Investment Pitches

Pitch Summary:
One example that we recently purchased is Diageo. Diageo is the largest spirits maker in the world. The company focuses on the premium sector of the market, which is growing faster than the market as a whole. Several of its largest brands are over one hundred years old. Its competitive advantages include its broad portfolio of brands, global reach, distribution in a highly regulated industry, and advertising scale. The company produces strong free cash flow, has ample pricing power, a strong balance sheet, and high returns on invested capital. We have owned it before and are pleased to be able to do so again as our estimate of its value has steadily compounded, while its stock price has declined during 2023. We believe that investors with shorter term time horizons than ours are overly concerned with tough comparisons against strong pandemic results when the company flexed its pricing power and grew its adjusted operating profits at unsustainably high levels, including a greater than 28% jump in fiscal 2022, and over 8% in fiscal 2023. We estimate that Diageo will have flattish growth in fiscal 2024. We believe that the company can grow at a mid-single digit rate over the long term and that the company will most likely resume its steady growth in fiscal 2025.

BSD Analysis:
Vulcan Value Partners initiated a position in Diageo, viewing the world's largest spirits maker as an attractive value opportunity following stock price declines in 2023. The fund highlights Diageo's competitive moat through its premium brand portfolio, global distribution network, and century-old brands that provide pricing power in a regulated industry. Management believes the market is overreacting to tough year-over-year comparisons following exceptional pandemic-era performance, where operating profits grew 28% in fiscal 2022 and 8% in fiscal 2023. While expecting flat growth in fiscal 2024, Vulcan anticipates mid-single-digit long-term growth resuming in fiscal 2025. The investment thesis centers on Diageo's strong fundamentals including robust free cash flow generation, solid balance sheet, and high returns on invested capital, with the current discount providing an attractive entry point for patient capital.

Pitch Summary:
Bureau Veritas is one of the world's largest providers of testing, inspection, and certification (TIC) services. It provides mission-critical services that ensure its customers' products comply with regulatory requirements and certification standards, as well as meet proper quality and safety thresholds. The cost of its services generally represents well under 1% of the total value of the product. The company is well-diversified, has over 80,000 employees in 140 countries and serves over 400,000 clients in a wide array of end markets, including industrial production, buildings and infrastructure, shipping and offshore infrastructure, agriculture, and consumer goods. We believe the business is stable and is experiencing long-term tailwinds from increasing regulation, complex consumer products, outsourcing, reshoring and nearshoring of supply chains, growth in renewable energy production, and a growing global middle class. Bureau Veritas has been on our MVP list for approximately a decade, and we believe concerns around macroeconomic downturn gave us the opportunity to purchase it at a discount to our estimate of intrinsic value.

BSD Analysis:
Vulcan Value Partners added Bureau Veritas, a global leader in testing, inspection, and certification services, capitalizing on macroeconomic concerns that created a discount to intrinsic value. The fund highlights the company's mission-critical services that represent less than 1% of customer product values, creating pricing power and defensive characteristics. With over 80,000 employees across 140 countries serving 400,000+ clients, Bureau Veritas offers significant diversification across industrial production, infrastructure, shipping, agriculture, and consumer goods. Management identifies multiple long-term growth drivers including increasing regulation, complex consumer products, supply chain reshoring/nearshoring, renewable energy expansion, and global middle class growth. The company had been on Vulcan's MVP watchlist for approximately a decade, demonstrating the fund's patient approach to finding attractive entry points. The investment thesis centers on the stable, defensive nature of the business model combined with secular growth tailwinds in a fragmented global market.

Pitch Summary:
One example that we recently purchased is Diageo. Diageo is the largest spirits maker in the world. The company focuses on the premium sector of the market, which is growing faster than the market as a whole. Several of its largest brands are over one hundred years old. Its competitive advantages include its broad portfolio of brands, global reach, distribution in a highly regulated industry, and advertising scale. The company produces strong free cash flow, has ample pricing power, a strong balance sheet, and high returns on invested capital. We have owned it before and are pleased to be able to do so again as our estimate of its value has steadily compounded, while its stock price has declined during 2023. We believe that investors with shorter term time horizons than ours are overly concerned with tough comparisons against strong pandemic results when the company flexed its pricing power and grew its adjusted operating profits at unsustainably high levels, including a greater than 28% jump in fiscal 2022, and over 8% in fiscal 2023. We estimate that Diageo will have flattish growth in fiscal 2024. We believe that the company can grow at a mid-single digit rate over the long term and that the company will most likely resume its steady growth in fiscal 2025.

BSD Analysis:
Vulcan Value Partners initiated a position in Diageo, viewing the world's largest spirits maker as an attractive value opportunity following stock price declines in 2023. The fund emphasizes Diageo's competitive moat through its premium brand portfolio, global distribution network, and century-old flagship brands that provide pricing power in a highly regulated industry. Management believes the market is overly focused on near-term headwinds from tough pandemic comparisons, when Diageo achieved unsustainable growth rates of 28% in fiscal 2022 and 8% in fiscal 2023. While expecting flat growth in fiscal 2024, Vulcan projects mid-single digit long-term growth resuming in fiscal 2025. The investment thesis centers on Diageo's strong free cash flow generation, robust balance sheet, and high returns on invested capital, with the fund confident that intrinsic value has compounded while the stock price declined, creating an attractive entry point.

