Investment Pitches

Pitch Summary:
Last quarter, we discussed how management at Dentsply Sirona, Inc. (XRAY), one of the world's leading suppliers of dental equipment and supplies, had been laying the groundwork for a turnaround for more than two years. Those efforts had yet to be reflected in the stock price. In the third quarter, CEO Simon Campion stepped down after three years at the helm and was replaced by Daniel Scavilla. Under Campion, XRAY focused on SKU rationalization and other cost initiatives but failed to keep up with its peers in terms of top-line growth. CEO Scavilla has a record of sales success at Globus Medical Inc. and Johnson & Johnson. We are encouraged by his initial strategies to arm the sales force better to go to market with the company's existing portfolio and near-term goals to improve margins and free cash flows. Dentsply was among the Fund's worst performers for the quarter, however trading at 6.7X estimated earnings, its valuation seems extremely discounted. Thus we will remain patient and sit tight with the position believing that the upside potential far outweighs the downside risk. However, our patience has a limit, and we will closely monitor XRAY's progress.

BSD Analysis:
Heartland maintains conviction in Dentsply Sirona despite recent underperformance, viewing the CEO transition as a potential catalyst for improved execution. New CEO Daniel Scavilla brings proven sales leadership from Globus Medical and Johnson & Johnson, addressing the company's primary weakness under previous management. While former CEO Campion successfully implemented cost initiatives and SKU rationalization, the company lagged peers in top-line growth, creating an opportunity for sales-focused leadership. Scavilla's initial strategies to better equip the sales force and leverage the existing portfolio suggest near-term operational improvements. At 6.7x estimated earnings, the valuation appears extremely attractive for a leading dental equipment supplier. The fund views this as an asymmetric opportunity where upside potential significantly exceeds downside risk, though they acknowledge limited patience for continued underperformance. The investment thesis hinges on new management's ability to translate operational improvements into revenue growth and margin expansion.

Pitch Summary:
Another industry leader that caught our attention in early 2024 is Calavo (CVGW), which is headquartered in Santa Paula, California. Their unique health-conscious food products were intriguing, but they were in the midst of a management transition, so it was put on our watch list. After a series of research calls uncovering an improving outlook, we began to accumulate the stock early this year. CVGW is a leading marketer and distributor of avocados and guacamole. After a multi-year period of mismanagement that included several CEOs, the long-time former chief executive came out of retirement to stabilize operations. He is aligned with shareholders receiving large equity grants that vest significantly higher than current stock levels and has purchased a sizeable number of shares in the open market. Since returning to the business, he has focused on exiting low-margin business lines and growing the prepared guacamole business that was 10% of total sales last year but has double the gross margin of the core business. This business grew +40% YOY in the latest quarter. CVGW believes they can double the size of this business within the next two years, which would be fruitful for Calavo's earnings potential. The evolving narrative positions Calavo less as a commodity-dependent packer and more as a growing "fresh + value-added" food company. If management can scale the prepared guacamole business, control costs, and navigate tax/regulatory risks, we believe shareholders will be rewarded. We aren't the only believers. Calavo received an unsolicited buyout offer for $32 a share in July. Further, the downside risk seems to be limited, supported by a solid balance sheet that includes around $3.50 per share of net cash plus $3 a share of cash potentially from the resolution of a long-standing dispute with Mexican tax authorities.

BSD Analysis:
Heartland's Calavo investment represents a compelling transformation story from commodity distributor to value-added food company. The returning CEO's strong alignment through equity grants vesting above current levels and open market purchases signals confidence in the turnaround strategy. Management's focus on exiting low-margin businesses while scaling the prepared guacamole segment, which carries double the gross margin and grew 40% year-over-year, demonstrates clear operational priorities. The prepared guacamole business represents only 10% of sales but offers significant expansion potential, with management targeting a doubling within two years. An unsolicited $32 per share buyout offer validates the transformation thesis and provides a potential floor valuation. The balance sheet provides substantial downside protection with $3.50 per share in net cash plus potential $3 per share from Mexican tax dispute resolution. This positions Calavo as an asymmetric risk-reward opportunity with limited downside and multiple value creation catalysts.

