Investment Pitches

Pitch Summary:
Delivery Hero has the largest global presence covering 70 countries and over 2.2bn of the world's population. 90% of its transactions take place in countries where it is the leader in the market. The company recently provided disclosure splitting its profitable and non-profitable food delivery markets. Its profitable markets are well on their way to meeting the company's long-term margin targets while 75% of its unprofitable markets are markets where it is the leader and seeing strong growth—giving it good reason to carry on investing. With a number of these markets expected to move into the profitable segment, along with continued margin expansion in the existing profitable markets, Delivery Hero's earnings are expected to improve materially over the next few years. The company currently holds EUR2.4bn in cash. Delivery Hero was active in the convertible debt markets during the pandemic and recently was able to refinance some of its convertible debt, pushing its next maturity out to 2026.

BSD Analysis:
Contrarius highlights Delivery Hero's unparalleled global scale with operations spanning 70 countries and serving over 2.2 billion people, creating the world's largest food delivery footprint. The company's market leadership is exceptional, with 90% of transactions occurring in markets where Delivery Hero holds the leading position, demonstrating strong competitive positioning across diverse geographies. Management's recent disclosure separating profitable and unprofitable markets provides valuable transparency, showing profitable markets progressing toward long-term margin targets while 75% of unprofitable markets represent leadership positions with strong growth trajectories. This portfolio approach justifies continued investment in emerging markets that are expected to transition to profitability over time. The earnings improvement outlook is compelling as markets mature and migrate from the unprofitable to profitable category, while existing profitable markets continue expanding margins. Financial flexibility remains strong with EUR 2.4 billion in cash and successful debt refinancing that extended maturities to 2026. The combination of global scale, market leadership, clear path to profitability across markets, and strong balance sheet positions Delivery Hero for significant earnings growth.

Pitch Summary:
Uber Technologies (Uber) is the world's largest mobility platform with around 90% of global trips taken in regions where Uber is the largest player in the market. For deliveries, 38% and 59% of orders either came from markets where Uber is the leader or second in the market respectively. Uber was one of the first companies in 2022 to publicly identify the changing financial landscape and change course from growth at all costs to aggressively cutting costs. As a result, margins have increased substantially and the company has started generating free cash flow and is expected to generate significant free cash flow in 2024. Uber has $4.3bn of cash on its balance sheet after taking advantage of the capital markets during the pandemic by raising over $5bn in debt. Its net debt is largely offset by other investments, which have been written down materially. These other investments, including a 14% stake in Grab, are considered attractive in their own right.

BSD Analysis:
Contrarius emphasizes Uber's global mobility dominance with approximately 90% of trips occurring in markets where Uber leads, demonstrating exceptional market positioning and competitive advantages. The company also maintains strong delivery market positions, with 97% of orders coming from markets where Uber ranks first or second. Management's early recognition of changing financial conditions in 2022 and subsequent aggressive cost-cutting measures showcase strategic adaptability and operational discipline. This pivot from growth-at-all-costs to profitability focus has driven substantial margin expansion and the achievement of positive free cash flow, with expectations for significant cash generation in 2024. The balance sheet provides substantial financial flexibility with $4.3 billion in cash, bolstered by strategic debt raising during the pandemic. While net debt exists, it's largely offset by investment holdings that have been conservatively written down, including a valuable 14% stake in Grab Holdings. The combination of market leadership, operational improvements, strong cash generation prospects, and solid financial position creates a compelling investment case for this mobility and delivery platform leader.

Pitch Summary:
Just Eat Takeaway.com (Just Eat) is the food delivery leader in Northern Europe, the United Kingdom and Ireland, Canada, Israel, Australia and New Zealand. Over the past year the company has improved profitability meaningfully by increasing fees and commission rates, reducing marketing spend and imposing minimum order values to drive down delivery costs. Orders did decline over the past year as they lapped the pandemic lockdown period, which was to be expected. The company however expects to generate meaningfully positive adjusted EBITDA in 2023 and begin moving towards generating high levels of cash flow thereafter. We believe it is extremely attractively priced at current levels. After the sale of its 33% stake in iFood (the Brazilian food delivery leader) to Prosus, the company appears well capitalised with relatively minimal net debt.

BSD Analysis:
Contrarius presents a turnaround story for Just Eat Takeaway, emphasizing the company's leadership position across multiple developed markets including Northern Europe, UK, Ireland, Canada, Israel, Australia, and New Zealand. The fund highlights significant operational improvements over the past year through strategic pricing actions, including increased fees and commission rates, reduced marketing expenditure, and implementation of minimum order values to optimize delivery economics. While order volumes declined as pandemic comparisons normalized, this was anticipated and doesn't detract from the underlying business improvements. The company's guidance for meaningfully positive adjusted EBITDA in 2023 and subsequent cash flow generation represents a major inflection point. Contrarius views the current valuation as extremely attractive, particularly following the strategic divestiture of the iFood stake to Prosus, which strengthened the balance sheet and reduced net debt to minimal levels. The combination of market leadership, operational efficiency gains, improving profitability trajectory, and attractive valuation creates a compelling investment opportunity.

Pitch Summary:
Grab Holdings (Grab) dominates the South East Asian mobility and delivery markets with estimated market shares of 71% and 51% respectively. The nearest competitors for each of these markets have only 18% and 24% of each market respectively. Its market dominance came at a cost, with partner and customer incentives being so large in 2019 that the company reported negative revenue. Like many of the other companies, its focus has shifted towards profitability with both their mobility and delivery segments achieving positive adjusted EBITDA since Q3 2022 on the back of reduced incentives. Grab is still incurring losses due to the growth of their financial services (e-wallet) segment, however, with a large portion of the region being either unbanked or underserved, these investments are expected to be attractive in the long-term. To illustrate the potential of the e-wallet business, 32% of Grab's transactions still took place in cash in 2021 (down from 52% in 2019).

