Investment Pitches

Pitch Summary:
One company that particularly stood out during my research is a relatively small firm located in the Swedish town of Växjö. The company has consistently achieved exceptionally high operating margins in the 70s within its core business and has grown at impressive double-digit organic rates, further accelerating growth through M&A. Its corporate governance is strong, with shareholder alignment reinforced by reasonable compensation structures. Notably, the Chairman also serves as the major shareholder, holding over 18% of the shares. Initially, I made the same mistake as Peter did with Facebook, ignoring this best-in-class company due to its relatively high revenue multiple. It wasn't until I made several other investments in the space and took the time to study Peter's book – learning from his insights and experience – that everything finally clicked. In hindsight, I realize I was essentially sitting in front of the holy grail of software companies in Europe, yet I failed to connect the dots conceptually. The company I'm referring to is Fortnox AB, which offers cloud-based solutions tailored for small and medium-sized enterprises (SMEs). Its core focus lies in accounting, invoicing, and financial management software. Fortnox provides a comprehensive suite of products that enable businesses to streamline their financial operations, including bookkeeping, invoicing, payroll, and other essential administrative functions. For readers in Germany, DATEV is likely a familiar name, while Xero holds a strong presence in the US, UK, Australia, and New Zealand. Similar to Facebook, Fortnox initially concentrated on a relatively small niche – Swedish SMEs – and has since established a dominant market position, with Visma being its only credible competitor. However, it seems that Fortnox's product is superior, positioning it as the clear category leader with monopoly-like status within this specific niche. What truly sets Fortnox apart is its relentless focus on customer satisfaction and its continuous innovation, consistently bringing new solutions to the market. Leveraging its foundation, Fortnox has expanded its portfolio into broader financial services, seamlessly integrating solutions such as invoicing, payroll, and comprehensive financial management tools. The company also offers Fortnox business cards which work seamlessly as well as small business loans and factoring solutions. This relentless focus on innovation and customer feedback has enabled Fortnox to stay ahead of its competitors, continuously redefining industry standards and cementing its position as a market leader in its niche. The synergistic effect of robust brand recognition and relentless innovation serves as a powerful internal growth engine. This dynamic not only instils confidence in the company's ability to maintain its strong financial profile but also suggests that it will likely capitalize on further economies of scale over the coming decade. Additionally, there is a compelling opportunity for international expansion into less saturated markets where technological sophistication among competitors may be lower, particularly in Europe and beyond. Fortnox's strong network effects translate into significant pricing power, a critical factor in sustaining its franchise's durability and resilience. This pricing power enables continuous investment in technological innovations that consistently enhance the user experience. Recently, the company underscored this capability by launching a new suite of packages tailored to its customer base. When compared to more mature players like Xero, there are compelling arguments that Fortnox will further leverage its network effects. After completing my research, I began exploring the valuation. I felt confident in the durability of the company's competitive advantages, which justified paying a premium multiple for the business. I had a strong conviction that the company could compound at significant rates over the long term. Financially, the business is in excellent shape – with a net cash position, zero debt on the balance sheet, and favourable cash conversion and working capital dynamics. I extended my typical DCF model – usually spanning a 3–5-year forecast – to a 15-year period to capture the compounding effects more effectively. This longer horizon revealed that the free-cash-flow yield could grow from a modest 2%+ initially to over 15% in the long term, projecting a CAGR (30%). With resilient organic growth rates in the mid-20s, the EBIT multiple for this asset is expected to compress to the low 20s over the medium term, thereby mitigating risk. Additionally, I believe the asset holds significant upside potential from M&A, also making it an excellent take-out candidate. Remarkably, this scenario unfolded just weeks after I built our position in Fortnox at the low 60s SEK range. EQT, a prominent Swedish private equity firm, along with the Chairman, proposed to take the company private at SEK 90 per share. While it's incredibly rewarding to see my thesis validated, I also firmly believe that the true beneficiaries in this case will be the new owners.

BSD Analysis:
The manager presents a compelling bull case for Fortnox AB, positioning it as the 'holy grail' of European software companies with monopoly-like characteristics in the Swedish SME accounting software market. The investment thesis centers on Fortnox's exceptional operating margins in the 70s, consistent double-digit organic growth accelerated by M&A, and dominant market position with only Visma as credible competition. The manager emphasizes the company's superior product offering, strong network effects, and significant pricing power that enables continuous reinvestment in innovation. Key financial strengths include a net cash position, zero debt, and favorable working capital dynamics, with organic growth rates in the mid-20s and historical growth exceeding 30%. The manager's 15-year DCF model projects free cash flow yield expansion from 2% to over 15%, with EBIT multiples compressing to the low 20s. The thesis was validated when EQT proposed a takeover at SEK 90 per share shortly after the manager built the position in the low 60s range, demonstrating both the quality of the analysis and the asset's M&A appeal.