Pitch Summary:
A good example is Potbelly (PBPB), the sub sandwich chain which had been a long-term winner for us before it was acquired during the quarter by the convenience store operator RaceTrac at a +32% premium. We first purchased Potbelly in March 2021, a time when the environment for the restaurant sector was uncertain with depressed sales coming out of COVID-19 lock-downs. It was the fundamentals and strong insider buying that caught our attention. The new CEO at the time, Bob Wright, came out of retirement to turn around a strong brand that had been mismanaged and was no longer growing. He had a long career in restaurants including prior stints as chief operating officer of Wendy's and as chief executive officer of Charley's Cheesesteaks. He surrounded himself with an executive team that had successful restaurant careers, many of whom he worked with in prior roles. The team focused on improving operations through a long list of initiatives. The efforts resulted in consistent same-store growth above restaurant peers and a structural improvement in margins. With operations stabilized, Potbelly is pivoting to growth mode with a target of 2,000 shops from its current footprint of 454. The transformation from a mismanaged restaurant company to a fast-growing franchise worth acquiring proved fruitful for investors.

BSD Analysis:
Heartland's Potbelly investment exemplifies successful turnaround investing, generating a 32% premium upon acquisition by RaceTrac. The fund identified value during COVID-19 uncertainty in March 2021, focusing on strong fundamentals and insider buying signals. New CEO Bob Wright's restaurant industry expertise, including prior roles at Wendy's and Charley's Cheesesteaks, provided credible leadership for the turnaround. The management team executed operational improvements that delivered consistent same-store sales growth exceeding peers and structural margin expansion. With operations stabilized, Potbelly's growth strategy targets expanding from 454 to 2,000 locations, transforming from a mismanaged entity into an attractive franchise acquisition target. The successful exit validates Heartland's thesis that strong management can unlock value in overlooked restaurant brands. This case demonstrates the fund's ability to identify operational catalysts and management quality in distressed situations.

Pitch Summary:
Greggs is a vertically integrated food-on-the-go operator with over 2,650 shops across the UK. Greggs sells products which are low ticket, consumed immediately, and often repurchased during the day. The company's strong brand and differentiated business model have created loyal customers and long-term market share gains. Elevated cost inflation and growth investments have coincided with a demand slowdown, weighing on the near-term outlook and pressuring the stock. While sales growth and margins are likely to take a step back in the interim, given investments being made across the business (supply chain, innovation, employees, channels/partnership), we think the company has a long runway for new store openings. The company is cresting the peak of their supply chain investment cycle this year, management remains disciplined, and they are in an excellent financial position with cash flow set to inflect thereafter. We view the valuation as too low relative to their long-term prospects.

BSD Analysis:
FMI presents a contrarian view on Greggs, seeing temporary margin pressure and demand weakness as creating an attractive entry point for a dominant UK food-on-the-go franchise. The investment case centers on the company's vertically integrated model, strong brand loyalty, and significant store expansion runway across the UK market. Current headwinds from cost inflation and growth investments are viewed as cyclical rather than structural, with management nearing the peak of supply chain capex that should drive future margin expansion. The low-ticket, high-frequency purchase model creates defensive characteristics and customer stickiness that support market share gains over time. FMI expects cash flow inflection as investment cycle moderates, while disciplined management and strong balance sheet provide downside protection. The valuation disconnect between current trading levels and long-term growth prospects creates compelling risk-reward for patient investors.

Pitch Summary:
Becton Dickinson is a medical supply and device company, selling low-cost medical essentials. Products include vascular access devices, pre-fillable syringes, and catheters, to name a few. Becton is the leader in most of its product lines and often competes in oligopoly market structures. Their management team has been executing on a strategy to grow and simplify the business. This has been successful but is obscured by noise in the financials caused by the pandemic, portfolio actions, and other temporary factors, providing us with an opportunity to buy a quality business at an attractive price. We believe execution on the company's growth strategy and pending business separation will unlock value, with management targeting over 5% annual organic revenue growth and continued margin expansion in the coming years. Manufacturing scale is a key competitive advantage, with the company manufacturing billions of devices annually. Driven by healthcare utilization, the business is durable. Post their separation of biosciences and diagnostics solutions business in 2026, ~90% of revenue is recurring in nature (consumables). The valuation is attractive given the company's defensive attributes and growth potential.

