Investment Pitches

Pitch Summary:
Guidewire Software is a leading provider of software for Property & Casualty (P&C) insurance companies. Its software replaces legacy mainframe systems, helping to lower costs, improve decision making and enhance customer flexibility. Guidewire's software covers the entire insurance lifecycle, from product selection to claims management, providing a system of record for clients. The company began a shift to cloud-based subscriptions seven years ago but has faced numerous obstacles along the way, some of which were self-inflicted. However, evidence of a turn emerged a year ago with the company becoming GAAP profitable for the first time in three years and cloud deals accelerating. The momentum continued during the most recent quarter, with broad-based strength in sales and margins. Overall revenue rose 16% year over year, with growth in the subscription and support segment (60% of sales) accelerating to 28%, driven by strong cloud adoption. Margins also exceeded expectations, leading management to raise full-year guidance across the board, sending shares higher during the quarter. We believe Guidewire has reached an inflection point and expect ongoing cloud adoption to drive sales and margins higher in the coming years as insurance companies modernize their systems.

BSD Analysis:
Brown Capital presents a compelling turnaround thesis for Guidewire Software, highlighting the company's successful transition to cloud-based subscriptions after years of execution challenges. The manager emphasizes strong fundamental momentum with 16% revenue growth and accelerating cloud adoption driving the subscription segment to 28% growth. The achievement of GAAP profitability for the first time in three years represents a significant operational milestone. Management's decision to raise full-year guidance across all metrics signals confidence in the business trajectory. The fund views this as an inflection point, positioning Guidewire to benefit from the ongoing digital transformation in the insurance industry. With cloud adoption still in early stages and insurance companies needing to modernize legacy systems, the long-term growth runway appears substantial. The combination of improving margins and accelerating revenue growth supports the bull case for continued outperformance.

Pitch Summary:
comScore,Inc. (SCOR): SCOR again missed top-line estimates and exceeded EBITDA targets for Q4 2023. SCOR then provided guidance for 2024 that indicated expected revenue growth, but not the ability to maintain or exceed 15% EBITDA margins for the year. SCOR also was unable to reach a conclusion on the outstanding negotiations with Charter to resolve data licensing issues and with the preferred stockholders to resolve outstanding capital structure issues. 180 nominated Matt McLaughlin, the former COO of DoubleVerify Holdings, Inc., as a board nominee at the 2024 Annual Meeting and planned to run a competitive proxy contest. After several members of the Board met with Matt, SCOR decided to support Matt's addition to SCOR's Board through an expansion of the Board to 11 members without us needing to run a competitive proxy contest. While this is a smart first step for SCOR's Board, it has painfully failed to address substantial overhangs to the creation of value for common stockholders including SCOR's capital structure and Charter's inherent conflicts of interest. From our vantage point, we do not know if the Board is unable to agree on a path, or too lazy to understand the urgency in getting to some conclusion. Either way, it doesn't matter. SCOR's Board is ineffective and has overseen a decline in SCOR's common stock price by 80% since they arrived. They need to wake up and take action. SCOR is another case study in terms of a stock price being obliterated without real news as the source of such destruction. As we stated previously, SCOR had the same capital structure three years ago when its stock traded at $5.00, and its EBITDA was $32 million. EBITDA in 2023 was $44 million. The consensus analyst estimates according to Bloomberg for 2024 is $51.1 million and $56.2 million for 2025. The obsession of stockholders and otherwise would be stockholders with the unknown intentions of the preferred stockholders is the only thing anyone talks about these days instead of the meaningful progress the current management team has made in fixing the business and building cross-platform products that customers want and need. We will not go away as we believe there is so much hidden value to be unlocked if the Board gets some urgency.

BSD Analysis:
The manager presents a frustrated but ultimately bullish case for comScore based on strong operational improvements overshadowed by capital structure concerns. The company consistently exceeds EBITDA targets while working through revenue challenges, with EBITDA growing from $32 million three years ago to $44 million in 2023, and consensus estimates projecting further growth to $56.2 million by 2025. The valuation disconnect is striking - the stock has declined 80% despite improving fundamentals and trades significantly below historical levels when the capital structure was identical. The manager's successful board nomination of Matt McLaughlin, former DoubleVerify COO, provides industry expertise and shareholder advocacy. The core issue appears to be board ineffectiveness in resolving capital structure overhang and Charter conflicts rather than fundamental business problems. The manager's commitment to continued activism and belief in "hidden value" suggests significant upside potential once governance and capital structure issues are addressed.

Pitch Summary:
The Arena Group Holdings, Inc. (AREN): AREN defaulted on its contractual payments to ABG related to its Sports Illustrated license, which resulted in ABG giving AREN notice that it was cancelling the license. Subsequent to the end of Q1 2024, ABG signed a new agreement to run SI with Minute Media. AREN was also served with lawsuits from ABG and former management. In Q2 2024, representatives from AREN held a conference call during which they reiterated the expectation of driving to a close of the transaction between AREN and Bridge Media, albeit without providing financial estimates on what the go-forward business looks like without Sports Illustrated in terms of financial performance. We have a hard time making an investment case for AREN until the merger with Bridge Media closes and the company provides clarity on its financial operating model. We started out optimistic about the deal, and as is customary for large holders in public companies, we agreed to sign a voting agreement at the request of Bridge Media and its parent company, Simplify Investments. To be perfectly honest, the team at Simplify hasn't listened to any of our suggestions, and the arrogance under which they have operated has exposed false assumptions and complete naivety with regards to the public markets and AREN's partners. While we think the business can be run more efficiently and profitably than in years past, it is incumbent on the new team to get its act together and understand AREN is a public company with stockholders other than Simplify, and is not some pet private business where public market rules do not apply.

BSD Analysis:
The manager presents a highly critical assessment of Arena Group's deteriorating situation and poor management execution. The loss of the Sports Illustrated license due to payment defaults represents a catastrophic blow to the company's core asset and revenue base. The pending lawsuits from ABG and former management create additional legal and financial overhang. The manager's frustration with Bridge Media's management approach is evident, criticizing their "arrogance" and "naivety" regarding public market operations. The lack of financial transparency around the post-Sports Illustrated business model makes valuation impossible and investment case untenable. Despite believing the business could be run more efficiently, the manager cannot recommend the investment until the Bridge Media merger closes and provides operational clarity. The criticism of Simplify's disregard for public shareholders suggests potential governance issues that could persist post-merger.