BSD Analysis:
Contrarius highlights Grab's exceptional market dominance in Southeast Asia with commanding 71% and 51% market shares in mobility and delivery respectively, creating significant competitive moats against much smaller rivals. The company has successfully transitioned from a growth-at-all-costs strategy to profitability focus, with both core segments achieving positive adjusted EBITDA since Q3 2022 through reduced incentive spending. While current losses persist due to financial services investments, the fund views this as a strategic long-term opportunity given the region's large unbanked and underserved population. The e-wallet business shows strong adoption trends, with cash transactions declining from 52% to 32% between 2019 and 2021, indicating growing digital payment penetration. Grab's dominant market position across multiple verticals in a high-growth region, combined with the shift toward profitability and the significant fintech opportunity, forms the basis for Contrarius's bullish investment thesis. The company's ability to monetize its large user base across mobility, delivery, and financial services creates multiple revenue streams and cross-selling opportunities.

Pitch Summary:
DoorDash is the leading food delivery business in the United States with around 60% of the market. Unlike some of the other delivery businesses, DoorDash operated throughout 2020 and to date with positive free cash flow. Management are using the cash flow from their dominant United States food delivery business to enter new markets, both geographically and in the form of convenience and grocery deliveries, and thus overall free cash flow is currently small. We rate management very highly and expect them to succeed in building significant positions in these new markets. The share has fallen almost 75% from its peak. At its current price we believe it offers significant value based on a conservative estimate of normal free cash flow. The company has an extremely strong balance sheet with $3.9bn in net cash.

BSD Analysis:
Contrarius presents a compelling bull case for DoorDash based on its dominant 60% U.S. market share and consistent positive free cash flow generation throughout the pandemic period. The fund managers highlight DoorDash's strategic reinvestment of cash flows into geographic expansion and new verticals like convenience and grocery delivery, positioning the company for long-term growth. Management quality receives high marks from the fund, with expectations that expansion efforts will succeed in building meaningful market positions. The valuation opportunity is significant, with shares down approximately 75% from peak levels, creating what the managers view as substantial value based on normalized free cash flow estimates. The company's financial position is exceptionally strong with $3.9 billion in net cash, providing ample resources for continued investment and growth initiatives. This combination of market leadership, proven profitability, strategic expansion, and attractive valuation following the significant price decline forms the core of Contrarius's investment thesis.

Pitch Summary:
Pardee Resources (PDER): The least "exciting" of our main energy positions, Pardee continues to collect checks on timber, coal, and natural gas production, along with some solar energy credits and agriculture investments. Pardee rewarded us with a $20/share special dividend in December, continuing their long-term record of returning value to shareholders. The story hasn't changed, Pardee owns assets worth far more than their share price implies, and those assets generate a lot of cash. We are happy to remain patient and collect our dividends alongside Management.

BSD Analysis:
Kingdom Capital maintains a patient, income-focused approach to Pardee Resources, viewing it as a diversified natural resource play with consistent cash generation capabilities. The company operates across multiple asset classes including timber, coal, natural gas, solar energy credits, and agriculture, providing natural diversification and steady cash flows. Management's shareholder-friendly approach is evidenced by the $20 per share special dividend paid in December, demonstrating a long-term commitment to returning capital to investors. The investment thesis centers on a significant discount between asset values and market price, with the manager confident that underlying assets are worth substantially more than current valuations suggest. While acknowledging PDER as the least exciting position, the manager appreciates the predictable cash generation and dividend income stream. This patient capital approach aligns with management's conservative strategy and provides steady returns while waiting for potential asset value realization.

Pitch Summary:
Arch Resources (ARCH): We are optimistic investors in the forgotten coal industry, where metallurgical coal remains a key input for steel manufacturing. New electric vehicles, solar panels, and wind turbines slated for production in the coming decade will need a tremendous amount of steel. Labor and equipment costs for coal mining have dramatically increased since 2020, and non-controllable costs (like royalties in Australia) have seen significant increases. This provides a competitive advantage for a low-cost producer like ARCH. The company continues to generate exceptional cash yet shares trade for a mere 2x multiple of our expected cash flow.

BSD Analysis:
Kingdom Capital presents a contrarian bull case for Arch Resources, positioning the company to benefit from the steel demand driven by renewable energy infrastructure buildout. The manager argues that electric vehicles, solar panels, and wind turbines will require substantial steel production, creating sustained demand for metallurgical coal despite the broader energy transition. The investment thesis hinges on ARCH's competitive cost advantage as industry-wide labor, equipment, and royalty costs have increased significantly since 2020, benefiting low-cost producers. At only 2x expected cash flow, the valuation appears extremely attractive for a company generating exceptional cash flows. The manager views coal as a "forgotten" industry, suggesting potential for multiple expansion as investors recognize the essential role of metallurgical coal in steel production. This contrarian positioning in an out-of-favor sector could provide significant upside if the steel demand thesis materializes as anticipated.

Pitch Summary:
Unit Corporation (UNTC): The decline in oil and gas prices hurt UNTC's share price; however, the business remains poised to grow earnings in 2023. UNTC's average barrel of oil was sold for $57.48 in 2022 (due to significant hedges added in 2020), versus an average oil price excluding hedges of $94.28. For 2023, less production is hedged and the current hedges average a higher sales price. Additionally, UNTC's in-demand rig segment is poised to realize significant earnings in 2023. We expect UNTC to earn approximately $150m in 2023 while their business is only valued around $300m. The company has actively repurchased shares in the past two years and recently began a generous dividend program. Shareholders received a $10/share dividend payment on January 31st with an additional $2.50/share dividend to be paid in Q2. If the business were to be wound up and sold, we would expect the total value to be at least twice where the shares currently trade.

BSD Analysis:
Kingdom Capital maintains a bullish stance on Unit Corporation despite energy sector headwinds, focusing on the company's improving hedge position and drilling rig operations. The manager highlights that UNTC's 2022 oil sales averaged $57.48 per barrel due to hedges established in 2020, significantly below the $94.28 average market price, creating a favorable setup for 2023 with fewer hedges at higher strike prices. The investment case centers on UNTC's dual revenue streams from oil production and contract drilling services, with the rig segment expected to generate substantial earnings. At a $300M valuation against projected $150M in 2023 earnings, the company trades at an attractive 2x earnings multiple. Management's shareholder-friendly capital allocation through aggressive share buybacks and generous dividends ($10 per share in January plus $2.50 in Q2) demonstrates commitment to returning cash to investors. The manager believes liquidation value would be at least double the current share price, providing significant downside protection.

