Investment Pitches

Pitch Summary:
JFrog Ltd. (FROG) was one of the largest detractors from strategy performance during the period. The company provides programming tools and repositories for developing and updating computer software. JFrog's stock price was down after the company lowered earnings guidance. We're taking a closer look at the company and its growth potential. We expected JFrog to benefit from artificial intelligence as an increased volume of programming code goes through its repositories. But weak results of late have made us question that thesis.

BSD Analysis:
Wasatch expresses growing skepticism about JFrog's investment thesis following disappointing financial results and lowered guidance. The managers had initially expected the company to benefit from the artificial intelligence boom through increased code volume flowing through its repositories, but recent performance has challenged this assumption. The guidance reduction suggests potential headwinds in the DevOps market or increased competition that may be pressuring JFrog's growth trajectory. Wasatch's decision to take a closer look at the company indicates they are reassessing their conviction level and may be considering position adjustments. The AI thesis that initially attracted them to the stock has not materialized as expected, raising questions about JFrog's ability to capitalize on current technology trends. This represents a case where fundamental expectations have not aligned with actual business performance, prompting a strategic review of the investment rationale.

Pitch Summary:
Inspire Medical Systems, Inc. (INSP) also contributed. The company develops minimally invasive solutions for patients with obstructive sleep apnea (OSA). Prior to the quarter, the stock had been down due to concerns about how GLP-1 weight-loss drugs might affect Inspire's addressable market. A large pharmaceutical firm had reported positive results for its obesity medicine in a clinical trial for the treatment of OSA. However, we thought those concerns were overdone. Most obese patients with OSA are more likely to suffer from complete or lateral-wall collapse of the airway and, therefore, wouldn't be good candidates for Inspire's device, which is designed to prevent airway collapse at the base of the tongue. The company's recent strong quarterly results, which exceeded management's guidance, indicate that demand for Inspire's solutions remains strong and drove the stock price higher. Going forward, we continue to like Inspire's growth potential. In our view, weight-loss drugs may expand Inspire's total addressable market by causing more people with obesity to seek treatment within the health-care system. Following weight loss, these patients could become more likely to benefit from Inspire. All in all, the population of people diagnosed with sleep apnea is very large, and we believe Inspire is well-positioned to treat a good portion of them.

BSD Analysis:
Wasatch demonstrates sophisticated understanding of Inspire's competitive positioning, dismissing market concerns about GLP-1 drug competition as misguided. The managers correctly identify that Inspire's device targets a specific type of airway collapse that differs from the patient population most likely to benefit from weight-loss medications. The recent quarterly results exceeding guidance validate strong underlying demand for Inspire's solutions despite market fears. Wasatch's contrarian view that GLP-1 drugs could actually expand Inspire's addressable market shows deep clinical understanding of the treatment pathway. As patients lose weight and enter the healthcare system, they may become better candidates for Inspire's device, creating a potential synergistic effect rather than competition. The large undiagnosed and untreated sleep apnea population provides substantial runway for growth. Inspire's minimally invasive approach and proven efficacy position the company well to capture market share in this expanding therapeutic area.

Pitch Summary:
Another large contributor was Ensign Group, Inc. (ENSG). Shares rose after the company reported second-quarter earnings and revenue growth that exceeded consensus estimates. The company has also announced a few acquisitions in recent months, which the market viewed favorably. Our views on Ensign remain unchanged. We believe that Ensign, a long-term Wasatch holding, is one of the best-run companies in the health-care facilities-management space. In our view, what helps set Ensign apart is that it separates facilities management from patient management, enabling it to improve financial results while also delivering favorable patient outcomes. The company has a long history of acquiring underperforming properties and making them successful.

