Investment Pitches

Pitch Summary:
Dexcom has market leading technology in glucose monitoring for diabetics. Medicare recently approved a new indication which significantly expands Dexcom's addressable market. In addition they have launched a new, upgraded version of their device, and a lower cost version for international markets. We felt that the stock was not reflecting all of these tailwinds, which we see as drivers of growth for years to come.

BSD Analysis:
The manager identifies multiple growth catalysts for DexCom that appear undervalued by the market. The recent Medicare approval for expanded indications represents a significant addressable market expansion, as Medicare coverage typically drives broader insurance adoption and patient access. DexCom's market-leading continuous glucose monitoring technology provides a strong competitive moat in the rapidly growing diabetes management market. The launch of an upgraded device version should drive existing customer upgrades and attract new users, while the lower-cost international version opens emerging market opportunities. The manager believes these multiple positive developments create a multi-year growth trajectory that the market has not fully recognized. DexCom benefits from the recurring revenue nature of CGM supplies and the growing awareness of continuous monitoring benefits among diabetics and healthcare providers.

Pitch Summary:
At Moody's, we thought that short term concerns about debt issuance trends (driven by rapidly increasing interest rates and recession fears), offered an attractive entry point into an extremely high-quality company operating in a disciplined oligopoly. At some point we think the market will start to look through near term concerns and focus once again on the long-term quality and durability of the Moody's business model.

BSD Analysis:
The manager views current market concerns about Moody's as creating an attractive entry opportunity into a high-quality oligopoly business. Rising interest rates and recession fears have pressured debt issuance volumes, which directly impacts Moody's credit rating revenues in the near term. However, the manager emphasizes the company's structural competitive advantages, operating in a disciplined oligopoly with significant barriers to entry and regulatory moats. Moody's business model benefits from recurring revenue streams and typically recovers strongly when debt markets normalize. The manager expects the market to eventually refocus on the company's long-term durability rather than cyclical headwinds. This contrarian positioning suggests confidence in Moody's ability to maintain market share and pricing power through the cycle. The investment thesis relies on the temporary nature of current debt market weakness and Moody's proven ability to generate strong returns over full credit cycles.

Pitch Summary:
Over the quarter, we initiated new positions in CSX (a railroad) Moody's (a credit rating agency) and Dexcom (a medical devices company). We think that freight volumes are likely to improve from depressed levels at CSX, and, with improving service performance the company should start to be able to deliver better earnings growth.

BSD Analysis:
The manager initiated a position in CSX based on expectations for freight volume recovery from currently depressed levels. The railroad industry has faced significant volume headwinds due to economic uncertainty and supply chain disruptions, creating an attractive entry point for a high-quality rail operator. CSX's improving service performance metrics suggest operational efficiency gains that should translate to better earnings leverage as volumes recover. Railroads typically exhibit strong operating leverage, meaning modest volume increases can drive disproportionate earnings growth due to their high fixed-cost structure. The manager appears to be positioning for an economic recovery that would benefit freight transportation demand. However, the pitch lacks specific details about CSX's competitive positioning, route network advantages, or timeline for expected volume recovery, making it difficult to assess the investment's risk-reward profile.

Pitch Summary:
Vulcan Materials is also a beneficiary of an improving US housing market, and should, along with Eagle Materials, enjoy long term tailwinds from the recently passed federal infrastructure bill.

BSD Analysis:
The manager views Vulcan Materials as positioned to benefit from both housing market recovery and federal infrastructure spending. As a leading aggregates producer, Vulcan supplies essential materials for both residential construction and major infrastructure projects, providing diversified end-market exposure. The recently passed federal infrastructure legislation creates a multi-year tailwind for demand, as government-funded projects typically require substantial quantities of crushed stone, sand, and gravel. This infrastructure spending should provide a stable demand base that complements the cyclical housing recovery, potentially smoothing earnings volatility. The manager's bullish stance appears based on Vulcan's exposure to two significant growth drivers operating on different timelines. However, the pitch lacks discussion of the company's competitive positioning, regional market dynamics, or potential margin expansion opportunities from improved demand fundamentals.

Pitch Summary:
Builders FirstSource should see the benefit from higher starts quickly: they sell products that are used early in the construction phase (such as trusses and sidings).

BSD Analysis:
The manager positions Builders FirstSource as a direct beneficiary of the new home construction cycle, emphasizing the company's exposure to early-stage construction materials. Unlike companies that benefit later in the building process, Builders FirstSource supplies critical structural components like trusses and siding that are required immediately when construction begins. This timing advantage means the company should experience revenue growth almost immediately as new home starts increase, providing more predictable and faster earnings translation compared to companies serving later construction phases. The manager's thesis relies on the continued strength in new home starts driven by the constrained existing home market. However, the pitch lacks specific financial metrics or discussion of the company's market position and competitive advantages in the building materials distribution space.

Pitch Summary:
Our building products positions, Eagle Materials, Builders FirstSource, and Vulcan Materials, performed well. Housing data, especially new home starts, continues to surprise to the upside despite stubbornly high mortgage rates. We think that high rates have led to a major slowdown in existing home sales: home owners are unwilling to move and swap a low mortgage rate for a meaningfully higher mortgage rate, and as a result, demand for new homes has increased. At Eagle Materials, this should correspond to higher demand for wallboard.