Pitch Summary:
Entering 2023, we narrowed our focus and concentration on A-Mark Precious Metals (AMRK). Our investment thesis won "The Investor's Podcast" pitch competition in January: AMRK is not a new investment for KCA. I initially profiled the company on Seeking Alpha in January 2020 when the price was less than $3.50/share (split-adjusted). At the time, the business was valued at about $50m and has subsequently earned over $300m of net income in three years. Opportunities like this exist among small companies, and occasionally we are fortunate enough to find one. Today, AMRK trades for about $37/share, already a nice improvement on the sub-$30 prices paid when we doubled our position last month. AMRK remains misunderstood and undervalued, which becomes increasingly evident as the stock initially failed to respond to the substantial business tailwinds created by recent market panics. AMRK is a bullion dealer, participating in both wholesale and direct to consumer sales of precious metal products (silver, gold, platinum, etc.). AMRK owns mints which create unique coins and bars to supplement products sourced directly from the sovereign mints. AMRK sells approximately one third of the products minted at the US Mint, and they own several Direct-To-Consumer bullion platforms, including the largest platform in the US, JM Bullion. Why are we increasing our position now? It's not only because AMRK continues growing their assets at 10% per quarter, or because the stock trades for about 5 times their last twelve months of earnings. AMRK profits most when demand for precious metals outpaces supply. This has been the case for most of the last three years, and AMRK has been proactive in acquiring competitors at attractive prices with their newfound earnings. Each deal has strengthened their position in the sector and created significant value for shareholders. The most recent banking fears drove March bullion sales higher than any month in recent history, according to public statements from peers SD Bullion and Miles Franklin. The CEO of Miles Franklin noted sales volume in the two weeks following the bank failures equaled 15% of 2022 total volume. SD Bullion increased minimum order sizes to $500 and issued apologies to customers for delayed shipping due to overwhelming demand. Even the US Mint sold the most ounces of gold in a single month since 1998. In January-March 2021, the last peak for bullion demand, AMRK earned over $4/share in a single quarter while owning less consumer brands than they do today. AMRK closed their JM Bullion acquisition at the end of March 2021, and noted on their subsequent conference call, "A-Mark had the strongest quarter of financial performance in our history, with JM Bullion contributing $8.5 million of gross profit and $6.8 million of pre-tax income in just the last 12 days of March." This was just for the JM Bullion segment, and demand appears higher now. A sale of the company is the most likely catalyst for realizing shareholder value, as the business model is misunderstood and the stock trades without a meaningful peer. Many investors assume that AMRK needs high gold and silver prices to do well, and they fear the business will revert to 2019's earnings level after markets calm. Few understand the lack of direct exposure to precious metal prices and the transformation the business has undergone via their acquisitions since 2019. At the end of 2019, in reference to plans for selling the business, AMRK CEO Greg Roberts noted "Selfishly, as a big shareholder of the company, I would want to hope that happens when we have two or three years of great results and we're in a bull market for precious metals and the stock market is back to 2009 levels and we have crisis everywhere and you have interest rate problems and you have default problems, that is what's going to make A-Mark worth the most money and that's probably the most likely time where either a commodity bank or a non-commodity bank is going to want to get into our segment, and they're just going to say, here's our stock come be a part of this." I'm not convinced a bank remains the likely acquirer, given AMRK's growth of DTC sales in addition to their wholesale segment. A private equity buyer seems most likely to be drawn to the substantial cash generated by AMRK. I imagine it would be difficult for the Board and management to entertain selling the company when their acquisition strategy continues to add immense value; however, the scenario Roberts outlined above has mostly transpired. We are hopeful the recent bullion frenzy will unearth new investors willing to dig in and understand the value of AMRK's business, and the size of the moat they've built around the platform. We look forward to learning how much profit was captured during this recent demand spike on the May earnings call.

BSD Analysis:
Kingdom Capital presents a compelling bull case for A-Mark Precious Metals, emphasizing the company's transformation from a $50M business to one generating over $300M in net income over three years. The manager highlights AMRK's dominant market position, controlling approximately one-third of US Mint product sales and owning the largest direct-to-consumer platform JM Bullion. The investment thesis centers on the company's ability to profit during periods of heightened precious metals demand, particularly during banking crises and market uncertainty. At 5x trailing earnings and with 10% quarterly asset growth, the valuation appears attractive relative to the company's cash generation capabilities. The manager sees a potential sale as the primary catalyst, noting that private equity buyers would likely be attracted to AMRK's substantial cash flows. Recent banking sector turmoil has driven bullion demand to historic levels, positioning AMRK to capitalize on this trend. The company's acquisition strategy has strengthened its competitive moat and market position significantly since 2019.

