Investment Pitches

Pitch Summary:
Twitter thread: We are short $BBAI via put options. The consulting firm’s stock soared 260% on 12 Jan after announcing that subsidiary NuWave won a 10-year $900m IDIQ contract from the US Air Force. The Bloomberg headline got the bulls excited. This bubble will pop.

BSD Analysis:
BigBear.ai is riding the AI theme but with limited differentiation and inconsistent growth. Reliance on low-margin government contracts, ongoing losses, and repeated dilution highlight structural issues. Larger players could crowd it out, leaving little room for durable growth.

Pitch Summary:
We are not interested in writing about MFG from the viewpoint of a broking analyst capturing month-to-month fund flows, performance and refining current year earnings estimates and performance fee possibilities. They can change quickly anyway with wayward markets/stock picks. With S&P500 down over 5% in December 2022, together with $2.6billion of outflows, funds under management (hereafter FUM) declined $4.9billion (9.8%) over the month and have distribution liabilities of a further $300million in January 2023. This piece stands back and looks at longer term valuation, which as it clearly illustrates, can go from absurd optimism to "they're dead" valuations. It's worth noting that even Blackstone ($BX) shares are down 50% from November 2021. Having been a small part of teams which helped engineer turnarounds within two funds management groups, MFG has a tasty, Mimis-like smell about it. Over the past quarter, we have quietly accumulated on down days, and will have to do more during 2023, especially if global equity markets continue downwards as this is a "beta" stock. However, there is little recognition of its inherent value, which is in excess of the share price but can be urinated away by poor management. And the new CEO, whilst intellectually smart, is, in my view, on training wheels in the public domain. But there are options galore within Magellan, from undervalued meaningful investments to future performance fees. We estimate MFG to be holding over $4/share in cash, seed and other investments as follows: $million Comments – adjustments from 30/6/22 Cash (E) 326 y/end $420m less dividend ($125m) less buyback ($39m) + earnings (~>$70m) Option liability (133) Liability to cover 7.5% discount on option exercise of MGF LIC (expires March 2024) – see later Working capital - Receivables less employee liabilities & creditors and tax Cash net of option liability 193 $1.06/share Seed investments unit trusts 379 $2.09/share Barrenjoey (at book) 133 $0.73/share (potentially up to $1.45/share) Finclear (at book) 29 $0.16/share TOTAL INVESTMENTS/CASH 734 $4.04/share All growing funds managers seed new vehicles, the larger ones in larger ways. But the massive decline in MFG's equity capitalisation, along with the Guzman y Gomez investment sale and some innate conservatism, has left MFG with cash estimated at >$1.00/share, seed investments in MFG funds of over $2.00 a share and the two (in our opinion) really smart "market plumbing" investments, on the books (combined) at $0.90/share, but in our view worth much more. All up, on our estimates, ~$4.04/share or $737million against an equity capitalisation below $1.6billion. These investments, making up 45% of equity market value, distinguish MFG from other ASX listed funds managers – Pendal (before takeover) had ~20% of equity value in working capital and investments, with Platinum Asset Management (ASX: PTM) around 31%. On that basis, at current prices of $8.94/share, MFG's three funds management businesses are priced by the equity market at a maximum $4.90/share or $889million, or 1.77% of FUM. Is this realistic? We conservatively value MFG at $9.44/share based on 31 December 2022 FUM; being more liberal, we see scope to lift this to just under $11/share based on eliminating the option exercise liability and revaluing the Barrenjoey investment to reflect the entry price of Barclays: base uplift Investments/cash per table 734 734 Uplift Barrenjoey - 131 Eliminate option liability - 133 Funds management stream per table (9.2x P/E; 2.16% FUM) 979 979 TOTAL VALUATION 1,713 1,977 Per share (181.5million) $9.44 $10.89 Whilst the 31 December 2022 MFG share price is only marginally below our base valuation, we see multiple areas of optionality for MFG to add shareholder value. Our valuations offer nothing for the capacity to generate performance fees, nor the inherent beta to equity markets – which we acknowledge may take time to play out. However, we suspect equity markets are moving to a dynamic where stock picking rather than index-beta – which MFG have used to advantage in the past – will be a more important determinant of fund performance relative to benchmark. This does suggest Magellan have an above average chance of improvement (as do Platinum) and thereby start to redeem their reputation. The chance of new institutional mandates is virtually nil in the next three years, but the slowing of retail redemption is far more important. And what about those investment banking skills? Is it beyond the realms of possibility that Magellan may get together with Barrenjoey to build a FULL investment banking "powerhouse" with funds management, broking, M&A/ECM, stock lending and a strong capital base to boot? Given that the investments and funds management businesses of MFG make up roughly 50/50 of the current valuation, a separation and merger of Barrenjoey is hardly rocket science for smart bankers with a clear motivation. As we know from the extravagant rating of Macquarie (MQG) Australian investors would likely relish the thought. That clearly is an option not priced into MFG at current levels. Hence, we have built a moderate portfolio position, with scope to add further if (very) sloppy equity markets derail FUM, which we see as the main risk to the position.