BSD Analysis:
The manager presents a compelling housing market thesis that benefits Eagle Materials through increased wallboard demand. High mortgage rates have created an unusual market dynamic where existing homeowners are reluctant to sell and lose their low-rate mortgages, effectively constraining existing home inventory and driving demand toward new construction. This shift favors Eagle Materials' wallboard business, as new home construction requires significantly more building materials than typical home sales. The manager identifies a structural market inefficiency where high rates paradoxically boost new construction demand despite making housing less affordable overall. Eagle Materials should benefit from both increased volume and potentially improved pricing power as new home starts continue exceeding expectations. The thesis is further supported by long-term infrastructure spending tailwinds from federal legislation.

Pitch Summary:
Meta Platforms also reported good numbers, largely due to their application of artificial intelligence to their advertising business, which successfully drove higher engagement by their users, which drives more advertising dollars.

BSD Analysis:
The manager highlights Meta's successful integration of artificial intelligence into its advertising platform as a key performance driver. The AI implementation has created a virtuous cycle where improved ad targeting and content recommendation algorithms drive higher user engagement, which in turn attracts more advertising spend from marketers seeking better ROI. This technological advancement represents a sustainable competitive advantage in the digital advertising space, as higher engagement rates typically command premium pricing from advertisers. The manager's bullish view appears based on Meta's ability to monetize its AI investments through improved advertising effectiveness. However, the pitch lacks detail on valuation metrics or longer-term growth prospects beyond the current AI-driven advertising improvements.

Pitch Summary:
Amazon has been a significant laggard since Covid. The company significantly over built capacity, reducing returns in their retail business and at the same time experienced a slowdown in demand in the cloud business, AWS. Amazon, along with Microsoft, had warned that their cloud business growth rates would slow down as customers grew into the capacity they had previously purchased. However in their first-quarter reports both Microsoft and Amazon indicated that the slowdown would be shorter than they had expected originally.

BSD Analysis:
The manager presents a recovery thesis for Amazon following significant post-COVID challenges. The company had over-invested in capacity during the pandemic, which pressured retail margins, while simultaneously facing headwinds in AWS as customers digested previously purchased cloud capacity. However, recent first-quarter earnings indicated that the AWS slowdown is proving shorter-lived than initially anticipated, suggesting demand normalization is occurring faster than expected. This positions Amazon for potential margin expansion as excess capacity is absorbed and cloud growth re-accelerates. The manager's bullish stance appears predicated on the company emerging from this transitional period with improved operational efficiency. Amazon's dual exposure to both e-commerce recovery and cloud computing growth provides multiple avenues for performance improvement as economic conditions stabilize.

Pitch Summary:
We were able to purchase an initial position in Match Group, a leading provider of online and mobile dating apps, at what we believe was a very attractive price. Match's strategy is to own a portfolio of dating properties, starting with the early days of PC-based website Match.com. As new properties have come out, Match has often acquired or developed them. Tinder, which is today the world's leading mobile dating app, was incubated by Match. Hinge, which originally leveraged Facebook connections to allow people to meet friends of friends, has been growing like a weed since it was acquired by Match in 2018. Additionally, we expect Match to continue to launch new organic dating apps as it did in June. The company, through its portfolio approach, has over 60% market share in U.S. online dating and additional opportunities globally. We believe the online dating market is attractive as it no longer has a stigma associated with it, and as younger generations delay marriage, they are dating for longer. Human connection is a basic need, and we expect people to continue to date no matter the economic environment. Match stock had declined from $180 to less than $40 over perceived concerns about Tinder where growth has slowed down. We expect Match to improve the situation at Tinder through operational and product changes, while Hinge becomes big enough to help reinvigorate growth for the whole company. At a nearly 10% free cash flow yield, we felt the need to "swipe right" and add Match to your portfolio.

BSD Analysis:
Penn Davis McFarland initiated a position in Match Group after the stock declined from $180 to under $40, representing a significant valuation opportunity. The firm's thesis centers on Match's dominant market position with over 60% U.S. market share in online dating through its portfolio of apps including Tinder, Hinge, and Match.com. The managers believe the online dating market benefits from reduced social stigma and demographic trends showing younger generations dating longer before marriage. They view human connection as recession-resistant, providing defensive characteristics during economic uncertainty. The investment case relies on operational improvements at Tinder and continued rapid growth at Hinge to reinvigorate overall company growth. At nearly 10% free cash flow yield, the valuation appears compelling for a market-leading franchise. The managers expect the portfolio approach and global expansion opportunities to drive long-term value creation despite near-term Tinder headwinds.

