Investment Pitches

Pitch Summary:
Over the past 16 months, Eagle built positions in three energy stocks: ConocoPhillips, Shell, and Occidental Petroleum ("Oxy"). Our investments performed well during the quarter, and we believe the long-term opportunity is underappreciated. Our thesis has three aspects. First, the long-term supply and demand balance for oil is attractive. Second, the companies we own have quality, long-duration assets that are well-positioned on the global cost curve. Finally, the management teams we're backing are allocating capital well and in alignment with shareholders. Shell's upstream production won't grow as much as our other investments, but it is transitioning to more deepwater, high-margin barrels. In addition, its liquid natural gas segment ("LNG") is the global leader and has growth opportunities for years to come. Shell and Oxy each have checkered pasts. However, Shell's new leadership is highly focused on return on capital and better maximizing the value of its assets. On average, our three holdings returned almost 11% of their market caps to shareholders over the past year. Over the coming 5-10 years, we expect an attractive combination of modest production growth and significant ongoing cash distributions.

BSD Analysis:
Eagle Capital's investment in Shell reflects confidence in the company's strategic transformation under new leadership focused on capital returns and asset optimization. While Shell's upstream production growth will be more modest than Eagle's other energy holdings, the company is strategically transitioning to higher-margin deepwater barrels. The crown jewel is Shell's global leadership position in LNG, which offers substantial growth opportunities for years ahead as global gas demand increases. Despite acknowledging Shell's "checkered past," Eagle emphasizes the new management team's laser focus on return on capital and maximizing asset value. The company's capital-intensive business model creates significant leverage for management decisions, with the ability to allocate the entire market cap every 3-4 years. Shell's 11% shareholder return yield demonstrates management's commitment to returning capital. Eagle expects the combination of strategic asset repositioning, LNG growth, and disciplined capital allocation to drive attractive returns over the next 5-10 years.

Pitch Summary:
Over the past 16 months, Eagle built positions in three energy stocks: ConocoPhillips, Shell, and Occidental Petroleum ("Oxy"). Our investments performed well during the quarter, and we believe the long-term opportunity is underappreciated. Our thesis has three aspects. First, the long-term supply and demand balance for oil is attractive. Second, the companies we own have quality, long-duration assets that are well-positioned on the global cost curve. Finally, the management teams we're backing are allocating capital well and in alignment with shareholders. ConocoPhillips and Oxy have privileged low-cost inventory positions that enable growth over the next decade, followed by a long plateau. ConocoPhillips generated $24.6 billion of cash from operations over the past year. Management must decide where to allocate this between capex to extend its production, share buybacks, acquisitions, and dividends. The market cap of the firm is $140 billion, so management makes capital allocation decisions that correspond to the entire value of the company every 5-6 years. Over the past decade, annual stock performance for Visa and Mastercard was 17.2% and 18.3%, a minor difference. By contrast, ConocoPhillips compounded at 8.1% annually compared to -5.3% for the overall S&P E&P Index, and investors in the company turned $100 into $219. Investing in a weighted basket of energy companies to get the "average" would have left them with only $58, an almost four-fold difference in outcome. Imagine what ConocoPhillips might do over the coming decade if the wind is at its back instead of in its face. ConocoPhillips's CEO has been in place since 2012. During the shale bubble, management was more cautious than many peers and didn't drive the firm off a cliff. In the depths of the downturn, ConocoPhillips was able to make opportunistic acquisitions from motivated sellers. Now, when peers are more cautious, the company continues to judiciously manage its shale production while also investing in long-cycle projects such as Willow, Alaska. On average, our three holdings returned almost 11% of their market caps to shareholders over the past year. Over the coming 5-10 years, we expect an attractive combination of modest production growth and significant ongoing cash distributions.

BSD Analysis:
Eagle Capital presents a compelling bull case for ConocoPhillips centered on superior capital allocation and advantaged asset positioning. The manager highlights COP's privileged low-cost inventory that enables a decade of growth followed by a sustained plateau, contrasting favorably with peers facing geological headwinds. Management's disciplined approach during the shale bubble and opportunistic acquisitions during downturns demonstrates superior capital stewardship. With $24.6 billion in annual operating cash flow against a $140 billion market cap, management effectively reallocates the company's entire value every 5-6 years. Historical performance validates this thesis, with COP generating 8.1% annual returns versus -5.3% for the E&P index over the past decade. The company's 11% shareholder return yield through buybacks and dividends, combined with investments in long-cycle projects like Willow Alaska, positions it well for the evolving energy landscape. Eagle expects modest production growth paired with significant ongoing cash distributions over the next 5-10 years.

Pitch Summary:
We have recently increased our investment in Alibaba, China's leading ecommerce and cloud platform, to 3% of the fund.