Pitch Summary:
Lantronix, Inc. (LTRX): LTRX reported results for its fiscal Q2 2024 (ended December 31, 2023), that met expectations, however delays in one of its compute programs coupled with weakness in its distribution sales channels led to lowering of full-year guidance. While this reduction was expected to lead to weakness in the stock, LTRX's new CEO indicated his need to review every aspect of the company and would not back the opportunity funnel communicated on calls prior to his tenure. His tone and word selection made LTRX appear as a turnaround rather than a strong business, and this approach placed extreme pressure on the stock that continued through the remainder of the quarter. Subsequent to the disaster that was the fiscal Q2 2024 conf call, we have spent considerable time with the management team and Board attempting to provide advice on what we believed LTRX's management needed to do on its next earnings call. Some of these suggestions were incorporated into LTRX's recent fiscal Q3 2024 conference call, but additional steps are required to regain the confidence of investors. LTRX is another portfolio company where we may ramp up our constructive activism to drive change and value creation for shareholders.

BSD Analysis:
The manager expresses frustration with Lantronix's execution and communication missteps that have created unnecessary volatility. While the company met Q2 expectations, operational issues including compute program delays and distribution channel weakness led to reduced full-year guidance. The new CEO's overly cautious approach and poor communication strategy transformed market perception from a growth story to a turnaround situation, causing significant stock pressure. The manager's characterization of the Q2 conference call as a "disaster" highlights serious management communication failures. However, the manager's direct engagement with management and board suggests potential for improvement, with some recommendations already implemented in Q3. The planned constructive activism indicates the manager sees underlying value that can be unlocked through better execution and communication. This appears to be a temporary management-driven issue rather than fundamental business deterioration.

Pitch Summary:
Quantum Corporation (QMCO): Even though QMCO remained delayed in filing its financial statements due to the ongoing review of revenue recognition as raised by its new auditor, Grant Thornton, the company was able to provide updates on its balance sheet and noted that it was taking steps to optimize its working capital and reduce debt. QMCO also announced several new products with artificial intelligence-related features. I have not truly had a good word to say about this company in a very long time. It is the one name we own where we have gotten it very wrong from a fundamental thesis perspective, and without question, this position has turned into our worst idea since 180 started. QMCO has an uncanny ability to snatch defeat out of the jaws of victory and the management team, unfortunately, has been long on excuses since the early days when we had a very high regard for the team. That said, based on recent filings and public communications, we do believe QMCO is at the end of this latest drama with its new auditors. We don't believe the issue is significant, and we do believe the stock is going to go materially higher when it is resolved, hopefully, by the end of Q2 2024. It is our view that once this accounting matter is resolved, QMCO should sell themselves, and we will advocate for that likely through some form of activism.

BSD Analysis:
The manager presents a contrarian bull case for Quantum despite acknowledging it as their worst investment decision. The thesis centers on a potential catalyst-driven recovery once auditing issues are resolved by Q2 2024. The company is taking positive steps including working capital optimization, debt reduction, and launching AI-enhanced products that could drive future growth. The manager's candid assessment of management's poor execution history actually strengthens the investment case for a strategic sale, as it acknowledges the need for new ownership to unlock value. The auditing review appears to be a temporary technical issue rather than a fundamental business problem. The manager's planned activism to advocate for a sale could provide a clear exit strategy and value realization mechanism. The combination of depressed valuation due to temporary issues and potential strategic value makes this a classic turnaround opportunity.

Pitch Summary:
Synchronoss Technologies, Inc. (SNCR): In February 2024, SNCR reported that it had completed post-divestiture cost removals that resulted in annual savings of approximately $15 million. In the same release, SNCR noted that it expected to report revenue and adj. EBITDA for Q4 2024 that met or exceeded the upper end of its original guidance. SNCR's stock doubled after this announcement to a high near $14/share before retreating through the remainder of the quarter on no new information. We joined SNCR's Board of Directors in late 2023 with the purpose of helping the company create value as a newly pure-play cloud business. We don't join boards because we want to clip coupons through board compensation. We only join if we are convinced that we can help a company enhance its return profile through specific actions or steps that we think we can help achieve through such active involvement. We believe there are plenty of opportunities for us to help SNCR and we hope that is evident as 2024 unfolds. The stock has literally retraced itself back to this year's starting point and trades at, in our opinion, a low multiple of enterprise value/EBITDA (~5.5x) for a company with 75% gross margins, over 90% recurring revenues, and 25% EBITDA margins. We believe such companies, based on comparable valuations, could easily trade at 10x EBITDA, or $20 per share, which is more than triple the current share price.

BSD Analysis:
The manager presents a strong bull thesis for Synchronoss based on operational improvements and compelling valuation metrics. The company achieved $15 million in annual cost savings post-divestiture while meeting guidance expectations, demonstrating effective cost management and operational discipline. The transformation to a pure-play cloud business with exceptional unit economics is particularly attractive - 75% gross margins, over 90% recurring revenue, and 25% EBITDA margins represent best-in-class SaaS metrics. The valuation disconnect is stark, trading at only 5.5x EV/EBITDA versus the manager's 10x target multiple based on comparable companies. The manager's board seat provides direct influence to drive value creation initiatives. The stock's recent volatility, doubling to $14 then retracing on no fundamental news, suggests market inefficiency that could be exploited as the business model transformation gains recognition.

Pitch Summary:
Potbelly Corporation (PBPB): PBPB pre-announced another strong quarter with 6.4% growth in same-store sales and average weekly sales that exceeded estimates driven primarily by traffic growth. PBPB also noted 192 new shop commitments as part of the pre-announcement that was expanded to 202 when PBPB reported its full results in March 2024. PBPB provided long-term growth targets that supported its belief that the growth trends from 2024 will continue into the future. In 2018, Potbelly traded at nearly $15 per share. As of the end of Q1 2024, the stock traded at 2/3 that price despite having better comps, a better management team, higher revenue, and a franchising-based growth strategy that didn't exist back then.

BSD Analysis:
The manager presents a compelling bull case for Potbelly based on strong operational momentum and valuation disconnect. The company delivered impressive 6.4% same-store sales growth driven by traffic increases, indicating healthy underlying demand rather than just price-driven growth. The expansion of franchise commitments from 192 to 202 shops demonstrates strong franchisee confidence and provides a capital-light growth pathway. The valuation argument is particularly striking - the stock trades at roughly $10 versus $15 in 2018, despite superior fundamentals including better comparable sales, improved management, higher revenue, and a franchising strategy that didn't exist previously. This suggests significant multiple expansion potential as the market recognizes the improved business model and execution. The franchising strategy should drive higher-margin, more predictable revenue streams while reducing capital intensity.

