Investment Pitches

Pitch Summary:
We initiated a new position in Noble, a leading offshore drilling contractor for the oil and gas industry. Consolidation and underinvestment has significantly depleted the number of drilling ships available to meet the growing demand for offshore oil drilling, giving the company greater pricing power. Armed with a clean balance sheet and significant cash flow generation as day rates for its fleet rise, we believe the company will be a prime beneficiary of resurgent energy demand and investment in oil and gas drilling.

BSD Analysis:
The manager presents a compelling supply-demand thesis for Noble Corporation in the offshore drilling sector. Industry consolidation and years of underinvestment have created a supply shortage of drilling rigs, providing Noble with enhanced pricing power as day rates increase. The company's clean balance sheet positions it well to capitalize on this favorable cycle without financial constraints. Rising energy demand and renewed investment in offshore drilling create a multi-year tailwind for the business. The combination of supply constraints, improving day rates, and strong cash flow generation suggests Noble is well-positioned to benefit from the offshore drilling recovery. This cyclical play appears attractively positioned at the early stages of an upcycle.

Pitch Summary:
One of our top performers was Casey's General Stores, which operates convenience stores and gas stations. The company continues to drive greater growth and improve internal performance through the expansion of its private label offerings, while a cooling labor market has helped alleviate wage pressures on margins. By deliberately focusing its geographic footprint on smaller communities, the company has high market share in the regions it serves as well as pricing power, which we believe will continue to be long-term earnings drivers.

BSD Analysis:
The manager highlights Casey's as a well-positioned convenience store operator with strong competitive advantages. The company's strategic focus on smaller communities creates local market dominance and pricing power, providing defensive characteristics and sustainable margins. Private label expansion is driving growth while improving profitability through higher-margin products. The recent cooling in the labor market is providing margin relief after previous wage pressures. Casey's geographic strategy of serving underserved rural markets creates barriers to entry and reduces competitive intensity. This combination of market positioning, operational improvements, and favorable cost trends supports the bull thesis for continued earnings growth.

Pitch Summary:
Vertex Pharmaceuticals develops drugs for treating cystic fibrosis, cancer, inflammatory bowel, autoimmune disease and neurological disorders. The biotechnology company has four commercial drugs used to treat cystic fibrosis. Vertex has other drugs in development, including additional cystic fibrosis treatments and medications addressing sickle cell disease, beta thalassemia, alpha-1 antitrypsin deficiency and pain. Vertex is the global leader in treating cystic fibrosis and has additionally built a robust pipeline in several therapeutic areas. Late-stage studies in acute and neuropathic pain are expected to be another catalyst for the company. We believe Vertex's valuation is attractive and at a discount relative to their 5-year historical average. Additionally, the company is well capitalized, with roughly $12.5 billion in net cash on its balance sheet.

BSD Analysis:
The manager presents a strong bull case for Vertex Pharmaceuticals based on the company's dominant market position in cystic fibrosis treatment and promising pipeline diversification. The investment thesis centers on Vertex's monopolistic position in cystic fibrosis with four commercial drugs generating substantial cash flows, providing a stable foundation for growth. The manager highlights the company's strategic expansion beyond cystic fibrosis into pain management, sickle cell disease, and other rare diseases, with late-stage pain studies serving as near-term catalysts. The valuation argument is compelling, with shares trading at a discount to historical averages despite the strong competitive moat and pipeline progress. The balance sheet strength with $12.5 billion in net cash provides significant financial flexibility for R&D investments and potential acquisitions. This cash position also offers downside protection and supports the company's ability to fund its diversified pipeline through clinical development. The manager appears to view this as an opportunistic entry point into a high-quality biotech with proven commercial execution and multiple growth drivers beyond its core franchise.

Pitch Summary:
Eli Lilly & Company is a leading pharmaceutical company that develops diabetes, oncology, immunology and neuroscience medicines. The company generates over half of its revenue in the U.S. from its top-selling drugs Trulicity, Verzenio and Taltz. The company operates in a single business segment, Human pharmaceutical products. Eli Lilly has a deep pipeline in treatment areas focused on metabolic disorders, oncology, immunology and central nervous system disorders. Currently, there are two phase three assets, Orforglipron, an oral GLP-1 and retatrutide, a triple incretin agonist, which have the potential to expand upon the potential success of Mounjaro. We believe that Mounjaro has the potential to commercialize beyond type 2 diabetes and obesity, potentially in the areas mentioned above of heart disease, sleep apnea, fatty liver disease and chronic kidney disease. We belief the premium valuation is supported by this outsized growth profile.

BSD Analysis:
The manager presents a compelling bull case for Eli Lilly centered on the company's dominant position in diabetes and obesity treatments, particularly Mounjaro's potential for significant market expansion. The thesis emphasizes Lilly's robust pipeline with two promising Phase 3 assets - Orforglipron (oral GLP-1) and retatrutide (triple incretin agonist) - that could further capitalize on the GLP-1 market opportunity. The manager believes Mounjaro's addressable market extends well beyond diabetes and obesity into cardiovascular disease, sleep apnea, fatty liver disease, and chronic kidney disease, representing a massive total addressable market expansion. The investment rationale acknowledges the premium valuation but argues it's justified by the outsized growth profile from these pipeline assets and market expansion opportunities. This reflects confidence in Lilly's ability to maintain leadership in the rapidly growing metabolic disorder treatment space. The timing appears strategic given the proven commercial success of existing drugs like Trulicity, Verzenio, and Taltz providing a stable revenue base. The manager's focus on the pipeline depth suggests they view Lilly as well-positioned for sustained long-term growth beyond current blockbuster drugs.

Pitch Summary:
This was particularly true of our top performing stock during the quarter, Vertiv, a leader in power and thermal management tools and systems used by data centers. Vertiv saw strong data center demand and enthusiasm for AI-related technology. The company's new management has executed well in keeping cost inflation under control while maintaining strong orders and backlog, resulting in improved margins and its best free cash flow generation to date. We believe Vertiv has even stronger long-term prospects as AI-related buildouts increase demand for the company's liquid-cooling products and services.