BSD Analysis:
The manager presents a contrarian value thesis on Magellan Financial Group, arguing the market has overcorrected following the company's operational challenges and fund outflows. The investment case centers on substantial hidden value in the company's investment portfolio, with $4.04 per share in cash and strategic investments representing 45% of market capitalization. Key holdings include stakes in Barrenjoey Capital Partners (investment banking) and Finclear (clearing services), which the manager believes are significantly undervalued on the balance sheet. The manager calculates a conservative fair value of $9.44 per share versus the current $8.94, with upside potential to $10.89 if strategic investments are revalued. The thesis acknowledges near-term headwinds from fund outflows but emphasizes the durability of retail fund management businesses and potential for performance fee recovery. A strategic combination with Barrenjoey to create an integrated investment banking platform represents significant optionality not reflected in current valuations. The manager views this as a classic turnaround opportunity with experienced management and substantial balance sheet resources.

Pitch Summary:
Since we wrote about Madison Square Garden Sports (MSGS) and Manchester United PLC (MANU) in QR#25, the world of sports teams business has been busy: • The Phoenix Suns basketball team is being sold for a price of $4billion, which compares to the prior "Forbes" valuation of only $1.8billion. This is the largest premium over the prior "Forbes" value since Steve Ballmer bought LA Clippers for $2billion against its prior valuation of $550million in 2014; (the "Forbes" valuation of New York Knicks is $5.8billion – no stadium) • The Washington "Commanders" NFL team, is under a sale process with bids apparently "over $7billion" including surplus land; the last "Forbes" valuation excluding the land but including FedEx Field is $5.6billion; $7billion would be $2.5billion over the highest ever price paid for a US sports team, being the Denver Broncos earlier in 2022; • The smallest EPL team, Bournemouth, has sold for ~£120million to US businessman Bill Foley. The ground only holds 11,000 fans. Burnley FC, a small team with a 22,000 seat stadium who were relegated last season – but currently lead the second-tier Championship under the guidance of Manchester City & Belgian legend Vincent Kompany - sold for the equivalent value of £202m in December 2020; • Manchester United PLC's majority owners, the Glazer family, announced on 22 November 2022, that to position the club, "the Board consider all strategic alternatives, including new investment into the club, a sale, or other transactions involving the Company." Given the changed playing field in the EPL, most pundits (myself included) read this as a likely sale. The fact the Glazers were spotted at the recent World Cup with wealthy Middle Eastern businessmen, suggests this to be the favoured (but not certain) option. As a consequence of all this action, MSGS shares are up 39% from end September – including the special $7 dividend - whilst MANU stock has surged 76%. We still hold both since the publicly quoted share prices do not yet reflect likely transaction prices - not that a MSGS transaction appears likely. At the 30 December 2022 share price, MANU shares value the club on an enterprise value basis at £4.3billion, inclusive of an increased £1.1billion of "liabilities"; liabilities are up £200million at September from June due to the signing of Carlos Casemiro (£80m) and seasonal lull. The 30 September 2022 balance sheet illustrates why the Glazers either do not have the means or willingness to properly fund United and why a sale is a must, for them and supporters. The exit of the ego-centric aging Ronaldo during the quarter is a financial, emotional and on-field benefit. The significant improvement of the team during a potential sale period – hopefully heightened by interest from a brilliant ON-FIELD World Cup - is of real benefit and can hopefully continue.