Pitch Summary:
In our previous letter we pointed out that we were enthusiastic about Tesla's ability to compress their COGS, allowing for expansion of addressable markets by reducing prices—all while maintaining industry leading margins. Recent price changes in their core products have enabled them to undercut competitors, keep factory utilization rates high, and continue to expand and grow market share. In the short-term these price cuts were not wholly offset by cost reductions, leading to lower margins. But we believe this is the correct strategic move that will pay off as Tesla continues to drive down costs in the manufacturing process as they ramp up volumes. Price cuts have a more immediate impact on margins than sustainable cost reductions given the latter requires time to implement, but over time we expect gross margins to tick back up into the mid-20s. As explained in their investor day in March, Tesla will leverage a new manufacturing process in their next generation platform that will allow them to reduce overall costs dramatically, thus expanding their potential customer base even further. As we have explored in previous investor letters, the ability to attain significant year-over-year compound growth through the next decade necessitates a compression in both automotive and battery manufacturing costs. While Tesla has dominated the traditional luxury segment of the EV space, that represents only a finite number of potential customers. To achieve the levels of production proposed, a move down in cost is a necessity. Over the past several years Tesla's margins have been wildly impressive – both a function of their operating leverage, vertical integration, and their blank sheet approach to EV manufacturing. On a recent blended average, Tesla has been hovering around 25% gross margins and 17% operating margins for the entire company. And while these have temporarily dipped lower, this has all been achieved while scaling two factories around the world, and receiving limited, if any profit contribution from other areas of their business that are still in their infancy such as energy storage, autonomous driving, and energy generation. The same cannot be said about their competitors. During a recent capital markets event, Ford outlined specific profitability metrics for their EV business last year. They are losing roughly $21,000 per EV they have sold. (On an EBIT basis, Tesla made roughly $8,500 per vehicle). And while Ford is certainly earlier on in their EV development than Tesla, their EV profitability target by the end of 2026 is also roughly half of Tesla's EBIT today: 8%. Ford produced only 10,800 EVs in the first quarter, roughly a 40% CAGR over last year and a far cry from the 80% CAGR necessary to hit their 2 million target production level in 2026. Our research also leads us to believe that other legacy OEMs, including GM and Toyota, are even further behind Ford. GM, at their investor day last November, announced a target of 1-5% EBIT margins for its EV business by 2025. If one believes in the broader transition to electric vehicles, the prospects for the "competitors" objectively look quite dire. On their recent earnings release GM announced their end to Bolt production. And while this probably makes sense for them, it shows how far head Tesla is, and how wide open the market is for an affordable EV in the $25-40k range. There are roughly 70 million cars sold per year. With Tesla's price cuts a broader expansion into the mass market segment while maintaining impressive margins is a potentially disastrous scenario for legacy OEMs. The incumbents will have an extremely difficult time competing as their cost structures today are uncompetitive—and these moves from Tesla only widen the gap. Most legacy OEMs have materially negative margins in their current EV segments, and significantly lower margins on their ICE lines than Tesla has on their entire EV business. Additionally, we remain enthusiastic about Tesla's ability to scale energy generation & storage, build out transformational autonomous products (both in transport & manufacturing), refine manufacturing processes, and improve on chemical and metallurgical applications. We continue to believe that this company has the potential to be a historical case of diversified manufacturing wherein the varied business lines are funded efficiently at low cost of capital with staggering cash flow potential for years to come. It has undoubtedly been a stressful and frustrating past couple years as Tesla investors. And while we may have some choppy waters in the immediate-term, we are highly confident that all the pieces are in place for Tesla to continue to scale and grow market share, ultimately becoming recognized as a globally dominant brand in several historically large end markets, with a valuation that reflects that reality.

BSD Analysis:
Nightview Capital maintains a concentrated bullish position in Tesla, viewing recent price cuts as a strategic masterstroke to expand addressable markets while preserving competitive advantages. The fund emphasizes Tesla's superior cost structure, highlighting 25% gross margins and 17% operating margins versus competitors like Ford losing $21,000 per EV sold. Management believes Tesla's next-generation manufacturing platform will dramatically reduce costs, enabling mass market penetration in the $25-40k range where legacy OEMs cannot compete profitably. The thesis extends beyond automotive to energy storage, autonomous driving, and manufacturing innovations, positioning Tesla as a diversified technology manufacturer. Nightview views the competitive moat as widening, with legacy automakers facing structurally uncompetitive cost bases and negative EV margins. The fund expects Tesla to achieve global dominance across multiple large end markets, with significant cash flow generation potential as the business scales and diversifies beyond its current luxury EV focus.

Pitch Summary:
During this quarter, one new position to highlight is GOOGL, which we have high conviction on for a variety of reasons. While obviously well-known and well-researched, we believe the inherent benefits of Google's cloud storage business are still underestimated by the market, particularly from a valuation perspective. With the company trading at relatively low multiples, we believe we found an attractive entry point to buy shares. Also, worth mentioning on Google is how impressed we are with YouTube as a significant and dependable driver of revenue, now clocking in at an impressive run-rate of $30 billion annually. We expect this number to continue to grow at a healthy rate throughout the rest of the decade. Google's moves into live television, their stranglehold on various demographics, and unique position make it a tremendous asset with plenty of growth runway ahead. Finally, we believe much of the speculation around how AI will impact Google's search business has been greatly exaggerated. This business unit, which functions as a high-margin advertising platform model, is tremendously resilient among its customers—and provides a beautiful cash flow machine, relatively unparalleled in the annals of business history. All told, we believe Google represents one of the better risk/reward investments in the market today.

BSD Analysis:
Nightview Capital initiated a position in Alphabet (GOOGL) during Q1 2023, viewing it as an undervalued opportunity trading at attractive multiples. The fund's thesis centers on three key pillars: underappreciated cloud business value, YouTube's robust $30 billion annual revenue run-rate with continued growth prospects, and the resilience of Google's core search advertising business despite AI disruption concerns. Management emphasizes YouTube's expansion into live television and demographic dominance as significant growth drivers for the decade ahead. The fund dismisses market fears about AI's impact on Google's search monopoly, characterizing the advertising platform as an unparalleled cash flow generator with tremendous customer loyalty. Nightview views the combination of cloud growth potential, YouTube's media expansion, and search business durability as creating one of the most attractive risk-adjusted opportunities in the current market environment.

