Investment Pitches

Pitch Summary:
Amazon shares appreciated 88% in 2023, driven primarily by rapidly expanding operating profit margins and free cash flow growth. After the pandemic, Amazon experienced a period of inefficiency and overinvestment in its distribution and logistics infrastructure. Amazon is now leveraging these investments as growth returned to its e-commerce business in 2023 after a highly unusual 2022. At the same time, Amazon's rapidly growing and high-margin advertising business is contributing strongly to the entire company's operating profit growth. The AWS (Amazon Web Services) cloud infrastructure and services business continued to slow in 2023 as customers anticipating a more difficult economic environment looked to save money on their cloud spend, but these cloud spending optimizations began to stabilize in the second half of 2023. We now expect customer interest in generative AI will begin to contribute to growth. Amazon remains our largest position, as we expect continued double-digit revenue growth and robust and steady progress on free cash flow margins from here. Just like with Amazon's AWS business, we expect to see a re-acceleration in Microsoft's business from generative AI.

BSD Analysis:
Polen Capital maintains Amazon as their largest position, reflecting strong conviction in the company's multi-faceted growth story and operational leverage. The managers view 2023 as a pivotal year where Amazon successfully monetized previous infrastructure investments, driving significant margin expansion and free cash flow growth after a period of post-pandemic inefficiency. The investment thesis encompasses three key growth drivers: e-commerce recovery with improved operational efficiency, rapidly expanding high-margin advertising revenue, and AWS stabilization with generative AI upside. While acknowledging AWS growth deceleration due to customer cost optimization, they expect generative AI demand to drive re-acceleration in cloud spending. The fund appreciates Amazon's ability to leverage its massive logistics investments as e-commerce growth normalized, demonstrating the company's operational scalability. Their outlook anticipates continued double-digit revenue growth supported by steady free cash flow margin improvement, positioning Amazon to benefit from multiple secular trends including cloud computing, digital advertising, and artificial intelligence adoption.

Pitch Summary:
Salesforce has continued to grow its revenues at what we see as a healthy rate despite market concerns about the impact of the weaker macroeconomy on its business and penetration rates in its core CRM offering. Even its most mature and largest offerings, Sales Cloud and Service Cloud, are still growing revenue at double-digit rates. In addition, management realized that their cost structure, especially in salespeople, had gotten too bloated. Over the past year and a half, the company has run a much more streamlined expense structure that has led to strong operating margin expansion and earnings growth. Importantly, we do not feel Salesforce has cut into its innovation or sales muscle through these cost cuts but has eliminated unnecessary excess fat from the organization.

BSD Analysis:
Polen Capital maintains a bullish view on Salesforce despite broader market concerns about macroeconomic headwinds and CRM market saturation. The managers highlight the company's resilient revenue growth, with even mature products like Sales Cloud and Service Cloud maintaining double-digit growth rates, demonstrating the stickiness and expansion potential of Salesforce's platform. A key element of their thesis centers on management's successful operational efficiency initiatives over the past 18 months, which have streamlined the cost structure without compromising innovation capabilities or sales effectiveness. This operational discipline has driven significant operating margin expansion and earnings growth acceleration. The fund views these cost optimization efforts as eliminating organizational bloat rather than cutting strategic investments, positioning Salesforce for improved profitability while maintaining its competitive moat. The combination of durable revenue growth and margin expansion supports their conviction in the company's ability to deliver strong returns despite macroeconomic uncertainties.

Pitch Summary:
ServiceNow continues to grow revenue and earnings at above a 20% rate, as they have for many years. The company has a software automation platform that efficiently builds applications on top of and across many enterprise functions. The NOW platform can automate almost any workflow previously done through email, spreadsheets, or some other less-than-efficient method. Its addressable market is very large because of the sheer breadth and depth of the tasks that can be automated by using its software. ServiceNow's offerings tend to save customers money and make their workflows less prone to error. The company's growth has been among the most consistent in our Portfolio prior to, during, and after the pandemic.

BSD Analysis:
Polen Capital expresses strong conviction in ServiceNow's business model and growth trajectory, highlighting the company's consistent 20%+ revenue and earnings growth over multiple years. The investment thesis is built around ServiceNow's comprehensive automation platform that addresses inefficient enterprise workflows across diverse business functions. The managers emphasize the vast addressable market opportunity driven by the breadth of automatable tasks and the platform's ability to deliver tangible customer value through cost savings and error reduction. ServiceNow's resilient growth profile, maintaining consistency through various economic cycles including the pandemic, demonstrates the mission-critical nature of its solutions. The platform's ability to replace manual processes conducted through email and spreadsheets positions it as an essential digital transformation enabler for enterprises. This defensive growth characteristic, combined with the large market opportunity, supports the fund's continued bullish outlook on the company's long-term prospects.

Pitch Summary:
Ball is the leading global producer of beverage cans. Upslope was long Ball (briefly) in 2022 before I concluded it was too early. No doubt, the company is still facing challenges. Some are temporary and likely to reverse in the near-term (fully leveraged balance sheet, industry over-expansion, overly aggressive carbonated soft drink (CSD) pricing) or medium-term (Budweiser exposure). Others are highly uncertain (GLP-1 weight-loss drug impact) but are being priced with certainty, assuming no actions on the part of bevcan or CSD producers (e.g. Coke, Pepsi) to offset any still-hypothetical pain. Importantly, Ball's recent announcement that it is selling its Aerospace unit, which has no strategic relevance to the core bevcan business, for after-tax proceeds of ~30% of the company's market cap, provides a hard catalyst for shares to stabilize in the year ahead. In addition to de-levering the balance sheet – more important than ever, given the rate environment – the divestiture provides Ball with significant firepower to resume buybacks. The transaction should close in 1H 2024 and seems well-aligned with a bottom or rebound across many of the issues Ball has faced of late. Risks still remain – the issues noted above are all very real, but they are all well-known and mostly temporary, in my view. To be frank, we have already been whipsawed with the latest purchase, as I assumed the market would show more immediate appreciation for the divestiture. But the combination of: low valuation for an economically defensive business with troughing fundamentals and a significant cash windfall seems like an optimal setup for even moderately patient investors.

BSD Analysis:
Upslope's manager presents a compelling turnaround thesis for Ball Corporation, the global beverage can leader. The investment centers on a major catalyst - the divestiture of Ball's non-core Aerospace division for proceeds representing approximately 30% of the company's market cap. This transaction addresses multiple concerns simultaneously: deleveraging the balance sheet during a high-rate environment, providing substantial capital for share buybacks, and creating a cleaner focus on the core beverage packaging business. The manager acknowledges near-term headwinds including industry overcapacity, aggressive pricing pressures, and potential GLP-1 drug impacts on beverage consumption, but views these as temporary and well-known factors already reflected in the depressed valuation. The thesis relies on Ball's defensive market position in an essential packaging category, with fundamentals appearing to trough coinciding with the asset sale completion in 1H 2024. While the manager admits to being early on timing, the combination of low valuation, defensive business characteristics, and significant cash catalyst creates an attractive risk-adjusted opportunity for patient capital.

