Investment Pitches

Pitch Summary:
Confluent is a leading data software provider that helps companies move from legacy batch processing systems to modern real-time data streaming. In a world where many companies are challenged to manage on-premise infrastructure along with multi-cloud deployments, older architectures are increasingly incapable of handling these demands. The founders of Confluent had previously created Kafka, which pioneered the open-source standard now used by over 80% of the Fortune 100. As is typical for large open-source deployments, security and scalability quickly become issues that typically need to be addressed by a more robust commercial solution. Confluent fits nicely into that role, and with less than 4% penetration among current Kafka users, should benefit as the demands of AI data generation make more efficient processing vital to their business's future needs.

BSD Analysis:
Jacob Asset Management presents a compelling bull case for Confluent based on the company's strategic positioning in the data streaming market. The manager highlights Confluent's competitive advantage through its founders' creation of Apache Kafka, which has achieved dominant market penetration with over 80% of Fortune 100 companies using the open-source standard. The investment thesis centers on the natural progression from open-source to commercial solutions as companies face security and scalability challenges. With less than 4% penetration among current Kafka users, Confluent has significant runway for growth. The manager particularly emphasizes the AI tailwind, noting that increasing demands for real-time data processing from AI applications should accelerate adoption of Confluent's platform. This positions the company to benefit from the broader digital transformation and AI revolution trends.

Pitch Summary:
A proposal situation that we decided to invest in during the first month was Whole Earth Brands, Inc. (FREE). For the most part, we don't like investing in or "insuring" proposals until the DMA has been signed. The statistics behind proposals are much less appealing to us in the business of taking on risk exposure to deals falling apart. Nonetheless, this deal makes sense on a lot of fronts, but we remain cautious with only a ~0.10% expected downside % of AUM at risk, at the end of July. A few details about the FREE transaction. Martin Franklin and one of his holding companies, Sababa Holdings, made a proposal to acquire the rest of the shares outstanding at $4 per share. As a little history for Franklin, he ran a company called Jarden, which was successful for years as an acquisition platform that owned those Ball mason jars everybody loves. The current Chairman of FREE is Irwin Simon, a Jarden board member with Franklin during that same period, and the CEO of FREE is Michael Franklin, Martin Franklin's son, who's now on leave because of conflict of interest. So even though there is no DMA in place with the FREE transaction, we like how friendly the approach is at first appearance. We tend not to focus too heavily on the upside, but it warrants discussion here. The initial proposal came in around 8x Adj. EBITDA, which is in comparison to some of the larger Consumer Packaged Goods (CPG) companies that currently trade at around 14x average without the takeout premium. So, there's room for a topping bid that would still be accretive to these strategic acquirors. Additionally, the leverage employed at FREE makes for a very significant price increase if another company were to bid only 9x Adj. EBITDA, equivalent to somewhere in the high $5's per share of FREE, up from the initial proposal of $4 per share. A lot of good things could happen here, so we felt it made sense to take shares from current shareholders and assume the risk of a deal failure.

BSD Analysis:
VH Standard took a small position in Whole Earth Brands despite their typical aversion to proposal-stage deals, attracted by the friendly nature of Martin Franklin's $4 per share bid through Sababa Holdings. The manager highlights Franklin's successful track record running Jarden, an acquisition platform, and notes the existing relationships with current FREE management including Chairman Irwin Simon and CEO Michael Franklin (Martin's son). The proposal values FREE at 8x adjusted EBITDA, significantly below the 14x average for larger CPG companies, suggesting room for competing bids. The company's leverage structure could amplify returns, with a modest increase to 9x EBITDA implying a price in the high $5s versus the current $4 proposal. While maintaining only 0.10% portfolio exposure due to pre-DMA risks, they view the combination of management relationships, attractive valuation, and potential for strategic interest as compelling enough to warrant participation in this proposal situation.