Pitch Summary:
We initiated our position in WRB in early 2022, averaging in at around ~$63 (split-adjusted) compared to the current price of ~$62. We received $1.60 in dividends, bringing our net cost down to around $61.70 and leaving us with a negligible gain. After a stupendous 2022, this investment has been a drag so far this year. Despite the frustrating recent experience, we remain believers in Berkley and like its prospects. The flat stock price belies a company that has gotten more valuable over the past year. Based on consensus Street estimates, WRB is expected to earn $5.20 per share over the next twelve months, up +20.9% over the $4.31 it earned in the trailing twelve months. Book Value per Share grew by +15.1%, adjusted for dividends, between 2Q22 and 2Q23. Return on equity, which ultimately determines book value growth, has been 17.5%, 19.8%, 16.1% and 18.0% in the past four quarters. The company is making good money in both underwriting and its investment activities. Management knows a good value when it sees one. In the most recent quarter, buybacks annualized at 7% of shares outstanding (9% of the float ex- the Berkley family stake), a pace not seen in over a decade. Free cash flow generation over the next three years could feasibly exceed 40% of the current market cap, and with the stock at just 11.5x estimated earnings, we believe management is inclined to continue buying in shares. We are encouraged by recent industry commentary about firming rates and a rational competitive environment. Given depressed valuations across the sector, we would also not be surprised to see industry consolidation pick up.

BSD Analysis:
Springview maintains conviction in W.R. Berkley despite flat performance in 2023, viewing the disconnect between stock price and improving fundamentals as an opportunity. The manager emphasizes that WRB has become more valuable over the past year, with expected earnings growth of 20.9% to $5.20 per share and book value growth of 15.1%. Consistent ROE performance in the high-teens demonstrates strong capital efficiency in both underwriting and investment activities. Management's aggressive share buyback program at 7% annualized pace (highest in a decade) signals confidence in the valuation at 11.5x earnings. The fund projects free cash flow generation could exceed 40% of market cap over three years, supporting continued capital returns. Industry tailwinds include firming rates and rational competition, with potential sector consolidation benefiting well-positioned players like Berkley.

Pitch Summary:
Mexico-based FMX (which stands for "Fomento Economico Mexicano, S.A.B. de C.V.") is controlled by several Monterrey families but trades primarily under an ADR in New York with Bill Gates' family office Cascade Investment being the largest outside shareholder. This year, FMX's controlling families have embarked on a radical transformation of the holding company structure. After a decade of share price stagnation, their explicit aim is to improve investor perception and market valuation. The company recently sold its minority stakes in Heineken and a restaurant supply business for combined gross proceeds of ~$9 billion. It has earmarked other noncore assets for sale, which could fetch an additional ~$3-4 billion. This "cancer surgery" approach to shareholder value enhancement refashions FEMSA as a simpler operating company with its crown jewel Oxxo (the largest convenience-store chain in Latin America), a ~47% stake in publicly traded Coca-Cola FEMSA (the largest franchised Coca-Cola bottler in the world by volume) and a mountain of excess cash. At the current price of around $110 for the ADR, we estimate we are buying into Oxxo at ~7x this year's EBITDA – cheap for a business that has compounded sales and EBITDA at 9% and 16% CAGR, respectively, over the last five years. Slower-growth public c-store peers trade around 10-12x EBITDA. When all is said and done, we estimate the restructuring leaves FEMSA with excess capital equal to 20-30% of its current market cap – paving the way for significant shareholder cash returns. Putting 10x EBITDA – the low-end of the peer group range – on Oxxo's 2024E EBITDA estimate yields a price target of $144 per ADR, about 30% upside from current levels.

BSD Analysis:
Springview initiated a position in FEMSA during a major corporate restructuring aimed at unlocking shareholder value after a decade of stagnation. The controlling Monterrey families are executing a "cancer surgery" approach, divesting non-core assets including Heineken and restaurant supply stakes for $9 billion, with additional $3-4 billion in asset sales planned. This transformation simplifies FEMSA into a focused operating company centered on OXXO convenience stores and a 47% stake in Coca-Cola FEMSA. At current levels, the fund estimates buying OXXO at 7x EBITDA despite its strong 16% EBITDA CAGR over five years, compared to 10-12x for slower-growing peers. The restructuring creates excess capital equal to 20-30% of market cap, enabling significant shareholder returns. Management targets $144 per ADR using conservative 10x EBITDA multiples, representing 30% upside from current $110 levels.

Pitch Summary:
UK-based HLN is a pure-play global consumer-health company that owns trusted brands like Advil, Excedrin, Centrum, Sensodyne, and Theraflu. Haleon has an attractive financial profile and an experienced management team. The stock trades at less than 17x next year's earnings, a big discount to more well-known public peers like P&G, Colgate, and Church & Dwight. Given HLN's superior business quality and growth prospects, we think this valuation disconnect is unwarranted. In fact, we think HLN deserves to trade at a premium considering its above-average margins, returns, and organic growth profile. The opportunity to buy into an above-average business like HLN at a below-average multiple is due to three investor hangups, in our view: (i) HLN's former corporate parents Pfizer and GSK PLC together still own around 42% and have publicly made known their intention to sell; (ii) ongoing personal injury litigation against various drug manufacturers relating to the drug Zantac, which HLN never marketed or sold is nevertheless implicated by its former association with GSK; and (iii) high levels of debt assumed as part of the separation. The temporary nature of these things is obvious, at least to us. Yes, Pfizer and GSK will at some point sell their shares, but that will have no impact on the intrinsic value of the company. We have no clue when their block will come to market but when it does this overhang will fade away. The Zantac litigation is more nuanced and complex, but our research and understanding to date is that HLN has no exposure to any outcome and even if we are wrong about this, any potential financial impact will be quite minimal and absorbable. Finally, HLN generates a lot of free cash flow, which should allow it to quickly deleverage to management's target range in the next few quarters. Looking around the corner past the temporary overhangs, we see a well-positioned company producing sustainable low-double digits EPS growth. Using 23x earnings (the low end of the peer group range) on our 2025 EPS estimate yields about 60% upside to the shares from current levels.