BSD Analysis:
The manager presents a compelling bull case for Manchester United based on a potential sale catalyst and broader sports team valuation trends. The thesis centers on the Glazer family's announced strategic review, which the manager interprets as a likely sale given the club's financial constraints and recent Middle Eastern interest. The investment is supported by comparable transaction evidence showing significant premiums to Forbes valuations across sports franchises, including the Phoenix Suns selling at 122% above valuation. At current prices, MANU trades at an enterprise value of £4.3 billion, which the manager believes undervalues the franchise relative to potential transaction prices. The departure of Cristiano Ronaldo and improved on-field performance during the World Cup period provide additional positive catalysts. The manager acknowledges the club's £1.1 billion liability burden but views this as evidence supporting the sale thesis rather than a fundamental concern. The 76% quarterly gain demonstrates market recognition of the sale premium potential, though the manager believes further upside remains.

Pitch Summary:
A cybersecurity company that operates globally, CyberArk specializes in products and services to protect and safeguard customers' IT networks and devices. A recent flurry of buyouts by private-equity firms has fostered an active rumor mill that's at times produced rapid gyrations in the prices of cybersecurity stocks. We suspect CyberArk may have been the target of some of this speculation during the third quarter. Moreover, the growing slate of security products offered by cloud-computing giants Microsoft, Amazon Web Services and Google may have bruised investor sentiment toward the group.

BSD Analysis:
The manager takes a neutral stance on CyberArk, acknowledging both the company's strong market position and current headwinds facing the cybersecurity sector. CyberArk operates as a leading global cybersecurity company specializing in privileged access management and network protection solutions. The stock has experienced significant volatility due to M&A speculation driven by private equity activity in the cybersecurity space. While this creates potential upside from takeout premiums, it also introduces uncertainty and price instability. A more concerning long-term trend is the increasing competition from cloud computing giants like Microsoft, Amazon, and Google, who are expanding their security product offerings. This competitive pressure from well-resourced platform companies could impact CyberArk's market share and pricing power over time. The manager appears to be monitoring these dynamics closely while maintaining the position, suggesting cautious optimism tempered by legitimate competitive concerns in the evolving cybersecurity landscape.

Pitch Summary:
Paylocity is a good example of a company that's seen its stock price come under pressure in spite of strong fundamentals in the underlying business. Paylocity provides cloud-based payroll and human-resources software targeted at smaller firms. Although Paylocity's most recent earnings release contained an abundance of positive takeaways, the Fed's focus on the red-hot U.S. labor market as a source of inflationary pressures may have spooked some investors. Because a portion of Paylocity's pricing structure is tied to employee headcounts at customer firms, revenues are vulnerable to potential upticks in layoffs and attrition. Another factor may have been the interest Paylocity earns on the cash it holds for customers—which stands to diminish if the Fed cuts interest rates in response to a slowing economy in 2023 as some investors expect.

BSD Analysis:
The manager identifies Paylocity as a high-quality software company experiencing temporary stock price pressure despite strong underlying business fundamentals. The company operates in the attractive cloud-based payroll and HR software market, serving small to medium-sized businesses with mission-critical services. Recent earnings results showed strong operational performance, but investor concerns center on potential macro headwinds affecting the business model. The revenue structure's partial dependence on customer employee headcounts creates sensitivity to potential layoffs during economic downturns. Additionally, the company benefits from interest income on customer cash balances, which could decline if the Federal Reserve cuts rates. However, the manager views these concerns as temporary factors affecting a fundamentally sound business. The disconnect between strong operational results and stock performance suggests the market may be overreacting to macro concerns, creating an attractive opportunity for patient investors.

Pitch Summary:
Grid Dynamics provides IT services that include digital transformation, legacy replatforming and cloud computing. Although the company has been migrating employees out of Ukraine, a significant number of them still live and work there. Following the outbreak of war, Grid's stock price quickly rebounded from its initial lows as the company effectively managed the resulting challenges. The stock fell again in October, however, amid escalating Russian attacks on power plants and other vital infrastructure. We view recent weakness in Grid's shares as a buying opportunity. We think digital transformation still has significant potential, and our confidence in the company's management team remains unshaken.