BSD Analysis:
Wasatch expresses strong conviction in Ensign Group as a best-in-class operator in healthcare facilities management, highlighting the company's unique operational model and acquisition strategy. The separation of facilities management from patient management represents a differentiated approach that drives both financial performance and patient outcomes. Ensign's track record of acquiring underperforming properties and turning them around demonstrates management's operational expertise and capital allocation skills. Recent earnings beats and successful acquisitions validate the company's execution capabilities and growth strategy. As a long-term holding, Ensign has consistently delivered for Wasatch through various market cycles. The healthcare facilities sector benefits from demographic tailwinds as the aging population drives demand for skilled nursing and assisted living services. Ensign's proven acquisition and integration playbook positions the company well for continued market share gains and margin expansion.

Pitch Summary:
Clearwater Analytics Holdings, Inc. (CWAN) was the top contributor to strategy performance during the quarter. The company offers a software platform for investment accounting, compliance, risk management and reporting that gives asset managers and insurers daily insights into portfolio holdings. The stock had declined earlier in the year when management lowered expectations for growth. At the time, we thought management may have been conservative in its guidance. The stock rebounded substantially this quarter when Clearwater released a solid set of operating results. Notably, net revenue retention, a key statistic demonstrating what existing clients purchase from the firm, continued its trend of year-over-year growth. Looking ahead, we continue to like the company's growth potential, and believe it will benefit from a new pricing model that should reduce volatility in its revenue growth.

BSD Analysis:
Wasatch maintains a bullish stance on Clearwater Analytics, viewing the company as a top performer with strong fundamentals in the investment management software space. The managers believe management was overly conservative with earlier guidance, and the subsequent strong quarterly results validated their thesis. The key metric of net revenue retention showing year-over-year growth demonstrates strong client engagement and expansion within existing accounts. The new pricing model represents a strategic catalyst that should provide more predictable revenue streams and reduce quarterly volatility. Clearwater's platform provides mission-critical services to asset managers and insurers, creating high switching costs and recurring revenue characteristics. The company operates in a growing market as institutional investors increasingly demand sophisticated analytics and compliance tools. Wasatch's confidence in the long-term growth trajectory appears well-founded given the essential nature of the services and expanding client base.

Pitch Summary:
Eagers Automotive is a new addition to the portfolio. Eagers has a 110-year history and is the largest new and used car dealer in Australia with more than 265 dealerships making up 13% of the new car market. In May it provided a trading update indicating conditions had become tougher which led to its shares falling by approximately 30%. Given its history, the attractive price, and management's strategy for the future this looked an attractive opportunity to add the business to our portfolio. There is no doubt that conditions will remain challenging for some time, and this is a cyclical business without the quality of some of our larger holdings, but I believe this is already factored into the current price. For the past three years Eagers has reported a pre-tax net profit of more than $400m per year, and earnings per share of more than $1.00 per share. The company paid a dividend of 74c per share last year, and while profits will be lower this year, it should be able to maintain this providing a yield of 7% on our purchase price. In addition to an attractive yield, it should be able to grow earnings around 5% per annum over the medium term through acquisitions of smaller dealerships and reinvestment of retained earnings into the business. Of lesser consideration the company would also be a beneficiary if interest rates were to fall because of their financing structure. Every 25 basis points in interest rates is worth $6.0m in annualised interest savings. A 1% drop in interest rates would add approximately 10c per share in pre-tax earnings. To further underwrite profits the company also owns a property portfolio of $726m. This has been the source of profits in the past as they sell and relocate dealerships on large inner-city blocks of land and should continue to be a source of considerable value in the future. This is a business facing economic headwinds in the short-term but it's also a business that has various levers it can deploy to grow the business, plus we have the potential bonus if interest rates were to fall in improving profits.