Pitch Summary:
After going through a review of the FORG downside, we decided that the deal risk for this transaction was too compelling and was being mispriced by other arbitrageurs. We initiated our position at $19.53 per share, bringing our Downside % of AUM to 0.90% immediately on the first day of our portfolio, which we followed up by increasing our position a week later at $20.22 per share, bringing our Downside % of AUM to 1.43% at an average share price of $19.76 and using a conservative downside of $15.00 per share. We felt compelled to take on this exposure to the transaction risk in FORG for two reasons, analysis of the market definition and a potentially higher downside price. On the regulatory front, we made the assessment that the market definition being considered by the Department of Justice (DOJ) for ForgeRock and competitors is simply too narrow. Thoma Bravo already owns two main direct competitors, Ping Identity and SailPoint, which were both acquired during 2022, and who ForgeRock names specifically in their 10-k filing as direct competitors who provide a subset of functionality across identity, access and governance. This narrow definition is how the market would be deemed too concentrated; however, ForgeRock also names Okta (market cap of ~$12 billion) in this subset, as well as legacy providers Oracle (market cap of ~$315 billion), IBM (market cap of ~$130 billion), and CA Technologies (acquired by Broadcom in 2018 for $18.9 billion). ForgeRock mentions Microsoft briefly as well because they offer a full suite of IT solutions, including their Authenticator for identity & access. To put this in perspective, the three acquisitions by Thoma Bravo combined equal to $12 billion, smaller than every potential competitor named in ForgeRock's 10-k. Additionally, narrow market definitions like this have not fared well for the regulators in a courtroom, so we think our assessment is strong. We also believe that this places a better limit on our downside, as there would likely be a strong case for ForgeRock and Thoma Bravo if the DOJ were to sue to block the deal, which is a possibility with Thoma Bravo already controlling two main competitors. It's our view that FORG would likely not trade down to a full deal break price if this were to happen, giving us room to reevaluate. Next, we had to assess the full deal break with FORG trading freely again on the public markets. Analyzing comparable companies, or "comps", we use OKTA and CYBR as our best comps (green), and AVGO, IBM, and ORCL as our similar-but-not-great comps (yellow). The first thing we considered is the % change of the comps since the deal was announced. In an ideal world with perfect comps and a correlation of 1.0 prior to the announcement, the downside of the target would be the pre-announced price multiplied by the percentage change of the comps. While this may not be perfectly accurate, it serves as a useful tool in our toolkit. The average % change of the green comps equals to a +28.0%, which implies a downside for FORG shares at $20.40, up from the $15.94 share price on the day before the deal was announced. Using all comps, we see an average % change of 53.6%, which implies a downside for FORG of $24.49 per share. We feel that using all comps would be too aggressive, so we take that with a grain of salt. The implied EV/Revs multiple for FORG is 8.7x, based on all comps, and 7.8x, based on best comps. This implies a downside of $26.34 per share, and $21.00, respectively. Historically, FORG has traded at a discount to comps, so we bring that down to a 6x multiple, which would imply a $18.63 per share downside at almost a 25% discount to best comps. Overall, we viewed the downside as likely to be somewhere between $18 and $19 per share, which would mean the market was pricing FORG with a probability of closing between 12% and 30% when we initiated our position. We liked this pricing given our assessment of the market definition and the room it afforded us to be conservative with our downside.

BSD Analysis:
VH Standard established a position in ForgeRock's Thoma Bravo acquisition, believing the deal risk was mispriced by other arbitrageurs with implied completion probabilities of only 12-30%. The manager's thesis centers on challenging the DOJ's narrow market definition for identity and access management, arguing that massive competitors like Oracle ($315B), IBM ($130B), and Microsoft dwarf Thoma Bravo's $12B combined acquisitions in the space. They conducted extensive downside analysis using comparable company valuations, estimating a deal-break price of $18-19 per share versus their $19.76 average cost. The analysis suggests ForgeRock trades at historical discounts to peers like Okta and CyberArk, providing additional downside protection. Their confidence stems from regulatory precedent showing narrow market definitions typically fail in court, and belief that even a DOJ challenge wouldn't drive shares to full deal-break levels. The position represents 1.43% of AUM with conservative $15 downside assumptions, offering attractive risk-adjusted returns in their merger arbitrage framework.