Pitch Summary:
During Netflix's pandemic grow-over issues in 2022, the market seemed to believe there was little revenue or free cash flow growth left to be had for this business. The pandemic had pulled forward user growth, and the company then disclosed that there were over 100 million households that were using Netflix but not paying for it by borrowing a paid user's account. After we assessed this information, better understood how the company could monetize shared passwords, and realized the win-win for Netflix and consumers from introducing an ad-supported subscription tier, we meaningfully added to our position in Netflix in the summer of 2022. We saw a clear path to much better monetization of an already robust and differentiated platform with a continued commitment to improved content spend efficiency and free cash flow growth. Fast forward to today, Netflix has made meaningful progress on monetizing shared passwords and laying the foundation for consumer choice, although the ramp in advertising tier subscribers remains in the beginning stages. The low-hanging fruit may already have been picked on password sharing efforts, but our research shows there should be long tails of revenue and free cash flow growth. In our opinion, Netflix remains the most advantaged and profitable streaming service with opportunities to continue adding subscribers and raising prices as it demonstrates more value to consumers over time. Over the longer term, we also expect significant advertising revenue. That said, the market finally seems to have appreciated some of this. As a result, we trimmed our position from approximately 8% of the Portfolio to approximately 5% in the fourth quarter.

BSD Analysis:
Polen Capital maintains a bullish stance on Netflix despite trimming their position after strong performance. The managers identified a compelling opportunity during 2022 when the market was overly pessimistic about Netflix's growth prospects following pandemic-driven user growth normalization. They recognized the significant monetization potential from over 100 million password-sharing households and the strategic value of introducing an ad-supported tier. The fund's thesis centers on Netflix's competitive moat as the most advantaged streaming platform with superior content spend efficiency and free cash flow generation capabilities. While acknowledging that low-hanging fruit from password sharing may be largely captured, they expect sustained revenue and cash flow growth from continued subscriber additions, pricing power, and long-term advertising revenue expansion. The position trim reflects valuation discipline as the market has recognized much of the turnaround story, but the core investment thesis remains intact.

Pitch Summary:
Our third-largest holding at quarter end was AT&T (T), a leading provider of communications and connectivity services in the US. At $15/share, the stock trades at the same price it did almost thirty years ago. The share price is much less interesting to us in relation to where it has traded in the past than in relation to how much cash the company generates and what management is doing with it. At just over 6x earnings, the stock trades near its lowest price-to-earnings (P/E) multiple ever, also representing close to its largest-ever P/E discount to the stock market. The business converts most of its earnings to free cash flow, implying a forward free cash flow yield north of 15%. Just under half of free cash flow is going toward the dividend (7.5% yield), while much of the balance is going to debt paydown. In other words, if the stock does not fall below its lowest-ever valuation, investors clip a rock-solid 7.5% in cash, while owning a growing portion of a very steady business as management reduces debt outstanding. A discounted cash flow model will suggest that intrinsic value for shares begins with a "2," suggesting the stock is undervalued on an absolute basis. The lack of volatility in the underlying fundamentals also makes it unique when compared to many other things we own, which reduces the probability of permanent capital impairment and argues for a significant weight in the portfolio. AT&T looks particularly attractive when compared to some of the larger names dominating the S&P 500. Compare the stock to Apple, for instance, whose revenues and profits are likely to shrink this year, even as it trades at 29x this year's earnings estimate.

BSD Analysis:
Miller Value Partners presents a compelling value thesis for AT&T, emphasizing the stock's extreme valuation discount despite stable fundamentals. Trading at just over 6x earnings—near its lowest P/E multiple ever—the company offers a forward free cash flow yield exceeding 15% while maintaining a 7.5% dividend yield. The fund highlights AT&T's disciplined capital allocation, with roughly half of free cash flow supporting the dividend and the remainder dedicated to debt reduction, effectively increasing shareholder ownership in a steady business. Management's DCF analysis suggests intrinsic value beginning with "2," implying significant upside from the $15 share price. The investment case is strengthened by the low volatility of underlying fundamentals, reducing permanent capital loss risk. The fund contrasts AT&T favorably against overvalued megacap tech stocks like Apple, which trades at 29x earnings despite expected revenue and profit declines. This positioning aligns with the broader market shift toward capital accountability and rational valuations.

Pitch Summary:
The newest member of our portfolio is OKWind. Despite of what the name suggests, OKWind is actually a solar company, which pivoted away from wind, emphasizing the entrepreneurial spirit of the company's CEO. At its core, OKWind is a fast-growing company with a low P/E: Revenues doubled last year and are prospected to grow another 30%-40% next year, in an industry that should be growing over 15% per annum for the coming five years. P/E is now around 21 and should shrink to under 10 by 2026. The company focuses on selling very large solar panels on a pole. The main benefit of these is that you do not lose the availability of the land beneath it, in contrast to the solar panel fields you see near Schiphol, for instance. In countries with hot summers, it can even enhance crop yield in the fields they are installed. Another substantial benefit is that you can pivot the panels so that they stay perpendicular to the sunrays all day long. This makes them vastly more efficient than 'flat' solutions. OKWind targets three customer types: farmers, public authorities and industrial sites, and individuals. The ace up their sleeve is an expansion into water treatment and purification plants, where they are able to offer a comprehensive energy solution. These products especially benefit from their expanded offerings of complementing energy management and storage solutions. A very interesting detail is the fact OKWind is functioning without government subsidies, which obviously reduces regulatory risk and creates the potential for future tailwinds. Al in all, it is interesting to see the pendulum has seemingly swung in the other direction: Whereas green stocks used to be overpriced, some of them have declined to quite affordable levels. And the way OKWind is priced, there's ample room for it to go up!

BSD Analysis:
The manager presents a compelling bull case for OKWind as a new portfolio addition, highlighting the company's attractive combination of rapid growth and reasonable valuation in the solar sector. With revenues doubling last year and projected 30-40% growth ahead, the company trades at 21x P/E expected to compress to under 10x by 2026. The fund emphasizes OKWind's differentiated agrivoltaic technology that preserves land use while enhancing crop yields through pivoting panels that track the sun for maximum efficiency. The company's diversified customer base spanning farmers, public authorities, and industrial sites, plus expansion into water treatment solutions, provides multiple growth vectors. Operating without government subsidies reduces regulatory risk while creating potential for future policy tailwinds. The manager views the broader green energy sector correction as creating attractive entry points for quality companies like OKWind.