BSD Analysis:
The manager initiated a position in Eagers Automotive as a contrarian value play, capitalizing on the 30% share price decline following management's cautious trading update in May. Despite acknowledging this is a cyclical business of lower quality than core holdings, the fund believes current challenges are fully reflected in the attractive valuation. The investment thesis centers on Eagers' market-leading position with 13% of Australia's new car market through 265 dealerships and a 110-year operating history. The manager expects 5% annual earnings growth through strategic acquisitions of smaller dealerships and reinvestment of retained earnings, supported by a 7% dividend yield on the purchase price. Multiple value drivers underpin the investment case: significant interest rate sensitivity ($6 million annual savings per 25bp rate cut), a substantial $726 million property portfolio providing development optionality, and proven ability to generate over $400 million pre-tax profits annually. The fund views Eagers as offering asymmetric risk-reward with defensive dividend income and multiple operational levers for growth despite near-term cyclical headwinds.

Pitch Summary:
ARB Corporation reported a strong profit result with profits up 18% to $102.7m from a modest 3% increase in revenue to $693m. Australian aftermarket sales remained strong and OEM sales, sales to manufacturers, were a record $59.6m. The largest weakness in the result was a 6.5% drop in export sales. However, the company is undertaking initiatives to take greater control of its distribution in the USA market to address this. In addition to building a store in Seattle the company has purchased a stake in Off Road Warehouse (ORW) which has 11 stores in the USA. This will improve certainty over its product distribution in the USA, which is important for a manufacturer. The company has always controlled its intellectual property and manufacturing and will soon be able to control its distribution as well. This sets the company up well for the next decade or more.

BSD Analysis:
The manager maintains a bullish view on ARB Corporation following strong profit growth of 18% despite modest revenue growth, demonstrating the company's ability to expand margins and operational efficiency. The fund highlights ARB's strategic vertical integration approach, noting the company's control over intellectual property and manufacturing, with the recent distribution investments in the USA representing the final piece of their value chain control strategy. Record OEM sales of $59.6 million indicate successful penetration into manufacturer partnerships, diversifying beyond traditional aftermarket channels. While export sales declined 6.5%, the manager views ARB's proactive response through the Seattle store opening and Off Road Warehouse stake acquisition as addressing distribution challenges in their key US market. The fund appreciates management's long-term strategic thinking in building a fully integrated business model that controls the entire value chain from design to end-customer delivery. This vertical integration strategy, combined with strong domestic aftermarket performance, positions ARB for sustained competitive advantages and margin expansion over the next decade.

Pitch Summary:
PWR Holdings announced a 17% growth in revenue to $139.4m and a 14% growth in net profit to $24.8m for the latest year. However, the news that profits next year will be flat and margins impacted as they gear up for growth in 2026 and beyond was dealt with harshly by the market. As stated previously, a 17% fall in the PWR share price for the quarter has been a major factor in our underperformance against the market in the short-term. PWR will begin the move into a much larger manufacturing facility next year which is expected to impact profitability as well as a need to 'invest ahead of the curve to set us up for the future'. Managing Director, Kees Weel, uses the expression that the company has to be "race ready" in order to win new aerospace and defence work and this requires capital expenditure on equipment and hiring staff before they can deliver profits for the company. An interesting exercise to undertake to determine how much value management are creating for shareholders is to examine how much value is created for each dollar of earnings retained by the business and not paid as dividends. PWR has retained $47.3m of profits, or 47c per share, over the past 5 years and net profit is now more than $10m per annum higher. Importantly for shareholders, the market capitalisation of the business has grown by more than $800m, or $8.30 per share, without raising capital. For every dollar of profits that the company has retained they have created more than $17 in value for shareholders. That is an excellent outcome for shareholders. The push into aerospace and defence is now well and truly underway. From a standing start in 2020, revenue doubled to $21m in 2024 and is now 15% of total revenue. But further growth requires capital expenditure and bigger premises. Given the track record of creating value for shareholders, a flat year of profits while they transition to new premises and tool up for new projects is a small price to pay for the potential value that still remains ahead.

