Investor Summary
Fund Strategy
FUND PERFORMANCE AS OF 30th June 2026
| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 26.6% | 22.2% | 30.2% |
| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| 26.6% | 22.2% | 30.2% |
Atai Capital returned 22.2% net in Q2 2026, outperforming the S&P 500 but trailing the Russell Microcap. Year-to-date returns reached 30.2%, bringing since-inception annualized returns to 26.6%. The portfolio remains highly concentrated with the top five positions representing approximately 55% of assets. AstroNova was the top contributor for the quarter before being acquired at a steep premium in mid-June. BKTI and Trifast also contributed positively, while Haivision was the only notable detractor. The manager made initial purchases of two undisclosed positions and added to Trifast during the quarter. The letter provides extensive analysis of Trifast, a UK-based industrial fastener distributor trading at less than 9x unlevered free cash flow. Under new management since late 2023, Trifast has executed a successful turnaround, exiting 1,000+ low-margin customer accounts and expanding EBIT margins from 5% to 9.5% despite cyclical automotive headwinds. The manager sees approximately 100% upside potential as margins approach peer levels and the business returns to low-to-mid single digit revenue growth.
Atai Capital is a concentrated microcap value fund focused on buying decent businesses at rock-bottom valuations with identifiable catalysts for earnings inflection, particularly turnaround situations with new management teams executing operational improvements and margin expansion.
The manager does not provide explicit forward market outlook in this letter. The focus is primarily on the Trifast turnaround thesis and portfolio positioning. The manager notes they are running out of philosophical commentary and future letters will focus more on new ideas and portfolio updates rather than macro views.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Aug 25 2026 | 2026 Q2 | TRI.L | Automotive, Industrial Distribution, Microcap, turnaround, United Kingdom, value | TRI.L | Atai Capital delivered 22.2% net returns in Q2 2026, driven by AstroNova's acquisition and continued strength in Trifast. The concentrated microcap portfolio focuses on turnaround situations trading at rock-bottom valuations. Trifast exemplifies the strategy: a UK industrial fastener distributor at 9x free cash flow executing a margin expansion turnaround under new management, with 100% upside potential as it reaches peer-level profitability and resumes growth. |
| Jun 22 2026 | 2026 Q1 | ALOT, BKTI, HAI.TO | activism, aerospace, Capital Allocation, Microcap, Public Safety, small caps, value |
BKTI ALOT |
Atai Capital delivered 6.6% net returns in Q1 2026, outperforming the S&P 500 by over 1000 basis points. BK Technologies, the largest position, unveiled a compelling Vision 2030 framework targeting organic revenue growth of 15%+ annually and nearly 4x EPS expansion through disciplined execution and market share gains in public safety. AstroNova was acquired at $29/share. Elevated cash reflects scarce compelling opportunities, not market timing. |
| Mar 10 2026 | 2025 Q4 | BELFB, BKTI, EGAM, HAI.TO, KITW.L | Concentration, Microcap, Objectivity, Philosophy, Quality, small caps | - | Atai Capital's concentrated micro-cap strategy delivered strong 2025 returns despite Q4 underperformance. The fund maintains elevated cash levels due to limited attractive opportunities but stands ready to deploy capital as recent macroeconomic volatility creates potential investments. The manager continues evolving toward quality names while prioritizing selectivity over forced deployment in an unfertile market environment. |
| Dec 2 2025 | 2025 Q3 | ALOT, BELFA, BKTI, MSI, TP | concentrated, defense, Microcap, small caps, technology, value | - | Atai Capital's concentrated micro-cap strategy delivered 10.7% in Q3, led by BK Technologies' transformation under exceptional CEO John Suzuki. BK manufactures mission-critical radios for first responders, expanding beyond wildfire niche to compete with Motorola at half the price. Management targets 10% market share from current 3.5%, offering substantial growth runway at attractive valuation. |
| Aug 14 2025 | 2025 Q2 | ALNT, ALOT, BELFB, CABO, HAI.TO | activism, Concentration, Governance, small caps, value |
CABO ALOT |
Atai Capital posted 32.8% Q2 returns through concentrated small-cap value investing, significantly outperforming benchmarks. The manager increased cash to 17% amid challenging market conditions, exited failed positions Cable One and trimmed AstroNova after value-destructive acquisitions. Focus remains on patient capital deployment with higher hurdle rates given elevated market valuations. |
