Investment Pitches

Pitch Summary:
A defining feature of the fund since inception has been its outsized exposure to foreign equities. We have long believed that many outstanding companies exist around the world, often trading at significant discounts compared to their US-listed counterparts. While such discounts can sometimes reflect deficiencies in business quality, management, or financial strength, most of the fund’s foreign holdings score well on these metrics. As the stock prices of many of these companies have rebounded during this challenging year, it seems global investors may be rediscovering the vast opportunities that exist outside the large US technology sector. If the global economy is indeed fragmenting and “localizing,” it stands to reason that investors would favor companies somewhat insulated from the negative effects of “de-globalization.” In our portfolio, these include companies such as ISS, Air Liquide, Eurofins, and Loomis. Most of our foreign holdings are, to varying degrees, local operators: ISS provides cleaning and related services in Europe and the US; Air Liquide generates the majority of its revenues locally due to the high cost of transporting industrial gases; and Eurofins’ testing and certification services are tailored to the specific countries in which it operates. These are just a few examples of strong, foreign-listed companies that have been well-positioned to weather this year’s challenges—and, not coincidentally, have been among the fund’s better performers.

BSD Analysis:
Air Liquide offers a high-quality combination of defensive cash flows and structural growth, with long-term industrial gas contracts, inflation pass-through mechanisms, and exposure to secular trends like electronics, healthcare, and energy transition. Its localized production model, where gases are generated close to end markets, makes revenues largely domestic and reduces vulnerability to trade frictions—aligning with the fund’s “localization” theme. The company has a strong balance sheet, disciplined capex program, and a long track record of dividend growth. Valuation is typically at a premium to basic chemicals peers, but we think that is warranted by its stability and return profile. Upside comes from decarbonization projects, hydrogen, and continued margin expansion; risks include project execution and cyclical industrial demand.

Pitch Summary:
A defining feature of the fund since inception has been its outsized exposure to foreign equities. We have long believed that many outstanding companies exist around the world, often trading at significant discounts compared to their US-listed counterparts. While such discounts can sometimes reflect deficiencies in business quality, management, or financial strength, most of the fund’s foreign holdings score well on these metrics. As the stock prices of many of these companies have rebounded during this challenging year, it seems global investors may be rediscovering the vast opportunities that exist outside the large US technology sector. If the global economy is indeed fragmenting and “localizing,” it stands to reason that investors would favor companies somewhat insulated from the negative effects of “de-globalization.” In our portfolio, these include companies such as ISS, Air Liquide, Eurofins, and Loomis. Most of our foreign holdings are, to varying degrees, local operators: ISS provides cleaning and related services in Europe and the US; Air Liquide generates the majority of its revenues locally due to the high cost of transporting industrial gases; and Eurofins’ testing and certification services are tailored to the specific countries in which it operates. These are just a few examples of strong, foreign-listed companies that have been well-positioned to weather this year’s challenges—and, not coincidentally, have been among the fund’s better performers.

BSD Analysis:
ISS fits the fund’s thesis of “local” operators that benefit from de-globalization and regionalization of supply chains. As one of the largest global facilities-services providers, it has sticky contracts, scale advantages, and pricing power in inflationary environments. Balance-sheet repair and operational improvements over recent years have driven margin recovery, and further efficiency gains could translate into incremental free cash flow growth. The stock typically trades at a discount to higher-profile US business services peers despite comparable cash-generation characteristics. Continued debt reduction, disciplined capital allocation, and steady organic growth could catalyze a re-rating.

Pitch Summary:
Raito Kogyo was the largest, albeit relatively modest, detractor, reducing performance by -23bps as its share price fell -1%. Raito Kogyo is a leading company in the specialist construction sector, with core operations in slope construction and ground improvement—together comprising over 70% of total sales orders. The company holds the largest market shares in these areas, with approximately 30% in slope construction and 20% in ground improvement. AVI’s engagement with the company to date has focused on enhancing capital efficiency, corporate governance and shareholder communication. During the month, AVI continued to build its stake in Raito Kogyo across AVI funds (82% of shares in Raito Kogyo controlled by AVI are held in AJOT), as we seek to step up our influence with the company and use engagement to drive the necessary change to unlock value. The CEO of Raito Kogyo was one of eight AJOT portfolio companies that did not see their approval rating decline this year. Added to the portfolio in March 2024, Raito Kogyo accounted for 9.1% of AJOT’s NAV at month-end as the third largest holding. We see significant upside to the current share price, and to month-end, our investment has returned an ROI of +24% for an IRR of +44% (in JPY).