BSD Analysis:
Packer & Co has recently increased their Alibaba position to 3% of the fund, demonstrating conviction in China's leading e-commerce and cloud platform. The manager positions Alibaba as the 26th most profitable company globally, trading at an attractive 7x P/E multiple, representing significant value compared to Western technology peers. The investment thesis likely centers on Alibaba's dominant market position in Chinese e-commerce and rapidly growing cloud computing division. Despite regulatory headwinds and market pessimism toward Chinese technology stocks, the manager sees compelling value in this market leader. The recent position increase suggests the manager views current valuations as attractive entry points for long-term investors. Alibaba's dual platform strength in e-commerce and cloud computing provides diversified revenue streams and positions the company to benefit from China's digital transformation.

Pitch Summary:
Outside of this, we have 8% of the fund invested in nuclear energy with 4% in physical uranium held through the Sprott Uranium Trust and Yellowcake and 4% invested in ERA and Berkeley which own two of the world's largest and highest quality undeveloped uranium orebodies. The uranium price has soared from US$20 to US$90 per pound over the last 5 years as countries race to adopt nuclear power. Since we bought into Energy Resources of Australia, the gross value of its uranium in the ground has increased from $10 billion to $40 billion, dwarfing the ever-increasing cost of rehabilitating its old Ranger mine.

BSD Analysis:
Packer & Co has strategically positioned 8% of the portfolio in nuclear energy, with ERA representing a key uranium mining investment at 4% allocation. The manager's thesis capitalizes on the dramatic uranium price appreciation from $20 to $90 per pound over five years, driven by global nuclear power adoption. ERA's investment case has been dramatically enhanced since purchase, with the gross value of uranium reserves increasing from $10 billion to $40 billion. This four-fold increase in asset value significantly exceeds the rising rehabilitation costs for the legacy Ranger mine. The manager positions ERA alongside Berkeley as owning two of the world's largest and highest quality undeveloped uranium orebodies. This represents a pure-play bet on the nuclear energy renaissance and uranium supply constraints, with ERA offering substantial leverage to continued uranium price appreciation.

Pitch Summary:
We have 7% of the fund invested in two of China's biggest telecom providers which have over 1.2 billion mobile clients. These companies are growing rapidly in the cloud computing space which now constitutes roughly a quarter of their revenues up from nothing 5 years ago. Both businesses have huge amounts of cash and trade at massive discounts to their western peers.

BSD Analysis:
Packer & Co has allocated 7% of the portfolio to China's largest telecommunications providers, with China Mobile representing a significant portion at 4.2%. The investment thesis centers on the dramatic transformation of these telecom giants into cloud computing powerhouses, with cloud revenues growing from zero to 25% of total revenues in just five years. The manager emphasizes the massive scale advantage with over 1.2 billion mobile clients providing a substantial customer base for cloud services expansion. China Mobile trades at an 8x P/E multiple and ranks as the 35th most profitable company globally, yet trades at significant discounts to Western telecommunications peers. The combination of strong cash generation, rapid cloud growth, and attractive valuations presents a compelling value opportunity in the Chinese technology transformation story.

Pitch Summary:
In November, Hess Corporation, the fund's second largest holding, agreed to merge with US energy giant Chevron. The combined entity will be valued at around $340 billion with forecast earnings for 2024 of about $30 billion.

BSD Analysis:
Packer & Co's investment in Hess Corporation, representing their second-largest holding at 7.8%, has been validated by Chevron's acquisition announcement in November. The merger creates a $340 billion energy giant with projected 2024 earnings of $30 billion, representing an attractive 11x P/E multiple for the combined entity. This transaction provides clear validation of the manager's investment thesis and offers shareholders a premium exit opportunity. The deal combines Hess's valuable Guyana assets, including the Stabroek discovery, with Chevron's operational scale and financial resources. The manager's early positioning in Hess demonstrates successful identification of an undervalued energy asset that attracted strategic interest from a major industry player. This merger represents a successful realization of value in the energy sector.

Pitch Summary:
Our largest holding is CNOOC, China's premier oil company which produces 2% of the world's oil. CNOOC trades on a price to earnings multiple of just 4x and is rapidly expanding its output with a focus on offshore China and Guyana, where it holds a 25% interest in the enormous Stabroek discovery alongside Exxon and Hess.