Pitch Summary:
Simply put, Kelly Partners Group is a high quality compounder in a small cap body that has the potential to 10x+ in the future. Kelly Partners acquires, operates, and improves accounting and tax firms. While the PWCs of the world cater to large enterprises, KPG is focused on the local firms that serve SMBs and individuals. Unlike many other acquirers, KPG truly becomes a partner in the businesses they acquire. KPG buys 51% of the target so as to have majority ownership but enables the existing partners to keep 49% and participate in the upside alongside the improvements and business that KPG will bring with their honed business system over 17 years. KPG was founded and is run today by Brett Kelly. Brett has an incredible history. Growing up in Australia, he wanted to find mentors to learn from on how to be successful and lead a good life. So he did what any 20 year old kid would do and cold-called prominent Australian business leaders and investors to learn from them. He ended up publishing a book with his learnings and has since gone on to publish 5 books in total spanning wisdom learned from investors and business operators. He is a student of history, learning machine, accountant, thoughtful capital allocator and business builder. Brett owns 49% of the business today and takes the Constellation Software model of incentivizing his employees and acquirees to purchase the stock so as to align everyone with the goals of KPG. High insider ownership aligns external shareholders nicely with the teams building the business. Accounting & tax firms are recession resistant. In a tough macro, of course some business customers could outright fail but most of the time individuals and SMBs continue paying taxes as mandated. There's also natural pricing power built into a certain extent. If the accountant increases their service fees by 5-10% annually, the weight of churning is very high. Customers are much more likely to simply pay the increase than try and switch all the context to a new accountant while also causing potential disruptions to a task they don't want to do on their own. KPG's acquiring targets also benefit from localized network effects. I personally use a boutique tax firm that works with mostly VC clients. The way I learned about them was from other VCs. Client retention is so high that they no longer are accepting new clients or referrals! So you have a high retention, low CAC business which equals strong & stable free cash flow generation. However, there are always inefficiencies in a business. This is where KPG coming in as a partner can impart best practices and bring together the portfolio to learn from each other. KPG regularly increases margins by a significant amount for its companies from single to low teens to nearly 30%. The business has roughly doubled in size every 3.5 years. Of course this does get harder to maintain as larger or more deals have to be pursued to reinvest the cash flows and continue to compound at the same rate. The larger the deals become, the more competition from PE, from companies like H&R Block & CBIZ (public competitors), and from other players (Thrive, a VC fund, is incubating an accounting rollup). So how does KPG compete in this playing field besides the alignment in terms of the partnership/ownership structure? This is where decentralized and centralized decision making comes into play. The centralized part is M&A. Right now KPG is still small enough that every acquisition is meaningful which means Brett Kelly takes a look at it and helps make a decision with the team. The decentralized aspect is the scouting program. As KPG expands beyond Australia into North America and Europe it is hard for a centralized M&A program to source and vet every deal. KPG turns the excellent business operators they acquire into scouts for the business given the alignment that all employees have with KPG's success as a whole. Who else would be better equipped to acquire other great accounting & tax firms in LA than someone local who already knows the ecosystem and benefits from the growth of the assets KPG owns. KPG has a $370M EV, has historically doubled the business every 3-4 years, has reduced share count since going public, is rolling up a fragmented industry, has significant expansion prospects in new regions with even larger TAMs, and has a board member, Lawrence Cunningham, who's only two other boards are Constellation Software and Markel, both worth nearly 100x KPG's current EV. Management is highly aligned with external shareholders, transparently shares metrics at every earnings call in a concise capital allocation framework, and is committed to building a durable & lasting business. At 32x TTM EBITDA, it's not necessarily "cheap" but if you believe in the long term prospects I think it's a reasonable relative valuation and an absolute bargain over the long term as this has the potential to 10x over the next decade. That 32x TTM EBITDA also doesn't include the operational improvements from KPG's business system that will occur in the acquired businesses whose EBITDA is rolling up to the total amount in 2024.

BSD Analysis:
Ghosh presents Kelly Partners Group as a high-quality small-cap compounder with significant upside potential, positioning it as his top 6 holding. The investment thesis centers on KPG's differentiated acquisition model where they purchase 51% of accounting firms while allowing existing partners to retain 49%, creating strong alignment and reducing integration risk. The manager highlights the recession-resistant nature of accounting services, natural pricing power, high client retention, and localized network effects that create sustainable competitive advantages. KPG's decentralized scouting program leverages acquired operators to source new deals, addressing scalability concerns as the company expands internationally. With a $370M enterprise value and historical doubling every 3-4 years, the company trades at 32x TTM EBITDA, which Ghosh views as reasonable given the long-term growth prospects and operational improvements from their proven business system. The presence of Lawrence Cunningham on the board, who also serves on Constellation Software and Markel's boards, adds credibility to the capital allocation approach.

Pitch Summary:
The author argues that Argentex (#AGFX) is an attractive small-cap opportunity that scores well across business quality, industry positioning, valuation, and—most importantly—management. After initial skepticism around the board’s decision to build an in-house straight-through-processing FX platform (AGP), the author now believes execution is proving better than expected. FY24 results exceeded expectations, prompting an upgrade to FY25 guidance, with broker forecasts for EBITDA rising sharply to £4.5m on modest revenue growth. The company maintains a strong net cash position, providing balance-sheet resilience and funding flexibility for international expansion and product investment. While near-term margins may remain pressured by investment spend, the author sees meaningful upside over a 12–24 month horizon as AGP goes live and operating leverage emerges.

BSD Analysis:
The B2B FX and international payments industry favors platforms that combine automation, compliance credibility, and client stickiness, particularly as corporates demand faster execution and transparency. Argentex’s competitive position is improving as it transitions from a broker-led model toward a proprietary technology platform, which should enhance scalability and margin durability if adoption succeeds. The decision to build in-house technology was execution-risk heavy, but early signs of delivery materially reduce that concern and differentiate the firm from smaller peers reliant on third-party infrastructure. Secular tailwinds from global trade complexity and currency volatility support long-term demand, though pricing pressure and client concentration remain industry-wide risks. The balance sheet strength provides a margin of safety while investments are digested. Valuation still appears to reflect skepticism around sustainable profitability rather than normalized earnings power. If AGP drives higher automation and client retention, Argentex could re-rate toward fintech-enabled peers rather than traditional FX brokers. The key risk is that growth investments fail to translate into operating leverage, but improving guidance suggests momentum is building in the right direction.

