Investment Pitches

Pitch Summary:
Stanley Black & Decker is a manufacturer of tools and industrial fastening products. Brands include DEWALT, Black & Decker, Craftsman, Stanley, Lenox, Cub Cadet, and Troy-Bilt. Its Tools and Storage segment makes up 90% of company revenue which includes power tools, hand tools, and outdoor equipment. The remaining 10% comes from its Engineered Fastening segment, which includes fasteners, rivets & welding equipment for the automotive, aerospace and industrial markets. The company has strong brands, high market share, and global scale. Stanley Black & Decker's earnings have been under pressure for the last several years due to Covid related supply chain issues and difficulty integrating acquisitions. More recently, higher interest rates have depressed housing demand, which in turn has reduced demand for its core tools business. Going forward, we expect the company's cost restructuring plan to underpin strong earnings growth. In addition, the company's renewed focus on investing in organic growth gives us confidence that the company has a long runway to deliver more consistent earnings growth. Recent announcements about tariffs could slow the company's progress but it does not change our fundamental investment case.

BSD Analysis:
Vulcan initiated a position in Stanley Black & Decker during a cyclical trough, viewing current challenges as temporary headwinds masking the company's fundamental strengths. The manager emphasizes the company's portfolio of strong brands including DEWALT and Craftsman, which command high market share and global scale advantages. Recent earnings pressure stems from COVID-related supply chain disruptions, acquisition integration difficulties, and housing market weakness from higher interest rates. The investment thesis centers on the company's cost restructuring plan driving earnings recovery and management's renewed focus on organic growth investments. While acknowledging potential tariff headwinds, Vulcan maintains confidence in the long-term investment case. The 90% exposure to tools and storage provides cyclical recovery upside as housing markets normalize. Strong brand equity and market positioning should enable margin expansion as operational improvements take hold.

Pitch Summary:
Medpace Holdings is a global clinical contract research organization (CRO) providing outsourced drug development services. Medpace provides a full-service model attractive to small and midsized biotechnology firms that lack the infrastructure needed to navigate the drug development process. This customer base is typically less price sensitive and relies on Medpace to perform end-to-end contract services for drug development. Medpace produces robust free cash flow and has a strong balance sheet. After several years of double-digit earnings growth, we expect the company to have a relatively flat year in 2025. Over the long term, we expect the company to return to double-digit growth. In addition to being outstanding operators, Medpace's management team has a history of intelligent capital allocation decisions. We are pleased to own this wonderful business.

BSD Analysis:
Vulcan initiated a position in Medpace, a specialized CRO focused on serving small and mid-sized biotech clients who lack internal drug development infrastructure. The manager highlights Medpace's full-service model as a competitive advantage, creating less price-sensitive customer relationships and recurring revenue streams. The company demonstrates strong financial metrics with robust free cash flow generation and a solid balance sheet. While expecting flat earnings in 2025 after years of double-digit growth, Vulcan maintains confidence in long-term double-digit growth resumption. Management's track record of intelligent capital allocation and operational excellence reinforces the investment thesis. The specialized focus on smaller biotech clients differentiates Medpace from larger, more commoditized CROs. This positioning should provide pricing power and customer stickiness as biotech funding cycles recover.

Pitch Summary:
Sodexo is a food services and facilities management company. It is the third largest on-site food services company in the world, behind Compass Group and Aramark, serving corporate offices, schools, hospitals, and other venues. Food Service makes up roughly two thirds of their revenue, and approximately 50% of the total market for food services remains in-sourced. The remaining third of its revenue comes from Facilities Management, which includes outsourced cleaning, security, and building engineering and maintenance. There are many reasons we like Sodexo, including its strong balance sheet, stable revenues in both good economic times and bad, long-term customer contracts, and a solid customer retention rate of approximately 95%. The family of the founder, Pierre Bellon, owns 40% of shares and they have been good long-term owners. Over the last few years, the management team has been enhancing the business, resulting in improved margins, a higher customer retention rate, and stronger new business development. The company also spun out noncore businesses and has simplified its corporate structure.

