Investment Pitches

Pitch Summary:
We mentioned at the outset that there was one notable company event in Q2, and that it was a positive one involving Gildan Activewear. The saga that had begun just before last Christmas, when the board stunned the market and its shareholders by terminating Glenn Chamandy, its founder and CEO, finally ended. Mr. Chamandy returned, his replacement departed and the incumbent board was ousted. We have owned Gildan for over a decade and a key reason we have been a shareholder is Glenn Chamandy. Gildan is one of Canada's great success stories. Over the past 40 years, Gildan has grown from a small family-owned business into a global apparel company with over US$3 billion in sales. As well, its share price has seen a remarkable 90-fold increase over the last 25 years. This success is due, in large part, to the vision and leadership of its founder and long-time CEO, Glenn Chamandy. During our long participation as a shareholder, we have been impressed by Mr. Chamandy's stewardship of the business, his strategic vision, his extraordinary knowledge of its competitive landscape, his extensive operational capabilities, and his relationships with key stakeholders and customers. The termination announcement came completely out of the blue. The stories were muddied in the press at the time, but we hypothesized that Gildan's board was hell-bent on implementing a succession plan for Mr. Chamandy, with or without his participation. And as it turned out, it was without. Mr. Chamandy's replacement was Vince Tyra, the former Director of Intercollegiate Athletics for the University of Louisville. You might be wondering how the board could see fit to replace Mr. Chamandy with someone who had recently been at a university. Well, two decades ago, Mr. Tyra was the CEO of Broder Bros. (the predecessor to alphabroder, a leading printwear distributor) and prior to that, he was a divisional president at Fruit of the Loom. The board lauded his "deep understanding of the apparel industry" and crowed about how "he tripled alphabroder's revenue, making it the industry leader" and highlighted how "he led a turnaround of Fruit of Loom culminating in its sale to Berkshire Hathaway". There were a few problems with this narrative. Firstly, during his tenure at Fruit of the Loom, the share price declined by 99% and by 1999, it had filed for Chapter 11 bankruptcy. And during his tenure as CEO of Broder Bros., the company swung from profit to loss, and in the years following his departure, the company was forced to restructure to avoid bankruptcy. On top of that, Mr. Tyra had little manufacturing experience, which is important for a global, vertically integrated, low-cost manufacturer like Gildan. It was clear to us, and to many of our fellow shareholders, that Vince Tyra was no Glenn Chamandy. While we were initially shocked by the termination of Mr. Chamandy and the selection of Mr. Tyra as his replacement, we do what we always do – calmly and coolly collect the facts. The afternoon of the announcement, we met virtually with Don Berg, the chair of the board. We listened to the chair's reason for the termination, and we asked questions. To sum it up, Mr. Berg described to us how Mr. Chamandy had agreed to a succession plan that the board was executing on, but then Mr. Chamandy got 'cold feet' when it came close to the time to step down. The chair acknowledged that we would have to speak to Mr. Chamandy in order to understand what he was thinking. And so we did. Mr. Chamandy's side of the story was completely different, and he appeared as passionate and engaged as ever. We concluded that the board had a made a huge mistake. If left unchallenged, the termination of Mr. Chamandy would lead to a significant impairment in the value of our investment. The board's thinking was dogmatic and inflexible. This necessitated a drastic change in course for Turtle Creek. Our normal approach of 'quiet board engagement' was going to be ineffective here. We needed to go public and we needed to do it quickly. Our response was swift – we wrote a letter to the board and immediately released it to the public. In it, we acknowledged that while succession planning was an important duty of the board, "the Board's abrupt termination of Mr. Chamandy appears to have been conducted in great haste, without meaningful shareholder engagement, and without considering the adverse impact on Gildan's business." What followed the public release of our letter was unprecedented. Within days, shareholders owning over 35% of the company publicly spoke out in favour of his re-instatement. But that represented only the shareholders who issued press releases. In fact, opposition to the board's decision was nearly unanimous. Our legal and strategic advisors had never before seen a response of such breadth and speed. The board's response was a complete shock to us – rather than re-considering their decision that weekend, the board circled the wagons. They entered into a deal with a short-tenured hedge fund shareholder which traded a board seat for voting support. The board signaled that they intended to fight the very shareholders who had elected them in the first place. Was this all about ego – an unwillingness to admit they had made a mistake? Or was it "governance" run amuck? We still don't know but probably both explanations were at play. In any event, the board embarked upon an ultimately futile, yet incredibly expensive defense of their actions. And while the final tally isn't in yet, the company disclosed in late May at their annual meeting that the prior board's defense costs, together with the severance payments to the replacement CEO, ran over US$65 million. To put this in perspective, the very public, high-profile battle between the board of The Walt Disney Co. and Nelson Peltz was only US$40 million. The sheer disregard for company resources is mind-blowing and provides further evidence of just how bad Gildan's incumbent board was. So what did the board do? In addition to their opening entrenchment move with respect to the voting support agreement noted above, they hired countless advisors – legal, corporate finance, public relations, etc. All focused on defending the board's reckless termination decision. They also set out to impugn the character of Mr. Chamandy. Luc Jobin, a Gildan director, went to the press and launched a defamatory campaign with the objective of painting Mr. Chamandy as an ineffective, disengaged leader focused on risky, half-baked acquisitions who needed to be terminated lest he destroy shareholder value. Incidentally, in a subsequent meeting with the board, the chair directly contradicted Mr. Jobin. The chair confirmed that Mr. Chamandy had no performance issues and he had been terminated solely because he wasn't willing to follow the board's succession plan. We quickly concluded that the board needed to be significantly reconstituted. We again wrote to the board expressing that view which we in turn publicly released. Our fellow shareholders were also unconvinced by the board's PR campaign. They continued to publicly and privately communicate that they wanted Mr. Chamandy reinstated. Browning West, a large and long-time shareholder, went even further, putting forth five alternate directors that they hoped would be elected to replace a majority of Gildan's incumbent directors. Browning West requisitioned a special meeting that would allow all shareholders to have a voice in deciding who should represent them on the board of their company. We issued a press release in early January expressing our support for the calling of a special meeting, without delay, and indicating that we intended to support all of Browing West's proposed nominees. In late January, we released an open letter to the board asking them to stop disenfranchising shareholders and to hold the special meeting without delay. As well, we urged them to halt their destructive public relations campaign of inferences and innuendo. But rather than listen to the wishes of company shareholders, the board continued to avoid facing the music. The board refused to call a timely special meeting, instead announcing it would hold the special meeting immediately prior to its annual general meeting. In further defiance, the board delayed its AGM by four weeks from its typical historical date. So rather than wrapping up this fight in March, the board forced an extension of the dispute to the end of May, and it didn't stop there. They also unleashed various legal proceedings against Browning West – which were later dismissed. The board also commenced an ill-conceived and hasty process to sell the company. It is hard to imagine a worse time to put Gildan up for sale, but the board went ahead anyway. Yet again we released an open letter to the board criticizing them for their decision. With it being clear that there was significant shareholder opposition to a 'fire sale' of the Company, no bidders were willing to enter the fray. Then, on April 22, 2024, five key directors – including the ones who led this ludicrous process – suddenly resigned, with two additional directors indicating their intention not to stand for re-election at the annual general meeting in May. That would have been fine, but on their way out the door they appointed hand selected replacements, calling it 'board refreshment'. The new board indicated their intention to continue the old board's path including fully supporting Mr. Tyra, the unqualified replacement CEO. This without speaking to shareholders. You just couldn't make this stuff up. . . We released another public statement addressing this maneuver. At that point, we were confident that the incumbent board would be voted out by the shareholders. Despite their deluded belief that they could win over some shareholders to their side, in fact, their actions had simply made shareholders angrier and more resolute that this board had to be replaced. The final chapter in the saga occurred in May, when the two major proxy advisory firms in North America – ISS and Glass Lewis – both came out strongly against the incumbent board, recommending the election of the entirety of the alternative slate, including Glenn Chamandy. After having perhaps laboured under the mistaken belief that the board's "refreshment" tactic would deliver a split decision from the proxy advisors, the "refreshed board" was faced with certain defeat and on May 23, 2024, they announced their wholesale resignation. Glenn Chamandy's replacement as CEO also resigned with immediate effect. The board appointed the Browning West nominees to the board and ended the sale process. We were obviously gratified with the outcome, which brought an end to the months of uncertainty and distraction that hung over Gildan's remaining management team and its employees. We also remain somewhat baffled by the intransigence displayed by the board right up until its unceremonious mass resignation. Gildan presented Turtle Creek with a set of unprecedented circumstances that necessitated an unprecedented response. By taking our concerns public through a thoughtful and articulate narrative, we gave other traditional institutional shareholders licence to do the same and lent additional credibility to Browning West's campaign.