Pitch Summary:
On the other side of the spectrum lies OneWater, whose short-term outlook hasn't improved yet. Competitors aggressively tempered expectations and this impacted the sector outlook as a whole. In this process, OneWater declined over 20% in January. We continue to expect earnings to deteriorate a bit but are slightly more optimistic than the market. Other luxury brands such as LVHM have positively surprised, giving reason to believe the market might be overreacting to the boating disappointments from 2023. Moreover, the current slump is a very useful ingredient for OneWater's buy-and-build strategy, as they need cheap acquisitions to further their expansion. With a grimmer outlook, acquisition targets will be cheaper and more plentiful. Much will depend on whether they will be able to work through their excess inventory fast enough: a costly mistake from last year that still needs repairing.

BSD Analysis:
The manager maintains a cautiously bullish stance on OneWater despite near-term headwinds and a 20% January decline driven by sector-wide pessimism. While acknowledging earnings deterioration and inventory challenges from 2023, the fund believes the market is overreacting based on positive surprises from other luxury brands like LVMH. The manager views the current downturn as strategically beneficial for OneWater's buy-and-build acquisition strategy, as distressed market conditions will create cheaper and more abundant acquisition targets. The investment thesis hinges on the company's ability to execute its expansion strategy while working through excess inventory issues. The fund's slightly more optimistic outlook versus consensus suggests they see value in the current dislocation, positioning for recovery when market sentiment improves.

Pitch Summary:
On earnings: To continue with Alphawave: We are very optimistic about the stock after their latest earnings. Smaller companies' quarterly earnings tend to be more volatile and Alphawave was no different. After Q3 we were very cautious as their order flow did not align well with their forward guidance. Fortunately, they delivered 100% in their Q4 earnings and are fully back on track. While the stock went up over 10% on earnings day, it has since retreated somewhat. The stock seems to experience a lot of push down in spite of everything. They continue to grow exponentially and are positioned to benefit enormously from the upcoming AI/datacenter boom, so it is amazing to see it is still trading below ten times 2025 expected earnings.

BSD Analysis:
The manager expresses strong bullish conviction on Alphawave following strong Q4 earnings that exceeded expectations and restored confidence after Q3 concerns about order flow alignment. The fund views the recent stock retreat as an opportunity, highlighting the disconnect between the company's exponential growth trajectory and its attractive valuation. With the stock trading below 10x 2025 expected earnings despite being positioned to benefit from the AI and datacenter infrastructure boom, the manager sees significant upside potential. The company's exposure to high-growth secular trends in data connectivity and AI infrastructure provides multiple expansion catalysts. The manager's optimism is reinforced by the company's ability to deliver on guidance after initial concerns, suggesting improved execution and visibility.

Pitch Summary:
We also initiated a new investment in the shares of Kevnue, Inc. In August, Johnson & Johnson completed the split-off from Kenvue in which J&J shareholders could tender their shares in exchange for Kenvue shares at a 7% discount. Kenvue is formerly the J&J Consumer Health business. The transaction makes sense – the Consumer division was always small for J&J and this separation gives investors two distinct options, one pure-play FMCG company, and one pure-play healthcare company. We like Kenvue's strong brand portfolio across its OTC medication business as well as its beauty and other healthcare brands (such as Listerine and Johnson's), and the company has some very strong positions in its niches. While this isn't a fast-grower, the manufacturing scale, IP and distribution network of this business provide a deep enough moat to give reasonable assurances about the company's quality. And the current valuation looks attractive.

BSD Analysis:
Mayar Capital initiated a position in Kenvue following its spin-off from Johnson & Johnson, taking advantage of a 7% discount offered to J&J shareholders in the exchange. The manager views the separation as strategically sound, creating two focused pure-play entities rather than J&J's previous conglomerate structure where consumer health was a small division. Kenvue's investment appeal centers on its strong brand portfolio spanning OTC medications, beauty, and healthcare products, including established names like Listerine and Johnson's Baby products. While acknowledging modest growth prospects, Mayar emphasizes the company's competitive moat derived from manufacturing scale, intellectual property, and distribution network advantages. The manager believes these structural advantages provide quality assurance and defensive characteristics. The investment thesis combines the tactical opportunity from the spin-off discount with the strategic value of owning a focused consumer health company with strong market positions and attractive current valuation.

Pitch Summary:
During the quarter, we initiated a new investment in the shares of Capgemini SE. Founded in 1967, the company is one of the world's largest IT consultants and outsourced engineering, and research & development providers. Deriving about sixty percent of its EUR 22bn revenue from Europe, Capgemini amongst its peers, thus has one of the highest revenue exposures to a region with a notable labor shortage in digital services. Sales, well diversified across sectors, combined with multi-year strategic contracts and a large backlog, all help dampen economic volatility. Utilization and profitability across the business cycle should also be supported by Capgemini's higher offshore workforce ratio, which at over 50% is more than doubled since 2007, and offers the company more headcount flexibility. The industry in which Capgemini operates has comparatively low barriers to entry, but significant barriers to scale. Large players will benefit from classic operating leverage and brand awareness, but also from having a global client servicing infrastructure, which multi-nationals count on to avoid having to develop global sales and engineering capabilities themselves. Their service delivery networks also allow companies like Capgemini to pay for capability enhancing acquisitions, as revenues can easily be scaled across existing clients. Additionally, larger, diversified streams of revenue enable long-term investments in employee training programs and delivery centers based in low-cost locations. Lastly, institutional knowledge and intellectual property accumulate with every completed project, which allows for cheap incremental revenues within industries and specific customer accounts. Overall, we believe that technology remains the key driver of productivity improvements across industries and, as a technology enabler, Capgemini stands to benefit from the increasing adoption and complexity of technology.

BSD Analysis:
Mayar Capital initiated a position in Capgemini SE, viewing the French IT consulting giant as well-positioned to benefit from increasing technology adoption and complexity. The manager highlights Capgemini's significant European exposure (60% of €22bn revenue) as advantageous given the region's digital services labor shortage. The company's diversified revenue streams across sectors, multi-year contracts, and substantial backlog provide earnings stability and visibility. Capgemini's offshore workforce ratio exceeding 50% (doubled since 2007) offers operational flexibility and cost advantages. While the IT consulting industry has low entry barriers, Mayar emphasizes the significant barriers to scale that benefit large players like Capgemini through operating leverage, global infrastructure, and brand recognition. The company's service delivery network enables revenue scaling across existing clients and supports accretive acquisitions. The investment thesis centers on Capgemini's role as a technology enabler positioned to capture increasing enterprise technology spending and digital transformation trends.