BSD Analysis:
Vulcan initiated a position in Sodexo, viewing it as a high-quality operator in the outsourced food services and facilities management sectors. The company holds the #3 global position in on-site food services with significant runway for growth, as 50% of the market remains in-sourced. The business model demonstrates defensive characteristics with stable revenues across economic cycles, long-term contracts, and an impressive 95% customer retention rate. Family ownership by founder Pierre Bellon's family (40% stake) provides aligned long-term stewardship. Recent operational improvements under current management have driven margin expansion, higher retention rates, and stronger business development. The portfolio simplification through non-core divestitures has enhanced focus and efficiency. Sodexo benefits from secular outsourcing trends while offering recession-resistant revenue streams, making it an attractive defensive growth investment.

Pitch Summary:
Skyworks is a leader in radio frequency (RF) systems primarily for mobile phones, wireless infrastructure, aerospace and defense, internet of things, and various other applications. Their components are mission critical and support key network technologies, including cellular, WiFi, GPS, and Bluetooth connectivity. Only a handful of companies are able to design and manufacture high-end RF components, making them important long-term partners to their customers. While results can be cyclical, Skyworks has maintained and grown its market share over time. Recently, Skyworks lost market share to a competitor which negatively affected our value and caused us to reevaluate Skyworks' competitive position. While Skyworks continues to qualify for investment, we do not think the moat is as strong as we had originally believed. We therefore made the decision to sell it from Focus Plus and reallocate capital to other discounted businesses that are more competitively entrenched.

BSD Analysis:
Vulcan sold Skyworks after reassessing the company's competitive moat following market share losses to competitors. While acknowledging Skyworks' leadership position in RF systems and the mission-critical nature of its components, the manager became concerned about the durability of competitive advantages. The RF semiconductor industry has high barriers to entry with only a handful of capable players, but recent competitive pressures revealed potential vulnerabilities in Skyworks' positioning. Despite the company's historical ability to maintain and grow market share through various cycles, the recent setbacks prompted a fundamental reassessment. Vulcan concluded that while Skyworks remains investable, the competitive moat was weaker than originally believed, leading to the decision to reallocate capital to more defensible businesses. This reflects the manager's disciplined approach to portfolio construction and willingness to exit when investment thesis changes.

Pitch Summary:
PROG Holdings provides lease-to-own financing solutions for non-prime borrowers through a national retailer partner network. In the second half of 2024, one of its largest customers, Big Lots, declared bankruptcy and agreed to be bought by a private equity firm. In December, the sale was cancelled, forcing Big Lots to move forward with liquidation. We believe PROG's stock price decline was far greater than the impact on origination volumes by Big Lots' closure. Further, we expect the company will be able to offset these lost volumes with share gains at existing retailer partnerships and new customer wins.

BSD Analysis:
Vulcan views PROG Holdings as oversold following the Big Lots bankruptcy and liquidation, believing the market overreacted to the customer loss. The manager argues that the stock price decline significantly exceeded the actual business impact from losing Big Lots as a retail partner. PROG's lease-to-own model serves the underbanked consumer segment through a diversified network of retail partners, providing essential financing for non-prime borrowers. The investment thesis centers on PROG's ability to replace lost Big Lots volume through market share gains at existing partners and new customer acquisition. This suggests confidence in the underlying business model and competitive positioning. The temporary disruption from a major customer loss appears to have created an attractive entry point for a fundamentally sound business serving a stable market niche.

Pitch Summary:
Ituran is an Israel-based company that provides stolen vehicle recovery services. Its largest market is Israel, followed by Brazil. They offer a subscription service that allows customers' vehicles to be tracked using RF technology. Customers typically receive a discount on their auto insurance when they subscribe to Ituran's service. Ituran's revenue model produces strong free cash flow and stable margins. The company is performing well, and we believe remains discounted despite the recent increase in share price.

BSD Analysis:
Vulcan views Ituran as an attractive niche technology play in vehicle recovery services, operating primarily in Israel and Brazil. The subscription-based business model generates predictable recurring revenue with strong free cash flow characteristics and stable margins. The value proposition is enhanced by insurance discounts that customers receive, creating a compelling economic incentive for adoption. This insurance linkage also suggests potential for expansion as insurers recognize the loss prevention benefits. Despite recent share price appreciation, Vulcan believes the stock remains undervalued relative to its fundamentals. The geographic concentration in Israel and Brazil may present both opportunity and risk, but the specialized nature of the service and recurring revenue model provide defensive characteristics. The strong operational performance supports the investment thesis.

