Investment Pitches

Pitch Summary:
Melrose has historically operated as a listed private equity business – specialising in acquiring, improving, and divesting manufacturing businesses. The track record is impressive: Melrose has delivered an average return on equity of 2.5x on its four exited acquisitions since listing in 2003, and investors at IPO have enjoyed a total return of 18.5% annualised. The most recent acquisition was GKN plc ("GKN") in 2018, which Melrose acquired for GBP 8.3bn. After selling other investments and spinning off the non-aerospace parts of GKN in April, management has announced that Melrose is changing – it will no longer pursue acquisitions and will remain a pureplay aerospace operation. We discussed spin-offs in our March 2021 letter, noting that "they can represent big change of the kind we think the market often struggles to price properly. Even though the sum of the parts remains the same, a spin can radically alter how the now separate businesses are run and, perhaps more commonly, how they are perceived by investors". We started our position in Melrose shortly after the non-aerospace assets were spun off partly because we believed in this case the spin-off was likely to be a perception-altering drug of this kind. GKN aerospace has two key segments: engines and aircraft structures. We have long been fans of aircraft engine businesses – we discussed the business model in our write-up of MTU Aero Engines AG ("MTU") in December 2016. Before the spin-off, GKN Aerospace had been reported by Melrose as a single segment. This was obviously going to change once the spin-off had happened, and we suspected that the market under-estimated the profitability of the engines segment. Assuming we were right, once the disclosure was provided, the shares would trade up, as engine profits are more valuable than structures profits. Our suspicion turned out to be right. Melrose clarified segmental profitability at a capital markets day in May: while the engines business will account for c. 40% of 2023 group revenues, it will generate c. 85% of the operating profit. However, we believe the stock remains attractive, and with a similar profile to our MTU investment from several years ago: a high quality engines-focused asset going through a sharp profit inflection where medium-term profits are undervalued. Aerospace engines are unusual business projects: they are very highly regulated given the severe implications of failure, technologically sophisticated and complex (engines may have tens of thousands of individual parts), high value and relatively low volume (there are less than 30,000 civil aircraft in service, and almost all active aircraft have just two engines). Perhaps most distinctive though is the product cycles, which extend over decades. Development takes several years before testing begins, certification is likely to require at least two years of testing, and the first commercial sale may come through some years after that – roughly a 10-15 year process altogether. Even then, engines are typically sold at a loss, or in the best case at a very low margin. And then engines are robustly made – they typically don't see their first major service (known in the industry as a "shop visit") for 5-10 years. The service revenues, to a captive customer base, at high margins, are what makes the business model sing – but companies have to wait 20 years or more from initial development investments to see those begin. However, service revenues are then likely to flow for almost 40 years, as engines may be produced for 15-20 years and have a roughly 25 year useful life. We like to think of ourselves as long-term investors, but all things are relative; in Ennismore's 25 year history we have made just one investment of a comparable horizon. In addition, engine development costs are enormous. Precise figures are not available, but we believe the cost of a new engine programme development today would be well over USD 2bn. The engine original equipment manufacturers (OEMs) use revenue and risk sharing partnerships ("RRSPs") to distribute the R&D costs and leverage niche expertise of other companies. In a typical RRSP, partners agree to supply specific components throughout the engine programme, gaining a percentage of total programme returns from both original equipment and aftermarket sales. These agreements are negotiated based on a "should cost" basis, where the RRSP submits estimated component costs, which are then verified by programme partners. This estimate determines the percentage of the engine programme allocated to the RRSP, offering the potential for superior returns if actual costs are lower than modelled. GKN is among six non-OEM companies to be part of RRSPs on civil aircraft. It provides complex engine components such as fan blades, cases, and various engine mounts under 19 different RRSPs for various narrowbody (single aisle) and widebody (double aisle) aircraft. Its portfolio is heavily skewed to components which typically last the engine's lifespan, meaning there is little cost per shop visit for GKN. GKN is the only company to have RRSPs on both legacy narrowbody engines (CFM56 and V2500), which currently account for half of narrowbody flight hours. Of current engines, GKN has a 4-7% share on Pratt & Whitney Company, Inc's geared turbofan (GTF) programme that powers c. 40% of the A320 narrowbody fleet, and 2-5% of both General Electric's GEnx and Rolls Royce's Trent XWB programmes that power the Boeing 787 and Airbus A350 widebodies respectively. Engines typically undergo three or more major shop visits during their lives, the first coming within 5-10 years and continuing at broadly regular intervals afterward. Lifetime spend on servicing is more than five times the initial cost of the engine. During a typical shop visit, costs are divided into three main components: 60% for parts, 20% for repairs, and 20% for labour. Considering that approximately 80% of the parts used in a typical shop visit are new, and we estimate these parts yield operating margins between 40-50%, operating profits from materials alone can be as much as 1-1.2x the initial sale price of the engine. Currently, half of CFM56 engines and over 90% of GTF engines are awaiting their first shop visit. GKN is therefore entering the harvesting phase of its RRSP portfolio, with revenues and particularly cash flows inflecting sharply. The impact of this on