BSD Analysis:
The manager presents a compelling bull case for Vertiv based on strong execution and favorable secular trends. The company is benefiting from robust data center demand driven by AI infrastructure buildouts, which is creating sustained demand for their power and thermal management solutions. Management's ability to control costs while maintaining strong order backlogs has resulted in margin expansion and record free cash flow generation. The AI theme provides a powerful long-term growth catalyst, particularly for liquid-cooling products which are essential for high-performance computing applications. The combination of operational excellence and exposure to a transformative technology trend positions Vertiv well for continued outperformance.

Pitch Summary:
Established in Japan in 2000, MonotaRO operates a business-to-business (B2B) e-commerce platform, selling about 20 million items (over 650,000 SKUs) to more than 8 million customers (mostly in Japan). The company is an MRO (maintenance, repair and operations) distributor focused on small- and mid-sized companies (~two-thirds of customers), with manufacturing, construction and auto-repair industries accounting for the majority of sales. For those reading this online, MonotaRO's business may seem simple or even obvious; however, the company's unique profile (>95% of sales are online) and innovative solutions, we believe, provide its customers a distinct value proposition and its shareholders a compelling opportunity to own a leader in a fragmented industry. MonotaRO serves as a one-stop solution, allowing customers to shop for millions of products via a centralized location. Its transparent pricing saves clients time and reduces costs by removing the need to rely on independent catalogs, individual quotes or separate orders. The company sources its merchandise from thousands of suppliers (i.e., manufacturers and wholesalers) in 10 countries and carries over 500,000 products in stock, ready for same-day shipment from its own distribution centers. In addition, its ONE SOURCE Lite allows large clients to link their purchasing management systems to MonotaRO's, providing company-wide visibility of items and purchases and an integrated experience. MonotaRO operates as a consolidated subsidiary of U.S.-based Grainger (an industrials supplier) and provides consulting services to the parent's e-commerce businesses in the U.S., Germany and the U.K. High barriers to entry given that scale is essential to most products in the MRO market, which requires high variety yet small lot ordering, making it imperative to offer a high number of SKUs while investing in technology to provide easier curation and shorter delivery times; The company's vast product breath, combined with its advanced data analytics, allows it to analyze procurement behaviors and better predict which items to keep in inventory. The client is able to spend less time ordering and can count on reliable delivery; Attractive business fundamentals, as ordering can be cumbersome, and clients value reliability, convenience and variety more so than price. The MRO market is also highly fragmented and inefficient. As MonotaRO expands, the more difficult it becomes for others to compete; and Expertise in database marketing leads to high repeat order rates, while its integrated purchasing management system into large corporations increases their switching costs. Using our estimates of normalized sales attained through continued market-share gains, we believe MonotaRO's current stock price is offered at a discount to our estimate of the company's intrinsic value. Ability to continue gaining share from inefficient small players (e.g., door-to-door dealers relying on people, catalogs and even fax machines); Increasing existing customers' sales through technological improvements (e.g., website personalization and recommendation displays) aimed at reducing the time it takes to (1) find, (2) purchase and (3) receive products; Further penetration into enterprise customers should provide a larger source for sales growth, as this segment represents a higher customer lifetime value as well as stickiness; and Growth in sales of MonotaRO's private label offering of approximately 300,000 products that are higher margin yet provide savings to clients

BSD Analysis:
The manager presents MonotaRO as a compelling digital transformation play in Japan's fragmented MRO distribution market. With over 650,000 SKUs serving 8 million customers, the company has built significant scale advantages in a market where variety and convenience trump price sensitivity. The >95% online sales model provides operational efficiency while the ONE SOURCE Lite system creates switching costs for enterprise clients. As a Grainger subsidiary, MonotaRO benefits from global e-commerce expertise and proven business model validation. The investment thesis centers on market share gains from inefficient traditional distributors still relying on catalogs and manual processes. Multiple growth drivers include customer penetration improvements through AI-driven personalization, enterprise segment expansion with higher lifetime values, and private label growth (300,000 products) offering superior margins. The manager believes current valuation offers a discount to intrinsic value based on normalized sales from continued market consolidation in this structurally attractive, defensive end market.

Pitch Summary:
FMC Corporation, the global provider of crop-protection solutions, was the largest detractor for the year and a top detractor for the fourth quarter. Following robust orders during the 2020-2022 period, customer destocking persisted throughout 2023, particularly in Latin America. Despite strong end-market demand, market forces (including inflationary prices and sharply higher interest rates) have combined to motivate customers to draw down existing inventories. As a result, FMC lowered its 2023 guidance and introduced a global restructuring initiative. In November, we attended FMC's Investor Day where management detailed its strategic plans and introduced mid-term financial goals. We came away with increased confidence that FMC is at or near a cyclical bottom and that management is taking appropriate actions in navigating the worst downcycle the crop-protection market has seen in more than 40 years.

BSD Analysis:
The manager views FMC's current challenges as cyclical rather than structural, maintaining a contrarian bull stance. Customer destocking has persisted through 2023, particularly in Latin America, following the robust ordering period of 2020-2022. While inflationary pressures and higher interest rates have motivated inventory drawdowns, underlying end-market demand remains strong. Management's response through guidance reduction and global restructuring demonstrates proactive cost management. The fund manager's attendance at FMC's Investor Day reinforced confidence in management's strategic direction and mid-term financial targets. With the crop protection industry experiencing its worst downcycle in over 40 years, the manager believes FMC is positioned at or near a cyclical trough. The combination of defensive end-market fundamentals, management's restructuring actions, and potential for inventory restocking creates an attractive risk-reward profile for patient investors.