Pitch Summary:
ISS is a facilities management company based in Denmark specializing in services that are non-core to their customers such as cleaning, food management, building maintenance, security, technical support, and other services. The company is performing well. The company grew its operating profits 24% last year. We expect 2025 to be another strong year with double-digit growth in free cash flow. Over the long term, we expect ISS to be able to grow at a mid-single digit rate. Moreover, the company announced a 3.1 billion DKK shareholder return, which represents approximately 10-11% of the company's market cap at the time of the announcement. This shareholder return consists of a 2.5 billion DKK share repurchase program with the remainder being dividends. ISS has global scale to service multinational accounts and to benefit from the trend of companies outsourcing non-core functions to service providers such as ISS. ISS has historically consistent operating margins and benefits from business contracts which allow it to pass through wages and other cost increases to its customers.

BSD Analysis:
Vulcan highlights ISS as a beneficiary of the secular outsourcing trend, where companies increasingly delegate non-core functions like cleaning and security to specialized providers. The company demonstrated strong operational performance with 24% operating profit growth and is positioned for continued double-digit free cash flow growth in 2025. The substantial shareholder return program of 3.1 billion DKK (10-11% of market cap) signals management confidence and commitment to returning capital to shareholders. ISS's global scale enables it to service multinational clients effectively, while contract structures that allow cost pass-through provide inflation protection. The combination of consistent operating margins, secular growth drivers, and attractive capital allocation makes ISS a compelling long-term investment. The mid-single digit long-term growth expectation appears conservative given the outsourcing tailwinds.

Pitch Summary:
Jones Lang LaSalle is one of the largest commercial real estate service providers in the world, serving both investors in and corporate occupiers of real estate. It provides leasing brokerage, M&A and investment advisory services, as well as property and project management services. To complement its core business, the company also owns LaSalle, one of the largest global real estate investment management businesses in the world. Jones Lang LaSalle is a secular grower in a consolidating industry, is broadly diversified by geography, asset class and line of service, and has an inherently variable cost structure that has allowed it to generate free cash flow in both good and bad times.

BSD Analysis:
Vulcan added Jones Lang LaSalle as a play on the consolidating commercial real estate services industry, where JLL holds a leading market position. The company benefits from diversification across multiple revenue streams including brokerage, advisory services, property management, and investment management through its LaSalle division. Geographic and asset class diversification provides stability across different market cycles. The variable cost structure is particularly attractive, allowing JLL to maintain free cash flow generation even during challenging real estate markets. As a secular grower in a consolidating industry, JLL is well-positioned to gain market share over time. The combination of defensive characteristics through diversification and growth potential through consolidation makes this an attractive investment during uncertain real estate market conditions.

Pitch Summary:
TPG is an alternative asset manager with a great reputation and proven track record. The alternative asset manager industry benefits from long-term capital, which leads to annuity-like fee streams. In addition, the industry continues to enjoy tailwinds from increasing capital flows into private markets. We have followed TPG since their IPO in 2022 and have been impressed with their execution. We expect TPG to continue to expand their market share in a growing industry, and we expect fundraising, fee revenue, and fee earnings to accelerate. TPG is in a great position to fundraise as the company consistently returns capital to LPs. Many in the industry struggle to return funds, and this differentiates TPG.

BSD Analysis:
Vulcan initiated a position in TPG, recognizing the structural advantages of the alternative asset management business model with its annuity-like fee streams from long-term capital commitments. The manager has tracked TPG since its 2022 IPO and been impressed with execution quality. The investment thesis centers on TPG's ability to gain market share in the rapidly growing private markets sector, driven by continued institutional capital allocation shifts. A key differentiator is TPG's consistent track record of returning capital to limited partners, which many competitors struggle to achieve and is crucial for successful fundraising. This operational excellence positions TPG well for accelerating fee revenue and earnings growth. The secular tailwinds of increasing private market adoption provide a favorable backdrop for sustained growth.