| May 20 2025 | 2025 Q1 | ALOT, BELFB, CXI, EN7.ST, HAI.TO, QUIS, TPB | Concentration, Manufacturing, Quality, small caps, tariffs, Trade Policy | - | Atai Capital's concentrated micro/small-cap strategy outperformed in Q1 despite tariff volatility, establishing largest-ever position while evolving toward higher-quality businesses. Portfolio now most concentrated in fund history at 67% in top five holdings. Manager navigating trade policy uncertainty with elevated cash position, seeking overseas opportunities given high U.S. valuations while maintaining long-term confidence in portfolio quality. |
| Feb 18 2025 | 2024 Q4 | ALOT, BF, NVDA, SXI, TPB, TSLA | AI, Concentration, Microcap, small caps, valuation, value | ALOT | Concentrated microcap fund underperformed in 2024 despite portfolio refinement efforts. Manager maintains disciplined valuation approach amid elevated market multiples, with 58% holdings under $250M market cap. AstroNova acquisition disappointment offset by confidence in new CFO's operational expertise. AI disruption and tariff uncertainty create market headwinds, but selective opportunities remain for patient capital deployment. |
| Nov 12 2024 | 2024 Q3 | BELFB, GOOGL, HAI.TO, META, MSFT, TPB | defense, growth, Microcap, small cap, Streaming, Video Technology | HAI.TO | Atai Capital outperformed in Q3 with a 6.5% return, driven by a new position in Haivision Systems, a video streaming infrastructure company benefiting from protocol migration trends and defense spending. The microcap-focused fund maintains concentrated positioning with 54% in top five holdings while actively seeking new opportunities despite temporarily elevated cash levels. |
| Aug 22 2024 | 2024 Q2 | ALOT, EG7.ST | gaming, Microcap, small caps, technology, value |
ALOT EG7.ST |
Atai Capital's concentrated microcap strategy faced headwinds in Q2 with a 0.6% decline, but the manager remains optimistic given strong business fundamentals. Key holding AstroNova doubled EBITDA while stock stayed flat, creating compelling value at 5x EBITDA. Small caps trade at historic discounts to large caps, presenting attractive opportunities for patient capital. |
| May 16 2024 | 2024 Q1 | EG7 SS, TPB | - | - | |
| Jan 16 2024 | 2023 Q4 | ALOT, BELFB | Cash, Concentration, EBITDA, small caps, value | ALOT | Small-cap value manager returned 20% in 2023 while holding substantial cash. Portfolio now at peak concentration with 60% in top five positions. Key holding AstroNova surged on unexpected margin expansion, trading at 5.5x EBITDA with $34 target. Deploying remaining 17% cash by Q1 end through new systematic idea generation process. |
| Nov 29 2023 | 2023 Q3 | ATVI, BELFB, CTG, EG7.ST | Concentration, Quality, risk management, small caps, value, volatility | - | Atai Capital's concentrated value strategy declined 5.8% in Q3 but remains positive year-to-date. Manager emphasizes volatility as opportunity rather than risk, using Bel Fuse's 100%+ price swings as example of market inefficiency. Portfolio focuses on quality businesses trading below intrinsic value, with position sizing based on permanent loss risk assessment rather than return potential. |
| Dec 7 2023 | 2023 Q2 | ALOT, ATVI, BELFB, CDR.WA | Electronics, gaming, industrials, small caps, value |
ALOT BELFB ATVI |
Small-cap value fund targeting undervalued companies with clear catalysts. Largest position AstroNova expected to see EBITDA nearly double over 12-24 months. Bel Fuse margins expanding dramatically under new management. Large cash position ready for deployment. Avoiding Big Tech AI bandwagon, viewing current concentration as unsustainable given high valuations and risk-free rates. |
| Apr 13 2023 | 2023 Q1 | ALOT, ATVI, CABO | aerospace, Broadband, gaming, Monopoly, Rural, small cap, value | - | Small-cap value manager targeting monopolistic businesses at deep discounts. Largest position AstroNova benefits from aerospace recovery through cockpit printer monopoly. Activision merger arb with standalone upside. Contrarian Cable One position despite broadband headwinds. High cash from selectivity, not macro fears. Focus on business fundamentals over market timing. |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2026 Q2 |
FastenersTrifast is a C-Class component manufacturer and distributor of industrial fastenings that provides Vendor Managed Inventory services. The company has undergone a multi-year turnaround under new management since late 2023, implementing a Recover, Rebuild, Resilience transformation plan. Management has exited 1,000+ low-margin customer accounts, implemented value-based pricing, and expanded gross margins from 25% to 30% and EBIT margins from 5% to 9.5% despite end-market weakness. |