the financials is exaggerated by the depressing effect of the pandemic on the business over the last three financial years. Although GKN gets a share of the economics from the aftermarket, this exposes it to the risk of higher-than-expected repair costs in the event of reliability issues. This can have a material impact on profitability: Rolls-Royce Holdings plc will suffer a c. GBP 2-3bn hit due to issues with its Trent-1000 programme. The GTF, one of GKN's key engine RRSP programmes, has suffered reliability issues with its combustor – 13% of the fleet was grounded in May 2023. However, 60% of the fleet has now been upgraded to block D combustors that fix the issue and the fix rate will surpass 90% within the next two years. Importantly, there are no safety issues with the engine. We do not believe this will be major financial burden for GKN. Looking to the future, GKN is actively engaging in demonstrator programmes on both CFM International SA's next generation RISE programme and Pratt & Whitney's GTF Gen 2. It expects to invest GBP 550mn on these programmes. If it can maintain a similar share of the GTF and re-establish a RRSP on the CFMI engine, there is significant upside optionality longer term as CFMI is the largest engine OEM in the narrow body market, with a total share of c. 75%. However, these programmes are not anticipated to enter service until the mid-2030s. GKN's RRSP portfolio will comprise 55% of the engine division's revenue in 2023, rising over time. Another 25% will come from non-RRSP content on other commercial engine programmes, 10% from aftermarket military partnerships including on the F-35, and 10% from high complexity aftermarket repairs. These are high-quality businesses, and GKN is well positioned. In the original equipment business, GKN will have content on c. 70,000 of the c. 74,000 engines expected to be in service in 2030 and the large majority of the engines revenue is from sole source positions. The repair business, 75% of which is specialised in fan blades, is a growth opportunity. Fan blades are a complex product that require expertise and scale to effectively repair due to the large machinery required. GKN has a 30% share of the fan blade market in Asia and is expanding its repair portfolio to include blisks this year (bladed disks that help pressurise the air inside the engine). Across the entire engines division c. 75% of business is protected from inflation, mainly by escalation clauses where prices are adjusted by contractually agreed price indices. The structures segment will account for c. 60% of revenues but only c. 15% of operating profits in 2023. Around two thirds of this business is civil, and the remainder defence. Structures lacks the captive service revenue stream that makes engines such a compelling business model and has lower technological and investment barriers to entry – it is a substantially less attractive business. However, Melrose has a strong record of improving industrial operations, so we are hopeful on the prospects for margin improvement. Within structures, GKN has a strong positioning as a super-tier 1 partner in over 50% of sales. This means it can design, validate, and build structures across multiple OEMs. The next 30% of revenues are tier 1, leaving only 20% of revenue in more commoditised positions. 45% of sales are high-quality design and build wing structures. Given the long-term trend of air traffic growth, and the depressed delivery rates during the pandemic, top line growth prospects for structures are decent. Margins have come under pressure in recent years, however, driven by the twin pressures of the pandemic and inflation against poorly structured contracts signed before the Melrose acquisition. GKN structures is currently eliminating 40% of its manufacturing sites and plans to exit 15% of defence business that it considers non-core and renegotiate other contracts, such that 85% of defence contracts are sustainably priced by 2025. Management is guiding that these strategic measures will improve segment operating margins from 3% to 9% by 2025 compared to a baseline of 7% pre-COVID. Upon a full repricing and repositioning as a design-to-build structure provider, we believe there is a path to double digit operating margins in structures longer term. For reference, Spirit AeroSystems Holdings, Inc, a pureplay structures business with weaker intellectual property and a higher skew to more commoditised revenue streams, was able to achieve 11-13% operating profit margins pre-pandemic. By 2025, we project revenues of GBP 1.8bn in engines and GBP 2.2bn in structures. Segmental operating profits should reach GBP 500mn and GBP 200mn respectively, representing a 6% point margin expansion in both divisions. At the group level, a GBP 680mn 2025 EBITA is achievable, with the potential for it to reach GBP 900mn by 2027, translating to unlevered free cash generation of c. 15% of 2027 sales, or GBP 700mn. After the spin-off, Melrose has been left with modest leverage. The business is cash generative and will be increasingly so as profits inflect over the next year or two. With the commitment to eschew major acquisitions in future, cash flows will be largely distributed to shareholders. Management plans to run the balance sheet with leverage of c. 2.5x EBITDA. Combined with the growth in profits, we estimate this means the company could buy back 25% of its shares by the end of 2025. We note one significant reason for caution: CEO Simon Peckham sold 2mn shares (just under half of his holdings) in mid-June. The management team are still highly incentivised to deliver value for shareholders, however: Melrose senior management has an equity incentive agreement where management takes 7.5% of value generated above a 5% hurdle rate, which could run into some pretty big numbers in our more optimistic scenarios. Aside from the equity incentive agreement, the broader management team still owns almost GBP 50mn of the stock. It's worth noting that Peckham's disposal was at a price c. 10% higher than the price as we publish this letter. Factoring in the equity incentive agreement and valuing the business at a range of 15-18x EV/NOPAT, we anticipate an IRR of high teens to mid-20s through 2027. Given the quality and relative predictability of the engines business, we see this as highly attractive – particularly so given the relatively low downside risk we see to our profit projections.