Pitch Summary:
The major focus in Texas was spending a day visiting operations of Union Pacific (UNP), a Stalwart investment made earlier this year. Our investigations into the railroad industry have felt like a history lesson of the late 19th Century, a peek into the Gilded Age. At this time railroads became a transformative force that connected the East Coast to the Western frontier, pushing the economic potential of US industry and commerce to new heights. Over a century later and despite technological upheaval, the freight railroads of North America still feel just as relevant and a key part of the new industrial age. To own, operate and invest in a railroad is to be a part of the lifeblood of North America. It is to witness the movement of grain, concrete, steel, wood, energy, autos, and shipping containers across vast distances. These are irreplaceable assets that could not be built today, and for the most part have very few substitutes – UNPs tagline "Building America" certainly rings true. UNP is North America's largest publicly listed railroad, both in revenue and route miles. Its network spans more than 32,500 route miles (52,000kms) serving the Western two thirds of the US. It is one of two railroads that access the busiest ports (Los Angeles and Long Beach), connecting them to major population centres in California, the Pacific Northwest, Texas and the Mid-West. It is also the only railroad with six access points into Mexico where autos are moved across the border in staggering volumes. It is the definition of a privileged business within a wonderful industry, structurally, geographically, and financially. For all its natural advantages, legacy, and history UNP has faced constant risk of stagnation and technology passing them by. The development of interchanges and highway networks, followed by airplane freight, slowly bled volumes from the railroads onto other forms of transportation providing a faster and more reliable service. With volumes waning, railroads exercised their incredible pricing power to grow revenue. However, over the last fifteen years railroads have revived themselves with innovation in scheduling, technology, and customer focus on carbon emissions where rail has a 75% emission advantage over trucking. But inertia is difficult to shake, and UNP has lagged its rail peers in service and growth for over a decade. Enter Jim Vena, a lifelong railroader with more than forty years of experience beginning his career in 1976 as a Canadian National labourer, working his way to Conductor, Engineer, Trainmaster, up to Chief Operating Officer under legendary railroader E Hunter Harrison. He was recruited to UNP in 2019 as COO where he oversaw the highest levels of service in the company's history, yet stayed only two years. Following his departure, service metrics lagged peers, flowing onto mediocre financial performance and recent years have seen investors and activists push hard for change at the top. In August Jim triumphantly returned as CEO to lead Union Pacific into a new era of operational excellence, injecting the Intentionality and Focused Management Behaviour that has been lacking. We believe this will have a significant impact on financial performance – our thesis is that Jim can light a fire under the railroad. Our visit included a large sorting yard and multiple intermodal terminals, where we were able to build our knowledge on the complexities and challenges of the operations, as well as spend substantial time with the yard supervisors that run the place day-to-day. We observed numerous latencies within the business ripe to be harvested. Many manual processes can be replaced with automation, labour hours better served in high value tasks rather than rudimentary log keeping, and technology to make the railroad safer and more customer centric. Most encouragingly of all was the pride and passion of the people we met, and their positive attitude to the winds of change that Jim is likely to bring. In terms of Pattern Recognition, we have observed some of these technological shifts across the Canadian railroads who now lead the way in service, volume growth and financial profile. There is an opportunity for UNP to not only catch up but lead the industry in many of these innovations.

BSD Analysis:
Cooper Investors presents Union Pacific as a turnaround story centered on new CEO Jim Vena's operational expertise and transformational potential. The thesis emphasizes UNP's irreplaceable infrastructure assets - 32,500 route miles serving the western US with unique access to major ports and Mexico border crossings - creating structural competitive advantages. Despite these moats, UNP has underperformed peers for over a decade due to operational inefficiencies and lack of innovation. Vena's return as CEO represents a catalyst, given his proven track record achieving record service levels during his previous tenure and extensive experience under legendary railroader Hunter Harrison. The investment case relies on operational improvements through automation, technology adoption, and process optimization that Cooper observed during facility visits. With Canadian railroads demonstrating the potential for service and financial improvements, UNP has significant catch-up opportunity while benefiting from rail's 75% carbon emission advantage over trucking in an increasingly ESG-focused environment.

Pitch Summary:
Two recent additions to the portfolio are United Rentals (URI) and Ashtead Group (AHT). URI and AHT are the two largest equipment rental businesses in North America, serving non-residential construction and general industrial (MRO) markets. They offer thousands of products ranging from forklifts, scissor lifts and mobile cranes to small loaders, excavators, and air compressors. While fitting into our Cyclical subset, these businesses have an enviable history of generating attractive returns on invested capital and we see significant growth opportunities ahead. Observable trends in the equipment rental sector are favourable. The industry is relatively young and continues to evolve into an attractive, more consolidated industry structure. URI and AHT are by far the largest two players in their industry and are growing at above market rates. There is a virtuous benefit to scale in this industry, driven by procurement advantages on equipment, better equipment availability and more opportunity to invest in technology that improves service levels. The other key observable industry trend is the nascent reindustrialisation and rebuilding of essential infrastructure in the US. Over the last 30 years there has been significant disinvestment in the US in both areas. This now appears to be turning a corner, driven by a multitude of factors including government action, corporates reassessing supply chains post-COVID (so-called 'deglobalisation') combined with heightened geopolitical tensions. Management at both URI and AHT have proven track records when it comes to operational execution and disciplined capital allocation. CEOs Matt Flannery at URI and Brendan Horgan at AHT both have multiple decades experience in the industry and at their respective companies. We think this is an important attribute given the pronounced cycles the equipment rental industry tends to go through. The growth opportunity ahead for both businesses remains significant. The rental industry continues to outgrow its end markets driven by conversion from ownership to rental and the end markets themselves have positive observable trends. Beyond that URI and AHT can continue taking market share from the long tail of smaller operators in their industry. This market share gain is potentially accelerating, for example at the 'megaproject' end of the spectrum where the required scale and know-how means URI and AHT are over-indexing wallet-share wins in these large multi-year jobs. Despite being exceptional value creators over many time periods, both URI and AHT trade at reasonable valuations today. They run conservative balance sheets and tend to have countercyclical cash flow profiles. We think some of the Value Latency on offer comes from a misconception about the proposition a scaled equipment rental business brings to customers, perhaps viewed as outsourced capital providers rather than a value-added service. The long-term unlevered return on capital profiles of these businesses provides a good clue to the level of value-add URI and AHT provides.

BSD Analysis:
Cooper Investors presents Ashtead Group as a co-beneficiary alongside United Rentals of favorable equipment rental industry dynamics. The investment thesis emphasizes Ashtead's position as one of two dominant North American players capturing disproportionate benefits from industry consolidation and scale advantages. CEO Brendan Horgan's decades of industry experience provides operational credibility during cyclical downturns. The structural shift from equipment ownership to rental, combined with US reindustrialization trends and megaproject market share gains, supports above-market growth prospects. Ashtead's conservative balance sheet and countercyclical cash flow profile offer downside protection while reasonable valuations suggest the market undervalues the company's service proposition. The thesis benefits from multiple expansion potential as investors recognize the value-added nature of scaled equipment rental beyond simple capital provision, supported by strong historical returns on invested capital.