BSD Analysis:
Raito Kogyo is a geotechnical-engineering and ground-improvement specialist riding Japan’s infrastructure-refresh cycle. As the country faces aging foundations, earthquake risks, and urban redevelopment, Raito’s highly specialized construction work becomes essential. It’s a niche with high barriers to entry, recurring public-sector demand, and stable margins. This is a stealth infrastructure winner in a market where reliability trumps pricing wars.

Pitch Summary:
Kurabo Industries was the second largest contributor over the month, adding +41bps to performance as its share price rose by +5%. Kurabo Industries, established in 1988 as a textile manufacturer, has diversified its operations over the years to include chemicals, advanced technology, food and services, and real estate. Kurabo Industries has a history of stable revenues and has doubled its operating margin in recent years. Much of our engagement with the company has focused on encouraging management to direct resources towards the high-quality chemicals and advanced technology segments, and away from the unprofitable textiles business. Pleasingly, in March this year, the company announced plans in line with our recommendations, to close down its largest and most unprofitable textile factory, the Anjo Plant, by June 30, 2025. Having announced plans in May 2025 to implement several of AVI’s suggestions into its medium-term plan, as noted in last month’s newsletter, in June Kurabo announced the introduction of stock-based compensation plans for the company’s directors. This positive step will help to ensure alignment of management actions with shareholders’ best interests. At the 2025 AGM held in June, the CEO saw his approval rating decline by -13% relative to the prior year. Additionally, the company continued its 12-month buyback plan announced last November to buy back 7.3% of shares, with 48,700 shares repurchased in June and the plan now 63% complete.

BSD Analysis:
Kurabo is an old-line Japanese textile and materials manufacturer that reinvented itself through advanced materials, construction products, and biotech adjacency. The portfolio is now more specialized, less commoditized, and the company is benefiting from domestic construction strength and niche industrial demand. Kurabo has quietly improved margins and stability, and its diversified segments provide resilience rare in traditional textile firms.

Pitch Summary:
Broadmedia was the largest contributor over the month, adding +50bps to performance as its share price rose +9%. Broadmedia, mainly engaged in online education and IT service businesses, is a leading player in Japan, running online-learning secondary schools with the brand name “Renaissance High School Group,” allowing students to learn at their own pace remotely and to focus on their learning interests. Broadmedia’s unique education curriculum allows students to study e-sports, KPOP and programming, on top of the standard arts/science curriculum. In addition to operating online-schools, Broadmedia operates an IT service business, specifically for distributing Akamai Technologies’ software and solutions to domestic clients. The online education business is the most profitable segment for the conglomerate, with studio contents and other smaller segments a drag on the bottom-line. During the month, AVI made two large ownership declarations, increasing our combined stake from c.25% to c.27% overall (86% of AVI’s shares in Broadmedia are held in AJOT).

BSD Analysis:
Broadmedia is a Japanese digital-distribution and online-education company that’s been rebuilding itself around streaming infrastructure and cloud-based learning platforms. The company has quietly carved out defensible niches in content delivery and edtech, with recurring revenue climbing steadily. Operating leverage is emerging, and the turnaround is farther along than the market seems to realize. This is a small-cap digital-infrastructure story hiding behind an old-school name.

Pitch Summary:
In Nov-24, we initiated a position in Tetragon Financial (TFG). TFG is a multi-asset focused investment company with a diversified portfolio of CLO equity, hedge funds, private equity and real estate investments in addition to (mostly controlling) stakes in several asset management businesses. While TFG trades at an astonishingly large discount to NAV (>60% at the time of purchase) despite a strong NAV performance record, we had long ago concluded it had all the hallmarks of a value trap likely to languish at a wide discount due to the high and misaligned fee structure and the lack of any voting rights for non-management shareholders. However, media reports around the potential for a sale of their investment in Equitix, an alternative asset management firm with $14bn of AUM focussed on the infrastructure sector, piqued our interest. Our view was that any transaction was likely to see Equitix valued at a premium to its reported carrying value, and that the size of the inflow from a sale (noting Equitix accounted for 31% of TFG’s NAV) would be such that we would likely see a large buyback or tender offer with the proceeds. The risks to the investment case were that either no transaction occurred at all, or that only a minority stake would be sold with proceeds insufficient to fund a return of capital. Mitigating these risks were that we were acquiring the shares at a deep discount to NAV and at a level that we felt failed to account for the potential upside. In mid-June, TFG announced the sale of a 14.6% stake in Equitix to Hunter Point Capital (who were also acquiring a 1.5% stake from Equitix’s management). The transaction occurred at a +37% uplift to carrying value, more than validating a very large portion of TFG’s NAV. We took the view, however, that the lack of a full exit meant there is unlikely to be a material return of capital in the near term and that there is a risk the shares drift back in that vacuum. The shares were up +18% over the month and we sold our entire position for a +12% ROI and a +49% IRR (in local currency, reduced to +9% and +34% respectively in GBP).

