Investment Pitches

Pitch Summary:
Case in point, O'Reilly Automotive, a long-term top holding in the Centerstone Investors Fund (CENTX). O'Reilly Automotive is a market leader in the automotive aftermarket parts industry in the US. It operates a dual market strategy in which it sells parts to repair shops and to do-it-yourself customers in its retail stores. With its unique distribution infrastructure and dual market strategy, O'Reilly provides industry-leading parts availability. Customers typically buy automotive aftermarket parts to repair a vehicle and O'Reilly can typically provide the specific automotive parts they need to complete a repair faster than competitors. These are usually not discretionary purchases and O'Reilly has generated robust results across different operating environments. Since the onset of COVID, the scarcity of vehicles and high vehicle prices have forced many consumers to keep their vehicles for longer. The average age of vehicles on the road has been increasing and consumers have been making investments to maintain their vehicles, which benefits the automotive aftermarket parts industry. In this favorable environment, O'Reilly has continued to provide industry-leading parts availability and has continued to take market share. In the beginning of 2022, it launched its professional pricing initiative which has enabled it to accelerate its market share gains with its repair shop customers. As a result of this robust operating performance, O'Reilly's stock price is near all-time highs.

BSD Analysis:
Centerstone presents a compelling bull case for O'Reilly Automotive based on its dominant market position and structural industry tailwinds. The manager highlights O'Reilly's competitive moat through its dual-market strategy serving both professional repair shops and DIY customers, supported by superior distribution infrastructure that enables faster parts availability than competitors. The investment thesis is strengthened by favorable secular trends, including aging vehicle fleets and higher vehicle prices that encourage consumers to maintain rather than replace their cars. O'Reilly has capitalized on these dynamics through market share gains and the successful launch of its professional pricing initiative in 2022. The company's non-discretionary revenue base provides defensive characteristics while generating robust performance across various economic environments. The manager's confidence is reflected in O'Reilly being a long-term top holding, with the stock reaching all-time highs due to strong operational execution. This represents a classic value investor's approach of identifying quality businesses with sustainable competitive advantages in growing markets.

Pitch Summary:
Our only new position in our long-term book was Howden Joinery. Based out of the UK, Howden Joinery ("Howdens") is a trade only supplier of kitchen and joinery products. Howdens' key differentiation is that they sell only to trade (i.e to contractors). They sell their products through one of 873 depots (mostly in the UK). The company in 2022 posted about £2.3bn in revenues, 61% gross margins (£1.4bn), 20% EBITDA Margins (£459MM), and 16% net income margins (£374MM). 95% of Howdens business comes from contractors working on refurbishments of kitchens. As of 2022, Howdens has 808 depots in the UK, 58 in France, 2 in Belgium, and 5 in Ireland. Each depot is run by a manager who is a mini-CEO (more on that below). While the end customer (the homeowner) can come into the depot to view various kitchen designs and confer with Howdens, the sale is done via the contractor. Pricing is entirely up to the depot manager, thus giving flexibility to offer better pricing to contractors who do more volume, and to allow for regular price increases. As can be seen from the two charts below (source: Barclays and JKMR) Howdens has about a 41% share in total kitchens installed by volume. Their market share within price ranges does change though. They have a strong market share in the budget and lower-mid categories but that share drops as they go higher in the price point (for reference budget kitchens cost less than £6,000 whereas premium kitchens can cost over £40,000). However, with the acquisition of Sheridan (which makes luxury worktops), the company is moving more into the upper and premium space where the main competitors are mom & pop shops. Based on our conversation with the company, Howdens believes they are about 30% cheaper than Mom & Pops. Howdens has a unique culture where they treat their depot managers as mini-CEOs. They are fully in charge of pricing (unless there is a significant market scenario such as 2008), inventory, and day-to-day operations. They are also incentivised well, and are given as bonus, 5% of depot profits (essentially the company's gross margin). Another 5% is split among employees of the depots. This is paid monthly to maintain high throughput throughout the year. This model has resulted in gross margins staying consistent at the ~60% range. Depot managers are also responsible for local customer acquisition and maintain relationships with the tradespeople in their areas. The street expects low to mid-single digit revenue growth for the next few years. However, the company is working on several initiatives that could prove these forecasts conservative. These include: ● International expansion: Howdens has been slow to get its international expansion going, especially in France. This was partly because of having the wrong leadership team in place (i.e. sending English mgmt. to France) and partly because of a lack of focus. However, Howdens is now ramping up its expansion with a goal of ~66 depots in France by the end of 2024 (up from 28 in 2020). Ireland is also the next large international location with 6 depots scheduled by the end of this year. ● Further UK Expansion and Refurbishments: Management believes that the UK has a capacity of about 1000 depots. Further the UK depots are in the midst of refurbishments with 50% trading on new formats that allow for more throughput. ● New products: In the past Howdens was seen as a bit of a follower when it came to new products and ranges, however in recent years they have stepped up their game and launched several new products. Sales from new products made up 22% of UK sales in 2022 and are growing at 69%. ● Online accounts: The company is trying to shift trade to interact more with their online accounts. 45% of their customers now have online accounts, with online customers on average spending more than regular customers. ● Unprompted brand awareness: As discussed above, this is being pushed by social media followings, advertising, etc. Howdens has a significantly larger social media presence than its competitors. For example, on Instagram, Howdens has 278K followers whereas competitor Magnet has 96K and Wren has a little less than 199K. What excites us about this investment is its rarity. It's rare to find a business that has a 40%+ (and growing) market share in a growing industry. It's rare to find a business that can continually increase prices without losing market share. It's rare to find a physical goods business that has 60%+ gross margins, 20%+ EBITDA margins, and 30%+ returns on equity (with no debt). It's rare to find a business that thinks clearly about capital allocation and returns all free cash flow to the shareholders. All these individual elements are rare on their own, but what makes this opportunity most rare is that the company is trading less than a 10X trailing EBIT multiple. Now the question is, why are we receiving this opportunity? We believe that it is for a few reasons for 1) the UK economy is weak. GDP growth is below 1% and unlikely to rise much above that in 2023. Inflation is sticky, and consumer confidence hit rock bottom at the end of 2022. 2) There is no doubt Howden received a covid-bump and we saw its revenue/depot jump from ~GBP 2MM/depot in 2019 to GBP 2.7MM coming out of 2022. Obviously, people stuck at home led to more kitchen refurbishments than usual. So, 2023 is a critical year to see if the covid-bump will last or if we will see weak sales during the key months of the year (around October). All of this leads to the market having depressed views on future revenue growth for the company. However, we believe that the market is too myopic/short-term on this point. We don't think the company needs break-neck growth to do well. Even in our model we are only predicting about 6% average revenue growth (conservative compared to pre-covid growth of 8-10%) over the next few years, but the business's economics, valuation, and overall capital allocation will take care of the rest. Overall, we believe we are buying a great business at a great price. The only major drawback we see is that Matthew Ingle, the company's visionary founder retired going into the pandemic, and the new CEO, Andrew Livingston, does not have enough skin in the game (he owns just 0.1% of the company). That said, Livingston does come to Howdens after a successful role as CEO of Screwfix (a retailer of trade tools) where he properly executed a similar strategy that he is employing at Howdens. Thus, while we don't love management's alignment, we do trust they will execute well. We think they are incentivised well as most (70%+) of compensation is driven by targets linked to cashflows, profitability, and total shareholder returns.

