Investment Pitches

Pitch Summary:
Illegal battery recycling facility; likely to miss the timeline for full-scale production; regulatory application has not even been submitted yet;

BSD Analysis:
Aqua Metals promotes a hydrometallurgical battery recycling process. Shorts highlight execution delays, financing needs, and competition. Commercial viability has not been proven at scale, and repeated equity raises dilute shareholders. Larger players like Li-Cycle and Redwood may outcompete. Without clear unit economics, AQMS looks more like a promotional story than a real business.

Pitch Summary:
The company neglects AML sanctions and KYC rules (still controls the Russian business and suspended by Ukraine); fake revenue despite losing Russia and Ukraine; bets in highly levered, illiquid market bets; market manipulation;

BSD Analysis:
Freedom Holding, a Kazakhstan-based brokerage, has expanded aggressively in Eastern Europe and the U.S. Shorts highlight regulatory scrutiny, opaque operations, and governance concerns. Accusations include facilitating risky trades and using offshore structures. U.S. regulators have reportedly probed parts of its operations. Growth appears unsustainable without better compliance, leaving the stock vulnerable to reputational and regulatory shocks.

Pitch Summary:
StoneCo reported first quarter 2023 results on May 17th, surpassing analyst's expectations for top and bottom line. Stone reported total revenue of $543M for the quarter, an increase of 31% compared to the same quarter last year. The growth in revenue is notable as it nearly tripled the overall industry growth at 10.7%, indicating strong market share gains for Stone. The company also saw a remarkable growth in its profitability, with adjusted earnings rising by 55.7% to $250.28M. There are not many businesses that can grow revenues above 30% a year while maintaining EBITDA margins above 40% (if you know of any, please let us know). Stone's Q1 results highlighted their success in taking market share from competitors, especially in the micro-merchant segment. Stone attributed the growth in the micro-merchant segment to a combination of their newly launched banking product, Super Contra Ton, and successful marketing campaigns through Brazil's most popular reality show, Big Brother Brazil. The company, in another major development, resumed its credit business. As credit proved to be a major issue for Stone in 2021, the company has chosen to take a cautious approach, disbursing roughly $1.2M of the new credit product in the first quarter with a target of serving a maximum of only 200 clients. To improve the credit product, management has introduced several new features which include system automation, guarantees, tech-enabled decision models, and an improved credit lifecycle monitoring system. The results thus far have been positive, with key credit performance indicators in line with management expectations. During the call, management told analysts that they expect to continue expanding the credit business throughout the rest of this year.

BSD Analysis:
The manager is bullish on StoneCo based on exceptional Q1 2023 performance that significantly outpaced industry growth. The company delivered 31% revenue growth versus 10.7% industry growth, demonstrating strong market share gains, particularly in the micro-merchant segment. The investment thesis is supported by impressive profitability metrics with 55.7% adjusted earnings growth and EBITDA margins above 40%. Key growth drivers include the successful launch of their banking product Super Contra Ton and effective marketing through Big Brother Brazil. The cautious resumption of credit operations, which previously caused issues in 2021, shows management discipline with improved risk controls and automation. The combination of rapid growth, high margins, and expanding financial services positions StoneCo as a dominant fintech player in Brazil's growing digital payments market.

Pitch Summary:
In Q2, Alibaba reported financial results for the quarter and fiscal year ended March 31, 2023. Revenues for the quarter were $30.32B, a slight miss on analysts' expectations and a mere +2% growth year-on-year. During the earnings call, management attributed this low revenue growth to weaker-than-expected consumption spending in China, and intense market competition from rivals. Revenues from the cloud computing segment were especially disappointing, declining y/y by 2%. Management attributed the decrease in cloud revenue to a weak macro backdrop, and from a top customer phasing out Alibaba's cloud services due to data security regulations for their international business. While we are disappointed with the Cloud segment results to date, we are encouraged by three key data points, which we believe still hold true: 1. Alibaba Cloud is the largest player by market share in China and fourth largest in the world. We believe that Alibaba will remain as a market leader due to key competitive advantages stemming from capital intensity requirements and technological capabilities. 2. China's Cloud market is expected to grow to $90B by 2025 as per McKinsey Research. As the market leader, we expect Alibaba to reap the benefits with the growth in Cloud adoption in both Mainland China and Southeast Asia. 3. Digital transformation trends are expected to grow over the long-term due to improved economics for businesses in every industry. Some of the digital transformation trends include wider adoption of low code platforms, increased migration to the cloud, greater leveraging of AI technologies, and increased automation. Cloud providers like Alibaba stand to benefit greatly from these trends, as they exponentially increase the demand for data storage and capabilities. While revenue growth struggled to impress analysts and investors alike, bottom-line earnings for the quarter improved significantly to $3.64B, a 60% year-on-year growth rate. The material improvement in earnings was attributed to successful cost-cutting measures and improved profitability in their non-core segments, such as local consumer services and smart logistics. We are impressed by the company's overall profitability as Alibaba continues to produce significant amounts of free cash flow. In the fiscal year ended March 31 2023, Alibaba generated $25B in free cash flow ($20B after deducting SBC).