Pitch Summary:
Rentokil Initial, the U.K.-based pest control and hygiene services company, was the largest detractor for the quarter. The company's pest-control segment (which accounts for 94% of total operating profit) reported a slowdown in organic revenue growth from 5.6% in the first half of 2023 to 2.3% in the third quarter. As these results are short term in nature, we will continue to closely monitor the company's progress on both integration of Terminix and further improvement of its marketing strategy. This includes the recent appointment of Brad Paulsen as CEO of the North America Region and his impact on the company's most important geography (accounting for ~75% of pest-control sales). Over the long term, we remain confident that the Terminix acquisition will create scale efficiencies and in-market densification (with a targeted $200 million in cost synergies by 2025), as well as accelerate the consolidation of the U.S. pest-control market. Short-term impacts on the company's stock price, in our opinion, are overblown given these fundamental improvements coupled with the resilient nature of the pest control business.

BSD Analysis:
Despite near-term headwinds, the manager maintains conviction in Rentokil's long-term value proposition. The company experienced a deceleration in organic growth from 5.6% to 2.3%, but management views this as temporary given the defensive nature of pest control services. The Terminix acquisition remains central to the investment thesis, with targeted cost synergies of $200 million by 2025 and opportunities for market consolidation. New leadership in North America under Brad Paulsen could catalyze improved execution in the company's most important geography (75% of pest control sales). The fund manager believes current stock weakness is overdone relative to the fundamental business quality and integration benefits. The pest control industry's resilient, recurring revenue characteristics and fragmented structure support the consolidation strategy and long-term margin expansion potential.

Pitch Summary:
Nemetschek, a project management software solutions provider for the architecture, engineering and construction industry, was one of the largest contributors for the quarter. Over the past couple of years, the company has made significant efforts to transition the business from a license to a subscription SaaS (software-as-a-service) model, which we expected would drive higher and more stable revenues per user while creating more long-term value for customers. In line with this strategy, the company reported that ~75% of its revenues are now recurring, up from ~65% last year. Furthermore, with the backdrop of stable demand and strong operational execution, management reported EBITDA margins at the high end of guidance and raised its revenue projections for the year. We believe the optimization of Nemetschek's business model, continued improvement in operational efficiency through efforts like internalization, and product innovation such as the open and cloud-based dTwin platform, will lead to long-term improvements in profitability and position the company for market-share gains as building complexity continues to increase.

BSD Analysis:
The manager highlights Nemetschek's successful business model transformation as a key investment thesis. The company's transition from license-based to SaaS subscription model has meaningfully improved revenue quality, with recurring revenues increasing from 65% to 75% year-over-year. This shift provides higher revenue visibility and customer lifetime value while creating switching costs. Management's strong execution is evident in EBITDA margins reaching the high end of guidance and raised revenue projections. The fund manager sees multiple value drivers including operational efficiency improvements through internalization and product innovation like the dTwin cloud platform. With increasing building complexity driving demand for sophisticated project management solutions, Nemetschek appears positioned to gain market share while expanding margins through its optimized business model.

Pitch Summary:
Lennar, one of the nation's largest homebuilders, was the top contributor for the period. Increasing mortgage rates reached a peak during the fourth quarter, but Lennar's dynamic pricing model, combined with its digital marketing platform and buyer incentives, continued to drive volume and generate cash flow, all while reducing construction cycle times, returning capital to shareholders and further lowering the company's debt. In 2023, Lennar delivered 73,000 homes (a 10% year-over-year volume increase). The company's "land light" strategy also continues to move forward, with 76% of land now controlled through options, as compared to 69% a year ago (and less than 30% in 2015). Over our decade-plus investment in Lennar, we have admired the management team's ability to respond to changing housing dynamics. We believe Lennar's current land and pricing strategy should continue to support enhanced free cash flow generation. In addition, Lennar's strong balance sheet, prudent inventory management and further ability to implement cost and production efficiencies position it well to meet demand amid the decade-long undersupply of homes in the U.S.

BSD Analysis:
The manager presents a compelling bull case for Lennar based on operational excellence and strategic positioning. Despite rising mortgage rates creating headwinds, Lennar's dynamic pricing model and digital marketing platform have maintained volume growth, delivering 73,000 homes in 2023 (10% year-over-year increase). The company's "land light" strategy has evolved significantly, with 76% of land now controlled through options versus just 30% in 2015, reducing capital intensity and risk. Management's decade-plus track record of adapting to housing market cycles provides confidence in execution capability. The fund manager emphasizes Lennar's strong balance sheet, prudent inventory management, and operational efficiencies as competitive advantages. With a structural undersupply of homes in the U.S. market, Lennar appears well-positioned to capitalize on long-term demand trends while generating enhanced free cash flow through its asset-light model.

Pitch Summary:
Virtu Financial, with an equity market capitalisation at end September 2023 of just overUS$2.8billion and with $1.8billion of long-term debt due in 2029, is the sole listed US based "liquidity provider". Liquidity providers, or market makers, are a controversial industry of financial market "plumbers" who are receiving extra unwanted and tainted publicity with the release of the movie "Dumb Money" regarding the meme stock explosion of securities like Game Stop and AMC Entertainment in early 2021. The March quarter of that year was Virtu's second most profitable ever, measured by "daily profit". The short term "sugar-hit" has provided a longer-term hangover – an SEC enquiry and proposed tighter regulation. Whilst many of its competitors, by dint of financial regulation have to make public disclosures, VIRT make more than any other in its business. And when your industry is full of mathematical, analytical, programming geniuses, additional disclosure is not what you want. So it is always with trepidation that our desire to invest in a stunningly profitable, hefty return on capital, highish barrier to entry business, is tainted by the fact the investment is in the only US publicly listed business. VIRT have pulled back on certain elements of disclosure since 2019 & 2020 whilst providing other elements of non-financial papers which assist in providing the ability to judge their performance over the short term; we will discuss these aspects as we delve into how Virtu make their money. In assessing Virtu's publicly listed history from April 2015 onwards, despite the business being developed to advantage by asset sales, strong access to debt markets and two notable acquisitions, investor valuation of Virtu's earnings has declined sharply. The lust of market making profits in 2014-2015 has turned into a loathing due to competition, rapid development of alternative products - such as zero-day options - attracting the retail speculator, and an aggressive regulator diverted by simplistic public opinion and potentially seeking to pull down what to us looks like an extraordinarily efficient market structure. It has meant that VIRT has had to run hard, despite being in a phenomenally competitive position amidst the democratisation (retail participation) in stock trading, which enabled it to reap outsized benefits in 2021. Innovation moves extraordinarily rapidly in markets: trends in exchange traded products are to Virtu's advantage. However, they have lagged in the options area, especially single stock options rather than index options. Given several competitors have grown up in the options area (notably Susquehanna) the slower pace of development is mildly concerning. We put forward the case of why we hold Virtu as a Top 10 position in Dynasty Trust by describing the business, its history and acquisitions, the regulatory threat to Virtu, the ability of the company to earn super-profits for brief periods, its aggressive capital management initiatives, cost disciplines and an assessment of appropriate valuation metrics.

