Investment Pitches

Pitch Summary:
Skytop Lodge is an historic Poconos hotel and resort, operating since 1928. The property includes 124 guest rooms and 5,500 acres of private woodlands, a lake, and a golf course. While Skytop's fortunes and those of the greater Poconos region have risen and fallen over time, the company's financials have improved significantly in recent years. Skytop has operated profitably, paid down debt, and performed major upgrades to its property, offering improved amenities and bettering the guest experience. Skytop is never going to appeal to travelers seeking the height of luxury and sophistication, but it does have a loyal base of vacationers who appreciate the seclusion and natural beauty of the property and the surrounding area. Alluvial Fund has purchased just over 2% of Skytop Lodge Corp. On a look-through basis, we own 2.5 guest rooms and 112 acres of pristine forest. From a purely financial perspective, we invested at <6x normalized earnings and cash flows, a 27% cap rate, and at $82,000 per key, land value excluded. Using a very conservative 12.5% cap rate on the property's cash earnings and adjusting for some corporate overhead, I think Skytop shares would be worth at least $2,300 per share in a sale transaction. I have no idea when or if that transaction will occur, but I am happy to hold a stake in a cash-flowing enterprise where value will continue to accrue with each passing year.

BSD Analysis:
The manager presents Skytop Lodge as a classic "one day" value investment, purchasing the historic Pocono Mountains resort at an extremely attractive valuation. The bull thesis centers on significant operational improvements including profitability, debt reduction, and property upgrades that have enhanced the guest experience. At less than 6x normalized earnings and cash flows with a 27% cap rate, the valuation appears compelling for a cash-generating real estate asset. The manager's analysis suggests fair value of at least $2,300 per share using a conservative 12.5% cap rate, implying substantial upside potential. The investment provides tangible asset exposure with 2.5 guest rooms and 112 acres of pristine forest on a look-through basis. While acknowledging the property won't attract luxury travelers, the manager appreciates the loyal customer base that values the seclusion and natural beauty. The $82,000 per key valuation excluding land value appears reasonable for a profitable resort operation. This represents a patient capital approach where value should accrue over time regardless of potential sale transactions.

Pitch Summary:
I must take a second to recognize EACO Corp., which has quietly become a significant holding for Alluvial Fund. I last mentioned the company almost three years ago when shares were trading around $19. The company was valued around $100 million and had produced operating income of $12.3 million in the trailing year. Today, EACO shares change hands in the low $30s. The company is valued at $140 million and produced operating income of $28 million for the year ended February 28, 2023. Impressive, and still extremely cheap. It's likely that EACO's results will moderate. COVID-related supply chain issues resulted in improved margins for companies like EACO and their Bisco Industries subsidiary. But even if operating margins were to recede to 2019 levels, EACO shares would be trading at 9x normalized earnings net of cash and securities. I expect EACO's revenue growth to continue at a mid-teens pace. The basic electrical components and fasteners that Bisco Industries distributes are in high demand. The company is rising to the occasion, today employing 370 sales employees, 9.5% more than a year ago.

BSD Analysis:
The manager highlights EACO Corp. as a significant success story, with shares appreciating from $19 to the low $30s over three years while operating income more than doubled from $12.3 million to $28 million. The bull thesis rests on the company's strong execution in distributing essential electrical components and fasteners through its Bisco Industries subsidiary. Even accounting for potential margin normalization post-COVID supply chain disruptions, the valuation remains attractive at 9x normalized earnings net of cash. The manager expects continued mid-teens revenue growth driven by strong demand for basic electrical components. The company's sales force expansion to 370 employees, up 9.5% year-over-year, demonstrates management's commitment to capturing market opportunities. The investment represents a classic value play where strong operational performance has driven meaningful share price appreciation while maintaining reasonable valuation metrics. The manager's confidence stems from the essential nature of EACO's products and the company's proven ability to grow market share in a fragmented distribution industry.