BSD Analysis:
The manager maintains a bullish stance on Alibaba despite disappointing Q2 results showing only 2% revenue growth and declining cloud revenues. The thesis centers on Alibaba's dominant position in China's cloud market and long-term digital transformation trends. While near-term headwinds include weak Chinese consumption and competitive pressures, the manager emphasizes three key strengths: market leadership in cloud computing, exposure to China's expected $90B cloud market by 2025, and benefiting from digital transformation trends including AI adoption and automation. The investment case is supported by strong profitability metrics, with earnings growing 60% year-over-year to $3.64B and impressive free cash flow generation of $25B annually. The manager views current weakness as temporary, betting on Alibaba's structural advantages in a growing market.

Pitch Summary:
WPH TB is a hospital company based in Trang, Thailand, it was founded in 1982 and operates two hospitals in Trang Province: Wattanapat Hospital and Wattanapat Hospital Trang. The hospital group opened a third hospital on the island of Samui, effectively increasing its capacity by up to 50%. We took advantage of the share price decline during the quarter to accumulate a 5% weighting as we view it has multi-bagger potential.

BSD Analysis:
The manager accumulated a significant 5% position in this Thai hospital operator, viewing it as a potential multi-bagger investment. The company has a 40-year operating history with established hospitals in Trang Province and recently expanded to the tourist destination of Samui. The new Samui hospital represents a 50% capacity increase, providing substantial growth runway in a high-demand medical tourism market. The manager opportunistically accumulated shares during quarterly price weakness, demonstrating conviction in the long-term thesis. Healthcare demand in Thailand benefits from both domestic demographic trends and medical tourism growth. The expansion into Samui positions the company to capture higher-margin medical tourism revenue. The multi-bagger potential suggests the manager sees significant operational leverage from the capacity expansion.

Pitch Summary:
We re-initiated a position in SHR TB, for the third time, as the share price declined due to one of its hotels closing for renovation until the year end, to hold a 4% weighting. It owns a total of 38 hotels with a total of 4,552 keys in top destinations such as The Republic of Maldives, The Republic of Fiji, The Republic of Mauritius, The United Kingdom, and Thailand. We expect for the group to continue reporting impressive figures, and at 0.6x PBV is incredibly attractive.

BSD Analysis:
The manager re-initiated a position for the third time in this premium hotel operator, capitalizing on temporary share price weakness from a hotel renovation closure. SHR operates 38 hotels with 4,552 keys across highly desirable destinations including the Maldives, Fiji, and Mauritius. The 0.6x price-to-book valuation appears exceptionally attractive for a portfolio of trophy assets in prime tourism locations. The manager's confidence is evident from multiple position initiations and expectations of continued strong operational performance. The temporary renovation impact provides an opportunistic entry point for a structurally sound business. The geographic diversification across premium leisure destinations offers resilience and pricing power. The asset-heavy model trading below book value suggests significant embedded value in the real estate portfolio.

Pitch Summary:
DELFI SP is one of the largest chocolate companies in Southeast Asia, with operations in Indonesia, the Philippines, and Vietnam. The company's brands include Delfi, SilverQueen, Goya, and Knick-Knacks. Delfi Limited produces a wide range of chocolate products, including bars, confectionery, and spreads. Trading at 10x net of cash on a forward basis, we began accumulating shares during 4Q22 and finished by the beginning of 2Q23 with a 4% weighting. A special thanks goes to AsianCenturyStocks for highlighting this name.