BSD Analysis:
FMI identifies BD as a temporarily mispriced medical device leader trading below intrinsic value due to pandemic-related financial noise and portfolio restructuring. The investment thesis hinges on the company's dominant market positions in oligopolistic medical device categories and massive manufacturing scale advantages. Management's strategic focus on growth and simplification should drive 5%+ organic revenue growth and margin expansion as temporary headwinds subside. The pending 2026 business separation will create a more focused entity with 90% recurring consumables revenue, enhancing predictability and valuation multiples. FMI views healthcare utilization trends as durable long-term drivers supporting defensive growth characteristics. The combination of market leadership, operational leverage, and attractive valuation following recent volatility creates a compelling risk-adjusted opportunity in essential healthcare infrastructure.

Pitch Summary:
OneMain is a scale leader in nonprime personal lending. Although they have a messy corporate history, our research suggests that in most key areas they are superior to their peers. We believe with a few years of clean results and an improved macro environment, this company could be reframed as a differentiated, high-quality financial. Given organic growth opportunities in personal lending, and newer areas such as credit card and direct auto, we believe they can grow organically in the mid-single digits with operating leverage, while at the same time returning significant capital through a large dividend and episodic buybacks. Although the current macro environment has stressed their core consumer and pressured net charge offs, we believe the income statement alone provides sufficient protection from an adverse outcome in nearly all reasonable scenarios, with further protection on the balance sheet in a tail risk scenario. The macro backdrop has given us the opportunity to own this industry leading business at an attractive valuation.

BSD Analysis:
FMI presents a compelling turnaround thesis on OneMain Holdings, positioning it as a misunderstood leader in nonprime personal lending. The manager acknowledges the company's troubled past but emphasizes superior operational metrics versus peers and sees potential for multiple expansion as execution improves. The investment case centers on organic growth diversification into credit cards and auto lending, combined with mid-single digit growth and significant capital returns through dividends and buybacks. FMI views current macro headwinds as temporary, creating an attractive entry point for a market-leading franchise. The downside protection argument relies on income statement resilience and balance sheet strength in adverse scenarios. This contrarian bet requires patience for operational improvements and macro normalization to drive revaluation.

Pitch Summary:
Texas Roadhouse is a leading US casual dining restaurant company. We sold the fund's position due to the recent rapid rise in beef prices, which is a major factor in the company's commodity costs. Judicious price increases by the company's restaurants are not expected to keep up with rising commodity costs, thereby pressuring profit margins, which we saw in the second quarter.

BSD Analysis:
The fund manager exited Texas Roadhouse due to deteriorating margin dynamics driven by rapidly rising beef prices, a critical cost component for the steakhouse chain. The investment thesis turned negative as commodity cost inflation outpaced the company's ability to implement offsetting price increases without damaging customer value perception. Second quarter results already demonstrated margin pressure from this cost-price mismatch, validating the manager's concerns. The exit reflects proactive risk management in anticipation of sustained commodity headwinds affecting restaurant profitability. Texas Roadhouse's steakhouse concept makes it particularly vulnerable to beef price volatility compared to more diversified casual dining operators. The manager's decision demonstrates sensitivity to input cost dynamics and their impact on restaurant economics. This represents a defensive move to avoid further margin compression in an inflationary commodity environment.

Pitch Summary:
Q2 Holdings provides digital banking and lending solutions. We sold the stock to fund more timely investments. Q2 Holdings provides digital banking and lending solutions. The stock price declined on potential for increased merger and acquisition activity within the company's customer base.