Pitch Summary:
Unidata SpA remains a large holding and distinctly under-valued. Shares were pressured earlier this year by the company's equity offering in support of its acquisition of TWT Group. Adding TWT will be tremendously accretive to Unidata's earnings and cash flows, but the market is taking a "wait and see" approach. Unidata also announced it had signed a contract for the construction of its new undersea cable, which will be operational in two years' time. Finally, Unidata has applied to uplist to the Borsa Italiana's STAR segment, a more prominent segment with higher listing standards that should bring additional attention to the company and its shares. While Unidata shares have disappointed lately, our investment has been an extraordinary success over our period of ownership. Unidata's revenues and earnings will continue to grow rapidly as the company brings broadband internet to thousands of businesses and households, many for the first time. In due time the market will realize the essential and irreplaceable infrastructure that Unidata builds and owns is worth more than 7x 2025 normalized free cash flow it fetches today.

BSD Analysis:
The manager maintains a bullish stance on Unidata despite recent share price weakness, viewing the Italian telecom infrastructure company as significantly undervalued. The investment thesis centers on multiple growth catalysts including the accretive TWT Group acquisition, which should meaningfully boost earnings and cash flows once integrated. The signing of a new undersea cable contract represents substantial infrastructure expansion that will be operational within two years. The planned uplisting to Borsa Italiana's STAR segment should increase visibility and attract institutional attention to the shares. The manager emphasizes Unidata's essential role in bringing broadband internet access to underserved businesses and households, positioning it as critical infrastructure. At 7x 2025 normalized free cash flow, the valuation appears compelling for what the manager describes as "essential and irreplaceable infrastructure." Despite recent disappointments, the manager notes the investment has been an "extraordinary success" over their holding period. The long-term growth trajectory remains intact as digital infrastructure demand continues expanding across Italy.

Pitch Summary:
Our largest position remains P10 Inc., which reported another quarter of growth in assets under management, bringing the total to $21.2 billion, up 23% year-over-year. P10 shares are down year-to-date, no doubt reflecting investor pessimism around the fundraising environment for alternative asset managers. And yet, P10 just announced that its subsidiary RCP Advisors succeeded in raising $328 million for RCP XVII, exceeding the targeted $300 million. Despite the headwinds, P10's managers are still attracting new capital. Though P10 has not found any suitable acquisitions of late, the company has found value in its own shares, repurchasing 1.6% of shares outstanding in the fourth quarter alone. The logic of these buybacks is unassailable; try as I might, I cannot find a better opportunity on a reward-per-unit-of-risk basis than P10 shares at under 12x perfectly visible, contractually guaranteed recurring free cash flow.

BSD Analysis:
The manager maintains strong conviction in P10 Inc. as the fund's largest position, despite year-to-date share price weakness. The bull thesis rests on continued business momentum with 23% year-over-year AUM growth to $21.2 billion, demonstrating the company's ability to attract capital even in a challenging fundraising environment. The manager highlights P10's successful fundraising for RCP XVII, which exceeded its $300 million target, as evidence of the firm's competitive positioning. Management's aggressive share repurchase program, buying back 1.6% of shares in Q4 alone, signals confidence and provides immediate value creation. The valuation appears compelling at under 12x what the manager describes as "perfectly visible, contractually guaranteed recurring free cash flow." The manager's conviction is evident in his assertion that he cannot find a better risk-adjusted opportunity than P10 shares at current levels. The investment represents a bet on the long-term growth of alternative asset management despite near-term industry headwinds.

Pitch Summary:
In happier news, I have identified another opportunity in the Canadian industrial sector. Small Canadian manufacturers have become something of a theme for Alluvial, first with Supremex and now with our new holding Hammond Power Solutions. For decades, Hammond Power Solutions has been producing transformers, the boring, but utterly essential components responsible for transferring energy between circuits in electrical installations. Though they are one of the oldest examples of electrical technology, transformers are required by virtually anything that creates or employs electrical energy. The high quality, dry-type transformers produced by Hammond are widely used in factories and commercial buildings, power grids, and renewable energy facilities as well as oil & gas, mining, and many other industries. Demand for transformers has exploded as the electrification of the world economy accelerates. Despite running its factories at full capacity, Hammond has been unable to keep pace with inbound orders. The company plans to invest $40 million to increase its production capacity, as it expects demand for its products to remain strong in the coming years. Despite the stellar outlook, Hammond Power shares change hands at below 10x trailing earnings and the enterprise is valued at 7x operating income. 2023 earnings will increase from last year's as a result of price increases and continued strong demand. Hammond employs a conservative capital structure with zero debt and produces free cash flow like clockwork. There are few things I like more than finding a high-quality firm like Hammond trading at a pedestrian valuation. While Hammond shares have appreciated as the company's revenues and profits grow, the market has yet to fairly credit the company for its growth profile and profitability.