BSD Analysis:
The manager accumulated a 4% position in Southeast Asia's leading chocolate company at attractive valuations of 10x forward earnings net of cash. Delfi operates across high-growth markets including Indonesia, the Philippines, and Vietnam with established brands like SilverQueen and Goya. The company benefits from rising disposable incomes and chocolate consumption in emerging Southeast Asian markets. The accumulation period from Q4 2022 to Q2 2023 suggests patient position building at favorable prices. The net cash valuation metric indicates a financially strong balance sheet providing downside protection. The diversified product portfolio spanning bars, confectionery, and spreads offers multiple growth vectors. The regional footprint positions Delfi to capitalize on demographic trends and urbanization across Southeast Asia.

Pitch Summary:
AUCT TB is the leading auction house in Thailand for both cars and motorcycles. As the Bank of Thailand is no longer permitting Financial Institutions to hide their NPLs, over the coming years there will be a raft of vehicles that will need to be auctioned and AUCT TB is the prime beneficiary of this trend. After a tepid few years of performance with minimal growth, the 1Q23 of profits were close to ~40% for the Full year 2022, and thus we expect to see this year's profits increase by +50% and for this trend to continue until 2025.

BSD Analysis:
The manager identified a compelling regulatory-driven catalyst in Thailand's leading vehicle auction house. The Bank of Thailand's new requirement preventing financial institutions from hiding non-performing loans will force a wave of vehicle auctions, directly benefiting AUCT as the market leader. The company emerged from several tepid years with Q1 2023 profits representing 40% of full-year 2022 results, indicating dramatic acceleration. Management expects 50% profit growth in 2023 with the trend continuing through 2025. This represents a classic special situation where regulatory changes create a multi-year earnings tailwind. The monopolistic market position in vehicle auctions provides pricing power and sustainable competitive advantages. The NPL resolution cycle should provide predictable volume growth over the forecast period.

Pitch Summary:
MWG VN is Vietnam's largest retailer of consumer electronics and household appliances. During the boom periods of the Vietnam stock market this name used to command +40% premium for foreign shareholders above market prices. Thankfully during the crash and even during the quarter we doubled the weighting to 5% without paying a premium. The company has a strong track record of growth and profitability, and similar to DGW we expect to see a recovery in consumer purchasing in 2H23 and robust earnings growth from 2024 onwards.

BSD Analysis:
The manager capitalized on market dislocation to double the position in Vietnam's dominant electronics retailer without paying the historical foreign ownership premium. Previously, MWG commanded a 40% premium during market boom periods, highlighting its quality and scarcity value. The investment thesis relies on the company's proven track record of growth and profitability in Vietnam's expanding consumer market. The manager expects a cyclical recovery in consumer purchasing power through 2H23, followed by robust earnings growth from 2024. This represents excellent entry timing at normalized valuations for a market-leading franchise. The retail electronics sector should benefit from Vietnam's rising middle class and technology adoption trends.

Pitch Summary:
DGW VN is a leading technology distributor in Vietnam. The company has a strong distribution network and a wide range of products from phones, laptops to office equipment. One key aspect of DGW that we find attractive is that it is one of the rare companies in the country where the founders still hold a significant amount of equity. During 2Q23 we doubled the weighting to 5% as we expect a recovery in both electronic and industrial purchases throughout 2H23 and into 2024.

BSD Analysis:
The manager doubled down on Vietnam's leading technology distributor, increasing the position to 5% based on an expected recovery in electronics demand. The investment thesis centers on DGW's dominant distribution network spanning phones, laptops, and office equipment in Vietnam's growing technology market. A key differentiator is the significant founder ownership, which typically aligns management incentives with shareholders and suggests strong corporate governance. The manager anticipates a cyclical recovery in both consumer electronics and industrial equipment purchases through 2H23 and 2024. This positioning capitalizes on Vietnam's structural technology adoption trends while benefiting from near-term cyclical recovery. The distribution model provides defensive characteristics with exposure to multiple technology categories.

Pitch Summary:
Siam Wellness Group Public Company Limited is a health spa and wellness-related businesses company based in Bangkok, Thailand. This was a covid-era holding as a play on the travel recovery. As the share price continued to rally and exceeded the pre-covid era price, and that it had achieved our target, we fully exited the position.

BSD Analysis:
The manager successfully executed a COVID recovery play in Thailand's wellness tourism sector through Siam Wellness Group. The investment was positioned as a travel recovery trade, capitalizing on the severe valuation compression during the pandemic. The strategy proved highly successful as the share price not only recovered but exceeded pre-COVID levels, prompting a full exit at target prices. This demonstrates effective thematic investing around the reopening trade and disciplined profit-taking. The wellness and spa sector benefited significantly from pent-up demand for leisure travel and wellness services. The manager's timing appears excellent, capturing the full recovery cycle from trough to peak valuations.