BSD Analysis:
The manager views Grid Dynamics as an attractive buying opportunity despite geopolitical headwinds affecting the stock price. The company operates in the high-growth digital transformation and cloud computing services market, providing critical IT modernization services to enterprise clients. While Grid Dynamics faces operational challenges due to its significant Ukrainian workforce, management has demonstrated effective crisis management capabilities following the war's outbreak. The stock's initial recovery and subsequent decline due to infrastructure attacks presents what the manager sees as a temporary dislocation. The long-term investment thesis remains intact, centered on the substantial runway for digital transformation services across enterprises globally. Management's proven ability to navigate unprecedented challenges reinforces confidence in their execution capabilities. The manager believes the current weakness creates an attractive entry point for a company positioned to benefit from the ongoing digital transformation mega-trend.

Pitch Summary:
Another strong stock in the strategy was Five Below, Inc. (FIVE). A specialty value retailer, the company offers a variety of merchandise at discounted prices. Five Below's stock price rose sharply in early December after the company reported better-than-expected financial results and guided higher on revenues and earnings. The upbeat news cheered investors who had been concerned about Five Below's ability to attract shoppers during the upcoming inflation-marred holiday season. We think the company's debt-free balance sheet, substantial free cash flows, expanding store count and new Five Beyond format—in which prices can go as high as $25 in a designated section of the store—leave Five Below well-positioned for growth even in a potentially difficult retail environment.

BSD Analysis:
The manager maintains a bullish stance on Five Below, viewing it as a resilient specialty value retailer well-positioned for continued growth. The investment thesis centers on the company's strong financial foundation, including a debt-free balance sheet and substantial free cash flow generation. Recent better-than-expected results and raised guidance demonstrate the company's ability to navigate inflationary pressures and attract consumers during challenging economic conditions. The expanding store footprint provides a clear growth runway, while the new Five Beyond format represents an important strategic evolution that allows for higher price points up to $25. This format expansion addresses previous limitations on merchandise selection and pricing flexibility. The manager believes Five Below's value proposition remains compelling even in a difficult retail environment, with the company's financial strength providing defensive characteristics while maintaining growth potential through store expansion and format innovation.

Pitch Summary:
Inspire develops minimally invasive solutions for patients with obstructive sleep apnea. The company has experienced strong demand for its products, which serve a previously unmet medical need. Inspire's management team has executed well, growing revenues at a rapid clip since the company's initial public offering in 2018. Most recently, Inspire reported year-over-year quarterly revenue growth of 77%, surpassing Wall Street estimates. Citing increased utilization at existing sites and the addition of new implanting centers, management raised its full-year revenue forecast and maintained margin guidance in the range of 83% to 85%.

BSD Analysis:
The manager expresses strong conviction in Inspire Medical Systems, a medical device company addressing obstructive sleep apnea through minimally invasive solutions. The investment thesis is built on the company's ability to serve a previously unmet medical need in a large addressable market. Management execution has been exceptional since the 2018 IPO, with consistent revenue growth acceleration. The recent 77% year-over-year revenue growth significantly exceeded Wall Street expectations, demonstrating robust demand dynamics. Key growth drivers include increased utilization at existing implanting sites and expansion of the provider network through new centers. The company's ability to maintain high gross margins of 83-85% while scaling operations indicates strong pricing power and operational efficiency. This represents a high-quality medical device growth story with significant runway for continued expansion in the sleep apnea treatment market.

Pitch Summary:
Medpace is a contract-research organization that supplies clinical-development services to health-care firms. Shares of Medpace had languished for most of 2022 amid worries that a generally poor funding environment for the company's customers would impact operations. Medpace earns the majority of its revenues from small firms that find it more cost-effective and efficient to outsource the management of clinical trials necessary to bring products to market. Concerns eased in October when quarterly revenues and earnings at Medpace came in ahead of expectations. In addition, the company upped its full-year guidance for 2022 and issued a positive outlook for 2023.

BSD Analysis:
The manager presents a bullish view on Medpace, a contract research organization serving the healthcare sector. The investment thesis centers on the company's recovery from 2022 concerns about customer funding challenges. Medpace's business model focuses on providing outsourced clinical trial management services to smaller healthcare firms, which find this approach more cost-effective than in-house operations. The turning point came in October when the company delivered better-than-expected quarterly results and raised full-year guidance. Management's positive 2023 outlook suggests continued momentum in the clinical research outsourcing market. The manager views this as a quality healthcare services play positioned to benefit from the ongoing trend toward clinical trial outsourcing. The defensive nature of healthcare combined with Medpace's growth characteristics aligns with the fund's preference for companies that can perform well even as economic growth slows.