Pitch Summary:
RediShred reported a record quarter at the end of August. They then announced two more acquisitions and guided to completing more before year-end. The stock on the other hand declined quite a bit. The stated financials, with forex and a fluctuating paper price, may hide the true profitability, but the company continues to reinvest at high rates of return. The profitability of shredding trucks is much higher than one might expect. We continue to believe in this management as they execute like they say they are going to. For both CTS & KUT, we focus on cash earnings versus other metrics like free cashflow or EBITDA etc. We believe both companies are investing in growth CAPEX at high rates of return, which is what you want to see. These are two investments that we expect to jump considerably as the cycle turns.

BSD Analysis:
Donville Kent maintains conviction in RediShred despite recent stock weakness following record quarterly results. The fund emphasizes the disconnect between operational performance and market reaction, noting the company reported record results while announcing additional acquisitions with more planned before year-end. Management's execution track record provides confidence, with the fund highlighting that "they execute like they say they are going to." The investment thesis centers on the surprisingly high profitability of shredding truck operations, though foreign exchange fluctuations and volatile paper pricing may obscure true earnings power. Donville Kent focuses on cash earnings rather than traditional metrics, viewing the company's growth capital expenditures as high-return investments. The fund positions both RediShred and Converge as beneficiaries of the anticipated small-cap cycle turn, expecting significant outperformance when market sentiment shifts.

Pitch Summary:
On October 19th Converge released preliminary Q3 results which surprised to the upside. They lead with the title "Q3-2023 Performance to be Stronger than Expected". Gross profit will be up ~22% vs 2022 and EBITDA will be up ~29% vs last year. They also included, "Cash generated from operating activities improved significantly in Q3, resulting in positive free cash flow and a reduction in net debt". The stock is currently up ~20% since the release and we expect the stock to do even better as the true earning ability of this company shines through.

BSD Analysis:
Donville Kent highlights Converge Technology's strong Q3 preliminary results that exceeded expectations across key metrics. The company delivered impressive growth with gross profit up 22% year-over-year and EBITDA expanding 29%, demonstrating operational leverage in the business model. Most importantly, the company achieved positive free cash flow and reduced net debt, addressing previous concerns about cash generation. The fund emphasizes focusing on cash earnings rather than traditional metrics, suggesting confidence in management's capital allocation and growth investments. Despite the stock's 20% rally following the results announcement, Donville Kent expects further upside as the market recognizes the company's true earning power. The investment appears positioned to benefit from the broader small-cap cycle turn that the fund anticipates.

Pitch Summary:
We originally wrote about and included our analysis on Reitmans in our January 2023 newsletter. Recently the stock sold off after their reported quarter because of difficult year-over-year comparisons. This is a flawed way of approaching the results. The quarter was actually in line with our model and expectations. The main point to take notice of is that there were $20m of compensation costs expensed in 2023 that was based on performance in 2022. By simply comparing year-over-year results, you're not comparing apples to apples. We would suggest following the cash. Operating cashflow in the quarter was $37m and total cash increased $27m. The market cap is only $127m with $100m of cash on the balance sheet. Considering the recessionary storm clouds, another assumption is that a clothing retailer is a risky investment. Reitmans is a value brand, and they have had resilient revenue because of the value they offer. In 2008-2009, during the worst recession in recent history, sales remained consistent, and profits were stable. If you were to apply how much they made per store in the 2009 recession to their store count now, the stock is trading on 3x earnings. Now they are even more streamlined, have a high percentage on online sales, and a rock-solid balance sheet. We have updated our valuation tables and added the recent Chico's women's clothing takeout by Sycamore Partners that was announced in September. Private equity firm Sycamore Partners is paying $938m, which equates to 11x PE multiple. Reitmans has higher gross profit, operating margins, net margins, plus a better balance sheet From current prices, this suggests +500% upside and doesn't take into account the large cash hoard, the completely owned office building and distribution center. The delta between where the stock trades and its intrinsic value is so large that it begs the question if something else is holding it back? To that end, we have sent a letter to the board because we believe the business is being run well operationally (day-to-day) but not at the board level (this letter can be found as an appendix to this newsletter). Their approach to the capital markets and treatment of minority shareholders is poor and outdated. We believe by consolidating into a single class share structure, thus eliminating the no coattail clause issue, plus uplisting to the TSX and becoming more shareholder friendly will undoubtably help close the gap. We continue to buy both classes of shares. Reitmans is one of the most straight forward examples of the value that is available in this environment. We expect to be active in many more scenarios like this where companies should be taking advantage of the environment we are in and maybe need a little push to do so.

BSD Analysis:
Donville Kent presents a compelling deep value thesis on Reitmans, emphasizing the disconnect between operational performance and market valuation. The fund highlights strong cash generation with $37m operating cash flow and $27m cash increase in the quarter, while the company trades at only $127m market cap with $100m cash on balance sheet. Management argues the recent sell-off was driven by flawed year-over-year comparisons that ignored $20m in one-time compensation expenses. The investment case centers on recession resilience, noting Reitmans maintained stable sales and profits during 2008-2009 as a value retailer. Using comparable transaction analysis from Chico's takeout at 11x PE, the fund calculates 500% upside potential. The thesis extends beyond valuation to corporate governance, with Donville Kent advocating for dual-class share elimination, TSX uplisting, and improved shareholder treatment to unlock value. The fund's activist approach and detailed board letter demonstrate conviction in driving change at the company level.