Pitch Summary:
VCI VN is Vietnam's leading institutional broker. During the 2H22 we accumulated a 4% position on the assumption that eventually both institutional and retail investors would become active again during 2023. This proved to be the case as liquidity in the market improved from USD 300 mn per day to near USD 900 mn thereby resulting in a share price increase of +50%, we fully exited the position.

BSD Analysis:
The manager executed a successful turnaround play on Vietnam's leading institutional broker, accumulating a 4% position during the market downturn in late 2022. The investment thesis centered on the eventual recovery of trading activity from both institutional and retail investors. The strategy proved highly successful as market liquidity tripled from $300 million to $900 million daily, driving a 50% share price appreciation. The manager demonstrated disciplined profit-taking by fully exiting at target levels. This represents a classic cyclical recovery trade in the financial services sector, capitalizing on depressed valuations during market stress. The exit timing appears optimal given the substantial gains achieved and the cyclical nature of brokerage earnings.

Pitch Summary:
Paid a huge premium for the acquisition of AQUA, which has been under federal investigation and is full of accounting tricks; wasted $2.1 bil for two poorly performing technology acquisitions; potential legal investigations; up to 45% downside;

BSD Analysis:
Xylem is a global water technology company. Bears argue valuation is stretched, integration of Evoqua is risky, and the business remains cyclical, tied to municipal budgets and industrial capex. Rising rates may dampen water project financing. If growth slows, shares could de-rate from premium multiples.

Pitch Summary:
DSM-Firmenich is also a recent addition to the portfolio, having grown from a smaller position earlier in the year. DSM-Firmenich is the combination of publicly traded DSM and the privately held Firmenich. The resulting company makes up one of the four major players in the concentrated Flavours & Fragrances industry and the transaction marks the completion of a major portfolio transformation at DSM over the last few decades. DSM has repositioned itself from a commodity chemicals supplier to a high value-add Flavours & Fragrances solutions provider. We believe the stock has been overlooked by the investment community given the historical business profile but expect material upside to be realised over the coming years as the earnings quality of the merged business, improving margin profile and resulting high ROIC are better appreciated.

BSD Analysis:
VGI Partners views DSM-Firmenich as an underappreciated transformation story in the concentrated flavors and fragrances industry. The fund highlights the successful multi-decade repositioning from a commodity chemicals supplier to a high value-added solutions provider, culminating in the merger with privately-held Firmenich to create one of four major industry players. This transformation has fundamentally improved the business quality, moving from cyclical commodity exposure to a more stable, higher-margin specialty chemicals model. VGI believes the market hasn't fully recognized this transformation, continuing to value the company based on its historical commodity profile rather than its current high-quality earnings and improving return on invested capital. As one of the dominant players in a concentrated industry, DSM-Firmenich should benefit from pricing power and market share stability. The fund expects material upside as investors recognize the improved earnings quality and margin profile of the combined entity.

Pitch Summary:
The London Stock Exchange Group (LSEG) has transformed from a traditional exchange into a Data and Analytics group. Today it only generates 3% of revenue from its legacy cash equities exchange. In doing so, it has transitioned into a business with an attractive recurring revenue profile and an opportunity to cross-sell data and analytics services on the back of its large acquisition of Refinitiv in 2021. Since then, LSEG has invested behind Refinitiv which has led to revenue growth acceleration. We think LSEG is now at an inflection point not only to continue improving revenue growth, but also to benefit from margin improvement after a heavy investment period that has seen LSEG incur additional spending from the integration of the Refinitiv assets, as well as a large partnership with Microsoft. We expect LSEG to elaborate further on this strategy at its investor day later in 2023 and to introduce new medium-term financial targets. We find the valuation highly compelling for this quality of asset. LSEG is trading at a discount to nearly all of its Data & Analytics peers, despite a more attractive growth profile over the next three years in our view. In addition, the original Refinitiv vendors have been selling down their large stake which has been steadily reducing the valuation overhang – as this continues, we think this will continue to close the valuation gap with peers.