BSD Analysis:
Springview Capital initiated a core position in Haleon, viewing it as an undervalued pure-play consumer health company with premium brands trading at a discount to peers. The manager believes HLN trades at 17x forward earnings despite superior business quality, margins, and growth prospects compared to established peers like P&G and Colgate. Three temporary overhangs create the opportunity: Pfizer/GSK's 42% ownership with stated selling intentions, Zantac litigation concerns despite no direct exposure, and elevated debt levels from the spinoff. The fund expects these issues to resolve naturally, with strong free cash flow enabling rapid deleveraging. Management projects sustainable low-double-digit EPS growth and estimates 60% upside using conservative 23x earnings on 2025 estimates. The thesis centers on buying a high-quality business at a below-average multiple during a temporary valuation disconnect.

Pitch Summary:
In our Q1 letter, we introduced Daktronics as our largest position and highest conviction risk/reward. There have been positive developments since our last update, and even though the stock is up considerably, we believe it is arguably even cheaper today given fundamentals have improved even faster than the rise in the stock price. After COVID-related supply chain disruptions led to nearly 0% EBITDA margins for four consecutive quarters, we believed it was only a matter of time before the company's price increases flowed through the backlog and returned it to meaningful profitability. Supply chain pressures have eased, the company's working capital is normalizing, and the price increases have taken effect. This made the company's fiscal Q3 report (ending in January) the pivotal report as Daktronics' adjusted EBITDA margins jumped to 9.3%. If the Q3 report was the "all clear" that signaled the company was through the worst of their struggles, then the recent Q4 result was the "off to the races" report. The company's adjusted EBITDA margin expanded to 12.0% (versus 9.3% in Q3), signaling further efficiency gains and a return to a normalized environment. The company generated $25M of EBITDA and $21 million of free cash flow in the quarter! If we take a slight discount to these levels to account for some seasonality in the business, DAKT is generating roughly $90M of EBITDA and $50M of free cash flow on an annualized run-rate basis coming out of Q4. This would put the stock at ~3.9x EBITDA and a ~14% FCFE yield. These metrics seem unsustainably cheap to us and are arguably conservative given i) the business has a strong growth runway and ii) there is still excess working capital that will convert to cash over the coming quarters. We believe the market remains asleep to the value creation that is happening now at DAKT. On the last earnings conference call, only one person asked a question. On the previous conference call, there were zero questions. DAKT went through a difficult period during COVID, but they have emerged as a stronger company. Moreover, investors looking at historical levels of underperformance and profitability are ignoring the positive improvements in corporate governance, improved pricing discipline, and focus on shareholder returns. The Board has improved with the addition of a meaningful shareholder representative and a previous CFO from Wells Fargo. Our industry checks suggest that competitors have noticed Daktronics be more price disciplined on potential projects, which should translate to higher margins through the cycle. Moreover, the industry is growing double digits per year driven by powerful trends towards bigger, brighter, and better screens to create a better fan experience across the high school, college, and professional levels of sports and other large venues. In summary, we believe Daktronics is a very compelling opportunity in the market today. The company is a market leader emerging from a 20-year stock and valuation low. They have emerged from the difficulties of COVID a stronger and more focused organization, as evidenced by the two most recent positive quarterly results. Moreover, the company has transformed and strengthened its balance sheet—now boasting a net cash position due to a recent refinancing with both J.P. Morgan and Alta Fox. Today, even after strong YTD performance, the stock is trading at ~4x run-rate EBITDA and ~7x FCFE with the ability to grow revenue and earnings double digits for the next several years. Moreover, we believe improved investor relations efforts and a potential return of the dividend represent likely catalysts in the next 12 months. DAKT remains our largest and highest conviction position and we expect shares to more than double from current levels in the medium term.

BSD Analysis:
Alta Fox presents a compelling turnaround thesis for Daktronics, positioning it as their highest conviction investment emerging from COVID-related operational challenges. The manager highlights a dramatic operational recovery, with EBITDA margins expanding from near-zero to 12% in recent quarters as supply chain pressures eased and price increases flowed through. At current run-rate metrics of ~$90M EBITDA and $50M free cash flow, the stock trades at an attractive 3.9x EBITDA multiple with a 14% free cash flow yield. The investment case is strengthened by improved corporate governance, enhanced pricing discipline, and a net cash balance sheet following refinancing. The manager emphasizes the company's market leadership position in a growing industry driven by demand for enhanced digital displays across sports venues. With minimal analyst coverage and potential catalysts including dividend restoration, Alta Fox expects shares to more than double from current levels.