BSD Analysis:
Ennismore presents a compelling turnaround story in Melrose Industries following its transformation from a listed private equity vehicle to a pure-play aerospace operation. The manager's thesis centers on the market's underappreciation of GKN Aerospace's engine segment profitability, which generates 85% of operating profit despite representing only 40% of revenues. The investment capitalizes on the aerospace aftermarket inflection, with engines entering their high-margin service phase after a 20+ year development cycle. GKN's participation in 19 Revenue and Risk Sharing Partnerships (RRSPs) provides exposure to lucrative aftermarket revenues, with lifetime servicing spend exceeding 5x the initial engine cost at 40-50% margins. The manager projects significant margin expansion in both engine and structures divisions, targeting GBP 680mn EBITA by 2025 and potential GBP 900mn by 2027. With modest leverage and commitment to shareholder returns, the company could repurchase 25% of shares by 2025. The investment offers high-teens to mid-20s IRR potential through 2027, supported by the predictable nature of aerospace aftermarket revenues and limited downside risk to profit projections.

Pitch Summary:
Morgan Advanced Materials Plc (MAM) is a GBP 780m market capitalised UK business, founded in 1856, which sells material, components and systems globally across many industries and end markets. We think the company offers a resilient cash and earnings profile partly due to circa half of revenue being exposed to consumable-like products alongside many strong market positions. The business generates solid double digit post-tax returns on invested capital and operating margins with fundamentally strong cash generation. We believe the stock is trading on an extremely low valuation for a business of its quality. MAM has five product segments totalling GBP 1.1bn of sales in 2022: Ceramics, Thermal and Technical, account for almost two-thirds of revenue (38% and 27% respectively). The rest consists of Electrical Carbon (17%), Seals & Bearings (13%) and Molten Metal Systems (5%). All segments showed strong profit growth in 2022 except Seals & Bearings. Overall profits grew organically at constant currency by around 15%. All segments have double digit operating margins. MAM has many strong market positions across its business segments. It's the No.1 player in Thermal Ceramics with a 25% global share ex China (which have lower quality suppliers and local demand). In Technical Ceramics they are exposed to many sectors so market shares can range from 5% to 40% in small niches. In Electrical Carbon and Seals & Bearings they have the same peers with MAM being one of 4 global sensible competitors sharing 60% of the market. Finally, they are No.1 in Molten Metal Systems with 25% of the global market. As mentioned around 50% of revenues are in products which need replacing regularly, such as carbon and ceramic components. The replacement period can range from less than a year to every few years, overall, this leads to a strong base of demand for MAM's products. The relatively mild constant currency organic fall of 11% in 2020 followed by this snapping back up 10% in 2021 would seem to be testament to this resilience. Due to its wide range of end markets MAM has very low customer concentration (largest is 2%), helped by the fact 80% of sales are direct with only 20% via distributors. The company has done well in increasing operating margins in 2022 to 13%, based on our calculations, more than covering cost inflationary pressures mainly via price increases but also efficiency gains. This would seem to indicate good pricing power. The business generated circa 16% post-tax return on invested capital last year. Over 25% of invested capital is intangibles linked to prior acquisitions so return on capital employed sits higher. Trade working capital sits at around 16% of revenues, and we wouldn't expect this to change much given the inventory needed for their range of products and customers. In January 2023 MAM's IT systems were maliciously compromised leading to a need for external help to contain and remedy the situation. This also temporarily affected the operational efficiency of the business. Overall, we think this will impact stated operating profits by around GBP 35m this year. The one silver lining being that the company is likely to come out of this with a stronger cyber-secured