Pitch Summary:
Two recent additions to the portfolio are United Rentals (URI) and Ashtead Group (AHT). URI and AHT are the two largest equipment rental businesses in North America, serving non-residential construction and general industrial (MRO) markets. They offer thousands of products ranging from forklifts, scissor lifts and mobile cranes to small loaders, excavators, and air compressors. While fitting into our Cyclical subset, these businesses have an enviable history of generating attractive returns on invested capital and we see significant growth opportunities ahead. Observable trends in the equipment rental sector are favourable. The industry is relatively young and continues to evolve into an attractive, more consolidated industry structure. URI and AHT are by far the largest two players in their industry and are growing at above market rates. There is a virtuous benefit to scale in this industry, driven by procurement advantages on equipment, better equipment availability and more opportunity to invest in technology that improves service levels. The other key observable industry trend is the nascent reindustrialisation and rebuilding of essential infrastructure in the US. Over the last 30 years there has been significant disinvestment in the US in both areas. This now appears to be turning a corner, driven by a multitude of factors including government action, corporates reassessing supply chains post-COVID (so-called 'deglobalisation') combined with heightened geopolitical tensions. Management at both URI and AHT have proven track records when it comes to operational execution and disciplined capital allocation. CEOs Matt Flannery at URI and Brendan Horgan at AHT both have multiple decades experience in the industry and at their respective companies. We think this is an important attribute given the pronounced cycles the equipment rental industry tends to go through. The growth opportunity ahead for both businesses remains significant. The rental industry continues to outgrow its end markets driven by conversion from ownership to rental and the end markets themselves have positive observable trends. Beyond that URI and AHT can continue taking market share from the long tail of smaller operators in their industry. This market share gain is potentially accelerating, for example at the 'megaproject' end of the spectrum where the required scale and know-how means URI and AHT are over-indexing wallet-share wins in these large multi-year jobs. Despite being exceptional value creators over many time periods, both URI and AHT trade at reasonable valuations today. They run conservative balance sheets and tend to have countercyclical cash flow profiles. We think some of the Value Latency on offer comes from a misconception about the proposition a scaled equipment rental business brings to customers, perhaps viewed as outsourced capital providers rather than a value-added service. The long-term unlevered return on capital profiles of these businesses provides a good clue to the level of value-add URI and AHT provides.

BSD Analysis:
Cooper Investors identifies United Rentals as benefiting from multiple structural tailwinds in the equipment rental sector. The thesis centers on industry consolidation, with URI and Ashtead as dominant players capturing disproportionate share through scale advantages in procurement, equipment availability, and technology investment. The US reindustrialization theme, driven by deglobalization and infrastructure rebuilding after decades of underinvestment, provides a compelling macro backdrop. Management quality appears strong with experienced CEOs Matt Flannery and Brendan Horgan bringing decades of industry expertise. The conversion from equipment ownership to rental, combined with market share gains from smaller operators and megaproject wallet-share wins, supports above-market growth. Despite exceptional historical value creation, both companies trade at reasonable valuations with conservative balance sheets and countercyclical cash flow profiles, suggesting the market underappreciates their value-added service proposition beyond simple capital provision.

Pitch Summary:
Regarding China, global investor sentiment has soured further in recent months. The implosion of the commercial real estate market hit headlines again as the founder of a large property developer was detained by police. Our experience suggests Value Latency may emerge when markets are labelled 'uninvestable', as China now is for many. We see this today with our investment in Yum China, a consumer Stalwart that owns and operates KFC and Pizza Hut locations in the country. Quick service restaurant chains can be great wealth creators and are favoured by investors attracted to compounders that generate enduring returns on capital. The listed players often trade on handsome premiums to market multiples which can be particularly rich earlier in the roll-out story when the business is rapidly opening new locations as well as growing same store sales. Consider Chipotle Mexican Grill, a US-listed chain of Mexican fast-food restaurants (not owned) with around 3,400 stores that has an enterprise value of US$50bn and typically trades at an implied earnings multiple in the high 30's. We are accustomed to consumer rollout stories in Asia trading at eye-watering valuations, yet with the negativity swirling around China today there is material Value Latency with Yum China trading on an enterprise value of ~US$20bn and a multiple of earnings ~20 times. The business operates around 13,500 stores and incremental unit economics on new stores are among the best we've seen globally in the QSR space, with payback periods on small formats even quicker. Management did a good job navigating the brutal COVID period. With that behind them, the future looks bright and underappreciated by the market. CEO Joey Wat presented their 2023 Investor Day in Xi'an during the quarter, announcing an increase in the pace of store openings to ~1,800 a year (from ~1,300). This includes KFC, Pizza Hut, and other brand concepts like Lavazza coffee stores which has already grown to over 100 outlets across 11 cities since launching in 2020. If they execute on this opportunity the business is likely to grow revenues in the mid-teens over the next three years. With buybacks of around US$3bn by 2026 the organic growth, combined with reduced share count, should translate to earnings per share growth in the high-teens or even low-twenties percent. If that still doesn't whet the appetite for fried chicken, add a 1% dividend on top.

BSD Analysis:
Cooper Investors presents a compelling contrarian thesis on Yum China amid widespread pessimism about Chinese equities. The fund highlights significant valuation disparity, with Yum China trading at 20x earnings versus Chipotle's 30x+ multiple, despite superior unit economics and faster payback periods. Management's track record through COVID and aggressive expansion plans (1,800 new stores annually vs. 1,300 previously) support mid-teens revenue growth projections. The combination of organic growth, $3bn in buybacks through 2026, and a 1% dividend yield positions the company for high-teens to low-twenties EPS growth. Cooper's 'Value Latency' concept appears well-applied here, as negative sentiment on China creates opportunity in a quality franchise business with 13,500 stores and proven execution capabilities. The investment thesis benefits from both operational momentum and multiple expansion potential as sentiment normalizes.