Pitch Summary:
Top Detractor: Inspire Medical ("INSP") -39% : Inspire Medical was squarely in the cross-hairs of the weight loss drug fears during Q3. Investors are concerned that weight loss drugs will result in lower levels of obesity, the leading cause of sleep apnea, which will negatively impact INSP's sales. I believe this is a case of "shoot first, ask questions later" given that the ultimate impact is likely years away. However, I believe INSP is insulated from the GLP-1 fears even if there is broad adoption of these drugs. INSP's neurostimulation device for treating sleep apnea is not approved for patients with a body mass index ("BMI") > 40. As it stands today, there is a large population of CPAP patients that cannot be treated by INSP due to this label indication. If these patients with a BMI > 40 begin taking weight loss drugs and reduce BMI into the target indication range, this will add a new population of patients that INSP can treat. While INSP's sales funnel will also lose some patients who no longer need INSP therapy thanks to weight loss drugs, the net result is likely neutral to positive for INSP. Time will ultimately tell how this plays out, but I do believe current fears are overblown.

BSD Analysis:
Despite a significant 39% quarterly decline, Headwaters Capital maintains conviction in Inspire Medical, viewing the selloff as an overreaction to GLP-1 weight loss drug concerns. The manager presents a contrarian thesis arguing that INSP may actually benefit from widespread weight loss drug adoption due to current BMI restrictions on device eligibility. Currently, patients with BMI >40 cannot receive INSP therapy, creating a large addressable population of CPAP patients who could become eligible if they reduce weight through GLP-1 drugs. The manager acknowledges some patient loss from successful weight reduction but believes the net effect could be neutral to positive. This analysis demonstrates sophisticated understanding of the device's label restrictions and patient flow dynamics. The "shoot first, ask questions later" characterization suggests the market has created an attractive entry point for a quality medical device company with innovative sleep apnea treatment technology. The long-term timeline for any meaningful GLP-1 impact provides time for the thesis to play out while INSP continues expanding its addressable market.

Pitch Summary:
Top Contributor: Qualys ("QLYS") +18%: Qualys reported better than feared Q2 results as bookings were ahead of forecast. Despite broad IT budget pressure, cyber-security spend continues to be a priority for companies as global cyberattacks continue to proliferate. Additionally, M&A in the software space has provided valuation support for QLYS given the company's strong free cash flow profile and net cash position.

BSD Analysis:
Headwaters Capital maintains a bullish stance on Qualys following strong Q2 performance that exceeded expectations, particularly in bookings. The manager emphasizes cybersecurity's defensive characteristics, noting that security spending remains prioritized despite broader IT budget constraints due to escalating global cyber threats. The investment thesis is further supported by favorable sector dynamics, with M&A activity in software providing valuation support for quality assets. Qualys' financial profile appears attractive with strong free cash flow generation and a net cash balance sheet, positioning the company well for both organic growth and potential strategic value realization. The 18% quarterly gain reflects market recognition of the company's resilient business model in a challenging IT spending environment. This position aligns with the manager's focus on quality growth companies with defensive characteristics. The cybersecurity sector's structural growth drivers and Qualys' market position suggest continued outperformance potential.

Pitch Summary:
When bond markets get hurt and banks disappear, spreads for banks taking simpler risks go up. Bawag Group (BG) is a Viennese bank that trades close to book value with mid-teens returns. They were one of those former bad banks transformed through great management and capital allocation. When was the last time someone pitched you a great Austrian Bank? Don't worry, it's the same as us, never.

BSD Analysis:
The manager presents Bawag Group as a transformed European bank trading at attractive valuations despite strong fundamentals. The investment thesis centers on the bank's successful turnaround from a problematic institution to one generating mid-teens returns on equity while trading near book value. The manager highlights the contrarian nature of this investment, noting that Austrian banks are rarely pitched to investors, creating an opportunity for those willing to look beyond conventional markets. The thesis suggests that as weaker banks exit the market and bond market stress continues, well-managed banks like Bawag will benefit from wider spreads and reduced competition. The manager emphasizes the bank's simplified risk profile and improved capital allocation as key differentiators. This represents a value play on European banking recovery with a focus on operational excellence and disciplined management. The investment appears to benefit from both sector consolidation and the bank's specific transformation story.

Pitch Summary:
In a world teetering on direct wars becoming increasingly more prevalent, tangible assets are showing their teeth. Look no further than our oil tanker company Frontline (FRO NO). While conflicts grow, the value of dependable oil shipping is worth more.