IT environment. Over the past 5 years there has been cumulatively zero organic growth as the management have been more focussed on the operational efficiency of the company, profits have grown by over 20%, putting them in a stronger stance for growth in the future. Going forward, although 80% of revenue is to the core sectors in the economy such as industrial, metals and petrochemical, MAM also has 20% exposure to faster growth areas such as semiconductors and healthcare so overall we expect the company to grow at a rate stronger than the economic cycle in the medium term, around 5% per annum. Clearly management needs to prove the company can structurally grow through the cycle while maintaining operating margins. In the first half sales were up 2% although this was held back by lost revenue from the cybersecurity incident. The company still expects growth of 2-4% for the year. In the last 5 years net bank debt has fallen by GBP 33m to GBP 148m after cumulative dividends of circa GBP 120m. However, they have also made circa GBP 160m of deficit pension payments, including a lump sum of GBP 67m in 2022, on top of the regular GBP 17m deficit payment. This implies over GBP 60m per annum of cash generation. This pension cash drain now looks to be permanently solved with minimal deficit payments expected going forward, a material positive for free cash flow generation. However, over the next two years cash generation will be held back by a step up in capex as well as the cybersecurity incident of 2023. The step up in capex is much to do with increasing capacity and all capex is done on the basis of hitting a pre-tax return on investment of close to 20%, so we see this as a positive. In 2024 we expect cash generation of circa GBP 40m. Overall debt levels are comfortable, especially given the business's relative stability, sitting at the low end of their targeted range. Around 40% of debt at year end is exposed to interest rate movements on our calculation. We think that given this low financial leverage they can support the current dividend yield of more than 4% while having more options via bolt on acquisitions or buying out minority interests. We are pleased to see management's incentive plans include return on invested capital with regards to the risk of overpaying for acquisitions, as well as their reticence to increase leverage with the current economic uncertainties. MAM's CEO, Peter Raby, has been in place since 2015 and since then he has done a good job in rationalising the business to enhance profitability as well as increasing focus on higher growth market segments. The next chapter will be more focussed on growth in our opinion. Overall, Morgan Advanced Material is a business which we feel now has a much better platform for organic growth, with lower financial leverage and no pension cash drain. This isn't being appreciated by the stock market with the company trading on around 9.5 times enterprise value to after-tax operating profit adjusted for minority interests (around 10% of earnings). Given the strong resilience and good return on invested capital, we think we are conservative putting the stock on 12.5 times which gives upside of over 40% to the end of 2024.

BSD Analysis:
Ennismore presents a compelling value thesis on Morgan Advanced Materials, a UK industrial materials manufacturer trading at an attractive 9.5x EV/EBITDA multiple. The manager highlights the company's defensive characteristics, with 50% of revenues from consumable products requiring regular replacement, providing recurring demand resilience. MAM holds dominant market positions across its five segments, including #1 positions in Thermal Ceramics (25% global share) and Molten Metal Systems, with strong pricing power evidenced by 13% operating margins despite inflationary pressures. The investment case centers on a structural improvement story, with pension cash drains now eliminated (previously £17m annually) and management focused on growth after five years of operational efficiency improvements. While a cybersecurity incident will impact 2023 profits by £35m, the manager views this as temporary and expects the company to emerge with stronger IT infrastructure. The 16% post-tax ROIC and low customer concentration (largest client 2%) support the quality thesis. With debt at comfortable levels and 4%+ dividend yield sustainable, Ennismore targets 12.5x valuation for 40%+ upside by end-2024.