BSD Analysis:
Turtle Creek's extensive commentary on Gildan Activewear represents a compelling governance-driven investment thesis centered on the return of founder-CEO Glenn Chamandy. The manager's decade-long ownership reflects deep conviction in Chamandy's leadership capabilities, citing his strategic vision, operational expertise, and stakeholder relationships as key value drivers. Gildan's impressive track record under Chamandy's stewardship—growing from a family business to a $3 billion global apparel company with 90-fold share price appreciation over 25 years—validates this management-centric investment approach. The board's decision to replace Chamandy with Vince Tyra, whose previous CEO tenures resulted in bankruptcy and restructuring, represented a significant governance failure that threatened shareholder value. Turtle Creek's activist response, including public letters and proxy campaign support, demonstrates their commitment to protecting investment value through governance engagement. The successful reinstatement of Chamandy and board reconstitution removes a major overhang and restores proven leadership to this vertically integrated, low-cost manufacturer. With the governance crisis resolved, Gildan can refocus on operational execution and market share gains in the global activewear market.

Pitch Summary:
Climbing by 51% was Amphenol Corporation, which produces electrical, electronic and fiber optic cables, and connectors. Amphenol reported higher-than-anticipated revenues and earnings. There was strength across all its end markets, especially the third of its overall revenues coming from data centers.

BSD Analysis:
The manager expresses strong bullish conviction in Amphenol Corporation following an exceptional 51% quarterly return. The investment thesis is built on the company's diversified portfolio of electrical, electronic, and fiber optic connectivity solutions across multiple end markets. Amphenol's financial performance significantly exceeded expectations on both revenue and earnings, demonstrating strong execution across its business segments. The broad-based strength across all end markets indicates the company's diversification strategy is working effectively. Particularly compelling is the data center exposure, which represents one-third of total revenues and benefits from the ongoing digital infrastructure buildout and AI-related demand. Amphenol's position as a critical component supplier in the connectivity ecosystem provides exposure to multiple secular growth trends including 5G, electric vehicles, renewable energy, and cloud computing infrastructure.

Pitch Summary:
Detracting -2% from the strategy was HubSpot, Inc., which provides a cloud-based marketing, sales, and client service platform for businesses. The company's revenues and earnings edged ahead of expectations, though not by as large a margin as typical. Management did lift its guidance for 2025, though noted it was driven by better foreign exchange than by better fundamentals.