BSD Analysis:
The manager presents Virtu as a deeply undervalued market-making franchise trading at approximately 8.6x adjusted earnings despite generating 13% cash returns on capital. The investment thesis rests on Virtu's dominant position as the sole listed US liquidity provider, handling over 9% of US equity volumes daily through sophisticated technology platforms. While regulatory headwinds from the SEC create near-term uncertainty, the manager views this as creating an attractive entry point for a business with inherent competitive advantages and high barriers to entry. The company's aggressive capital allocation through dividends (5.6% yield) and share buybacks provides downside protection while awaiting more favorable market conditions. Despite concerns about innovation pace in options markets and regulatory disputes, the manager believes the current 8x P/E multiple significantly undervalues a franchise that has demonstrated ability to generate extraordinary returns during volatile periods. The cyclical nature of market-making profits suggests current depressed conditions represent an opportunity for patient investors.

Pitch Summary:
D'Ieteren is a Belgian auto-based private equity style conglomerate, 63% controlled by the eponymous family which founded the company in 1805. The most valuable component of its portfolio is a 50% holding in Belron, the world's largest auto-glass replacement and configuration business, with such brand names as Autoglass and Windscreens O'Brien (Australia). Belron operates franchises and company owned outlets, is the world leader and has a genuine moat through its network, relationship with insurers and brands, yielding gross margins of ~22% on a €6billion turnover business (100%). Being Belgian, family controlled and a complex structure makes the stock opaque to many despite the deconstructed P/E of ~13x.

BSD Analysis:
The manager presents D'Ieteren as an undervalued family-controlled conglomerate with significant exposure to the defensive auto glass replacement market through Belron. The investment thesis centers on the company's dominant market position in auto glass services, which benefits from strong competitive moats including extensive distribution networks, insurance relationships, and established brand recognition. At approximately 13x P/E on a sum-of-the-parts basis, the valuation appears attractive for a business generating 22% gross margins on €6 billion in revenue. The family control structure (63% ownership since 1805) provides governance stability but also creates opacity that likely contributes to the valuation discount. The manager views this complexity as creating an opportunity for patient investors willing to analyze the conglomerate structure. The defensive nature of auto glass replacement provides downside protection while the global leadership position offers potential for steady cash generation.

