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The AFC Uzbekistan Fund Class F shares returned −1.5% in December 2024 with a NAV of USD 1,256.01, bringing the return since inception (29th March 2019) to +25.6%, while the return for the year stands at −27.8%. On an annualised basis, the fund has returned +4.0% p.a.
December saw the conclusion of a challenging year for performance in the Uzbek market as equity prices broadly drifted lower, absent the foreign investment we saw from 2019 to 2022. However, since late 2024, we believe the market has begun a bottoming process with renewed interest from both foreign and local investors, in addition to capital markets infrastructure developments.
Summing up 2024
2024 appeared to be a year in transition, looking at the newsworthy events of the government’s announcement to form an investment vehicle comprised of state-owned companies, potentially with the help of Franklin Templeton, for IPO, the 108% oversubscribed offering of the government’s sell-down of 4.44% of the Uzbek Commodity Exchange (TSE: URTS), and the long-awaited integration with Bloomberg all happening in the late summer and autumn of 2024. The fund has been focused on these key stepping stones as they are much-needed “singles” to use a baseball analogy, in order to achieve a more vibrant and functional capital market. Nonetheless, performance suffered during the year due to some of the fund’s top holdings seeing their share prices fall merely due to a weak market with no negative news and in the face of strong growth, while others were impacted by sector-specific challenges. The following is a review of the fund’s top 5 positions, which represent about 71% of the portfolio.
The fund’s top holding is a financial services company, with a weight of about 28% and whose name will remain omitted from this newsletter as it is a company which we continue to actively accumulate at attractive prices. The company provides arguably the best exposure to the Uzbek economy among listed companies as their focus on lending to the underleveraged Uzbek small and medium businesses and retail segments, coupled with plans for an eventual IPO in London over the coming years, makes them a “must own” in our view. Unfortunately, while the company’s 9m 2024 EPS growth was a robust 20%, with book value rising by 38%, the company’s shares fell a sharp 22.4% during the year on no negative news. The shares ended 2024 with an undemanding P/E of 2.31x and P/B of 0.65x. This is but one example of a leading company in its industry not being properly valued by the investment community, which is something we expect to change as the market develops.
The fund’s second-largest holding, with a weight of 13.4%, is the Uzbek Commodity Exchange (TSE: URTS), which was the only one of our top holdings to see share price appreciation during the year, by 13.28%. Earnings were strong with 9m EPS growth of 44% and 35% growth in book value. The company ended 2024 with a P/E of 4.61x and P/B of 3.87x, which remains extremely attractive relative to the company’s growth as well as its growth prospects with plans for trading in condensate and electricity over the next several years, with plans for other products specifically in the hydrocarbon space which will make URTS the largest commodity exchange among Former Soviet Union countries. We remain very positive on the name.
The fund’s third-largest position is Uzmetkombinat (TSE: UZMK) with a weight in the fund of approximately 12%. UZMK had a challenging year, as expected, as they bring online their new 1 million tonnes per year hot rolled coil production line, which will lead to a doubling of production as they ramp up into 1H 2025.
Unfortunately, the capex was largely debt financed, with the balance coming from cash flows, and the debt service payments in USD have impacted the company’s profitability. Further, the decision to not pay a dividend for fiscal year 2023 significantly impacted the company’s share price, as local retail investors panicked. However, we look at this as a wise decision by UZMK. It’s important to keep in mind that many retail investors still look at equities as fixed income instruments and were therefore disappointed.
Into 2026, we should see the new production line help to offset imports of hot rolled coil from Russia and further cement UZMK’s dominance in the domestic steel industry (a de facto monopoly) as they direct cash flows to debt service and advance toward reinstatement of their dividend. Nonetheless, this confluence of events saw the company’s shares drop 23% for the year. For 9m 2024 EPS was down 53%, while book value rose 1%. UZMK ended the year with a P/E of 7.31x and P/B of 0.58x.
The fund’s fourth-largest holding, with a weight of 9.5%, is Toshkentvino (TKVK), which is now listed on the OTC market. The company’s shares ended 2024 down 43% even though EPS and book value were flat year over year. We attribute the weakness in the shares to the company’s listing transferred from the main market to the OTC market once a private investor bought a significant minority stake from the Uzbek government in 2021. TKVK is the largest consumer goods conglomerate in Uzbekistan and is the fund’s key exposure to the growing retail sector. Contrary to the company’s name, TKVK is indeed a producer of alcoholic beverages, but also bottled water, juices, sodas, freeze-dried fruits and vegetables, and additionally holds a 13.24% stake in “Food City”, which is a wholesale food logistics centre located on the outskirts of Tashkent and is the largest agricultural logistics and processing centre in Central Asia. TKVK ended the year with a P/E of 5.68x, P/B of 1.49x and a dividend yield of 7.33%.