Pitch Summary:
This was a great moment for us at VH Standard Asset Management, so it had to be written about. After a long road going through every little step to launch the fund and with a few delays, we finally received word from Interactive Brokers that our account had been officially approved on July 10th. We funded the account that night – one of the transactions that we felt time sensitive about was this one, Activision-Microsoft. The last day of court was on June 29th and we knew that Judge Jacqueline Scott Corley could issue her ruling on any day in the weeks that follow. We couldn't have asked for better timing. Our first trade of the portfolio was ATVI on July 11th in the pre-market, immediately bringing our risk to 0.5% Downside % of AUM at a price of $82.93 per share. Great moment for us, but we established a position for a different reason than having the view that the ruling would be in favor of Microsoft. Part of our investment philosophy is to take on exposure to transaction risk. That's what we were doing here. Most merger arb investors will have a concentrated portfolio with hand-selected deals that they are investing in based on deep-dive research where they feel they know the outcome. We're different in the sense that we're looking to build a portfolio of definitive merger agreements (DMAs) that is more akin to an insurance operation with written premiums (our expected profits when the deals are completed) and catastrophe losses (our expected losses when deals fall apart). The economics aren't the same as insurance because we're holding equities and putting up the capital at the outset, but this is our perspective here at VH Standard Asset Management. When it came to the Activision-Microsoft deal, being exposed to the deal risk was a must. The competitive landscape for gaming is fairly fragmented with consoles: Sony's Playstation as the largest console, Microsoft's Xbox, Nintendo's Switch, Meta's Oculus, and a few others such as Google Stadia and Valve's Steam, as well as a number of young VR competitors; with publishers: Sony, Microsoft, Nintendo, Meta, Tencent, Valve, Activision, Electronic Arts, Take-Two, Ubisoft, CD Projekt, and a number of small publishers. Then you have distribution through both cloud and hard copies purchases, which Microsoft and Sony both have their own cloud platforms for video game purchases and Valve's Steam is used by over 130 million monthly active users. Simply writing each of these names shows how dynamic the gaming industry is. This is not your classic 3-to-2 acquisition, where a market is reduced from an oligopoly to a duopoly. So, we had to be exposed to the transaction risk here. Like I said before, we immediately went to risking 0.5% Downside % of AUM in this deal. Later that day, Judge Scott Corley issued her ruling in favor of Microsoft – a small win to start things off. Instead of initially selling the position and realizing gains, we assessed that there were minimal conditions left to effect the merger and Microsoft could ringfence the UK assets to close the deal despite the UK CMA ruling against the acquisition. There was also an end date of July 18th for the DMA, which meant the companies would either extend (likely with an additional small dividend to appease ATVI shareholders) or close the deal outright on the 18th, figuring out a solution with the UK CMA later in both scenarios. By July 14th, we had increased our exposure to 2.4% Downside % of AUM, our largest position, and we continue to believe that the risk here is very attractive based on the spread ("written premium") we're receiving and the increased likelihood of a deal completion after Judge Scott Corley's decision on July 11th. All in a short week.

BSD Analysis:
VH Standard initiated a position in Activision Blizzard as part of the Microsoft acquisition arbitrage, viewing it as essential transaction risk exposure rather than a directional bet on regulatory approval. The manager emphasizes their insurance-like approach to merger arbitrage, treating each deal as written premium with potential catastrophe losses. They argue the gaming industry's fragmented competitive landscape across consoles, publishers, and distribution channels makes this acquisition less concerning from an antitrust perspective than traditional oligopoly consolidations. Following Judge Corley's favorable ruling, they increased their position to 2.4% of AUM, their largest holding, believing minimal conditions remain for deal completion. The strategy focuses on capturing the spread between current price and deal value, with Microsoft potentially able to ringfence UK assets if needed. Their confidence stems from the attractive risk-adjusted returns available in the current merger arbitrage environment, where regulatory uncertainty has widened spreads beyond historical norms.

Pitch Summary:
Shell has been on our shelf of ideas for some time and is a large integrated European energy company with a greater liquids business than Equinor. Like BP, it remains diversified with an oil & gas, chemicals, and marketing business, and is also building out a renewables business, but at a pace which reflects the economic returns available across its assets. Similarly to BP, Shell trades at almost a 50% discount to the US integrated oil companies due to its UK primary listing, despite their similar structures and exposures. Growth rates look comparable over the next five years, and we would rather a starting earnings yield of 15% to one of 9%, giving us a meaningful margin of safety as well as incrementally more upside should the shares rerate in line with global peers.

BSD Analysis:
The manager presents a compelling value proposition for Shell, highlighting a significant valuation discount relative to US integrated oil peers despite comparable business structures and growth prospects. Shell trades at a 15% earnings yield compared to 9% for US counterparts, representing a 50% valuation discount attributed to its UK listing. The company offers diversified exposure across oil & gas, chemicals, and marketing, while prudently developing renewables at economically justified returns. The manager sees this valuation gap as providing substantial margin of safety and rerating potential. With comparable five-year growth rates to US peers, Shell offers superior risk-adjusted returns. This trade from Equinor to Shell enhances the portfolio's long-term earnings power while maintaining energy sector exposure through a more attractively valued integrated oil company.