Pitch Summary:
The Fund's largest position is First Citizens Bancshares ("First Citizens" or "FCNCA"). We acquired our stake over the past three years. Initially, we owned and traded around a small position in CIT Group Inc. ("CIT") during the summer of 2020. We felt CIT was undervalued and management was making progress in reducing risk during the Covid-19 pandemic. In late 2020, CIT agreed to be acquired by First Citizens. We added to our CIT stake the morning of the acquisition announcement because we thought the acquisition was so financially attractive that First Citizens' shares would rally and pull CIT's shares higher. Our CIT shares were exchanged for First Citizens shares when the merger completed. We held onto our First Citizens shares because we admired the management team, we felt the bank was undervalued, and we projected the bank would benefit from higher interest rates. Then, earlier this year, First Citizens was the winning bidder in the FDIC's auction of the failed Silicon Valley Bank ("SVB"). We added significantly to the Fund's First Citizens position on the following Monday morning because the deal was unbelievably favorable for First Citizens. First Citizens's stock price rose more than 50% that day and has risen another 40% in the months since the SVB acquisition. We have not sold any shares. We believe the stock still has the potential to double over the next three years. Despite this attractive upside, we think the downside is minimal. Our downside scenario is an unchanged stock price in three years. Here is our detailed investment thesis for First Citizens: FCNCA trades at a discount to other large regional banks on a Price-to-Tangible Book value ("P/TBV") basis. It also trades at a slight discount on a Price-to-Earnings ("P/E") basis looking at sell-side 2024 earnings estimates. Usually when a bank trades at a discount to peers on a P/TBV basis, it is because it has lower returns than peers. At first glance this appears to be the case with First Citizens. It is projected to earn a 14% Return on Equity ("ROE") in 2024 where its peers are projected to earn higher ROEs. However, when we adjust for the excess capital that First Citizens is holding, we believe it has a ROE similar to its peers and does not deserve to trade at a discount. We believe there are other possible reasons why First Citizens trades at a discount to its peers. The main reason is it is not a member of the S&P 500 Index, so it does not have the demand from passive index investors. Other minor reasons for First Citizens' valuation discount are a lack of familiarity within the investment community due to limited but growing sell-side coverage, not hosting quarterly earnings conferences calls until recently, not attending brokerage investment conferences, high nominal stock price and limited trading volume, and a low dividend compared to peers. One additional unusual reason for the valuation discount is the dual-class share structure of First Citizens Bank. The Holding family controls the Class B voting shares. This dual-class structure may discourage some investors from owning the stock. We disagree with this thinking. First, the Holding family has demonstrated an extraordinary commitment to shareholder returns. First Citizens is the best performing stock of its peer group over the last 30 years. We view the Holding family as owner-operators. We note that many of the best performing stocks have had owner-operators: Berkshire, Microsoft, Amazon, etc. There is data that proves companies with owner-operators outperform because management is able to focus on long-term value creation. We think this applies to the Holding family controlling First Citizens. Another criticism of the dual-class share structure is the difficulty in applying outside pressure to gain voting control and/or board seats. I believe this is a non-issue for banks. The difficulty of a hostile takeover in banking is high. There hasn't been a successful hostile takeover of a bank since Bank of New York acquired Irving Trust in 1988. Plus, the regulators limit ownership levels of banks before an investor has to register as a Financial Holding Company. Overall, we see the First Citizens dual-class share structure as a non-issue. First Citizens' stock outperformance in 2023 may be distracting some investors from the potential returns still offered by the stock. First Citizens' stock has returned 78% this year. Its peers have had negative returns between 20% and 35% this year. We know it is natural for investors to say, "We missed it," when a stock has performed like First Citizens' stock has. The last thing these investors want is to buy First Citizens after the run and have it underperform once they buy it. In other words, they don't want to be wrong twice on the stock. As we will discuss below, we believe there is significant downside protection in First Citizens because of the defensive nature of its balance sheet. First Citizens has a very liquid balance sheet, which is perfect for the current environment. For example, First Citizens has 17.6% of its assets in cash compared to Truist at 5.6%. This liquid balance sheet gives First Citizens plenty of opportunity to take advantage of the wider loan spreads available in the current environment. The extra liquidity also reduces pressure to pay up for deposits. The high cash balance is the best indication that shareholders have a measure of protection from First Citizens' balance sheet. First Citizens' balance sheet is defensive and well-positioned for growth. The bank has almost no borrowings beyond the $35 billion FDIC note that has a five year term. First Citizens' management did not invest in long-dated fixed rate securities, so unlike many other banks, it is not carrying a portfolio of underwater bonds. Also, First Citizens loan book is balanced between floating-rate and fixed-rate loans. This balance was created through the strategic acquisitions of CIT and SVB. The CIT franchise produced excess loans and the legacy SVB franchise produced excess deposits. We believe First Citizens is positioned well for the current consensus outlook for rates of "Higher for Longer". Investors are not assuming any growth at First Citizens based on its stock price trading just above tangible book value. Based on sell-side models, expectations are for minimal growth in First Citizens's legacy banking operations and that SVB will shrink going forward. We think this is wrong because we think prospects for the former SVB operations are strong. Certainly, the SVB franchise is diminished as several business development personnel have been poached by competitors. We think multiple competitors are targeting the venture capital community. The current environment in the venture capital community is not ideal, but SVB was a powerful growth franchise. To offset these concerns, we note that the current deposit balances at SVB are already down close to 80% from year-end levels. So, we believe customers who want to leave SVB have already left. Also, we believe there is substantial goodwill within the venture capital community for SVB. SVB is intertwined with the venture community and continues to have strong relationships with the community. Lastly, we believe venture capital as an industry will grow faster than the overall economy. We think there is a good chance that SVB will continue to grow under First Citizens ownership. At the current valuation, we view this growth potential as a free option. Regional banks as a group may re-rate higher. In addition to First Citizens trading at a discount to peer large regional banks, we believe regional banks trade at the low end of their historical valuations. Large regional banks trade for about 7.4x 2024 EPS estimates, we believe the normal valuation for this group is between 10x and 14x. We understand that at this point in the cycle banks should trade cheap, but time marches on and cycles can change quickly. We expect the group multiple to re-rate higher as the industry works through higher interest rates and the credit cycle peaks. We think First Citizens is still an attractive holding despite its outperformance to date in 2023. We estimate First Citizens' tangible book value will be $1,800 at the end of 2026. We think FCNCA can trade at 1.5x tangible book value at the end of 2026 or $2,700, which is double the current share price.

BSD Analysis:
Gator Capital presents a compelling bull case for First Citizens Bancshares, built on the transformative Silicon Valley Bank acquisition and strong fundamental positioning. The manager's thesis centers on FCNCA trading at a discount to regional bank peers (1.04x P/TBV vs 1.39x median) despite having similar adjusted ROE when accounting for excess capital. The SVB acquisition, described as "unbelievably favorable," provides significant upside optionality in the venture capital banking franchise while the bank maintains exceptional liquidity (17.6% cash vs peers at 5.6%). Management views the dual-class structure and Holding family control as a competitive advantage rather than a discount factor, citing superior long-term performance and owner-operator benefits. The balanced loan portfolio between floating and fixed-rate exposure, minimal underwater securities, and strong capital position create defensive characteristics in the current rate environment. With a $2,700 price target representing 100% upside based on 1.5x 2026 tangible book value, the investment offers asymmetric risk-reward with minimal downside protection from the liquid balance sheet.

Pitch Summary:
We have been significant shareholders of AREN since June 2019. AREN is a media company that employs a technology platform that allows creators and publishers to publish and monetize content alongside anchor brands including Sports Illustrated, TheStreet, Parade, Men's Journal, and HubPages to build their businesses. AREN's content is distributed across a diverse portfolio of over 265 brands, reaching over 100 million users monthly. Throughout the history of our investment there have been periods where we engaged in constructive activism that resulted in what we believe were improvements in management and corporate governance. The advertising market in 2023 was challenging, but AREN's business held up better than many other companies. In November 2023, AREN signed a definitive agreement to merge with Bridge Media Networks, LLC ("Bridge Media"), a media group that includes a portfolio of over-the-air television stations, national television networks, streaming platforms and websites for delivering news, sports, automotive and travel content. Bridge Media is a wholly owned subsidiary of Simplify Inventions, LLC, which is owned by Manoj Bhargava, the founder of 5-hour Energy®. Under the terms of the merger, entities associated with Mr. Bhargava will invest $50 million in the combined entity and the consumer brands owned by Mr. Bhargava will commit to approximately $60 million in guaranteed advertising revenue for AREN. Subsequent to the signing of this definitive agreement, Mr. Bhargava purchased the debt and equity of AREN owned by B. Riley and then invested an additional $12 million for working capital purposes while the company seeks the required shareholder and regulatory approvals to complete the merger. While the start of 2024 has presented additional challenges for AREN, Mr. Bhargava has a history of building significant value across multiple industries. We have had opportunities to speak with both Mr. Bhargava and the new CEO of AREN, Cavitt Randall, and appreciate their candor and desire to build a sustainable business that grows profitably. AREN was the largest source of declines in our portfolio in 2023. We look forward to the completion of the merger in 2024 and to what we believe can be significant value creation under new management led by Mr. Bhargava and Mr. Randall.