Industrial Distribution Automotive Turnaround Margin Expansion |
TurnaroundThe manager is highly bullish on Trifast's turnaround execution, highlighting the new management team's successful implementation of pricing discipline, customer account rationalization, facility consolidations, and ERP completion. The company has already achieved its medium-term EBIT margin target of 10% and continues to demonstrate operational improvements. The manager believes the business is positioned to return to low-to-mid single digit revenue growth while maintaining improved margins. |
Management Change Operational Efficiency Margin Management Value-based Pricing | |
AutomotiveTrifast has significant automotive exposure at 37% of revenue in FY-26, down from 41% in FY-24. UK auto production was down approximately 20% in Q1 2026 versus Q1 2024, representing a cyclical headwind. The manager notes this as a temporary challenge but points to potential organic growth in retained business segments once the cycle recovers. |
Auto Parts Cyclical End Markets | |
| 2026 Q1 |
Public SafetyBK Technologies is positioned to grow revenues at 15%+ annually through 2030, driven by end-market growth of 10% per year, the launch of the BKR9500 radio in 2027, and continued market share gains from larger peers less focused on tier 3 state and local public safety agencies. The company expects to compound EPS nearly 4x from 2025 to 2030 organically, reaching $170M in revenue at 60% gross margins and 35% EBITDA margins. |
Public Safety Radios Market Share Organic Growth |
Capital AllocationBK Technologies management has signaled a stringent focus on after-tax ROIC, prioritizing internal investments first, M&A second, and shareholder returns last. Management has resisted rushing into large or forced deals despite having the balance sheet capacity, instead recently beginning share repurchases, signaling confidence in organic growth plans and commitment to attractive ROICs rather than pursuing M&A for its own sake. |
ROIC M&A Buybacks Capital Discipline | |
AerospaceAstroNova's aerospace business started to take off during the period, contributing to the company's improved performance. The new management team increased margins, unwound working capital, and lowered capital expenditures to essentially nothing. The company was ultimately acquired for $29/share, with the outcome attributed to positive business, management, and governance changes following an activist proxy contest. |
Aerospace Margins M&A | |
ActivismThe manager attributes AstroNova's positive outcome to activist Samir Patel of Askeladden Capital, whose proxy contest won endorsement from ISS and Glass Lewis and led to positive business, management, and governance changes that might not have happened otherwise. The activism resulted in the removal of the CEO responsible for an unprofitable acquisition and ultimately led to a successful sale of the company. |
Activism Proxy Contest Governance | |
| 2025 Q4 |
Small CapsThe fund operates a concentrated Micro and Small-Cap strategy that naturally diverges from market indexes. Portfolio consists of ~60% businesses with market caps below $500M, with top five positions accounting for ~60% of the portfolio. |
Microcap Small Cap Concentration |
| 2025 Q3 |
Small CapsAtai Capital operates a concentrated Micro and Small-Cap strategy with 58% of portfolio consisting of businesses with market caps below $500M. The manager acknowledges this strategy will naturally diverge from market indexes and anticipates periods of both outperformance and underperformance. |
Microcap Small Cap Concentrated Divergence Outperformance |
DefenseBK Technologies manufactures Land Mobile Radios primarily for Fire and Police Departments, operating in a mission-critical environment where products cannot fail during first-responder situations. The industry is dominated by Motorola with high barriers to entry driven by brand loyalty and switching costs. |
Land Mobile Radios First Responder Mission Critical Police Fire | |
| 2025 Q2 |
Small CapsThe fund operates a concentrated Micro and Small-Cap strategy with approximately 66% of the portfolio consisting of businesses with market caps smaller than $500M. The manager notes finding the current market environment difficult for idea generation in small caps. |
MicroCap SmallCap Concentration Valuation Opportunity |
ValueThe manager emphasizes maintaining a higher-than-normal hurdle rate for new investments, describing U.S. markets as not cheap today. The fund sold Allient as it approached fair value estimates, demonstrating disciplined value-based selling. |