Pitch Summary:
We have been shareholders of International Game Technology since December of 2019 and we first wrote about it in our first quarter 2020 letter, in the depths of the COVID panic when we were adding to the position. We initially invested under the thesis that the lottery business was a high quality, recession resistant, recurring business and that the market was punishing the stock due to high leverage. The leverage was due to the previous merger bringing GTECH and IGT together as well as to the nature of the business where typically a large upfront fee and/or capital expenditure is required to win a multi-year concession from a government. The company was paying too high a dividend to support the controlling family and we thought they would eventually adjust this to pay off the debt to prepare for future tenders. COVID then occurred and showed how even the recession resistant lottery business could be put on its knees for a short period of time. The company wisely pivoted to debt reduction. They cut their dividend, divested their Italian B2C business Lottomatica for €1.1 billion in December 2020 and their Italian commercial payments business in February 2022 for €700 million. Due to these transactions and significant free cash flow generation the company went from peak net debt / EBITDA of 7.0x at year end 2020 to 2.9x at the end of 2023. This is the lowest in company history. Despite this, the shares have languished and continue to trade around 6x EV/EBITDA, which was roughly similar to where it traded in 2019, despite the massive step change in leverage. The board became annoyed that despite their efforts the stock traded at a significant discount to listed peers and recent transactions. The most comparable business to the lottery segment was Scientific Games' lottery business, which was sold to Brookfield Business Partners L.P. for an implied trailing EV/EBITDA of approximately 13x. Neogames, a tough competitor in the iLottery business was purchased in May 2023 for an 15x EV/EBITDA by top competitor Aristocrat (ALL AS) of Australia. We believe other listed peers are less relevant but note other companies in the sector like Pollard Banknote (PBL CN), OPAP (OPAP GA) and the French lottery provider La Française des Jeux (FDJ FP) are all trading at 10x forward EV/EBITDA. Meanwhile gaming segment peers such as Light & Wonder (the renamed non-lottery part of former Scientific Games) and Aristocrat traded at 9x and 12x EV/EBITDA respectively. So it's not a huge surprise that on June 8, 2023, the company announced the Board would begin evaluating potential strategic alternatives for the Global Gaming and Play Digital businesses, with the goal of unlocking the full value. The company has three divisions with lottery consisting of roughly 60% of sales and 70% of EBITDA whilst Gaming (slot machines) and PlayDigital (iGaming, PlaySports) are the remaining 40% of sales and 30% of EBITDA. The shares traded up on the announcement to eventually reach the low $30s culminating with the rumour in September 2023 that Apollo was interested in the business in the $4-5 billion range which was roughly our assessment of the fair value of the business. By the fourth quarter, however, given no news of the sale, the shares drifted lower (making it our worst performing position in the fourth quarter of 2023) and the market turned its attention to the 2025 Italian Gioco del Lotto renewal. The concession is roughly 12% of reported sales and more in EBITDA terms according to our estimates, but given IGT's 61.5% ownership, it is less than the headline might indicate (although still significant). Then on 29th February 2024 the company announced that the Global Gaming and PlayDigital divisions would be spun-off and then merged with publicly listed peer Everi (EVRI US). Post transaction, IGT shareholders will hold 54% interest in the combined company (GamingCo) with existing Everi shareholders owning the balance. The newly merged company would then pay $2.6 billion in cash to the lottery company. This would leave the GamingCo with 3.2-3.4x net debt / EBITDA based on $2.7 billion pro forma 2024 sales and $1 billion PF 2024 EBITDA. Whilst the highly cash generative LottoCo would be 2.5x levered. At first the market reacted positively to the deal but then as the details were digested the shares declined to the high teens. We agree that a sale at full value to private equity would have been the quick and preferable path. We think many speculative shareholders were likely positioned for this, anticipating a rapid rerating of the lottery business. We believe part of the sell-off was due to the perception that the "catalyst" wasn't due until 2025, while many had assumed a deal in 2024. However, we must admit the bears have concerns which may or may not be likely outcomes, but certainly increases risk. First, Everi is split into two segments fintech (financial technology products for gaming operators) and gaming machines (slots). The gaming segment is riskier as it is undergoing a portfolio refresh and appears to be losing market share, which may or may not reverse. Previous mergers in the gaming space (WMS Industries, Bally Technologies, GTECH) are perceived as having not added value. There is also some risk that purchasing managers decide to wait before purchasing new cabinets from them, until it is known which products will be supported by the newly merged company. However, the companies say that there is very little overlap in products and synergies are not coming from a reduction in the product portfolio. Hence, they claim all products will be supported going forward. The two companies are indeed focused on different VLT classes with no overlap in the fintech business. Therefore, there is some evidence to support the case of a complimentary merger. We will have to wait and see how their sales develop over the course of the year but in any case, this would be at most a timing issue, if an issue at all. Second, the Italian (Gioco) lottery would go from optically 12% of reported group sales to 20% of LottoCo sales, therefore magnifying the risk of losing the concession. However, it is less a concern in earnings terms, as there is significant minority leakage. Whilst they have had this contract since 1998 and retention rates are generally >90% for incumbents, there is always a risk of loss. Since the last tender the competitive landscape has changed. Sisal was previously owned by private equity and likely levered, but is now owned by Flutter, a company with a very strong balance sheet. Likewise, Allwyn (previously SAZKA Group) is also in a significantly better leverage position. Note that Allwyn recently challenged the UK incumbent Camelot and won the UK contract. In fact, during the previous tender, IGT was also quite levered and had to invite financial investors to aid in the bidding. The final JV is owned 61.5% by IGT and 32.5% by Allwyn (the remainder 4% tobacconists' industry body and 2% Novomatic). In the latest release, it appears that Allwyn has signed an MOU with IGT to keep the current structure for the next tender, removing one obvious threat. Flutter, most consider a lower threat as they are focusing on US sports betting and iGaming expansion. Third, the transaction is structured as a tax-able spin-off, whereas most are structured as tax-free. At face value this seems odd, as does management's explanation that it provides the most flexibility for both LottoCo and for GamingCo to pursue other strategic alternatives as stand-alone entities. We believe the tax is mostly focused on US investors and it is unlikely that the major controlling shareholder, who is an Italian tax resident, purposefully signed up for a large US tax bill. The company is in fact UK domiciled and while not offering tax advice, it seems foreign investors may not necessarily have the same problem. However, it does seem odd to anger your core US taxable investor. If anyone understands the tax ramifications better please let us know. In summary, we see some incremental risks to our buy case, but we think the risk reward remains massively skewed towards the upside with the businesses continuing to perform well. Our fundamental value is still north of $45 if the two new entities trade at a closer discount to peers. In fact, we think none is likely warranted. Fortunately, we are long-term investors and with this kind of upside we can be patient and wait to realize the value.