Actual Post Content:
As everyone knows, smallcap investing is DEFINITELY not for widows and orphans. However in order to improve the odds, it's crucial to have a disciplined & structured approach when stock picking. Which for me, involves assessing four key factors, namely: Company, Industry, Price vs Value and Management. Here, B2B international payments and forex services firm #Argentex ticks all the boxes, especially the 4th where I have always rated CEO Jim Ormonde as top notch. That said, 12 months ago I was highly sceptical of Board's decision to build its own in-house straight through processing, forex platform (AGP) - ie rather than simply buying an off-the-shelf package from a 3rd party. Fortunately it appears my concerns have proved unfounded, as the #AGFX engine is BEGINNING to fire on most of its cylinders - albeit vs conservative expectations. In fact today after posting better than anticipated FY'24 results, the Board has upgraded guidance, with house broker @_singercm hiking their adjusted FY25 EBITDA forecast from £1.7m to £4.5m on sales up 5% to £52.8m vs £50.3m LY. In terms of the balance sheet too, there was net cash of £18.4m as at Dec'24 - equivalent to a 'ball-park' headroom of £5m (my guess) that is freely available to Argentex after deducting regulatory requirements. Sure going forward, there'll still be a temporary drag on performance due to ongoing investments in overseas expansion, new products and the forex IT platform (AGP) which is slated to go live in the Summer. Yet equally if you are a risk tolerant investor like myself with long-term time horizons, then I can see #AGFX more than doubling over the next 12-24 months. My target price is 88p/share vs @_singercm at 70p. Disclosure: I own Argentex. Please DYOR

URL: https://x.com/CapitalPmh/status/1907348089741934646

Pitch Summary:
DEFAMA is a small-cap, owner-operated German REIT focused on acquiring and managing retail properties in mid-sized and rural towns anchored by essential tenants like grocers, drugstores, and DIY chains. Founded and run by CEO Matthias Schrade (26% owner), DEFAMA has compounded FFO/share from €0.54 in 2016 to €2.50 today—an impressive ~20% CAGR. Its 78-location portfolio yields ~8.3% on value (€26.5M rent, €323M portfolio), with high occupancy (96%) and inflation-linked leases (~92%). The firm’s decentralized model, conservative non-recourse financing (LTV 58%, 40 local bank lenders), and selective single-asset acquisitions drive steady compounding. Each deal (~€1–5M) typically finances ~80% with debt, achieving high-teen IRRs via disciplined underwriting and modest capex enhancements. DEFAMA is opportunistically benefiting from higher rates as overleveraged peers are forced to sell and competition declines. Recent asset recycling (e.g., Büdelsdorf sale reinvested into 14 properties with 30% higher FFO yield) showcases strong capital allocation. Management’s five-year plan targets €4 FFO/share—implying ~60% growth without new equity issuance. The stock trades at ~7× forward FFO, despite visible growth, inflation protection, and exceptional governance.

BSD Analysis:
DEFAMA owns 78 retail properties in smaller German cities, anchored by stable, non-discretionary tenants with long leases and inflation linkage. Set-up: High interest rates have created a buyer’s market for well-capitalized niche consolidators like DEFAMA, which funds growth from internal cash flow and modest leverage. Unit economics: Buys assets at ~10× rent, finances 80% debt, and achieves mid-to-high teen IRRs; selective refurbishments add 15–20% unlevered yields. Governance: Founder-led, owner-operator model with Schrade prioritizing ROE and cost control (runs HQ from his home); aligned incentives and minimal dilution history. Financials: €26.5M rent roll, €2.5 FFO/share run-rate, LTV 58%, 96% occupancy, and 92% CPI-linked leases underpin stability. Valuation: Trades at ~7× forward FFO and near NAV (€25), yet peers with lower growth trade higher; upside as FFO/share compounds toward €4 with potential re-rating as the model scales.

Pitch Summary:
The pitch recommends buying June 2025 MCD put options as a contrarian play on rising anti-American sentiment and potential trade war backlash. McDonald’s derives ~48% of systemwide sales from countries vulnerable to reciprocal tariffs, creating significant exposure if geopolitical tensions escalate. The brand’s identity as a symbol of American culture makes it a likely target for boycotts and political protest in key overseas markets. Historical examples—from Middle East boycotts to Chinese nationalism—demonstrate how sentiment shifts can create multi-quarter same-store-sales (SSS) headwinds for global consumer brands. The author models a -6.5% SSSg decline across the 25 most exposed markets, implying -9% downside to FY25 EPS and a share price of $246 (–21.5% from current). Implied volatility on June puts remains low, offering asymmetric risk/reward versus outright shorting the stock. At 25.5× NTM P/E (a 20% premium to history), MCD’s valuation embeds a “safe haven” narrative the author believes is misplaced. Tariff escalation and retaliatory sentiment could drive a multiple contraction to 22× or lower. Even a moderate retracement to $270 yields attractive returns (~3.5–3.7×) on the June $285–290 puts. Broader sector rotation away from defensives or earnings disappointment could amplify the move.

BSD Analysis:
Global QSR leader with ~42,000 stores and 48% of system sales from vulnerable overseas markets. Set-up: The market perceives MCD as a defensive, tariff-immune staple, but half its business depends on regions likely to retaliate against U.S. trade policy. Catalyst path: Reciprocal tariffs and anti-American consumer sentiment could prompt boycotts in key markets like France, India, Vietnam, and the Middle East, pressuring sales. Financial impact: A modest 6–7% SSSg decline in affected countries equates to ~9% EPS downside and double-digit share price risk. Valuation: Trading at 25.5× NTM P/E—above historical averages—MCD is priced for resilience it may not deliver if sales erode abroad. Strategy: Puts offer leveraged exposure to a potential narrative shift, geopolitical shock, or derating event, providing asymmetric returns versus short equity.

Pitch Summary:
CK Hutchison is a Hong Kong-based global conglomerate trading at just 0.3× book and an implied double-digit FCF yield, despite owning high-quality infrastructure, telecom, ports, and retail assets. A pending $19B sale of its ports division to BlackRock could bring CKH to near net cash, enabling material capital returns. The transaction—delayed amid Chinese regulatory scrutiny—has highlighted hidden value and drawn new investor attention. Management is also exploring a London IPO/spin-off of its telecom division following the merger of 3UK with Vodafone, offering further catalysts for simplification and value realization. The company’s asset base (55% of EBITDA from Europe/UK, 22% Asia ex-China) is geographically diversified and minimally exposed to mainland China. Applying conservative peer multiples (6× Telecom, 8× Retail, 10× Ports, 25% conglomerate discount) yields ~50% upside. Founders Li Ka-shing and Victor Li have a long track record of selling assets near cyclical peaks and deploying capital prudently. The combination of portfolio monetizations, a strong balance sheet, and prospective shareholder distributions supports a rerating. Even if the ports sale fails, downside is limited given valuation and a >5% dividend yield. Overall, CKH represents a high-quality, asset-rich restructuring story trading at distressed Hong Kong multiples.