BSD Analysis:
180 Degree Capital maintains a bull thesis on The Arena Group despite significant 2023 underperformance, betting on transformational value creation through the pending merger with Bridge Media Networks. The fund has been a long-term shareholder since 2019 and previously engaged in constructive activism to improve management and governance. AREN operates a content monetization platform across premium brands including Sports Illustrated, reaching over 100 million monthly users across 265 brands. The November 2023 merger agreement with Manoj Bhargava's Bridge Media represents a major catalyst, bringing $50 million in new capital investment plus $60 million in guaranteed advertising revenue commitments. Bhargava, founder of 5-hour Energy, has demonstrated value creation across multiple industries and has already invested additional working capital while securing debt and equity from B. Riley. The fund acknowledges AREN was their largest portfolio detractor in 2023 but expresses confidence in new leadership under Bhargava and CEO Cavitt Randall to build a sustainable, profitable media business.

Pitch Summary:
Citigroup, which we've been adding to, exemplifies the point. The cash-on-cash returns we see are eye-popping. At $39.81, its dividend yield is 5.3% and its total owners' yield (dividend yield + decline in shares outstanding over past year) is 5.9%. The dividend yield is greater than treasuries or money markets. Citigroup trades at the lowest price-to-tangible book value of the post-Financial Crisis era (see Exhibit A). Even lower than the 2011 Eurozone debt crisis when it still held many problematic assets. Importantly, the balance sheet is now in great shape with no evident issues. Recent return on tangible equity ticked down as the company deals with duplicative costs to improve its technology and risk controls. Yet the return doesn't materially differ from the post-financial crisis period when the stock traded at nearly double the tangible book multiple. If it trades back to the median multiple over the next 5 years, that implies 18% annual returns including the dividend. It could potentially do even better. CEO Jane Fraser is executing a plan to improve return on tangible common equity to 11-12% by 2025-2026 (and higher further out). She's shed underperforming businesses, started simplifying the organizational structure, and invested in technology. If she's successful, the stock should trade around tangible book, which we estimate will be over $100 per share then, implying annualized returns north of 40%. Those returns are as attractive as it gets, as good as any "compounder". We don't believe they require heroic assumptions, just patience. Back to Citigroup, the stock trades at its lowest price since the pandemic trough when the world shut down. In the depths of that crisis, it hit $32, which would be a 20% loss from here. In the subsequent recovery, Citi traded above $80, up 108% from the current price. It also traded there in 2019. That risk-reward seems highly favorable. We believe the market's discounting no chance that Citi can improve its returns. We believe it will succeed. Citigroup has a cost problem, not strategic problem or a balance sheet problem. Management teams have more control over costs. Citigroup's "supermarket" strategy and organizational complexity made controlling costs difficult historically. They've now shifted the strategy and are slimming down. Even if we're wrong that Citi will succeed, the stock appears to have little long-term downside. It seems likely the stock can double over the next 3-5 years as economic fears abate, either because we avoid a recession or emerge from one.

BSD Analysis:
Patient Capital Management presents a compelling value thesis on Citigroup, emphasizing the bank's attractive risk-adjusted returns at historically low valuations. The fund highlights Citi's 5.3% dividend yield and 5.9% total owners' yield, trading at the lowest price-to-tangible book value since the Financial Crisis despite a clean balance sheet. CEO Jane Fraser's restructuring plan targets 11-12% return on tangible common equity by 2025-2026 through business divestitures, organizational simplification, and technology investments. The manager views Citi's challenges as primarily operational (cost control) rather than strategic or balance sheet issues, which are more manageable for management teams. At current levels around $40, the stock offers significant upside potential with the manager estimating 18% annual returns if valuations normalize to historical medians, or potentially 40%+ returns if Fraser's turnaround succeeds. The downside appears limited given the stock's proximity to pandemic lows and strong fundamental improvements since the crisis. This represents a classic deep value opportunity with multiple paths to substantial returns over a 3-5 year timeframe.