BSD Analysis:
Farrer Wealth presents a compelling bull case for Howden Joinery, highlighting the company's dominant 41% market share in the UK kitchen installation market and unique trade-only business model. The manager emphasizes Howdens' exceptional financial metrics including 61% gross margins, 20% EBITDA margins, and 30%+ ROE with zero debt, while trading at an attractive sub-10x EBIT multiple. The investment thesis centers on multiple growth drivers including international expansion (targeting 66 French depots by 2024), UK depot expansion toward 1,000 total locations, new product innovation (22% of sales growing at 69%), and digital transformation with online accounts. The manager views current weakness as a temporary opportunity driven by UK economic headwinds and concerns about post-COVID normalization, believing the market is overly pessimistic about growth prospects. Despite acknowledging management alignment concerns with the new CEO owning only 0.1% of shares, the fund sees this as a rare opportunity to acquire a high-quality, cash-generative business with pricing power at a discounted valuation.

Pitch Summary:
Our confidence remains steadfast in our exposure to LAM Research, ASML Holdings, and Cadence Design Systems. Cadence stands out with its impressive team of 6,800 R&D engineers and over 1,600 global patents, positioning it at the forefront of machine learning, hyperscale computing, autonomous vehicles, and next-generation mobile network semiconductor design. Their expertise in computational software for intelligent system designs solidifies our conviction in their long-term growth prospects.

BSD Analysis:
The manager presents a compelling bull case for Cadence Design Systems based on its technological leadership and R&D capabilities in next-generation semiconductor design. The thesis emphasizes Cadence's substantial intellectual property portfolio with over 1,600 patents and massive R&D workforce of 6,800 engineers, demonstrating significant competitive moats. The investment rationale centers on Cadence's positioning across multiple high-growth secular themes including machine learning, hyperscale computing, autonomous vehicles, and 5G/6G mobile networks. The manager highlights Cadence's expertise in computational software for intelligent system designs, which is increasingly critical as semiconductor complexity grows. This positions Cadence as an essential enabler of AI and advanced computing applications. The pitch reflects confidence in Cadence's long-term growth prospects driven by increasing semiconductor design complexity and the company's technological leadership in electronic design automation software.

Pitch Summary:
Artificial Intelligence is garnering significant attention for its potential impact in the near term. We've long held positions in leading Semiconductor equipment companies, with current investments in leading-edge equipment suppliers like LAM Research and ASML Holdings, crucial players in supplying cutting-edge chips needed to drive the AI future. While larger players like Microsoft and Nvidia receive considerable media coverage, we believe the true core competence lies in the "picks and shovels" – the companies supplying the essential equipment and software. Our confidence remains steadfast in our exposure to LAM Research, ASML Holdings, and Cadence Design Systems.

BSD Analysis:
The manager presents ASML as a fundamental AI infrastructure investment, emphasizing its role as a critical supplier of cutting-edge semiconductor manufacturing equipment. The thesis positions ASML as a "picks and shovels" play that provides essential technology for AI chip production, offering more sustainable exposure than headline AI software companies. The manager demonstrates long-term conviction in ASML's market position and technological leadership in semiconductor equipment. The investment approach reflects a preference for infrastructure providers over end-market beneficiaries, potentially offering better risk-adjusted exposure to AI growth trends. ASML's monopolistic position in extreme ultraviolet (EUV) lithography systems provides significant competitive moats and pricing power. The pitch aligns with the fund's strategy of owning quality technology companies with secular growth drivers while avoiding speculative momentum plays.

Pitch Summary:
Artificial Intelligence is garnering significant attention for its potential impact in the near term. We've long held positions in leading Semiconductor equipment companies, with current investments in leading-edge equipment suppliers like LAM Research and ASML Holdings, crucial players in supplying cutting-edge chips needed to drive the AI future. While larger players like Microsoft and Nvidia receive considerable media coverage, we believe the true core competence lies in the "picks and shovels" – the companies supplying the essential equipment and software. Our confidence remains steadfast in our exposure to LAM Research, ASML Holdings, and Cadence Design Systems.