BSD Analysis:
The manager takes a neutral stance on HubSpot following a modest 2% detraction from strategy performance. While the company's cloud-based CRM platform continues to show growth with revenues and earnings exceeding expectations, the magnitude of the beat was smaller than HubSpot's typical performance. The investment thesis appears intact given the company's comprehensive marketing, sales, and service platform, but execution concerns emerge from the guidance commentary. Management's 2025 guidance increase was attributed primarily to favorable foreign exchange rather than underlying business improvements, suggesting fundamental growth may be moderating. The manager appears to be monitoring whether this represents a temporary slowdown or a more concerning trend in HubSpot's typically strong execution. The company's position in the competitive CRM and marketing automation space requires consistent strong performance to justify its valuation.

Pitch Summary:
Contributing a 45% return was EMCOR Group, which provides construction and operational services for mechanical and electrical systems to a broad range of commercial, industrial, utility, and institutional customers. EMCOR reported revenues and earnings that bested expectations with a record high level of remaining performance obligations (outstanding and unbilled work for existing customers) along with a healthy pipeline of new projects.

BSD Analysis:
The manager highlights EMCOR Group as a standout performer with a 45% quarterly return, demonstrating strong execution in the construction and engineering sector. The investment thesis centers on EMCOR's diversified service offerings across mechanical and electrical systems for commercial, industrial, utility, and institutional customers. The company's financial performance exceeded expectations on both revenue and earnings, indicating strong operational execution. Most importantly, EMCOR achieved record-high remaining performance obligations, which represents contracted but unbilled work, providing strong revenue visibility. The healthy pipeline of new projects suggests continued growth momentum beyond the current backlog. EMCOR's positioning in essential infrastructure services across multiple end markets provides defensive characteristics while benefiting from ongoing infrastructure investment trends and the transition to renewable energy systems.

Pitch Summary:
The strategy received a 24% boost from Veeva Systems, which offers cloud-based systems for the life sciences industries, from R&D to commercialization. Veeva's revenues and earnings bested expectations with some of the strongest dollar-value results in the company's history. Commercial subscription revenue growth accelerated, driven by Veeva's Crossix platform that provides anonymized data analytics for health care marketing. Veeva also recently announced new AI-embedded features for its Vault suite of customer relationship management applications.

BSD Analysis:
The manager expresses strong bullish sentiment on Veeva Systems following exceptional quarterly performance that delivered a 24% contribution to the strategy. The investment thesis is anchored on Veeva's dominant position in life sciences cloud-based software solutions spanning R&D to commercialization. The company delivered some of its strongest financial results in history, with both revenues and earnings significantly exceeding expectations. Accelerating commercial subscription revenue growth, particularly from the Crossix data analytics platform, demonstrates the company's ability to expand within its customer base. The recent introduction of AI-embedded features in the Vault CRM suite positions Veeva to capitalize on artificial intelligence trends in healthcare. The comprehensive nature of Veeva's platform creates strong customer stickiness and recurring revenue visibility in the growing life sciences technology market.

Pitch Summary:
Our preferences in the Consumer-oriented sectors lean toward value-oriented or specialty retailers, franchise models, premium brands, or support services for other consumer companies. In these areas, there was market rotation away from two of our defensive positions, though both provided strong contributions year to date despite these retrenchments. The specialty auto parts retailer O'Reilly Automotive saw its shares slip by -6%. Elsewhere, the warehouse club operator BJ's Wholesale Club pulled back -6%. In the case of BJ's, its earnings surpassed expectations with improving gross margins and higher levels of membership fee income. Though with consumer sentiment and confidence remaining at low levels, BJ's management was conservative in only reaffirming its guidance for the fiscal year, and we added to our position.

BSD Analysis:
The manager demonstrates strong conviction in BJ's Wholesale Club by adding to the position despite a 6% quarterly decline. The investment thesis is supported by solid fundamental performance, with earnings surpassing expectations driven by improving gross margins and higher membership fee income. The membership-based warehouse club model aligns with the fund's preference for defensive consumer businesses with recurring revenue characteristics. While management's conservative guidance reflects cautious consumer sentiment, the manager views this as an opportunity rather than a concern. The decision to increase the position size during weakness suggests confidence in the company's ability to navigate challenging consumer conditions. BJ's defensive positioning and value proposition should benefit from continued consumer focus on value during uncertain economic times.

Pitch Summary:
Our preferences in the Consumer-oriented sectors lean toward value-oriented or specialty retailers, franchise models, premium brands, or support services for other consumer companies. In these areas, there was market rotation away from two of our defensive positions, though both provided strong contributions year to date despite these retrenchments. The specialty auto parts retailer O'Reilly Automotive saw its shares slip by -6%. Elsewhere, the warehouse club operator BJ's Wholesale Club pulled back -6%.

BSD Analysis:
The manager maintains a defensive positioning in O'Reilly Automotive as part of their consumer-oriented strategy focused on specialty retailers and value-oriented businesses. Despite a 6% decline in the quarter due to market rotation away from defensive positions, the manager emphasizes that O'Reilly has provided strong contributions year-to-date. The investment thesis appears centered on the company's specialty retail model in the automotive aftermarket, which aligns with the fund's preference for businesses with defensive characteristics. The manager views the recent pullback as temporary market rotation rather than fundamental deterioration. O'Reilly's position as a specialty auto parts retailer provides exposure to the resilient automotive aftermarket sector, which benefits from an aging vehicle fleet and consistent maintenance needs.

