holdings of the fund.

The fund’s largest position, a financial services company, had trailing twelve months EPS (ttm EPS) growth of 65% YoY, while the book value grew by 47%. Despite this impressive earnings growth, the company still trades at a very attractive P/E of 3.67x and P/B of 1.28x. Its competition, which we also own, saw EPS and book value grow 131% and 31% respectively, while trading at a P/E of 3.57x and P/B of 1.48x.

Another financial services company, the Uzbek Commodity Exchange, which we visited on our September 2023 tour (picture below), reported YoY EPS and book value growth of 15% and 11% respectively, while trading at a P/E of 6.52x and P/B of 5.45x.

Site Visit to the Uzbek Commodity Exchange

Similarly, a cement company had EPS and book value growth of 134% and 18%, trading now at an attractive P/E of 3.04x and P/B of 0.45x. Furthermore, an industrial producer of white spirits which we also visited on our investor tour in September, had an EPS growth of 128% and book value growth of 48%, and is now trading at a P/E of 4.19x and a P/B of 2.98x.

A modest position for the fund which we are beginning to pay more attention to as we aim to grow its weight in the fund, is a consumer goods distribution and retail business we invested into in 2018, but which subsequently had two years of poor earnings as the business had to adjust to the new floating exchange rate mechanism. However, profitability has turned around in the past three years with ttm EPS growth of 111% YoY and book value growth of 14%, while the company trades at an unsustainably cheap P/E of 1.68x and P/B of 0.33x! This company is so undervalued likely due to it trading on the OTC market and therefore not being on the radar of many investors, specifically foreigners. However, when that changes, we expect a substantial rerating, hopefully after we’ve built a larger position!

We are delighted with the continued growth in earnings across the fund’s holdings. Now, the key will be seeing increased investor participation in the market to drive “multiple expansion”. There is a new capital markets information platform hosting equity prices, financial ratios, and charts which will be launched in the near future at which time I’ll share more about it as it will provide much greater market transparency to investors and will be a valuable private sector catalyst for the development of Uzbekistan’s capital markets.

The New Fertile Crescent is shining

Throughout October, there were many notable news bytes further acknowledging the regional integration I’ve been discussing for some while in these updates.

On 17^th October 2023, Russian Prime Minister Mikhail Mishustin approved a list of 25 countries whose citizens will be able to undergo remote identification to conduct financial transactions in Russia. The list includes Uzbekistan, Kazakhstan, Kyrgyzstan, Tajikistan, Belarus, Azerbaijan, Armenia, Moldova, as well as several other countries and is in line with our focus on regional integration. Russia’s economy is doing just fine and sanctions have largely been ineffective as the country has plenty of trading partners for its services and natural resources. Therefore, enabling Uzbeks, among others, to more easily do banking in Russia is a net positive, especially as Uzbek remittances from Russia are Uzbekistan’s largest source of remittances, and Russia remains a key investor in Uzbekistan.

Further, as Iran plans to develop a transit corridor through Central Asia to Uzbekistan, the two governments have been discussing eliminating visa requirements between the two countries as business picks up between the two countries with Iranian exporters of consumer goods, steel, cement, and other products expand into the region, as well as tourism of course.

Finally, on 29^th and 30^th October, Uzbekistan’s Deputy Prime Minister Jamshid Khojaev visited Kabul/Afghanistan for negotiations on bilateral trade, where a roadmap was outlined for trade to increase to USD 3 billion per year, up from USD 760 million in 2022. During this visit, the Afghan government gave reassurances to the Uzbek side that the development of the Qosh Tepa canal, which will divert water from the Amu Daryo River to irrigate northern Afghanistan (a plan originally drafted by USAID when Afghanistan was under U.S. occupation), would not have detrimental effects on Uzbekistan’s water supply.

Third AFC Uzbekistan Tour

For those interested in visiting Uzbekistan with us, we are planning our third AFC Uzbekistan Tour, which will be held from Sunday 19^th May 2024 to Tuesday 21^st May 2024. We will begin on the 19^th with a day tour of Tashkent, followed by company meetings and site visits on the 20^th and 21^st. If you are interested in joining, please write us at This email address is being protected from spambots. You need JavaScript enabled to view it..

For further viewing here are some interesting, relevant news links related to Uzbekistan:

Tourism income reaches USD 1.7 bln in 9m 2023

Frances Macron visits Kazakhstan and Uzbekistan to cement ties and sign trade deal

Free wholesale market planned by 2026

AFC Uzbekistan Fund Marketing Information as of the end of September 2023

Subscriptions

The next cutoff date for subscriptions will be 24^th November 2023. If you would like any assistance with the subscription process, please get in touch with us at This email address is being protected from spambots. You need JavaScript enabled to view it.

Best regards,

Scott Osheroff

CIO AFC Uzbekistan Fund