BSD Analysis:
Diversified infrastructure and telecom conglomerate with exposure to ports, utilities, retail, and telecom across 50+ countries. Set-up: Trades at 0.3× P/B and 8× EBITDA—deep discount to global infrastructure peers—amid China overhang and deal uncertainty. Catalysts: $19B ports sale (near net-cash balance sheet), telecom spin in London, potential divestitures of listed stakes (CKI, HutchMed, Cenovus). Management: Li family continues its strategy of value crystallization and capital returns; aging leadership may accelerate corporate simplification. Financials: 5% dividend yield, strong FCF coverage, and modest leverage (~$18B net debt ex-leases pre-ports deal). Valuation: SOTP suggests 50%+ upside even with conglomerate discount; risk/reward skewed favorably given limited China exposure and multiple catalysts for value unlock.

Pitch Summary:
Flowers Foods is the second-largest producer of bread and bakery foods in the United States. Founded in 1919, the company's brands include Nature's Own, Dave's Killer Bread, and Wonder. Flowers Foods has a long history of generating consistent sales and profit growth. As the company integrates its recent Simple Mills acquisition, earnings are expected to be flat in 2025. Nevertheless, we believe Flowers will continue to generate abundant free cash flow, sufficiently funding its dividend (5.0% current yield) and its plan to reduce debt. With Flower's stock trading at a five-year low, its valuation has improved considerably.

BSD Analysis:
Palm Valley Capital views Flowers Foods as an undervalued consumer staples play trading at five-year lows despite its strong market position and consistent operating history. The manager highlights the company's #2 position in U.S. bread and bakery foods with established brands like Nature's Own, Dave's Killer Bread, and Wonder. While acknowledging near-term earnings headwinds from the Simple Mills acquisition integration, they emphasize the company's long track record of consistent sales and profit growth since 1919. The investment thesis centers on abundant free cash flow generation supporting a 5.0% dividend yield and debt reduction plans. The manager believes current valuation levels present an attractive entry point for a quality food producer with defensive characteristics. This represents a classic value opportunity in a stable, cash-generative business during a temporary earnings pause. The combination of market leadership, brand strength, and attractive yield provides downside protection with upside potential.

Pitch Summary:
During the quarter we repurchased Monro, a leading operator of retail tire and automotive repair stores in the United States. In fiscal year 2024, Monro operated 1,288 stores in 32 states and serviced 4.7 million vehicles. Monro's automotive repair business has benefited from the rising average age of vehicles and the record number of vehicles on the road. However, even with these tailwinds, revenue and earnings have recently been under pressure. Many of Monro's customers have been suffering from the rising cost of living, and as a result, have been delaying automotive repairs and trading down to lower-priced tires. These trends contributed to Monro posting low to mid-single digit same-store sales declines over the past year, sending shares to multiyear lows. Although trends appear to be stabilizing, for Monro to achieve its double-digit operating margin goal, further improvements in same-store sales will be needed, along with the return of higher-margin tire sales. This will take time. However, given the necessity of auto repairs and tire replacement, we expect operating results will eventually recover. Despite recent challenges, Monro has continued to generate meaningful free cash flow, which has been used to reduce debt, pay dividends (7.6% current yield), and buy back stock.

BSD Analysis:
Palm Valley Capital sees Monro as a cyclical recovery play in the automotive aftermarket sector trading at multiyear lows. The manager recognizes the company's strong market position with 1,288 stores serving 4.7 million vehicles annually, benefiting from secular tailwinds of aging vehicle fleets. While acknowledging current headwinds from consumer pressure leading to delayed repairs and tire downgrades, they view these as temporary cyclical challenges. The investment thesis relies on the essential nature of automotive maintenance and tire replacement, expecting eventual recovery as economic conditions improve. Despite near-term margin pressure, Monro continues generating meaningful free cash flow for debt reduction, dividends (7.6% yield), and share buybacks. The manager believes current valuation reflects excessive pessimism for a business with defensive characteristics and long-term growth drivers. This represents a classic value opportunity in a necessary service business during a cyclical trough.

Pitch Summary:
Reynolds Consumer Products owns the iconic Reynolds Wrap and Hefty brands. Its cooking, cleanup, and storage products are present in 95% of U.S. households and generally hold the #1 or #2 market share. Consistent demand leads to stable results, although raw materials costs create some volatility. We view Reynolds as a high-quality business that rarely has traded for a reasonable valuation. Due to the business's stability, it can accommodate leverage. We believe the company's borrowings are very manageable in comparison to its cash flow. Like any authentic money manager, we eat our own cooking, and with a stake in Reynolds, stocking up on supplies for our tin foil hats serves a dual purpose!

BSD Analysis:
Palm Valley Capital views Reynolds Consumer Products as a high-quality consumer staples business with dominant market positions in household essentials. The manager emphasizes the company's impressive market penetration with products in 95% of U.S. households and leading market share positions across categories. The investment thesis centers on the stability and defensive nature of the business, with consistent demand patterns providing predictable cash flows. While acknowledging some volatility from raw material costs, the manager believes the company's leverage is manageable given its stable cash generation. The pitch suggests this represents a rare opportunity to own a quality consumer staples business at a reasonable valuation. The defensive characteristics and market-leading brands provide downside protection while offering steady returns. This aligns with Palm Valley's focus on quality businesses with sustainable competitive advantages.