Pitch Summary:
Our initial investment in SCOR took place in 2021, following its recapitalization by Charter, Cerberus and Liberty Media (Qurate). Our original thesis for our investment was centered on multiple factors including our beliefs that: (i) SCOR was a company with uniquely competitive media measurement offerings and proprietary data; (ii) SCOR's new investors could help with improved execution, financial performance and overall growth; and (iii) SCOR traded at a significant discount to its peers. While SCOR's business has improved dramatically under new management with 33% EBITDA growth over the last two years, SCOR's stock has declined precipitously. We believe this is due to poor corporate governance and uncertainty around SCOR's capital structure. As a result, we have ramped up our activism significantly through the nomination of Matthew F. McLaughlin as a director nominee for consideration at SCOR's upcoming annual meeting of stockholders. Matt is a retired advertising technology executive and Naval officer. Most recently, he served as Chief Operating Officer of DoubleVerify Holdings, Inc. (NYSE: DV) ("DoubleVerify"), a software platform for digital media measurement and analytics, from 2011 to March 2022. As COO of DoubleVerify, Matt directed its Product, Engineering and Sales Operations activity, including managing over half the company's employees. Given SCOR's struggles with, and focus on, improving its digital offerings, we could think of nobody more useful to the SCOR Board and management than Matt. Matt is available and happy to speak with any SCOR stockholder that wishes to speak with him so they can judge for themselves whether he is qualified and should serve on SCOR's Board. While we are actively preparing to run a competitive proxy campaign to support his candidacy, we hope SCOR's Board will realize the complementary skill set that we believe he can bring to help build value for all of SCOR's stakeholders and that a competitive proxy contest will not be required. As we look forward to 2024, we see a number of potential value-creating catalysts (in addition to our activism) that could lead to material appreciation in the stock. These potential catalysts include: (i) SCOR's preferred stockholders taking steps to demonstrate an alignment of interests across all stakeholders of the company; (ii) SCOR demonstrating the ability to consistently generate double-digit EBITDA margins; and (iii) a return to growth for SCOR's digital business. Assuming SCOR can continue to generate mid-teens EBITDA in 2024, then its common stock is trading at just 4.7x enterprise value to EBITDA and 0.75x enterprise value to revenue; we believe this will ultimately prove to be an attractive entry price. We do not believe that either of these multiples are appropriate for a company with unique data assets that generate positive cash flows. We believe a more appropriate multiple would be in the double-digit range. We firmly believe that improvements in SCOR's corporate governance combined with improving financial metrics and the demonstration of alignment of all stakeholders can lead to material appreciation in SCOR's common stock.

BSD Analysis:
180 Degree Capital presents an activist-driven value creation thesis for comScore despite recent stock underperformance. The fund invested following 2021 recapitalization by Charter, Cerberus, and Liberty Media, attracted by unique media measurement capabilities, proprietary data assets, and peer discount valuation. Despite 33% EBITDA growth over two years under new management, the stock has declined due to governance issues and capital structure uncertainty. The fund is pursuing aggressive activism by nominating Matthew McLaughlin, former DoubleVerify COO with relevant digital media measurement experience, for board election. Key 2024 catalysts include preferred shareholder alignment, consistent double-digit EBITDA margins, and digital business growth recovery. At current levels, SCOR trades at attractive 4.7x EV/EBITDA and 0.75x EV/revenue multiples for a company with unique data assets and positive cash generation. The fund believes double-digit multiples are appropriate and expects governance improvements combined with operational progress to drive material stock appreciation.

Pitch Summary:
SNCR provides white-label technology that enables large corporations to offer customers cloud-based storage of personal data. SNCR's platform powers the personal cloud offerings of a number of Tier 1 companies including Verizon, SoftBank, AT&T, Assurant, British Telecom and Tracfone under long term contracts. We first invested in SNCR as part of an underwritten financing in June of 2021 that allowed SNCR to pay off its punitive preferred stock and recapitalize the company with reduced interest expense, while also providing flexibility going forward to execute on strategic options for the business. The first of these strategic alternatives was completed in Q4 2023 with the sale of SNCR's non-core messaging and digital businesses. SNCR is now a pure-play, cloud-focused business with high margins and is on the cusp of generating significant free cash flows. Our bullish view for 2024 is centered around a number of catalysts that we believe will improve SNCR's balance sheet and demonstrate the operating leverage of the business. First, SNCR has stated that it expects to receive approximately $28 million from a tax refund at some point in 2024. This inflow of capital will allow SNCR to pay down a portion of its relatively expensive outstanding preferred stock and/or debt that matures in June 2026. Second, SNCR is expecting to return to top-line revenue growth after the runoff of historical deferred revenue and continued growth in subscribers at its largest customer, Verizon, and its newest customer, Softbank. Third, the end of non-recurring charges related to restructuring and prior litigation and corresponding settlements coupled with revenue growth and a material reduction in interest paid on its outstanding debt should lead to material free cash flow generation in 2024 that we believe could grow substantially in 2025. Lastly, we should note that in December 2023 we were asked to join SNCR's Board of Directors to help with the company's execution of its next phase of growth. As we look at what this might mean for the stock price of SNCR, it ended 2023 at $6.21, which equated to a multiple of enterprise value to estimated 2024 EBITDA of approximately 5.6x. This multiple declines to approximately 5.2x if SNCR receives the tax refund and uses it primarily to pay down debt. We do not believe a cloud-focused business with 85-90% recurring revenue, 70-75% gross margins, 25%+ EBITDA margins that also generates positive free cash flow should command such a low multiple. In our opinion, a more appropriate multiple would be in the double digits. SNCR recently reported the completion of significant cost savings initiatives along with strong performance in Q4 2023 and the stock responded positively. We believe this is just the start for SNCR and that 2024 will be a turning point for SNCR both in terms of its business and how investors value SNCR's common stock.

BSD Analysis:
180 Degree Capital presents a strong turnaround thesis for Synchronoss Technologies following successful business restructuring and recapitalization. The fund participated in the 2021 financing that eliminated punitive preferred stock and reduced interest expense, positioning the company for growth. SNCR has transformed into a pure-play cloud business serving tier-1 telecom customers including Verizon, SoftBank, and AT&T under long-term contracts. Multiple 2024 catalysts support the bull case: a $28 million tax refund enabling debt reduction, return to revenue growth driven by subscriber expansion at key customers, and elimination of non-recurring restructuring charges. The business model features attractive unit economics with 85-90% recurring revenue, 70-75% gross margins, and 25%+ EBITDA margins. Trading at 5.6x EV/EBITDA, the fund believes the valuation is deeply discounted for a high-margin cloud business and expects double-digit multiples. The fund's board seat provides governance oversight and strategic input for value creation.