BSD Analysis:
Packer & Co presents a compelling value case for CNOOC as their largest holding at 10.4% of the portfolio. The manager highlights CNOOC's position as China's premier oil company producing 2% of global oil output, trading at an extremely attractive 4x P/E multiple. The investment thesis centers on the company's rapid output expansion strategy focused on offshore China and Guyana operations. A key catalyst is CNOOC's 25% stake in the massive Stabroek oil discovery in Guyana alongside major partners Exxon and Hess. The manager positions this as a high-quality energy asset trading at a significant discount to intrinsic value. Given CNOOC's ranking as the 36th most profitable company globally according to their analysis, this represents a classic value play in the energy sector with substantial growth potential from proven reserves.

Pitch Summary:
One valuable lesson we've garnered from our experience in healthcare is that the obviously superior solution doesn't always gain immediate traction. EDAP-TMS, a medical device company, specializes in the focal treatment of prostate cancer using high-intensity focused ultrasound (HIFU). By all accounts, the treatment delivers outcomes equivalent to current solutions but with a significantly improved side effect profile. Entering last year, our enthusiasm was fueled by the anticipation of insurance reimbursements doubling in January, which would substantially enhance the economic benefits for doctors performing the procedure. We believed this would be the final hurdle to triggering an acceleration in device placements. However, EDAP encountered an additional macro headwind in 2023, a challenge shared by many medical device companies. The average price of approximately $650,000 for their Focal-One device led potential customers to hesitate, given the backdrop of tight hospital budgets and heightened borrowing rates. Lengthened hospital sales cycles became evident as new bureaucratic hurdles emerged. During the first three quarters, sales growth slowed to nearly flat year-on-year, disappointing the market. Responding to this challenge, the company introduced a lease model, gaining traction as a result. The fourth quarter revealed some promising "green shoots," as pre-announced last week, bringing total year results in-line with initial expectations. This strategic response indicates a positive trajectory for overcoming obstacles and adapting to the evolving market landscape. Currently valued at 3x sales, EDAP presents a compelling investment opportunity, particularly when compared to its largest peer, Intuitive Surgical, which trades at 19x sales. With a best-in-class device, we remain optimistic about EDAP's potential for growth into 2024 and beyond.

BSD Analysis:
Apis maintains conviction in EDAP despite a challenging 2023, viewing the company's HIFU technology as a superior prostate cancer treatment with equivalent outcomes but significantly better side effect profiles. The investment thesis was initially predicated on doubled insurance reimbursements creating economic incentives for adoption, but macro headwinds including tight hospital budgets and higher borrowing costs delayed device placements. The $650,000 Focal-One device price point became prohibitive in the current environment, leading to extended sales cycles. However, management's introduction of a lease model appears to be gaining traction, with Q4 showing "green shoots" and full-year results meeting expectations. The valuation appears compelling at 3x sales versus peer Intuitive Surgical's 19x multiple, suggesting significant upside potential if adoption accelerates. The manager emphasizes the quality of life benefits for patients, positioning EDAP to benefit from the growing focus on minimally invasive treatments in an aging population.

Pitch Summary:
While Osaka Titanium was the primary detractor last year, we find the fundamental setup too attractive to overlook. Despite slower-than-expected progress, the aerospace production ramp is still in its early stages. Osaka and its competitor Toho stand as the sole scale producers outside of Russia/Ukraine for titanium sponge, a crucial material in the aerospace supply chain. The shift towards new-generation aircraft containing 2-3x more titanium, coupled with Boeing's suspension of Russian titanium purchases and Airbus pledging to follow suit, positions Osaka to emerge as a winner in this cycle. In the last cycle, Osaka witnessed remarkable growth, with revenue increasing by over 3x (35% 4-year CAGR) from trough to peak and its share price soaring by over 10 times. However, the expansion plans announced by Osaka and its competitors marked the end of the party. Thanks to the enduring nature of its customer contracts and relationships, combined with what might be considered overly conservative management, Osaka has modestly increased export prices by 15% in 2023, with another 10% anticipated in 2024. Despite concerns about premature capacity expansion, we believe we are far from the point where this would be economically viable. Even a seemingly modest brownfield expansion of 10k tons would likely cost at least $325mm. Based on the most recent export prices from Japan, such an expansion today would yield a return on investment of under 5%. According to our estimates, export prices would need to increase by at least 30% for the return on this type of investment to just breach double digits. Osaka faced challenges as a position last year, declining by more than 20% in a rising Japanese market. Looking ahead, even with conservative assumptions, our estimates for Osaka's FY25 are approximately 25% above consensus. On current spot prices for raw materials and exchange rates, earnings would be 50% above consensus for FY25. Considering FY26, Osaka is currently trading at only 6x our estimates, which do not factor in normalized raw materials pricing.