BSD Analysis:
Tetragon is the alternative-asset grab bag built for investors who actually like complexity — private credit, equities, venture, CLOs, hedge funds, and infrastructure. NAV discount is massive, but cash generation is strong, and management has a track record of monetizing assets opportunistically. The portfolio is counter-cyclical in important ways, and fee income stabilizes returns. It’s messy by design — but the economics are better than the sticker price suggests.

Pitch Summary:
We briefly ran through our investment case for Gresham House Energy Storage (GRID) in our Apr-25 newsletter. The shares were up another +18% in June in anticipation of near-term announcements due on (i) a third-party co-investment at carrying value in one of their assets; (ii) long-term contracts for energy supply; and (iii) a refinancing and re-introduction of a dividend. The first of these duly came in late-June, and the second just after month-end. Despite the strong run and the need for more clarity on the details of the long-term contracts and around capital allocation plans, we continue to see scope for further upside given its pipeline of high-returning augmentation projects (to increase battery duration) and from the potential for corporate activity.

BSD Analysis:
Energy storage is the backbone of renewable penetration, and Gresham House owns one of the largest fleets of grid-connected batteries in the UK. Volatility in pricing created panic, but storage economics are improving with market reforms, trading sophistication, and frequency-response value returning. This is essential infrastructure for a decarbonizing grid — and the discount to NAV is ridiculous for assets with multi-decade utility. When market rules normalize, the re-rating could be sharp.

Pitch Summary:
The largest contributor was SDCL Energy Efficiency Income (SEIT), an investment company focussed on energy efficiency and decentralised energy generation projects. We wrote on SEIT in last month’s newsletter. While SEIT typically appears alongside renewable energy funds in broker lists and AIC publications, its assets have different characteristics from those of this peer group. In contrast to peers, SEIT has very limited exposure to power price risk, and the platform nature of its investments allows for active management and investment to drive higher returns. Being in a true peer group of one has its disadvantages, however, and the added complexity of its portfolio has meant that its shares have traded at a wider discount than renewable energy focussed investment companies. In response, SEIT has adopted the same playbook as other funds in the broader alternative asset sector: sell assets (and in doing so prove out carrying values), pay down short-term debt, and buy back shares. Notwithstanding the sale of a solar portfolio last year above carrying value, this has proved harder to achieve in practice against a backdrop of deferred central bank interest rate cuts and macroeconomic and geopolitical instability. Reported strong interest in SEIT’s largest asset, Onyx, fell away in the wake of the risk aversion triggered by “Liberation Day”, and the revised plan for this asset is to now bring on board equity co-investors instead. SEIT’s share price had already begun recovering by the time its results were released in late-June, but comments from the Chair that “the status quo is clearly unsustainable and so the Board is considering all strategic options to deliver value for all shareholders in an effective and efficient manner” gave an additional boost to the share price which ended June up +28% over the month, leaving the shares trading on a 39% discount to estimated NAV.

BSD Analysis:
SDCL invests in the most underrated part of the energy transition: efficiency. These are behind-the-meter, contracted, yield-heavy assets — CHP systems, HVAC optimization, industrial energy savings — that deliver guaranteed cost reductions to customers. The cash flows are stable, inflation-linked, and uncorrelated with commodity prices. It’s basically a private-infrastructure portfolio wrapped in a listed trust, trading at a discount because investors chase sexier themes. Efficiency is the lowest-risk megatrend in energy, and SDCL sits right on top of it.