Valuation Hurdle Rate Fair Value Discipline | |
| 2025 Q1 |
Trade PolicyManager extensively discusses tariff impacts following Liberation Day, noting 10% across-the-board tariffs with Chinese rates fluctuating from 145% to 30%. Emphasizes uncertainty around policy consistency and implementation, with businesses likely to wait out the administration rather than relocate manufacturing to the US. |
Tariffs China Manufacturing Supply Chain USMCA |
QualityManager has evolved strategy to focus on higher-quality businesses, raising the bar and willing to pay more for quality. Notes that best-performing investments have been high-quality companies with solid leadership, leading to more favorable outcomes and upside surprises. |
High Quality Leadership Business Quality Standards Concentration | |
Small CapsPortfolio maintains concentrated Micro/Small-Cap strategy with 51% of holdings having market caps smaller than $250M. Manager acknowledges this strategy will naturally diverge from market indexes with periods of relative outperformance and underperformance expected. |
Micro Cap Small Cap Concentration Market Cap Divergence | |
| 2024 Q4 |
ValuationManager extensively discusses market valuation concerns, noting S&P 500 trades at 22x earnings with top 10 stocks at 29x earnings. Historical analysis shows when paying 20x+ earnings for S&P 500, following 10-year returns have never exceeded 5% annually since 1988. Current market concentration at 38% in top 10 stocks exceeds dot-com era levels. |
Multiples Earnings Historical Concentration Returns |
AIAI space experienced significant disruption in late January with DeepSeek R1 open-source model release, reportedly trained at fraction of cost compared to OpenAI's O1 model. NVDA dropped 17% in one day on this news, with ongoing debate about actual impact on AI revolution among industry experts. |
DeepSeek OpenAI Cost Disruption Revolution | |
Small CapsPortfolio consists of 58% businesses with market caps smaller than $250M. Manager focuses on microcap investing with concentrated approach where top five positions make up 55% of portfolio. Strategy involves buying good-to-great businesses at attractive prices when opportunities present themselves. |
MicroCap Concentration Opportunities Businesses Attractive | |
| 2024 Q3 |
StreamingHaivision provides video networking infrastructure for live streaming, particularly through their SRT protocol which is gaining adoption over legacy protocols like RTMP. The transition from legacy to modern IP-based protocols is expected to intensify over the next 3-5 years, creating growth opportunities. |
SRT Protocol Video Streaming IP Networks Live Video Protocol Migration |
DefenseHaivision serves government and defense customers including NASA, U.S. Department of Defense, and U.S. Navy. The company was recently awarded a large CAD 82M defense contract with the U.S. Navy over five years, representing significant growth potential in this segment. |
Defense Contracts Government Military Navy Contract Mission Critical | |
| 2024 Q2 |
GamingEnad Global 7 operates multiple gaming studios including ToadMan (work-for-hire), Daybreak Games (live service portfolio), and recently acquired Singularity 6 with their cozy game Palia. The gaming industry experienced widespread layoffs and project cancellations this year, impacting ToadMan's performance. |
Live Service Game Studios Free-to-play Gaming Platforms |
Small CapsThe Russell 2000 experienced its worst half in history relative to the S&P 500 and is on track for its third consecutive year of underperformance. Small caps appear undervalued with multiples near the lower end of their historical range, while large caps may be overvalued. |
Russell 2000 Underperformance Valuations Market Dislocation | |
| 2023 Q4 |
ValueManager focuses on companies trading below intrinsic value with substantial upside potential. AstroNova trades at 5.50x normalized EBITDA with clear path to $34/share target. Emphasizes finding businesses worth more than current market price without relying on overly optimistic assumptions. |
Intrinsic Value Undervalued Upside EBITDA Multiple Valuation |
Small CapsPortfolio consists entirely of small-cap companies including AstroNova and Bel Fuse. Manager notes concentration in top five positions at 60% of portfolio with several LSD-MSD positions. Focus on smaller companies with potential for material growth in cash flows over 2-3 years. |
Small Cap Concentration Position Sizing Cash Flows Growth | |
| 2023 Q3 |