BSD Analysis:
The manager presents a compelling bull case for Hammond Power Solutions, a Canadian transformer manufacturer benefiting from the global electrification trend. The investment thesis centers on explosive demand growth that has the company running at full capacity and unable to meet incoming orders, creating a favorable supply-demand dynamic. The valuation appears attractive at below 10x trailing earnings and 7x enterprise value to operating income, particularly given the company's debt-free balance sheet and consistent free cash flow generation. Management's $40 million capacity expansion investment signals confidence in sustained demand growth. The manager appreciates finding a high-quality industrial company trading at what he considers a pedestrian valuation despite strong fundamentals. The pitch emphasizes the essential nature of transformers across multiple end markets including renewable energy, power grids, and industrial applications. However, the manager notes that while shares have appreciated with business growth, the market hasn't fully recognized the company's growth profile and profitability improvements.

Pitch Summary:
Global fiber company Lumen was the top detractor in the quarter on the back of disappointing guidance. Revenues remained weak, and the company surprised negatively by cutting guidance by an additional $500 million in the quarter. New CEO Kate Johnson reiterated the potential for strong enterprise sales improvement, but this will require further selling, general, and administrative (SG&A) investment. Additionally, the company is spending to accelerate the automation of its middle market business, while also running off its declining legacy business. We still believe the key to unlocking the price-to-value gap is a strategic sale or separation of the consumer business, but the current financial pressure likely extends that timeline. To the positive, Lumen retired over $600 million debt in an exchange of new senior debt to retire existing unsecured debt. We reduced our Lumen position in the quarter and remain actively engaged with management and the board.

BSD Analysis:
Southeastern's Lumen position reflects a challenged investment facing operational headwinds and extended turnaround timeline. The company disappointed with an additional $500 million guidance cut, highlighting continued revenue weakness across the business. While new CEO Kate Johnson articulates potential for enterprise sales improvement, this requires significant SG&A investment with uncertain returns. The company faces the complex challenge of investing in middle market automation while managing the decline of legacy businesses, creating near-term cash flow pressure. The fund's thesis centers on a strategic separation of the consumer business to unlock value, but current financial constraints likely delay this catalyst. Debt reduction of $600 million through refinancing provides some balance sheet improvement, though leverage remains elevated. The manager's position reduction and active engagement with management and board suggests growing concern about execution risk and timeline extension. While the fiber infrastructure has long-term value, the operational challenges and extended turnaround timeline create significant uncertainty around value realization.

Pitch Summary:
Apparel company PVH, which owns brands Tommy Hilfiger and Calvin Klein, was another strong performer in the quarter. PVH was a new purchase in 2022 when it was thrown out with industry weakness driven by inferior companies, and this was exacerbated when the company was kicked out of the S&P 500. CEO Stefan Larsson, whom we previously got to know at Ralph Lauren, is doing a great job streamlining the company and growing margins and FCF per share. Tommy Hilfiger and Calvin Klein are strong global brands, though they are not earning what they should in the US. The stock has significant additional upside from the current single-digit multiple of FCF power for a company that is relatively resistant to fashion trend risk with a management team that we believe will continue to deliver on operating margin growth from here.

BSD Analysis:
Southeastern's PVH investment capitalizes on a quality brand portfolio trading at distressed valuations due to broader apparel sector weakness and S&P 500 removal. The fund emphasizes CEO Stefan Larsson's proven track record from Ralph Lauren in driving operational improvements and margin expansion. Tommy Hilfiger and Calvin Klein represent enduring global brands with significant untapped potential, particularly in the US market where they're underperforming their international success. The manager highlights the company's relative resilience to fashion trend risk compared to more fashion-forward competitors, providing more predictable cash flows. PVH trades at single-digit FCF multiples despite strong brand equity and improving operational execution under Larsson's leadership. The investment thesis centers on continued margin expansion and FCF growth as operational improvements take hold. With strong global brands, improving management execution, and attractive valuation metrics, PVH appears positioned for significant multiple expansion as the market recognizes the underlying brand value and operational progress.

