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August

The recent gyrations in European markets gave us the opportunity to invest in French holding company, Eurazeo. Its share price fell by 20% between June and mid-August and this pushed its discount up from mid-teen levels to close to 30%. There are two additional factors that make this particularly interesting. Firstly, the widening of the discount prompted comment from management about the absolute level of the discount, together with a statement regarding their intention to boost the level of share buybacks to 10% of the shares outstanding should the discount remain at these wide levels. And secondly, management confirmed the intention to sell two of their largest private equity holdings – Elis and Europcar – which together make up approximately one-third of total NAV. In early September, Elis confirmed its intention to proceed with an IPO. Both companies have performed strongly in operational terms over the past year and the prospect of successful disposals should provide support for further narrowing of the discount, as well as potential increases in NAV.

At Vivendi, the ongoing rationalisation continues with the company accepting a takeover bid for its Brazilian broadband business GVT. We used the strength in the share price to take partial profits on our holding. We had added to the position at the end of June on price weakness, and the recent strength allowed us to sell at a very narrow discount to our estimate of NAV.

Net cash levels increased very slightly to 5.6% and the weighted average discount increased marginally to 28.3%.

We continue to identify attractive opportunities on wide discounts at attractive valuation levels and with genuine catalysts for discount narrowing.

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