Pitch Summary:
Among our holdings, we trimmed CrowdStrike Holdings as it gained 44%. A cloud-based endpoint security provider that secures a range of devices, endpoints, and cloud environments, CrowdStrike benefited early in the quarter as cybersecurity was one of the most resilient areas in an uncertain macroeconomic environment. In June, its results were higher than anticipated, especially with gains in net new annual recurring revenues, which are also expected to double in the next fiscal year. There were some lingering impacts from last year's outage, but with the resulting customer retention rebates about to expire, we expect CrowdStrike's revenues will continue reaccelerating.

BSD Analysis:
The manager maintains a bullish stance on CrowdStrike despite trimming the position after a 44% gain in the quarter. The investment thesis centers on the company's resilient cybersecurity business model and strong fundamental performance. CrowdStrike exceeded expectations in June with particularly impressive net new annual recurring revenue growth, which management expects to double in the next fiscal year. While the manager acknowledges lingering impacts from a previous outage, they view the expiration of customer retention rebates as a positive catalyst for revenue reacceleration. The cybersecurity sector's defensive characteristics during macroeconomic uncertainty further support the investment case. The position trimming appears to be profit-taking rather than a fundamental concern about the business.

Pitch Summary:
We recently added CATL (Contemporary Amperex Technology Co. Limited) to our China basket. CATL is the largest EV battery producer with 40% of the global EV battery market. CATL is also the second largest manufacturer of utility-scale batteries or Energy Storage Systems used for managing power generation. CATL is at the epicenter of the energy transition megatrend that includes the electrification of transportation, grid storage, and supporting these supply chains. Along with Tesla, CATL is positioned to capture an outsized share of this transition. More specifically, CATL is a leader in developing the battery technology infrastructure used by OEMs and utilities. With an already deep integration into EV OEMs and a growing presence in utility-scale energy storage in and outside China, CATL is the proven go-to supplier for next-gen battery technology. On the EV side, CATL has partnerships with nearly all of the vehicle OEMs in China and many in the US and Europe including BMW, Ford, Tesla, Mercedes, VW, Hyundai, Honda, Stellantis and Toyota. The adoption of EV and renewable energy storage is dependent on advancements in battery technology to drive down costs and improve efficiency. For most EVs the battery is the most expensive component at about 40% of vehicle cost. Charging times and range are also major factors in converting consumers from gasoline to electric. I think it is just a matter of time before we see EVs outside of China with 1,000+ miles of range that can charge in 5 minutes, for less than the price of a mid-range gas car. CATL is helping to make this a reality for OEMs without the expertise and scale to do it themselves. Improvements in energy density, cost per kilowatt-hour, durability and charging speed are evolving quickly. As battery technology has improved, the price for a lithium-ion battery pack has fallen ~90% since 2010 and projected to fall by another 40% to 50% by 2026. Improving battery performance also reduces the cost of EV ownership. Last year McKinsey estimated that annual demand for batteries would exceed $200 billion per year if global EV penetration hit just 30%. Excluding China, fully electric + hybrid vehicle penetration in 2024 was estimated to be 12% to 15% of the ~50 million vehicles sold. Within China, the IEA estimates that a third of vehicles sold in 2025 will be fully electric, and 60% will be a combination of hybrids and fully electric, about 20 million vehicles. It is likely that nearly all of China's 35+ million new cars sold annually will have an EV battery within 5 years. CATL is not only the largest fully integrated manufacturer of batteries but a leader in software and systems. CATL shipped over 110 GWh of batteries for Energy Storage Systems (ESS) applications or about 38% of global market share, according to SNE Research. The European ESS sector is trending toward larger-scale storage systems and CATL's 9 MWh solution now sets a new benchmark, outpacing rivals such as Fluence, Envision, and IPS. CATL's supply chain strength in China is allowing the company to win business in Europe [price + leading tech]. Many non-Chinese competitors like Panasonic have exited the ESS space altogether, and others like LG Energy Solution, are trying to compete by building production facilities in Europe. Aside from all this bullish commentary there are obvious geopolitical risks to owning CATL. The company benefits from a partnership with the Chinese government allowing privileged access to China's lithium, cobalt, nickel, manganese and graphite mines at home and in Africa. The US Department of Defense has also added CATL to its list of Chinese military companies which could limit its growth in the US and certain other countries. CATL exists because of extraordinary financial and political subsidies for EV and battery manufacturers that began in the early 2000s when China decided to go all-in on the electrification of the country. Between 2009 and 2022 China invested over $57 billion in subsidies across its EV and battery supply chains. Much of this funding was channeled into a handful of homegrown champions like CATL led by entrepreneurs that could build mega businesses. China has now phased out many of the original direct EV-related subsidies leaving a handful of winners like CATL profitable and financially self-sustaining. While CATL's history and strategic advantages may seem unconventional from a Western perspective, the company has consistently demonstrated its ability to innovate and capture market share in battery technology. Although the stock is up over 18x since IPO in 2018, its valuation on the ChiNext exchange (300750.SZ) of about $150 billion USD is still only 10x our estimate of 2026 operating earnings. Looking out to 2030, operating earnings could be closer to $25+ billion with IP licensing driving higher margins and better returns on capital. CATL also has no net debt.