BSD Analysis:
The manager presents a strategic bull case for Lam Research as a core AI infrastructure play, positioning it as essential "picks and shovels" equipment supplier rather than chasing headline AI names. The thesis emphasizes Lam's critical role in manufacturing cutting-edge chips required for AI applications, providing more fundamental exposure to the AI theme than software companies receiving media attention. The manager demonstrates conviction through long-term positioning in leading semiconductor equipment suppliers, suggesting confidence in Lam's technological moat and market position. The investment approach reflects a preference for infrastructure plays over end-market beneficiaries, potentially offering better risk-adjusted returns and less valuation volatility. The pitch aligns with the fund's strategy of owning quality companies with secular growth exposure while avoiding overhyped momentum stocks.

Pitch Summary:
Specializing in supplying plumbing and heating products to professional contractors and consumers, Ferguson has a long history dating back to its founding in 1887 in Wokingham, UK with its revenue primarily coming from the US and Canada. Despite its obvious ties to the housing sector, the company's valuation became increasingly attractive due to its revenue and profits diversification beyond residential building, including HVAC, waterworks, and other industrial segments. This exposure to industrial building aligns perfectly with our portfolio strategy, as Ferguson has demonstrated a track record of delivering strong operating margins. The recent increase in dividend and extension of the buyback program further reinforces its commitment to shareholder value creation. Despite near-term housing challenges, the US market is estimated to face an undersupply of 2-4 million residential units, and an aging housing stock supports the company's remodelling business. Additionally, non-residential growth opportunities, particularly in mega projects such as semiconductor manufacturing, EV and battery plants, and biotech builds, are estimated to generate over $30 billion in revenue for the company over the next five years.

BSD Analysis:
The manager presents a nuanced bull case for Ferguson that acknowledges housing sector headwinds while emphasizing diversification benefits and structural growth drivers. The thesis highlights Ferguson's evolution beyond pure residential exposure into higher-margin industrial segments including HVAC and waterworks. Key investment merits include strong operating margins, recent dividend increases, and share buyback programs demonstrating capital allocation discipline. The manager identifies a compelling long-term opportunity in the estimated 2-4 million unit housing undersupply and aging housing stock driving remodeling demand. Most notably, the pitch emphasizes Ferguson's positioning to benefit from over $30 billion in non-residential mega projects including semiconductor fabs, EV plants, and biotech facilities over the next five years, providing significant revenue visibility.

Pitch Summary:
Caterpillar is a prominent player in the construction and mining equipment manufacturing sector. These sectors are witnessing substantial growth, primarily driven by recent government initiatives aimed at bolstering infrastructure, facilitating the energy transition, and increasing mining activities to meet the demands of essential metals and commodities that are key to the energy transition and electrical future. CAT boasts a robust balance sheet, solid dividends, and an attractive free cash flow yield. We anticipate CAT to surpass earnings expectations in the years ahead, even if there is a mild slowdown, as it is well-positioned from an order book perspective and has a strong balance sheet to withstand such challenges.

BSD Analysis:
The manager presents a compelling bull case for Caterpillar based on structural tailwinds from government infrastructure spending and the energy transition. The thesis centers on CAT's positioning to benefit from the Inflation Reduction Act and Chips Act, which are driving substantial industrial capex and onshoring activities. The manager emphasizes CAT's financial strength, highlighting its robust balance sheet, dividend yield, and attractive free cash flow metrics. The investment rationale suggests CAT can outperform earnings expectations even in a slowdown scenario due to its strong order book and defensive characteristics. The pitch aligns with the fund's strategy of owning industrial equipment companies exposed to secular growth themes while maintaining downside protection through quality fundamentals.

Pitch Summary:
Amazon's almost 30-year journey has been one of constant evolution, driven by innovation, and guided by the long-term vision of its founder, Jeff Bezos. The business developed in its early years with an initial focus on selling books before eventually expanding into other product categories, including music, electronics and beyond. Over time it has shifted from a goods retailer to services platform as it gave external parties access to its marketplace (3P sellers account for ~55% of all unit sales) and other operational capabilities (such as Fulfilled by Amazon or Buy With Prime). The company has a long track record of creating disruptive products – as it did with the Kindle and Alexa – and entirely new markets – as it has done with AWS and cloud computing. So, what's the secret sauce? At the heart of this ever-evolving innovation machine lie three key elements: a distinct and well-defined corporate culture, a decentralised and nimble operational structure, and a willingness to invest and remain focused on the long term. Amazon has a distinct corporate culture enshrined in 16 leadership principles, which provide a framework for decision-making, problem-solving and collaboration across the organisation. These principles are deeply ingrained in the company's DNA and influence how employees approach their work. While all are important, we would highlight just two that are particularly pertinent to innovation. Principle #3, "Invent and Simplify", encourages employees to continuously seek inventive solutions and challenge the status quo. It instils a mindset of constant improvement and the pursuit of ground-breaking ideas that can reshape industries. Principle #8, "Think Big", empowers employees to envision ambitious, audacious goals and imagine possibilities beyond what may seem achievable. It also expresses Amazon's appetite for taking bold risks and making substantial investments in emerging technologies and ventures. Amazon's corporate workforce largely consists of small, autonomous "two-pizza" teams (named because they should be small enough to be fed with as much) that utilise a common set of standardised, shared functions or "services". Teams comprise a mixture of multi-disciplinary roles and are empowered to make decisions quickly, iterate on ideas, and drive innovation in their respective areas. By keeping teams small, Amazon minimises bureaucracy and encourages a sense of ownership and agility. The structure fosters a culture of experimentation and learning from failures, as teams can quickly iterate and adapt their strategies based on real-time feedback. Importantly, it also enables rapid scaling into new areas of focus or opportunity without introducing unnecessary complexity and dependencies. Amazon has consistently demonstrated its willingness to forgo immediate profitability in favour of maximising future opportunities. In 2011, in response to a shareholder question regarding Amazon's willingness to take bold bets, Bezos commented, "We are willing to invent. We are willing to think long term. We start with the customer and work backwards. And, very importantly, we are willing to be misunderstood for long periods of time". This quote reflects Amazon's commitment to pursuing its long-term vision, and its sentiment is often conveyed by other leaders within the company, including the current CEO, Andy Jassy. The company famously took >8 years to realise its first annual profit, prioritizing the development of its platform and improvement of the customer experience. Facing capacity constraints in 2014, Amazon decided to embark on the build-out of its own logistics network. While this weighed on profitability in the short term, it established a strong competitive advantage, and by 2021 Amazon was shipping more parcels across the USA than FedEx. Similarly, Amazon's cloud computing business, AWS, was initially met with scepticism, but the company persisted in investing heavily in its development and expansion, and today the division generates over $80bn revenue per annum. Looking forward, we expect the company will continue to invest in big bets across healthcare, advertising, media and logistics in pursuit of its next growth pillar. In summary, Amazon's success lies in its constant evolution and drive to innovate. Its distinct corporate culture promotes entrepreneurship and challenges the status quo. A decentralised operational structure empowers agile teams and enables rapid scaling without adding complexity, and Amazon's capacity to invest for the long term, exemplified by the buildout of its fulfilment and logistics infrastructure and AWS, is a key competitive advantage versus more myopic competitors. With a commitment to thinking long term and willingness to be misunderstood, we expect Amazon will continue to thrive.