Pitch Summary:
Citadel's holding in Nichirin has been part of the portfolio since 2019, so it's about time to present this Japanese company to you in more detail. Nichirin, which will celebrate its 100th corporate anniversary next year, started off as a subsidiary of Suzuki to produce specialised rubber hoses, such as bicycle tubes and hoses for automotive brakes. Further innovation and specialisation led to Nichirin's current near monopoly position in producing brake hoses for motorcycles for Japanese motorcycle manufacturers. This is a very profitable market position. In particular, the brake hoses and fuel hoses needed for the millions of small Honda motorcycles typically seen throughout the crowded cities of South-East Asia are an important profit driver. Having recently completed major capacity expansion projects in India, Vietnam, and Indonesia, we expect the Asian market to be a continuing growth engine for Nichirin. Further, the company provides various specialty hoses for the automotive industry, e.g., for air conditioning, internal heat exchangers, brakes, and power steering. For these products, Nichirin has an impressive automotive customer list, which includes VW, GM, Stellantis, Subaru and Tesla. On the motorcycle side, customers include all Japanese OEMs such as Honda, Suzuki, Yamaha, and Kawasaki, as well as European brands such as Piaggio. Nichirin has a very strong balance sheet (as is often the case with Japanese companies) and it pays a healthy dividend while it has also initiated a share buy-back program – a sign that management does care about its shareholders. Citadel was able to purchase its holding at 2.5x operating profit and a double-digit free cash flow yield. We believe this is a very attractive valuation for a business that has consistently generated double-digit operating margins and a double-digit return on capital. After a >60% share price appreciation since the Fund's first purchase, the stock's valuation is still modest, so to this day we continue to be satisfied shareholders in this small but well-managed company.

BSD Analysis:
The manager highlights Nichirin as a compelling niche industrial play with dominant market positions and attractive growth prospects. The company's near-monopoly in motorcycle brake hoses for Japanese manufacturers provides a highly profitable and defensible business model. Recent capacity expansions in India, Vietnam, and Indonesia position Nichirin to capitalize on Southeast Asia's motorcycle market growth, particularly for Honda's ubiquitous small motorcycles. The automotive customer base including Tesla, VW, GM, and Stellantis demonstrates quality relationships and diversification beyond motorcycles. The original purchase at 2.5x operating profit with double-digit free cash flow yields exemplifies exceptional value investing. Despite 60% appreciation since 2019, the manager believes valuation remains attractive given consistent double-digit margins and returns on capital. The strong balance sheet, dividend payments, and share buyback program reflect shareholder-friendly management typical of quality Japanese companies. This represents a classic small-cap value opportunity with niche market leadership and Asian growth exposure.

Pitch Summary:
We were able to reinvest the proceeds in a new portfolio position, namely Stellantis, a leading global car manufacturer. Created early 2021, Stellantis combines the former Fiat Chrysler Automotive group and the Peugeot Citroen Automotive group, which includes major other car brands such as Jeep, Dodge, RAM, Opel, and Maserati. Selling 6 million cars per annum, it is the 3rd largest carmaker in the world and in fact a very profitable one. In 2022, which was admittedly a quite profitable year for many carmakers, Stellantis realised an 11% operating margin and returned 7% free cash flow on its revenues. With strong management, Stellantis embarked on a strategy of integrating and unifying the many car platforms of its list of brands, creating billions of cost synergies as this integration moves forward (this integration is what some other car manufacturers already largely completed, but for Stellantis it constitutes clear potential). At the same time, the company is accelerating the development of battery electric vehicles. Although a lot still needs to be done, its entry level battery electric models are already market leading in Italy, France, and Germany. Stellantis' ultra strong balance sheet (€ 50bn cash at hand) is offering more than sufficient means for this journey, and it's a very big safety cushion in case of a weaker market environment. Also, Stellantis happens to be one of the few large carmakers lacking a large Chinese operation, and therefore it is less susceptible to the country-specific risks of China. We believe this is a risk reducing element, which we always like in a business. Finally, the stock is trading at an ultra-low valuation, regardless of the angle from which you would look at it. The Fund built a position at an enterprise value of 1x operating profit. We estimate that the through-the-cycle ("normalised") free cash flow yield is around 50%. That provides a huge margin-of-safety. In addition, the shareholder is treated well with a high dividend pay-out (the FY22 pay-out reflected a 9% dividend yield), in addition to a sizeable share buy-back. Even when incorporating a recessionary cycle into our earnings model, the shares would still be very cheap.