BSD Analysis:
The fund manager exited Q2 Holdings to reallocate capital toward more compelling opportunities, indicating a relative value decision rather than fundamental deterioration. The stock faced pressure from potential consolidation activity among the company's regional and community bank customer base, which could impact future growth prospects. This M&A risk represents a structural headwind for digital banking solution providers serving smaller financial institutions. The manager's decision to sell reflects portfolio optimization and opportunity cost considerations in a dynamic market environment. The exit suggests identification of superior risk-adjusted return opportunities elsewhere in the portfolio. Q2's digital banking solutions remain relevant, but customer base consolidation creates uncertainty around long-term growth trajectories. The position management demonstrates active portfolio construction focused on maximizing return potential.

Pitch Summary:
Celestica is an electronics manufacturing services company providing supply chain solutions. We sold the position because its market cap increased beyond the fund's typical investment range. Celestica is an electronics manufacturing services company providing supply chain solutions. The company reported strong quarterly results fueled by market share gains and AI-related revenues.

BSD Analysis:
The fund manager exited Celestica despite strong fundamental performance, citing market capitalization constraints rather than investment thesis deterioration. The company delivered robust quarterly results driven by market share expansion and AI-related revenue growth, with data center revenue accelerating to over 100% growth from 60% in the prior quarter. This represents a successful investment that outgrew the fund's size parameters, demonstrating effective small-cap stock selection. The AI-related revenue acceleration validates the company's positioning in high-growth technology infrastructure markets. The exit decision reflects disciplined adherence to fund mandate rather than fundamental concerns. Celestica's strong performance contributed significantly to quarterly returns, highlighting the manager's ability to identify beneficiaries of AI infrastructure trends. The position generated substantial alpha through precise timing of technology infrastructure cycles.

Pitch Summary:
TTM Technologies is a printed circuit board (PCB) manufacturer. The company makes semiconductors that are used in the AI infrastructure build-out and we believe the company will have strong revenue and earnings growth for several years.

BSD Analysis:
The fund manager initiated a position in TTM Technologies based on the company's strategic positioning in AI infrastructure development through printed circuit board manufacturing. The investment thesis centers on multi-year revenue and earnings growth driven by AI infrastructure buildout demand. The manager identifies TTM's PCB products as essential components for AI semiconductor applications, positioning the company to benefit from sustained AI capital expenditure cycles. This represents a targeted play on AI infrastructure supply chain dynamics rather than direct semiconductor exposure. The multi-year growth outlook suggests confidence in persistent AI infrastructure investment trends. The positioning reflects belief in TTM's manufacturing capabilities and customer relationships within the AI ecosystem. This investment captures AI infrastructure growth through a specialized manufacturing angle.

Pitch Summary:
Lattice Semiconductor designs, develops and markets programmable logic products and related software. We believe the company's revenue growth will return to a level above 20% via the adoption of new products and the ending of an inventory depletion cycle.

BSD Analysis:
The fund manager holds a bullish view on Lattice Semiconductor, projecting a return to robust revenue growth exceeding 20%. The investment thesis is built on two key catalysts: new product adoption and the conclusion of an inventory depletion cycle that has been weighing on recent performance. The manager's confidence in programmable logic demand recovery suggests optimism about end-market stabilization across communications, computing, and industrial applications. The 20% growth target indicates expectations for significant operational leverage as inventory normalization occurs. This positioning reflects belief in the company's product innovation cycle and market share expansion potential. The timing appears strategic, anticipating a cyclical recovery in semiconductor demand patterns. The investment represents a recovery play on programmable logic market dynamics.

Pitch Summary:
Advanced Energy Industries provides precision power conversion, measurement and control solutions. We increased the fund's semiconductor capital equipment exposure in anticipation of increased investments fueled by AI.

BSD Analysis:
The fund manager initiated a position in Advanced Energy Industries to gain exposure to the semiconductor capital equipment sector, specifically targeting AI-driven investment growth. The thesis centers on the company's precision power solutions being essential for AI infrastructure development. This represents a strategic play on the ongoing AI boom and the associated semiconductor manufacturing capacity expansion. The timing appears opportunistic as AI-related capital expenditures continue to accelerate across the technology sector. The manager's decision to increase semiconductor equipment exposure suggests confidence in sustained AI infrastructure investment cycles. This positioning aligns with broader technology infrastructure themes driving current market dynamics. The investment reflects a targeted approach to capitalize on AI-enabled semiconductor manufacturing growth.