Pitch Summary:
Global logistics company FedEx was a top contributor in the quarter. FedEx was another 2022 top detractor after a widely publicized earnings shortfall on the back of a disappointing economic report in the second half. In 1Q 2023, the stock rebounded after revenues were weak as forecasted, but FedEx was able to maintain strong pricing power in the face of rising inflation to improve earnings vs. expectations. FedEx's important Ground business also beat guidance by a large margin due to effective cost control. Even with weak overall revenues, margins increased by 200 basis points. FedEx aggressively bought back discounted shares, indicating management's confidence. We believe the company's earnings power is well over $20 longer term vs. current estimates of $15-16 per share, with additional potential upside. After quarter end, FedEx hosted an investor meeting on its DRIVE program which will improve operations and enable the company to achieve double-digit operating income margins in the near future. FedEx will consolidate Express, Ground and Services into one unified operating company.

BSD Analysis:
Southeastern's FedEx investment represents a classic value opportunity following 2022's earnings disappointment and economic concerns. The fund emphasizes FedEx's demonstrated pricing power and operational leverage, with margins expanding 200 basis points despite weak revenue growth through effective cost control. The Ground business significantly exceeded guidance, highlighting management's execution capabilities in a challenging environment. Aggressive share repurchases signal management confidence and provide attractive returns on invested capital at current valuations. The manager's long-term earnings power estimate of $20+ per share versus current estimates of $15-16 suggests significant upside potential as economic conditions normalize. The DRIVE program represents a major operational catalyst, with plans to consolidate Express, Ground, and Services into a unified operating company targeting double-digit operating margins. This restructuring should drive substantial efficiency gains and margin expansion. With FedEx trading at depressed valuations despite strong competitive positioning and improving operational structure, the investment appears well-positioned for multiple expansion as earnings power becomes apparent.

Pitch Summary:
Casino and online gaming company MGM was a strong performer in the quarter, driven by double-digit revenue growth and strong 2023 bookings in Las Vegas, defying assumptions that the post-COVID travel rebound would ease this year. Vegas margins remain at pre-pandemic levels in the high-30's, though we assume these numbers will not last forever. The Macau business is coming back strongly, and licenses have been renewed for all players. BetMGM, the online gaming business jointly owned by MGM and Entain, continues to grow revenues, maintaining its strong market share position. Management confirmed in the quarterly earnings call that rumors of MGM buying all of Entain were not true, causing MGM's share price to rally and Entain's to fall on the news. MGM bought back 20% of discounted shares in 2022 and continues to repurchase at a double-digit annualized pace in 2023.

BSD Analysis:
Southeastern's MGM thesis capitalizes on the sustained strength of the Las Vegas recovery and multiple growth drivers across the business. The fund highlights robust fundamentals with double-digit revenue growth and strong 2023 bookings that exceed expectations for post-COVID normalization. Las Vegas margins remain at attractive high-30% levels, though the manager conservatively assumes some moderation over time. The Macau recovery provides additional upside as that market rebounds and license renewals remove regulatory uncertainty. BetMGM's continued revenue growth and market share gains in online gaming represent a valuable growth option in the expanding digital betting market. Management's aggressive capital allocation through share repurchases demonstrates confidence, with 20% of shares bought back in 2022 and continued double-digit pace in 2023. The clarification that MGM won't acquire all of Entain removes deal uncertainty and allows focus on organic growth. With multiple revenue streams recovering and strong cash generation funding shareholder returns, MGM appears well-positioned for continued outperformance.

Pitch Summary:
Industrial conglomerate General Electric (GE) was a top performer as it began to execute its plan to split the company into three businesses. GE spun its Healthcare business in the quarter, and we sold GE Healthcare as it traded at our value. We believe the remaining company is still undervalued, while CEO Larry Culp has reduced leverage, cut costs, streamlined operations and improved overall morale. In 1Q 2024, GE will separate Aviation and Power, which we believe will highlight the underlying values of each as the strong, defensive growth businesses they are.

BSD Analysis:
Southeastern's GE investment centers on a successful sum-of-the-parts value realization strategy under CEO Larry Culp's leadership. The fund has already monetized the Healthcare spinoff at fair value, demonstrating the effectiveness of the breakup thesis. The manager emphasizes Culp's operational improvements including deleveraging, cost reduction, and streamlined operations that have restored employee morale and operational efficiency. The upcoming separation of Aviation and Power in 1Q 2024 represents the key catalyst, as these businesses should trade at higher multiples as pure-play entities rather than being buried within a conglomerate structure. Both Aviation and Power are characterized as defensive growth businesses with strong market positions and recurring revenue streams. The investment thesis relies on multiple expansion as the market re-rates these higher-quality, focused businesses. With the Healthcare value already realized and the remaining assets trading below intrinsic value, GE appears positioned for continued value creation through the completion of its transformation.