BSD Analysis:
Despite being the fund's worst performer in 2023, Apis maintains conviction in Osaka Titanium based on compelling structural dynamics in the aerospace titanium market. The manager emphasizes the company's duopoly position with Toho as the only large-scale titanium sponge producers outside of Russia/Ukraine, creating significant supply constraints as Boeing and Airbus move away from Russian suppliers. The thesis hinges on new-generation aircraft requiring 2-3x more titanium content, driving demand while supply remains constrained. Apis highlights the company's conservative pricing approach, with only 15% price increases in 2023 and 10% expected in 2024, suggesting significant pricing power remains untapped. The valuation appears attractive at 6x FY26 estimates, with the manager's earnings projections 25-50% above consensus for FY25. Historical precedent shows the company's ability to generate exceptional returns during favorable cycles, with 3x revenue growth and 10x stock price appreciation in the last upcycle.

Pitch Summary:
Osaka Soda, a Japanese company, boasts a robust core business focused on basic and specialty chemicals for various industries, with a noteworthy hidden gem in its healthcare segment. In healthcare, the company produces silica gel beads crucial for chromatography, serving as miniature filters in the manufacturing and purification of GLP-1 drugs like Wegovy, Ozempic, and Mounjaro. While the stock showed strong performance in 2023, we view this as just the beginning, anticipating substantial growth in their high-margin healthcare segment alongside the multi-fold expansion of the GLP-1 market in the coming years. Despite current shortages, the GLP-1 market is expected to surge from $28bn to over $100bn by 2030, with incumbents like Novo and Lilly building capacity as fast as they can, along with dozens of hopeful new entrants. Founded in 1915, Osaka Soda established itself as a diversified business in basic and functional chemicals for industry, and those segments account for approximately 70% of overall sales. The company has a dominant share of between 60-100% globally in many of these products, with applications across multiple industries such as semiconductor encapsulation, UV inks, and automotive manufacturing. While manufacturing plant issues impacted production and margins in 2023, which were resolved in early 2024, we expect a quick recovery of sales and margins. While most sales remain the legacy basic and functional chemicals business, healthcare represents their highest margin segment that, despite representing only 12% of sales, contributes 40% of profit. The most exciting aspect of Osaka Soda's involvement in the healthcare segment is their market-leading share in the production of silica gel beads for use in chromatography columns, a key step in the purification of protein-based drug substances such as insulin and the GLP-1 analogs (i.e., Ozempic, Wegovy, Mounjaro, etc.). Benefitting from a long-standing historical relationship with Eli Lilly for insulin production, they are now a key player with more than 50% share of the market for production and supply of silica gel globally. Most importantly, Osaka Soda's high market share is sustainable, with only two known competitors currently supplying the GLP-1 manufacturers, a "sticky" market given the longstanding nature of these relationships and the difficulty of changing inputs in an already optimized manufacturing process. Additionally, given the high gross margin profile of GLP-1 analogs and the relatively low cost of silica gel as an input, competition depends on product quality and the ability to supply silica gel at a sufficient scale, areas in which Osaka Soda excels. Furthermore, there are significant barriers to new entrants as manufacturing plants must comply with tough regulatory standards, an often costly and time-consuming process. Anticipating the rising demand for GLP-1 analog drugs, Osaka Soda has already doubled its manufacturing capacity for silica gel, with further expansion expected within the next two years to meet demand from significant players like Novo Nordisk and Eli Lilly. With the current environment of demand surpassing supply and aggressive capacity expansion plans from Osaka's customers, we expect strong double-digit growth for GLP-1 drugs, with the market expanding 3-5x over the next 5-7 years. An appealing aspect of Osaka Soda is its relatively undiscovered status in the market. The company recently established a small investor relations function and separated its healthcare division. We believe this transparency will highlight an exciting business that we expect to be more than half of profits in a year.

BSD Analysis:
Apis presents a compelling thesis on Osaka Soda as a hidden beneficiary of the explosive GLP-1 drug market growth. The manager highlights the company's dominant 50%+ market share in silica gel beads used for chromatography in GLP-1 drug purification, positioning it as a critical supplier to manufacturers like Novo Nordisk and Eli Lilly. The investment case centers on the healthcare segment's exceptional profitability (40% of profits from just 12% of sales) and the anticipated 3-5x expansion of the GLP-1 market from $28bn to over $100bn by 2030. Osaka Soda's competitive moat appears strong with only two known competitors, sticky customer relationships, and significant regulatory barriers for new entrants. The company has proactively doubled manufacturing capacity with further expansion planned, demonstrating management's confidence in demand sustainability. At a $1.7bn market cap, the stock appears undervalued given the healthcare division's growth trajectory and the manager's expectation that it will represent over half of profits within a year.

Pitch Summary:
Ryanair is a franchise company in an industry (airlines) believed to be devoid of such enterprises. Its fanatical focus on low costs and low prices gives it a structural advantage over competitors across Europe. With low costs and balance sheet strength that is uncharacteristic of an airline, it has consistently found itself in a position of strength at the points in the cycle that airline investors fear most.