Pitch Summary:
Nebius is a leading provider of AI infrastructure and cloud-based solutions, delivering specialized GPU computing capabilities designed to support large-scale AI workloads for enterprise and research clients globally. We find Nebius compelling due to its impressive growth trajectory and expanding deployment of advanced Nvidia GPU technology within data centers across Europe and North America, positioning it as a key beneficiary of accelerating AI adoption. During the period, shares contributed positively, aided by continued demand for AI compute and a landmark multi-year agreement with Microsoft. Under this deal, Nebius will supply dedicated GPU infrastructure to power Microsoft's AI services, marking Nebius's first long-term contract with a major cloud service provider. We believe this partnership not only validates Nebius's technology and execution capabilities but also provides a significant revenue anchor, reinforcing its role as a critical player in the global AI infrastructure ecosystem.

BSD Analysis:
The manager presents a bullish view on Nebius as a specialized AI infrastructure provider positioned to benefit from accelerating AI adoption. The investment thesis centers on the company's impressive growth trajectory and strategic deployment of advanced NVIDIA GPU technology across European and North American data centers. The landmark multi-year agreement with Microsoft represents a significant validation of Nebius's capabilities and provides crucial revenue visibility. This partnership marks the company's first long-term contract with a major cloud service provider, establishing credibility in the competitive AI infrastructure market. The manager views this deal as a revenue anchor that reinforces Nebius's position as a critical player in the global AI ecosystem. The company's specialized focus on GPU computing capabilities for large-scale AI workloads differentiates it in the growing cloud infrastructure market.

Pitch Summary:
Nvidia Corporation is a leading supplier of graphics processing units (GPUs) for a variety of end markets, such as gaming, PCs, data centers, virtual reality, and high-performance computing. The company is leading in most secular growth categories in computing, and especially AI and super-computing parallel processing techniques for solving complex computational problems. In our view, Nvidia's computational power is a critical enabler of AI and therefore essential to AI adoption. Shares of Nvidia contributed positively to performance largely because the company delivered results and guidance that reinforced its leadership in the artificial intelligence boom. The company reported record revenue and earnings that exceeded analyst estimates, driven by surging demand for its AI-focused chips and related data center products. Specifically, the strongest growth came from its data center segment, which benefited from widespread adoption of Nvidia's advanced processors by cloud providers and enterprise customers building AI infrastructure. This momentum was supported by the ramp-up of its next-generation Blackwell chips, which are designed to handle increasingly complex AI workloads. Investors were also encouraged by management's upbeat outlook for the coming quarter.

BSD Analysis:
The manager maintains a strong bull thesis on NVIDIA, positioning it as the essential enabler of AI adoption through its computational power leadership. The investment case centers on NVIDIA's dominance across multiple secular growth categories, particularly AI and high-performance computing. Record revenue and earnings that exceeded estimates validate the company's execution and market position. The data center segment's strength, driven by widespread adoption among cloud providers and enterprise customers, demonstrates the broad-based demand for AI infrastructure. The ramp-up of next-generation Blackwell chips positions NVIDIA for continued leadership in increasingly complex AI workloads. Management's upbeat guidance reinforces confidence in sustained momentum. The manager views NVIDIA's GPU technology as critical infrastructure for the AI revolution, creating a durable competitive advantage.