Pitch Summary:
As a reminder, Equinor is a high-quality European gas producer generating 90% of its operating income from the Norwegian continental shelf (a high quality, geopolitically important energy source), with 50% of its production being gas. It has an incredible asset in Johan Sverdrup, and in May this year it was announced that production could increase to 755,000 b/d, which is about 7% of the total daily European oil consumption. We do not doubt its asset quality. European gas prices reached unprecedented levels in 2022 because of Putin's invasion. This was a result of a confluence of factors. Namely, the Nord Stream (Russian) gas pipeline being shut off, a lack of a reliable energy source to replace Russian gas (there has been a scramble to build LNG terminals) and low gas storage before what could have been a cold European winter. Equinor has profited handsomely from this, generating 40% of its market cap in free cashflow since 2022. On a prospective basis, European gas prices have less visible upside than oil prices, and no clear asymmetry.

BSD Analysis:
The manager acknowledges Equinor's high-quality assets and strong recent performance but expresses concerns about future gas price dynamics. While recognizing the company's exceptional asset quality, particularly the Johan Sverdrup field which represents 7% of European oil consumption, the manager is cautious about European gas price sustainability. Equinor generated 40% of its market cap in free cash flow since 2022, benefiting from the energy crisis following Russia's invasion of Ukraine. However, the manager sees limited upside asymmetry in European gas prices going forward compared to oil prices. This neutral stance led to the decision to swap Equinor for Shell, seeking better risk-adjusted returns. The trade reflects tactical positioning rather than fundamental concerns about Equinor's asset quality or operational capabilities.

Pitch Summary:
The portfolio update for this quarter covers our position in Northeast Bank voting common stock (NASDAQ: NBN). Under its CEO, the bank has aggressively deployed capital into deeply discounted commercial real estate loans amid market dislocation. These purchases are expected to be highly accretive to earnings and book value. Management has demonstrated exceptional capital allocation skill and underwriting discipline. The bank’s strategy positions it to generate ROE above 20% with substantial intrinsic value growth.

BSD Analysis:
Northeast Bank’s moat is specialization—buying distressed and nonperforming loans where complexity scares away vanilla lenders. Returns are driven by underwriting judgment and workout skill, not balance-sheet spread games. That focus creates asymmetric upside when credit dislocation rises, but lulls can leave capital underutilized. Funding is stable enough, yet growth is episodic and opportunity-driven rather than linear. Credit risk is the product, so discipline matters more than volume. Earnings can look lumpy, which keeps multiples restrained despite strong ROEs in good vintages. Competition is thin when markets are stressed and thick when they’re calm. The bull case is a rising pipeline of dislocated assets with conservative leverage. Northeast Bank compounds when others panic—and idles when they don’t.

Pitch Summary:
The sole portfolio update for this quarter covers our investment in Netflix, Inc. common stock (NASDAQ: NFLX), a compounder that we have held for a little bit more than a year. When we made our investment in Netflix last year, I framed it as perfectly fitting Warren Buffett’s model for a great investment. So far, Netflix is sticking to the script. The “one-time huge, but solvable problem” Netflix faced was an abrupt slowdown in new member additions around the world. Netflix shocked financial markets when it reported that its global membership base declined by 203,000 members in the first quarter of 2022 and that it expected to lose an additional 2.0 million members in the following quarter. Barely more than a year later, Netflix is well on its way to solving its “problem” and proving its skeptics wrong. Netflix has grown its global membership base by 17.7 million members over the past 12 months, including by 5.9 million members in the second quarter of 2023. Most of the acceleration Netflix has seen in its membership growth trends thus far is due to the company’s initiatives to crackdown on password sharing between households. Another piece of Netflix’s solution to its “growth problem” is offering advertising-supported plans. The speed at which Netflix was able to execute is breathtaking. Netflix is aiming for sustained double-digit revenue growth, operating margin expansion and growing free cash flow. It also plans to allocate most of the free cash it generates to share repurchases.

BSD Analysis:
Netflix’s moat is global scale plus a recommendation engine that actually converts attention into viewing hours. Distribution is solved—nearly every connected screen ships Netflix-ready by default. Content spend is massive, but the data advantage lets Netflix amortize hits globally in a way legacy studios never could. Pricing power has quietly improved as churn proved lower than feared after increases and password controls. Advertising adds margin optionality without undermining the core subscription model. Competition is rationalizing, which reduces the subsidy wars that once masked Netflix’s advantages. The risk is creative fatigue—content quality must keep pace with volume. The bull case is steady ARPU expansion layered on global scale with improving free cash flow. Netflix wins by turning entertainment into a repeatable operating system, not a hit-driven gamble.