BSD Analysis:
Palm Harbour Capital maintains a bullish stance on IGT despite recent volatility, viewing the announced spin-off and merger as a value-unlocking catalyst rather than a setback. The fund's thesis centers on IGT's transformation from a highly leveraged entity (7.0x net debt/EBITDA in 2020) to a deleveraged company (2.9x in 2023) trading at an attractive 6x EV/EBITDA multiple. The manager highlights the significant valuation discount compared to peers and recent transactions, with comparable lottery businesses trading at 10-15x EV/EBITDA versus IGT's 6x multiple. The proposed restructuring will separate the high-quality lottery business (60% of sales, 70% of EBITDA) from the gaming operations, potentially allowing each segment to achieve more appropriate valuations. While acknowledging risks including the Everi merger execution and Italian lottery concession renewal, the fund maintains a $45+ fair value target, implying substantial upside from current levels. The manager's long-term investment horizon and conviction in the underlying business quality support their patient approach to value realization.

Pitch Summary:
NOF is a Japanese company with a compelling investment profile: a stable, cash-generative core business in functional chemicals, supported by high-growth segments in cosmetics and pharmaceuticals. These segments are driving both top-line expansion and margin improvement. Despite this favorable mix, the company continues to trade like a basic chemicals business at just 17x earnings. With leading market positions in faster-growing, higher-margin niches, we believe NOF is well-positioned to deliver double-digit growth for years to come, and that the market has yet to fully reflect this structural shift in its valuation. In the near term, cosmetic surfactants – which account for approximately 20% of NOF's sales and 25% of profits – are poised to drive meaningful upside, following a recent doubling of production capacity. NOF operates as an original design manufacturer (ODM) for leading cosmetic brands, including Ryohin Keikaku (popularly known as Muji). The cosmetics segment grew 36% last year, fueled by Ryohin's success and continued store expansion, particularly in China. With sustainable double-digit revenue growth and operating margins of 25% or higher, the cosmetics business is well-positioned to support 1–2% annual expansion in group-level margins over the next few years – a key driver of long-term value creation. NOF also has clear visibility into long-term, sustainable growth through its Pharmaceutical and Drug Delivery Systems (DDS) platform, which now accounts for about 20% of sales and 35% of profits. Like the cosmetics segment, DDS recently doubled its production capacity to support future demand. The company holds a 60% global market share in polyethylene glycol (PEG) – a key drug additive that enhances stability and prolongs therapeutic effects. In addition, NOF is rapidly scaling its capabilities in lipid nanoparticles, a critical delivery technology for nucleic acid-based therapies (RNA, DNA) and other next-generation treatments. While still in the early stages, the lipid nanoparticle market is projected to grow at a 40% annual rate, positioning NOF to benefit from secular growth well into the 2030s. A final growth catalyst lies in NOF's explosives division, which represents approximately 10% of sales and holds a 100% market share in Japan for rocket propellants used by the Self-Defense Forces (SDF). While the company provides limited disclosure on this segment, it recently announced a doubling of capacity to meet rising demand. However, with captive customers like IHI ramping up missile and rocket production by several multiples, even this expansion is unlikely to fully meet growing needs – suggesting continued upside and strategic importance for this niche, high-barrier business. NOF is also making encouraging progress on corporate governance. While the introduction of a formal Investor Relations function and explicit shareholder return policies may seem like modest steps, they represent meaningful improvements for the company. With only two analysts currently covering what is otherwise a well-established "mid-cap" company, we believe there is still significant discovery and re-rating potential as governance standards improve and investor visibility increases.

BSD Analysis:
The manager identifies NOF as a classic value trap turning into a growth story, trading at 17x earnings despite a compelling business mix transformation toward higher-margin segments. The cosmetics division (20% of sales, 25% of profits) offers immediate upside with recently doubled capacity and 36% growth driven by Muji's China expansion, generating 25%+ operating margins. The pharmaceutical DDS platform provides long-term secular growth, holding 60% global market share in PEG and rapidly scaling lipid nanoparticle capabilities for next-generation RNA/DNA therapies in a market growing 40% annually. The defense explosives division adds a unique catalyst with 100% domestic market share and capacity doubling to meet surging missile/rocket demand from Japanese Self-Defense Forces. Improving corporate governance and minimal analyst coverage (only two) suggest significant re-rating potential as the market recognizes this structural shift from commodity chemicals to specialized, high-margin niches. The combination of immediate margin expansion, secular pharmaceutical growth, and defense spending provides multiple avenues for sustained double-digit growth.

Pitch Summary:
Magnite is one of the largest independent sell-side platforms (SSPs) – effectively serving as enterprise software for digital publishers, including websites and connected TV channels. Its platform enables publishers to manage ad serving, optimize yield, and target audiences more effectively by connecting their ad inventory to a broad network of demand partners. In return, SSPs earn a percentage of ad spend flowing through their platforms. Magnite benefits from deep integrations with publishers and demand-side platforms, creating high switching costs and a durable competitive moat. The company is widely recognized for its fast, reliable technology infrastructure. Two major trends are reshaping the digital advertising landscape. First, ad budgets continue to shift from traditional linear TV to Connected TV (CTV) as platforms like Netflix and others expand their ad-supported offerings. Second, a recent antitrust ruling against Google may significantly alter the dynamics of the open web advertising market – specifically for video and display ads on browser-based websites. The court found Google had engaged in anti-competitive practices, and a follow-up hearing this September could result in structural changes that benefit independent ad tech providers. CTV now represents approximately 50% of Magnite's revenue, with the segment expected to grow at a 15% CAGR over the medium term. The company is well-positioned to outpace this growth thanks to their scale, deep publisher relationships, and strong technology platforms. In mid-2024, Magnite was named Netflix's exclusive ad tech partner, positioning it to benefit as Netflix targets $9 billion in ad revenue by 2030. In the open web advertising market, Google maintains a dominant 60% share, compared to 7% for Magnite. Despite its relatively small share, open web ads still account for approximately 40% of Magnite's revenue. A meaningful shift in market share following the recent antitrust ruling could serve as a powerful catalyst, with potential double-digit revenue growth beginning in 2026. To illustrate the upside: each 1% shift in market share away from Google would translate into an estimated $50–75 million in high-margin revenue (with about 90% incremental margin) – equivalent to roughly half of Magnite's 2024 EBITDA. At current valuations – 15x forward EBITDA for Magnite – we believe this embedded optionality is not yet priced in, and the stock could offer 50–100% upside from current levels.

BSD Analysis:
The manager presents a compelling bull case for Magnite centered on two powerful secular tailwinds: the ongoing shift from linear TV to Connected TV advertising and potential market share gains from Google's antitrust issues. With CTV representing 50% of revenue and growing at 15% CAGR, Magnite is well-positioned to capitalize on this structural shift, particularly given its exclusive partnership with Netflix as they target $9 billion in ad revenue by 2030. The Google antitrust ruling represents significant embedded optionality, as each 1% market share shift could add $50-75 million in high-margin revenue - equivalent to half of 2024 EBITDA. The company's competitive moat stems from deep publisher integrations and switching costs, while trading at a reasonable 15x forward EBITDA despite these catalysts. The manager's 50-100% upside target appears achievable given the multiple expansion potential as these structural changes materialize. The thesis combines both defensive characteristics (moat, recurring revenue model) with meaningful growth optionality from industry disruption.