Pitch Summary:
AppLovin is an advertising technology company offering a digital platform that helps mobile app developers market, monetize, and analyze their apps. We believe the company is experiencing a positive lifecycle change, driven by its AI-powered software engine. While currently focused on mobile gaming, AppLovin is expanding into other market segments. Its Demand Side Platform (DSP) supports ad placements, user acquisition, inventory matching, and performance analytics. Further, we believe AI is central to AppLovin's growth, driving a large majority of the company's revenue through its recommendation and targeting engine. In our view, AppLovin gains a competitive advantage, delivering higher-value app installs by leveraging data from its game portfolio and developer partners. We believe this scale and data advantage enhances its network effect, improving its technology and boosting market share in mobile gaming. As developers use the platform, the company collects data that continuously refines its algorithms. Shares contributed positively to performance during the period due to strong operating results, which highlighted continued growth in its advertising platform and software business. Momentum further accelerated in September when AppLovin was added to the S&P 500 Index, a milestone that enhanced visibility and underscored the company's growing market presence.

BSD Analysis:
The manager presents a compelling bull case for AppLovin centered on its AI-powered advertising technology platform and network effects. The thesis emphasizes AppLovin's competitive moat through data collection and algorithmic refinement, which creates a virtuous cycle of improved targeting and higher-value app installs. The company's expansion beyond mobile gaming into other market segments demonstrates growth optionality. Strong operating results and continued growth in the advertising platform validate the investment thesis. The addition to the S&P 500 Index provides institutional validation and enhanced visibility. The manager views AI as central to AppLovin's revenue generation through its recommendation and targeting engine. The scale and data advantages from its game portfolio and developer partnerships create sustainable competitive advantages that should drive market share gains in mobile gaming.

Pitch Summary:
The investment committee initiated a position in Japanese industrial firm SMC Corporation and divested the Fund's holdings in South Korea's Hana Financial and Germany-based construction materials company Heidelberg Materials. SMC Corporation is the world's largest manufacturer of pneumatic components, holding nearly 40% global market share. Pneumatics are used in a wide range of industrial applications—from robotics and packaging to medical and automotive systems. SMC's products are typically a small percentage of total system cost, but they are critical to functionality, which has historically contributed to the company's high returns on invested capital. SMC's shares have declined nearly 50% from their March 2024 peak, driven by margin compression and slowing revenue growth. These pressures were largely cyclical and tied to SMC's aggressive capacity expansion program, which began in 2021 as part of a strategic push to reach ¥1 trillion in annual sales by 2026. Despite near-term headwinds, SMC maintains a strong balance sheet with net cash and investments equal to over a quarter of its market capitalization. The company has also demonstrated consistent profitability and capital discipline, with dividends and share repurchases rising significantly since 2019. SMC's global scale and product breadth allow it to deliver parts within four days across major markets, supporting its "one-stop shop" value proposition. While competition from Chinese and Taiwanese firms, particularly Airtac, has raised concerns, SMC has been able to maintain its market share in China over the past decade. Airtac's gains have largely come at the expense of smaller local players, and its recent exit from the U.S. market suggests that it has had limited success in expanding internationally. This reinforces our confidence in SMC's ability to defend its global position. The company's geographic and industry diversification further supports its resilience. SMC generates revenue across various sectors including semiconductors, automotive, food, and medical, and across regions such as Japan, North America, Europe, and Greater China. Its exposure to factory automation trends may provide a long-term tailwind, even as the pneumatics segment grows more slowly than robotics. In our view, SMC represents a compelling value opportunity in a high-quality industrial franchise with limited technological disruption risk. The company's dominant market position, strong balance sheet, and strategic investments position it well, in our opinion, for margin recovery and long-term growth if its utilization improves and the factory automation cycle recovers. While competitive pressures warrant monitoring, the current valuation compensates for these risks, making SMC an appealing investment for us.

BSD Analysis:
Brandes initiated a position in SMC Corporation, the world's largest pneumatic components manufacturer with nearly 40% global market share. The manager views this as a compelling value opportunity following a nearly 50% decline from March 2024 peaks due to cyclical margin compression and slowing growth tied to aggressive capacity expansion. SMC's products are mission-critical despite representing a small percentage of total system costs, historically driving high returns on invested capital. The company maintains a fortress balance sheet with net cash exceeding 25% of market cap and has demonstrated capital discipline through rising dividends and buybacks since 2019. SMC's global scale enables four-day delivery across major markets, supporting its "one-stop shop" value proposition and competitive moat against emerging Chinese competitors like Airtac. The manager believes SMC's diversified revenue base across sectors (semiconductors, automotive, medical) and regions positions it well for margin recovery as factory automation trends provide long-term tailwinds. Current valuation appears attractive given the quality of the franchise and limited technological disruption risk.