BSD Analysis:
The manager remains bullish on PWR despite the market's harsh reaction to guidance for flat profits in 2025, viewing the near-term margin pressure as necessary investment for long-term growth. The fund emphasizes PWR's exceptional capital allocation track record, having generated $17 of shareholder value for every dollar of retained earnings over five years without raising external capital. The aerospace and defense segment has grown from zero to $21 million (15% of revenue) since 2020, demonstrating management's ability to successfully diversify beyond automotive cooling solutions. The manager appreciates management's "race ready" philosophy, understanding that winning aerospace and defense contracts requires upfront investment in facilities, equipment, and personnel before revenue materialization. The transition to a larger manufacturing facility represents a strategic investment to capture future growth opportunities rather than a fundamental business weakness. With the company maintaining high returns on equity around 25% and strong revenue growth of 17%, the manager views the temporary profit plateau as a calculated trade-off for positioning the business for accelerated growth beyond 2026.

Pitch Summary:
Lovisa became our largest holding in the fund due to price movements during the quarter. This report also marks the 5th anniversary of our ownership, so I have provided the table below to highlight how much the business has grown during that period. Not only has revenue, profits and store growth more than doubled, they have also improved revenue per store. And they have achieved this without raising any capital from shareholders. For the latest year revenue was up 17% and net profit was up 21% to $82.4m. Surprisingly the company increased the dividend by 26% to 87cents. The company added 99 stores to its network and expanded into the Ireland, China and Vietnam markets. However, same-store sales growth was negative, the cost of doing business was higher, and the store rollout was slower than expected. Market commentators were particularly disappointed that a store rollout program in China was not initiated with the company opening just the one store in Guangzhou, a city of 14 million people close to Hong Kong. Despite its double-digit growth, this was something of a consolidation year for Lovisa, particularly in the USA where it only added 17 stores, down from 62 the previous year, while they commissioned a new warehouse in Ohio. The USA is now the company's largest market and previously these stores had been serviced from China. The company stated this warehouse will 'provide capacity to support significant future growth across the region'. The company has entered the Chinese market with a store in Guangzhou and Chairman, Brett Blundy, stated at last year's Annual General Meeting they will not open new stores until they are confident the store format works in this market. Slower growth in the USA and China are sensible moves that should maintain sustainable growth, rather than chasing growth for growth's sake. And as the table above shows this is a company that has delivered outstanding results for its shareholders. Retailers that have expanded quickly and stumbled are commonplace. Opening stores is not a unique skill, opening stores in the right place with the right business model is. For businesses going slow in order to go fast is sometimes best.

BSD Analysis:
The manager maintains a bullish stance on Lovisa despite near-term headwinds, emphasizing the company's exceptional five-year track record of doubling revenue, profits, and store count while improving revenue per store without raising capital. The fund appreciates management's disciplined approach to international expansion, particularly the cautious rollout in China and the strategic warehouse investment in Ohio to support future US growth. While same-store sales declined and costs increased in FY2024, the manager views this as a natural consolidation phase for a rapidly expanding retailer. The 21% profit growth and 26% dividend increase demonstrate underlying business strength. The manager contrasts Lovisa's measured expansion strategy with retailers that have stumbled through aggressive growth, highlighting the importance of sustainable store rollout over growth for growth's sake. This patient approach to market entry, particularly in China where only one test store was opened, reflects management's commitment to long-term value creation over short-term metrics.

Pitch Summary:
Novo Nordisk: Whilst we remain convinced in the GLP-1 story in obesity and adjacent cardio-metabolic areas, we note that the pipeline is heavily concentrated in few molecules. Adjusting position ahead of CagriSema readout later in the year.

BSD Analysis:
Lansdowne maintains conviction in Novo Nordisk's GLP-1 franchise for obesity and cardiometabolic indications while expressing concern about pipeline concentration risk. The fund remains positive on the broader GLP-1 therapeutic category and its applications beyond diabetes into obesity and related metabolic disorders. However, Lansdowne identifies a key risk in the company's heavy reliance on a limited number of molecules within its development pipeline. This concentration creates potential vulnerability if key programs face setbacks or competitive pressure. The fund is adjusting its position size ahead of the CagriSema readout, suggesting a risk management approach to a binary clinical catalyst. The positioning reflects balanced exposure to the GLP-1 opportunity while managing concentration risk. Lansdowne appears to be taking profits or reducing exposure ahead of a potentially market-moving data readout that could significantly impact the investment thesis.