Pitch Summary:
I believe that years of reduced capital expenditures, along with ESG restricting capital access, combined with Western governments that are openly hostile to fossil fuels, have created an environment for dramatically higher oil prices. While we could purchase oil producers, and we are long shares of Journey Energy (JOY – Canada), I feel it is far more conservative to simply own the physical commodity itself. I believe that this leveraged play on oil gives us the most upside to oil and ultimately inflation, while exposing us to reduced risk when compared to producers.

BSD Analysis:
The manager presents Journey Energy as part of a broader oil price appreciation thesis driven by structural supply constraints. The investment rationale centers on years of reduced capital expenditures, ESG-driven capital restrictions, and government hostility toward fossil fuels creating a supply-demand imbalance favoring higher oil prices. While the manager acknowledges owning JOY shares, the commentary suggests a preference for direct commodity exposure over producer equity risk. The thesis implies Journey Energy should benefit from the anticipated oil price surge, though the manager views physical oil positions as more conservative with better risk-adjusted returns. This reflects a structural energy shortage scenario where Canadian oil producers like Journey Energy are positioned to benefit from constrained global supply and recovering demand fundamentals.

Pitch Summary:
JOE owns approximately 170,000 acres in the Florida Panhandle. I believe it has been widely known that JOE traded for a tiny fraction of its liquidation value for years, but without a catalyst, it was always perceived to be "dead money." Over the past few years, I believe the population of the Panhandle has hit a critical mass where the Panhandle now has a center of gravity that is attracting people who want to live in one of the prettiest places in the country, with zero state income taxes and few of the problems of large cities. The oddity of the current disdain for so-called "value investments" is that many of them are growing quite fast. I believe that JOE will grow revenue at 30% to 50% each year for the foreseeable future, with earnings growing at a much faster clip. Besides the potential valuation, growth, and high Return on Invested Capital (ROIC) of the business, why else do I like JOE? For starters, land tends to appreciate rapidly during periods of high inflation—particularly an inflationary period where interest rates are likely to remain suppressed by the Federal Reserve. More importantly, I believe we are about to witness a massive population migration as people with means choose to flee big cities for somewhere peaceful. I suspect that every convulsion of urban chaos and/or tax-the-rich scheming will launch JOE shares higher, and it will ultimately be seen as the way to "play" the stream of very wealthy refugees fleeing for somewhere better.

BSD Analysis:
The manager identifies St. Joe as a compelling value-to-growth transformation story driven by demographic shifts and tax migration trends. The company owns 170,000 acres in Florida's Panhandle, historically trading below liquidation value due to lack of catalysts. The investment thesis centers on the region reaching critical population mass, attracting affluent residents seeking low taxes, natural beauty, and urban escape. The manager projects aggressive 30-50% annual revenue growth with even faster earnings expansion, suggesting significant operating leverage. Key value drivers include high ROIC, land appreciation during inflationary periods, and positioning as a beneficiary of wealthy urban exodus trends. The Florida Panhandle's zero state income tax advantage creates a structural competitive moat. This represents a classic asset-rich company with accelerating fundamentals trading at deep value multiples, positioned to benefit from secular demographic and tax policy trends.

Pitch Summary:
It may take some time still, but I believe that society will eventually settle on nuclear power as a compromise solution for baseload power generation. This could come at a time when there is a deficit of uranium production, compared with growing demand. As aboveground stocks are consumed, uranium prices should appreciate towards the marginal cost of production. Additionally, there is currently an entity named Sprott Physical Uranium Trust (U-U – Canada) that is issuing shares through an At-The-Market offering, or ATM, in order to purchase uranium (we are long this entity). I believe that these uranium purchases will accelerate the price realization function by sequestering much of the available above-ground stockpile at a time when utilities have run down their inventories and need substantial purchases to re-stock. The combination of these factors ought to lead to a dramatic increase in the price of uranium as it will likely take multiple years for sufficient incremental supply to come online—even if the re-start decision were made today.

BSD Analysis:
The manager presents a compelling structural bull case for uranium centered on supply-demand imbalances and nuclear power adoption. The thesis hinges on society's eventual embrace of nuclear as a baseload power solution amid growing energy demand and ESG pressures. Key catalysts include depleted above-ground uranium stockpiles, utility inventory restocking needs, and Sprott's ATM program sequestering available supply. The manager emphasizes the multi-year lead time for new uranium production, creating a supply bottleneck that should drive prices toward marginal production costs. This represents a classic commodity squeeze scenario with limited near-term supply elasticity. The investment vehicle provides direct uranium exposure without operational risks of mining companies. The thesis aligns with the fund's broader inflation hedge strategy, as uranium prices typically correlate with inflationary environments.