Pitch Summary:
We have been investors in PBPB since 2019. PBPB is a fast-casual restaurant chain that sells sandwiches, salads, soups and other lunch focused items at company-owned and franchised locations. We have discussed PBPB in detail in prior shareholder letters and whitepapers, so we won't rehash the entire story here aside from saying we believe PBPB has strong brand recognition, high-quality products, a healthy balance sheet and one of the best management teams we have ever invested in. PBPB has 425 locations, including 75 franchised in 33 states plus the District of Columbia. Additionally, PBPB recently announced that it has development agreements for almost 200 additional shops. For 2024, we see several potential value-creating catalysts that we believe could push the stock price substantially higher. First, the company has said that it expects to open 40 new franchise stores this coming year, which represents close to 10% growth. Additionally, PBPB is projecting continued growth in average unit volume, shop level margins and adjusted EBITDA margins. Lastly, management expects material generation of positive cash flows that will enable various options for capital allocation including repayment of expensive debt, stock buybacks and/or other forms of return of capital. Investors are starting to wake up to PBPB's momentum entering 2024. Should this momentum continue, we believe that PBPB will command a common franchise-level multiple of enterprise value to EBITDA in the mid-to-high teens from its current low teens multiple. This multiple expansion combined with the cash flow and earnings power of the remade business could lead to further material appreciation in PBPB's common stock.

BSD Analysis:
180 Degree Capital presents a compelling bull case for Potbelly Corporation based on multiple expansion potential and operational momentum. The fund has held the position since 2019 and emphasizes management quality, brand strength, and balance sheet health as core investment pillars. Key 2024 catalysts include aggressive franchise expansion with 40 new stores representing 10% growth, plus development agreements for nearly 200 additional locations. The company is projecting continued improvements in unit economics through higher average unit volumes and expanding shop-level margins. Management expects significant positive cash flow generation enabling flexible capital allocation including debt reduction, buybacks, or dividends. The fund believes PBPB trades at a discount with current low-teens EV/EBITDA multiple versus mid-to-high teens for comparable franchises. The combination of operational leverage, cash generation, and multiple expansion could drive substantial stock appreciation as investor sentiment improves.

Pitch Summary:
CCC Intelligent Solutions provides software and tools to the automotive insurance ecosystem. Their customers include insurance companies, repair shops, parts suppliers, medical insurance carriers, and auto manufacturers. Towards the end of the third quarter, acquisition speculation drove the stock higher. As it became clear an acquisition would not take place, the stock quickly gave back some of those earlier gains this past quarter. We also exited the position over the quarter as part of the restructuring.

BSD Analysis:
Polen Capital exited CCC Intelligent Solutions during their portfolio restructuring, following a period of significant stock volatility driven by acquisition speculation. The company operates in the automotive insurance software ecosystem, serving a diverse customer base including insurance companies, repair shops, parts suppliers, medical carriers, and auto manufacturers. This broad customer base suggests a comprehensive platform approach to the insurance value chain. The stock experienced notable price appreciation in Q3 based on takeover rumors, but quickly reversed those gains when acquisition prospects diminished, highlighting the speculative nature of the price movement. Polen's exit decision appears to have been primarily driven by portfolio restructuring considerations rather than fundamental business concerns. CCC's position in the automotive insurance technology space provides exposure to digitization trends in the insurance industry, but the company faced challenges in maintaining momentum without acquisition catalysts. The exit timing suggests Polen prioritized other opportunities during their strategy transition while managing portfolio concentration and risk.

Pitch Summary:
Constellation Software buys and builds niche software businesses which provide mission-critical solutions. Current President Mark Leonard has produced a track record of incredible growth and returns on capital and today has an enterprise value of ~$46B. Constellation has proven itself well over the last almost 30 years. As I wrote in last year's letter, "Building a business from scratch to $34B over 27 years is an eye-popping result." By retaining most of its customers each year and being incredibly disciplined on the prices it pays for M&A, Constellation has generated fantastic returns on capital. The company has also treated its shareholders fairly, not issuing any shares since its mid-2000s IPO. The key question continues to be how much capital the company can deploy and at what rates of return. I've been impressed by the ~$2B of capital the company has invested over the last year – this is one of the rare times the company has found good enough deals to outspend their current free cash flow. While the future returns from these deals are hard to know, the situation surrounding this capital deployment seems ripe for significant value creation. Constellation has continued to do dozens of small deals where they've had tremendous success and there's typically less competition for the assets. Interestingly, Constellation has recently closed on two larger corporate carveouts related to the ICE/Black Knight acquisition. These assets Optimal Blue and Empower were originally highlighted by ICE as 2 of Black Knight's 4 Key Offerings. ICE was likely required to divest some assets by the FTC to close the Black Knight acquisition. Constellation's balance sheet and willingness to act quickly was helpful in closing the deals. And they appear to be getting a fantastic deal - Black Knight appeared to pay ~30x EV/EBITDA for Optimal Blue while Constellation is paying <7x EV/EBITDA! As the business grows, the 25% CAGR in FCF/share over the last decade will likely decelerate. Interestingly, the total return of our Constellation Software investment has been ~50% since we discussed it in our Q3 2022 letter. At recent prices, I continue to believe Constellation Software can generate north of a 15% IRR for several years (vs ~30% IRR over the past decade). And we won't be upset if management continues to surprise us with better-than-expected capital deployment opportunities.

BSD Analysis:
Right Tail Capital maintains strong conviction in Constellation Software's proven acquisition-driven growth model and exceptional capital allocation discipline. The manager highlights Mark Leonard's 30-year track record of building a $46B enterprise through disciplined M&A in niche software markets with high customer retention and mission-critical solutions. The recent $2B capital deployment represents a rare opportunity where Constellation found sufficient quality deals to exceed free cash flow, particularly benefiting from regulatory divestitures in the ICE/Black Knight transaction. The acquisition of Optimal Blue and Empower at <7x EV/EBITDA versus Black Knight's original 30x multiple demonstrates Constellation's opportunistic execution and balance sheet strength. While acknowledging deceleration from the historical 25% FCF/share CAGR, the manager projects north of 15% IRR based on continued small deal success and potential for larger corporate carveouts. The 50% return since the prior letter validates the investment thesis despite premium valuation.