BSD Analysis:
The manager presents CATL as a dominant play on the global energy transition, holding 40% of the global EV battery market and 38% of energy storage systems market share. The investment thesis centers on CATL's position as the critical infrastructure provider for electrification, with partnerships across major global OEMs including Tesla, BMW, Ford, and Mercedes. The manager emphasizes the massive addressable market, citing McKinsey's estimate of $200+ billion annual battery demand at just 30% EV penetration, while current penetration remains only 12-15% outside China. CATL's technological leadership includes breakthrough products like 10-minute charging batteries and 9 MWh energy storage systems that set new industry benchmarks. The manager acknowledges significant geopolitical risks, including US Department of Defense military company designation and dependence on Chinese government subsidies, but argues these are offset by CATL's proven innovation and market capture. At 10x estimated 2026 earnings on a $150 billion valuation, the manager sees compelling value despite the 18x return since IPO. The projection of $25+ billion operating earnings by 2030 through IP licensing and higher margins suggests substantial upside potential. The debt-free balance sheet provides additional financial strength for this capital-intensive business.

Pitch Summary:
Beyond near-term earnings, large Chinese tech companies often hold substantial stakes in other leading tech companies that they once funded. Alibaba (BABA), for instance, trades at a ~$270 billion market cap but holds ~$85 billion in equity investments on its balance sheet. This includes a 33% stake in Ant Group, regarded as China's dominant fintech platform and often compared to a combination of Amazon, Visa, and PayPal. If Ant were to IPO at the roughly $200+ billion estimated valuation, Alibaba's stake would be worth ~$60 billion, or about 25% of its current market capitalization. While Alibaba's core e-commerce growth is under pressure, the balance sheet holdings are attractive enough to help justify a doubling of BABA over a reasonable period of time.

BSD Analysis:
The manager presents a sum-of-the-parts valuation argument for Alibaba, emphasizing the significant hidden value in the company's investment portfolio. With $85 billion in equity investments on a $270 billion market cap, nearly one-third of Alibaba's value comes from its strategic holdings rather than core operations. The crown jewel is a 33% stake in Ant Group, valued at approximately $60 billion based on a $200+ billion estimated IPO valuation for the fintech giant. The manager positions Ant Group as China's dominant fintech platform comparable to a combination of Amazon, Visa, and PayPal, suggesting substantial standalone value. While acknowledging pressure on Alibaba's core e-commerce business, the investment thesis relies heavily on the balance sheet holdings providing a margin of safety and upside catalyst. The manager suggests these assets alone could justify a doubling of the stock price over a reasonable timeframe. This represents a classic value investing approach, focusing on asset value rather than operational performance. The pitch reflects confidence in Chinese fintech recovery and Ant Group's eventual public listing as key value unlocking events.

Pitch Summary:
Spotify – SPOT continues to be our largest position and has been the largest contributor to fund performance for the past two years. The stock was up 71.5% in the first half. After enduring 4 years of underperformance SPOT has delivered a 5.7x return or 27.5% annualized since we initiated the position 6.5 years ago. The core of our Spotify thesis is that the spoken word (including music) is the most undervalued form of communication on the web, by a country mile. Spotify's business model is to deliver an exceptional search and discovery user experience in exchange for ownership of your real-time behavioral data and a monthly fee for an ad-free Premium Tier. Similar to YouTube and Meta, Spotify continues to demonstrate that owning consumer attention at scale can be more valuable than owning the content being consumed. While other platforms have been ultra successful at monetizing video, unlocking the value of audio has historically required a different approach. Spotify has made enormous progress in closing the monetization gap between audio and video but we are still very early on this journey. Spotify recently got an important boost to future earnings power after winning its years-long fight with Apple. On June 4th the U.S. Ninth Circuit Appeals Court ruled that Apple must immediately comply with Judge Rogers's April 2025 finding that Apple must allow Spotify to direct users to external payment options. Similar to the US ruling, on June 26 Apple released new EU App Store terms to comply with the EU's Digital Markets Act. Developers like Spotify can now include in-app links to external websites and services. A new tiered fee structure was introduced, including a 2% fee on new-user acquisitions and optional service levels at 5% or 13%. Apple also replaced its per-download fee with a 5% Core Technology Commission on external purchases, effective fully by January 1, 2026. Spotify can now directly communicate and bill its U.S. and EU consumers for any Spotify service without the friction that existed before. With 60% iPhone penetration in the U.S. and 35% in the EU, this is a big deal for the next leg of Spotify's growth trajectory. Prior to the ruling, Spotify, like all third-party apps, was not able to offer subscriptions or payment for services without it going through the Apple App Store. Not only would the App Store charge a 15%+ fee but it prevented Spotify from having a direct billing relationship with their users. This prevented Spotify from offering in-app promotions, marketing new products and better controlling churn. As of June 4th, Spotify's ~145M U.S. users will be able to directly purchase anything Spotify wants to sell using a one-click link within the app, including upgrading to the Premium subscription and audiobook credits while not paying the App Store a 15% commission. Direct billing is the next tool in Spotify's tool kit to continue unlocking the value of spoken word. The first benefit will be lower churn from a reduction in friction to sign up and maintain Premium subscribers. Direct billing on Apple will also allow Spotify to seamlessly sell credits for audio books and access to third party services like Skillshare, BBC Maestro, PLAYvirtuoso, Duolingo and Thinkific on its new educational services business (coming to the US soon). Spotify can now evolve faster into a grown-up marketplace platform allowing artists, authors, podcast creators, and content owners of all walks of life to directly monetize their audiences with products and services. Currently, advertising and related revenues represent only ~10% of Spotify's total revenue, or approximately €2 billion, versus $25+ billion for YouTube and $180+ billion for Meta. With Spotify's user base projected to surpass 1 billion within the next 18 months, the runway for scaled advertising monetization is substantial. At roughly 30x our estimate of 2026 EBITDA Spotify's valuation is optically expensive, as it has been the entire time we've owned it. However, looking out over the next few years, SPOT'S $145 billion valuation today will look cheap if management can even get close to achieving their goal of €20 billion of operating earnings with minimal incremental capital invested.