BSD Analysis:
Centerstone's Ryanair investment represents a contrarian view that franchise-quality businesses can exist even in traditionally cyclical, capital-intensive industries like airlines. The manager emphasizes Ryanair's structural cost advantage through its fanatical focus on low costs and prices, creating a sustainable competitive moat across European markets. The key differentiator appears to be the company's uncharacteristic balance sheet strength for an airline, providing defensive characteristics during industry downturns when competitors struggle. This positioning allows Ryanair to gain market share and capitalize on opportunities when the cycle turns against the industry. The investment thesis suggests that Ryanair's low-cost model and financial strength create a defensive growth profile that can compound through various market cycles. The manager's characterization of it as a 'franchise company' in an industry devoid of such businesses suggests significant competitive advantages and pricing power. This investment reflects confidence in management's execution of the low-cost strategy and the company's ability to maintain its structural advantages over European competitors.

Pitch Summary:
Eurofins is a market leader in food and feed testing, environment testing, pharmaceutical testing and cosmetic product testing whose share price declined for what appear to be temporary factors. It has spent more than a decade building its hub and spoke laboratory network infrastructure and as these investments moderate, its profitability and free cash flow should improve. With its scale and hub and spoke laboratory network infrastructure, it has a competitive advantage that is difficult to replicate.

BSD Analysis:
Centerstone's Eurofins investment represents a contrarian bet on a market leader experiencing temporary headwinds that have created an attractive entry point. The manager emphasizes Eurofins' dominant position across multiple testing verticals including food, environmental, pharmaceutical, and cosmetic testing, suggesting diversified revenue streams and defensive characteristics. The key thesis centers on the company's decade-long investment in hub and spoke laboratory infrastructure finally reaching maturity, which should drive margin expansion and free cash flow improvement as capital intensity moderates. The competitive moat appears substantial given the difficulty of replicating such an extensive, integrated laboratory network at scale. This investment reflects confidence that temporary factors causing share price weakness will resolve while the underlying business fundamentals remain strong. The hub and spoke model provides operational leverage and cost advantages that should become more apparent as growth moderates and profitability improves. This aligns with the fund's preference for franchise-like businesses with defensive characteristics and competitive advantages.

Pitch Summary:
Hitachi was a catalyst-driven investment, as the company aggressively reshapes its business profile to focus on high-value-added segments. What was once a mix of mature, capital-intensive businesses has been increasingly transformed into a more focused conglomerate with a focus on renewable energy, IT services and digital infrastructure.

BSD Analysis:
Centerstone's Hitachi investment represents a catalyst-driven transformation story where the fund is betting on successful business portfolio restructuring. The manager highlights Hitachi's aggressive reshaping from a traditional mix of mature, capital-intensive businesses toward higher-value segments including renewable energy, IT services, and digital infrastructure. This transformation thesis suggests the market has not yet fully recognized the value creation from this strategic pivot. The investment appears to capitalize on the conglomerate discount while the company executes its focused strategy on growth sectors. The emphasis on renewable energy and digital infrastructure positions Hitachi to benefit from secular growth trends in these markets. The catalyst-driven nature suggests near-term value realization potential as the transformation progresses and becomes more apparent to investors. This fits the fund's approach of identifying quality companies undergoing positive fundamental changes that the market has yet to fully appreciate.

Pitch Summary:
Mobileye Global is an Israel-headquartered, global leading provider of advanced driver assisted systems (ADAS) and autonomous-driving technologies and solutions. EyeQ, one of its main product platforms, is a system-on-a-chip that includes perception software for ADAS. Auto manufacturers (original equipment manufacturers, or OEMs) or their primary suppliers (Tier 1 suppliers) connect their systems into Mobileye Global's EyeQ, which provides commonly known ADAS features like automatic emergency braking, pedestrian detection, surround view, parking assistance, driver-drowsiness detection and more. In 2023, Mobileye Global sold around 37 million EyeQ units at an average selling price (ASP) of roughly $50. This is about a 70% share of the global auto industry's ADAS. Our initial investment thesis for Mobileye was mainly its opportunity in fully autonomous driving vehicles, while the ADAS business provides steadily growing cash flows in the medium term. Mobileye delivered disappointing results for the June quarter, with a 3% decline in revenue and a 44% drop in adjusted operating income year over year. Management adjusted its 2024 guidance downward, lowering revenue expectations from a previous range of $1.83 billion to $2.0 billion to a range of $1.6 billion to $1.7 billion, or a 22% decline year over year. We had multiple calls with Mobileye and its main competitor, a private company in China, both before and after the results this quarter, and we concluded that our initial thesis was wrong. The rapid rise of private ADAS competitors in China, who are aggressively cutting prices to boost volume, presents a structural challenge to Mobileye's business in China, which accounted for 31% of its revenue at the end of 2023. Additionally, Mobileye's autonomous driving solution has been losing appeal to EV makers, particularly in China, as the company has been slow in transitioning to a more open system. Given these headwinds to the thesis, we decided to exit our position during the quarter.