Pitch Summary:
Media conglomerate Warner Bros Discovery (WBD) was the top contributor in the quarter. WBD was a top detractor last year in the face of concerns over management's ability to effectively merge two businesses with different cultures, high leverage and exposure to cord cutting. In 2023, a solid plan is emerging for the integration of the businesses. This management team has a strong track record of integrating assets and growing free cash flow (FCF) per share, which is beginning to happen at WBD. Management has guided that the company will likely be below 4 times net debt to EBITDA by the end of 2023 and to 3x or less by the end of 2024, taking WBD out of the penalty box. We have seen this management team successfully execute this playbook before when Discovery bought former Southeastern holding Scripps in 2017. We are also finally beginning to see industry price rationality across the streaming world.

BSD Analysis:
Southeastern presents a compelling turnaround thesis for Warner Bros Discovery following the challenging integration of WarnerMedia and Discovery. The fund manager highlights management's proven track record of successful asset integration and FCF growth, citing the successful Scripps acquisition in 2017 as precedent. The key catalyst is aggressive deleveraging, with net debt-to-EBITDA expected to decline from current levels to below 4x by end-2023 and 3x by end-2024, which should remove the leverage overhang that has pressured the stock. The manager also notes improving industry dynamics with greater pricing rationality in streaming, suggesting the worst of the streaming wars may be behind the sector. With WBD trading at depressed valuations despite strong underlying content assets and improving operational execution, the investment appears well-positioned for multiple expansion as the deleveraging story unfolds. The 59% quarterly return demonstrates early validation of the thesis, though significant additional upside remains given the company's content library value and improving financial profile.

Pitch Summary:
Lumen – Global fiber company Lumen was the top detractor in the quarter on the back of disappointing guidance. Revenues remained weak, and the company surprised negatively by cutting guidance by an additional $500 million in the quarter. New CEO Kate Johnson reiterated the potential for strong enterprise sales improvement, but this will require further selling, general, and administrative (SG&A) investment. Additionally, the company is spending to accelerate the automation of its middle market business, while also running off its declining legacy business. We still believe the key to unlocking the price-to-value gap is a strategic sale or separation of the consumer business, but the current financial pressure likely extends that timeline. To the positive, Lumen retired over $600 million debt in an exchange of new senior debt to retire existing unsecured debt. We reduced our Lumen position in the quarter and remain actively engaged with management and the board.

BSD Analysis:
Southeastern's Lumen position reflects a challenged investment facing significant operational and financial headwinds. The company delivered disappointing results with an additional $500 million guidance cut, highlighting the severity of revenue pressures across the business. New CEO Kate Johnson's strategy requires substantial SG&A investment to drive enterprise sales improvement, while simultaneously investing in middle market automation and managing the decline of legacy operations. This creates a challenging cash flow dynamic during a period of already weak financial performance. The fund's thesis centers on unlocking value through strategic separation of the consumer business, but current financial pressures have likely extended the timeline for such corporate actions. The debt refinancing of over $600 million represents a positive development for balance sheet management, but doesn't address the fundamental revenue challenges. Southeastern's decision to reduce the position size while maintaining active engagement with management and the board suggests cautious optimism about long-term value realization, but acknowledgment of near-term execution risks. The investment appears to be a distressed value play requiring significant operational turnaround and strategic restructuring.

Pitch Summary:
MGM Resorts – Casino and online gaming company MGM was a strong performer in the quarter, driven by double-digit revenue growth and strong 2023 bookings in Las Vegas, defying assumptions that the post-COVID travel rebound would ease this year. Vegas margins remain at pre-pandemic levels in the high-30's, though we assume these numbers will not last forever. The Macau business is coming back strongly, and licenses have been renewed for all players. BetMGM, the online gaming business jointly owned by MGM and Entain, continues to grow revenues, maintaining its strong market share position. Management confirmed in the quarterly earnings call that rumors of MGM buying all of Entain were not true, causing MGM's share price to rally and Entain's to fall on the news. MGM bought back 20% of discounted shares in 2022 and continues to repurchase at a near double-digit annualized pace in 2023.