BSD Analysis:
Magellan presents a comprehensive bull case for Amazon centered on the company's innovation-driven culture and long-term strategic vision. The managers highlight Amazon's evolution from a book retailer to a diversified technology platform, emphasizing the company's ability to create entirely new markets like cloud computing through AWS. They particularly value Amazon's decentralized "two-pizza" team structure and 16 leadership principles that foster continuous innovation and risk-taking. The thesis emphasizes Amazon's willingness to sacrifice short-term profitability for long-term competitive advantages, as demonstrated by the 8+ year path to profitability and the strategic logistics network buildout that now outpaces FedEx. With AWS generating over $80 billion in annual revenue and the company positioned to capitalize on emerging opportunities in healthcare, advertising, and media, Magellan views Amazon as uniquely positioned to continue its growth trajectory through its culture of long-term thinking and customer-centric innovation.

Pitch Summary:
Cisco plays a pivotal role in powering global networks. As businesses and individuals continue to embrace digital transformation the demand for networking and communication technology solutions is going to accelerate. In addition, Cisco is participating in the growth of needed cyber security and from the continued expansion of the Internet of Things, accelerating infrastructure investment, and the increasing need for secure network solutions. We believe Cisco's financial position is solid, providing the company with the ability to ride out the current storm and should grow at an accelerated rate. Cisco has been a successful long-term holding for the All Cap Value Fund and we believe the future is just as promising.

BSD Analysis:
Olstein maintains a bullish stance on Cisco based on the company's strategic positioning in the accelerating digital transformation trend. The manager views Cisco as a critical infrastructure provider that will benefit from multiple secular growth drivers including cybersecurity demand, Internet of Things expansion, and increased infrastructure investment. The thesis emphasizes Cisco's solid financial foundation as a key competitive advantage that enables the company to weather economic uncertainty while investing for future growth. Olstein highlights the company's diversification beyond traditional networking into higher-growth areas like security solutions, which should drive accelerated revenue expansion. The manager's confidence is reinforced by Cisco's track record as a successful long-term holding in the portfolio. The investment case appears to center on Cisco's ability to capitalize on the ongoing digitization of business operations and the critical nature of secure networking infrastructure. This represents a quality growth play at reasonable valuation in the technology infrastructure space.

Pitch Summary:
For example, as of the date of this letter, two large positions in the All Cap Value Fund which we believe are severely undervalued are Disney and Cisco. Disney's diverse range of iconic brands, theme parks, and entertainment offerings provide a strong foundation for future growth. We believe Disney has long-term earnings power of at least $6.00 a share and believe many investors are too negative and too focused on losing basic television subscribers and missing the long-term values of the best library in the entertainment business (Marvel, Star Wars, Mickey Mouse, ESPN, etc.), the value and long-term growth of Disney's popular and heavily attended amusement parks business and Bob Iger's determination to make each business line including streaming profitable. We believe Disney offers the Fund opportunities for material appreciation when investors realize the company's ability to utilize existing assets to generate normalized free cash flow is far in excess of current levels. Disney stock is down significantly from its high caused by the heavy startup cost of converting more of the company's future distribution model to a direct-to-consumer format. The growth in these startup costs should begin to slow down in the next few years. We believe that the combination of Disney's pricing power from having the best library in the business, the ability to set up profitable joint ventures and the slowdown in the growth of future startup costs should produce above-average growth in future free cash flow. Once Disney demonstrates its ability to use its valuable assets to produce earnings far above its current rate, we believe Disney offers the potential for above-average appreciation.

BSD Analysis:
Olstein presents a compelling contrarian thesis on Disney, viewing the current weakness as a temporary headwind rather than a structural problem. The manager emphasizes Disney's unmatched content library including Marvel, Star Wars, and classic franchises as a durable competitive advantage that provides significant pricing power. The thesis centers on the belief that investors are overly focused on traditional TV subscriber losses while undervaluing the long-term potential of Disney's streaming transition and theme park assets. Olstein projects normalized earnings power of at least $6.00 per share, suggesting meaningful upside from current levels. The investment case relies on CEO Bob Iger's ability to drive profitability across all business segments, particularly streaming, while benefiting from slowing startup costs as the direct-to-consumer transition matures. The manager views the current valuation as disconnected from Disney's ability to generate substantial free cash flow from its premium asset base. This represents a classic value play on a quality franchise trading at a discount due to temporary operational challenges.