Pitch Summary:
Michelin: Continued volume weakness with further deterioration in leading indicators for Q3 (e.g. OEM sales weakness, weaker BEV sales) leads us to take a more cautious view on Michelin's earnings power over 2024, and 2025 with 3-5% downgrades to consensus likely. Medium term, we remain appreciative of Michelin's technological and brand superiority over its peers, especially as structural drive towards sustainability (increased penetration of EVs, Europe sustainable raw materials sourcing and wear particle regulation) for the industry is likely to further expand Michelin's competitive advantage over peers. We continue to monitor for signs of volume declines stabilising.

BSD Analysis:
Lansdowne adopts a cautious near-term stance on Michelin while maintaining long-term conviction in the company's competitive positioning. The fund cites continued volume weakness and deteriorating Q3 leading indicators, including OEM sales weakness and softer BEV sales, as reasons for earnings downgrades. Lansdowne expects 3-5% consensus earnings downgrades for 2024-2025, reflecting challenging operating conditions. However, the medium-term thesis remains intact, emphasizing Michelin's technological and brand superiority over competitors. The fund believes structural sustainability trends, including EV penetration, sustainable raw materials sourcing, and wear particle regulation, will further expand Michelin's competitive moat. This regulatory and technological evolution should benefit premium tire manufacturers with superior R&D capabilities. Lansdowne continues monitoring for volume stabilization signals while maintaining exposure to long-term industry transformation themes.

Pitch Summary:
Segro: The UK logistics demand-supply dynamic is improving structurally, with speculative construction starts down 30-40% over the last 12 months, stabilising demand environment post unwind of Covid excess space absorption, and peaking vacancy rates. Consequently, we think with its tier-1 assets in the UK and Continental Europe, Segro can report sustained 3-4% ERV growth even in a normalised inflation environment, which when coupled with the significant reversion opportunity still in the portfolio plus increasingly attractive development opportunities (Yield on Cost currently 7-8%) positions the company to potentially deliver low-double digit TSR even without assuming any yield compression from current elevated levels.

BSD Analysis:
Lansdowne presents a compelling bull case for Segro based on improving UK logistics fundamentals and the company's premium asset portfolio. The fund highlights structural improvements in demand-supply dynamics, with speculative construction starts declining 30-40% over the past year and vacancy rates peaking. Post-COVID excess space absorption has stabilized, creating a more balanced market environment. Lansdowne projects sustained 3-4% ERV growth even in normalized inflation conditions, driven by Segro's tier-1 UK and Continental European assets. The investment thesis incorporates significant portfolio reversion opportunities and attractive development prospects yielding 7-8% on cost. The fund anticipates potential low-double digit total shareholder returns without requiring yield compression from current elevated levels. This represents confidence in Segro's ability to capitalize on improving logistics real estate fundamentals.

Pitch Summary:
Ferrovial: Ferrovial is a new position we added to this quarter. Ferrovial is a first mover in the US managed lane market leaving it well positioned to most effectively evaluate and thus target the most attractive amongst a swathe of upcoming tenders. Understanding of traffic flow and how this interplays with various interconnection configurations is a critical advantage, as is a toll-road specific in-house construction division and well-established relations across the US with key Departments of Transport (DOTs) and large sub-contractors. Our differentiated analysis suggests that across all of Ferrovial's toll road assets, tariffs are at a discount to Willingness-To-Pay thus pricing runway potentially remains significant. We believe this latent pricing power provides upside optionality to our base case.