BSD Analysis:
Brown Capital Management executed a complete thesis reversal on Mobileye Global, exiting the position after concluding their original investment case was fundamentally flawed. Despite Mobileye's dominant 70% market share in global ADAS with 37 million EyeQ units sold in 2023, the manager identified structural competitive threats that undermined the long-term investment thesis. The primary concern centers on aggressive Chinese competitors who are rapidly gaining market share through price competition in China, which represented 31% of Mobileye's revenue. The company's disappointing Q2 results, showing 3% revenue decline and 44% operating income drop, prompted management to slash 2024 guidance by 22% to $1.6-1.7 billion. Brown Capital's due diligence, including calls with both Mobileye and Chinese competitors, revealed that the autonomous driving opportunity was diminishing as EV makers, particularly in China, favored more open systems over Mobileye's proprietary approach. The manager's decision to exit reflects concerns about Mobileye's ability to adapt to changing market dynamics and maintain pricing power against low-cost competitors. This represents a clear example of thesis evolution leading to portfolio action when fundamental assumptions prove incorrect.

Pitch Summary:
T Hasegawa was purchased due to its valuation relative to peers. It is a leader in the flavors and fragrances market, with strong positions in its home market of Japan, other countries in Asia and the United States. Despite its strong competitive position and improving profitability, it trades at a substantial discount to its competitors International Flavors & Fragrances and Givaudan.

BSD Analysis:
Centerstone's investment in T Hasegawa represents a classic value play based on relative valuation discrepancies within the flavors and fragrances industry. The manager identifies T Hasegawa as a market leader with strong geographic diversification across Japan, Asia, and the US, yet trading at a significant discount to established competitors like IFF and Givaudan. The thesis centers on the company's improving profitability trajectory while maintaining competitive advantages in key markets. This appears to be a quality franchise business available at an attractive valuation, fitting the fund's strategy of purchasing mispriced franchise-like companies. The investment reflects confidence in the company's operational improvements and market position eventually being recognized by the market. The geographic diversification provides multiple growth avenues while the discount to peers suggests potential for multiple expansion. This position aligns with the fund's focus on balance sheet strength and management competence in defensive, stable businesses.

Pitch Summary:
Novo Nordisk is a Denmark-based, global pharmaceutical company focused on diabetes and obesity, which comprise 93% of the company's revenue. We have owned the company since 2013 and believe the company typifies an EGC, as it is dominant and innovative, and doing something that is mission-critical in a large and growing global market. Being one of the most significant players in diabetes care gives Novo Nordisk the focus and resources necessary to develop new treatments related to metabolic health. The key to the company's recent growth, however, is the new medicines in the glucagon-like peptide-1 (GLP-1) class of therapies that essentially mimic a hormone that lets the brain know when one has had enough to eat. Novo Nordisk is the global market leader in the GLP-1 segment, with a 55% market share and the blockbuster obesity-care drug Wegovy. Wegovy delays gastric emptying (the time it takes for food to leave the stomach), contributing to a feeling of satiety. GLP-1 drugs are showing promise of promoting overall health. The obesity market alone reached $24 billion in 2023, according to iQVIA, more than seven times the estimated market size just three years ago. Furthermore, the obesity market is now forecasted to reach $131 billion by 2028. Novo Nordisk reported results for the first half of 2024 of 25% sales growth and 19% operating profit growth (at constant foreign exchange rates), including 37% sales growth and 1.5 percentage points of market share gain in obesity care. Management revised its sales outlook to 22% to 28% growth from 19% to 27% previously. Despite these numbers, the results fell short of market expectations, hurting the share price. Of particular concern to investors are supply challenges and net pricing pressures, particularly from Medicaid, which comprises a growing share of Novo's U.S. business, now covering 10 million patients for Wegovy. The September Senate hearing on pricing for Ozempic and Wegovy added to the uncertainty. Additionally, Novo's $1 billion acquisition in 2023 of Monlunabant, an oral weight-loss drug, released disappointing phase 2a clinical-trial data. Nevertheless, we remain confident in Novo Nordisk's market potential and its continued focus on ensuring supply to help as many patients as possible address the obesity challenge.