BSD Analysis:
The manager presents a geopolitical thesis for Frontline, arguing that increasing global conflicts enhance the value of oil shipping services. The investment rationale centers on tangible assets benefiting from geopolitical instability and supply chain disruptions. The manager views oil tanker companies as beneficiaries of a more fragmented global trade environment where reliable shipping becomes premium-valued. This represents a contrarian view that geopolitical tensions create investment opportunities in essential infrastructure assets. The thesis suggests that as traditional trade routes become disrupted, companies like Frontline with dependable shipping capacity will command higher rates and valuations. The manager appears confident that the current global conflict environment will persist and benefit oil transportation companies. This positioning reflects a macro-driven investment approach focused on benefiting from structural changes in global trade patterns.

Pitch Summary:
During the quarter, Fund Management also took advantage of share price volatility to continue to increase exposure to the vital investment theme of nearshoring, increasing the Fund's FIBRA Macquarie position as discussed in last quarter's letter. Fund Management also increased the Fund's position size in industrial/logistics real estate owner and developer CTP NV (CTP). CTP owns, develops, manages, and leases logistics and industrial real estate properties in Central, Western, and Eastern Europe. Like the Fund's position in Mexico's industrial real estate company Vesta, CTP is positively exposed to the trend of nearshoring or reshoring supply chains but to European markets. Central and Eastern European markets also have significantly lower production costs (labor) and high-quality infrastructure. CTP's investment model is somewhat unique in listed real estate. The company is successfully developing assets at attractive (~11%) yields and with high-value creation such that new equity capital is unnecessary. At its recent investor day, the company introduced an ambitious growth plan whereby portfolio rent will more than double by the end of the decade through a combination of new developments, rent indexation (to inflation), and occupancy increases. Fund management estimates that CTP could generate high teen compound annual real estate returns if this target is achieved.

BSD Analysis:
Third Avenue positions CTP NV as a prime beneficiary of the nearshoring megatrend, specifically targeting European supply chain relocations from Asia. The company operates in Central and Eastern European markets that offer compelling cost advantages through lower labor costs while maintaining high-quality infrastructure. CTP's unique self-funding development model sets it apart in listed real estate, generating attractive 11% development yields without requiring external equity capital. The manager highlights the company's ambitious growth strategy unveiled at a recent investor day, targeting portfolio rent doubling by decade-end through development, inflation indexation, and occupancy optimization. This comprehensive approach could deliver high-teen annual real estate returns according to fund management estimates. The investment thesis combines structural tailwinds from supply chain reshoring with CTP's proven development capabilities and capital-efficient growth model, positioning the company to capitalize on European nearshoring demand while generating substantial value creation for shareholders.

Pitch Summary:
In addition to Big Yellow, the Fund increased its position size in Australia's National Storage REIT ("National Storage") during the quarter. National Storage owns a portfolio of 195 self-storage assets representing over 11.2 million square feet. In addition, National Storage has a sizeable development pipeline of 45 projects, with the ability to increase portfolio size by 35%. The self-storage industry structure is similarly favorable in Australia as in the UK. Supply is a fraction of the US per capita, and ongoing population growth and urbanization are positive growth drivers. In addition, Australia's prime industrial space is fully occupied (1% vacancy), so self-storage is increasingly utilized for small and medium-sized businesses instead of traditional warehouse space. Since its 2013 initial public offering, National Storage has generated high real estate returns, compounding growth in net asset value per share (including dividends paid) of over 20% per year by our estimates. Share price returns (including dividends) have trailed real estate returns, delivering 13.4% annually over the same period. National Storage shares are now trading 20% below their peak price in October 2022. While fundamentals have normalized following the COVID period's unusually strong levels, healthy rent growth and margin improvement are still being achieved, and again self-storage earnings will probably prove resilient in a recession.

BSD Analysis:
Third Avenue identifies National Storage REIT as an exceptional growth opportunity in Australia's underpenetrated self-storage market. The company has demonstrated remarkable value creation since its 2013 IPO, generating over 20% annual NAV growth while share price returns lagged at 13.4%, creating a significant valuation gap. The investment case is strengthened by Australia's structural supply shortage relative to US per capita levels, combined with strong demographic tailwinds from population growth and urbanization. The manager highlights an additional catalyst in Australia's tight industrial market (1% vacancy), driving SME demand for self-storage as alternative warehouse space. National Storage's substantial development pipeline of 45 projects offers 35% portfolio expansion potential, positioning the company to capitalize on these favorable market dynamics. The 20% decline from 2022 peaks provides an attractive entry point for a quality operator with proven execution capabilities and defensive earnings characteristics during economic uncertainty.

Pitch Summary:
During the quarter, the Fund took advantage of self-storage share price weakness to increase position sizes, firstly in StorageVault Canada, which we discussed in last quarter's letter, and secondly in Big Yellow Group PLC ("Big Yellow"). Big Yellow owns 108 UK purpose-built self-storage assets over 6.3 million square feet, including a development pipeline of 9 self-storage properties. Big Yellow has consistently delivered high real estate returns, compounding growth in net asset value per share (including dividends paid) of 16% per year over the last ten years. Share price returns (including dividends) have not kept up with real estate returns, delivering under 12% annually over the same period. Like many UK and European REITs, Big Yellow shares are now trading 45% below their peak price in January 2022. While fundamentals have slowed, healthy rent growth is still being achieved, and self-storage earnings will probably prove resilient in a recession, as they did in the global financial crisis. The decline in Big Yellow shares presents a unique value proposition, now trading at a 7.3% implied cap rate despite occupancy only being 83%. Given UK self-storage's immaturity compared to the US, where occupancy exceeds 90%, Big Yellow should benefit from meaningful cash flow and value growth as the UK self-storage sector matures.