Pitch Summary:
The Fund heavily purchased energy-sector holdings in the first half of the year. The largest Fund purchase overall was Natural Gas Services (NGS), a Texas-focused energy logistics company that fabricates, rents, and maintains compression equipment for oil & gas companies. Shares in the company, which trade at a 45 percent discount to tangible book value, have been under selling pressure as executive turnover, rising debt-loads and descending gas prices have apparently generated some selling pressure in this historically sleepy stock. Fortunately, despite all the management transition noise, we were pleased to see that Steven Taylor, a former Hallibuton executive who has been instrumental in successfully and conservatively steering the company over many years, was re-assuming the CEO role. Although the $125 million market-cap company has seen debt increase from de-minimus levels to just over $60 million in just the last few quarters, we were pleased to see that the increase was made to fund a material expansion in larger horsepower compression rental equipment, the overwhelming majority of which has already been committed to multi-year contracts at strong rates to high quality customers. Furthermore, several competitors to NGS have been highly levered and are now facing rising interest expense and financial pressure as they endeavor to de-lever. As a result, these competitors have not been able to take full advantage of the strong compression market and expand their own rental fleets. Fortunately, NGS was well positioned with a debt-free balance sheet and has been capturing profitable share. With significant debt capacity at the company to put new equipment on profitable, long-term leases, NGS is planning to spend $150 million in capital expenditures this year. With new equipment requiring about six months from purchase-order payment to rental installation and with much of the ramp-up in business having occurred since late 2022, investors have not yet seen the cash flow impact in reported results, which has resulted in distorted cash flow valuation multiples. Normalized, we see free cash flow FCF returns on market value of the company in excess of 20 percent once the newly ordered equipment is fully installed, which we suspect could lead to a nice stock re-rating. With large investor representation on the company's Board of Directors and high share ownership by the Chief Executive Officer, we believe corporate governance at the company is strong. At quarter end, the Fund held a 2.4 percent position in Natural Gas Services.

BSD Analysis:
The manager identifies NGS as an attractive contrarian opportunity trading at a 45% discount to tangible book value amid temporary headwinds. The return of experienced CEO Steven Taylor provides management stability after recent turnover. Strategic debt deployment to expand high-horsepower compression equipment creates competitive advantages, with most new equipment already contracted at strong rates to quality customers. Competitors' high leverage limits their ability to capitalize on strong market conditions, allowing NGS to gain profitable market share. The $150 million capex program should drive normalized FCF yields exceeding 20% once equipment is fully deployed. Strong corporate governance through significant insider ownership and investor board representation adds confidence. The six-month equipment installation lag creates a temporary valuation disconnect that should resolve as cash flows materialize.

Pitch Summary:
Fortunately, the Aegis Value Fund was well positioned for the bank rout, entering the year with a single bank stock in the portfolio: a 2.1 percent position in Bank of Cyprus (BOCH-L). Somewhat ironically, despite the bank industry turmoil, this position turned out to be the Fund's strongest first-half performer, adding 1.59 percentage points to returns as shares in Cyprus' largest bank climbed by 88 percent. As opposed to many of the troubled domestic banking institutions poorly positioned in long-duration debt bought during the recent period of ultra-low interest rates, Bank of Cyprus was much better positioned for the upturn in interest rates. The company, having recently reduced non-performing assets to normal levels, was instead holding extraordinary amounts of liquidity on deposit at variable rates at the European Central Bank. With rates soaring in the Eurozone, Bank of Cyprus' position paid off handsomely, with interest income rapidly resetting higher, sending profit margins surging. With the bank finally turning the corner on its asset disposition program and its earnings beginning to surge with higher rates, investors began to re-rate the stock higher, narrowing its previously substantial discount to tangible book value. Despite the strong recent gains, we continue to maintain our position in Bank of Cyprus, and project a good probability for additional future gains given the stock still trades at a material discount to book value and at less than four times 2023 analyst earnings estimates.