BSD Analysis:
Southeastern's MGM Resorts thesis is built on the sustained strength of the Las Vegas recovery and the company's diversified gaming portfolio. The fund highlights double-digit revenue growth and robust 2023 bookings that have exceeded expectations for post-COVID normalization, with margins maintaining pre-pandemic levels in the high-30% range. The Macau recovery provides additional upside as the business rebounds strongly following license renewals for all operators. BetMGM's continued revenue growth and market share maintenance in online gaming adds a valuable growth component to the traditional casino business. Management's clarification regarding Entain acquisition rumors removed an overhang and allowed the market to focus on operational performance. The aggressive capital return program, with 20% of shares repurchased in 2022 and continued double-digit annualized buyback pace in 2023, demonstrates strong cash generation and shareholder-friendly capital allocation. While the fund acknowledges that current Vegas margins may not be sustainable indefinitely, the combination of operational strength, geographic diversification, online gaming growth, and aggressive share repurchases creates multiple value drivers for the investment.

Pitch Summary:
FedEx – Global logistics company FedEx was a top contributor in the quarter. FedEx was another 2022 top detractor after a widely publicized earnings shortfall on the back of a disappointing economic report in the second half. In 1Q 2023, the stock rebounded after revenues were weak as forecasted, but FedEx was able to maintain strong pricing power in the face of rising inflation to improve earnings vs. expectations. FedEx's important Ground business also beat guidance by a large margin due to effective cost control. Even with weak overall revenues, margins increased by 200 basis points. FedEx aggressively bought back discounted shares, indicating management's confidence. We believe the company's earnings power is well over $20 longer term vs. current estimates of $15-16 per share, with additional potential upside. After quarter end, FedEx hosted an investor meeting on its DRIVE program which should improve operations and enable the company to achieve double-digit operating income margins in the near future. FedEx will consolidate Express, Ground and Services into one unified operating company.

BSD Analysis:
Southeastern's FedEx investment thesis centers on the company's demonstrated pricing power and operational efficiency improvements despite challenging revenue conditions. The fund highlights management's ability to expand margins by 200 basis points even with weak revenues, showcasing strong cost control and pricing discipline in an inflationary environment. The Ground business significantly exceeded guidance, demonstrating operational excellence in the company's key growth segment. Management's aggressive share buyback program signals confidence in the business and provides additional value creation through capital allocation. The fund's earnings power estimate of over $20 per share represents significant upside versus current Street estimates of $15-16, suggesting substantial undervaluation. The post-quarter DRIVE program announcement provides a clear operational roadmap for achieving double-digit operating margins through the consolidation of Express, Ground, and Services into a unified operating structure. This operational transformation should drive efficiency gains and margin expansion. The combination of strong pricing power, effective cost management, and strategic operational improvements positions FedEx for substantial earnings growth as economic conditions normalize.

Pitch Summary:
Millicom - Latin American wireless and cable company Millicom was also a top contributor in the quarter after being a top detractor in 2021/2022. Millicom returned almost 50% in the quarter amid news of two interested third parties. In January, rumors broke (and were later substantiated) that Apollo Global Management and former SoftBank executive Marcelo Claure were exploring a potential acquisition. Separately, French billionaire Xavier Niel, founder of French broadband Internet provider Iliad, built a 21% ownership stake over the last several months via his investment vehicle Atlas Investissement. As a long-term, large, potentially anchor holder, he took a seat on the Nomination Committee, where Southeastern also has a seat. The Nomination Committee's primary responsibilities are to identify potential board members, propose the compensation for all directors and present proposals on the election and compensation of the statutory auditor. Niel is asking for multiple board seats as well, highlighting his active interest in the business. Millicom sells for an incredibly low multiple of discretionary cash flow before cable and fiber growth capital expenditure. We believe Millicom offers significant potential upside from today's still overly discounted price.