Pitch Summary:
The company that I am referring to is Temple & Webster (TPW). They operate as an online retailer of furniture and homewares in Australia. Temple & Webster is effectively the Wayfair of Australia, except with a fundamentally superior business model. Temple & Webster's investment thesis is simple – they operate with meaningful competitive advantages in an industry that is both underpenetrated and minimally competitive. For this reason, they continue to take market share and grow faster than the overall industry with extremely profitable unit economics that put them in the top-percentile of their e-commerce peer group. It costs Temple & Webster approximately A$69 to acquire a new customer, and the average post-delivery profit that the company earns per customer per year is A$142. This results in a twelve-month return on investment of 205%. The only other e-commerce marketplace that I have encountered with better unit economics than this is Raksul (4384). The reason why Temple & Webster is able to produce such attractive unit economics is primarily because of the dearth of competition that exists in the country and the advantages that TPW has carved out for itself. Many of TPW's competitors are old-school brick and mortar retailers who have been paying a dividend for 15+ years and who are counter incentivized to upend their business model to compete against online marketplaces. Likewise, Temple & Webster has meaningful barriers to scale that keeps the competition at bay. Temple & Webster enjoys a top-of-mind status within its addressable customer base which leads to higher order frequencies and larger basket sizes relative to its competitors. For example, there is a company in Australia that has been attempting to compete with Temple & Webster since 2015. Despite diligent efforts by this competitor to achieve scale in the market, they are still in a tough position with minimal market share and pitiful unit economics. This company's average per customer lifetime order frequency is a paltry 1.1x (relative to 2-4x per year for Temple & Webster), meaning that they are therefore stuck on a hamster wheel of customer acquisition activities with little hope of ever generating the profitable unit economics and sustainable growth that Temple & Webster currently enjoys. In addition to this advantaged position, Temple & Webster has demonstrated exceptional capital allocation discipline. Temple & Webster's management team refuses to follow their peer, Wayfair, into building a proprietary back-end logistics infrastructure. They view this investment as a costly endeavor that is unlikely to yield a meaningful source of competitive advantage and their preference is to allocate those dollars towards revenue-generative channels that are likely to yield a higher return. Given this difference in capital allocation decision making, it should be no surprise to learn that approximately 75% of Temple & Webster's revenues are delivered via drop-ship. This allows Temple & Webster to shift the inventory risk and delivery expenses over to its suppliers. It also enables a negative working capital model that yields a cash add-back to Temple & Webster's bottom line each year. The other 25% of revenues come from items that are sold under Temple & Webster's private labels. Temple & Webster has exclusive access to sales data, and they leverage this data to own and directly sell several of the top-selling items on the site. This allows Temple & Webster to capture a higher gross margin on these items while incurring minimal inventory risk and maximizing inventory turns. Despite accounting for 25% of total sales, these private label items make up less than 1% of the total available inventory that is listed on the site. The confluence of these advantages and the astute capital allocation decisions by Temple & Webster's management team has allowed them to produce significantly higher gross margins than Wayfair (46% vs. 28%) and much shorter payback rates despite having lower bargaining power with suppliers, while also remaining debt-free and asset-light. The aforementioned earnings report that sent Temple & Webster's share price down 26% in a single day revealed a 12% decline in year-over-year sales. In a truly efficient market this would have been accounted for in TPW's share price given that the management team had already foreshadowed this slowdown, as well as the fact that online discretionary purchase behavior is a trackable data point published monthly by the Australia Bureau of Statistics. Nevertheless, we were positively surprised that the 12% dip in revenues was not lower, given that Australian online discretionary purchases were down 20% year-over-year during the same time period, and that TPW grew at a faster pace than the overall market in the prior year's period (+46%). This slowdown was an inevitability given that the most recent earnings period (July-December 2022) came during the midst of an economic reopening from COVID-19 lockdowns. We found further reasons for optimism in the report because, despite the revenue decline, the important metrics to the above investment thesis remained intact. Profit margins expanded slightly, twelve-month returns on incremental capital remained in excess of 200%, and repeat customers grew to 57% of total active customers, its highest level yet. Temple & Webster is currently holding its profit margins in the 3-5% range while they intentionally invest into adjacent business lines that have (so far) demonstrated similar, if not better, unit economics than their core marketplace business. Despite the ongoing investment, they anticipate gaining substantial leverage on marketing expenses and cost of goods sold in the coming years and believe that a 15% operating margin is achievable. I share this belief, but the current share price provides sufficient margin of safety in the event that they fail to reach these goals. The furniture industry remains underpenetrated (~15% vs. the US and UK which are ~30% penetrated) and Temple & Webster is the market share leader (17%). A 1pp increase in both online penetration rates and in TPW market share annually for the next five years yields an 11% revenue growth rate and A$704 million of revenues in 2027. Operating profits approximate free cash flows, given the negative working capital nature of the business model. If margins during that time were to expand from 4% to 10% (5pp shy of their target) then operating profits/cash flows are ~A$70 million. A 20x multiple of these earnings yields a market value of A$1.4 billion, which is a 202% price appreciation (15% annual rate) from today's value. It is worth noting that these estimates predict an industry that remains underpenetrated and handicaps Temple & Webster's market share at only half that of Wayfair's in the US. Said another way, there are multiple free call options by which Temple & Webster might outperform this base-case estimate. Temple & Webster remains debt-free with A$100 million of cash available on its balance sheet, with expanding profit margins and extremely high returns on incremental capital. Armed with this information, we were delighted to add to our position in TPW the day that it traded down by 26%. Over the following days we were joined by Temple & Webster's management team which bought back 2.7 million shares. In May, the company announced that it had returned to >10% year-over-year growth in revenues.