Pitch Summary:
We continued to add to our investment in HCA Healthcare (HCA). HCA is the leader in for-profit hospital and outpatient services in the United States. Operating performance will be less impacted by fluctuations in the macroeconomic environment. HCA operates 183 hospitals, 317 urgent care centres, 142 FSERs (free standing emergency rooms), 148 ambulatory surgery centres, 137 imaging centres, over 100 home health and hospice agencies or behavioural health sites of care, and over 1,600 physician practices at last count. HCA is one of the largest hospital systems in the U.S. operating across 20 states as well as in the U.K. Around 60% of revenue is generated from inpatient services and 40% from outpatient services. HCA benefits from: Sustainable long-term growth drivers, A geographic footprint with above average demand growth, A number 1 or number 2 inpatient market share in over 80% of markets in which it operates, as well as a comprehensive network of outpatient facilities and services to drive increasing overall health services market share, Having leading facilities which attract the best physicians and enable HCA to increase its share of revenue from high acuity services, and Operating efficiencies and cashflow generation that exceed the majority of its competition, supporting sustainable and profitable growth. According to the CMS' (Centers for Medicare and Medicaid Services) projections, U.S. government spending on hospital services is expected to accelerate in the coming decade relative to the previous decade. This growth in spending is driven by improving but expensive healthcare treatments, as well as an aging population. The percentage of the population aged 65+ years has increased from 5% in 1920 to 10% in 1960 and today is around 17%. Older people attend emergency rooms (ER) more frequently than younger people, and their acuity needs are higher. Overall, 75% of hospital admissions originate in the ER and 50% of inpatient surgeries originate in the ER. There are simply more older Americans than there used to be, and this is the population that disproportionately makes use of medical services. We estimate people aged 60 to 70 years account for twice as many hospital admissions as 40- to 50-year-olds despite being a slightly smaller population size. Approximately 80% of HCA's hospital beds are located in states with almost 2x the national average population growth, including Texas and Florida which account for over 55% of HCA's total hospital beds. Within that footprint, the population aged 65+ is growing at over 5x the national average population growth. If we adjust for the higher rate of hospital admissions of this age group, the growth rate almost doubles again (9x the national population growth). Texas and Florida are also fast-growing states for employment growth, supporting commercial health insurance growth and associated hospital coverage. HCA's favourable demographic and geographical footprint are long-term tailwinds supporting HCA's continued growth. In addition, HCA continues to gain market share over time in its core geographies through concerted investments in their physical network, physicians, nurses and other employees, and the range of services provided. HCA estimates it has either the leading or the second largest inpatient market share in over 80% of the markets in which they operate. Over the past decade, HCA's case mix index (CMI) has grown by greater than 25% cumulatively. The CMI is a measure of acuity and is linked to reimbursement for procedures. The increase in CMI is by design. In the past decade, HCA has invested to nearly quadruple its advanced stroke centres, and more than triple its trauma and burn programs. The number of transplant and cellular therapies provided annually has more than doubled over the past decade, while significant investments have been made in cardiac and vascular programs. High acuity services are forecast to be key growth areas for inpatient services over the next decade. HCA's revenue growth algorithm is straightforward. Equivalent admissions (HCA's measure of volume) should grow 2 to 3% per year driven by population growth, an aging population and increased market share. Revenue per equivalent admissions should also increase around another 2 to 3% per year driven by case mix improvements. Outpatient revenue has grown in line with inpatient revenues over time. Combined, this supports consistent 5 to 6% revenue growth per year. Strong long-term growth drivers, leading market positions and service capabilities and experienced and aligned management combine to deliver consistent, dependable growth in cashflow and profitability. Cashflow has been reinvested to fund this growth, generating attractive returns on incremental invested capital. Free cashflow after reinvestment has funded dividends and buybacks, delivering double digit EPS growth which we forecast to continue over time. We materially added to our investment in HCA a few months ago when the share price over-reacted to some short-term cost pressures. The share price has increased strongly since then, with HCA now trading on a forward PE ratio of under 15x and a free cashflow yield of over 5%. HCA still offers an attractive base case risk adjusted return and is currently a top 10 Portfolio holding.

BSD Analysis:
L1 Capital presents a compelling bull case for HCA Healthcare, positioning it as a defensive healthcare play with strong secular tailwinds. The fund's thesis centers on HCA's dominant market position, holding #1 or #2 inpatient market share in over 80% of its markets, combined with favorable demographic trends driving healthcare demand. The aging U.S. population (17% now 65+) creates a structural growth driver, as older patients utilize emergency services at significantly higher rates and require more complex procedures. HCA's strategic geographic footprint in high-growth states like Texas and Florida provides additional leverage to population growth trends. The company's focus on high-acuity services has driven case mix index growth of 25% over the past decade, supporting revenue per admission growth of 2-3% annually alongside volume growth. L1 Capital views the current valuation as attractive at under 15x forward P/E with a 5%+ free cash flow yield, particularly after adding to the position during temporary cost pressure concerns. The fund expects HCA to deliver consistent 5-6% revenue growth and double-digit EPS growth, supported by strong cash generation and capital allocation discipline.