BSD Analysis:
Brown Capital Management maintains a bullish stance on Novo Nordisk despite recent headwinds, emphasizing the company's dominant position in the rapidly expanding obesity treatment market. The manager highlights Novo's 55% market share in GLP-1 therapies and leadership with blockbuster drug Wegovy, positioning the company at the center of a market explosion from $24 billion in 2023 to a forecasted $131 billion by 2028. The investment thesis centers on Novo's ability to leverage its diabetes expertise to capture the massive obesity opportunity, with GLP-1 drugs showing broader health benefits beyond weight loss. Recent financial performance demonstrates strong momentum with 25% sales growth, 19% operating profit growth, and 37% obesity care sales growth, leading management to raise guidance. However, the manager acknowledges near-term challenges including supply constraints, Medicaid pricing pressures affecting 10 million Wegovy patients, and political scrutiny from Senate hearings on drug pricing. The disappointing clinical trial results for the $1 billion Monlunabant acquisition add execution risk to the growth story. Despite these concerns, Brown Capital's 11-year holding period reflects deep conviction in Novo's long-term market opportunity and innovation capabilities in metabolic health.

Pitch Summary:
MonotaRO is a Japan-based e-commerce platform for Maintenance, Repair and Operations (MRO) products for small, medium and enterprise customers. MRO covers a wide range of products, from gloves to cutting tools to nuts and bolts. The MRO market in Japan is estimated at 10 trillion yen (approximately $70 billion USD), with roughly 80% of orders still processed offline, including fax and face-to-face transactions. MonotaRO offers 659,000 SKUs with same-day shipment, out of a total catalog of about 22.9 million. The breadth of the catalog helps meet clients' needs in long-tail items that may not be otherwise available offline. The company also saves time and money for its clients through efficient matching and delivery, and transparent pricing across all channels and customers. This quarter, MonotaRO announced strong second quarter results with 13% year-over-year sales growth and 20% operating profit growth. This was driven by a combination of nearly 30% growth in the enterprise business segment, where MonotaRO is expanding its wallet share and successfully passing through price increases from inflation. We remain confident about MonotaRO's leading position in the online MRO space and its solid execution.

BSD Analysis:
Brown Capital Management presents a strong bull case for MonotaRO, highlighting the company's opportunity to digitize Japan's massive $70 billion MRO market where 80% of transactions remain offline. The manager emphasizes MonotaRO's competitive advantages through its extensive catalog of 22.9 million SKUs, with 659,000 available for same-day shipment, addressing long-tail product needs unavailable through traditional channels. The investment thesis centers on the company's ability to capture market share through superior efficiency, transparent pricing, and digital convenience in a fragmented, analog market. Recent financial performance validates this strategy, with 13% sales growth and impressive 20% operating profit growth driven by nearly 30% expansion in the enterprise segment. The manager particularly values MonotaRO's success in expanding wallet share with existing enterprise clients while successfully implementing price increases to offset inflation. Brown Capital's confidence in the company's execution and market-leading position in Japan's online MRO space reflects their view of MonotaRO as a digital transformation beneficiary. The combination of a large addressable market, low digital penetration, and strong competitive positioning supports the long-term growth trajectory.

Pitch Summary:
MercadoLibre is a Uruguay-based company that operates the leading e-commerce shopping platform in Latin America (like Amazon) and provides payment and credit services (like PayPal). Although Latin America is a large market with a population of 650 million, it still has low e-commerce penetration compared to most developed markets as well as China. We first bought MercadoLibre in our International Small Company portfolio in 2013 and graduated the holding to the International All Company in 2020. Currently, about half of MercadoLibre's business is in Brazil and a quarter of it is in Argentina. Long-term investments in the marketplace and its rapid-shipping solutions provide significant barriers to entry for competitors. MercadoLibre ships 50% of its orders with same-day and next-day shipping to nearly 57 million buyers. We also like the potential in the company's newer fintech businesses, where 52 million unique users benefit from MercadoLibre's payment-processing services, credit cards, loans and savings accounts. In the quarter, MercadoLibre reported 42% year-over-year revenue growth and 9% EBIT growth (both in USD terms). Items sold, the key metric to strip out foreign-exchange and inflation noise, grew 30% year over year, accelerating to the highest level since the second quarter of 2021. In fintech, the company grew monthly active users 37% year over year, while non-performing loan trends remained stable. We believe that MercadoLibre's e-commerce and fintech ecosystem provides a unique competitive advantage. The company accumulates so-called first-party (1P) data on transactions from its marketplace. This consumer data informs the company's underwriting, creating a robust funnel for cross-selling its suite of consumer or merchant-facing payment and credit services. This should support sustained market share gains in fintech going forward, in our view.