BSD Analysis:
Third Avenue Management presents a compelling value opportunity in Big Yellow Group, a UK self-storage REIT trading at significant discount to historical levels. The manager highlights the company's strong operational track record, with 16% annual NAV growth over the past decade, while shares have underperformed at 12% annually, creating a valuation disconnect. At current levels, Big Yellow trades at a 7.3% implied cap rate with only 83% occupancy, suggesting substantial upside potential as the UK self-storage market matures toward US levels of 90%+ occupancy. The investment thesis centers on the structural growth opportunity in an underpenetrated market, combined with the defensive characteristics of self-storage during economic downturns. The 45% decline from 2022 peaks appears to have created an attractive entry point for a quality operator with a development pipeline and proven value creation capabilities. The manager's conviction is demonstrated through active position sizing during the market weakness.

Pitch Summary:
Founded in 1988, Big Yellow ("Big Yellow") is a U.K.-based REIT that owns and operates a portfolio of 108 self-storage facilities spanning 6.3 million square feet of total space, which is primarily concentrated in London and the Southeast region of the U.K. The company is also very well-capitalized with a loan-to-value ratio of approximately 15%, a fixed-charge coverage of nearly 6.0 times, and modest capital commitments. Fund Management remains fond of the self-storage business as this property type tends to provide remarkably steady cash flows once leased up, while at the same time requiring minimal ongoing capital expenditures. Further, should a tenant not pay rent, the items in storage can be sold off and the space can be subsequently re-leased. Self-storage is also one of the few property types that have legitimate scale advantages as companies that control platforms can operate much more efficiently than independent owners due to various operating synergies and also significantly lower customer acquisition costs (when viewed on a per unit basis) given the transition to online procurement in recent years. Notwithstanding, the primary drawback for self-storage facilities is that it is considered to be amongst the easiest property types to build (alongside industrial). However, Big Yellow has a unique position as the leading owner in a region with significantly less competition than its U.S. peers, as well as more restricted building codes in its core markets (i.e., there is estimated to be less than two square feet of self-storage space per capita in the U.K. relative to more than nine square feet in the U.S.). Moreover, due to the vast majority of its portfolio having been acquired or developed within the past decade, its occupancy rates have yet to reach stabilization providing a unique opportunity to match the utilization of its more established U.S. peers (i.e., Big Yellow's portfolio-wide vacancy rate was reported to be more than 19% in its most recent financials relative to approximately 6% for the established US self-storage REITs). When considering the fundamental backdrop (e.g., expanding awareness, demand from small business, population growth, et al), it seems as if Big Yellow has the potential to increase its portfolio occupancy rates towards 90.0% over time—which would likely allow the company to match the 7.0% increase in revenues it has posted, on average, over the last 10 years. Industry followers would also likely point out that such a development would also have a disproportionate impact on the underlying cash flows given the "fixed-cost" nature of self-storage facilities (i.e., operating margins for its recently integrated facilities are less than 60% relative to margins for its more stabilized facilities of 74%). Meanwhile, Big Yellow common stock trades at prices which imply an approximate 7.30% cap rate on the existing portfolio with only a slight uplift to the book value of its development pipeline. In Fund Management's opinion, this price seems very modest relative to a reasonable estimate of Net-Asset Value, as well as significantly in excess of the 5.00% estimated cap rate that Nuveen recently agreed to acquire Self Storage Group ASA (a Nordic self-storage platform) for despite that entity having substantial ground leases relative to 99% of Big Yellow's locations now being controlled under "fee-simple" arrangements.

BSD Analysis:
Third Avenue identifies Big Yellow as an attractive self-storage opportunity in the underpenetrated UK market, where supply per capita is significantly lower than the US (2 sq ft vs 9+ sq ft per capita). The manager emphasizes Big Yellow's strong competitive position as the leading owner in London/Southeast England with restricted building codes limiting new supply. The key value driver is occupancy upside, with current portfolio-wide vacancy at 19% versus 6% for established US peers, creating potential for substantial margin expansion as facilities mature. The investment thesis hinges on Big Yellow's ability to reach 90% occupancy over time, which would leverage the fixed-cost nature of self-storage and drive operating margins from 60% to 74%. At a 7.3% implied cap rate, the valuation appears attractive relative to recent transactions like Nuveen's 5% cap rate acquisition of Self Storage Group ASA. The company's conservative capital structure (15% LTV, 6x fixed charge coverage) provides financial flexibility during the lease-up phase. With secular tailwinds including expanding awareness, small business demand, and population growth, Big Yellow appears well-positioned to capitalize on the structural undersupply in the UK self-storage market.