BSD Analysis:
VGI Partners sees LSEG as a transformed data and analytics business trading at an unjustified discount to peers despite superior growth prospects. The fund emphasizes the company's successful pivot from a traditional exchange (now only 3% of revenue) to a recurring revenue data provider following the transformative Refinitiv acquisition in 2021. After a heavy investment period integrating Refinitiv and partnering with Microsoft, LSEG is positioned for margin expansion as these investments begin to pay off. The cross-selling opportunities within the combined platform should drive accelerating revenue growth, while the business model shift toward recurring revenues improves earnings quality and predictability. VGI views the valuation as compelling, with LSEG trading below most data and analytics peers despite what they see as a more attractive three-year growth profile. The ongoing selldown by original Refinitiv vendors is removing a technical overhang, which should help close the valuation gap as the market recognizes the quality of this transformed business model.

Pitch Summary:
Deutsche Börse (DB1) is a well-diversified exchange group whose activities touch on most aspects of European capital markets, offering a blend of transactional and non-transactional revenue exposure. It provides trading, clearing, pre/post-trading and data & analytic services in four key operating segments: Trading & Clearing, Fund Services, Security Services and Data & Analytics. We consider that DB1 is an underappreciated portfolio of dominant businesses, with management deploying the benefits of current cyclical strength into long term structural growth opportunities. Since 2021, net interest income (NII) has been the key cyclical tailwind for this business, generating high drop-through earnings from collateral balances – the market ascribes a low multiple to these earnings due to their sensitivity to interest rates movements. However, using the cash generated from this and other cyclical tailwinds over the past several years, DB1 has committed to driving structural growth. This strategy has recently manifested itself through the acquisition of SimCorp – a Danish listed company providing mission-critical software solutions to asset managers with over 60% recurring revenues. DB1's 1H23 results have shown ongoing progress towards its recognition as a diversified financial technology provider, with revenue growth of 18% translating to EPS growth of 20%. Highlights included 16% revenue growth in fund services, 7% growth in data and analytics and the earlier mentioned growth in NII. We believe that over time the quality of the existing businesses, synergy realisation and ultimately greater earnings stability will be better appreciated by the market and reflected in the stock's rating. DB1 trades at a significant discount to the rest of the Exchange sector with the lowest PEG ratio of the major developed market exchanges.

BSD Analysis:
VGI Partners views Deutsche Börse as an undervalued portfolio of dominant European capital markets businesses trading at a significant discount to exchange peers. The fund appreciates management's strategic use of cyclical tailwinds, particularly rising net interest income from collateral balances, to fund structural growth initiatives like the SimCorp acquisition. This Danish asset management software provider adds over 60% recurring revenues and positions DB1 as a diversified fintech provider rather than just a traditional exchange. Strong H1 2023 results with 18% revenue growth and 20% EPS growth demonstrate the strategy's early success, driven by broad-based growth across fund services, data analytics, and interest income. VGI expects the market to eventually recognize the improved earnings quality and stability from this transformation, leading to multiple expansion. With the lowest PEG ratio among major developed market exchanges, DB1 offers compelling value as it evolves from a cyclical exchange operator into a more stable, technology-driven financial services platform.