BSD Analysis:
The manager presents a comprehensive bull case for Stellantis based on operational synergies, financial strength, and extreme valuation discount. As the world's third-largest automaker with 6 million annual sales, Stellantis achieved impressive 11% operating margins and 7% free cash flow yields in 2022. The key catalyst is platform integration across multiple brands, creating billions in cost synergies that competitors have already captured but remain untapped for Stellantis. The company's electric vehicle strategy shows early success with market-leading positions in key European markets. The €50 billion cash position provides substantial strategic flexibility and downside protection. Notably, limited Chinese exposure reduces geopolitical risk compared to peers. The valuation appears extraordinarily compelling at 1x operating profit enterprise value and an estimated 50% normalized free cash flow yield. The 9% dividend yield plus share buybacks demonstrate shareholder-friendly capital allocation, while stress-testing suggests attractiveness even in recessionary scenarios.

Pitch Summary:
Signify (global leader in lighting products, solutions, and services) experienced share price pressure in the first five months of 2023. Signify has been struggling to keep up its growth relative to last year's much more buoyant market for lighting. Overall, we believe management has been doing a good job amid a tougher environment. Relative to the free cash flow this business typically generates, the stock price is currently a bargain in our view. Consequently, the Fund added to its existing position at very attractive price levels. We increased the weighting in Signify at very attractive valuation levels. We estimate that this latest addition has been bought at a free cash flow yield of around 15% (taking the average of the 4-year period of our 2023-2026 estimates). The current dividend yield is around 6%. We are very happy that the market provided this recent buying opportunity at a discount to its estimated intrinsic value of more than 50%.

BSD Analysis:
The manager views Signify's recent weakness as a compelling buying opportunity, adding to the position at attractive valuations. While the company faces near-term headwinds from a softer lighting market compared to 2022's strength, management's execution remains solid in a challenging environment. The investment case centers on valuation - the manager estimates a 15% free cash flow yield based on normalized 2023-2026 projections, with a current 6% dividend yield providing income support. The stock trades at over 50% discount to estimated intrinsic value, offering substantial margin of safety. As the global leader in lighting solutions, Signify benefits from secular trends toward LED adoption and smart lighting systems. The manager's decision to increase the position during weakness demonstrates confidence in the company's long-term competitive advantages and cash generation capabilities.

Pitch Summary:
Looking at the detractors during the first five months of 2023, NOV (formerly National Oilwell Varco) stood out with a negative performance of 32%. This compares with NOV's positive performance of 64% in calendar 2022. NOV is a market leading supplier of infrastructure for the oil & gas sector, with a fast-growing business in offshore wind installation technology. The energy services sector has entered a growth recovery phase, particularly in offshore, which is beneficial to NOV. However, the company's significant exposure to the slowing North American onshore segment hampered its financial performance. We believe the stock holds significant upside potential, as growing global energy consumption and the rapid depletion of existing reserves will lead to energy shortages that can't be met by growing green-energy production alone. Growing exploration and production is unavoidable and hence we see significant business growth and value creation ahead for NOV.

BSD Analysis:
Despite recent underperformance, the manager maintains conviction in NOV based on long-term energy supply-demand fundamentals. The company's market-leading position in oil and gas infrastructure, combined with growing offshore wind capabilities, positions it well for the energy transition. While North American onshore weakness pressured near-term results, the manager views this as temporary given the broader offshore recovery cycle. The investment thesis rests on the structural energy shortage argument - that renewable energy growth cannot fully offset declining conventional reserves and rising global consumption. This supply gap necessitates continued exploration and production investment, directly benefiting NOV's equipment and services. The recent 32% decline following 2022's 64% gain suggests the market is overly focused on cyclical headwinds rather than the company's strategic positioning for inevitable energy infrastructure investment.

Pitch Summary:
The second-best performer in the portfolio was Vitesco Technologies. Vitesco's results have been roughly in line with expectations, no surprises there. However, its order intake for its electrification technology products (to be used by nine out of the top-ten battery electric car manufacturers) continues to impress. Once these orders turn into product sales, we expect economies-of-scale driving profitability to a much higher level compared to today. This makes the stock look outright cheap at current stock price levels.

BSD Analysis:
The manager maintains a bullish stance on Vitesco Technologies based on impressive order momentum in electrification technology. While current results meet expectations without surprises, the key catalyst lies in the company's strong positioning with nine of the top ten battery electric vehicle manufacturers. This broad customer adoption suggests Vitesco has developed competitive electrification solutions that are gaining market acceptance. The manager anticipates significant operating leverage as these orders convert to sales, with economies of scale expected to drive profitability substantially higher. The current valuation appears disconnected from this future earnings potential, creating an attractive risk-reward profile. The investment thesis centers on the secular shift to electric vehicles and Vitesco's emerging leadership position in critical electrification components.