ValueManager emphasizes purchasing shares at a discount to intrinsic values as the core investment strategy. Discusses the value arbitrage opportunity when share prices disconnect from business fundamentals, using Bel Fuse as an example where the stock experienced 100%+ volatility while fair value remained stable. |
Intrinsic Value Discount Value Arbitrage Fair Value Undervalued |
VolatilityExtensive discussion on volatility as a mechanism for opportunity rather than risk. Manager argues volatility allows purchasing shares at discounts and should be viewed as a friend of long-term investors, not a measure of risk as taught in business schools. |
Price Fluctuations Short-term Pain Market Timing Beta Academic Theory | |
QualityEmphasizes business quality as a critical component of margin of safety alongside price. Manager discusses the importance of cash flow quality and how minority shareholders benefit from those cash flows, warning against investing in poor businesses even at low prices. |
Business Quality Cash Flows Margin of Safety Fundamentals Minority Shareholders | |
| 2023 Q2 |
ValueManager emphasizes buying companies at substantial discounts to intrinsic value, focusing on businesses trading cheaply for identifiable reasons that can be corrected. Portfolio concentrated in undervalued small-cap names with clear catalysts for value realization. |
Value Discount Intrinsic Cheap Undervalued |
Small CapsFund focuses on small-cap opportunities where illiquidity and lack of institutional coverage create pricing inefficiencies. Manager notes that in small-cap land, Mr. Market doesn't give out free lunches often, requiring deep analysis to identify genuine opportunities. |
Small Cap Illiquid Coverage Institutional Inefficiency | |
AIManager views current AI hype as a bandwagon fueled by FOMO, with investors piling into AI-related names despite decade-high valuations. Compares situation to historical manias and suggests the bandwagon will eventually come to an end. |
AI Hype Bandwagon Valuations FOMO | |
| 2023 Q1 |
AerospaceCommercial airplane production is recovering from COVID lows, with Boeing expected to deliver 800 planes in 2025 and Airbus guiding to 1,000 by mid-decade. AstroNova benefits from this recovery through its monopoly position in cockpit printers, which are standard on all Airbus A320s and purchased directly by airlines for Boeing 737s. |
Commercial Aviation Aircraft Production Cockpit Printers Boeing Airbus |
GamingVideo game industry benefits from secular tailwinds and valuable intellectual properties. Activision Blizzard owns some of the most valuable gaming IPs including Call of Duty, which continues to break sales records despite minimal innovation between releases. |
Video Games Intellectual Property Call of Duty Gaming Franchises | |
BroadbandRural broadband providers face headwinds from fiber overbuilds and Fixed Wireless Access competition, but these threats may be overstated. Cable One maintains essential monopoly status in 65% of its markets while providing internet service that is practically a necessity. |
Rural Broadband Cable Fiber Competition Fixed Wireless |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| Aug 25, 2026 | Fund Letters | Atai Capital Management | TRI.L | Trifast PLC | Tools & Accessories | Trading Companies & Distributors | Bull | London Stock Exchange | activist involvement, Automotive Exposure, Equity, ERP implementation, Fasteners, Industrial distribution, Management Change, margin expansion, medical equipment, operational efficiency, Smart Infrastructure, turnaround, UK, Value, VMI Services | Login |
| Jun 22, 2026 | Fund Letters | Atai Capital Management | BKTI | BK Technologies Corp. | Other | Communications Equipment | Bull | - | capital allocation, Communications Equipment, Hardware, Management Quality, margin expansion, market share gains, organic growth, Public safety, ROIC Focus, Share Buybacks, Two-Way Radios, Vision 2030 | Login |
| Jun 22, 2026 | Fund Letters | Atai Capital Management | ALOT | AstroNova Inc. | Other | Technology Hardware, Storage & Peripherals | Bull | - | acquisition target, activist involvement, Aerospace, debt reduction, Management Change, margin expansion, Operational Improvement, Proxy Contest, Specialty Printers, strategic alternatives, turnaround, working capital | Login |
| Aug 14, 2025 | Fund Letters | Atai Capital Management | CABO | Cable One Inc. | Communication Services | Cable & Satellite | Bear | NYSE | ARPU, broadband, cable, Fiber Competition, HFC Network, leverage, Rural Markets, Subscriber Losses, turnaround | Login |
| Aug 14, 2025 | Fund Letters | Atai Capital Management | ALOT | AstroNova Inc. | Information Technology | Technology Hardware, Storage & Peripherals | Neutral | NASDAQ | activist campaign, Data Acquisition, earnings inflection, governance issues, Management Change, MTEX Acquisition, Poor Capital Allocation, Specialty Printers, turnaround | Login |