BSD Analysis:
The manager presents a compelling bull case for Spotify centered on the company's victory over Apple's App Store restrictions, which represents a significant catalyst for future growth. The thesis revolves around Spotify's ability to monetize audio content through direct billing relationships and data ownership, positioning it as undervalued compared to video platforms like YouTube and Meta. The recent court rulings allowing direct billing to US and EU users eliminate Apple's 15% commission and friction barriers, potentially reducing churn and enabling new revenue streams through audiobooks and educational services. With 145M US users and projected growth to 1 billion global users within 18 months, Spotify has substantial runway for advertising monetization expansion. The manager acknowledges the 30x 2026 EBITDA valuation appears expensive but argues it's justified if management achieves their €20 billion operating earnings target. The 5.7x return over 6.5 years demonstrates the manager's conviction in the long-term transformation story. The pitch emphasizes Spotify's evolution into a marketplace platform where content creators can directly monetize audiences, representing a significant business model expansion beyond traditional streaming.

Pitch Summary:
Among the European majors, TotalEnergies stands out given their long-term track record of project execution. Alone among the European majors, it kept its dividend intact during COVID-19 and over twenty years has grown revenue, book value and profits per share faster than either Shell or BP. TotalEnergies now calls itself a "multi-energy" company, spanning oil, natural gas, biofuels and a rapidly expanding renewables arm. It is already one of the world's top three LNG suppliers and remains a top ten oil producer. This change in mix is visible in its segmental profit figures, with its 'Integrated gas, renewables and power division having risen from about 14 percent of profits in 2019 to roughly 30 percent today. Management expects LNG production output to jump 40 percent by 2030, while oil production edges up a modest 1.5% per year. Underpinning those plans is a deep well of resources with more than 12 years of proved and probable oil reserves and over 50 years of gas reserves, figures that trail only Exxon in oil reserves. Even if crude prices soften, TotalEnergies is built to last with cash breakeven prices of around USD25 a barrel. Even at current spot prices, the company is highly cash generative with management committing to returning 40% of operating cash flow to shareholders through a combination of dividends and share buybacks. By combining low break-even oil reserves with world-class LNG assets and a fast-growing renewables business, TotalEnergies offers a balanced way to plug into the next phase of the energy story, one that is likely to be powered as much by electrons as by barrels.

BSD Analysis:
The analyst presents a compelling bull case for TotalEnergies based on its superior execution track record and strategic positioning in the energy transition. The company's dividend resilience during COVID-19 and superior long-term growth metrics versus Shell and BP demonstrate operational excellence. The transformation into a "multi-energy" company is already bearing fruit, with the integrated gas, renewables and power division growing from 14% to 30% of profits since 2019. The 40% LNG production growth target by 2030 positions the company well for Asia's coal-to-gas transition and rising AI data center demand. With 12+ years of oil reserves, 50+ years of gas reserves, and a low $25/barrel breakeven, TotalEnergies offers defensive characteristics. The 40% cash flow return policy provides attractive shareholder returns. This diversified energy platform appears well-positioned to capitalize on both traditional hydrocarbon demand and the renewable energy transition.

Pitch Summary:
Target is a well-run retail company whose recent results were less than expected, causing the stock price to fall to attractive levels. Though we expect the economic slowdown and tariffs to depress near-term results, expectations are low enough to provide excellent appreciation from the current price. We started buying the shares a little above $100 at the end of March, down from a 52-week high of $177, and are adding to the position on weakness. The company trades for just over 12 times earnings and has a current well-covered dividend yield of 4.3% on March 31. It is one of only 55 companies that have raised their dividend annually for at least 50 years.

BSD Analysis:
Matrix Asset Advisors initiated a new position in Target around $100 per share, representing a 43% discount from its 52-week high of $177. The entry was driven by disappointing recent results that created an attractive valuation opportunity. Despite expecting near-term headwinds from economic slowdown and tariffs to pressure results, Matrix believes expectations have been sufficiently lowered to enable strong appreciation potential. The company trades at just over 12x earnings with a well-covered 4.3% dividend yield. Target's inclusion in the elite group of only 55 companies with 50+ years of consecutive dividend increases demonstrates exceptional capital allocation discipline and financial strength. The fund is adding to the position on further weakness, indicating high conviction in the risk-adjusted return profile at current levels.

Pitch Summary:
PepsiCo is a leading snack and beverage company. We know the company well, having owned it several times, buying during pullbacks, and selling when we thought the stock was fully priced. The current opportunity to buy the shares for our LCV portfolio is the result of a deceleration in the company's top-line growth and concerns about the potential impact on demand for the company's core products because of the new weight loss drugs and the opposition to soda and processed foods by the new secretary of health and human services. This well-managed company, with a history of steady earnings and dividend growth, is a good investment in what we expect to be a volatile stock market. At its current price, the dividend yield is 3.6%.

BSD Analysis:
Matrix Asset Advisors re-initiated a position in PepsiCo, a company they know well from previous ownership cycles. The current entry opportunity stems from headwinds including decelerating top-line growth, concerns about GLP-1 weight loss drugs impacting demand, and regulatory pressure from health officials opposing processed foods and sodas. Despite these near-term challenges, Matrix views PepsiCo as a well-managed defensive play with a strong track record of earnings and dividend growth. The 3.6% dividend yield provides attractive income in a volatile market environment. The fund's familiarity with the company and history of successful trading around valuation cycles suggests confidence in their ability to time this entry appropriately. PepsiCo's diversified portfolio across snacks and beverages provides some resilience against single-category headwinds.