BSD Analysis:
The manager presents a compelling bull case for Temple & Webster, positioning it as Australia's dominant online furniture retailer with superior unit economics compared to global peers like Wayfair. The investment thesis centers on TPW's exceptional customer acquisition metrics, generating A$142 profit per customer annually at a cost of only A$69, yielding a 205% ROI that rivals best-in-class e-commerce companies. The manager emphasizes TPW's competitive moat stemming from limited competition in an underpenetrated market, where traditional brick-and-mortar retailers are disincentivized to compete aggressively online. The company's capital allocation discipline, particularly avoiding costly logistics infrastructure in favor of a drop-ship model, enables superior margins (46% vs Wayfair's 28%) and negative working capital dynamics. Despite a temporary 12% revenue decline that triggered a 26% stock drop, the manager views this as a buying opportunity, noting that key metrics like customer retention (57% repeat customers) and ROI remained strong. The valuation case projects 202% upside based on modest market share gains and margin expansion to 10%, well below management's 15% target, providing meaningful downside protection.

Pitch Summary:
We initiated a new position this quarter in Mobileye Global, an Israel-headquartered, global leading provider of advanced driver assisted systems (ADAS) and autonomous-driving technologies and solutions. Mobileye was founded in 1999 by Dr. Amnon Shashua, who remains CEO today. Mobileye is the result of Dr. Shashua's academic research at the Hebrew University of Jerusalem into a vision system to detect vehicles using only a camera and software algorithms written to a processor. The result of Dr. Shashua's research is the EyeQ, 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. Mobileye completed its initial public offering in 2014, but was taken private in 2017 by Intel Corp. Then in 2022, Intel spun out the company in a public offering while maintaining ownership control. In 2022, Mobileye Global sold more than 33 million EyeQ units at an average selling price (ASP) of $51.88. This is about a 70% share of the global auto industry's ADAS. However, we believe that the most excitement for Mobileye comes from the opportunity in fully autonomous driving vehicles. SAE International (formerly the Society of Automotive Engineers) outlines six levels of driving autonomy, with level zero being no automated driving and level five being full automation without human intervention. Today, Mobileye Global is dominant at level two—partial driving automation. Here the driver is fully attentive, but uses ADAS for things like acceleration, braking and steering, etc. Level three is conditional driving automation, meaning the driver can allow the system to take over driving functions, but the driver is available to take back control of the vehicle as needed. Level three is filled with formidable competitors such as chipmakers Nvidia and Qualcomm, who partner with perception-software companies. The auto industry's OEMs are now in a pitched battle with new market entrants, namely technology companies that plan to develop electric vehicles with autonomy for either sale to customers or to offer rides as a service. Mobileye Global has a product road map that covers each driving level. Its level three solution is called SuperVision, with a current ASP of $1,350. Mobileye Global has a total of five auto brands that have adopted SuperVision, two of which are Porsche (owned by Volkswagen) and Zeekr, a premium Chinese brand owned by Geely. Mobileye Global's fully autonomous driving system (level five) has an ASP of between $50,000 and $60,000. There is a debate in the marketplace as to whether these systems will be sold directly to consumers, or if they will be purchased by ride-sharing service providers. Mobileye Global's strategy is to remain nimble enough to support whatever option is adopted by the marketplace, if not both. The pace of adoption will likely be impacted by regulations, safety reviews, and the speed that auto insurers can adapt. We believe Mobileye Global can grow its revenue in the mid-teens on the low end, to much higher, depending on the adoption rate of the higher driving-autonomy levels. While the company still shows an operating loss, it is carrying annual amortization charges of more than $400 million related to Intel's investment in the company. We like Mobileye Global's competitive chances in ADAS and the autonomous driving space.

BSD Analysis:
Brown Capital initiated a position in Mobileye Global as a new investment, viewing the company as the dominant leader in ADAS technology with significant upside potential from autonomous driving adoption. The manager highlights Mobileye's commanding 70% market share in ADAS through its EyeQ system-on-chip, generating over 33 million unit sales at $51.88 ASP in 2022. The investment thesis centers on the company's technology roadmap spanning all autonomy levels, from current Level 2 dominance to future Level 5 fully autonomous systems with ASPs of $50,000-$60,000. Brown Capital emphasizes the significant pricing power as autonomy levels increase, with SuperVision (Level 3) commanding $1,350 ASP versus $52 for basic ADAS. The manager appreciates Mobileye's strategic flexibility to serve both direct consumer sales and ride-sharing service models as the autonomous vehicle market evolves. Despite current operating losses, Brown Capital notes that $400+ million in annual Intel-related amortization charges mask underlying profitability potential. The firm expects mid-teens revenue growth at minimum, with potential for much higher growth depending on autonomous driving adoption rates and regulatory approval timelines.