Pitch Summary:
CME Group owns the Chicago Mercantile Exchange, the Chicago Board of Trade, the New York Mercantile Exchange, and the Commodity Exchange, making it the world's leading futures and options exchange operator. Its three largest futures and options categories are 1) interest rates, where it possesses 95% market share in U.S. interest rate futures trading; 2) equity indexes, where, largely because of its 27% ownership stake in S&P Dow Jones Indices, it has exclusive licenses to issue futures contracts on the S&P 500, Russell 2000, and Nasdaq indexes; and 3) energy, where it has a dominant position in WTI oil futures trading. The company benefits from two network effects. The first occurs at the exchanges themselves, which are global, two-sided networks that connect buyers and sellers of futures and options contracts and provide them with unrivaled liquidity. This two-sided network effect is further strengthened by the nature of the futures contracts traded on the exchanges. For most assets, traders have no restrictions on where they can buy and sell them. For instance, if a trader buys Microsoft stock on the NASDAQ, he or she can subsequently sell it on any number of exchanges or on increasingly popular alternative trading systems (ATS) such as dark pools and electronic communication networks (ECN). In fact, ATS platforms have become so popular that, as of April 2019, traders chose to execute nearly 39% of all their U.S. stock trades on them. Futures contracts are different. Futures contracts opened on one exchange cannot be closed at another exchange, making it much harder for competitors to successfully develop alternative sources of liquidity for futures buyers and sellers. CME Group also owns the clearinghouse that validates and finalizes all the futures transactions that occur on its exchange, further enhancing its competitive position through a second, overlapping network effect. Clearinghouses, which serve as third-party intermediaries to ensure that both buyers and sellers honor their contractual obligations, benefit from network effects due to something called position netting. Position netting occurs when a customer places two or more trades through the same clearinghouse and these trades either fully or partially offset each other. When this situation occurs, the clearinghouse requires the customer to put up only enough money to cover the net position, which allows the customer to earn the same dollar return on its trades but with less capital invested than if the positions weren't netted, raising the customer's return on investment. For example, if a trader bought $100 worth of Microsoft stock that posted at one clearinghouse and sold $90 short that posted at another clearinghouse and each clearinghouse required the trader to post an amount equal to 100% of the capital at risk, then he or she would have to post $190. However, if the trader bought $100 of Microsoft and sold short $90 dollars of Microsoft through the same clearinghouse, he or she would only be required to post $10 dollars as collateral. As you can see, this netting effect creates a huge incentive for customers to use as few clearinghouses as possible. Importantly, the fact that CME Group owns both the exchanges and their clearinghouse is a huge advantage that is relatively uncommon. For instance, most stock and bond transactions in the United States are cleared through the Depository Trust & Clearing Corporation, a private company jointly owned by its member banks and brokers, making it easier for alternative sources of liquidity to crop up and steal market share from the stock exchanges like the NYSE and Nasdaq. Lastly, we believe CME operates in an attractive industry. The capital markets have historically grown faster than GDP over time, and we believe this trend will continue in the future because of the nature of economic development. In the early stages of development, governments and banks typically provide most of the funding for businesses and consumers. However, as economies develop, governments gradually allow more international investment and the countries' citizens and businesses also build up excess wealth that they can use for investment, seeding the early formation of capital markets. As these capital markets develop, they eventually become more distributed and efficient investor networks than the banks, and, therefore, cheaper and more reliable sources of capital for businesses and governments. In summary, we believe the combination of the unrivaled liquidity of CME's futures exchanges, the nature of futures contracts where they must be opened and closed on the same exchange, and the reinforcing network effects of clearinghouse position netting make it highly likely that CME Group will continue to earn attractive returns on capital by serving as a mission-critical and hard-to-disrupt toll collector on the global capital markets.

BSD Analysis:
YCG presents a compelling case for CME Group based on dominant market positions and dual network effects. CME controls 95% of U.S. interest rate futures and has exclusive licenses for S&P 500, Russell 2000, and Nasdaq futures through its 27% S&P Dow Jones stake. The company benefits from two reinforcing network effects: exchange liquidity networks and clearinghouse position netting. Unlike stocks that can trade on multiple venues, futures must be opened and closed on the same exchange, creating switching costs. CME's integrated exchange-clearinghouse model provides unique advantages through position netting, reducing customer capital requirements and increasing returns. This differs from fragmented stock markets where clearing is outsourced. The manager views capital markets as structurally growing faster than GDP as economies develop and become more sophisticated. CME serves as a "mission-critical and hard-to-disrupt toll collector" on global capital markets with attractive returns on capital and enduring competitive advantages.

Pitch Summary:
Canadian Pacific Kansas City Limited and Canadian National Railway are two of six class 1 railroads in North America, each of which is essentially one half of a duopoly with two railroads serving the eastern United States, two railroads serving the western United States, and two railroads serving Canada by extending coast-to-coast and then down in a T-shape through the middle of the United States down to the Gulf of Mexico and, in the case of Canadian Pacific Kansas City Limited, down into Mexico as well. Canadian National Railway benefits from physical network effects as a result of its virtually unrivaled 18,600-mile rail network connecting Canada and the United States. The railroads also benefit from a not-in-my-backyard ("NIMBY") dynamic that makes it almost impossible to construct a new, competing railroad. In fact, because of NIMBY, transportation deregulation that accelerated following the Stagger's Act of 1980, and industry consolidation, the number of North American railroad miles has fallen from a peak of 250,000 in the early 1900s to less than 100,000 today and the number of North American class 1 railroads has plummeted from over 180 to just 6 today. When combined with steadily rising freight demand, this supply-side rationalization has dramatically changed the pricing dynamic in the railroad industry. In the early 2000s, long-term, inflation-adjusted pricing trends inflected from consistent declines to a now almost 20-year period of consistent increases. And given the continued projected growth in freight demand, the now oligopolistic structure of the railroad industry, and the much lower pricing railroads can profitably offer (see first chart below) as a result of their massive energy and labor efficiency relative to trucking, making them especially dominant on long-haul routes (see second chart below), we believe the six North American class 1 railroads will continue to grow their pricing, revenue, and profits faster than inflation for years to come. While we believe all the North American class 1 railroads are attractive long-term investments, we've chosen to invest in the Canadian rails because we believe they can grow faster and have less regulatory risk than the U.S. rails. We believe they can grow faster than U.S. rails because their volume growth benefits from less exposure to secularly declining coal as well as a long-term trend of Canadian ports taking share from U.S. ports because of greater government investment. Furthermore, we believe they have less regulatory risk than U.S. rails because Canadians have historically been more comfortable than Americans with oligopolistic industry structures, as can be seen most clearly by differences in their banking system approval ratings. In summary, we think the Canadian rails are dominant networks with enduring pricing power that essentially serve as toll collectors on both North American and global industrial production, thereby making them a great way to participate in the long-term growth of these important categories.