Pitch Summary:
The company posted total revenue comfortably ahead of expectations as results show strength across the board. AI and cloud are leading the charge, driven by an acceleration of growth to 39% for Azure and the remaining performance obligation (RPO) rose 35%, both in constant currency terms. Those strong growth trends indicate that artificial intelligence is driving a new wave of demand and that momentum is building on the commercial side as businesses rush to digitalize and adopt AI-powered services. Microsoft is the key port of call for many. But not only that. Also, the 365 consumer and personal computing side (including Windows and Xbox) enjoyed accelerating growth showing Microsoft's appeal across its sprawling business. Consumer Products and consumer cloud services grew 21%, driven by 9% more subscribers. Even the legacy-division More Personal Computing grew revenues by 9% and operating income by 33% (in CC), driven by advertising (up 20%) and gaming. While investors have been concerned about Microsoft's ploughing billions into data centers and AI infrastructure, those results show that those investments are paying off, and that Microsoft is firing on all cylinders. While we have trimmed our positions mildly, we maintain our overweight and it remains our largest position.

BSD Analysis:
The manager maintains a strong bullish stance on Microsoft, highlighting broad-based strength across all business segments with total revenue comfortably exceeding expectations. The core growth driver is AI and cloud services, with Azure accelerating to 39% growth and remaining performance obligations rising 35% in constant currency, demonstrating strong commercial AI adoption momentum. Microsoft's positioning as the "key port of call" for businesses digitalizing and adopting AI services underscores its competitive moat. Beyond cloud, the manager emphasizes strength across the entire portfolio, including 21% growth in consumer products and cloud services driven by 9% subscriber growth. Even legacy divisions like More Personal Computing showed resilience with 9% revenue growth and 33% operating income growth. The results validate Microsoft's substantial data center and AI infrastructure investments, addressing previous investor concerns. Despite mild position trimming, Microsoft remains the manager's largest holding, reflecting high conviction in the company's comprehensive AI strategy and execution across multiple business lines.

Pitch Summary:
The visit to BYD, the global leader in full-electric and hybrid vehicles, in China confirmed our investment case in full. The foundation of BYD's success lies in its deeply vertically integrated supply chain. BYD designs and manufactures key components in-house, enabling speed, control, and significant cost efficiencies. This combined with BYD's expertise in electronics and batteries (its origin as the world's largest mobile battery maker), gives it a unique edge in both performance and cost structure. With an estimated 15–25% cost advantage over legacy OEMs, BYD offers high-quality, competitively priced vehicles while sustaining gross margins comparable to best-in-class manufacturers like Toyota. In a segment where scale, integration, and battery tech determine winners, BYD stands out as the most complete and defensible EV platform globally. The stock price of the company undervalues the growth potential of the franchise.

BSD Analysis:
The manager presents a compelling bull case for BYD following a company visit to China that validated the investment thesis. The core argument centers on BYD's deeply vertically integrated supply chain, which provides significant competitive advantages through in-house design and manufacturing of key components. This integration enables superior speed, control, and cost efficiencies compared to traditional automakers. BYD's heritage as the world's largest mobile battery maker provides unique expertise in electronics and battery technology, creating a distinctive edge in the EV market. The manager highlights a substantial 15-25% cost advantage over legacy OEMs while maintaining gross margins comparable to best-in-class manufacturers like Toyota. In the EV segment where scale, integration, and battery technology are key success factors, BYD is positioned as the most complete and defensible platform globally. The manager believes the current stock price significantly undervalues the franchise's growth potential, suggesting meaningful upside opportunity.