Pitch Summary:
Abcam is a life-science research material supplier based in Cambridge, U.K. Its name is a portmanteau of "antibody" and "Cambridge." Abcam's mission is to help accelerate the next breakthrough in drug discovery, diagnostics and basic research. It accomplishes this by providing its customers with high-quality, well-researched antibodies, assays, proteins, kits and more, across 130 countries, mostly within 24-48 hours, saving time and headaches for life-science researchers. Repeatability when conducting experiments is an absolute must in discovering lifesaving medicines and breakthroughs, so having a reliable partner like Abcam is essential. During the quarter, Dr. Jonathan Milner, founder, past board member and current shareholder of Abcam, expressed concern about governance and management execution at Abcam. Dr. Milner's concern was apparently first expressed to management and the board before he began contacting shareholders directly, including Brown Capital on your behalf. Dr. Milner eventually voiced his dissatisfaction in an open letter requesting an extraordinary general meeting (EGM) and a shareholder vote on his "plan of value-creation," including electing him as executive chairman of the board. Soon after Abcam's management and board scheduled the EGM, management acknowledged that it had received a number of "strategic inquiries," and then announced that it would undergo a full strategic review of its alternatives, including a sale of the company. This drove the share price up further. This prompted Dr. Milner to suspend his proxy solicitation, even though the EGM is slated for July 12. Coincident with the announcement of a strategic review, Abcam management reiterated its revenue and operating margin guidance for 2023 of 15%-20% top-line growth (constant exchange rate) and operating margins of 27%-28%. Additionally, management issued initial guidance for 2024 of 11%-13% top-line growth (constant exchange rate) and operating margin of 32%-36%.

BSD Analysis:
Brown Capital views Abcam as a mission-critical supplier to the life sciences research ecosystem with strong competitive positioning through high-quality products and rapid global distribution capabilities. The manager emphasizes Abcam's essential role in drug discovery and diagnostics, where repeatability and reliability are paramount, creating high customer switching costs. The investment thesis was significantly enhanced by activist pressure from founder Dr. Jonathan Milner, which catalyzed management to announce a strategic review including potential sale options. This corporate action drove meaningful share price appreciation during the quarter and demonstrates the market's recognition of underlying value. Brown Capital highlights Abcam's solid fundamental outlook with management guidance of 15-20% revenue growth and 27-28% operating margins for 2023, improving to 32-36% operating margins in 2024. The company's global reach across 130 countries with 24-48 hour delivery capabilities reinforces its competitive moat in serving time-sensitive research applications. The strategic review process positions Abcam for potential value realization through M&A activity in the consolidating life sciences tools sector.

Pitch Summary:
One company that has developed a product using this new technology is RELX. RELX is a U.K.-based provider of information and data analytics primarily for businesses across many industries. Simply put, RELX turns data into information for its customers. For instance, it provides software to insurance companies to help them assess underwriting risk. Banks use RELX tools for transaction-fraud identification and prevention. Health care professionals reference RELX's platform to get quick clinical answers regarding patient care. In the legal profession, RELX provides a legal and news database of reference materials. RELX's collection of companies is divided into four divisions: risk management (34% of revenue); scientific, technical & medical (34%); legal (21%); and exhibitions (11%). RELX grew revenue in 2022 by 18% including underlying growth of 9%, and had an operating margin of 31.4%. More than 80% of the company's revenue is delivered electronically with over 50% via subscription. The remaining revenue is largely transaction based. During the quarter, RELX hosted a webinar to demonstrate a new product in beta test in its legal segment, under the company's LexisNexis brand. The new product is called "Lexis+ AI," a generative AI platform designed to transform legal work. It is built and trained on one of the world's largest repositories of legal content. The results provide verifiable and citable legal authority. When LLMs are trained on RELX's proprietary data set which is curated by its expert legal professionals, they dramatically lower the chances of incorrect results, or "hallucinations." Legal professionals use the password-protected product and are able to make iterative requests for various legal documents to be drafted, saving time, headaches and money. Since the product is in beta, RELX would only say that the product will be launched at a premium to its existing product offering. RELX has been using AI technologies for many years, and has been working with GPT3 and GPT4 since their release. Over the last decade alone, RELX has spent more than $1 billion investing in its tech stack to remain nimble, so new technologies can be incorporated when they make sense.

BSD Analysis:
Brown Capital presents RELX as a compelling AI beneficiary positioned to capitalize on the generative AI revolution through its new Lexis+ AI product. The manager highlights RELX's diversified revenue streams across risk management, scientific/medical, legal, and exhibitions segments, with strong fundamentals including 18% revenue growth and 31.4% operating margins. The investment thesis centers on RELX's proprietary legal content database and decade-long AI investment providing competitive advantages in developing premium AI-powered products. The company's subscription-heavy model (50%+ of revenue) and electronic delivery (80%+ of revenue) create recurring revenue streams with high switching costs. Brown Capital views RELX's $1 billion technology investment over the past decade as evidence of management's commitment to innovation and ability to integrate new technologies effectively. The beta launch of Lexis+ AI at premium pricing represents a significant growth catalyst, leveraging RELX's curated legal database to minimize AI "hallucinations" and deliver superior accuracy versus generic AI models.