BSD Analysis:
YCG's thesis for Canadian National Railway parallels their Canadian Pacific analysis, emphasizing the oligopolistic Class 1 railroad structure. CNI operates an 18,600-mile network connecting Canada and the United States within the six-player North American duopoly. The NIMBY dynamic has created massive barriers to entry, reducing railroad miles by 60% and operators from 180+ to just 6. This supply rationalization enabled pricing power, with railroad rates shifting from decline to 20-year growth since the early 2000s. CNI benefits from 75% cost advantages versus trucking while earning superior margins. The manager prefers Canadian rails for superior growth prospects (less coal exposure, Canadian port share gains) and lower regulatory risk due to Canadian acceptance of oligopolies. Canadian National serves as a "toll collector" on industrial production with enduring pricing power and above-inflation growth potential driven by freight demand and oligopolistic structure.

Pitch Summary:
Canadian Pacific Kansas City Limited and Canadian National Railway are two of six class 1 railroads in North America, each of which is essentially one half of a duopoly with two railroads serving the eastern United States, two railroads serving the western United States, and two railroads serving Canada by extending coast-to-coast and then down in a T-shape through the middle of the United States down to the Gulf of Mexico and, in the case of Canadian Pacific Kansas City Limited, down into Mexico as well. Canadian Pacific Kansas City Limited benefits from physical network effects because of its virtually unrivaled 20,000-mile rail network connecting Canada, the United States, and Mexico. The railroads also benefit from a not-in-my-backyard ("NIMBY") dynamic that makes it almost impossible to construct a new, competing railroad. In fact, because of NIMBY, transportation deregulation that accelerated following the Stagger's Act of 1980, and industry consolidation, the number of North American railroad miles has fallen from a peak of 250,000 in the early 1900s to less than 100,000 today and the number of North American class 1 railroads has plummeted from over 180 to just 6 today. When combined with steadily rising freight demand, this supply-side rationalization has dramatically changed the pricing dynamic in the railroad industry. In the early 2000s, long-term, inflation-adjusted pricing trends inflected from consistent declines to a now almost 20-year period of consistent increases. And given the continued projected growth in freight demand, the now oligopolistic structure of the railroad industry, and the much lower pricing railroads can profitably offer (see first chart below) as a result of their massive energy and labor efficiency relative to trucking, making them especially dominant on long-haul routes (see second chart below), we believe the six North American class 1 railroads will continue to grow their pricing, revenue, and profits faster than inflation for years to come. While we believe all the North American class 1 railroads are attractive long-term investments, we've chosen to invest in the Canadian rails because we believe they can grow faster and have less regulatory risk than the U.S. rails. We believe they can grow faster than U.S. rails because their volume growth benefits from less exposure to secularly declining coal as well as a long-term trend of Canadian ports taking share from U.S. ports because of greater government investment. Furthermore, we believe they have less regulatory risk than U.S. rails because Canadians have historically been more comfortable than Americans with oligopolistic industry structures, as can be seen most clearly by differences in their banking system approval ratings. In summary, we think the Canadian rails are dominant networks with enduring pricing power that essentially serve as toll collectors on both North American and global industrial production, thereby making them a great way to participate in the long-term growth of these important categories.

BSD Analysis:
YCG presents a strong case for Canadian Pacific Kansas City based on oligopolistic industry structure and network effects. The company operates within a North American duopoly of six Class 1 railroads, with CP's unique 20,000-mile network connecting Canada, the U.S., and Mexico. NIMBY dynamics have reduced railroad miles from 250,000 to under 100,000 and Class 1 operators from 180+ to just 6, creating massive supply constraints. Railroad pricing inflected from decline to 20-year growth in the early 2000s due to this rationalization. CP offers 75% cost advantage versus trucking (4.4 vs 17.9 cents per ton-mile) while earning 40% operating margins. The manager prefers Canadian rails for faster growth (less coal exposure, Canadian port share gains) and lower regulatory risk due to Canadian comfort with oligopolies. CP serves as a "toll collector" on North American industrial production with enduring pricing power and above-inflation growth prospects.

Pitch Summary:
Republic Services is the second largest with 19% share of U.S. landfill volume. Both maintain extensive operations in Canada as well, but the revenue contribution is much smaller at less than 5% for Waste Management and, though it's undisclosed, likely a similar percentage for Republic Services. Republic Services also benefits from physical network effects as a result of its extensive network of 206 landfills, 240 transfer stations, 73 landfill gas and renewable energy projects, 72 recycling centers, 356 collection operations, and 5 million average daily pickups that is second only to Waste Management's in size and scope. The waste management companies also benefit from a not-in-my-backyard ("NIMBY") dynamic that makes it extremely difficult for new supply of landfills and other waste management facilities to enter the market. In fact, because of NIMBY and industry consolidation, the number of U.S. landfills has fallen from 7,683 in 1986 to 1,733 today. When combined with steadily rising demand for waste management, this supply-side rationalization has resulted in tipping fees, or the price landfills charge trucks to drop off trash, rising over time. In fact, from 1982 to 2021, U.S. municipal solid waste landfill tipping fees increased from $8.07 per ton to $58.2 per ton, a compound annual growth rate of 5.2% per year compared to inflation's compound annual growth rate of only 2.7% per year. Going forward, with waste management demand projected to continue increasing over time, NIMBY and regulatory costs continuing to rise, and the network value of the largest industry participants continuing to increase more quickly than smaller competitors through consolidation and market share gains, we believe industry leaders Waste Management and Republic Services will continue to grow their pricing, revenue, and profits faster than inflation for years to come. In summary, we think Waste Management and Republic Services are dominant networks with enduring pricing power that essentially serve as toll collectors on U.S. and Canadian consumption, thereby making them a great way to participate in the long-term growth of North America.