Pitch Summary:
Air Liquide contributed positively in Q2 as the company benefited from resilient industrial demand and growth in hydrogen and electronics-related gases. Management highlighted margin expansion from pricing actions and efficiency programs. The company continues to invest in energy transition infrastructure, including large-scale electrolyzer projects.

BSD Analysis:
Air Liquide is the industrial-gas giant positioned squarely at the convergence of clean energy, semiconductors, healthcare, and advanced manufacturing. Its long-term contracts and pricing mechanisms make it one of the most resilient industrial businesses on Earth. Hydrogen, electronics gases, and medical oxygen provide secular growth, while scale and infrastructure create a moat miles deep. This is a quiet compounder with infrastructure-like predictability and tech-like tailwinds.

Pitch Summary:
Argenx detracted in Q2 following weaker-than-expected demand for Vyvgart, its flagship therapy for generalized myasthenia gravis. Management cited slower new patient starts and competitive pressures. The company lowered full-year guidance and noted rising operating expenses tied to commercialization and pipeline investments. Investors reacted negatively to the reduced visibility and uncertain trajectory for Vyvgart.

BSD Analysis:
argenx is one of biotech’s modern success stories — an immunology pure-play turning antibody innovation into real commercial traction. Vyvgart is scaling globally and expanding across multiple indications, with subcutaneous and chronic-dosing opportunities building a franchise worth far more than the market credits. The pipeline is deep, the tech platform is validated, and execution has been stellar. argenx is a high-quality biotech that behaves like a future megacap.

Pitch Summary:
Medacta delivered strong Q2 results, with double-digit revenue growth driven by implant demand in hip and knee procedures. The company’s patient-specific instrumentation and surgeon training programs continued to differentiate its offering in a competitive market. Margins expanded thanks to operating leverage and cost efficiencies. Management raised guidance and highlighted continued global penetration opportunities.

BSD Analysis:
Medacta is a high-growth orthopedics company with a differentiated surgeon-focused model and strong momentum in hips, knees, and spine. Its minimally invasive technologies and personalized implants are winning share, and Medacta’s global expansion remains early in its trajectory. Orthopedics is a scale business, but Medacta punches above its weight with surgeon loyalty and precision-focused innovation. This is a premium medtech compounder hiding behind small-cap liquidity.

Pitch Summary:
UCB was among our top contributors in Q2. The company reported strong sales of its recently launched immunology and neurology biologics, with revenue up double digits and operating profit growing even faster. Management indicated that uptake for its psoriasis and epilepsy treatments was exceeding expectations, helping offset patent expirations in older products. The company also upgraded its full-year guidance, noting expanding margins due to mix shift toward newer high-value biologics.

BSD Analysis:
UCB is the underappreciated European biotech-pharma hybrid with a seriously potent pipeline in neurology and immunology. New launches like Bimzelx are gaining traction, and multiple late-stage assets give UCB multi-year revenue visibility. The company has reduced its patent-cliff risk and is transitioning into a more diversified, innovation-led model. With clean execution and strong therapeutic niches, UCB is one of Europe’s quietest large-cap growers.

Pitch Summary:
In the machinery industry, our holdings in Mitsubishi Heavy Industries (MHI) and Hyundai Rotem were meaningful contributors to quarterly outperformance. Both companies benefit from two dominant themes currently in the portfolio: electrification and defense infrastructure. MHI manufactures gas turbines that cost over $1 billion and produce large quantities of electricity, as well as equipment such as ships, aircraft and weapon systems used in the defense industry. Hyundai Rotem makes a range of high-speed trains and locomotives, as well as armored recovery vehicles and defense-related equipment. New orders announced in the quarter from Poland, South Korea and Taiwan have raised profit expectations for the company. Sales for Q1 increased 57%, while net income tripled to $112 million.

BSD Analysis:
Hyundai Rotem is riding a boom in armored vehicles, rail infrastructure, and defense exports — all heavily backed by Korean industrial policy. Its K2 tanks, K808 vehicles, and rail solutions continue winning orders from Europe, Asia, and the Middle East. With geopolitical risk rising globally, Rotem sits at the intersection of both defense ramp-ups and green transportation upgrades. The backlog is massive, margins are improving, and export demand remains white-hot.