BSD Analysis:
The manager presents a compelling bull case for Bank of Cyprus based on superior positioning for rising interest rates. Unlike troubled US banks holding underwater long-duration bonds, BOCH held substantial variable-rate deposits at the ECB, allowing rapid interest income expansion as rates rose. The bank's recent cleanup of non-performing assets and strong asset disposition program execution positioned it well for the current cycle. Trading at a discount to tangible book value and under 4x 2023 earnings estimates suggests meaningful upside potential. The 88% first-half gain reflects investor recognition of the bank's improved fundamentals and rate sensitivity. Management's strategic positioning during the low-rate environment has created a significant competitive advantage as monetary policy tightens.

Pitch Summary:
In summary, due to their operational efficiency, high margins, high pricing power, growing customer base, and reasonable valuations, we consider the North American freight railroads to be attractive and in the second quarter we took a long position in Canadian National Railway (NYSE:CNI). With almost 20,000 miles of track the CNI railroad network runs coast to coast in Canada from Vancouver and Prince Rupert to Halifax and down through the United States to New Orleans and Mobile, feeding intermodal logistics hubs along the Missisippi River. Profit margins exceeded 30 percent in 2022, up from about 15 percent 20 years ago largely as a result of operational efficiencies obtained from the conversion to a precision scheduled system in the early 2000s. We believe that the pricing power of railroads is alive and well due to their substantial price advantage over other modes of shipping and their monopolistic characteristics. At a P/E multiple of under 20 we believe that CNI is attractively priced and that, through a combination of share-count reduction due to stock buybacks, growth in shipping volumes, the ability to gradually raise shipping prices and the growth of the U.S.-Canadian trade relationship the company will be able to grow its free cash flow per share at a reasonable rate over a long time period.

BSD Analysis:
The manager presents a compelling value thesis for Canadian National Railway based on the structural advantages of North American freight railroads. The investment rationale centers on CNI's operational transformation through Precision Scheduled Railroading, which has doubled profit margins from 15% to over 30% in two decades. The manager emphasizes the monopolistic characteristics of rail networks and their substantial cost advantages over trucking (1/3 to 1/10 the cost). At a P/E multiple under 20, the valuation appears attractive relative to the company's pricing power and growth prospects. The thesis is supported by multiple growth drivers including share buybacks, volume growth, pricing increases, and expanding U.S.-Canada trade. The 20,000-mile network spanning coast-to-coast provides strategic positioning for intermodal logistics. The manager's focus on essential, mundane industries over trendy AI investments reflects a contrarian value approach that could generate superior risk-adjusted returns.

Pitch Summary:
The Fund heavily purchased energy-sector holdings in the first half of the year. The largest Fund purchase overall was Natural Gas Services (NGS), a Texas-focused energy logistics company that fabricates, rents, and maintains compression equipment for oil & gas companies. Shares in the company, which trade at a 45 percent discount to tangible book value, have been under selling pressure as executive turnover, rising debt-loads and descending gas prices have apparently generated some selling pressure in this historically sleepy stock. Fortunately, despite all the management transition noise, we were pleased to see that Steven Taylor, a former Hallibuton executive who has been instrumental in successfully and conservatively steering the company over many years, was re-assuming the CEO role. Although the $125 million market-cap company has seen debt increase from de-minimus levels to just over $60 million in just the last few quarters, we were pleased to see that the increase was made to fund a material expansion in larger horsepower compression rental equipment, the overwhelming majority of which has already been committed to multi-year contracts at strong rates to high quality customers. Furthermore, several competitors to NGS have been highly levered and are now facing rising interest expense and financial pressure as they endeavor to de-lever. As a result, these competitors have not been able to take full advantage of the strong compression market and expand their own rental fleets. Fortunately, NGS was well positioned with a debt-free balance sheet and has been capturing profitable share. With significant debt capacity at the company to put new equipment on profitable, long-term leases, NGS is planning to spend $150 million in capital expenditures this year. With new equipment requiring about six months from purchase-order payment to rental installation and with much of the ramp-up in business having occurred since late 2022, investors have not yet seen the cash flow impact in reported results, which has resulted in distorted cash flow valuation multiples. Normalized, we see free cash flow FCF returns on market value of the company in excess of 20 percent once the newly ordered equipment is fully installed, which we suspect could lead to a nice stock re-rating. With large investor representation on the company’s Board of Directors and high share ownership by the Chief Executive Officer, we believe corporate governance at the company is strong. At quarter end, the Fund held a 2.4 percent position in Natural Gas Services.