Pitch Summary:
Forrester Research provides advice and research to help business and technology leaders make better decisions. The firm was founded in 1983 by George Colony, who remains CEO and owns over 40% of the company. The core Research business is a subscription-based model paid in advance by customers and has 90% renewal rates, leading to high cash generation. Forrester is a very distant number two player in the space, after Gartner. While Forrester is usually mentioned in the same breath as Gartner when discussing leaders in technology research, Forrester's economics pale in comparison. Gartner is the dominant provider of advice on back-office technology to big companies making major purchase decisions. Forrester focuses more on the front office, including marketing roles. Unlike Gartner, which has experienced consistent growth, Forrester's earnings have been volatile. We believe this has been partly self-inflicted, as management has frequently made strategic changes that have created disruption, such as with the sales force or method of packaging its services. Results peaked during COVID as companies sought advice on how to best shift to remote work and expedite the digitalization of their operations. Since then, Forrester's Consulting segment has been weak and its Research business has stagnated from forcing clients to transition to a new product platform that bundles research, access to experts, conferences, etc. Trailing profit margins are the lowest in many years, along with the stock price. Shares were $60 four years ago, and now they're below $10. Forrester has a substantial amount of net cash. We believe the company's business model is inherently attractive and that Forrester can recover from recent stumbles. If so, the valuation is compelling.

BSD Analysis:
Palm Valley Capital sees Forrester Research as an undervalued technology research firm trading at a compelling discount following operational missteps. The manager highlights the company's subscription-based model with 90% renewal rates and strong cash generation as attractive fundamentals. While acknowledging Forrester's distant second position to Gartner and recent earnings volatility from strategic disruptions, they believe the business model remains inherently sound. The stock has declined from $60 to below $10 over four years, creating a significant valuation opportunity. With substantial net cash and potential for operational recovery, the manager views current levels as compelling for a quality research business. The thesis centers on management's ability to stabilize operations and return to normalized profitability. This represents a classic turnaround opportunity in a defensive, subscription-based business model.

Pitch Summary:
Samsonite - Samsonite, a global luggage manufacturer, was a detractor for the quarter. While Samsonite's 4Q24 results beat consensus, its weak 1Q25 guidance of low-to-mid single-digit decline weighed on its share price. In 4Q24, Samsonite grew revenue by +1.0% YoY on a constant currency basis (cFX). This was driven by continued weakness in its Asia region, with revenue declining 6.3% YoY, on a constant FX-basis. In Asia, China continues to suffer from the weak consumption environment, and India has been impacted by the aggressive competitive landscape. Management continues to enforce their price discipline to uphold the integrity of its brand for the longer term, with gross margin and adjusted EBITDA holding strong at 60.2% and 20.7%, respectively. On its 1Q25 guidance, the weak outlook was attributable to its Asia and North America regions. North America saw dampened consumer sentiment from the increasingly volatile geopolitical landscape while Asia suffered from a high base effect, particularly in China, where 1Q24 saw an extremely strong Chinese New Year. On the positive, management continues to aggressively engage in share buybacks and is actively preparing for its dual listing in the US (subject to market conditions, which have not been conducive lately).

BSD Analysis:
Longleaf maintains a bullish stance on Samsonite despite near-term headwinds, focusing on the company's brand integrity and capital allocation discipline. While Q4 2024 results beat consensus with 1% constant currency revenue growth, weak Q1 2025 guidance reflects regional challenges in Asia and North America. The company faces continued weakness in China's consumption environment and competitive pressures in India, contributing to a 6.3% revenue decline in Asia. However, management's commitment to price discipline has preserved brand integrity, maintaining strong gross margins at 60.2% and adjusted EBITDA at 20.7%. The weak Q1 outlook reflects geopolitical uncertainty dampening North American consumer sentiment and difficult year-over-year comparisons in China following an exceptionally strong Chinese New Year in 2024. Positive catalysts include aggressive share buyback programs and preparation for a US dual listing, though market conditions have delayed execution. The investment thesis centers on management's disciplined approach to brand positioning, strong margin profile, and shareholder-friendly capital allocation, positioning the company for recovery when consumer sentiment and travel demand normalize.

Pitch Summary:
Jollibee - The largest quick-service restaurant (QSR) player in the Philippines, Jollibee, was a detractor for the quarter. The company reported disappointing results for Q4, missing its earnings expectations. While its domestic business in the Philippines continues to perform well, with same-store sales growth (SSSG) increasing from 6.4% in the previous quarter to 7.4% in the most recent one, the Group's overall performance was negatively impacted by its international operations, particularly in the China region and with Smashburger. In China, EBITDA fell 57% YoY due to a challenging competitive environment and a weak consumer market. Meanwhile, in the US, Smashburger's EBITDA returned to negative territory as the revamp of the menu and increased marketing spending did not yield the desired results. Jollibee is actively implementing changes in these underperforming markets and brands. The company plans to limit losses in China by focusing on an asset-light approach. Additionally, Jollibee has changed the management of Smashburger and is pursuing a more cost-conscious strategy under the new President, Jim Sullivan, who is working to eliminate unnecessary overhead. Jollibee Group remains focused on return on invested capital (ROIC), intending to raise it to 20% by fiscal year 2028. Encouragingly, they are seeing positive signs with the launch of Jollibee's US Franchising Program, set for early March 2025. The Jollibee brand in North America reported an 8% increase in same-store sales last year and has average daily sales (ADS) of $13,300, nearly triple the ADS of KFC and double that of Popeyes in the US. Additionally, Jollibee Group is ready to begin franchising Coffee Bean & Tea Leaf beyond its core markets of Malaysia and Singapore.

BSD Analysis:
Despite Q4 disappointments, Longleaf maintains a constructive view on Jollibee based on strong domestic performance and promising US expansion metrics. The Philippine domestic business remains robust with same-store sales growth accelerating from 6.4% to 7.4%, demonstrating the core brand's resilience. While international operations face challenges, particularly in China where EBITDA fell 57% year-over-year, management is implementing corrective measures including an asset-light approach and new leadership at underperforming Smashburger. The US Jollibee brand shows exceptional unit economics with $13,300 average daily sales, nearly triple KFC's and double Popeyes' performance, supporting the March 2025 franchising program launch. Management's focus on achieving 20% ROIC by fiscal 2028 demonstrates capital discipline and operational improvement commitment. Additional growth drivers include Coffee Bean & Tea Leaf franchising expansion beyond Malaysia and Singapore. The investment thesis centers on the strong domestic foundation, superior US unit economics, and management's proactive approach to addressing underperforming international operations while maintaining ROIC discipline.