Pitch Summary:
In our Q2-2023 letter, I wrote that I expected AstroNova's EBITDA to nearly double sometime over the next 12-24 months as narrowbody aircraft production continued its recovery. Since then, AstroNova has made significant progress towards this goal, and in their most recent quarter, AstroNova went from a run-rate EBITDA of $14.5M ($12.4M at the end of Q2) to $22.5M. However, this significant increase in EBITDA came not on the back of narrowbody aircraft production but instead from AstroNova's traditional label printer business - product identification. EBIT margins for their product identification segment jumped ~650bps q/q (11.5% -> 18.1%). This was a pleasant surprise and significantly increased AstroNova's intrinsic value since we were giving little credit to this segment initially. However, this significant margin increase left us with more than a few questions. Consequently, we scheduled a call with AstroNova's executive team after the quarter. We pushed them rather relentlessly to try and nail down any one-times that might have contributed to this increase, but despite our prying at the sustainability of these margins, we couldn't get them to budge. Having said that, we couldn't get them to give us a clean bridge on the margin expansion either. They mostly pointed towards mix + pricing for the increase and gave some examples, such as sunsetting one older printer model that they were selling for B/E. Despite having no clean bridge on the q/q margin increase, we can take some comfort in knowing that there are still several things working against them: • They've only hit $450k in benefits this quarter from their restructuring initiative, which is expected to be at least $2.4M annually - implying 50bps+ in additional margin expansion. • They are still working through retrofitting Trojan Label printers that have had ongoing ink issues. Since these printers aren't operating, AstroNova isn't benefiting from their ongoing ink/label sales, which, as you can imagine, are higher-margin products. • They've had/have higher than normal warranty expenses and extra technical support costs related to the ink issues/retrofitting. • They guided to similar margins for product identification in Q4, and if there weren't any one-times during the quarter, it seems possible that margins could expand further. While we remain skeptical about the sustainability of these margins, at AstroNova's current price of $17.00 or ~5.50x normalized EBITDA, it doesn't matter – margins could revert materially, and a substantial amount of upside would still remain. We aren't modeling margins increasing from here, but we also wouldn't be shocked if they did, and any margin decline would more than likely be offset by the puts and takes above, at least partially. AstroNova now has a clear path to generating $28M in EBITDA or more in reasonably short order (12-24 months). We believe a 10.00x EBITDA multiple (~12.50x FCF) for this business is reasonable and gets us to $34.00/share, and we still see room for additional upside beyond that.

BSD Analysis:
The manager presents a compelling bull case for AstroNova based on dramatic margin expansion in their product identification segment, which jumped 650 basis points quarter-over-quarter to 18.1%. While initially skeptical about sustainability, the manager identifies multiple tailwinds including $2.4M in annual restructuring benefits (only $450k realized), resolution of Trojan Label printer ink issues that will unlock higher-margin consumable sales, and normalization of elevated warranty costs. At the current $17 share price, the stock trades at just 5.5x normalized EBITDA, providing significant downside protection even if margins compress. The manager's conservative modeling suggests a clear path to $28M+ EBITDA within 12-24 months, supporting a $34 price target based on 10x EBITDA multiple. The investment thesis demonstrates classic value characteristics with substantial margin of safety and multiple expansion potential.

Pitch Summary:
Founded in the mid 1970's, Sun Communities Inc. ("Sun Communities" or "Sun") is the largest single owner of Manufactured Housing ("MH") and Recreational Vehicle ("RV") communities in North America, with more than 500 properties comprised of nearly 150,000 leasable sites, and a particular focus on the Sunbelt and Midwest regions of the U.S. The company is also the largest owner of marinas in the U.S. with 135 locations and nearly 50,000 slips, as well as investments in the MH and RV space internationally, primarily through its wholly-owned subsidiary Park Holidays in the U.K. and 10% stake in separately-listed Ingenia Communities in Australia (also held in the Fund). As outlined in greater detail within the Fund's previous shareholder letter, these niche property types principally lease land sites (and power access) to MH and RV owners and have historically enjoyed steady demand, restricted supply, and limited maintenance costs. As a result, Sun Communities has proven capable of keeping occupancy rates above 95.0% over the past 10 years, on average, and has increased revenues (on a per-site basis) by more than 6.0% per year during that same time period, also on average—most of which has dropped to the "bottom line" given the limited reinvestment required. Consequently, Sun has been amongst the leaders in the REIT industry in terms of cash flow growth and hardly ever "gets cheap" per se. That said, Sun's common stock has underperformed more recently. In our opinion, this not only stems from a more recent increase in borrowing and insurance costs, but is also due to the overhang of Sun's rapid acquisition activity. Historically a very focused company, Sun has increased its exposure to international markets, as well as more volatile revenue streams relative to its traditional MH and RV businesses through a series of investments in recent years. Therefore, the company's shares now trade at a sizable discount to its closest peer, as well as a conservative estimate of Net-Asset Value ("NAV"), in our view. It is therefore not inconceivable that Sun's aligned control group gets "back to basics" and refocuses the company on the core MH and RV communities in the period ahead. In the meantime, the Fund owns Sun common stock at prices that imply a cap rate in excess of 6.00%—nearly the highest initial yield in more than a decade—despite management indicating at an industry conference that they expect rental rate growth of 4-8% across the company's key segments at the same time that manufacturing wages (a key factor in MH rents) seem to be accelerating at an even more rapid clip.