Pitch Summary:
Mismanaging investment funds ($2mil of delinquent loans purchased from related parties is completely worthless now); operating cost underestimated; unsuccessful side operations; the company is close to running out of cash; Update 4/4 - Iceberg provided update via Twitter thread.

BSD Analysis:
AREC positions itself as a coal and rare earths supplier but faces dilution, lack of scaled operations, and promotional behavior. Limited production and reliance on financing raise execution concerns. With minimal revenues and questionable disclosures, the story trades more on hype than fundamentals.

Pitch Summary:
The reported 45% gross margin is in fact negative; commodity product in a commodity space with furious competition; Ponzi-like scheme likely ending in bankruptcy; just another synthetic biology narrative; absurd "silicone DNA" chip; price target - zero. Update 8/5/24 - Remained short and disclosed related party transactions and round-tripping.

BSD Analysis:
Twist Bioscience manufactures synthetic DNA for biotech, healthcare, and industrial customers. Bears highlight persistent cash burn, uncertain path to profitability, and reliance on equity raises. The competitive landscape includes established DNA suppliers, while scaling manufacturing profitably remains a challenge. Intellectual property litigation also adds risk. Catalysts/risk checks: order growth from pharma/biotech customers, gross margin trajectory, litigation outcomes, and funding runway. Counterpoints: synthetic biology is a long-term secular theme, but shorts argue TWST remains structurally unprofitable at current scale.

Pitch Summary:
The sole portfolio update for this quarter covers our investment in Uber Technologies, Inc. common stock (NYSE: UBER), a compounder investment. Uber has recovered strongly from pandemic disruptions, with mobility and delivery gross bookings reaching record levels. Profitability has improved materially as incentive spending declined and scale efficiencies emerged. Uber has achieved adjusted EBITDA profitability and is generating free cash flow, with management targeting substantial long-term margin expansion. The company’s diversified demand base, flexible cost structure, and growing membership program support resilience across economic cycles.

BSD Analysis:
Uber kicked off 2026 with record-breaking results, crossing the 200 million monthly active user milestone. For the full year 2025, the company facilitated $193.5 billion in gross bookings and generated $10 billion in free cash flow, cementing its platform’s power. Entering 2026, Uber’s Mobility segment saw 20% growth, while Delivery surged 26%, offsetting a flat Freight performance. The company has set a Q1 2026 gross bookings target of $52.0–$53.5 billion, representing roughly 20% growth on a constant currency basis. A significant strategic pivot for 2026 is Uber's goal to become the world's largest facilitator of autonomous vehicle (AV) trips. Despite a surprise CFO transition in early February, management maintains its three-year growth outlook, supported by $7.6 billion in unrestricted cash and a doubled GAAP operating income.

Pitch Summary:
Paywalled (The site mentioned: Rumble is largely YouTube for hyper-conservatives and it has struggled to move into mainstream content. The company’s key operating metrics appear dubious. Currently trading for ~170x revenue, Rumble shares may be priced to tumble.) Update 1/6/2023 - Follow-up report published. Update 10/5 - Another follow-up published.

BSD Analysis:
Rumble positions itself as a “free speech” alternative to YouTube, monetizing through ads, subscriptions, and creator partnerships. The bear thesis focuses on user quality, monetization challenges, and reliance on political cycles. Engagement metrics are inflated by a small group of politically charged creators, leaving monetization potential limited versus mainstream platforms. Ad inventory is difficult to sell at scale given brand safety concerns, and Rumble’s alternative payment/hosting infrastructure adds to costs. While the platform has found a niche, it lacks the network effects and advertiser trust needed for sustainable profitability. Cash burn remains heavy, and growth has been driven more by culture-war headlines than by broad user adoption.

Pitch Summary:
Four-year-old quantum computing wannabe; the main product has zero sales; highly competitive market with competitors such as IBM, AMZN and GOOGL; $85m acquisition with little value and huge dilution; constant cash burner with weak capital structure; Update 12/6 - Iceberg tweeted the company's $25m equity offering, equal to 1/4 of the market cap. Update 11/28/24 - Reinitiated the short: False PR;

BSD Analysis:
Quantum Computing Inc. reappears here, reinforcing prior bear views. The thesis emphasizes lack of meaningful revenue, questionable technological edge, and reliance on promotional narratives. Compared with better-capitalized quantum peers, QUBT lacks defensible IP and commercialization pathways. Continued equity raises highlight dilution risk in a speculative segment.