Pitch Summary:
In the machinery industry, our holdings in Mitsubishi Heavy Industries (MHI) and Hyundai Rotem were meaningful contributors to quarterly outperformance. Both companies benefit from two dominant themes currently in the portfolio: electrification and defense infrastructure. MHI manufactures gas turbines that cost over $1 billion and produce large quantities of electricity, as well as equipment such as ships, aircraft and weapon systems used in the defense industry. Hyundai Rotem makes a range of high-speed trains and locomotives, as well as armored recovery vehicles and defense-related equipment. New orders announced in the quarter from Poland, South Korea and Taiwan have raised profit expectations for the company. Sales for Q1 increased 57%, while net income tripled to $112 million.

BSD Analysis:
MHI is a Japanese industrial titan perfectly positioned for the global trifecta: rearmament, energy transition, and aerospace recovery. Defense orders are hitting multi-decade highs, turbine demand is rebounding, and hydrogen/ammonia infrastructure puts MHI at the center of decarbonization. Years of restructuring built a leaner business that now benefits from enormous tailwinds. This is a global industrial powerhouse investors still treat like an old conglomerate — a mistake.

Pitch Summary:
While international markets delivered robust returns, the portfolio outperformed the MSCI EAFE Index and delivered another strong quarter of performance. Relative results were led by stock selections across multiple themes, sectors and industries. Industrials were a standout contributor with stocks ranging from aerospace and defense, machinery, electrical equipment and airlines among the numerous double-digit gainers during the quarter. Many of these holdings reflect the teams’ preference for quality growth stocks in the infrastructure and electrification themes that we have highlighted in past quarters. Aerospace and defense industry holdings in South Korea (LIG Nex1 and Hanwha Aerospace) and in Europe (Babcock International, Melrose and Airbus) delivered exceptional returns on the back of strong earnings and order books. The gains arose from an expected spending increase on defense-related infrastructure, validated in late June when NATO countries agreed to raise their spending to 5% of GDP over the next 10 years. Babcock International, for example, reported full-year results for the year ended March that showed 11% organic growth in sales to £4.8 billion and a rise in profits to £247 million from £165 million a year ago. The company boosted its dividend by 30%, announced a 200 million share buyback and raised its medium-term guidance on operating margins to at least 9% based on expectations of a “new era” in defense-related spending.

BSD Analysis:
Babcock is a defense and engineering contractor that finally got its house in order after years of chaos. Now the fundamentals actually match the quality of its niche: naval support, nuclear maintenance, and mission-critical engineering. Global rearmament cycles are strengthening backlog, management has restored discipline, and margins are improving off a beaten-down base. This is a turnaround with structural tailwinds behind it — a far better setup than the stock price implies.

Pitch Summary:
Vulcan Materials is the second-largest aggregates company in the Americas, selling 224 million tons of aggregates in 2024 with 16.5 billion tons of proven and probable reserves. Its nationwide network of 423 active facilities creates scale advantages, lower delivered costs, and superior reliability versus smaller competitors. Like peers, Vulcan benefits from strong barriers to entry due to NIMBY-driven permitting difficulty, consolidation, and aggregates’ extremely low value-to-weight economics that localize markets. Furthermore, aggregates prices have risen steadily for decades with limited cyclicality, even during severe downturns such as 2006–2010. Demand across residential, commercial, and infrastructure sectors is structurally under-supplied, with housing shortages, industrial onshoring, and decades of infrastructure underinvestment all supporting long-term volume growth. These dynamics create a compelling setup for Vulcan to raise prices above inflation, expand margins, and acquire smaller operators to deepen local market dominance.

BSD Analysis:
YCG argues Vulcan is a high-quality toll collector on U.S. construction activity, with durable competitive moats from network scale, permitting scarcity, and localized market power. The stock benefits from inflation-resistant pricing and stable through-cycle economics despite volume cyclicality. Long-term catalysts include housing undersupply, industrial reshoring, and infrastructure spending that should lift demand above long-term averages. With strong balance sheet discipline and accretive M&A potential, Vulcan can compound free cash flow while maintaining market leadership. Near-term recession fears may depress valuation but do not impair the long-term thesis.