BSD Analysis:
YCG's thesis for Republic Services mirrors their Waste Management analysis, positioning RSG as the second-largest player with 19% U.S. landfill market share. The company benefits from similar network effects through its 206 landfills, 240 transfer stations, and 5 million daily pickups. The NIMBY dynamic creates the same supply constraints that have reduced U.S. landfills by 77% since 1986. Republic Services enjoys the same pricing power dynamics, with tipping fees growing 5.2% annually versus 2.7% inflation. The manager views both companies as beneficiaries of industry consolidation and rising regulatory barriers. RSG serves as a "toll collector" on consumption with enduring pricing power. The investment thesis relies on continued waste demand growth, supply constraints, and market share gains driving above-inflation revenue and profit growth. This positions Republic Services as a defensive growth investment with structural competitive advantages.

Pitch Summary:
Waste Management is the largest waste management company in North America with 29% market share of landfill volume in the United States. Waste Management benefits from physical network effects as a result of its nearly unrivaled network of 254 landfills, 337 transfer facilities, 135 landfill gas to energy facilities, 97 materials recovery facilities, 497 hauling operations, and 15,200 collection routes. The waste management companies also benefit from a not-in-my-backyard ("NIMBY") dynamic that makes it extremely difficult for new supply of landfills and other waste management facilities to enter the market. In fact, because of NIMBY and industry consolidation, the number of U.S. landfills has fallen from 7,683 in 1986 to 1,733 today. When combined with steadily rising demand for waste management, this supply-side rationalization has resulted in tipping fees, or the price landfills charge trucks to drop off trash, rising over time. In fact, from 1982 to 2021, U.S. municipal solid waste landfill tipping fees increased from $8.07 per ton to $58.2 per ton, a compound annual growth rate of 5.2% per year compared to inflation's compound annual growth rate of only 2.7% per year. Going forward, with waste management demand projected to continue increasing over time, NIMBY and regulatory costs continuing to rise, and the network value of the largest industry participants continuing to increase more quickly than smaller competitors through consolidation and market share gains, we believe industry leaders Waste Management and Republic Services will continue to grow their pricing, revenue, and profits faster than inflation for years to come. In summary, we think Waste Management and Republic Services are dominant networks with enduring pricing power that essentially serve as toll collectors on U.S. and Canadian consumption, thereby making them a great way to participate in the long-term growth of North America.

BSD Analysis:
YCG presents a compelling thesis for Waste Management based on its dominant market position and structural advantages. The fund highlights WM's 29% U.S. landfill market share and extensive physical network of 254 landfills and 15,200 collection routes, creating powerful network effects. The NIMBY dynamic serves as a critical moat, with U.S. landfill count declining from 7,683 to 1,733 since 1986, creating supply constraints. Tipping fees have grown at 5.2% annually versus 2.7% inflation from 1982-2021, demonstrating pricing power. The manager views WM as a "toll collector" on North American consumption with enduring pricing power. Rising waste demand, regulatory barriers, and industry consolidation should drive continued above-inflation growth in pricing and profits. The thesis positions WM as a defensive growth play benefiting from structural industry dynamics and consumption trends.

Pitch Summary:
Finally, we have made an investment in the UK bowling sector. This is a niche sector controlled by two large operators (Hollywood Bowl and Ten Entertainment) which together hold a market share of over 50% and where the remaining operators are small independent companies without the financial strenth to be able to offer the level of service quality of the two leaders. On the other side, this sector has come out of the Covid crisis much stronger as demand has not only recovered to pre-pandemic levels but has also experienced significant growth with attendance levels at the centres 30% higher than in 2019. This is explained by the fact that bowling centres have been able to maintain prices compared to 2019 despite the inflationary situation and have become a very interesting entertainment option for the consumer compared to other options. This factor, together with the incorporation of other additional services (gaming machines, escape rooms, etc.) has allowed the companies to experience a very significant growth in results. On the other side, growth prospects for the coming years are encouraging as there is still an opportunity to continue to open new centres across the country. In the case of Hollywood Bowl, the company has started its expansion in Canada, a very fragmented market, with little professionalisation and no large operator with national scale, which should offer very good opportunities for consolidation. The share price of both companies was hit hard during the pandemic period and, despite current results being well above pre-pandemic levels and maintaining very good growth opportunities, the price has not recovered since then. This has allowed us to invest in this interesting sector at very attractive valuations (below 6x EBITDA in the case of Hollywood Bowl and 5x in the case of Ten Entertainment).

BSD Analysis:
Hollywood Bowl Group continues to dominate the experiential leisure market, reporting record-breaking full-year revenues and earnings that underscore the resilience of its "value-for-money" family entertainment model. The company is successfully leveraging a high-margin food and beverage mix to drive total spend per game, helping to offset inflationary wage pressures and higher utility costs. Strategic expansion into the Canadian market is beginning to provide a meaningful growth kicker, with initial performance in newly branded centers exceeding management’s internal return-on-investment targets. A newly authorized £10 million share buyback program and a consistent dividend policy highlight the firm's robust cash generation and shareholder-friendly capital allocation. With a strong pipeline of new openings and ongoing investments in estate quality, Hollywood Bowl remains a premier choice for exposure to the steady recovery in UK consumer discretionary spending.