BSD Analysis:
Southeastern's investment in Millicom represents a compelling value opportunity in Latin American telecommunications that has attracted significant strategic interest. The 50% quarterly return was driven by concrete takeover interest from Apollo Global Management and former SoftBank executive Marcelo Claure, validating the fund's thesis about the company's undervaluation. The entry of Xavier Niel, founder of French broadband provider Iliad, as a 21% strategic stakeholder adds another layer of validation and potential catalyst for value realization. Niel's active involvement, including board representation and his request for multiple board seats, signals serious long-term commitment rather than passive investment. The fund's position on the Nomination Committee alongside Niel provides strategic influence over corporate governance and direction. Despite the strong quarterly performance, Southeastern believes significant upside remains, citing extremely attractive valuation metrics based on discretionary cash flow before growth capital expenditure. The combination of strategic interest, activist involvement, and compelling fundamental valuation creates multiple paths to value realization in this Latin American telecom franchise.

Pitch Summary:
General Electric – Industrial conglomerate General Electric (GE) was a top performer as it began to execute its plan to split the company into three businesses. GE spun its Healthcare business in the quarter, and we sold GE Healthcare as it traded at our value. We believe the remaining company is still undervalued, while CEO Larry Culp has reduced leverage, cut costs, streamlined operations and improved overall morale. In 1Q 2024, GE will separate Aviation and Power, which we believe will highlight the underlying values of each as the strong, defensive growth businesses they are.

BSD Analysis:
Southeastern's thesis on General Electric centers on the successful execution of CEO Larry Culp's strategic breakup plan, which is designed to unlock significant value through business separation. The fund has already realized gains from the Healthcare spinoff, which traded at their appraised value, demonstrating the validity of their sum-of-the-parts valuation approach. The remaining entity benefits from Culp's operational improvements including deleveraging, cost reduction, and streamlined operations that have enhanced employee morale and operational efficiency. The upcoming separation of Aviation and Power divisions in Q1 2024 represents a key catalyst that should highlight the intrinsic value of each business as standalone entities. Both Aviation and Power are characterized as strong, defensive growth businesses with attractive fundamentals. The fund's confidence in continued undervaluation suggests meaningful upside potential as the market recognizes the value of the simplified, focused business units. This represents a classic conglomerate discount situation where the whole is trading for less than the sum of its parts.

Pitch Summary:
Warner Bros Discovery – Media conglomerate Warner Bros Discovery (WBD) was the top contributor in the quarter. WBD was a top detractor last year in the face of concerns over management's ability to effectively merge two businesses with different cultures, high leverage and exposure to cord cutting. In 2023, a solid plan is emerging for the integration of the businesses. This management team has a strong track record of integrating assets and growing free cash flow (FCF) per share, which is beginning to happen at WBD. Management has guided that the company will likely be below 4 times net debt to EBITDA by the end of 2023 and to 3x or less by the end of 2024, taking WBD out of the penalty box. We have seen this management team successfully execute this playbook before when Discovery bought former Southeastern holding Scripps in 2017. We are also finally beginning to see industry price rationality across the streaming world.

BSD Analysis:
Southeastern presents a compelling turnaround thesis for Warner Bros Discovery following the challenging integration of two distinct media businesses. The fund manager highlights management's proven track record of successful asset integration and free cash flow generation, drawing parallels to the successful Discovery-Scripps merger in 2017. The investment case centers on significant deleveraging, with net debt-to-EBITDA expected to decline from current levels to below 4x by end-2023 and 3x by end-2024, effectively removing the company from distressed territory. The thesis is further supported by emerging industry rationalization in the streaming sector, which should benefit pricing power and profitability. Management's execution of the integration plan appears to be gaining traction, with early signs of operational improvements. The fund views the prior year's underperformance as excessive punishment relative to the underlying business fundamentals. This represents a classic value opportunity where temporary operational challenges have created an attractive entry point for a quality media franchise with improving financial metrics.

Pitch Summary:
Richemont and Kering – Our two luxury goods companies, Richemont and Kering, were both strong performers with similar drivers in the quarter. Both businesses benefited from the anticipation of China reopening, although the continued strength in demand for their brands has been driven globally. Both businesses, Richemont in particular, put up solid results throughout the year. Richemont's jewelry maisons (Cartier and Van Cleef & Arpels) delivered 8% like for like sales growth in 4Q, despite the negative impact from Russia and China lockdowns, demonstrating their continued underlying strength. Going forward, we expect to see tailwinds for both businesses and ongoing strong performance from their market-leading luxury brands.