Pitch Summary:
Stanley Black & Decker is a manufacturer of tools and industrial fastening products. Brands include DEWALT, Black & Decker, Craftsman, Stanley, Lenox, Cub Cadet, and Troy-Bilt. Its Tools and Storage segment makes up 90% of company revenue which includes power tools, hand tools, and outdoor equipment. The remaining 10% comes from its Engineered Fastening segment, which includes fasteners, rivets & welding equipment for the automotive, aerospace and industrial markets. The company has strong brands, high market share, and global scale. Stanley Black & Decker's earnings have been under pressure for the last several years due to Covid related supply chain issues and difficulty integrating acquisitions. More recently, higher interest rates have depressed housing demand, which in turn has reduced demand for its core tools business. Going forward, we expect the company's cost restructuring plan to underpin strong earnings growth. In addition, the company's renewed focus on investing in organic growth gives us confidence that the company has a long runway to deliver more consistent earnings growth. Recent announcements about tariffs could slow the company's progress but it does not change our fundamental investment case.

BSD Analysis:
Vulcan initiated a position in Stanley Black & Decker during a cyclical trough, viewing the current challenges as temporary headwinds. The company possesses strong competitive moats through iconic brands like DEWALT and Craftsman, commanding high market share and global scale advantages. Recent earnings pressure stems from COVID-related supply chain disruptions, acquisition integration difficulties, and housing market weakness due to higher interest rates. The manager expects the ongoing cost restructuring program to drive earnings recovery, while renewed focus on organic growth investments should support more consistent long-term performance. Despite potential tariff headwinds, the fundamental investment thesis remains intact. This appears to be a classic value play on a quality industrial company trading at depressed valuations during a cyclical downturn.

Pitch Summary:
Medpace Holdings is a global clinical contract research organization (CRO) providing outsourced drug development services. Medpace provides a full-service model attractive to small and midsized biotechnology firms that lack the infrastructure needed to navigate the drug development process. This customer base is typically less price sensitive and relies on Medpace to perform end-to-end contract services for drug development. Medpace produces robust free cash flow and has a strong balance sheet. After several years of double-digit earnings growth, we expect the company to have a relatively flat year in 2025. Over the long term, we expect the company to return to double-digit growth. In addition to being outstanding operators, Medpace's management team has a history of intelligent capital allocation decisions. We are pleased to own this wonderful business.

BSD Analysis:
Vulcan initiated a position in Medpace, a specialized CRO focused on serving small and mid-sized biotech clients who lack internal drug development capabilities. The manager highlights Medpace's full-service model as a competitive advantage, creating less price-sensitive customer relationships and recurring revenue streams. The company demonstrates strong financial metrics with robust free cash flow generation and a solid balance sheet. While 2025 earnings are expected to be flat after years of double-digit growth, Vulcan anticipates a return to strong growth thereafter. Management's track record of intelligent capital allocation and operational excellence reinforces the investment thesis. The specialized focus on smaller biotech firms differentiates Medpace from larger, more commoditized CROs in the market.

Pitch Summary:
ASML is a leading supplier of photolithography systems, equipment crucial for producing advanced microchips. It has a wide moat built on technology innovation, high market share and strong customer and supplier relationships.

BSD Analysis:
Parnassus added ASML to the portfolio, recognizing the company's dominant position in the critical photolithography equipment market for semiconductor manufacturing. The investment thesis is built on ASML's wide economic moat, derived from its technology leadership, particularly in extreme ultraviolet (EUV) lithography systems essential for producing the most advanced microchips. The company's high market share and strong relationships with both customers and suppliers create significant competitive advantages and barriers to entry. ASML's technology innovation capabilities position it as an essential partner for leading semiconductor manufacturers pursuing cutting-edge chip designs. The fund manager views ASML as a key beneficiary of long-term semiconductor industry trends, including the proliferation of AI accelerators and increasingly complex chip architectures. Despite near-term volatility in semiconductor stocks due to tariff and spending concerns, the company's monopolistic position in EUV technology provides defensive characteristics. This investment aligns with Parnassus's strategy of owning companies with strong competitive moats that are positioned to benefit from secular technology trends.

Pitch Summary:
AppFolio, a comprehensive, cloud-based property management software platform, has high switching costs and pricing power, making its revenues relatively sticky. The company has been a market share gainer with growth potential by moving upmarket and expanding into commercial and international markets.