Pitch Summary:
Although not a bank, Interactive Brokers is another business in the financial sector that we find attractive. We initially established the position in November 2021 and have added in recent weeks. Interactive Brokers is now the Strategy's 6th-largest holding at 3% of the portfolio. At first glance, Interactive Brokers might seem similar to many of its competitors. It offers online trading in stocks, bonds, futures, options and other securities. It makes money through a mix of commissions and interest income, and its client base includes both individuals as well as institutions such as financial advisors and hedge funds. Taking a closer look, a picture of a far more differentiated business begins to emerge. Interactive Brokers occupies a unique niche as the go-to platform of choice for active and sophisticated traders. Its core customer trades 300 times a year, while the majority of retail investors trade less than 50 times a year. This makes Interactive Brokers very different from the likes of Robinhood, which is geared to novice investors, or other online brokerages like Schwab that cater to clients who need "high touch" services. Interactive Brokers delivers on what its core customer desires: low costs, best execution, a high degree of automation, and global market access. Its intense focus on customer value is reminiscent of what investors Nick Sleep and Qais Zakaria once called "scale economics shared". In some ways, Interactive Brokers is like the "Costco of brokers". It doesn't try to be all things to all investors, but it provides exactly what its core customer wants. A key differentiator is its technology. The company's founder and chairman, Thomas Peterffy, was an early pioneer in developing electronic market-making systems for professional traders in the 1980s. As Interactive Brokers grew its online brokerage business over the ensuing decades, Interactive Brokers "gave back" to customers by investing into its technology to improve the customer value proposition. Its investments in technology have allowed the company to automate to drive customer fees lower, expand global access, and improve products and capabilities. This fuelled growth as customers became more loyal and recommended the product to friends and family. This further propelled growth, and Interactive Brokers kept the flywheel spinning by reinvesting further in its technology. As a result, Interactive Brokers has created a customer value proposition that is extremely difficult to replicate. It offers best price execution, extensive market access, and low margin rates and foreign exchange fees. Despite charging customers such low fees, Interactive Brokers has remarkably attractive profitability. The company routinely earns operating margins in the 60% range versus a comparable figure of about 40% for Schwab. We believe Interactive Brokers' "scale economics shared" advantage will compound over time, because the company continues to re-invest in these value-added features for customers as the business grows. What's most exciting to us is that Interactive Brokers still has a long runway of future growth ahead. With just two million clients, it is still a relatively small player in a very large industry. Particularly outside the US, where about two-thirds of its existing customers are based, Interactive Brokers does not have meaningful competition. Historically, the number of accounts has grown at an average of 30% per annum over the past seven years and half of this growth came from word-of-mouth. Additional opportunities for future growth include "white labelling" its platform for financial institutions looking to offer their clients international access. For example, a local bank might offer online brokerage services under its own brand and manage the customer relationship, but would use Interactive Brokers for the trading platform. Interactive Brokers is onboarding two large institutions this year onto its platform, which is expected to add 400,000 accounts. If more financial institutions seek to provide a similar offering for their clients, Interactive Brokers will be well positioned to capture this opportunity and drive further growth. At current prices, Interactive Brokers trades at 14 times our estimate of 2024 earnings. We believe this is compelling for a high-quality company with a durable competitive advantage and exciting long-term growth prospects. The valuation also compares favourably to the S&P 500, which trades at 19 times earnings. As shown by the dark blue line in the chart, Interactive Brokers' relative valuation versus the US market stands out as particularly attractive— comparable or better than other periods that have produced attractive relative returns. That said, we are mindful that Interactive Brokers—while not a bank itself— currently finds itself in a "bad neighbourhood" from a market sentiment perspective. To the extent that investor concerns about banks spill over into the broader financial services sector, it would not be surprising to see downward pressure on the stock price in the near term. While we can't predict what the future holds, we can take comfort in the strength of the balance sheet and management's conservative approach to risk control. Since Interactive Brokers is not a bank, the majority of the firm's investments are in short-term Treasurys and other risk-free instruments that are marked-to-market every quarter. This includes customer deposits as well as the firm's sizable equity of $12bn. The company offers high interest rates on cash balances (benchmark rate less 50 basis points), which puts them at low risk of customers pulling cash out to invest in money market funds. In comparison, other banks provide customers low interest on cash and make income by investing client cash into long duration assets. Interactive Brokers runs a very different business model and does not carry the same risk as these banks. We often say that our greatest concern is the risk of permanent capital loss—as opposed to short-term volatility or underperformance—and we like to find management teams whose interests are well-aligned in this regard. With the vast majority of his $20bn fortune invested alongside us, it would be hard to find a better example than Thomas Peterffy at Interactive Brokers.

BSD Analysis:
Orbis presents a compelling bull case for Interactive Brokers, positioning it as the "Costco of brokers" with a differentiated value proposition targeting sophisticated active traders. The fund emphasizes IBKR's "scale economics shared" model, where technology investments drive down customer costs while maintaining 60% operating margins versus Schwab's 40%. The company serves a unique niche with customers trading 300 times annually compared to typical retail investors' sub-50 trades, creating strong customer loyalty and word-of-mouth growth. With only 2 million clients and 30% annual account growth over seven years, IBKR has significant runway for expansion, particularly internationally where competition is limited. The white-label opportunity with financial institutions could add substantial scale, with 400,000 accounts expected from two new partnerships. At 14x 2024 earnings versus the S&P 500's 19x, the valuation appears attractive for a high-quality growth company with founder Thomas Peterffy's $20 billion aligned investment. The conservative balance sheet with short-term Treasury investments and strong cash management differentiates IBKR from traditional banks facing duration risk.

Pitch Summary:
South Korea is the opposite of Japan in the sense that it has spent much of the postwar period investing heavily in national defence in the wake of the Korean war. It remains one of a small handful of advanced economies with universal conscription today. As a proportion of GDP, South Korean defence expenditures were already among the highest in the world, and this has only accelerated along with the recent surge in global defence spending. Nowhere is this more visible than at Hanwha Aerospace. The South Korean armed forces are distinct in capabilities, standing apart conspicuously from the profiles of western powers. This contrast is evident in the composition of its military hardware stockpiles. Because the nation is constantly on alert for the possible resumption of a land war against North Korea, South Korea boasts some of the largest inventories of tanks, artillery, and armoured vehicles, far more than leading western militaries. South Korean defence contractors like Hanwha Aerospace became specialists in these areas, enjoying abundant and stable demand domestically. After the Cold War, many militaries thought such weapons passé, designed to fight the conflicts of yesteryear. Most countries downgraded their status, neglecting their research, production, and maintenance. With the importance of armoured vehicles, particularly artillery, to the trajectory of the Ukraine war challenging these presuppositions, many nations last year began to rearm themselves for the kind of conflict for which South Korea has been preparing for decades. Hanwha Aerospace found itself at the financially fortunate crosscurrents of these events, uniquely capable of selling competitive quality weapons and ready to meet international demand quickly and at a reasonable price due to domestic scale economies. Over the past decade, South Korea has become a top ten defence exporting nation according to the Stockholm International Peace Research Institute, and it may continue to take share if the products in which it specialises remain in high demand. Last year, South Korean defence exports exceeded $17bn in value, an all-time high, growing over fivefold from $3bn in 2020. Hanwha Aerospace accounted for the plurality of that figure. This year, the company finds itself in a close race against Germany's Rheinmetall—also held in the portfolio—to supply Australia's next-generation infantry fighting vehicles, a deal that could alone be worth $15bn. Whether Hanwha Aerospace can follow these achievements with even more sales successes later this year and beyond remains uncertain, but the fact remains that Hanwha Aerospace is an emerging defence contractor that is competitive with the incumbents of the west. The specific per unit economics of its sales are confidential, but the company has said that its export orders achieve operating profit margins in the low-to-mid-teens versus the high single digits for domestic orders. This means Hanwha Aerospace's export business may have the profit potential of its global peers. Hanwha Aerospace is also valued below its historical average EV/EBITDA multiple. And likewise, we believe it may continue delivering outstanding shareholder returns. Hanwha Aerospace makes one of the best artillery platforms in the world, the arms over which South Korea has the greatest competitive advantage. It manufactures other products in high demand including multiple launch rocket systems and armoured fighting vehicles. Worldwide demand should help Hanwha Aerospace improve on its profitability due to the higher margins of its export business. Forecasting the financials of a defence company is difficult because of the unpredictable nature of the timing of deliveries, and one can never be certain of the outcome of competitive defence tenders. But Hanwha Aerospace's order backlog in its armoured vehicles segment is nearly four times the size of its market cap today, enough to keep the company's factories busy for the next couple of years. Plus, the promising growth trajectory of its exports is buttressed by a strongly supportive state and durable global trends. Moreover, each sales success is likely to beget recurring business, as Hanwha Aerospace would naturally supply munitions, conduct maintenance, and provide platform upgrades for the hardware it delivers. We believe that Hanwha Aerospace's recent achievements are not ephemeral. Instead, they possibly signify the stable ascendance of a formidable global competitor.