Pitch Summary:
Superior Industries (SUP): If you've tried to buy a car in the past 3 years, you have a pretty good idea about the lag in auto production since Covid. US inventories are at historic lows and production remains well behind 2019 levels. Despite this, wheel manufacturer SUP is generating cash flow and has improved sales margins. SUP appears to have made significant inroads on electric vehicle sales - fortunately for them EVs still need wheels! The biggest drag on SUP has been a complicated capital structure, and with that set to simplify in the next two years, we believe their value will become more apparent to the broader market.

BSD Analysis:
Kingdom Capital identifies Superior Industries as a beneficiary of the automotive industry recovery, noting that despite production remaining well below 2019 levels and historic low inventories, the company is already generating positive cash flow with improving margins. The manager highlights SUP's strategic positioning in the electric vehicle transition, noting the obvious but important fact that EVs still require wheels, suggesting the company has successfully adapted to industry changes. The fund views the complicated capital structure as the primary impediment to valuation recognition, but expects this headwind to resolve over the next two years. The thesis appears to center on SUP being well-positioned for the automotive production recovery while trading at depressed valuations due to capital structure complexity. The combination of improving fundamentals, EV market penetration, and pending capital structure simplification creates multiple catalysts for value realization. The manager sees significant upside as the broader market recognizes the company's improved positioning.

Pitch Summary:
The Children's Place (PLCE): As the name implies, PLCE sells Children's apparel through their store network, website, and via Amazon. While the business was mostly left for dead after cotton and freight costs pummeled them in 2022, these headwinds have abated. PLCE expects to earn around $5/share in just the second half of 2023 after these pressures subside, and trades for less than $30. For a business that consistently generated $100m+ of cash flow before Covid disruptions, I don't see enough evidence that their model is permanently impaired. PLCE made significant digital investments before Covid and drove over half their sales online. Even in a recession, PLCE grew sales in 2008 and only saw an average 2% decline in same-store sales in 2009. Spending on children is less discretionary than other economic sectors and PLCE seems well-positioned to thrive in a normalized environment.

BSD Analysis:
Kingdom Capital presents a compelling turnaround thesis for The Children's Place, viewing the 2022 cost pressures from cotton and freight as temporary headwinds that have now subsided. The manager highlights attractive valuation metrics, with the stock trading below $30 while expecting $5 per share earnings in just the second half of 2023. The fund emphasizes the company's historical cash generation capability of over $100 million before COVID disruptions, suggesting the business model remains fundamentally sound. PLCE's digital transformation appears well-executed, with over half of sales now generated online following pre-COVID investments. The manager notes the defensive characteristics of children's apparel spending and points to the company's resilience during the 2008-2009 recession, when sales actually grew in 2008 and same-store sales declined only 2% in 2009. The combination of normalized cost environment, strong digital presence, and defensive end market positions PLCE for recovery.

Pitch Summary:
In our last update, we highlighted our heavy allocation to A-Mark Precious Metals (AMRK) and expectations for their upcoming earnings release. A-Mark delivered another strong quarter of profitability and was able to capitalize on increased demand for their bullion products during the weeks following the regional banking turmoil. The biggest surprise from A-Mark's earnings release was their recent pivot to repurchasing shares. The company has been authorized to make buybacks since 2018 but first used their authorization in February 2023 at $29/share. This is particularly noteworthy given this allocation decision was made before the bank runs re-accelerated demand. We expect this decision highlights multiple important shifts for the business: 1. Establishes a "floor" price where the company views buybacks favorably. Given recent acquisitions at 1-2x EBITDA, the bar for allocating capital to buybacks is very high. 2. Represents a maturing of their business plan, given their numerous entries into niches of the precious metals market. Going forward, we expect sufficient free cash flow to be available to fund the ongoing dividend, buybacks, and accretive acquisitions. A-Mark continues to trade at a low multiple of cash flow while leading their industry. A-Mark maintains superior access to product, and they were the only platform we track which didn't increase size limits on customer orders during the March/April surge in bullion demand. We view this as further validation of their business model being ideally suited to continue dominating the DTC bullion market.

BSD Analysis:
Kingdom Capital maintains a bullish stance on A-Mark Precious Metals, highlighting the company's strong execution during regional banking turmoil and strategic shift toward capital returns. The manager emphasizes A-Mark's competitive advantages, including superior product access and the ability to maintain customer order limits during high-demand periods when competitors could not. The initiation of share buybacks at $29 per share signals management confidence and establishes a valuation floor, particularly significant given the company's disciplined acquisition history at 1-2x EBITDA multiples. The fund views A-Mark as trading at attractive cash flow multiples while maintaining industry leadership. The company's diversified precious metals platform and strong free cash flow generation position it well for continued dividend payments, buybacks, and accretive acquisitions. The manager sees A-Mark as ideally positioned to dominate the direct-to-consumer bullion market through its superior business model and operational capabilities.