| Feb 18, 2025 | Fund Letters | Atai Capital Management | ALOT | AstroNova Inc. | Technology Hardware & Equipment | Electronic Equipment, Instruments & Components | Bull | NASDAQ | Aerospace, aircraft production, capital allocation, Data Acquisition, EBITDA multiple, Equity, Industrial, Management Change, Specialty Printers, technology integration, turnaround, Value | Login |
| Nov 12, 2024 | Fund Letters | Atai Capital Management | HAI.TO | Haivision Systems Inc. | Information Technology | Technology Hardware, Storage & Peripherals | Bull | TSX | Canada, Decoders, Encoders, enterprise, Government Defense, growth, Hardware, live sports, SRT Protocol, technology, turnaround, Video Streaming | Login |
| Aug 22, 2024 | Fund Letters | Atai Capital Management | ALOT | AstroNova Inc. | Technology | Electronic Equipment, Instruments & Components | Bull | NASDAQ | acquisition, Aerospace, EBITDA growth, margin expansion, Portugal, Printing Equipment, Test Measurement, Value | Login |
| Aug 22, 2024 | Fund Letters | Atai Capital Management | EG7.ST | Enad Global 7 | Communication Services | Interactive Media & Services | Bull | Stockholm Stock Exchange | acquisition, EBITDA margins, Free-to-Play, game development, Gaming, Live Service, Multi-Platform, Sweden | Login |
| Jul 12, 2023 | Fund Letters | Atai Capital Management | ALOT | AstroNova Inc. | Technology | Technology Hardware, Storage & Peripherals | Bull | NASDAQ | Aerospace, EBITDA growth, illiquid, Monopoly, Printers, small-cap, turnaround, Value | Login |
| Jul 12, 2023 | Fund Letters | Atai Capital Management | BELFB | Bel Fuse Inc. | Technology | Electronic Equipment, Instruments & Components | Bull | NASDAQ | Aerospace, Electric Vehicles, Electronic Components, manufacturing, margin expansion, Networking, turnaround, Value | Login |
| Jul 12, 2023 | Fund Letters | Atai Capital Management | ATVI | Activision Blizzard Inc. | Communication Services | Interactive Media & Services | Bull | NASDAQ | entertainment, Gaming, Merger Arbitrage, Microsoft Acquisition, Mobile Gaming, Regulatory risk | Login |
| Jan 16, 2024 | Fund Letters | Atai Capital Management | ALOT | AstroNova Inc. | Technology | Technology Hardware, Storage & Peripherals | Bull | NASDAQ | Aerospace, Consumables, EBITDA multiple, Label Printers, manufacturing, margin expansion, Product Identification, restructuring, Value | Login |
| TICKER | COMMENTARY |
|---|---|
| TRI.L | We first wrote about Trifast in our Q4-2025 letter to partners, and it was redacted in the public version of our letters – since our last update, the company has been performing well and to our expectations. After that letter, I posted a more lengthy version of the idea on an investment forum in early June and have shared a slightly updated version here for you all. We believe Trifast offers us the opportunity to buy a decent business at a rock-bottom valuation, with earnings set to inflect significantly. This opportunity comes to us following several temporary headwinds: a difficult, multi-year ERP implementation, a cyclical end-market downturn, and numerous operational inefficiencies caused by a prior management team that eventually led the company to sell certain products at a loss. However, since late 2023, the business has been led by a new management team that has successfully executed on a multi-year turnaround plan. Based on our run-rate earnings estimate, we believe Trifast trades at less than 9.0x UFCF at the time of writing after deducting leases, SBC, and capex. This multiple is far too low for a business that has made several operational improvements over the past several years, has significant operating leverage left to garner, should likely grow the topline at LSD-MSD, and previously traded at a much higher multiple when the business was of lower quality. Trifast is a C-Class component manufacturer and distributor of industrial fastenings (think nuts, bolts, screws, and washers). The primary value-add for their customers isn't the products themselves, which are largely commoditized, but rather the Vendor Managed Inventory (VMI) service that Trifast provides. Under the old management team, Trifast was very focused on top-line growth, with little regard for ROCE, cost controls, customer contract structures, and margins. Since then, Trifast has implemented a three-part plan they call Recover, Rebuild, Resilience. Trifast's Recover, Rebuild, Resilience transformation began shortly after the appointment of current CEO Iain Percival in September of 2023, following the resignation of long-tenured CEO Mark Belton earlier