Pitch Summary:
Consider TSMC, a semiconductor manufacturer whose customers effectively have zero alternative to produce leading edge semiconductors. How TSMC sets its prices is interesting, especially as we compare it to Nvidia. It begs the question: Should TSMC be taking more out of the AI semiconductor profit pool or is Nvidia taking too much? TSMC has been asked "the pricing question" many times over many years, and its response is remarkably consistent: TSMC prices strategically, not opportunistically. In our view, TSMC is one of the best examples of the concept of Non-Zero Sumness. It consistently has lower margins than its customers, despite a monopoly position. For example, TSMC guided investors to a 51% to 53% gross margin for the coming year, while Nvidia will likely have gross margins above 75% in the comparable period, with its AI products garnering much higher margins than the 75% corporate average. To be fair, Nvidia has a software platform that is highly valuable. The margin comparison may not be perfect, but as we will see, the share of industry economics is lopsided. What makes TSMC's pricing strategy so interesting is that by not taking too much of the economics for itself, it remains a key enabler of its customers' success and never gives its customers a reason to seek a large second source. This ethos is especially impressive because over the past decade, TSMC has emerged as a monopoly in the leading-edge foundry business. By leaving perhaps a little bit of money on the table every year, TSMC has built one of the best compounding machines of our generation, compounding its revenue at 18% annualized over the last 30 years -- an almost 150-fold increase. We would never expect TSMC to opportunistically price gouge a customer, even if that customer is experiencing phenomenal success in the market. Nvidia's CEO Jensen Huang once said, "Nvidia wouldn't exist without TSMC." In the last two years, TSMC has manufactured the wafers to allow Nvidia to more than quadruple its revenue. Both parties have recently discussed negotiating the economics, and we would expect TSMC to once again get its fair share -- but in a strategic, thoughtful way rather than maximizing the near-term earnings power.

BSD Analysis:
NZS Capital presents a compelling bull case for TSMC centered on the company's strategic pricing philosophy and monopolistic position in leading-edge semiconductor manufacturing. The manager highlights TSMC's "Non-Zero Sumness" approach, where the company deliberately maintains lower margins (51-53% gross margin guidance) compared to customers like Nvidia (75%+ margins) to ensure long-term customer loyalty and market dominance. This strategic restraint has enabled TSMC to compound revenue at 18% annually over 30 years, achieving a 150-fold increase. The fund views TSMC as an essential enabler of the AI boom, with customers having "zero alternative" for leading-edge chip production. The manager expects TSMC to capture a larger share of AI semiconductor economics through strategic negotiations rather than opportunistic pricing. This positioning as an indispensable partner in the AI value chain, combined with disciplined capital allocation and pricing strategy, supports the bull thesis. The 30-year track record of consistent growth and the company's monopoly in advanced foundry services provide strong fundamental support for continued outperformance.

Pitch Summary:
Dollar General is a discount retailer with a 20,000 store footprint that lies within five miles of 75% of the US population. Sales of $41 billion provide the scale and the expansive store footprint provides the network density that enables Dollar General to serve its rural customers with discounts of upwards of 40% compared to competitors. Despite a proven business model and a track record of profitable growth stretching back to 1939, Dollar General is trading near an all-time low valuation multiple due to several fixable missteps. Dollar General's missteps took root during the global pandemic. After a stimulus-fueled boom in consumer spending met with procurement challenges from supply chain disorder in 2021, Dollar General took on excess inventory to rectify what was then its largest out of stocks in over fifteen years. As consumer demand pulled back following the pandemic, Dollar General was stuck leasing expensive temporary warehouse space to house this inventory. Excess inventory was pushed to the stores to alleviate the pressure on temporary distribution centers, and stores had too much of the non-consumable inventory that customers did not want (18% of mix), and not enough of the high velocity consumable inventory (82% of mix) that customers did want. As store managers became bogged down with managing and stocking excess inventory, recent rollouts of self-checkout counters created the perfect storm for elevated shrink. Operating margins went from normalized levels of over eight percent to five percent, the multiple went from a premium to the market to a meaningful discount, and the board brought back the proven former CEO for a second act. With Dollar General, we see four paths to value creation. First, Dollar General is fixing the problems that arose during the pandemic. These simple actions include exiting temporary warehouse facilities and removing self-checkout from stores. Collectively, these simple actions provide a tailwind to margin growth through the balance of 2025. Second, after firmly establishing a first mover advantage in underserved small towns across America, Dollar General is putting a greater focus on efficiency. There are three main parts to this. One, Dollar General is reducing SKU count per product from six to three. Given that its core customer shops at Dollar General in large part because of the upwards of 40% discount versus competitors (if there are any), stocking six varieties of a consumable product is an unnecessary drain on resources. From distribution centers down to the stores, focusing on the top selling SKUs increases efficiencies by necessitating less forecasting, reducing the risk of overstocks and obsolescence, and keeping inventory fresh and storage costs low. Two, Dollar General's SKU optimization feeds into needed distribution center redesigns. In an age of robotic assisted logistics, Dollar General only added automation to a distribution center for the first time in 2024. Dollar General has ample opportunity for expanding margin enhancing logistics optimizations such as cross docking, case pack optimization, rolltainers and planogram sorting that collectively enable seamless product flow from distribution center to store shelves. SKU rationalization makes this logistics redesign easier as simplified products to track, order and replenish enables efficiency gains from greater optimization of warehouse space. Three, SKU and distribution process optimization drive greater store efficiency. The post-pandemic period of excess inventory and elevated demands on store personnel brought store managers away from the front of the store as they had to focus on display management. In optimizing SKUs and distribution processes to reduce floor stands and display rotations, Dollar General moves towards the Costco and Aldi's model where logistics become more "fingerprintless" as more products go straight to the shelf. This improves the customer experience by having store managers at the front of the store, and provides a near term tailwind from reduced shrink. Collectively the SKU, logistics, and store management redesigns stand to grow margins past normalized historical highs in the coming years. Third, with DG Media, Dollar General is growing an underutilized channel to use its first party data to connect with customers and to drive traffic. Dollar General's scale inherent in $41 billion in sales makes it a top five channel (and a high margin channel on account of the small pack sizes) for a majority of its consumer product group suppliers. This scale means that suppliers come to Dollar General to move product, yet Dollar General's digital channel to push promotions and drive traffic has not fully tapped into this vendor support opportunity. A home delivery rollout to half of Dollar General's store footprint by the end of 2025 (at no cost to Dollar General) puts in place the missing piece to drive this digital engagement. By virtue of its expansive store footprint, Dollar General is uniquely able to deliver to small town America in under one hour. As customers become more engaged digitally with DG Media, Dollar General stands to accrue benefits from sales growth, vendor support, and importantly, driving customer pull down from more technologically oriented mid and upper income consumers. Fourth, while we believe our investment in Dollar General will create shareholder value regardless of the economic environment, it stands to benefit disproportionately in any economic slowdown. Dollar General's position as a discount retailer with limited competition and an 82% mix of recurring consumable sales means that the business is not only resilient in recessions, but it also gains middle- and upper-income customers during periods of economic stress. Due to the peculiarities of the post pandemic environment (low unemployment, real wage growth for upper income consumers but not lower income consumers), Dollar General did not experience its historical consumer trade down but was exposed to a core customer spending pullback. This dynamic began to change in the fourth quarter of 2024 and throughout the first quarter of 2025 on account of concerns over the economic outlook. As the mid and upper income trade down continues to accelerate, Dollar General stands to grow sales, earnings, and as that happens, its market multiple should return to historical levels. In Dollar General we see a proven business model with several interconnected issues that are collectively inefficiently consuming resources. With the backdrop of easily executable self-help initiatives and longer term tailwinds, we see a credible path for Dollar General to return to its historical shareholder value creation.