BSD Analysis:
Southeastern expresses confidence in Kering, the French luxury conglomerate housing iconic brands like Gucci, Yves Saint Laurent, and Bottega Veneta, following strong Q1 2023 performance driven by similar catalysts as Richemont. The investment thesis is built on the anticipation of China's reopening providing significant tailwinds, given the region's critical importance to luxury consumption patterns. However, management emphasizes that demand strength has been globally diversified, not solely dependent on Chinese consumers, which demonstrates the resilience and broad appeal of Kering's luxury portfolio. The company's market-leading brands have maintained pricing power and consumer loyalty despite macro headwinds including geopolitical tensions and economic uncertainty. Kering's strong performance throughout a challenging year highlights operational excellence and brand strength across its luxury houses. The combination of China reopening, normalized global travel patterns, and continued premiumization trends in luxury goods creates multiple growth drivers. Management expects ongoing strong performance from these market-leading luxury brands, supported by both cyclical recovery and secular luxury market expansion trends.

Pitch Summary:
Richemont and Kering – Our two luxury goods companies, Richemont and Kering, were both strong performers with similar drivers in the quarter. Both businesses benefited from the anticipation of China reopening, although the continued strength in demand for their brands has been driven globally. Both businesses, Richemont in particular, put up solid results throughout the year. Richemont's jewelry maisons (Cartier and Van Cleef & Arpels) delivered 8% like for like sales growth in 4Q, despite the negative impact from Russia and China lockdowns, demonstrating their continued underlying strength. Going forward, we expect to see tailwinds for both businesses and ongoing strong performance from their market-leading luxury brands.

BSD Analysis:
Southeastern maintains a bullish outlook on Richemont, the Swiss luxury goods conglomerate, driven by strong fundamental performance and favorable macro tailwinds. The investment thesis centers on the resilience and global appeal of Richemont's premier jewelry maisons, particularly Cartier and Van Cleef & Arpels, which achieved impressive 8% like-for-like sales growth in Q4 despite significant headwinds from Russia sanctions and China lockdowns. This performance demonstrates the underlying strength and pricing power of these iconic luxury brands. The anticipated China reopening represents a significant catalyst, given the region's importance to luxury consumption, though management notes demand strength has been broad-based globally. Richemont's market-leading position in jewelry, combined with its diversified luxury portfolio, positions the company to benefit from both cyclical recovery and secular luxury market growth. The company's ability to deliver solid results throughout a challenging year underscores operational excellence and brand resilience. Multiple tailwinds including China reopening, normalized travel patterns, and continued luxury market expansion support the positive outlook.

Pitch Summary:
Accor - French hospitality company Accor was another strong performer in the quarter after reporting operational results well above market expectations. Accor sold its residual stake in Chinese hotel group Huazhu (now H World) with a $1 billion capital gain on the original investment. CEO Sébastien Bazin has a strong capital allocation record and is actively pursuing other opportunities to grow free cash flow (FCF), strengthen the balance sheet and crystallize value across the business. Management is separating Accor into two businesses – Luxury and Lifestyle, where they have already sold a 10% stake at 18x earnings before interest, taxes, depreciation and amortization (EBITDA), and the Economy and Mid-Scale business, which is a franchise cash cow. Market peers are trading anywhere between 16 to 20x EBITDA, a 40%+ premium to Accor on a look-through basis. We see significant potential upside in the hands of an aligned and proven management team.

BSD Analysis:
Southeastern expresses strong conviction in Accor, the French hospitality giant, following exceptional operational performance that exceeded market expectations in Q1 2023. The investment thesis is anchored by CEO Sébastien Bazin's proven capital allocation track record and strategic value creation initiatives. A key catalyst was the $1 billion capital gain from divesting the residual Huazhu stake, demonstrating management's ability to monetize investments at attractive valuations. The company is executing a strategic separation into two distinct businesses: Luxury & Lifestyle (already attracting 18x EBITDA valuations from partial stake sales) and Economy & Mid-Scale (characterized as a franchise cash cow). This sum-of-the-parts approach should unlock significant value given peers trade at 16-20x EBITDA, representing a 40%+ premium to Accor's current look-through valuation. Management's focus on free cash flow growth, balance sheet optimization, and value crystallization provides multiple levers for outperformance. The combination of operational excellence, strategic restructuring, and valuation discount creates compelling upside potential.