Pitch Summary:
GE Healthcare (GEHC) is a global medical technology leader in the Imaging, Ultrasound and Patient Monitoring space. Having initiated a position shortly after it was spun out of parent company GE in late 2022, the stock has become one of our core holdings. GEHC is a leader in Imaging and Ultrasound machines, which includes PET and CT scans, MRI, X-Ray and ultrasounds – these account for nearly three quarters of revenues. GEHC is a global business with revenues well spread between the US, Europe, China and emerging markets. The business model is both predictable and resilient in our view: Predictable because 50% of revenues are recurring in nature, coming from servicing the machines, selling spare parts and consumables – giving the business attractive razor & razorblade economics. Resilient because Imaging is a mission-critical category for GEHC's customers - it is the most important revenue driving category for hospitals and one that is prioritised irrespective of the economic environment. We like the Imaging industry because it is effectively a three-player market between GEHC, Siemens Healthineers and Phillips, and the industry has continued to consolidate over the last 10 years. Scale gives the large players the ability to reinvest in R&D and to entrench their position through close relationships with hospitals. Our GEHC investment thesis is based on an under-appreciated margin opportunity as a newly independent company. We often see this with spin-off situations: A hidden asset with a renewed focus on capturing market share; A bloated cost structure that can be better optimised; and A newly independent and aligned management team. All of these are in place at GEHC. For a long time, the company has been run within the larger GE conglomerate and milked for its cashflows, with GE's investment priority being its Aerospace business (prior to COVID, we were investors in GE so have followed the company closely for a long time). However now as a newly independent entity, GEHC can focus on its core business with a fully independent and aligned management team that we expect will act with more urgency. The margin opportunity stands out when comparing GEHC to its closest peer Siemens Healthineers, whose Imaging business generates operating margins in the low 20s percentage compared to GEHC in the mid-teens. Our diligence suggests that there are no structural reasons for this margin differential – therefore we think GEHC will close the margin gap over time by addressing the low-hanging fruit in the cost base while also launching new, higher-margin products (resulting from the recent step up in R&D spend). We believe market expectations for GEHC's margins are too low and therefore see meaningful room to surprise to the upside - leading to high-teens earnings growth over the next few years. Another important tailwind for margins we expect will be the growing penetration of digital tools in Imaging, which GE has been investing behind. GEHC's large global install base of >4m machines gives them a strong advantage in terms of data collection, even more so today when data is extremely valuable and can be overlayed with software applications. We have already started to see strong demand from hospitals for these software applications because they can meaningfully reduce costs – for example by allowing doctors to read and analyse imaging scans in much shorter time windows, addressing both staffing issues and costs. The adoption of digital services will support growth, better service attach rates and ultimately improve margins – and importantly we do not think we have to underwrite this to get upside to the current valuation. We view GEHC's valuation as compelling at current levels, particularly with the meaningful improvement in free cashflow (FCF) generation we expect over the next 3 years. On current metrics, which we think still only reflect a depressed earnings base, the stock is trading at a discount to most medtech peers despite having a more attractive growth profile. On a more normalised basis, the stock is on a FCF yield of over 6%, which we think is very appealing. Being a newly independent company, there is still some scepticism with regards to management execution but we think the market will start to become more comfortable as the company starts to deliver on its margin opportunity.

BSD Analysis:
VGI Partners presents a comprehensive bull case for GE Healthcare as a classic spin-off opportunity with significant margin expansion potential. The fund emphasizes GEHC's dominant position in the consolidated medical imaging oligopoly alongside Siemens and Philips, with attractive recurring revenue economics from service contracts and consumables. The key thesis centers on margin convergence with peer Siemens Healthineers, whose imaging business operates at low-20% margins versus GEHC's mid-teens, with no structural impediments to closing this gap. As a newly independent entity, GEHC can optimize its cost structure and focus capital allocation after years of being a cash cow for the broader GE conglomerate. The digital transformation opportunity provides additional upside through software applications that reduce hospital costs and improve workflow efficiency, leveraging GEHC's 4+ million machine install base. Trading at a discount to medtech peers despite superior growth prospects and offering a 6%+ normalized FCF yield, VGI sees compelling risk-adjusted returns as the market recognizes the earnings power of this mission-critical healthcare infrastructure business.

Pitch Summary:
We continue to see upside to Amazon's two core businesses – Amazon Web Services (AWS) and retail/ecommerce. Whilst Microsoft and ChatGPT have captured the imagination of investors looking for AI exposure, the AI business at AWS is extremely well positioned to increase sales through its combination of software infrastructure products, proprietary training and inference chips (an alternative to NVIDIA). AWS is also developing large language models which are only beginning to be appreciated by the investment community. In addition, we see significant room for Amazon's retail business to surprise to the upside through margin expansion. After a period of massive capacity expansion and transport infrastructure investment, Amazon has rationalised its North American retail footprint and we believe it will reap the margin benefit of this over the coming years.

BSD Analysis:
VGI Partners maintains a bullish stance on Amazon, focusing on two key value drivers that the market may be underappreciating. First, AWS is positioned as a major beneficiary of the AI revolution through its comprehensive infrastructure offerings, proprietary chips that compete with NVIDIA, and developing large language models that haven't been fully recognized by investors. This positions Amazon to capture significant AI-driven cloud growth beyond the Microsoft/OpenAI narrative. Second, the retail business is entering a margin expansion phase after years of heavy infrastructure investment. The rationalization of North American fulfillment capacity should drive meaningful operating leverage as the company harvests returns from its logistics buildout. VGI sees this dual catalyst of AI-driven AWS growth and retail margin expansion as creating substantial upside potential that current valuations don't fully reflect.