BSD Analysis:
Parnassus added AppFolio to the portfolio, attracted by the company's strong competitive positioning in the property management software market. The investment thesis centers on the platform's high switching costs and pricing power, which create revenue stickiness and predictable cash flows characteristic of quality SaaS businesses. The fund manager sees significant growth potential through the company's strategy of moving upmarket to serve larger property management companies and expanding into commercial real estate and international markets. AppFolio's comprehensive, cloud-based platform provides a competitive advantage in a fragmented market where property managers value integrated solutions. The company's track record as a market share gainer demonstrates its ability to execute on growth initiatives and capture wallet share from competitors. This investment aligns with Parnassus's focus on high-quality software companies with strong moats and multiple growth vectors. The sticky revenue model and expansion opportunities position AppFolio well for sustained above-market growth in the property management technology sector.

Pitch Summary:
SharkNinja is poised for growth as it continues to gain market share in existing markets, develops new products and ventures into international markets. The company's product innovation, combined with a strong management team and a history of execution, should drive durable above-industry growth.

BSD Analysis:
Parnassus initiated a position in SharkNinja to reduce the portfolio's underweight in Consumer Discretionary, viewing the company as a compelling growth story in the household appliances sector. The investment thesis is built on multiple growth drivers including continued market share gains in existing categories, robust product innovation pipeline, and international expansion opportunities. The fund manager emphasizes the company's strong management team and proven execution track record as key differentiators in a competitive market. Despite potential tariff headwinds, the company's international expansion and continued portfolio innovation provide multiple levers for growth. The investment reflects confidence in SharkNinja's ability to deliver above-industry growth through its innovation-focused strategy and market expansion initiatives. This addition aligns with Parnassus's opportunistic approach during market volatility, adding exposure to a quality consumer discretionary name with strong fundamentals. The company's focus on product differentiation and brand strength positions it well to navigate challenging macroeconomic conditions while capturing long-term growth opportunities.

Pitch Summary:
Brown & Brown operates in the high-margin, capital-light insurance brokerage market with little underwriting risk. The company's relatively high margins and a strong record of mergers and acquisitions position it well for strong returns across economic cycles, including periods of high inflation and interest rates.

BSD Analysis:
Parnassus added Brown & Brown as a defensive play in the insurance brokerage sector, attracted by the company's high-margin, capital-light business model with minimal underwriting risk. The investment thesis centers on the company's ability to generate strong returns across various economic cycles, particularly benefiting during periods of high inflation and rising interest rates when insurance premiums typically increase. The fund manager values the company's proven track record in mergers and acquisitions, which provides a growth avenue for market share expansion and operational synergies. The stock performed well during the quarter, contributing positively to returns as it reported strong fourth-quarter earnings and revenues. The defensive characteristics of insurance brokerage, combined with commission-based revenue that scales with premium inflation, make it an attractive hedge against macroeconomic uncertainty. This addition reflects Parnassus's strategy of maintaining balanced portfolio positioning with both offensive and defensive characteristics while taking advantage of market volatility to add quality names.

Pitch Summary:
Synopsys is a leader in electronic design automation, operating in a consolidated software market characterized by high switching costs. We believe the company's acquisition of Ansys, coupled with its extensive intellectual property profile, will enhance its competitive edge as semiconductor design grows more complex, AI accelerators proliferate and non-semiconductor companies develop their own specialized chips.

BSD Analysis:
Parnassus added Synopsys to the portfolio, recognizing its dominant position in the electronic design automation software market. The investment thesis is built on the company's leadership in a highly consolidated market with significant switching costs, creating a strong competitive moat. The fund manager sees the pending Ansys acquisition as a strategic catalyst that will strengthen Synopsys's competitive positioning and expand its addressable market. The thesis is further supported by secular trends including increasing semiconductor design complexity, the proliferation of AI accelerators, and the growing trend of non-semiconductor companies developing custom chips. Despite the stock declining during the quarter alongside other semiconductor-focused companies due to tariff and AI spending concerns, the long-term fundamentals remain compelling. The company's extensive intellectual property portfolio provides additional competitive advantages. This investment aligns with Parnassus's focus on companies positioned to benefit from long-term technology trends, particularly in AI infrastructure and semiconductor innovation.