Pitch Summary:
The aftermarket auto parts industry is a retailer's dream. Such dreams include: market share take opportunities for better operators in a fragmented industry, hard-to-replicate, competitively advantaged, distribution network effects, which increasingly get closer to customers; three decades of consistently positive annual sales comps; recession resistance; consistent new store openings; steady growth from multiple avenues; increasing profitability from company branded products; increasing long-lived "customers" (more and better cars on the road, more cars on the road past warranty and more miles driven); and reinvestment of cash back into the business at expanding margins. Net, net, witness O'Reilly's stellar profitability profile: Circa-2023 is delivering an extra gust to these tailwinds in the form of significantly higher financing for both new and used cars. Thus, U.S. automobile owners are literally forced to keep cars longer. As mileage racks up, maintenance and repair bills rack up too. The U.S. Energy Information Administration (EIA) estimates that global fleet of internal combustion engine (ICE) light vehicles will peak in 2038. In addition, the EIA projects that electric vehicles (EVs) will account for +30% of the global fleet by 2050. We take such long-dated forecasts with a grain of salt, yet we do not disagree with the expectation that the auto parts industry has a long pathway of growth. The jury is still out on whether the technological advancements of EVs will render these vehicles mainstream in locales where the extremes of the four seasons are present. As of today, the annual maintenance cost of an EV is less than the cost of an ICE vehicle. That said, the undercarriages of EVs (brake calipers, brake pads, rotors, shocks, etc.) need to be repaired at similar intervals as ICE vehicles. The U.S. auto parts industry has been largely dominated by the four well-known publicly-traded companies – Advanced Auto Parts (including Car Quest), AutoZone, NAPA (owned by Genuine Parts Company) and O'Reilly Automotive. Surprisingly, given when these companies were founded, the U.S. auto parts industry remains largely fragmented. Their respective founding's: Advanced-Carquest: 1932-1974. AutoZone: 1979. NAPA: 1925. O'Reilly: 1957. By far, the leading two companies in terms of profitability and growth are AutoZone and O'Reilly – then O'Reilly over AutoZone over the past few years - by the nose of a bumper. The Company estimates there are +37,000 auto parts locations in the U.S. The top-10 auto parts chains capture about 54% of these stores – up slightly from 48% back in 2012. AutoZone, O'Reilly and Advanced Auto dominate the industry with over 17,000 locations between them. The Company currently operates just over 6,000 stores in 48 states and Puerto Rico and 44 stores in Mexico. The Company opens between 175 and 185 new stores each year, most often in clusters, supported by a distribution center. The U.S. auto parts industry is really two separate industries. The one we are most familiar with is do-it-yourself (DIY). The retail landscape has long been dotted by the ubiquitous stand-alone retail stores of the major public operators. For those living in small towns, one has surely been puzzled by the fact that three or four auto parts stores can survive, much less thrive in even the smallest of towns. The other part of the industry is do-it-for-me (DIFM) – the most fragmented, and the larger driver of growth versus DIY. We are all too familiar with the situation where, when we take our car into the local auto repair shop for, say, a new set of tires, and the mechanic informs us that our brakes, shocks, etc. need to be replaced as well. That is when the differential elements of DIFM kick in. Every auto repair shop carries very little inventory on-site. Every repair shop, therefore, needs to call out to local auto parts companies, either public or private for the specific repair/maintenance needs for each car in each bay. Time is of the essence. Time is money. The parts manager must source parts as quickly as possible. Calls go out to the auto parts companies. Everything else being reasonably equal in quality and price, the auto parts company that can get parts to the repair shop the fastest gets the order. Fast, meaning no more than 30 minutes or so. Idle mechanics are a huge cost. Over time, these repair shop call lists are the bread and butter of the DIFM parts companies. Not only do you need to be on that call list, but if you perform well, you are then at or near the top of the ocean-front property call list. As such, DIFM customers can be a fountain of recurring revenues and profitability. They are for O'Reilly at least. Amazon and Walmart are not significant competitors in the DIFM market. Their collective competition in the DIY is not a key factor either. Even the most die-hard DIYer need both local stores and informed advice – a key differentiation that both Walmart and Amazon struggle to match. O'Reilly began its dual market strategy between DIY and DIFM back in 1978. Today, the split is about 60% DIY and 40% DIFM, with 6,027 stores in 48 states, 28 distribution centers, plus a small presence in Mexico (44 stores). In order to thrive in the DIFM market – and O'Reilly is arguably the best public DIFM operator - an auto parts company must build and operate a capital-intensive, strategically dense distribution system of countless parts as close as possible to repair shops. O'Reilly operates a hub-and-spoke system, which includes 28 distribution centers, +275 "hub" stores, +90 "superhub" stores, and thousands of regular stores. The daily choreography between distribution centers, hub stores and smaller retail stores is as intense as one might assume. O'Reilly's hub stores carry between 43,000 and 71,000 SKUs – smaller stores "just" 20,000 SKUs. Hub stores deliver parts to smaller stores multiple times every day and into the evening as well. The DIY market is characterized by those with lower incomes with a single, even older model car. Such customers tend to attempt to maintain or fix simpler repairs on their own. DIY customers also tend to be more price sensitive than the time sensitive, demanding DIFM customers. Many companies – too many, really – talk about "culture." Rare is the company that can match O'Reilly's culture. O'Reilly hires young. Dispenses significant responsibility at the store manager level. Promotes from within. In July this year, the Company announced the near-term retirement of CEO Johnson, with his replacement of Beckham. In addition, Kirby moves to president. We expect these moves to be seamless. The Company boasts that those employees with experience with at least one store EVP and three store SVP collectively amount to over 90 years. Those dozen-plus division VPs with industry experience collectively amount to over 300 years. This "family" culture has resulted in a very deep bench of multi-decade management ranks – yet was long planted by the O'Reilly family themselves. The Company's culture-harvest has been bountiful. O'Reilly also incentivizes management with cash bonuses not based on growth, but profitability – specifically return on invested capital. We hope management hears our loud applause. O'Reilly's dreams have manifested themselves into the reality of leading industry profitability – as well as leading profitability in all of retailing. The virtuous reinvestment of copious free cash flow back into the business at ever-expanding margins has enriched shareholders, all the while expanding the Companies size, scope and scale, furthering O'Reilly's competitive advantages. The Company's consistently positive revenue growth over its dense network has resulted in consistent operating leverage. Since 2007, the Company's operating margin has grown from 12% to 22%, its profit margin from 5% to 15% and its cash flow return on invested capital from 13% to 25%. In addition, the Company calculates its return on invested capital grew from around 11% in 2008 to 39% in 2019. During the pandemic, the Company thrived. Return on invested capital soared to 49%, 68% and 72%, in 2020, 2021, and 2022, respectively. In the years ahead, we expect O'Reilly to continue to gain market share, grow its store count, comp sales at mid-single digits, and grow earnings at high single digits to low double digits. Growth by acquisition is quite limited these days. The Company's earlier history was dominated by a number of expansive acquisitions building out a national footprint, including Hi/LO Automotive (1998), Mid-State (2001), Midwest Automotive Distributors, CSK Auto (2008), VIP Auto Parts (2012), Bond Auto Parts (2016), Bennett Auto Supply (2018) and Mexico-based Mayasa Auto Parts (2019). O'Reilly's nationwide footprint is still lacking a large presence in the Northeast, as well as the Atlantic coast. The Company noted that, as of late 2021, it typically operates a store in their network for every 56,000 people in the U.S. However, in the Northeast, it operates a single store for every 189,000 people. M&A opportunities may still exist to fill this gap. If not, organic growth to fill out this gap may take years to fill. We applaud the Company's long-held capital allocation discipline: reinvest into more ever profitable stores, pay zero cash dividends, and continue to hoover up the shares. We have long advocated for share buybacks to be executed at least at reasonable valuations, and with a fat bat when such pitches are fat themselves. Indeed, the Company has cut its share count in half just since 2013.

BSD Analysis:
Wedgewood Partners presents a compelling bull case for O'Reilly Automotive, emphasizing the company's dominant position in the fragmented automotive aftermarket industry. The manager highlights O'Reilly's dual-market strategy serving both DIY customers (60%) and the higher-margin DIFM professional market (40%), with the latter providing recurring revenue streams through time-sensitive delivery to repair shops. The investment thesis centers on secular tailwinds including higher auto financing costs forcing consumers to keep vehicles longer, an aging vehicle fleet requiring more maintenance, and O'Reilly's superior distribution network creating competitive moats. The company operates 6,000+ stores supported by 28 distribution centers and a sophisticated hub-and-spoke system that enables rapid parts delivery within 30 minutes to professional customers. Management's focus on return on invested capital rather than growth metrics has driven exceptional profitability, with ROIC expanding from 11% in 2008 to 72% in 2022. The manager expects continued market share gains, mid-single digit comparable sales growth, and high single to low double-digit earnings growth, supported by disciplined capital allocation including aggressive share buybacks that have halved the share count since 2013.