Pitch Summary:
Ferguson is the world's largest distributor of plumbing and heating products to trade professionals with sales and trading profit of $22.8 billion and $2.1 billion, respectively. Following disposals of lower quality international businesses over more than a decade, concluding with the recent sale of the UK business in January 2021, Ferguson's operations are now entirely focused on the attractive North American market. Ferguson's sales exposure by end market is split Residential (54%), Commercial (32%), Civil/Infrastructure (7%), and Industrial (7%), with sales further split 60%/40% remodel, maintenance, and improvement (RMI) versus new construction. Ferguson's U.S. headquarters is in Newport News, Virginia. Ferguson has exited many unprofitable or low-returning businesses over the last decade and reoriented towards organic growth and selective bolt-on acquisitions, driving improved margins and returns on capital. The business is easy to understand, occupies a critical role between fragmented suppliers (over 37 thousand) and customers (over 1 million), and consistently grows 3-4% ahead of the end markets that it serves. The company's scale, branch density, and distribution footprint provide it with a competitive advantage in terms of purchasing, fulfillment, contractor relationships, and superior service levels versus its fragmented competition. In 2021, approximately 60% of Ferguson's sales were related to RMI work, which is less cyclical and typically carries higher margins than sales to the new build market. This mix compares favorably with the group's 31% RMI exposure in 2008. Ferguson's U.S. business has a terrific long-term track record, with operating profit growing in the double-digits over the trailing 10, 20, and 30-year periods. We believe the customer value proposition and franchise continue to strengthen with scale, which should flow through to improving economics for shareowners. Ferguson maintains a solid balance sheet, and is a strong free cash flow generator, with total cash returns exceeding $9.0 billion over the last decade. The stock trades at 11.3 times forward EPS estimates, approximately two standard deviations below its long-term average and a double-digit discount to its closest U.S. peers. The below average valuation does not adequately reflect the company's increasingly attractive business mix as well as the continued strengthening of Ferguson's competitive positioning. Ferguson pays regular and special dividends and recently restarted its share repurchase program (repurchased more than $500 million in the third quarter of fiscal year 2022 alone). Over the last decade, management has focused on organic growth and returns, strengthening its already market leading U.S. business and divesting operations in several less attractive geographies. Kevin Murphy was elevated to group CEO in 2019, previously serving as CEO of Ferguson (U.S.A.) and COO. He has built a solid track record of profitable and disciplined growth through prioritizing data/analytics, digital capability, and talent management to position Ferguson closer to its trade customers. He joined Ferguson decades ago through the acquisition of his family's business. Operating profit/EPS growth and cash conversion are components of the compensation plan, capturing the essence of value creation for a physical distribution business. We believe Ferguson has a strong corporate culture. Ferguson provides FMI exposure to the building, repair, and replacement of critical components, touching virtually every modern physical structure and piece of infrastructure in North America. Given its advantages, including its scale, branch density, distribution footprint, and technology and service superiority, we expect Ferguson will continue to take share in its markets over time. Concerns over rising interest rates, consumer confidence, and normalizing demand patterns in residential end markets (~55% of sales) have recently weighed on sentiment. We acknowledge these concerns, but note the company's track record of managing through cycles, stronger outlook in several non-residential markets, and significantly improved business mix this cycle (U.S. pure play, higher repair & replacement, network density, etc.). Assuming reasonably supportive end markets and continued strong execution, Ferguson should be capable of growing underlying EPS at a double-digit annual rate through the cycle while maintaining 20%+ returns on capital and balance sheet strength. The stock is attractively valued on an absolute and relative basis. Additionally, we think it is likely that Ferguson will be added to S&P 500 and other U.S. indices within the next year.

BSD Analysis:
FMI presents Ferguson as an attractively valued market leader in North American plumbing and heating distribution, benefiting from a decade-long portfolio optimization that culminated in focusing entirely on the attractive U.S. market. The company's competitive moat stems from its scale advantages, serving as a critical intermediary between 37,000+ fragmented suppliers and over 1 million customers, consistently growing 3-4% ahead of end markets. Particularly compelling is Ferguson's improved business mix, with 60% of sales now tied to less cyclical repair, maintenance, and improvement work versus just 31% in 2008. The company demonstrates exceptional capital efficiency with 20%+ returns on capital and strong free cash flow generation, returning over $9 billion to shareholders in the past decade. At 11.3x forward earnings—two standard deviations below historical averages and at a double-digit discount to peers—the valuation appears compelling for a franchise with double-digit long-term EPS growth potential. Management under CEO Kevin Murphy has demonstrated disciplined capital allocation, and potential S&P 500 inclusion could provide additional upside catalyst.