Pitch Summary:
The latest quarterly results demonstrated again the lead of the company in the Ad-business and the success of it's business strategy. The Ad business continued to impress with revenues up 21% Y/Y. Going forward, Meta continues to see their ability to grow their revenue through a combination of driving up engagement and enhancing monetization driven thanks to improvements to their content recommendation systems that resulted in a 5% increase in time spent on Facebook, and 6% on Instagram. In particular, video time spent remains strong, with Instagram video time up 20% Y/Y globally. Clearly, Meta is leading the pack in advertising thanks to it's investments in AI and the improvements in ad-creation and management as well as growing user engagement. Given the latest results, we lifted our five-year revenue growth expectations from 10-12% to above 15% driven by faster user growth, increased time spent on the platforms and an improvement in ad performance/pricing. While next year PE rose from 21x to 28x since our entry into Meta, the growth outlook has improved significantly over that period, which leaves Meta with solid upside despite the outperformance since, according to our model.

BSD Analysis:
The manager maintains a bullish stance on Meta, emphasizing the company's dominant position in digital advertising and successful AI-driven strategy execution. The latest quarterly results showcased continued advertising leadership with 21% year-over-year revenue growth, supported by enhanced content recommendation systems driving increased user engagement. Key engagement metrics include 5% and 6% increases in time spent on Facebook and Instagram respectively, with Instagram video time surging 20% globally. The manager highlights Meta's AI investments as driving improvements in ad creation, management, and overall performance, creating a competitive moat in the advertising space. Based on strong execution, the manager has upgraded five-year revenue growth expectations from 10-12% to above 15%, driven by accelerating user growth, increased platform engagement, and improved ad pricing power. Despite valuation expansion from 21x to 28x PE since initial entry, the significantly improved growth outlook supports continued upside potential according to their modeling.

Pitch Summary:
We visited ASML and some of it's key business partners in the Netherlands in September. We meet with Investor Relations and Peter Vanoppen who heads development of High NA EUV, the next generation technology for producing the most advanced chips. High NA EUV is key for ASML's future growth, and the level and speed of adoption was a major concern for analysts and a major headwind for the stock in recent quarters. We came away from the discussion with Mr. Vanoppen with the view that is very well on track regarding reliability and demand, and as importantly, it is further ahead than EUV was at the same stage of the development resp. market introduction. High NA EUV will be adopted because of it's cost advantage, lower production risks and higher flexibility. If players stay for too long with EUV they lose the flexibility (productivity) from High NA EUV and might miss the ability to compete for the next generation of high-end chips. For the upcoming 2NM-chips there will already be some limitations from using EUV. This means at some point customers will hit a brick wall and then will need to move to High NA EUV. While there is hardly any doubt about the direction of travel, timing is more open and depends on many factors. Regarding competitive market position we came away from the visit strongly convinced that the competitive position of ASML is almost unassailable, at least for the next 10-15 years. While ASML thinks that Chinese competitors will eventually develop Lithography technology like EUV, that alone won't make them competitive in the high end because they would have to develop the entire eco-system of suppliers, which is almost impossible in the quality needed. Finally, the strive for shrink will continue and ASML has a clear roadmap of how to support that until at least 2040. More importantly, as far as we can see, ASML's High NA EUV (and potentially Hyper NA EUV) will be the key technologies to achieve that. Hence, we see sustained double digit growth for ASML for a long time.

BSD Analysis:
The manager presents a highly bullish case for ASML based on extensive primary research, including a company visit and meetings with key executives including High NA EUV development head Peter Vanoppen. The investment thesis centers on ASML's next-generation High NA EUV technology, which offers cost advantages, lower production risks, and higher flexibility compared to current EUV systems. The manager emphasizes that customers will eventually hit technological limitations with current EUV for 2nm chips, creating inevitable demand for High NA EUV adoption. The competitive moat appears exceptionally strong, with the manager describing ASML's position as "almost unassailable" for 10-15 years due to the complexity of developing the entire supplier ecosystem required for high-end lithography. Even potential Chinese competition would struggle to replicate the quality and integration needed. ASML's technology roadmap extends to 2040, supporting sustained double-digit growth expectations. The primary research and management access provide high confidence in the long-term growth trajectory and competitive positioning.