Pitch Summary:
We also invested 2% in AJ Bell in May, investing some of the cash, following our reduction of NEXT plc. AJ Bell operates a capital-light, high-return model. It has delivered strong incremental cash returns on gross equity over the last five years of 71% and continues to grow organically, benefitting from demographic and regulatory tailwinds (e.g. pension freedoms, ageing population). Assets under administration (AUA) and customer numbers have both grown meaningfully since the 2019 IPO. AJ Bell’s business is underpinned by high customer satisfaction and a retention rate of ~94%. It combines low prices with good service, supported by scalable technology (e.g. ‘Touch’ platform for advisers). Culturally, the company echoes Admiral in its employee ownership and purpose-led values, which we like! Culture & Leadership: Culture is a key driver of long-term value. Employees received share grants at IPO and the internal values (Straightforward, Intelligent, Personal, Principled, Energetic) are well embedded in its business. Leadership is strong—CEO Michael Summersgill has risen internally and maintains the cultural continuity post the departure of the founder, Andy Bell, in 2022. Financial Resilience & Valuation: Revenue is split between fixed, ad valorem and transactional fees, giving balance and inflation protection. The company has no debt (outside lease liabilities) and is conservatively financed. The valuation, stands at ~21.5x trailing Price/Earnings (vs 33x average), with 22% annual EPS growth since IPO and a 31% net margin feeding into strong returns on capital and equity. Risks & Competition: Risks include the competitive response from Hargreaves Lansdown under new ownership (CVC) and the normalisation of net interest income as rates stabilise. However, the long-term structural growth drivers remain intact for AJ Bell’s investment case.

BSD Analysis:
The manager clearly positions AJ Bell as a high-return, culture-strong compounder benefiting from structural tailwinds in pensions and savings, with a scalable platform and conservative balance sheet. In their view, the combination of high customer retention, strong brand in both advised and direct-to-consumer channels and disciplined capital allocation supports a long runway for double-digit earnings growth. At a discount to its historical multiple despite robust fundamentals, AJ Bell offers an appealing blend of quality, growth and reasonable valuation within the UK financials universe.

Pitch Summary:
In April we invested 2% in Greggs PLC. The investment case for Greggs is centred on Branding and Process Power - built on its strong brand recognition, consistent financial performance and strategic growth initiatives. The company has demonstrated resilience in its operations, with a focus on expanding its market presence and enhancing customer experience, which positions it well for future growth. Greggs' moat includes its strong brand loyalty reflected in its extensive network of stores and established supply chain. The company’s commitment to quality and customer service further strengthens its competitive advantage. Following the impact of Covid, its developing relationships with Uber Eats and Just Eat, provides greater distribution resilience – were another type of ‘lock-down’ to occur. Greggs' Revenue pathway is driven by expanding its store footprint, enhancing product offerings and increasing sales through delivery and online channels. The company aims to grow its customer base and improve sales per store through innovation and marketing strategies. There has been lots of evidence of its innovation over the years. Its vegan sausage roll, being one such example; and the technological development of a Greggs ‘App’, through which 20% of orders now come. The valuation analysis was impacted by the Covid loss making year of 2020, which blew out the valuation rating due to the impact on earnings. However, we can adjust for this in order to understand the valuation opportunity. Our Reverse Discounted Cash Flow model adjusts for the period of Covid. Greggs have traded on a long run average P/E of 18 years in relation to its earnings. Today the valuation stands at only 12x, which should provide a good potential re-rating, to enhance the investment return as it compounds its return on invested capital. It appears that the market believes the business has matured, yet it continues to grow and has made investment in further distribution infrastructure. As the store numbers increase towards 3,000 shops in the UK and store opening hours expand across the portfolio of shops - this should enhance incremental returns. There are still many areas in the UK that are underpenetrated by Greggs, providing further room for growth.

BSD Analysis:
The manager sees Greggs as a high-quality, branded food-on-the-go retailer with a long runway in format expansion, digital engagement and delivery, supported by a robust balance sheet and proven execution. A below-average multiple relative to its history, despite continued growth and investment in distribution infrastructure, creates an attractive entry point for a business with solid returns on invested capital. As geographic penetration improves and operating leverage from longer opening hours and higher throughput builds, earnings compounding plus potential multiple expansion could deliver strong shareholder returns.