Pitch Summary:
Generac provides backup and prime power generation products for residential and commercial & industrial (C&I) applications. The company's corporate purpose is to lead the evolution to more resilient, efficient, and sustainable energy solutions around the world. Generac's business gets a lot of attention when there are power disruptions from weather-related events or other natural disasters, but we believe this is a long-term secular growth story as the demand for reliable power increases. We did the work on this company last year and have been waiting for the opportunity to purchase the shares on price weakness. Our initial purchase was made at $125 per share, down from a 52-week high share price of $195.

BSD Analysis:
Matrix Asset Advisors initiated a position in Generac at $125 per share, representing a 36% discount from its 52-week high of $195. The fund views Generac as a long-term secular growth story driven by increasing demand for reliable power solutions beyond just weather-related disruptions. The company operates in both residential and commercial/industrial backup power markets, positioning it to benefit from grid reliability concerns and the broader energy transition. Matrix had been researching the company for over a year and waited for an attractive entry point. The timing appears strategic given the current market volatility and the company's strong positioning in the resilient power infrastructure theme. The significant discount to recent highs provides an attractive risk-adjusted entry point for this secular growth opportunity.

Pitch Summary:
Rocket Companies, which was down 5.5% in 1H 2024, represents the newest large position in the SCC Composite Portfolio, having been purchased in December 2022. RKT represents a play on a future decline in mortgage rates if and when inflation becomes subdued again. RKT shareholders should take a measure of comfort in the fact that the company is ultimately helmed by founder Dan Gilbert, who owns 1.85 billion shares of stock (on an as-converted basis) through Rock Holdings Inc.

BSD Analysis:
Seven Corners Capital's investment in Rocket Companies represents a cyclical bet on the mortgage industry's recovery when interest rates eventually decline as inflation moderates. The position, initiated in December 2022, appears to be a contrarian play during a challenging period for mortgage originators when rising rates have significantly reduced refinancing and purchase activity. The investment thesis relies on the eventual normalization of the interest rate environment, which would drive increased mortgage origination volumes and improve RKT's profitability. A key comfort factor for the investment is founder Dan Gilbert's massive ownership stake of 1.85 billion shares through Rock Holdings, ensuring strong alignment between management and shareholders. This concentrated ownership structure provides confidence that strategic decisions will prioritize long-term value creation rather than short-term financial engineering. The timing of the investment during a mortgage market downturn suggests SCC is positioning for a cyclical recovery in housing finance.

Pitch Summary:
Sandridge is SCC's largest energy holding and was down 4.3% during 1H 2024. The long thesis here remains that the secular decline in O&G drilling, combined with the revival of inflation generally, will support carbon-based energy prices going forward (in other words, if you own O&G assets, then ESG is your friend). With legendary investor Carl Icahn as its largest shareholder (he owns 13%) and Icahn's former lieutenant Jonathan Frates as its board chairman, Sandridge did an admirable job steering the company away from the abyss of bankruptcy in April 2020 (when, recall, the price of oil dropped to NEGATIVE $40/bbl). The company has cut unnecessary expenses to the bone ("high-grading" SD's well inventory in fact, not just as a management talking point), thereby maximizing free cash flow conversion. SD has also done a great job recompleting and reactivating dormant wells. SD's annual PDP decline is expected (by the company) to remain in the single digits (%age annually) over the next 10 years. SD just announced that it is acquiring additional production and acreage in the Western Anadarko basin (in Oklahoma) for a cost of $144MM, which is equal to 70% of their cash balance as of the end of Q1 2024.

BSD Analysis:
Seven Corners Capital maintains a bullish outlook on SandRidge Energy based on a contrarian energy thesis that views ESG pressures as ultimately supportive of oil and gas prices through reduced drilling activity. The investment benefits from strong governance oversight with Carl Icahn as the largest shareholder (13%) and his former lieutenant Jonathan Frates as board chairman, providing credibility after the company's near-bankruptcy experience in 2020. Management has demonstrated disciplined capital allocation by cutting expenses aggressively and "high-grading" their well inventory to maximize free cash flow conversion rather than growth for growth's sake. The company's operational excellence is evident in successful well recompletion and reactivation programs, with projected single-digit annual PDP decline rates over the next decade. The recent $144 million acquisition in the Western Anadarko basin, representing 70% of Q1 cash balances, signals confidence in their asset base and operational capabilities. This appears to be a value-oriented energy play betting on supply constraints and operational efficiency.

Pitch Summary:
Turning Point Brands, up 23% in 1H 2024, is an old standby in the SCC portfolio, having originally been purchased back in Q3 of 2016 (via SCC's investment in Standard Diversified [SDI], which then owned a majority stake in TPB and subsequently merged into TPB in mid-2020). Thus, despite having beneficially owned a stake in TPB for 8 years now, SCC has not earned an acceptable return on its (substantial as a portion of the portfolio) investment. Nevertheless, the investment thesis remains that the company enjoys the benefit of a steady compounding business model via its Zig-Zag and Stoker's brands (the waters have recently been muddied by the struggles of its NewGen brands segment, which is now a de minimis portion of the overall pie at TPB). In light of TPB's poor recent performance (at least, in the stock), the company could become the target of one or more activist investors, with the thesis possibly involving (A) the separation of TPB's legacy cashflowing business (i.e., its Stoker's MST / chewing tobacco and Zig Zag rolling paper businesses) from its perpetually struggling "New Gen" vaping business and/or (B) a substantial increase in the dividend along with a consequent decrease in TPB's practice of taking equity stakes in other companies. Clearly the status quo of treading water is unacceptable for TPB shareholders.