BSD Analysis:
Brown Capital Management presents a compelling bull case for MercadoLibre, emphasizing the company's dominant position in Latin America's underpenetrated e-commerce market. The manager highlights MercadoLibre's dual-platform advantage, combining marketplace leadership with rapidly growing fintech services that create powerful network effects. The investment thesis centers on the company's ability to leverage first-party transaction data to enhance underwriting and cross-sell financial products, creating sustainable competitive moats. Recent operational performance supports this view, with 42% revenue growth and accelerating items sold growth of 30% year-over-year, reaching the highest levels since Q2 2021. The fintech segment shows particularly strong momentum with 37% growth in monthly active users while maintaining stable credit quality. Brown Capital's long-term conviction is evident in their 11-year holding period, having graduated the position from their small-cap strategy in 2020. The manager views MercadoLibre's integrated ecosystem as uniquely positioned to capture market share gains across both e-commerce and financial services in the large but underpenetrated Latin American market.

Pitch Summary:
Our investments in NTPC have been shaped by data we have seen on the ground. Between 2007 and 2017, the increase of capacity kept pace with the annual growth in demand for energy at about 8%. The government's target to reduce emissions and reach renewable capacity to 500 GW by 2030 has come at the expense of minimal thermal power capacity expansion since 2017. As a result, consumption growth has surpassed capacity addition, resulting in shortages during periods of high demand. To elucidate, February 2023 had a 9 GW shortfall in produced electricity vs demand. The pace of renewable power capex has not picked up significantly to match the demand. Today, Solar is only 7% of installed power capacity in India. This has led to thermal plant load factor increasing from ~57% in 2018 to ~68% in 2023. Our investment in NTPC is an extension of the trend we highlighted in the power sector and is supported by new capacity expansion in the thermal and renewable energy that is ongoing/expected. Given the limited downside, we do not expect further de-rating from here i. Electricity prices will be unlikely to decline in next 6 months (Coal shortage despite Coal India capex which would take time + govt. asking power gens to buy international coal) ii. Mismatch in demand and supply growth in India will ensure NTPC's electricity volume generation should not decline

BSD Analysis:
The manager presents a data-driven bull case for NTPC based on India's structural power supply-demand imbalance. The investment thesis centers on a critical gap that emerged post-2017 when renewable capacity additions failed to keep pace with 8% annual energy demand growth, while thermal capacity expansion stagnated due to emission reduction targets. This mismatch created acute shortages, exemplified by the 9 GW deficit in February 2023. The manager highlights that solar represents only 7% of installed capacity despite ambitious 500 GW renewable targets by 2030, forcing thermal plant utilization rates to surge from 57% to 68% between 2018-2023. NTPC benefits from this structural tailwind through higher capacity utilization and pricing power. The investment case is further supported by coal supply constraints and government mandates for international coal purchases, which should sustain electricity prices. The manager views downside as limited given the fundamental supply-demand dynamics and NTPC's ongoing capacity expansion in both thermal and renewable segments.

Pitch Summary:
The thesis around the position was driven around the stability of the management (led by Sumant's leadership and how he had transformed the retail franchise of the institution from the time he had taken over. The focus on retail (excl. housing) and microfinance was a significant lever for growth over the next 3-5 years and the loan book growth of ~20% was executing well. The other major lever for growth is on MSME loans. MSMEs are growing at >30% growth rate in the country, on the back of increasing domestic demand. However, given the high growth rate in MSMEs coming off a low 4-year cycle, I had expected this to follow through to loan book growth in the segment for IndusInd. The reason I justify this is spends/card for IndusInd is far higher in card spends than other banks. Catering to and being the preferred choice of small business and premium card category. They are better positioned to make the best of this tailwind. The bank was available at a trailing multiple (of P/B) of ~1.2 when we bought the position. We were pricing in a 25% IRR on the position over the next 4 years in the base case. As we end the year, the bank has continued to show a strong growth on their loan book and we expect the investment to continue to show strong growth in the current capex cycle.

BSD Analysis:
The manager presents a compelling bull case for IndusInd Bank centered on management quality and structural growth drivers. The thesis hinges on CEO Sumant Kathpalia's successful retail franchise transformation and the bank's strategic positioning in high-growth segments. The fund manager identifies two key growth levers: retail lending (excluding housing) and microfinance, with loan book growth executing at ~20% annually. The MSME opportunity appears particularly attractive, with the segment growing at >30% nationally driven by domestic demand recovery from a four-year low cycle. IndusInd's competitive advantage lies in its higher card spending per customer and preferred status among small businesses and premium cardholders. The valuation entry point at 1.2x P/B appears attractive, with the manager targeting a 25% IRR over four years. The continued strong loan book growth validates the investment thesis as India enters a new capex cycle.