BSD Analysis:
Orbis presents Hanwha Aerospace as a uniquely positioned beneficiary of the global defense spending surge, leveraging South Korea's decades-long focus on land-based warfare capabilities. The manager emphasizes the company's specialization in artillery, tanks, and armored vehicles—weapons systems that western militaries had de-emphasized post-Cold War but are now in high demand following the Ukraine conflict. The investment thesis centers on Hanwha's competitive advantages: domestic scale economies, proven manufacturing capabilities, and superior profit margins on export orders (low-to-mid teens vs. high single digits domestically). The company's massive order backlog in armored vehicles—nearly four times its market cap—provides substantial revenue visibility for the coming years. South Korea's emergence as a top-ten defense exporter, with exports growing fivefold from $3bn to $17bn since 2020, demonstrates the scalability of this opportunity. The potential $15bn Australian infantry fighting vehicle contract against Rheinmetall represents a significant near-term catalyst. Trading below historical EV/EBITDA multiples despite this transformed growth profile suggests meaningful valuation upside.

Pitch Summary:
We saw value in MHI before the Ukraine war due to its strong energy portfolio. The company builds some of the most advanced natural gas turbines. It is the only experienced developer of nuclear energy reactors left in Japan after the Fukushima disaster. And it is the world market share leader in the nascent carbon capture industry. We see these three energy technologies as essential tools for negotiating the path forward to any feasible carbon-neutral paradigm. Against the backdrop of the Ukraine war prompting a pragmatic rethink of global energy security, MHI is realising opportunities in all three of these domains, and shareholders have been rewarded accordingly. MHI is also Japan's largest defence contractor. On the surface, Japan is an unlikely candidate for dynamism in the defence industry. The country constitutionally forswore war making capacity after the Second World War, and pacifism is deeply rooted in the identity of the modern nation. For instance, in 2017, the government had to pause its attempt to permit the country's armed forces to preemptively shoot down incoming missiles due to fierce public opposition. This longstanding commitment to peace through self-restraint is plainly evident in the numbers. Japan continues to spend less on defence as a proportion of gross domestic product (GDP) than other major economies. This situation is poised to change rapidly. Last year, the government announced plans to double defence spending within five years, which could make Japan the third largest spender on defence worldwide, a position that is receiving consistent majority approval in opinion polling for the first time ever. The government has also highlighted the need to strengthen the domestic defence industry by increasing permitted profit margins to match global standards, a policy that could take effect as soon as the next fiscal year starting this April. The Japanese government has selected MHI to develop a next-generation stealth fighter in partnership with Britain and Italy, and it can only carry out this project if Japan loosens its strict limits on the export of defence technologies. On an EV/EBITDA basis, MHI still trades at a discount to its history even though we believe its businesses have brighter futures than ever before. Last year, energy supported the valuation. We think defence, now just around 10% of its revenue, will be a key part to the possible continuation of the company's share price gains. As Japan's defence spending intentions from last year take concrete form this year, we strongly expect MHI's defence business to receive a considerable uplift in both sales and profit margin.

BSD Analysis:
Orbis presents a compelling dual-thesis investment case for Mitsubishi Heavy Industries, positioning the company as a beneficiary of both the global energy transition and rising defense spending. The manager highlights MHI's unique positioning in three critical energy technologies: advanced natural gas turbines, nuclear reactor development (as Japan's sole remaining experienced developer post-Fukushima), and world-leading carbon capture capabilities. The defense angle centers on Japan's historic shift toward military normalization, with government plans to double defense spending within five years and potentially become the world's third-largest defense spender. MHI's selection to develop next-generation stealth fighters with Britain and Italy represents a significant catalyst, contingent on Japan loosening export restrictions. The valuation argument appears compelling, with MHI trading at an EV/EBITDA discount to historical levels despite what the manager views as significantly improved business prospects. The defense segment, currently only 10% of revenue, offers substantial upside potential as Japan's defense spending materializes into concrete orders with improved profit margins.