BSD Analysis:
Spree Capital presents a compelling turnaround thesis for Dollar General, arguing the discount retailer is trading at historically low valuations due to pandemic-related operational missteps that are now being addressed. The manager identifies four distinct value creation paths: operational fixes (exiting temporary warehouses, removing self-checkout), efficiency improvements through SKU rationalization and distribution automation, digital growth via DG Media and home delivery expansion, and defensive positioning for economic downturns. The thesis centers on margin recovery from current 5% levels back toward normalized 8%+ operating margins through systematic operational improvements. With 20,000 stores serving 75% of the US population within five miles and 40% price discounts versus competitors, Dollar General maintains significant competitive advantages in underserved rural markets. The 82% consumables mix provides recession resilience and potential for customer trade-down during economic stress. Management's track record since bringing back the former CEO, combined with concrete operational initiatives already underway, supports the turnaround narrative and potential multiple re-rating.

Pitch Summary:
Data Infrastructure. In addition to interest rates, data infrastructure software did not deliver the expected fundamental improvement in 1Q23. There are two main reasons behind this that we have identified: 1. The initial investment wave in AI has been securing hardware and "renting" this hardware as a service. Revenue from selling software services and applications is still in the early days. This is why companies like Datadog, while still growing, are tracking below the historical 2x the rate of AWS growth (Amazon). 2. Companies cut spending during the downturn and were more focused on reaching profitability at the expense of growth, which is now coming back to bite them. A common theme that we are noting is that companies that were supposed to be growing 30-40% are now growing only 20%. Snowflake (SNOW) is a prime example. Some of this is a function of weak macro/enterprise spending, but some of it may be related to dropping the ball.

BSD Analysis:
Spear Advisors expresses bearish concerns about Snowflake, citing it as a prime example of data infrastructure companies failing to deliver expected fundamental improvements. The fund identifies two critical issues: first, the AI investment wave has focused on hardware acquisition rather than software applications, leaving data infrastructure companies in early stages of monetizing the AI trend. Second, companies' focus on profitability over growth during the downturn has resulted in significant deceleration, with Snowflake exemplifying the shift from expected 30-40% growth to only 20% growth rates. While acknowledging that some weakness stems from macro and enterprise spending pressures, the manager suggests Snowflake may have "dropped the ball" operationally. The fund maintains exposure but is highly selective, focusing on companies that can play offense rather than defense. Despite long-term confidence that software services will be essential as companies build on AI hardware, near-term execution concerns and growth deceleration make Snowflake a cautionary example within their data infrastructure holdings.

Pitch Summary:
Cybersecurity. Despite ransomware hitting all-time highs and now affecting over 10% of organizations, cybersecurity got caught up in the software sell-off. For cybersecurity specifically, interest rates were the main negative driver, while fundamentals have remained strong. Crowdstrike (CRWD) was the relative outperformer in the quarter vs. Zscaler (S) and Sentinel One (S), which meaningfully underperformed. While we are not concerned about the first point as we are confident that as companies start building on top of the hardware, they will need the software services (especially critical ones like cybersecurity, observability, and data streaming), we are laser-focused on the second to make sure we don't get stuck with the losers.

BSD Analysis:
Spear Advisors maintains a bullish stance on CrowdStrike despite the broader software sector selloff in Q1 2024, viewing the weakness as interest rate-driven rather than fundamental deterioration. The fund's conviction is supported by strong underlying cybersecurity fundamentals, with ransomware attacks reaching all-time highs and affecting over 10% of organizations. CrowdStrike demonstrated relative strength as the best performer within their cybersecurity holdings, outpacing competitors Zscaler and SentinelOne during the quarter. The manager's thesis centers on the inevitable need for critical software services like cybersecurity as companies build applications on top of AI hardware infrastructure. While acknowledging that software revenue from AI applications is still in early stages compared to hardware investments, they view cybersecurity as essential infrastructure that will benefit from the broader digital transformation. The fund's selective approach to software additions reflects confidence in CrowdStrike's market position while maintaining discipline around avoiding weaker competitors in the space.

Pitch Summary:
Materials and Power Generation. Freeport McMoran (FCX) and Teck Resources (TECK) outperformed the rest of our portfolio. Since the end of the quarter, we took some profit in copper and redeployed it to other areas in power generation and connectors. The types of companies included in this area are 1) materials such as copper, 2) components such as electrical equipment, connectors, and thermal management, and 3) power generation, including independent power generators. As many of these companies are cyclical, the turnover of this basket is higher than some of our other focus areas, where we often maintain our holdings through the cycle (in varying sizes).

BSD Analysis:
Spear Advisors has established a bullish position in Freeport-McMoRan as part of their new "Materials & Power Generation" focus area, which represents a strategic expansion beyond traditional data center processors. The fund's thesis centers on FCX benefiting from the broader data center buildout, particularly through copper demand as AI infrastructure requires significant electrical components and thermal management systems. The manager's decision to take profits after strong outperformance demonstrates active portfolio management while maintaining exposure to the copper theme. This positioning reflects their view that the AI spending wave is broadening "outside the rack" to include materials, components, and power generation. The cyclical nature of these investments requires higher turnover compared to their core technology holdings, but the fund sees compelling opportunities as data centers require substantial copper infrastructure. The investment aligns with their conviction that capex spending cycles are accelerating, with hyperscaler investments exceeding $200 billion and growing.