Pitch Summary:
GE Vernova has exceeded market expectations since its spin-off from General Electric in April 2024. As a global leader in the gas turbine market, it stands to gain from rising power demand, decarbonization and grid modernization. The experienced management team has executed effectively, positioning the company for a multiyear turnaround through organizational simplification, focused product offerings and cost reduction measures.

BSD Analysis:
Parnassus initiated a position in GE Vernova, viewing it as a compelling turnaround story in the energy infrastructure space. The fund manager highlights the company's leadership position in gas turbines, which positions it well to benefit from secular trends including rising power demand, decarbonization efforts, and grid modernization initiatives. The investment thesis centers on management's effective execution since the April 2024 spin-off from General Electric, with the team successfully implementing organizational simplification and cost reduction measures. The fund sees a multi-year growth opportunity driven by the company's focused product offerings and streamlined operations. However, the position was noted as a detractor during the quarter due to broader concerns about AI and semiconductor spending durability. Despite near-term headwinds, the long-term structural tailwinds in power infrastructure support the bullish thesis. The investment reflects Parnassus's strategy of identifying quality companies undergoing positive transformations at attractive entry points.

Pitch Summary:
JP Morgan's expertise across various business lines inherently results in high switching costs for clients, and its unmatched scale strengthens its position for strategic acquisitions. Despite economic uncertainty, the company's consumer banking and credit card franchises remain highly relevant, while its commercial and investment banking units exhibit resilience due to scale. The structural advantage and resilience make JP Morgan a formidable player in the financial services industry.

BSD Analysis:
Parnassus added JPMorgan Chase to the portfolio, emphasizing the bank's structural competitive advantages and defensive characteristics during uncertain economic times. The fund highlights JPM's diversified business model across multiple financial services lines, which creates high client switching costs and provides revenue stability. Management particularly values the bank's unmatched scale, which enables strategic acquisitions and provides operational leverage across business segments. Despite broader economic uncertainty, the fund views JPM's consumer banking and credit card franchises as highly relevant and resilient. The commercial and investment banking divisions are seen as benefiting from scale advantages that provide defensive characteristics during economic downturns. This investment reflects the fund's strategy of adding exposure to quality franchises with durable competitive moats during periods of market uncertainty. The timing suggests confidence in JPM's ability to navigate challenging macroeconomic conditions while maintaining market leadership.

Pitch Summary:
AMD is a strong player in multiple end markets, such as personal computers, servers, gaming, AI accelerators, etc. We took advantage of a share price decline to add AMD for the portfolio's AI theme and the adoption of accelerated computing for a potential rebound as its increasingly competitive GPUs and CPUs continue to take market share. The company has strong leadership under CEO Lisa Su.

BSD Analysis:
Parnassus initiated a position in AMD during the quarter, viewing the semiconductor company as a compelling opportunity following a share price decline. The fund managers highlight AMD's diversified exposure across multiple high-growth end markets including personal computers, servers, gaming, and AI accelerators. They emphasize the company's competitive positioning in both GPUs and CPUs, noting AMD's ability to gain market share through increasingly competitive products. The investment thesis centers on the secular adoption of accelerated computing and AI infrastructure, positioning AMD to benefit from these long-term technology trends. The fund specifically praises CEO Lisa Su's leadership, suggesting confidence in management's execution capabilities. This purchase aligns with the fund's strategy of opportunistically adding exposure to secular themes like AI when attractive valuations present themselves. The timing of the purchase during market weakness demonstrates the fund's contrarian approach to building positions in quality technology companies.