BSD Analysis:
Seven Corners Capital expresses frustration with Turning Point Brands after eight years of ownership without acceptable returns, despite the company's 23% gain in the first half of 2024. The manager acknowledges the core investment thesis around TPB's steady compounding business model through its Zig-Zag and Stoker's brands remains intact, but performance has been hampered by the struggling NewGen vaping segment. The neutral stance reflects disappointment with management's capital allocation and strategic direction. SCC suggests the company could become an activist target, with potential catalysts including separation of the profitable legacy tobacco businesses from the underperforming vaping operations, or a significant dividend increase coupled with reduced equity investments in other companies. The manager's candid admission that "the status quo of treading water is unacceptable" signals potential for either activist intervention or portfolio exit. This appears to be a legacy position where patience is wearing thin despite underlying business quality.

Pitch Summary:
GNW declined 4.5% in 1H 2024, following a period of significant outperformance during the preceding 7 quarters vis-a-vis the S&P 500. GNW trades at a discount to its 81.6% ownership stake in Enact Holdings (ticker ACT), which at the end of Q1 was valued at $3.95 billion (or 20.9% greater than GNW's $3.3 billion aggregate enterprise value). The SCC long thesis on GNW involves the eventual separation of GNW's ACT stake from GNW's generally unprofitable long-term care & life and annuity operations. Longer term could see GNW's Life & Annuity business (L&A) value unlocked via a de-stacking transaction (currently L&A is trapped below the long-term care business in the org chart and the applicable insurance regulators must bless any de-stacking). The company has been actively repurchasing its stock in recent quarters.

BSD Analysis:
Seven Corners Capital's investment thesis on Genworth Financial centers on a classic sum-of-the-parts value unlock opportunity. The company trades at a significant discount to its 81.6% stake in Enact Holdings, with the ACT position valued at $3.95 billion compared to GNW's total enterprise value of only $3.3 billion, representing a 20.9% discount. This creates an immediate arbitrage opportunity where investors are essentially getting GNW's other operations for free or at a negative value. The long-term catalyst involves separating the valuable Enact stake from the struggling long-term care and life insurance operations. Additionally, there's potential for a de-stacking transaction to unlock value in the Life & Annuity business, though this requires regulatory approval. The company's active share repurchase program provides additional support for the investment case. This appears to be a patient value play betting on corporate restructuring and asset separation to realize fair value.

Pitch Summary:
PSHZF, led by billionaire hedge fund manager Bill Ackman, finished Q2 2024 up 15%, outpacing a 5.2% increase in its NAV (thus, PSH's discount to NAV decreased to 22.7%). The long thesis continues to be two-fold: (1) a bet that Bill Ackman will outperform the overall market with his stock picking and uncanny ability to make huge sums via hedging; and (2) more importantly over the near to intermediate term, the closing of the sizable NAV discount. Simply closing the current discount would result in a ~29% appreciation in the stock, assuming NAV were to remain constant. In PSH's annual report for 2023, Ackman described some changes to the overall Pershing Square structure, aimed at lessening (or hopefully eventually eliminating) the NAV discount, which included a future reduction in fees charged to PSH investors under the Investment Management Agreement (IMA) (emphases added): "On February 7th [2024], PSH announced certain amendments to the IMA that will have the effect of reducing PSH's 16% performance fee. The amendments to the IMA include: (i) An amendment to the Variable Performance Fee ("VPF") provision of the IMA which will now provide that the Additional Reduction will no longer exclude fees paid to the Investment Manager by Pershing Square funds that are publicly traded in the United States. (ii) An amendment to the VPF provision of the IMA which provides that the Additional Reduction will also include an amount equal to 20% of any management fees that the Investment Manager earns from non-PSH, Pershing Square funds that invest in public securities that do not have performance fees. (iii) The waiver by the Investment Manager of the right to receive the $36 million outstanding balance of unrecovered IPO costs before the Additional Reduction under the VPF provision takes effect. As a result of the above amendments, PSH's 16% annual performance fee will now also be reduced by 20% of any management fees earned from any non-PSH Pershing Square funds that invest in public securities and do not have performance fees. On February 7th, [PSH announced its] intention to launch a U.S. closed-end fund called Pershing Square USA, Ltd., a fund which will largely mirror PSH in its investment strategy and hedging and asymmetric investment approach. With the benefit of the newly modified VPF arrangement, the long-term goal is to reduce PSH's performance fees to zero with the launch of new funds and strong long-term performance. We are limited in what we can share about these plans due to regulatory reasons, but we will inform you as promptly as possible about these developments." PSH US (the US-closed end fund) is expected to launch imminently with an initial $2B in AUM.

BSD Analysis:
Seven Corners Capital maintains a bullish stance on Pershing Square Holdings, viewing it as a dual-play investment opportunity. The primary thesis centers on capturing value from the significant NAV discount, which currently stands at 22.7% and could deliver approximately 29% upside if it simply closes to fair value. The secondary thesis involves betting on Bill Ackman's proven track record of market outperformance through skilled stock selection and hedging strategies. Management has implemented structural changes to reduce the performance fee burden, including amendments to the Investment Management Agreement that will lower PSH's 16% performance fee through various mechanisms. The upcoming launch of Pershing Square USA with $2 billion in initial AUM represents a strategic catalyst that could help narrow the discount over time. The fund's Q2 2024 performance of 15% versus a 5.2% NAV increase demonstrates the discount compression potential. This appears to be a value-oriented play on both management skill and structural discount resolution.