BSD Analysis:
Lansdowne initiated a new position in Ferrovial during Q3, highlighting the company's first-mover advantage in the US managed lane market. The investment thesis centers on Ferrovial's superior positioning to evaluate and win attractive upcoming infrastructure tenders. Key competitive advantages include deep understanding of traffic flow dynamics, interconnection configurations, and an in-house toll-road construction division. The fund emphasizes Ferrovial's established relationships with US Departments of Transport and major subcontractors as strategic moats. Lansdowne's proprietary analysis reveals that current toll road tariffs trade at a discount to Willingness-To-Pay metrics, suggesting significant pricing power runway. This latent pricing optionality provides upside beyond the base case investment scenario. The pitch reflects confidence in Ferrovial's ability to capitalize on US infrastructure spending trends.

Pitch Summary:
Sika: The continued modest improvement in growth and market share gains in tough end markets can set the business up well to recover from catch-up in renovation and refurbishment spending in 2025 and beyond. We believe that at current prices, the stock is attractively valued given structural growth and high returns on offer.

BSD Analysis:
Lansdowne maintains a bullish stance on Sika, highlighting the company's resilient performance in challenging market conditions. The fund manager emphasizes Sika's ability to gain market share despite tough end markets, positioning the company for a recovery cycle. The thesis centers on anticipated catch-up spending in renovation and refurbishment activities expected in 2025 and beyond. Lansdowne views the current valuation as attractive relative to Sika's structural growth prospects and high return characteristics. The investment case appears to be based on cyclical recovery potential combined with the company's competitive positioning. The fund sees Sika as well-positioned to benefit from improving construction market dynamics. This represents a value-oriented approach to a quality industrial company with defensive characteristics.

Pitch Summary:
Founded in 1837 by Thierry Hermès, the business began as a harness and saddle workshop in Paris, catering to the city's elite, coinciding with the modernisation of Paris' avenues where nobles flaunted their wealth on carriages. As automobiles replaced horses, the company's focus shifted to leather bags and accessories. The 20th century saw the introduction of Hermès' most iconic products, including the Birkin bag, named after Jane Birkin, and the Kelly bag, named after Grace Kelly. Despite the challenges of potential takeovers, Hermès remained a family-owned business, with the 6th generation maintaining the leadership of the company to this day, ensuring its legacy of craftsmanship continues. The essence of luxury lies in both desirability and exclusivity, yet this creates a paradox: the more desirable a brand becomes, the more it sells but the more it sells, the less exclusive it becomes. We believe the uniqueness of Hermès lies in its unparalleled ability to address this dilemma by carefully managing the tension between demand creation and supply restriction. This fine balance sets Hermès apart from its luxury peers, allowing it to maintain both desirability and exclusivity better than any other luxury brand. Desirability is embodied in the economics of its iconic handbags, the Birkin and Kelly. On the secondary market, a used Birkin or Kelly typically sells for 1.5 times its retail price, while a brand-new one can fetch up to 2 times its original cost. The vast majority of the most expensive handbags ever sold at auction are Hermès bags, often commanding several hundred thousand dollars. Exclusivity is not merely a function of price – it extends into the purchasing experience. Even customers who can afford a Birkin or Kelly are not guaranteed the opportunity to buy one. Access to these iconic items requires a commitment to the brand which goes beyond wealth alone. The process involves becoming a loyal Hermès customer by building a purchase history across various product categories. Only after this step, can the customer join an informal waiting list, which can span over a year before they are offered the chance to purchase their first Birkin or Kelly. This unique approach to desirability and exclusivity is evident in Hermès' unconventional marketing practices. Unlike its competitors, most of which spend over 10% of their revenue on advertising, Hermès allocates less than 5%, focusing instead on maintaining a structural undersupply of its most desirable products. The company's real marketing investment lies in the opportunity cost of deliberately limiting production. For instance, in the early 2010s, Hermès once halted the production and destroyed the inventory of a bag that had become too popular in Japan, reflecting this commitment to scarcity. This undersupply of products is also a function of the company's production process, which is nearly impossible to replicate at scale. With more than 5,000 France-based saddle leather workers, each undergoes two years of training before starting in a workshop and typically an additional three years before they are allowed to work on Birkin or Kelly handbags. This extensive training cultivates a level of craftsmanship that is rare and highly specialised. Each Birkin or Kelly takes about 30 hours to make, with a single artisan typically dedicating two weeks to its production. We believe the recent de-rating in the luxury sector has created an opportune moment to invest in Hermès, initiating our position following significant multiple compression and approaching a multi-year low in relative valuation. In our view, Hermès' elevated multiple is a reflection of its untapped earnings potential, particularly when factoring in the structural undersupply of Birkin and Kelly bags. Factoring this in, we estimate that Hermès' multiple could be nearly half of its current level, aligning more closely with that of its luxury peers. We believe Hermès consistently holds close to a year of demand visibility for its iconic handbags, along with considerable latent pricing power. This demand buffer, coupled with its elite customer base, reinforces the brand's structural resilience and predictability. Given these factors, we think Hermès offers a compelling opportunity to enhance our luxury exposure and believe the company's unmatched ability to combine desirability with exclusivity ensures it will continue to be the pinnacle of luxury for generations to come.