Pitch Summary:
Avery Dennison is a vertically integrated manufacturer of pressure sensitive labels and assorted tickets and tags. Pressure sensitive labels are used on products such as beverages, shampoo, shipping packages, pharmaceuticals, etc. Avery reports in three segments: Pressure Sensitive Materials (65% of sales), Retail Branding & Information Solutions (26%), and Industrial & Healthcare Materials (9%). Avery primarily manufactures locally and operates 200 manufacturing and distribution facilities in over 50 countries. Avery is the global leader in its main product lines and is 2.5 times larger than its next largest competitor in pressure sensitive labels. This confers scale benefits that allow it to earn best-in-class margins while still leading on innovation. Avery is minimally cyclical. Fast turning product lines, including consumer goods, retail, and logistics/shipping account for ~80% of sales. Avery has proven adept at cost management in periods of lower demand. Avery's product usage is not impacted by the shift to private label and/or start up brands, a perennial challenge in home and personal care/consumer packaged goods categories. Avery's products are low-cost relative to the total product, yet they convey high value information to the consumer (brand image, product quality, etc.). Avery has 50%+ market share in ultra-high frequency radio frequency identification (UHF RFID) tags, which are undergoing secular growth in the +15-20% range. Avery's historical and incremental returns on capital are high. ROIC was 18% in 2021, up from 9% in 2012, driven by both capital discipline and operating profit growth. Avery's balance sheet is appropriately levered. With high-single-digit long term earnings growth expectations and a 20% return on invested capital, 16 times forward earnings and 11.4 times forward EBITDA are reasonable absolute multiples. Prior to this period of raw material inflation and a potential macro slow down, Avery traded at 25 times forward earnings and 16 times forward EBITDA. The P/E is below the 5-year average and EV/EBITDA is equal to the 5-year average. RFID is 8% of sales and continues to grow well above the company average. We believe that this could structurally increase Avery's trading multiple in the next 3-5 years. CEO Mitch Butier was a chief architect of Avery's Economic Value Added (EVA) strategy. He has previously served as COO and CFO for Avery Dennison. His track record since becoming CEO in 2016 is very strong. Mitch owns 270 thousand shares, worth $50 million at today's prices. Avery's incentives are aligned with shareholders. Short term incentives are based on organic sales, adjusted earnings per share (EPS), and free cash flow. Long term incentives are driven by total shareholder return and EVA. Avery has two key drivers that allow them to grow organic revenue above GDP: high value categories and emerging markets. 60% of sales are now exposed to one or both categories. Of note within high value products, Avery is by far the market leader in UHF RFID tags used in end markets like apparel, aviation, and food. This business is growing 15-20% and has a long runway in both existing and yet to be tapped end markets. These factors allow for long run volume growth in the 4% range. This story is simple to understand and, in more benign times, generates a lot of interest from investors. Combined with a long running cost efficiency program and share buybacks, we expect a reasonably stable high single digit percentage earnings growth profile. This is particularly valuable as Avery is run on EVA and thus consistently balances growth, margins, and returns on capital (i.e. they are not growing for growth's sake). Avery has run into a few headwinds that are giving us an opportunity to invest. First, Avery's commodity raw materials are derived from paper and oil, both of which have seen significant spikes driven by supply and demand factors. This has put pressure on Avery's margins as it takes one to two quarters to catch up to cost inflation. Given the magnitude and duration of the inflation, there is concern around when they will recapture price/cost neutrality. Second, inflation combined with other macro challenges (like the war in Ukraine), have led to concerns about a global recession. Although Avery is much less cyclical than average, it is more cyclical than some other packaging companies and thus is sold quickly when macro fears emerge. We believe all these factors to be transitory, and thus believe that the valuation is attractive

BSD Analysis:
FMI presents a compelling bull case for Avery Dennison, emphasizing the company's dominant market position as the global leader in pressure-sensitive labels with 2.5x the scale of its nearest competitor. The investment thesis centers on two key growth drivers: exposure to high-value categories and emerging markets, with 60% of sales benefiting from these secular tailwinds. Particularly attractive is Avery's commanding 50%+ market share in UHF RFID tags, a rapidly growing segment expanding at 15-20% annually with significant runway ahead. The company demonstrates exceptional capital efficiency with 18% ROIC in 2021, up from 9% in 2012, while maintaining disciplined growth through its EVA framework. Management appears well-aligned with shareholders, and the current valuation of 16x forward earnings represents a significant discount to historical multiples of 25x. FMI views recent headwinds from raw material inflation and recession fears as transitory, creating an attractive entry point for a high-quality franchise with sustainable competitive advantages.