Pitch Summary:
Sanjiang Fine Chemicals is a petrochemical company based in China. There are plenty of negatives about the petrochemical industry, and even more about Sanjiang Chemical current positioning: ● It is a commodity business. Your product is just as good as your neighbor's, and you can only compete in price; ● Although there are regional price differences, it is a global market. Demand usually grows a bit faster than global GDP; as for supply, a new plant may take 5 to 7 years to be built, from planning to commissioning. Therefore, investment cycles are fairly predictable. We have been in a downcycle over the last couple of years, and it should last at least another year; ● Petrochemicals can be made by processing three different feedstocks. From the cheapest to the most expensive: ethane (extracted from natural gas), naphtha (refined from oil), and methanol (produced from coal or gas). Sanjiang Chemical's current plants only produce them from methanol, the least competitive of them. So, why are we invested in a marginal cost producer in a commodity industry during a downcycle? Because the company is just about to substantially 1) increase its production capacity, and 2) improve its competitive positioning. Let me elaborate. The magnitude of the capacity increase: after three years of construction, the new plant has just been completed; it is expected to add at least 50% to the company's revenue, starting from 1Q23. It may not run at 100% capacity at the beginning, an issue which may take a few quarters to adjust. In any case, the expensive, capex-heavy, balance-sheet leveraging phase of the project is over. The yet to be announced 2022 results should show its maximum financial leverage. The nature of the capacity increase: the new facilities will be fed by a mix of naphtha and ethane, which through the cycle are going to be far cheaper than methanol. Therefore, the company should significantly improve its cost competitiveness. So now we have a sense of what the company will look like in a few months, compared to its history. It seems that it is on the verge of a huge increase in earnings. But what about the price? How much of this is priced in? Its business is so cyclical that to estimate how much the company will earn once the new plant is up and running would be a fool's errand. But some large numbers can give us a hint of the potential. At the end of 2020, the company expected the new plant to generate 20% return on assets on a yearly basis. At RMB 6.5bn of capex, that equates to RMB1.3bn. To keep things in perspective: the whole company's market cap at the end of 2022 was about RMB 1.5bn. Although no detailed explanation was provided, that expected return is most likely before interest costs, and considering a very different environment than today (in 2020 the company had record results on its methanol plant). In reality I think the new plant will not be able to generate such high returns so soon; in mid cycle years though, those potential profits are feasible. From 2017 to 2021, net earnings from their current facilities fluctuated between RMB 0.4bn and RMB 1.1bn – 2022 results, yet to be announced, should be far worse –, for an average of RMB 0.75bn. Given the size and the feedstock advantage of the new facilities, it seems reasonable to assume that it can double its earnings, which means that it may earn its whole market cap in a single year. Since historically it pays more than 30% of its profit as dividend, arithmetically the future seems bright. However, to assume that the next five years will be similar to the last five may be unreasonable. They may be far worse, for the whole industry – remember, we are in the midst of a downcycle. On the other hand, the cycle can improve faster than expected, which would not be the first nor the last time it happens. Most of the time, I shy away from such predictions. Regardless, given that the construction has finished, I am confident that the company can survive this downcycle, and that it shall pass. It always does. Suffice to say that once it becomes clear that the situation is improving, the stock price will probably be much higher (a stock trading at a crystal clear P/E of 1 is very rare). It is certainly not as safe a proposition as buying Tianjin Development Holdings at less than half the cash in hand (while having high-quality profitable subsidiaries), or as bullet-proof as, through Compagnie de l'Odet, earning indirect royalties on 30% of all music listened to globally (while in the hands of one the ablest asset allocators in Europe). But the price at which it is available now, together with the myopic backward-looking view of the market, seems too good an opportunity to miss.

BSD Analysis:
The manager presents a contrarian investment in China Sanjiang Fine Chemicals, a petrochemical company trading at extremely depressed valuations during an industry downcycle. The core thesis centers on a transformational capacity expansion that just completed after three years of construction, expected to increase revenue by at least 50% starting in Q1 2023. More importantly, the new facilities will utilize cheaper feedstocks (naphtha and ethane) versus the company's current methanol-based production, dramatically improving cost competitiveness. The manager highlights the compelling valuation, noting the company's market cap of RMB 1.5bn versus RMB 6.5bn in capex for the new plant, with management's original expectation of 20% ROA. Historical earnings averaged RMB 0.75bn, and the manager believes the new capacity could double earnings, potentially allowing the company to earn its entire market cap in a single year. While acknowledging significant cyclical and commodity business risks, the manager views the current pricing as offering substantial upside once the cycle turns, describing it as trading at a "crystal clear P/E of 1."

Pitch Summary:
We identified a similar tactical investment opportunity during the quarter in Advanced Micro Devices (NASDAQ: AMD). This is one of the world's leading semiconductor chip designers. We believe we have invested in AMD cheaply and ahead of the following coinciding dynamics that will all play out over the coming year and beyond: (i) new product cycle in accelerator chips tailored for AI models; (ii) positive margin mix effect from new products; (iii) economic cycle of depressed core business rebounding; and (iv) acceleration of synergy unlock from recent Xilinx acquisition.

BSD Analysis:
Montaka established a tactical position in AMD, positioning ahead of multiple converging catalysts expected to drive performance over the coming year. The investment thesis is built on four key pillars: AI-focused accelerator chip launches, margin expansion from new product mix, cyclical recovery in core semiconductor demand, and synergy realization from the Xilinx acquisition. The timing appears strategic, with the fund acquiring shares at attractive valuations before these catalysts materialize. The AI angle is particularly compelling given the explosive growth in AI model training and inference demand. AMD's positioning in data center GPUs and AI accelerators should benefit from the generative AI boom. The Xilinx integration adds FPGA capabilities and expands AMD's addressable market in data center and edge computing applications.

Pitch Summary:
We were recently presented with an opportunity to buy Bank of America (NYSE: BAC) cheaply following the fallout from the collapse of Silicon Valley Bank. 'BofA' is a large, well-capitalized, high-returning US bank that is perversely benefiting from stresses in the regional banking sector. Indeed, we are already observing US deposits flowing out of smaller banks, into larger banks. This is a bank that counts Berkshire Hathaway as its largest shareholder. And we were able to buy it at a price more than 40% cheaper than one year ago – and one that we believe represents attractive value.

BSD Analysis:
Montaka initiated a position in Bank of America following the Silicon Valley Bank collapse, viewing the market dislocation as a tactical opportunity. The fund's thesis centers on BofA being a beneficiary of regional banking stress, with deposits flowing from smaller to larger institutions. The investment is supported by strong fundamentals including solid capitalization, high returns, and backing from Berkshire Hathaway as the largest shareholder. The valuation opportunity is compelling, with shares trading 40% below year-ago levels. This represents a classic flight-to-quality play during banking sector turbulence. The fund views this as a tactical investment with attractive risk-adjusted returns given BofA's defensive positioning and market share gains during industry stress.