BSD Analysis:
Third Avenue presents a compelling value opportunity in Sun Communities, the largest owner of manufactured housing and RV communities in North America with over 500 properties. The manager highlights Sun's exceptional operational track record, maintaining 95%+ occupancy rates over the past decade while growing per-site revenues by 6%+ annually with minimal reinvestment requirements. The investment thesis centers on Sun's temporary underperformance creating an attractive entry point at a 6%+ implied cap rate—the highest in over a decade. The manager attributes recent weakness to increased borrowing costs and investor concerns over Sun's diversification away from core MH/RV assets through international expansion. However, they view this as a temporary overhang that could resolve if management refocuses on core operations. The pitch emphasizes Sun's defensive characteristics in niche property types with restricted supply, steady demand, and pricing power, particularly as manufacturing wages accelerate. With management projecting 4-8% rental growth across key segments, the current valuation appears attractive relative to the company's historical premium positioning and strong cash flow generation capabilities.

Pitch Summary:
On July 18th the Atlanta Braves Holdings, Inc. was spun off from the Liberty Media Corporation and began trading on the Nasdaq Stock Market. Consistent with other John Malone-controlled entities, the issuance contained multiple share classes. Post IPO, despite equivalent economic value, we noticed a 16% discount between the Series C and Series A common shares. We felt the discrepancy was technical in nature and used it as an opportunity to boost the position size through the Series C shares.

BSD Analysis:
Third Avenue identified an arbitrage opportunity in Atlanta Braves Holdings following its spin-off from Liberty Media Corporation. The manager capitalized on a technical pricing discrepancy between Series C and Series A shares, despite equivalent economic value, purchasing the discounted Series C shares at a 16% discount. This represents a classic John Malone structure arbitrage play, where multiple share classes create temporary pricing inefficiencies in the market. The investment thesis is straightforward: identical economic rights trading at different prices due to technical factors rather than fundamental differences. The fund used this opportunity to increase position size at an attractive entry point. While the pitch lacks detailed fundamental analysis of the Braves franchise itself, the focus on structural arbitrage aligns with Third Avenue's special situations expertise. The timing coincides with the Braves' strong performance and Atlanta's growing market, though the primary driver appears to be the technical discount rather than operational catalysts.

Pitch Summary:
LSB Industries ("LXU") is a pure-play U.S.-based nitrogen chemicals producer with three wholly owned facilities in Arkansas, Oklahoma and Alabama. The company's products are sold primarily in agricultural and mining applications. LXU, a previous Fund holding, was purchased during the third quarter, as the valuation became attractive. Fund Management was also impressed with LXU's improved balance sheet and multi-year advancement toward institutionalizing its operations and capacity expansions for significantly higher-margin derivative products, such as nitric acid. The owner-operator management team is aligned with shareholders, given significant insider holdings. Today, LXU has an opportunity to generate ample operating cash flow, shielded by a sizable net operating loss ("NOL") balance. Its global low-cost producer advantage in the U.S. offers an additional margin of safety via the scarcity of its asset base. The current valuation implies around a 40% discount to our conservative estimate of replacement cost value. The U.S.-focused Small-Cap Team (and the broader Third Avenue investment team) have repeatedly discussed "near-shoring" as a developing theme, with attractive investment opportunities likely to present themselves in the coming years. LXU is one such position determined to benefit from U.S. near-shoring for the following three reasons: 1. (LXU is awaiting final approval for its application for the Fertilizer Production Expansion Program (FPEP) grant from the USDA Rural Development. LXU is expected to receive approximately a $100 million grant from the USDA, as it perfectly aligns with the USDA policy objectives of increasing U.S. fertilizer supply and providing new fertilizer alternatives to local agricultural producers. In addition to employing advancements in energy efficiency and decreases in greenhouse gas emissions. 2. The expected 20% expansion of LXU's low-cost, domestic capacity will enter an undersupplied nitrogen fertilizer market. Secular demand increases are expected in conjunction with rising ammonia-based fuel applications (i.e. hydrogen, renewable diesel, marine fuel) and expanding mining developments (i.e. copper). This demand growth is expected to outstrip supply and benefit existing brownfield operators (such as LXU) who control the production. Factors such as: (i) permitting delays, (ii) local residents' opposition to new construction, and (iii) time, materials, and labor inflation have dramatically raised both the cost and timeline for completed greenfield projects, many of which have been put on hold indefinitely. 3. Finally, LXU stands to benefit from the near-shoring trend of reducing transportation to improve environmental impact. A latent asset for LXU is its advanced build-out of domestic carbon sequestration capabilities, with no capital expenditure cost to the company! Moving into 2024, LXU will near its engineering objective of permanently sequestering over 450,000 metric tons of CO2 in saline formations directly under its El Dorado, Arkansas facility. This opportunity can support royalty revenues and higher margins, which holds the potential for strategic partnerships.