Pitch Summary:
The Italian industrial gases company SOL Spa reported sales growth of 22% in the first half, up 19.5% organically. Operating profit grew by 14%, despite the sharp rise in electricity and transportation costs, which are its main expense items. Excluding the cash outflow due to the increase in working capital and the capex for growth in the calculation, Sol has generated more than €120m in the last twelve months, which with a capitalization of €1,400m represents 8.5% of FCFy (and more than 12% if we exclude growth investments), which is extraordinary for a company of this quality.

BSD Analysis:
SOL S.p.A. is capitalizing on a strongly growing industrial gas market, which is projected to reach $157 billion in 2026, driven by the rapid expansion of clean energy and hydrogen applications. The company’s focus on high-purity gases for the electronics and semiconductor sectors is yielding significant margin expansion as global manufacturing moves toward more sophisticated tech localized hubs. Management is integrating Internet of Things (IoT) technology across its distribution network to enhance monitoring, safety, and operational efficiency, reducing "last-mile" logistics costs. SOL’s dual-track growth in medical gases and specialty industrial solutions provides a robust hedge against cyclicality in the broader metallurgical market. With a 9.4% compound annual growth rate in its core sectors, the firm remains a high-quality play on the essential "unseen" building blocks of the modern industrial and healthcare economies.

Pitch Summary:
Takkt. This German company, which distributes consumables for other companies, has performed exceptionally well in the first half of the year. Its sales rose by 18%, or 13% excluding acquisitions, mainly due to price increases. EBITDA grew by 30%, with a margin improvement of 0.9 points from 9.3% to 10.2%. Excluding working capital movements, which are very volatile in this company, the company generates €70m of free cash flow and its capitalization is €610m, a FCFy of 11%. Despite this excellent performance and its very low valuation, Takkt's share price fell by almost 40% in the first half of the year.

BSD Analysis:
TAKKT AG is currently leading the digitization of the B2B buyer experience, leveraging a high-maturity digital commerce model to outperform competitors in a tight-budget industrial environment. The company’s 2026 strategy is focused on identifying and activating "agentic" AI use cases that advance business goals, such as automated demand forecasting and personalized procurement channels. Research indicates that mature B2B companies like TAKKT grow up to 110% faster than low-maturity peers by meeting customers exactly where they are in the digital lifecycle. Management is prioritizing ERP upgrades and front-office integrations to streamline the end-to-end purchasing process for its global client base. As B2B suppliers feel squeezed between rising expectations and investment barriers, TAKKT’s established digital infrastructure provides a durable competitive advantage and a clear path toward sustained sales growth.

Pitch Summary:
Similarly, Neurones, the IT services company, reported sales and operating profit growth of 13% and 22% respectively. It generated ebit of €69m in the last twelve months and still has €232m in cash, with a capitalization of €770m. Despite its acceleration in growth, Neurones fell 11% in the third quarter, trading at 7.7x EV/EBIT, an abnormally low level considering the quality of the business and its historically strong financial performance.

BSD Analysis:
Neurones S.A. is a primary beneficiary of the global IT services boom, which is projected to reach $1.71 trillion by the end of 2026 as organizations respond to digital disruption and AI integration. The company specializes in technology consulting, managed services, and system integration, categories that are currently growing at a 10% compound annual rate. Management is capitalizing on the high demand for hybrid cloud and digital transformation projects among large enterprises seeking efficient and secure infrastructure management. Neurones’ decentralized operational model allows it to maintain a nimble, high-touch relationship with clients while capturing the scale benefits of the broader tech bull market. With a consistent track record of double-digit organic growth and a pristine balance sheet, the firm remains a top-tier choice for exposure to the essential digital outcomes required by modern corporations.