Pitch Summary:
Citadel's best year-to-date performer was SOL Group, an Italian industrial and medical gas producer which is also the no. 2 European home care service provider. SOL realised record profitability in 2022, driven by superb results in both the technical gas division and home care. Management was able to pass on significant cost inflation of technical gas production whilst still growing volumes. And in home care (particularly respiratory services such as oxygen at home), growth re-accelerated as the overall care sector recovered from the covid period. Citadel purchased its holding in March and April 2020 at a very attractive valuation. Since then, the total return for the Fund was +161%. Notwithstanding this, the stock is still relatively inexpensive when compared to its larger peers Air Liquide and Linde.

BSD Analysis:
The manager presents a compelling bull case for SOL Group based on exceptional operational performance and attractive relative valuation. The company achieved record profitability in 2022 through successful pricing power in technical gases and accelerating growth in home care services as the sector recovered from COVID disruptions. Management's ability to pass through cost inflation while maintaining volume growth demonstrates strong competitive positioning. The 161% total return since the March-April 2020 purchase validates the manager's timing and thesis execution. Despite this substantial appreciation, the manager argues the stock remains undervalued relative to larger peers Air Liquide and Linde, suggesting continued upside potential. The dual exposure to industrial gases and healthcare services provides diversification within a single holding.

Pitch Summary:
Stellantis was added as a new holding after the fund exited Booking Holdings, with the managers emphasizing its combination of very strong profitability and extremely low valuation. The company generated an 11% operating margin in 2022 and roughly 7% free cash flow on revenues, levels that compare favorably with global peers. Management is unifying vehicle platforms across brands, creating billions in cost synergies as integration progresses. Stellantis is also accelerating development of electric vehicles, with its entry-level BEV models already market leaders in Italy, France, and Germany. With €50 billion in cash, Stellantis possesses one of the strongest balance sheets in global autos, providing a substantial safety buffer. The fund purchased shares at an enterprise value equal to only 1x operating profit, implying a normalized free cash flow yield near 50%.

BSD Analysis:
Stellantis stands out as one of the most attractively valued global automakers, pairing double-digit operating margins with an enterprise value that, at entry, amounted to only about one times operating profit. The company’s profitability compares favorably with any mass-market peer, supported by a unified multi-brand platform strategy that is already delivering billions in cost synergies. This consolidation of architectures and components materially improves scale efficiency across its fourteen brands while preserving pricing power in key markets. Stellantis has also moved aggressively in electric vehicles, with its entry-level BEV models ranking as market leaders in Italy, France, and Germany, giving the company a foothold in segments where affordability is critical. A cash position of roughly fifty billion euros gives Stellantis one of the strongest balance sheets in the global auto industry, providing resilience and strategic flexibility through the EV transition. At the valuation paid, the normalized free cash flow yield approached fifty percent, reflecting an extraordinary disconnect between fundamentals and market pricing. With strong margins, a credible EV roadmap, and enormous financial firepower, Stellantis offers one of the most compelling value setups in global autos.

Pitch Summary:
Paywalled (The Bear Cave believes Applied Digital relies on puffery over substance and is a perfect case study on our market’s bizarre underbelly of reverse mergers, microcaps, and shell companies.)

BSD Analysis:
Another short report published the same day reiterated concerns about Applied Digital’s business model. It emphasized structural exposure to crypto cycles, the fragility of revenue visibility, and promotional management practices. Bears also highlighted the mismatch between aggressive revenue projections and actual execution. With capital needs rising, the company risks shareholder dilution while facing intensifying competition in both crypto hosting and AI compute.

Pitch Summary:
Pivoted from a potato farm to a failed bitcoin miner and then to a low-cost AI service provider; the stock promotion by a significant shareholder;

BSD Analysis:
Applied Digital develops data centers catering to high-performance computing and crypto mining. The short case points to overreliance on volatile crypto demand, questionable long-term contracts, and high capital intensity. Skeptics argue that its pivot toward AI hosting is overstated, with limited differentiation compared to hyperscale operators. Leverage and dilution risk remain front and center, as profitability depends on scaling up infrastructure in a capital-constrained environment.