Pitch Summary:
Rover (ROVR) has surpassed Tech Resources to become a top 5 position in the portfolio. Rover, a pet care marketplace, is a prime example of a business that's poised for success in virtually any economic environment. It reported a set of fantastic earnings due to which its stock gained 50% and has not given up much of that gain in the recent pullback. This is a position that has been in the portfolio since September 2022 but we added to the position as we gained conviction in the thesis. Operating as a marketplace, Rover earns a "take rate" or a kind of "toll" on every transaction occurring within its platform. In the face of inflation, as pet sitters request higher prices for their services, Rover's revenues naturally grow because its share of the transaction value increases. In addition, Rover is a category disrupter due to which its revenue growth is likely to be much higher than the average stock - it is taking share from friends and family as well as kennels. Finally, networks like Rover get more valuable over time due to which they have to spend less to attract more users on their platform. This results in operating leverage due to which its earnings are poised to grow even faster than revenues. Rover is expected to produce $230 mn in revenues in 2023. At an average cost per share of $4.25 we bought Rover with a market capitalization of $775 million and an EV of $525 mn. Rover is currently at adj EBITDA margin of 15% and, with scale, should be able to move up to 30% in adj EBITDA margin. At that rate, it should have a 'look-through' adj EBITDA of $70 mn in 2023, essentially meaning that we underwrote this investment at 7.3x adj EBITDA. The stock is now ~50% higher than our cost base. However, its fundamentals are improving at an even faster pace. Next year, in 2024, according to consensus estimates, Rover is expected to do $300 mn in revenues. Due to this, Rover is now trading at 10x our estimate of $90 in 'look-through' adj EBITDA for 2024. We believe this is a very cheap multiple for a high quality and growing business.

BSD Analysis:
White Falcon presents a compelling bull case for Rover Group, emphasizing its position as a dominant pet care marketplace with significant operating leverage potential. The manager's thesis centers on Rover's marketplace model generating a "take rate" on transactions, which naturally benefits from inflation as service providers raise prices. The investment was initiated at an attractive 7.3x adjusted EBITDA multiple based on normalized 30% margins, compared to the current 15% margins. With revenue expected to grow from $230 million in 2023 to $300 million in 2024, the forward valuation of 10x adjusted EBITDA appears reasonable for a category-disrupting platform. The manager highlights Rover's network effects and operating leverage as key competitive advantages, noting the company's ability to take market share from traditional alternatives like friends, family, and kennels. Despite the stock appreciating 50% since purchase, White Falcon maintains conviction as fundamentals continue improving faster than the stock price.

Pitch Summary:
In our view, RMH Holdings Limited ('RMH') presents another special opportunity. We have owned RMH for about two years and it has become a larger position in our portfolios. RMH has played a significant role in the establishment and growth of some of South Africa's most iconic and entrepreneurial financial services businesses. In the past, RMH held banking and insurance interests via (inter alia) FirstRand, Discovery and Outsurance. But in 2011, RMH unbundled its insurance interests, and on 24 June 2020 the stake in Firstrand was distributed. Immediately after last-mentioned dividend in specie, RMH held cash as well as unlisted property investments, namely Atterbury Property Holdings, Atterbury Europe, Divercity, and Integer Properties. On 30 June 2020, RMH calculated its net asset value per share at R3,51. In its June 2020 year-end results announcement, RMH noted that it was assessing options to 'monetise the RMH Property business, in an orderly manner over time, and to return maximum value to RMH shareholders.' These options included 'monetisation through separate listings and/or disposals of the individual RMH Property portfolio companies.' Even though RMH promised to unlock value, the market took a much dimmer view. Perhaps it focused on how difficult it may be to sell minority stakes in unlisted properties, not to mention doing so during Covid-lockdowns. Or maybe the market identified other risks that negatively affected RMH's share price. Be that as it may, the market implied a 70% discount to RMH's property interests on 30 June 2020. This piqued Capicraft's interest, and we started to invest in RMH during the first half of 2021, acquiring shares at about R1,55/share. We have made further investments subsequently. What happened next? During the next year or so, RMH disposed its offshore interests. Shareholders received distributions in May 2021 (amounting to R0,80/share) and October 2022 (R1,42/share). Since Capicraft started investing in RMH, distributions totalling R2,22/share have been received. During the past year RMH and Atterbury Property Holdings ('APH' or 'Atterbury') agreed that R162 million of the above-mentioned R487 million loan will be paid in cash, with the balance (about R325 million) to be converted into APH-shares. As a result, RMH will hold c. 39% of Atterbury. Meanwhile, RMH is working to sell its remaining assets. Today it feels like déjà vu all over again. Granted, it takes time to sell RMH's remaining property interests. Times are tough. More risks can be identified. Still, the market is pricing in almost no value for RMH's stake in Atterbury. If RMH could sell all its property interests (other than APH for purposes of this calculation), then you basically get Atterbury for free. Capicraft continually considers 'special situations' to keep the investment scoreboard ticking. We believe RMH offers (traditional) value, and one or two (innovative) ideas can unlock significant upside.

BSD Analysis:
Capicraft presents RMH Holdings as a compelling special situation investment, having built a significant position over two years at an average cost of R1.55 per share. The manager's thesis centers on the market's severe mispricing of RMH's property assets, particularly its 39% stake in Atterbury Property Holdings, which the market is valuing at a 97% discount to fair value. The investment has already generated substantial returns through distributions totaling R2.22 per share since Capicraft's initial investment. RMH's strategy of monetizing property assets in an orderly fashion has proven successful, with offshore disposals already completed and cash returned to shareholders. The current market capitalization of R683 million implies virtually no value for the Atterbury stake after accounting for other assets, creating an asymmetric risk-reward profile. Management's track record of value creation through strategic asset sales and the company's focus on unlocking shareholder value through innovative approaches supports the bull case. The investment exemplifies Capicraft's strategy of identifying deep value opportunities in neglected South African special situations where patient capital can be rewarded.

Pitch Summary:
We also added Pinterest, in the communication services sector, which operates a social media platform where users can express their interests and discover ideas through images they "pin" to their pages. The platform and its loyal, growing user base are strong assets which the company has struggled to monetize. However, we believe the new CEO's initiatives to improve advertisers' return on investment and greater customer conversion are showing signs of early success. By making the platform more shoppable, we believe Pinterest can accelerate its growth and improve its cash flow generation.

BSD Analysis:
The manager sees Pinterest as a turnaround story with strong underlying assets that are finally being properly monetized. The platform's loyal and growing user base represents valuable inventory that has historically been undermonetized relative to peers. New leadership is implementing initiatives focused on improving advertiser ROI and conversion rates, which are showing early positive results. The strategic shift toward making the platform more shoppable aligns with Pinterest's natural discovery-oriented user behavior and e-commerce trends. This monetization improvement story, combined with the platform's unique positioning in visual discovery, suggests significant upside potential as the company better captures the value of its user engagement through enhanced advertising effectiveness and e-commerce integration.