BSD Analysis:
Third Avenue presents a compelling value thesis for LSB Industries, emphasizing the company's position as a pure-play U.S. nitrogen chemicals producer trading at a significant discount to replacement cost. The manager highlights LXU's improved balance sheet, owner-operator management alignment, and substantial NOL tax shield as key defensive characteristics. The investment thesis centers on the near-shoring trend, with LXU positioned to benefit from three catalysts: a potential $100 million USDA grant, 20% capacity expansion entering an undersupplied market, and advanced carbon sequestration capabilities. The fund sees secular demand growth from ammonia-based fuel applications and mining developments, while supply constraints from permitting delays and construction costs favor existing brownfield operators like LXU. The carbon sequestration asset represents a unique value-add opportunity with potential for strategic partnerships and royalty revenues. At a 40% discount to conservative replacement cost estimates, the position offers attractive risk-adjusted returns in a defensive, cash-generative business.

Pitch Summary:
Over in the US, investor sentiment coming into the Adyen investor day could hardly have been lower. Observing and speaking with other investors, talk of commoditisation and competition was rampant. Following the quarterly update (released the morning of the event), sentiment turned positive quickly and strengthened throughout the presentations. We were pleased with the improved level of disclosure evident during the event, particularly as it relates to revenue growth building blocks and the customer cohorts, showing that wallet share was indeed growing alongside new wins which underwrote longer term growth. Concerns around rising costs and hiring were tempered with a confirmation that peak hiring is happening in 2023 and that margins should continue to move higher over time. For the first time, Adyen showcased their talent, a mix of payment veterans based out of Europe and newer San Francisco-based technical and sales leaders hailing from Microsoft and Google. Adyen has been a remarkably volatile stock this year, dropping 60% after H1 and then almost doubling to bely the stable but growing nature of its underlying business.

BSD Analysis:
Cooper Investors maintains conviction in Adyen despite extreme market volatility, with the stock falling 60% after H1 results before nearly doubling, highlighting disconnect between market sentiment and business fundamentals. The fund attended Adyen's investor day amid deeply pessimistic sentiment around commoditization and competitive pressures in payments processing. However, improved disclosure revealed encouraging trends in both wallet share expansion with existing clients and new customer wins, supporting long-term growth prospects. Management addressed cost inflation concerns by confirming 2023 represents peak hiring levels, with margins expected to improve going forward. Cooper was impressed by Adyen's talent showcase, featuring a blend of European payment industry veterans and high-caliber San Francisco-based executives from Microsoft and Google. The fund views the market volatility as disconnected from Adyen's stable, growing underlying business model, suggesting the dramatic price swings create opportunity for patient investors focused on the company's fundamental payment processing capabilities and market position.

Pitch Summary:
When we initially invested in LSEG the proposition was thus: a subscription data and analytics leader that owns systemically important financial infrastructure yet is valued like a regional exchanges group. Value Latency today remains compelling with LSEG (stripping out the 51% listed stake in TradeWeb) trading on around 19-20 times 2024 earnings, a yawning discount to data peers like S&P Global, MSCI, Morningstar and Factset on multiples of 30+. Since our first investment LSEG has entered a partnership with Microsoft which was announced with relatively little fanfare late in 2022. With the benefit of hindsight, neither we nor the market probably appreciated how potentially significant this would be for LSEG in the long term. We do now. The event focused heavily on this partnership and the benefits it will drive in innovation, growth, and competitive position. It's a game-changer for 'Workspace', the financial software platform that represents the primary delivery mechanism for LSEG's universe of data. CEO David Schwimmer talked of 'Liberating the Data', describing the virtuous economics that come from being able to push out LSEG's vast data sets to more clients, on more use cases, more often. The power of data migration to the Cloud, along with Microsoft integrating Workspace into Teams (offering AI tools through Copilot), makes the proposition a far more credible competitor to desktop terminal incumbents like Bloomberg and Factset. At dinner we were fortunate to sit with the Head of Enterprise Data, who regaled the story of LSEG World Check. This product essentially provides KYC ('Know Your Customer') assurance to companies, say to ensure a prospective customer is not on a Sanctioned Entities list. In the past this product was supplied to banks monthly on a physical disc – not only clunky for clients but it also meant data could not be updated regularly. If a geopolitical event occurred, the lists could be stale by weeks. As digitisation and data management processing has improved data can now be updated and accessed in real time through web portals. As a result, the use cases and volume of consumption have exploded; demand for World Check went up +800% after Russia invaded Ukraine. With the Refinitiv integration close to complete and cloud data migration projects well underway, our expectation is capex should fade in the coming years, leading to substantial free cash flow growth, facilitating increased dividends and buybacks.

BSD Analysis:
Cooper Investors views LSEG as a significantly undervalued financial data and infrastructure leader trading at a substantial discount to peers. At 19-20x 2024 earnings (excluding TradeWeb stake), LSEG trades at roughly half the multiple of data competitors like S&P Global, MSCI, and Factset (30x+). The investment thesis has been transformed by LSEG's strategic Microsoft partnership, which Cooper initially underestimated but now views as a game-changer for the Workspace platform. This collaboration enables cloud-based data delivery with AI integration through Microsoft Teams and Copilot, positioning LSEG as a credible competitor to Bloomberg and Factset terminals. The World Check KYC product exemplifies the digital transformation opportunity, with demand surging 800% following Russia's Ukraine invasion as real-time data updates replaced monthly disc deliveries. With Refinitiv integration nearing completion and cloud migration progressing, Cooper expects declining capex to drive substantial free cash flow growth, supporting increased shareholder returns through dividends and buybacks.