Pitch Summary:
Data Center Hardware. Nvidia (NVDA) stood out and was our best-performing idea in the quarter and ytd. AMD (AMD) and Marvell (MRVL) also outperformed the rest of our portfolio but underperformed our expectations. The underperformance is because while AI is a positive contributor for these companies, it is not material enough to offset weakness in the rest of their businesses. We are being patient with these companies as we expect that it may take 1+ years to scale their new products.

BSD Analysis:
Spear Advisors maintains a strong bullish stance on Nvidia, highlighting it as their best-performing position in Q1 2024 and year-to-date. The fund's conviction stems from Nvidia's dominant position in the AI infrastructure buildout, particularly as hyperscaler capex is expected to grow 40% year-over-year with the five largest hyperscalers investing over $200 billion. The manager notes that Nvidia's upcoming Blackwell (B100) chip offers significantly lower total cost of ownership, which should drive further adoption. While acknowledging that AI benefits for competitors like AMD and Marvell are not yet material enough to offset weakness in other business segments, the fund remains patient with a 1+ year timeline for these companies to scale new products. The investment thesis is supported by the broadening data center investment cycle and the early stages of the AI spending wave. Spear's positioning reflects confidence in the multi-year AI infrastructure cycle despite near-term market volatility driven by interest rate concerns.

Pitch Summary:
The largest positive contributor to the returns for the flagship fund in the quarter was Middleby Corporation. Middleby is a U.S.-based global leader in the design, manufacture, and marketing of commercial foodservice, food processing and residential kitchen equipment. The largest division is commercial foodservice, which offers a comprehensive range of equipment including ovens, fryers, refrigeration units, beverage dispensers, and smart kitchen solutions. Middleby serves many of the largest foodservice chains in the world, with clients such as McDonald's, Starbucks, and Chipotle. The next largest division is food processing which provides industrial-scale solutions for processing proteins and baked goods, including ovens, mixers, slicers, and packaging systems. The smallest division is the residential equipment group which sells premium appliances under brands like Viking and La Cornue, offering products such as ranges, refrigerators, and outdoor cooking equipment. And, by the way, on the subject of tariffs, Middleby is a much more U.S. centric manufacturer compared to any of their competitors. They view tariffs as an opportunity and are excited about the competitive position it places them in. While we haven't owned Middleby nearly as long as TFI, we have been a shareholder for more than seven years and it definitely meets the criteria of the kind of company we are looking for. It is a highly intelligent company with a strong management team and board that have built, through acquisitions, the leading commercial foodservice company in the world. In January, the Wall Street Journal reported that an activist investor had purchased 5% of the company and was seeking board representation. We often worry about 'activist' investors as sometimes they take a short term approach to achieving a higher share price rather than creating long term shareholder value. With that concern in mind, we had a long conversation with the new shareholder. As it turns out, this particular activist is from the long term value creation camp. His name is Ed Garden. The day after Garden's investment was disclosed, the Middleby board issued a press release explaining that they have been running a strategic review process for many months. This ongoing review has already produced three initiatives. First, the company disclosed its plan to spin off the food processing division as a separate publicly traded company. This is expected to occur in early 2026. Middleby's food processing operation is an excellent business but there are no synergistic benefits to it being part of the larger Middleby group. Second, they announced a tripling of the share buyback authorization with an intention to repurchase 6% to 8% of the company each year. We had been encouraging the company to maintain an appropriately capitalized balance sheet and to be more 'opportunistic' in their share buybacks whereas they were thinking they should be more 'programmatic'. We are strongly in the opportunistic camp (we want our companies to do what we do) and, it is nice to see the company shift in this direction. Third, the company announced that, while they will continue to be acquisitive, there will be a tighter 'strategic focus' with acquisitions. We don't view this as a significant shift as management had indicated to us last year that they believed their residential portfolio was essentially complete. Circling back to tariffs: while things will undoubtedly keep changing, as it stands today the direct impact on our portfolio is quite modest.

BSD Analysis:
Middleby was Turtle Creek's largest positive contributor in Q1, benefiting from strategic initiatives and tariff positioning. The company dominates commercial foodservice equipment, serving major chains like McDonald's, Starbucks, and Chipotle, while also operating food processing and residential divisions. Activist investor Ed Garden's 5% stake catalyzed a strategic review yielding three key initiatives: spinning off the food processing division in early 2026, tripling share buyback authorization to 6-8% annually, and tightening acquisition focus. Turtle Creek particularly endorses the shift to opportunistic buybacks over programmatic repurchases, aligning with their capital allocation philosophy. The company's U.S.-centric manufacturing base provides a competitive advantage under current tariff policies, with management viewing tariffs as an opportunity rather than a threat. After seven years of ownership, Turtle Creek views Middleby as an intelligent acquirer with strong management that has built the leading global commercial foodservice platform through strategic acquisitions.

Pitch Summary:
While Bread's results were quite positive, TFI International's results were modestly disappointing. However, the stock price reaction was disproportionately severe, with TFI declining over 40% in the quarter. As a result, TFI, which is one of our longest tenured holdings and also one of our most profitable over the years, became the largest detractor to our returns in the first quarter. Headquartered in Quebec, TFI is a leading North American transportation and logistics company operating across four key segments: truckload, less than truckload (LTL), logistics, and package and courier. We have owned TFI continuously, but in widely varying amounts, for over 17 years. Over that time, the company, under the long time leadership of Alain Bédard, has grown significantly, mainly through more than 125 acquisitions, and has created substantial shareholder value. For our part, we have been afforded many opportunities to improve upon the shareholder value that management has created. Our initial purchases in 2007 were at $12 per share. During the Credit Crisis, we had the opportunity to purchase shares as low as $3. At the end of last year, we sold shares at prices as high as $220. Recently, we have been able to repurchase shares as low as $105. TFI is a great example of our approach, where we identify great companies we can own for a long time, add them to the portfolio at a price where the long term expected buy and hold return will be strong, and then take advantage of market mispricing to improve upon that buy and hold return. There is sometimes a reason why the share price of a company goes up or down (although often there isn't) and in this instance with TFI there was a reason. However, our experience has been that markets tend to overreact. We believe this is one of those instances. The transport industry in North America is experiencing one of the weakest markets since the industry was deregulated 40 years ago, and this, of course, has had an impact on the short term results of TFI. But also, in the most recent quarter, the company reported quite weak results in their U.S. LTL operations. This division became significant four years ago when TFI purchased the LTL operations of UPS – one of the most accretive acquisitions the company has ever made. In fact, the acquisition fully paid for itself in just four years. Few acquisitions deliver that kind of return. Recently, the U.S. LTL division has lagged the company's expectations. TFI knew when they purchased the division from UPS that it would be a lot of work and it would take time to change the culture and get the business onto TFI's operating model. It turns out that it is going to take longer than expected to accomplish this. The most recent results, combined with conversations with management, have caused us to reduce the Business Value of the company by approximately 10%. We never like it when we have to reduce the forecast for one of our companies. However, as we strive to have a balanced view with our forecast for each company, it is inevitable that this will sometimes happen. As we pointed out in last year's annual letter, of the 26 companies the flagship fund continuously owned during the year, we increased our intrinsic value on 23 and took our value down on 3. With our view of value down by 10% and the share price down by more than 40% during the quarter, we did what you would expect: we more than doubled the number of shares we own. We are confident this is yet another example of taking advantage of short term market fluctuations and would note that the shares have already recovered to the point where we are modestly trimming the position.