Pitch Summary:
We have a paper loss of 1% of AUM in a special situation that we participated in last quarter. This was about bonus (i.e. free) preference shares to the equity shareholders of Music Broadcast ltd. Please note this is not a core equity position; it was a way – unsuccessful till now -to put our spare cash to temporary use. Such cases are called as "special situations" in investing parlance. Music Broadcast runs the radio channel Radiocity. The newspaper group Jagran Prakashan is the parent of the company with a 74% stake. Radiocity announced bonus preference shares to its minority equity shareholders in the ratio of 1 bonus preference shares of FV of Rs 100 each for 10 shares of Music Broadcast (then CMP Rs 25). The bonus preference share were to be allotted for free. In simpler words any non-promoter shareholder holding shares worth Rs 250 was entitled to bonus shares worth 100 free (i.e. 40% of cost). Additionally, these preference shares will list on stock exchanges soon (we can sell in the market) and will be ultimately redeemed @ Rs 120 in 3 years. Think of bonus preference shares as delayed dividend. Instead of paying immediately, the company will distribute the sum after 3 years (at 20% premium). Normally a dividend equal to 10% of market cap leads to fall of 10% in share price once the stock goes ex-dividend. Given that these bonus shares are being given to minority shareholders that hold only 26% stake, post record date the stock price should fall by 40% of 26% i.e. 10.4%. We made a 3.5% allocation to Music Broadcast at price of Rs 26.6 per share to play this special situation. Even if price were to fall 30% once stock goes ex-date we would have made 12% in a couple of months. Or so we thought! In reality, post the ex-date, while we got the free bonus shares (worth 38% of our cost), the equity share actually is down 59% as of this writing. Even if we go back to the price of Rs 17.7 on Oct 22, 2020 when the bonus was first announced, the stock has fallen 39% from then price. The only explanations can be that (a) bonus was already in price way before we thought and/ or (b) owing to low liquidity and rush to sell the main equity shares after ex-date, the stock has corrected steeply. Now that reality has not turned as we had imagined, should we sell the equity shares immediately? Four reasons require us to pause. First, free cash will form over 75% of market capitalisation (including preference shares) of the company. Second, this is pre-election year which is normally good for Radiocity's advertising revenues. Third, management has been pro-shareholders (Jagran Prakashan, the parent has done 8 buybacks in last 9 years). And the forth reason is harvesting tax losses. If we hold this position for 9-12 months, (a) we claim tax loss on main equity shares (bonus stripping) and (b) have that as short term loss (15%) versus long term (10%). This means if we sell between 9-12 months, we can use 15% of the 'notional' loss to set off future capital gains. Notional because, it is not actual loss, we have received bonus preference shares for free in exchange. Nonethless, we will sell it before 9 months if we are getting a good price. The bonus preference shares on the other hand will list shortly, and we will decide to sell, buy or hold based on the price at which they start trading.

BSD Analysis:
The fund manager describes a failed special situation investment in Music Broadcast Limited, acknowledging a 1% AUM loss on what was intended as a temporary cash deployment strategy. The thesis centered on capturing arbitrage value from bonus preference shares issued to minority shareholders at attractive terms - free shares worth 40% of investment cost, redeemable at Rs 120 in 3 years versus Rs 100 face value. However, the equity shares declined 59% post ex-date versus the expected 10-30% drop, suggesting the bonus was already priced in or liquidity issues caused excessive selling pressure. The manager identifies four reasons to potentially hold: high free cash composition (75% of market cap), pre-election advertising tailwinds for Radio City, shareholder-friendly management track record (8 buybacks in 9 years by parent Jagran Prakashan), and tax loss harvesting benefits. The position represents a clear special situations strategy gone wrong, with the manager candidly acknowledging the misjudgment while outlining potential recovery scenarios. This demonstrates disciplined risk management through position sizing (3.5% allocation) and transparent mistake analysis.

Pitch Summary:
One of our Clean Growth IV portfolio companies, Amprius (NYSE: AMPX), recently reported a tremendous battery breakthrough. Using proprietary silicon anodes, the company's lithium-ion batteries deliver double the energy density compared to other common batteries such as those used in Tesla, Rivian and Ford EVs. This has important implications for future EVs and for electric powered drones and other aircraft. This allows customers to "either increase energy content in a battery pack without increasing weight, reduce weight in applications that target a fixed energy content, or combinations of both," according to the Amprius press release.

BSD Analysis:
North Sky Capital highlights a significant technological breakthrough by portfolio company Amprius, which has developed lithium-ion batteries with double the energy density of conventional batteries used by major EV manufacturers. The proprietary silicon anode technology represents a meaningful competitive advantage in the rapidly growing battery market. This breakthrough addresses critical pain points in electric vehicle adoption by enabling either increased range without weight penalties or reduced battery weight for equivalent performance. The technology has broad applications beyond EVs, including electric aircraft and drones, expanding the total addressable market. The timing is particularly favorable given the mega-trend of decarbonization and over $1 trillion invested in energy transition in 2022. North Sky's position as an existing investor through Clean Growth IV provides them with insider access to this promising technology. The breakthrough positions Amprius to capture significant market share as the EV industry scales and energy density becomes increasingly important for competitive positioning.

Pitch Summary:
While the War in Ukraine had the potential to severely disrupt Philip Morris' Eastern European business, the company has navigated the turmoil relatively well with sales minimally impacted. But the most important piece of news over the last three months is that the company completed its acquisition of smokeless tobacco maker Swedish Match (maker of the popular Zyn Pouches) at a very attractive price. Just as important, Philip Morris bought the rights from their former parent company Altria to market IQOS, their leading Heat-Not-Burn reduced risk device, in the United States starting in 2024. The combination of these events has increased our confidence that Phillip Morris will have a sustainable path towards high-single-digit to low-double-digit organic earnings growth for the foreseeable future. At the same time, we view their product portfolio and history of execution as evidence that they are pulling ahead of the rest of the industry in establishing brand loyalty for their reduced-risk products as the world continues to transition away from combustible cigarettes.

BSD Analysis:
Kovitz increased their Philip Morris position following strategic developments that strengthen the company's reduced-risk product portfolio. The completion of the Swedish Match acquisition at an attractive price provides access to the popular Zyn nicotine pouches, while securing US marketing rights for IQOS heat-not-burn devices from Altria creates significant expansion opportunities. Despite geopolitical risks from the Ukraine war, the company's Eastern European operations have shown resilience with minimal sales impact. The manager sees these developments creating a sustainable path for high-single-digit to low-double-digit organic earnings growth. Philip Morris is viewed as pulling ahead of industry peers in establishing brand loyalty for reduced-risk products as global tobacco consumption shifts away from traditional combustible cigarettes. The combination of product innovation, geographic expansion, and execution capability positions the company to benefit from the ongoing tobacco industry transformation.