Pitch Summary:
Becle - Global beverage company Becle was a detractor for the quarter. Industry trends remained weak, and while the company gave guidance that it can get back to growth this year, the market is skeptical. Last quarter, we wrote: "While it remains to be seen what Trump will do, Becle is trading dramatically below its private market value and below where it has traded before on all metrics as a public company, including the first time we successfully invested in the company when Trump was President. 2025 will be an important year for the company to demonstrate its path to growth and prudent capital allocation." Throughout most of the first quarter, the situation looked precarious as Trump initially focused his tariffs on Canada and Mexico. However, after quarter end the tequila industry received a reprieve as we wrote above. We continue to believe that Becle has multiple factors within its control to realize value per share and look forward to continuing our dialog with management.

BSD Analysis:
Longleaf maintains a bullish stance on Becle despite near-term industry weakness and market skepticism about the company's growth guidance. The firm emphasizes that Becle trades dramatically below its private market value and historical public market metrics, including levels during the previous Trump presidency when Longleaf successfully invested. The tariff concerns that weighed on the stock during Q1 have been partially alleviated with tequila receiving reprieve under the USMCA agreement. Longleaf views 2025 as a critical year for management to demonstrate operational execution and prudent capital allocation. The investment thesis centers on Becle's ability to control multiple value realization levers independent of external trade policy uncertainties. While industry trends remain challenging and the market remains skeptical of the company's return to growth, Longleaf believes the current valuation provides significant upside potential. The firm continues active dialogue with management to ensure focus on shareholder value creation through operational improvements and strategic capital allocation decisions.

Pitch Summary:
Glanbia - Irish sports nutrition and ingredients company Glanbia was a top detractor in the quarter. The shares had already performed poorly in H2 2024, as the price of their key input cost for their performance nutrition brands, whey protein isolate (WPI), rose above historic peaks. There is a shortage of WPI supply, but with new capacity due to come online later this year, the company expected prices to remain rational and ultimately to reduce. That did not happen, and through December and into January, prices rose further, forcing Glanbia to forward-purchase at prices far above their budgeted costs. Glanbia is simultaneously the largest consumer of WPI and the largest producer, giving them the best insight into this commodity market, and even they were caught out given the unprecedented nature of the price move. Despite finding mitigations that allowed them to offset 75% of the extra $200 million cost headwind for this year, it still resulted in a $50 million downgrade to guidance for 2025 at the FY results. That is a 9% downgrade to consensus expectations, with the share price falling over 3x that. An aggravating factor has been concerns about increased competition. Costco is an important channel for Glanbia, accounting for a mid-teen percentage of sales, but being more substantial as a growth driver. Costco introduced a competitor product under their Kirkland brand in Q3 last year, which has caused a headwind to growth for Glanbia's key Optimum Nutrition (ON) protein powder. Performance so far has been stable, impacting ON volumes but not showing progressive deterioration, yet it introduces a further concern to an already nervous market. Glanbia's other division, Nutritional Solutions, is the largest producer of WPI and therefore benefits from the current high prices, but the market has historically focused solely on the consumer branded division, and that has continued to be the case. Looking at the value of its assets, Glanbia now on 9x price-to-earnings (PE), trades well below comparators for each of their divisions: Sports Nutrition Brands, Supplements & Ingredients, and Dairy/Cheese producers. We have impressed upon the Board and Management their vulnerability at the current share price and the need to respond with affirmative action. That would include enlarging and accelerating share buybacks and exploring a strategic process to separate and sell certain divisions. We believe the company is considering such a strategy, having already announced the reorganisation into three divisions, which would be a necessary precursor to a sale of the new Dairy Protein division. We believe that business alone is worth approximately 50% of the company enterprise value (EV) today, with the more valuable consumer brands (GPN) and ingredients (Health & Nutrition) also being potential sale targets. We continue to like the structural drivers of growth in Glanbia's health-focused businesses and are working with management to ensure a higher degree of urgency in crystalising value.

BSD Analysis:
Despite near-term headwinds, Longleaf maintains a bullish long-term view on Glanbia based on compelling valuation and potential value realization catalysts. The company faces significant cost pressures from unprecedented whey protein isolate (WPI) price increases, resulting in a $50 million guidance downgrade despite offsetting 75% of the $200 million headwind. Competition from Costco's Kirkland brand has impacted Optimum Nutrition volumes, though performance has stabilized without progressive deterioration. However, Glanbia trades at only 9x P/E, well below comparators across all divisions, creating significant value opportunity. The company's dual position as both largest WPI consumer and producer provides unique market insight and partial offset through its Nutritional Solutions division. Longleaf is actively engaging management on value crystallization strategies, including accelerated share buybacks and potential divisional separations. The recent reorganization into three divisions enables potential asset sales, with the Dairy Protein division alone worth approximately 50% of current enterprise value. The structural growth drivers in health-focused nutrition remain intact, supporting the long-term investment thesis despite temporary margin pressures.

Pitch Summary:
Richemont - Swiss jewellery and watch producer Richemont was another top performer in the quarter. Their fiscal Q3 results (calendar Q4) released in mid-January again demonstrated the brand strength which enables pricing power and market share gains. Like-for-like sales growth of 10% substantially outperformed expectations, with the US being the standout geography, but with strength across the board except for China. With the prospect for YoY comparisons easing further through the year (and in January at least, consumer prospects seemingly strong) the share price strongly outperformed our value growth. This reduced our IRR expectation, and we started to trim the position as the price to value approached 100%. We ultimately exited our position fully in the quarter, which proved to be the right decision as the market became more concerned about consumer weakness and the impact of tariffs in the US, seeing the share price pull back. We continue to like Richemont, as owner of the strongest brands in the hard-luxury industry, Cartier and Van Cleef & Arpels. We have long-held a preference for hard luxury (jewellery and watches) over soft luxury (bags, clothes) given the long-term store-of-wealth characteristics and occasion-linked purchasing (engagements, birthdays, anniversaries, etc.) Hard luxury globally has significantly lower penetration of brands than soft luxury, with many emerging markets still being precious metal/stone dependent rather than brand/design dependent. We continue to expect brands to win market share, disproportionately favouring the most desirable brands, providing Richemont with a long-term structural tailwind. We will continue to follow the company closely.