BSD Analysis:
Stenham presents an extensive bull case for Hermès as a new position, emphasizing the company's unique ability to balance luxury's inherent paradox between desirability and exclusivity. The manager highlights Hermès' structural competitive advantages including deliberate supply restriction, with Birkin and Kelly bags selling for 1.5-2x retail price on secondary markets. The investment thesis centers on the company's irreplicable production process requiring 5+ years of artisan training and 30 hours per bag manufacturing time. Stenham views the recent luxury sector de-rating as creating an attractive entry point at multi-year low relative valuations. The fund estimates Hermès' multiple could compress to half current levels when factoring in structural undersupply dynamics. Key investment drivers include nearly one year of demand visibility, significant latent pricing power, and an elite customer base providing structural resilience. The manager believes Hermès' family ownership and commitment to craftsmanship creates sustainable competitive moats that will maintain its luxury leadership position.

Pitch Summary:
Adyen rallied close to 12% following the publication of their H1 2024 results, which reflected the continued acceleration in growth of the business. We have been encouraged by Adyen's execution since the publication of their H1 2023 results last year, where investors lost confidence in the outlook for the company amid escalating competitive pressures, primarily from US payments peer PayPal. This has been reflected in the share price recovery we have seen with Adyen outperforming peers in the payments space by almost 2x since then. The management team's commitment to not cut pricing in order to regain market share, but instead focus on delivering a superior value proposition to customers, has been evidenced through a string of large customer wins including luxury retailer Prada, digital wallet business Cash App, US grocery service Instacart, and many others. Moreover, competitive pressures from PayPal have waned as their new management has changed the strategic direction of the company, emphasising profitable growth rather than growth at any cost. This has led to Adyen increasing their volumes at a growth rate over 2x that of PayPal's competing business more recently. The outlook for Adyen remains positive, as the company's significant workforce expansion over 2022 and 2023 is expected to drive continued market share gains and growth re-acceleration from 2025 onwards. In addition, as the company's hiring cycle concludes, we should see material margin improvement take shape, helping the company deliver a 24% growth CAGR in EBITDA and 23% growth CAGR in free cash flow per share over the next few years. The market is currently ascribing a multiple of ~1x the company's forward growth rate, or ~25x EBITDA, which we view as attractive given the scarcity of businesses with similar fundamental quality. Adyen is one of only twenty developed market companies in our total investable universe expected to grow revenues above a 20% CAGR over the next 3 years while exceeding 50% EBITDA margins.