Pitch Summary:
CME operates futures and derivatives exchanges, including the Chicago Mercantile Exchange, the New York Mercantile Exchange, the Chicago Board of Trade, and the Dow Jones Index Services. On top of this, CME also owns other key assets related to foreign exchange trading & infrastructure and a strategic shareholding in Standard & Poor's (S&P) Index business. The key driver of trading activity for CME is in its interest rate derivatives products, where it has an effective monopoly in the exchange trading of interest rate derivatives in the United States, through its benchmark products across the entirety of the interest rate curve. Demand for interest rate derivatives is driven by volatility in interest rate markets, whose effect is compounded by the number of bonds held by those looking to manage interest rate risk and, by extension, market liquidity. The below chart of average daily volumes of interest rate derivatives and US Federal debt held by the public illustrates the extremely strong relationship between the size of the US Treasury market and volumes growth, although there are deviations around this primarily around Fed intervention (for example, at the start of the pandemic, volumes were suppressed by an enormous amount of Quantitative Easing (QE) and effectively zero interest rates which reduced the demand for hedging products). We expect the growth in the size of the US Treasury market, particularly in relation to privately held US treasuries as the Fed undergoes a balance sheet unwind, to remain a powerful underpinning of CME's interest rate derivatives business. CME's 1H23 results have been pleasing, with revenue growth of over 8% translating to EPS growth of 22%. CME has benefited from increased transaction and clearing fees because of pricing (Revenue Per Contract) and mix shifting towards higher revenue contracts. Similar to other exchange assets, CME has seen a significant increase in net interest income (NII), a result of underlying collateral balances earning a higher rate of interest as rates have increased sharply over the last 18 months. Current conditions are highly favourable for CME's interest rate derivatives business, other derivatives complexes and net interest margin and we see substantial upside risk to consensus earnings and free cashflow estimates. We believe that CME's assets are critical pieces of market infrastructure and will be recognised as such in the future.

BSD Analysis:
VGI Partners presents a compelling bull case for CME Group centered on its monopolistic position in US interest rate derivatives trading. The fund highlights CME's effective monopoly across the entire interest rate curve, which creates a powerful structural advantage as demand for hedging products correlates directly with the size of the US Treasury market. With the Federal Reserve unwinding its balance sheet and privately held treasuries growing, CME is positioned to benefit from increased hedging demand. The company's strong H1 2023 performance demonstrates this thesis in action, with 8% revenue growth translating to 22% EPS growth driven by higher pricing and favorable contract mix. Rising interest rates have also boosted net interest income from collateral balances, creating multiple tailwinds. VGI views CME's exchange infrastructure as mission-critical market utilities that deserve premium valuations, suggesting the market underappreciates the quality and durability of these cash flows.

Pitch Summary:
After more than doubling assets under management in the last three years to half a trillion dollars, KKR is well positioned to take advantage of many of the same opportunities as Blackstone which Amit details in his latest case study below. KKR's stock price is still one quarter less than it was at the start of 2022, notwithstanding a very attractive valuation anomaly that Amit explores. The most important change was the addition to the portfolio's holding in KKR (NYSE: KKR). As Amit shows in his case study, we believe KKR represents a compelling opportunity to own one of the leading alternative asset managers, which is growing into several new markets worth hundreds of trillions of dollars. In addition, we think the stock market has completely failed to recognise the value of KKR's US$25 billion investment portfolio, which shareholders are getting for 'free' at the current share price.

BSD Analysis:
Montaka presents a compelling value opportunity in KKR, emphasizing both the firm's strong operational performance and significant market mispricing. The fund highlights KKR's impressive asset growth, more than doubling to $500 billion over three years, positioning the firm to capitalize on similar market opportunities as industry leader Blackstone. The manager identifies a substantial valuation disconnect, with KKR trading 25% below early 2022 levels despite fundamental business improvements and market expansion. Montaka emphasizes KKR's strategic positioning to capture growth in new markets worth hundreds of trillions of dollars, suggesting significant addressable market expansion beyond traditional private equity. Most notably, the fund identifies what it considers a major valuation anomaly: KKR's $25 billion investment portfolio appears to be valued at zero by the market, essentially providing shareholders with 'free' exposure to the firm's balance sheet investments. This suggests the market is only valuing KKR's fee-generating asset management business while ignoring substantial balance sheet value. The fund's decision to increase its KKR position indicates high conviction in both the operational outlook and the potential for valuation re-rating as the market recognizes the firm's true intrinsic value.