Pitch Summary:
We have invested again in Restore, a British company dedicated to document management (storage, digitisation and destruction). Specifically, Restore provides document box storage services for law firms, universities, hospitals and other companies that need to retain documents for long periods. In addition to its core business of physical document storage, the company's other businesses include document scanning and shredding, recycling of electronic devices and business relocation services. In all these businesses, the company maintains a leading position in the UK market achieving significant economies of scale. Restore has a stable and predictable cash generation profile. Once a customer has placed their documents in storage they pay £3 per year per box. Because the maintenance cost is so low and the documents may be needed in the future, the boxes are kept for an average of 15 years. Despite the digitisation of many previously paper-based processes, document volumes continue to grow annually, so Restore's occupancy levels continue to rise and storage prices are increasing. The company has recently announced a reduction in estimates for this year due to lower activity in certain business lines, specifically the digital business (due to a reduction in discretionary spending by companies), document shredding (due to the fall in the price of paper) and technology (due to a fall in the use of recycling services after companies invested heavily in technology in the quarters following the pandemic). In addition, the company has announced a change of management team and the possibility of making some accounting impairments in some of its businesses. All this has caused a drop in the share price, which we have taken advantage of to invest because we remain confident in the resilience of the document management business, which accounts for more than 70% of the company's results, and in the recovery of the other businesses.

BSD Analysis:
Restore plc is entering 2026 as a lean, high-margin leader in the UK's information management sector, reporting a 15% advance in interim revenue to £160.1 million. The company is successfully executing on its medium-term strategy to achieve adjusted operating margins of 20% or higher, with current performance already climbing to 17.7%. While interim pretax profits faced temporary pressure from increased administrative and finance costs, the core Information Management and Datashred segments continue to deliver robust growth. Management's disciplined "bolt-on" acquisition strategy and a 10% hike in the interim dividend signal high confidence in the firm's recurring revenue model. As businesses increasingly prioritize secure data destruction and digital transformation, Restore’s integrated service suite provides a significant competitive moat in a fragmented market.

Pitch Summary:
Canadian Pacific Kansas City operates a virtually unrivaled 20,000-mile tri-national rail network spanning Canada, the U.S., and Mexico. The rail industry is protected by NIMBY dynamics that make building new railroads nearly impossible; North American rail miles have collapsed from 250,000 to <100,000 and Class I operators from 180+ to just six today. Deregulation and consolidation turned rail pricing from decades of decline into 20 years of steady increases. Railroads enjoy massive cost advantages versus trucking (4.4¢/ton-mile vs. 17.9¢), enabling superior margins and long-haul dominance. CPKC offers higher growth vs. U.S. peers due to less coal exposure and long-term volume benefits from Canadian port share gains and Mexico-U.S.-Canada trade flows.

BSD Analysis:
YCG argues CPKC is a structurally advantaged oligopoly player with durable pricing power and volume growth drivers tied to North American industrial and consumer activity. The railroad’s tri-national footprint provides unique optionality, especially as reshoring and trade reconfiguration accelerate. High barriers, cost leadership, and operational leverage support long-term ROIC expansion. Risks include labor, fuel, and regulatory shifts, but the moat remains formidable.

Pitch Summary:
Republic Services is the second-largest waste management company in North America with 19% U.S. landfill market share and an extensive physical network: 206 landfills, 240 transfer stations, 73 landfill gas and renewable energy projects, 72 recycling centers, and millions of daily pickups. Like Waste Management, RSG benefits from insurmountable NIMBY barriers, long-term supply destruction, and steadily rising demand. Landfill scarcity and rising regulatory costs have driven tipping fees up dramatically for 40 years, well ahead of inflation. With consolidation accelerating and large players gaining share, Republic Services’ pricing, revenue, and profit growth should continue to outpace inflation for years. Management emphasizes operational efficiency and network densification, reinforcing durable competitive advantages.

BSD Analysis:
YCG presents Republic Services as a mission-critical infrastructure provider with enduring pricing power, structurally constrained supply, and stable through-cycle revenue. RSG’s consolidated network and long-lived landfill assets yield high incremental margins and significant ROIC durability. The company’s renewable natural gas initiatives add optional upside while enhancing sustainability positioning. With resilient cash flow, disciplined capital allocation, and strong inflation-hedging characteristics, RSG is positioned to compound steadily despite macro volatility.

Pitch Summary:
Waste Management is the largest waste management company in North America with 29% market share of U.S. landfill volume. Its unrivaled physical network—254 landfills, 337 transfer facilities, 135 landfill gas-to-energy facilities, 97 materials recovery facilities, 497 hauling operations, and over 15,200 collection routes—creates powerful physical network effects. The industry is protected by significant NIMBY (“not-in-my-backyard”) dynamics, making new landfills extremely difficult to permit and leading to U.S. landfill supply collapsing from 7,683 in 1986 to 1,733 today. Demand for waste services has steadily risen over decades while supply has shrunk, producing consistent and inflation-beating tipping-fee increases (5.2% annualized since 1982 vs. 2.7% inflation). WM’s scale, pricing power, and consolidation advantages position it to grow pricing, revenue, and profits faster than inflation for many years.

BSD Analysis:
YCG sees Waste Management as a dominant, high-moat toll collector benefiting from irreplaceable assets, regulatory barriers, and network effects that suppress new supply. Over decades, steady inflation-plus pricing has led to consistent margin expansion despite volume cyclicality. WM’s vertically integrated model yields high returns on invested capital, while landfill scarcity ensures ongoing pricing power. With structural demand tailwinds, conversions of landfill gas to renewable energy, and attractive free-cash-flow yields, WM is positioned for durable compounding. Key risks include fuel/labor inflation and recycling volatility, but the company’s moat is exceptionally resilient.