Pitch Summary:
Croda International is a specialty chemicals manufacturer, supplying ingredients for personal care, pharmaceuticals and crop science. For Croda their switching costs arise from formulation dependency: Many customers—such as cosmetics companies—design their product formulas specifically around Croda’s specialty ‘active’ ingredients. Reformulating to use a competitor’s ingredient can take a long time (new R&D, testing and regulatory clearances). Quality & Reliability Requirements is also another consideration for them. In pharmaceuticals or high-end cosmetics, reliability and consistency of supply are paramount. Once a customer has validated Croda’s inputs for efficacy and safety, switching to something new can jeopardize brand reputation or product efficacy. In short, Croda benefits from high switching costs because its products are tightly integrated into customers’ processes, locked by regulation and supported by long-term partnerships. That is a big part of why Croda’s business model is so resilient. However, it should be noted though that Croda is presently coming through a difficult trading period. Switching costs don’t insulate the business entirely, if end market demand softens. This is what Croda experienced through Covid. Initially, demand for its products rose strongly given end customers concerned over supply chain issues, overstocked. The following period of stock unwinding has been challenging for Croda, but it appears that with demand recovering in China—a major market; and elsewhere, incremental returns should improve this financial year. By analysing the extent to which a company creates high switching costs for its customers, we should be better able to gauge the strength and longevity of a firm’s profitability, notwithstanding cyclical changes to end market demand—as evidenced by Croda International.

BSD Analysis:
Castlebay’s thesis treats Croda’s recent challenges as cyclical rather than structural, with the core franchise underpinned by high-value, formulation-critical ingredients and sticky customer relationships. As inventory destocking abates and end-market demand recovers, operating leverage and pricing power should support margin repair. For long-term investors, the combination of specialised know-how, regulatory barriers and strong customer integration offers an attractive moat in a structurally growing set of end markets.

Pitch Summary:
Intertek is a leading global provider of assurance, testing, inspection and certification (ATIC) services. Much like its peers (SGS or Bureau Veritas), Intertek offers critical validation of product quality, safety and regulatory compliance across a wide range of industries. Its Switching Cost Power manifests in the following ways: 5) Mission-Critical Compliance Regulatory Approvals: Many sectors—such as pharmaceuticals, consumer goods, electronics and food—rely on Intertek to certify that products meet official regulations and safety standards. 6) Cost of Re-Certification: If a manufacturer or distributor switches from Intertek to another TIC provider, they often need to undertake a new round of testing and certification—a time-consuming and expensive process. These re-certification costs (and potential operational delays) raise the switching barriers for customers. 7) Deep Integration in Supply Chains Customised Testing Protocols: Over time, Intertek develops industry or product-specific protocols in partnership with its clients. They learn their customer’s unique processes, formulations or product specifications. 8) Process Familiarity: Once Intertek has established standardised testing methods that integrate with a client’s internal processes (e.g., quality control checks, documentation flows), replacing them means altering workflows and retraining staff. In other words, Intertek’s testing and certification often becomes woven into its clients’ manufacturing and quality-management systems. 9) Trust and Brand Reputation Customer & End-Consumer Assurance: A certification stamp from a reputable TIC firm like Intertek can serve as a recognised mark of safety and quality. Particularly in consumer-facing industries, retailers and end consumers come to trust that seal. 10) Risk of Reputational Damage: Switching to a less-known or unproven certification body can introduce perceived risk. Manufacturers may worry that the new provider’s mark won’t carry the same weight with retailers, regulators or end consumers. This reputational aspect subtly increases switching costs, even if the customer could switch, they might not want to jeopardize brand trust or regulatory perception. 11) Long-Standing Relationships and Framework Agreements Multi-Year Contracts: Large clients often negotiate multi-year service agreements covering a variety of testing services at a global scale. Breaking these agreements or switching midstream can be costly and create supply chain disruptions. Over time, Intertek has become a “preferred supplier” in many corporate procurement databases, ensuring a steady stream of work across geographies. The administrative overhead of onboarding or re-qualifying new testing partners adds friction to switching. Intertek’s Switching-Cost Moat leads to recurring revenues in excess of 90%. We can infer from this that Intertek’s high switching costs protect their business from competition leading to high customer retention rates and relatively stable revenues; all of which support pricing power for Intertek—classic hallmarks of a “Switching Cost” advantage as described by Hamilton Helmer.

BSD Analysis:
The manager frames Intertek as a resilient compounder where high switching costs, mission-critical services and multi-year relationships underpin stable, high-quality cash flows. These characteristics typically support attractive returns on capital and justify a quality premium versus more cyclical industrial names. While macro slowdowns can affect testing volumes at the margin, regulatory complexity, globalised supply chains and rising quality standards should structurally support demand for TIC services, leaving Intertek well positioned for steady, long-term growth.