Pitch Summary:
The Fund recently established a position in Universal Music Group (UMG). We have been invested in the Music Industry since our investment in Sony in 2020 (which remains a holding today). The two other major music labels Warner Music Group (WMG) and Universal Music Group (UMG) listed in 2020 and 2021 respectively, which means the asset class is still relatively new and hence not well-understood by investors. In mid-2024 the UMG stock price declined by around 25% as the market became concerned by the slowdown in streamer subscriber growth. Rather than view this as a negative, we saw it as a necessary event to focus and pressure the industry on unlocking their next phase of growth – monetisation. We started buying shares in September 2024. FOCUSED MANAGEMENT BEHAVIOUR UMG traces its origins to the early 20th century with the founding of the Music Corporation of America (MCA), originally a talent agency that later expanded into recorded music. Through a series of acquisitions and restructurings, MCA evolved into what became UMG. Vivendi acquired a majority stake in UMG in 2000 and took full ownership in 2006. The modern form of UMG emerged in 2012 following its acquisition of EMI Music, and it was later spun out of Vivendi and listed as an independent public company in 2021. CEO Lucian Grainge started his career early, by age 17 he was already managing a post-punk rock band. When he took over as CEO in 2010 the music industry was in the midst of a hubris-to-humility cycle. His first major move was acquiring EMI in 2012, capitalising on its low valuation amid industry pessimism. EMI brought with it artists like The Beatles, Coldplay, and Katy Perry. Since then, Grainge has been at the forefront of reshaping the industry, leading early deals with Spotify and other streaming platforms that has created substantial value for both artists and investors. INDUSTRY AND STRATEGIC TRENDS The Music Industry went through a hubris-to-humility cycle in the early 2000s as technology disrupted distribution, leading to firstly piracy and then a digital marketplace with power dominated by the distributor (Apple). During this humility phase, through consolidation the top 3 labels accrued more market power. Music companies, like UMG, own and manage a catalogue of existing music and invest in and develop new music and artists. Music is a unique asset as it has high and enduring cultural relevance. Through the advent of streaming the monetisation of music assets improved significantly, from a discretionary, transactional purchase to a long-term, subscription model. Like all content assets, music goes through monetisation cycles driven by distribution cycles (technology). In the current streaming generation, the early focus was on driving adoption, so market leaders like Spotify kept prices flat. This has created a large value wedge with other content subscription services, like Video, who have already begun their monetisation strategies. But as penetration matured in more developed markets recently, subscription-led growth has slowed, leading to an increased focus by industry participants on monetisation. Music assets follow a "power law" with the best assets having to three orders of magnitude more value than the average. But the current streaming monetisation model does not reflect this, as a stream of Sympathy for the Devil costs the same as "brown noise". This is the monetisation opportunity. Music labels, like UMG, play an important role in the industry, underwriting their right to earn a return on their catalogues. They take on the risk of funding artists, they invest in the sales and marketing and, in aggregate (with the significant market power they hold versus the likes of Spotify) they maintain a strong bargaining position for content owners. This is enabled by their legacy cash-generating assets, scale and skills, which make them hard to displace. The operating trends around these industry shifts have been positive, firstly led by the language of industry participants around pricing, the limited subscriber churn from initial price increases (during 2024) and the recent major label distribution deals between UMG and both Amazon and Spotify which support more innovation around segmentation and superfans. VALUE LATENCY "There are gold mines everywhere" – Rob Stringer, CEO Sony Music UMG currently trades on a Free Cash Flow yield of 4% and we estimate a base case growth of around 6% driven by subscriber growth and pricing. In addition, we see material value latency from improved monetisation, from both wholesale pricing (general price increases) and segmentation (offering more tiered services for higher willingness to pay subscribers). And as Rob Stringer highlights above, music assets are embedded with latency that can be manifest by new technologies over time, a gift to the patient, long-term investor.

BSD Analysis:
Cooper Investors initiated a position in Universal Music Group following a 25% stock decline in mid-2024, viewing the streaming subscriber growth slowdown as a catalyst for industry monetization rather than a negative. The fund's thesis centers on UMG's dominant market position as one of the top three music labels, benefiting from significant consolidation and bargaining power against streaming platforms like Spotify. Under CEO Lucian Grainge's leadership since 2010, UMG has strategically acquired EMI and pioneered early streaming deals, positioning the company for the next phase of industry growth. The investment case highlights a substantial monetization opportunity, as current streaming models undervalue premium content - a stream of "Sympathy for the Devil" costs the same as "brown noise" despite vastly different cultural value. Cooper Investors sees material value latency through wholesale pricing increases and subscriber segmentation, supported by recent distribution deals with Amazon and Spotify that enable innovation around superfan monetization. Trading at a 4% free cash flow yield with estimated 6% base case growth, UMG offers compelling value for patient investors. The fund believes music assets contain embedded latency that can be unlocked by new technologies over time, making this an attractive long-term investment opportunity.