BSD Analysis:
Natural Gas Services Group’s moat is niche compression expertise in upstream gas production. Its fleet supports producers who need reliability more than scale. Revenue is tied directly to drilling and production activity, making it cyclical by design. Utilization rates dictate margins more than pricing power. Capital intensity requires disciplined fleet management. Customer concentration can amplify volatility. Industry consolidation helps pricing, but not immunity from commodity swings. The bull case is sustained U.S. gas activity and LNG-driven demand. This is operating leverage to gas cycles—not a structural compounder.

Pitch Summary:
AI wannabe (company's AI does not work, it is operated all by humans); misled investors (the restaurant business is a disaster and the claimed massive backlog is a joke); executives are selling $9.8m of shares; Update 4/10/24 - Filed new $150mil ATM, as expected. Target price: $1 per share.

BSD Analysis:
AI-driven audio software firm with a business model still unproven at scale. The company leans heavily on hype around generative AI, but recurring revenue is modest and customer adoption is limited beyond pilots. The short thesis highlights weak unit economics, heavy cash burn, and dependence on raising capital. As larger AI players integrate similar voice solutions, SoundHound risks commoditization.

Pitch Summary:
RILY is making managerial decisions that are detrimental to APLD; the board is controlled by RILY; raised low-cost financing to 'accelerate growth' but paid-off debt two years ahead of its maturity; insider trades; potential legal blowback from the CEO's sexual harassment allegation;

BSD Analysis:
Applied Digital builds data centers, pivoting from crypto to AI hosting. Bears question customer concentration, credibility of large deals, and capex intensity. Past pivots appear opportunistic. Heavy financing needs risk dilution, while hyperscalers pose existential competitive threats.

Pitch Summary:
The CEO bought the shares using funds from APLD prior to market moving news; insider trades; Update 8/21/23 - Overstated financials; its acquisition of BEBE is impaired under GAAP; BEBE should be consolidated considering the control RILY has on it; Update 11/14/23 - Follow-up report: Undisclosed linkages and loans related to Prophecy Asset Management Update 12/11/23 - Follow-up observations published. Update 12/26/23 - Follow-up twitter threads. Update 5/20/24 Follow-up note: The company under full control of RILY should be consolidated. Thus, the company's liability is understated.

BSD Analysis:
B. Riley Financial combines investment banking, brokerage, and lending with a large balance sheet of illiquid investments. Short reports argue that earnings quality is poor, relying heavily on asset marks that may not reflect true economic value. Rising interest rates and tighter credit have exposed refinancing risks, while leverage magnifies small valuation changes across loan portfolios. Recent scrutiny of its SPAC exposures and loans to distressed borrowers has intensified concern about transparency and sustainability of cash flows.

Pitch Summary:
Thanks to a pitch made on Value Investors Club, I decided to act on purchasing ZROZ, an ETF that holds long-government discount bonds, meaning they are issued at a discount to par, do not pay interest over time, but instead increase in value until they mature at par. While I have been hesitant historically to own long-term bonds, but since interest rates have increased, the risk-reward to owning long-term bonds makes a little more sense. There is still significant risk if interest rates continue to increase significantly from here. With that said, this investment has the potential to act as a good hedge for the rest of the portfolio, and the insurance doesn't cost anything up front. In fact, we earn a nearly 4% yield while we wait. Essentially, because this instrument has a ~25 year duration, it is most sensitive to changes in interest rates. The upward pressure on rates would be due to continued inflation, while rates would decline if the economy were to fall into recession and the Fed began reducing rates again. Obviously, if the economy were to decline, the remainder of the portfolio would be negatively impacted, and this investment would serve as a hedge. However, if the economy does not fall into recession and if inflation continues to increase, this investment could result in a negative return.

BSD Analysis:
The manager initiated a position in ZROZ as a portfolio hedge, representing a tactical shift from their historical aversion to long-term bonds. The investment thesis centers on improved risk-reward dynamics following the recent interest rate increases, with the ETF offering nearly 4% yield while providing portfolio insurance. The manager explicitly acknowledges the dual-scenario nature of this trade: ZROZ would benefit from economic recession and Fed rate cuts, offsetting equity portfolio losses, while risking negative returns if inflation persists and rates continue rising. The 25-year duration creates maximum sensitivity to rate changes, making this a high-conviction macro bet. This represents a sophisticated hedging strategy rather than a traditional value investment, demonstrating the manager's willingness to adapt their approach to current market conditions. The position appears sized as portfolio insurance rather than a core holding. The manager's transparency about the risks shows disciplined risk management while positioning for potential economic scenarios.