that year, alongside a profit warning. Shortly after Iain's hiring, the board also appointed activist investor Harwood Capital's Nicholas Mills to the board in October of that same year – Harwood is the largest shareholder of Trifast today, owning ~20.5% of the company after purchasing additional shares in March and July of this year as shares traded down. The new management team has exited 1,000+ low-margin or unprofitable customer accounts, implemented new, much stricter pricing and procurement policies, including indexed linked pricing to avoid the impact of raw material costs, with other cost recovery mechanisms implemented where/when needed. These changes have led to value-based pricing across Trifast's existing customer base, which the company did not have previously. In addition to these contract changes, the company has undergone several other typical turnaround procedures, such as several distribution/manufacturing facility rationalizations, headcount reductions, the completion of a companywide ERP system called Project Atlas, and a focus on higher-growth end markets. All of these improvements have led to gross and EBIT margins expanding from 25% and 5%, respectively, in 2023 to ~30% and ~9.5% today, despite significant end-market weakness this year. Based on what we know, it appears that the company continues to execute well on its cost-saving and efficiency initiatives as of the most recent trading update in July. Despite missing on the topline, $207M vs $214M guided, due to factors mostly outside their control, the company still hit their bottom-line guide, which points to further improvements in gross margins and SG&A reductions. They are also already at/very near their medium-term EBIT margin target of 10% (based on their 2nd half of FY26, backing into EBIT margins, they are at ~9.5%) and should still have several opportunities to expand margins further as contracts continue to reprice and operating leverage kicks in. Furthermore, the CEO also purchased ~$100K back in February of this year at $0.80/share, and stated in the July that Our pipeline is the strongest since the strategy was implemented. With increasing exposure to higher-growth areas such as Smart Infrastructure, Medical Equipment and India, and supported by scalable systems and improved commercial execution, we are well positioned to transition from rebuilding margins to rebuilding revenue. As of the time of writing, at $0.86/share, Trifast has a market cap of $117M, ~$16M in net debt, so an EV of ~$133M. While not obvious to the market yet, we believe they are already run-rating at $15M+ in UFCF compared to what was $12M in UFCF for FY26 (ended in March). I'll be honest and say I have no clue what normalized earnings look like for this business, given that a healthy chunk is still coming from UK/EU automotive. The amount of business they've walked away from in the past few years is also somewhat of a question mark. Still, I don't believe it is unreasonable to assume this business can return/get to LSD-MSD revenue growth, given their continued focus on diversifying their end-markets. However, let's just assume that they can hit $220M in revenue at 12% EBIT margins by the end of 2028, that'd imply $20M in UFCF and the stock would be trading at ~6.5x today, presumably by then their end market mix would be more attractive and they'd be growing at a more sustainable LSD-MSD clip. Their publicly listed peers Bufab and Bossard trade at 15x-25x earnings, have EBIT margins in the 10-15% range, and gross margins in the low thirties. Trifast pre-COVID traded at 15x-20x with ~11% EBIT margins, when it was perceived as a better business than it actually was once you looked under the hood. We obviously believe the company is in a much better place now than it was back then, despite the lack of topline growth in recent years, which we believe is mostly due to the company purposefully choosing to prune bad business and the cyclical downturn in some of their end markets. Anyways, running with $20M in UFCF at a 12.5x multiple before cash generation gets me to $1.70 a share or ~100% upside. This scenario does not seem unrealistic to us, and even if it doesn't play out as expected, we don't believe today's earnings are likely to go anywhere, nor do we believe 9.0x run-rate UFCF is remotely the correct multiple for this business. Once you start modeling out peer-level margins and multiples, plus give them some credit for cash generation over the next few years, the upside starts to get a bit absurd on this one, with significant downside protection today. |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
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