BSD Analysis:
Despite reducing TFI's business value by 10%, Turtle Creek maintains strong conviction in this 17-year holding, viewing the 40% stock decline as a significant market overreaction. The company operates across four transportation segments under veteran CEO Alain Bédard, who has executed over 125 acquisitions and created substantial shareholder value. The recent weakness stems from challenging North American transport markets and integration issues with the U.S. LTL division acquired from UPS four years ago. While this acquisition was highly accretive (paying for itself in four years), cultural integration is taking longer than expected. Turtle Creek's opportunistic approach is evident in their trading history: buying at $12 in 2007, $3 during the crisis, selling at $220 recently, and repurchasing below $105. The fund more than doubled their position during the quarter, demonstrating confidence in long-term value creation despite near-term operational challenges. Early recovery signs suggest the market overreaction thesis is playing out as expected.

Pitch Summary:
Another holding, Bread Financial, which fell into the camp of beating by a notable margin, ended up joining TFI as a significant detractor to our unit price performance in Q1. The price decline of Bread Financial subsequent to an in line Q4 and in advance of a significant Q1 beat is illustrative of the current confounding nature of the market. We wrote about Bread Financial in last year's annual letter and shared how it was the largest positive contributor to our returns in 2024. Bread provides white-labeled credit cards (private label or co-branded) and 'buy now, pay later' lending as well as related loyalty program and marketing services for brand partners in North America, including AAA, the NFL, Ulta Beauty, and numerous others. We concluded our discussion of Bread as follows: "And despite its healthy move this past year, we feel it still holds the potential for significant price appreciation in the near future and it remains one of our larger holdings." Earlier in the first quarter, Bread raised US$400 million of subordinated debt as part of their move towards an optimal capital structure and concurrently announced a $150 million stock buyback authorization. It was a bit of a surprise to us (albeit a very pleasant one) to see them fully complete the entire authorization, re-purchasing 6.5% of the shares outstanding at $47 per share, below tangible book value of US$49. And we think they're just getting started. In addition, they reported Q1 earnings that beat consensus by nearly 30%. All in all, we were very pleased with their financial performance during the quarter. This, however, was at odds with the stock price which declined nearly 20% during the quarter.

BSD Analysis:
Turtle Creek maintains a bullish stance on Bread Financial despite the stock's 20% decline in Q1, viewing it as a market disconnect from strong fundamentals. The company operates a profitable white-label credit card and BNPL business serving major brand partners like AAA, NFL, and Ulta Beauty. Management demonstrated strong capital allocation discipline by completing a $150 million buyback at $47 per share, below tangible book value of $49, retiring 6.5% of shares outstanding. The company also raised $400 million in subordinated debt to optimize its capital structure. Q1 earnings beat consensus by nearly 30%, indicating robust operational performance. Turtle Creek views the current price weakness as temporary market mispricing, maintaining confidence in the company's potential for significant appreciation. The fund considers this a core holding with strong long-term prospects despite short-term volatility.

Pitch Summary:
SigmaRoc is a prominent European producer of lime and minerals, founded in 2016 by a group of private equity investors. Inspired by the success of the U.S. market, they saw a significant opportunity to consolidate construction materials companies throughout Europe. Since then, SigmaRoc has made over a dozen strategic acquisitions in an effort to gain scale. This acquisition spree culminated in the purchase of CRH's European lime assets at the end of 2023, positioning SigmaRoc as the market leader in Finland, Sweden, Norway, the U.K., and Ireland, while securing the #2 spot in Germany, Poland, and the Czech Republic. Lime and aggregates in general are essential to many industries, providing SigmaRoc with a strong, resilient business model. These products are often local monopolies due to their limited transportability, with significant pricing power stemming from their short-distance economics. Even during periods of volume declines, prices generally still increase, a trend that was evident for SigmaRoc last year. Although aggregates are closely tied to construction demand, lime's applications extend far beyond this sector. While construction accounts for roughly half of SigmaRoc's revenues, the remainder is diversified across steel production, agriculture, chemical processes, and pulp and paper industries. We do believe much of SigmaRoc's broad exposure positions the company to benefit from several growth drivers, particularly increased defense and infrastructure spending in Europe. Germany, the company's largest market accounting for 30% of revenues, stands out as a key growth catalyst. The country recently announced a €500bn infrastructure investment plan alongside a commitment to increase defense spending, both of which are expected to drive demand of SigmaRoc's products. SigmaRoc represents a classic example of an underappreciated "analog" investment, with parallels to U.S.-listed aggregates players, particularly United States Lime & Minerals (USLM), a pure play lime producer. USLM currently trades at 20x P/E, while SigmaRoc is valued at only 9x, reflecting a significant discount. We expect this gap to narrow as SigmaRoc moves past the "roll-up" phase of their strategy following the CRH deal, and investors start to fully realize the scale and positioning the company has achieved.

BSD Analysis:
The manager presents SigmaRoc as an undervalued European consolidation play in construction materials with strong defensive characteristics and growth catalysts. The company has successfully executed a roll-up strategy since 2016, culminating in the transformative CRH acquisition that established market leadership across multiple European countries. The business model benefits from local monopoly dynamics due to limited transportability of lime and aggregates, providing significant pricing power even during volume declines. Revenue diversification beyond construction (50% of sales) into steel, agriculture, chemicals, and pulp/paper provides additional resilience. The investment thesis is strengthened by European infrastructure and defense spending tailwinds, particularly Germany's €500bn infrastructure plan. At 9x P/E, SigmaRoc trades at a substantial discount to U.S. peer United States Lime & Minerals at 20x P/E, suggesting significant valuation upside potential. The manager expects multiple expansion as the company transitions from roll-up execution to operational leverage and investors recognize the achieved scale and market positioning.