The fund’s fifth-largest holding is Qizylqum Cement (TSE: QZSM), with a weight of 8.2%. The company suffered in 2024 from an extremely competitive market as cement capacity has grown from roughly 18 million tons per year in 2018 to 41 million tons, resulting in over 20 million tons of cement capacity being uneconomic. This is the result of a blatantly poor policy by the government whereby licenses for the construction of cement plants were issued far and wide over the past several years in order for the country to wean off its reliance on imported cement. The result has been several dozen licenses issued, many for plants with less than 500k tons per year. The result has been a large amount of competition without much scale coming online. What has ensued is companies operating well below capacity utilization, while Chinese operators appear to be illegally dumping product on the market, below cost (and luckily getting fined). The effect on the industry has been nothing short of disastrous, and this led QZSM’s share price to fall 49% during the year.
However, with meetings we’ve had with some local state-owned banks who approached us, asking if we knew anyone keen to buy cement assets, it appears 2025 may be the year many of these smaller operations go bankrupt, while the medium-sized ones get rolled up. It is important to remember that the cement industry in particular is one of scale and therefore is inherently hostage to periods of booms and busts. Owning the key players is therefore of the utmost importance. QZSM this past year has already been in negotiations with its competition to lease cement plants in order to secure a scale-up when market conditions permit. Being a state-owned company with 85% government ownership, QZSM is in the pole position to conduct the roll-up we’ve been anticipating. Further, the industry as a whole is set to benefit over the medium to long term when considering the infrastructure buildout underway (dams, highways, railways, airports, etc.) as well as the demand for factories under construction, and the real estate market. The property market has seen its torrent rate of growth slow down this past year, but the housing stock is still in vast undersupply relative to demand, leading to new city-centre apartments in Tashkent being sold off plan for nearly USD 3,000 per square meter! The company ended the year with a P/E of 8.22x and P/B of 0.22x.
We have said from the fund’s launch that our core focus is owning blue-chip companies in the industries most leveraged to economic growth. This concentration gives us exposure to the most liquid names and those which are and should continue to be sought after as new investors enter the market. However, the fluctuations in their share prices naturally can have a material effect on the fund’s performance and this was unfortunately strongly felt this year. However, we remain confident and patient in the development of the market and as this unfolds, the volatility to the upside should be as, if not stronger, but much more enjoyable for us as investors.
Looking into 2025
In 2025, we are expecting the Tashkent Stock Exchange to integrate its infrastructure with Clearstream which will enable foreign trading in equities, corporate bonds, and government bonds. Interest in Central Asia is only accelerating, especially from the countries which comprise the “New Fertile Crescent” region, as Uzbekistan’s stable political and economic situation, and large and growing population of 37 million makes it the most attractive Central Asian country for investors. Chinese companies are building factories from pharmaceuticals to construction materials and cars (positive for steel and cement) and Middle Eastern countries are focused on over a dozen renewable energy projects. Investments from Afghanistan are transforming the border town of Termez which now boasts a special economic zone and Hilton Hotel, neither of which existed when we visited the city in 2021. American and European international schools and universities continue to open, and of course there is increasing interest and investment in the natural resources sector from Canadian, French, and Chinese companies.
New Share Classes for Investors
Starting in January 2025, the AFC Uzbekistan Fund is introducing new share classes to provide flexibility for our existing and new investors. The current share class for US and non-US investors offers a 2% management fee, 20% performance fee with high water mark, and ninety day redemption notice. The minimum investment is USD 10,000 for non-US investors and USD 50,000 for US investors.
We are introducing a new retail share class for both US and non-US investors: Class G USD shares, which will have a 1.7% management fee, 17% performance fee with high water mark, and a 180 day redemption notice (instead of 90 days for the existing share class “F”). The minimum investment is USD 10,000 for non-US investors and USD 50,000 for US investors.
Further, we are introducing two institutional share classes, each with a minimum investment of USD 5 million. The FI USD share class will have a 1.5% management fee, 20% performance fee with high water mark, and 90 day redemption notice. The Class GI USD shares will have a 1.3% management fee, 17% performance fee with high water mark, and 180 days redemption notice. Interested investors should contact Peter de Vries at This email address is being protected from spambots. You need JavaScript enabled to view it. for more information, or if existing investors want to switch into the new share class to benefit from lower fees.
AFC Uzbekistan Tour 2025
After hosting three successful AFC Uzbekistan tours, bringing existing and prospective investors to experience the reality of Uzbekistan from the ground, we are considering hosting our 4th tour in late May 2025. Dates are yet to be confirmed, however if you are interested, please write us to express your interest and we will follow-up with you.
In the meantime, we want to wish each of you and your families a very happy and prosperous start to 2025 and look forward to a better year for the AFC Uzbekistan Fund as well, where equity prices better reflect the reality of the fast-growing and diversifying economy.
At the end of December 2024, the fund was invested in 23 names and held 7.8% cash. The portfolio was allocated to Uzbekistan (92.1%) and Kyrgyzstan (0.1%). The sectors with the largest allocation of assets were financials (44.8%) and materials (24.9%). The fund's estimated weighted harmonic average trailing 12 months P/E ratio (only companies with profit) was 3.96x, the estimated weighted harmonic average P/B ratio was 0.64x, and the estimated weighted average portfolio dividend yield was 3.08%.
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