BSD Analysis:
Longleaf maintains a positive long-term view on Richemont despite exiting the position during the quarter due to valuation concerns. The company demonstrated strong brand power with 10% like-for-like sales growth that substantially beat expectations, driven by US strength and broad-based performance excluding China. Richemont owns premier hard luxury brands Cartier and Van Cleef & Arpels, which Longleaf prefers over soft luxury due to store-of-wealth characteristics and occasion-linked purchasing patterns. The structural opportunity lies in hard luxury's lower brand penetration globally compared to soft luxury, particularly in emerging markets that remain precious metal/stone dependent rather than brand/design focused. This dynamic should drive market share gains toward the most desirable brands, providing Richemont with long-term tailwinds. However, the strong share price performance reduced expected IRR, prompting the full exit as price-to-value approached 100%. The decision proved prescient as concerns about consumer weakness and US tariff impacts subsequently pressured the stock. Longleaf continues monitoring for re-entry opportunities.

Pitch Summary:
Lanxess – Global specialty chemical company Lanxess was one of the top performers in the quarter, being a clear beneficiary of both macro drivers and internal initiatives. We have argued for some time that Lanxess was undervalued in relation to the quality of its assets and the actions management was taking to allow for significantly improved performance and returns once the end-demand environment started to show signs of improvement. Yet ironically it was the macro prospect of an ending of the war in Ukraine, followed by the expectation of renewed investment into German industrial capabilities, which saw Lanxess shares perform strongly this quarter. Lanxess has approximately 25% production exposure to Germany and a mid-teen demand exposure. Lower gas prices in Germany would certainly help with input costs, but we remain cautious about just how much Russian gas will be allowed to flow through Ukraine and how much Germany will want to tie itself back into a Russian supply network. The €500 billion infrastructure blitz proposed by new Chancellor Merz would certainly help the domestic construction market, but again, we need to see evidence of this on the ground. We prefer to rely on levers within the company's control, and Lanxess made further progress through the quarter. The sale of the Urethanes division completed as expected with gross proceeds of €500 million, which will be used to reduce debt back to an approximate 3x leverage ratio. Q4 results were good, with cost savings on track and more to be delivered this year. Guidance for 2025 was conservative at +10% earnings before interest, taxes, depreciation and amortization (EBITDA), but prudent given the end-market environment has remained weaker for longer than they would normally expect. There is significant upside margin potential in the coming years as demand feeds directly through to utilization improvements with a very high incremental margin. We are also getting closer to the sale of their stake in the Envalior JV (put option from Apr 2026). This asset and its shareholder loan are worth over 35% of Lanxess's market cap today, yet analysts and the market largely ignore it or have written it down to a very low valuation. This reflects the fact Lanxess is strictly limited in what they are allowed to disclose about Envalior, and markets abhor a vacuum. Yet the debt agency reports (S&P Global, 13 Dec 2024 publicly available online) make it clear what this asset is worth if one cares to look. With a fixed exit-multiple of 12x EBITDA guaranteed in the put option, we are confident a strong cash inflow will be achieved on the sale, allowing for significant further debt reduction and finally opening the possibility of accretive buybacks.

BSD Analysis:
Longleaf presents a compelling bull case for Lanxess based on both company-specific initiatives and potential macro tailwinds. The firm argues Lanxess has been undervalued relative to asset quality and management's operational improvements, with the company completing the €500 million Urethanes division sale to reduce leverage to approximately 3x. Q4 results demonstrated progress with cost savings on track and conservative 2025 EBITDA guidance of +10%, providing significant upside potential as demand recovery drives high incremental margins through improved utilization. The hidden value catalyst lies in the Envalior joint venture stake, worth over 35% of current market cap but largely ignored by analysts due to disclosure limitations. The put option from April 2026 guarantees a 12x EBITDA exit multiple, which Longleaf believes will generate substantial cash for debt reduction and potential share buybacks. While macro factors like German infrastructure spending and lower gas prices could provide additional tailwinds, Longleaf focuses on controllable levers within management's execution. The investment thesis centers on operational leverage, hidden asset value realization, and strong cash generation potential.

Pitch Summary:
Prosus - Global consumer internet group Prosus was among top contributors for the quarter, continuing its strong performance from 2024. Tencent, which represents close to 80% of net asset value (NAV) for Prosus, delivered better than expected results in Q4. The company reported YoY revenue growth of 11% and adjusted net profit increase of 30%, benefiting from improved operational leverage. Tencent is stepping up its investment in AI and is adopting a multi-model strategy (including DeepSeek) to provide the best user experience. Its internally developed Hunyuan model is helping boost ad targeting, content creation and operational efficiency. We remain optimistic about Tencent's investments in AI yielding a high return on investment at the application layer, particularly given the vast amount of data generated by their WeChat super app and its 1.3 billion monthly active users. Prosus continued its open-ended share buyback program and announced two reasonably priced acquisitions (Just Eat Takeaway in food delivery and Despegar in online travel) for a total of $6 billion (~3% of its NAV).

BSD Analysis:
Longleaf maintains a bullish stance on Prosus, driven primarily by the strong performance of Tencent, which comprises nearly 80% of Prosus's net asset value. Tencent delivered impressive Q4 results with 11% revenue growth and 30% adjusted net profit increase, demonstrating improved operational leverage. The company's AI strategy appears well-positioned, with its multi-model approach including DeepSeek and internally developed Hunyuan model enhancing ad targeting and operational efficiency. Tencent's competitive advantage lies in its massive data ecosystem from WeChat's 1.3 billion monthly active users, providing significant potential for AI monetization. Prosus continues executing shareholder-friendly capital allocation through its open-ended share buyback program. The company made strategic acquisitions totaling $6 billion for Just Eat Takeaway and Despegar, representing approximately 3% of NAV at reasonable valuations. The investment thesis centers on Tencent's AI investments generating high returns at the application layer, supported by unparalleled user data and engagement.

Pitch Summary:
Millicom – Latin American telecommunications operator Millicom extended its standout 2024 performance into the first quarter of this year. The share price reflects exceptional operational delivery, driving an inflection in equity free cash flow growth, on which the new management team, supported by its largest shareholder, Iliad Group (Atlas) with a 40% stake, has relentlessly focused since 2023. This progress became more visible starting in the second quarter of 2024, and we expect it to continue from here. We were confident the market would eventually recognize the material year-on-year (YoY) and sequential free cash flow growth profile that Millicom's results would gradually reveal. Indeed, the company exceeded its already twice-raised 2024 equity free cash flow guidance of approximately $650 million, ultimately delivering $728 million for the year. Looking ahead, Millicom has guided further growth to the $750 million range for 2025. Our conversations with management bolster our confidence in the sustainability of this strong cash flow generation, underpinned by efficiency gains across both OPEX and CAPEX initiatives. The restart of the company's dividend policy followed the achievement of its steady-state leverage target of 2.5x in December. This capital allocation move makes cash flow improvements very tangible to us as shareholders today, thanks to the ongoing $150 million share buyback program and a well-supported dividend of $3 per share in hard currency. At current prices, this represents a yield above 10%, limiting downside risk in today's highly volatile markets and significantly improving the risk/reward of our investment in Millicom. In the meantime, we continue to partner with management while they drive operational improvements to full fruition over 2025. In addition to this compelling fundamental setup, we continue to see multiple ways to win in what promises to be a catalyst-rich year for Millicom. The delisting of its Swedish shares was completed at the end of March 2025, leaving a single US listing that should enhance liquidity and attract greater institutional investor interest—further facilitating the closure of Millicom's price-to-value gap. Meanwhile, progress on the $1 billion acquisition of Telefonica's operations and Millicom's minority interests in Colombia remains on track. Management recently confirmed that they expect regulatory approval by year-end, and they remain excited about the prospect of generating value on these assets via operational turnaround and cost synergies.

BSD Analysis:
Longleaf presents a compelling bull case for Millicom based on exceptional operational execution and cash flow inflection. The company exceeded its 2024 equity free cash flow guidance by $78 million, delivering $728 million versus the $650 million target, with further growth guided to $750 million for 2025. Management's relentless focus on operational efficiency across both OPEX and CAPEX has driven sustainable cash generation improvements. The capital allocation strategy is shareholder-friendly, featuring a $150 million share buyback program and a $3 per share dividend yielding over 10% at current prices. Multiple catalysts support the investment thesis, including the completed delisting of Swedish shares to enhance US liquidity, and the pending $1 billion acquisition of Telefonica's Colombian operations expected to close by year-end. The company achieved its target leverage ratio of 2.5x, enabling the dividend restart and providing financial flexibility. Longleaf views this as a catalyst-rich year with multiple pathways to value realization through operational improvements and strategic initiatives.

Pitch Summary:
PVH – Global apparel brand PVH was a detractor for the quarter. Two key factors weighed on the stock price. First, consumer discretionary spending faced broad pressure, and PVH was no exception. Second, China placed PVH on its restricted list as trade tensions and tariff rhetoric between the US and China escalated throughout the quarter. PVH has done nothing wrong but was unfortunately selected instead of other companies in its industry. After the end of the quarter, PVH reported solid, flattish results in this tough environment and a new accelerated share repurchase authorization that led to the stock reacting nicely. The company still trades at a mid-single-digit multiple of FCF that can grow, and our great partner Stefan Larsson is focused on closing this price to value gap.

BSD Analysis:
Longleaf Partners maintains strong conviction in PVH despite geopolitical headwinds and consumer discretionary weakness. The fund emphasizes that China's restricted list placement was arbitrary rather than performance-related, creating temporary pressure unrelated to business fundamentals. PVH's solid operational performance in a challenging consumer environment demonstrates management's execution capabilities. The company's accelerated share repurchase program signals confidence in the business outlook and commitment to shareholder returns. CEO Stefan Larsson's leadership provides confidence in strategic execution and value creation initiatives. PVH trades at an attractive mid-single-digit free cash flow multiple with growth potential. The fund views current valuation as compelling given the company's brand portfolio strength and operational improvements. Longleaf sees significant upside as geopolitical tensions ease and consumer spending normalizes. The position reflects confidence in management's ability to navigate challenges while creating long-term shareholder value.

Pitch Summary:
PayPal – Digital payments platform PayPal was a detractor for the quarter. The stock price declined significantly more than the few percentage points decline in our appraisal value after mildly disappointing results. Growth was in the mid-single-digit range when the market was hoping for high-single-digits. While we trimmed part of our position early in the quarter, in hindsight a larger reduction would have been prudent. However, we continue to see a compelling path forward for this high-quality business, which is still not optimized under relatively new CEO Alex Chriss.

BSD Analysis:
Longleaf Partners maintains a bullish long-term view on PayPal despite recent disappointments and acknowledges tactical positioning errors. The fund believes the market overreacted to mildly disappointing growth results, with mid-single-digit growth falling short of high-single-digit expectations. PayPal represents a high-quality digital payments platform with significant optimization potential under CEO Alex Chriss's leadership. The fund's intrinsic value assessment declined only modestly while the stock price fell significantly more, indicating market overreaction. Management's relatively recent tenure suggests substantial operational improvements remain ahead. PayPal's dominant position in digital payments provides multiple avenues for growth acceleration and margin expansion. The fund sees compelling value in the current valuation despite near-term growth challenges. Longleaf's continued conviction reflects confidence in the platform's competitive advantages and management's ability to unlock value through operational optimization.