BSD Analysis:
Stenham presents a compelling bull case for Adyen following strong H1 2024 results that demonstrated accelerated business growth. The manager highlights Adyen's strategic discipline in maintaining pricing power rather than competing on price, which has resulted in significant customer wins including Prada, Cash App, and Instacart. The thesis centers on reduced competitive pressure from PayPal's strategic pivot and Adyen's superior execution driving market share gains. The fund expects material margin expansion as the company's hiring cycle concludes, projecting 24% EBITDA CAGR and 23% free cash flow per share CAGR. At ~25x EBITDA, the manager views the valuation as attractive for a rare business combining 20%+ revenue growth with 50%+ EBITDA margins. The investment case relies on Adyen's workforce expansion in 2022-2023 driving growth re-acceleration from 2025 onwards. This represents a high-quality growth story with improving competitive dynamics and margin expansion potential.

Pitch Summary:
D'Ieteren was the most significant detractor shaving -106bps from returns. We discuss this below having materially added to the position such that it is now an 8.2% weight. If at the start of the month we had been told that D'Ieteren would report a healthy set of half year results and announce a €74 per share extraordinary dividend, our best guess would not have been for the stock to be the largest detractor – but that is exactly what happened. In early September, D'Ieteren announced that there was to be a reorganisation of the controlling family's shareholding. Nayarit (the vehicle of Nicholas D'Ieteren) is to acquire a 16.7% stake from SPDG (the vehicle of Olivier Périer) at €223.75 per share (the then market price). Concurrently, and to help fund this, D'Ieteren announced their intention to pay a special dividend of €74 per share. At current prices, this equates to a yield of 39%. The dividend will principally be funded via a €3.8bn dividend recapitalisation at Belron (of which €1.9bn will flow to D'Ieteren), as well as a new €1bn debt facility at the holding company level and cash on hand. We view this as highly positive – receiving a large portion of your market cap back at NAV is an inherently good thing and investors suggesting otherwise are missing the wood for the trees. It is our understanding that tax-sensitive Belgian retail investors have been sellers of the shares. In turn, price has led narrative and various negative views have emerged. Some investors have raised concerns about supposed governance failures in so far as the controlling family's interests are leading to taxable events in the form of the dividend. Not only are taxes a fact of life, but we believe such a view misguidedly focuses on the wrong thing. Indeed, we believe the family have handled the succession between generations (now into the seventh) rather well, and the payment of a dividend to all shareholders and resulting long-term stability in ownership is something to be celebrated. Other investors have queried the increased debt at Belron, which will rise to c.5.5x EBITDA. Yes, this is high by public market standards, but the company is a prodigious cash generator and has a track record of deleveraging following previous dividends. Moreover, the dividend recapitalisation is enterprise value neutral for Belron and – in our view – most likely warrants a tighter, not wider – "fair" level of holding company discount. D'Ieteren has now fallen -16% from the pre-announcement level, such the capital return now equates to 39% of D'Ieteren's market cap (gross of tax). On an ex-dividend basis D'Ieteren is trading at an implied -54% discount to NAV. We believe this to be a highly attractive valuation and have correspondingly increased our position by +57% over the last month such that D'Ieteren is now an 8.2% weight. This will of course naturally reduce as the dividend is paid, with AGT expected to receive dividends, net of tax, of c. £35m. This alone equates to nearly 1.5x AGT's prior year annual dividend income.

BSD Analysis:
AVI Global Trust significantly increased their D'Ieteren position to 8.2% following a market overreaction to the company's €74 per share special dividend announcement. The manager views the 39% dividend yield as highly attractive, funded through a €3.8bn dividend recapitalization at subsidiary Belron and new debt facilities. Despite concerns about increased leverage at Belron reaching 5.5x EBITDA, AVI emphasizes the company's strong cash generation and historical deleveraging track record. The fund dismisses governance concerns regarding the controlling family's shareholding reorganization, viewing the seventh-generation succession as well-managed. With D'Ieteren trading at a -54% discount to NAV on an ex-dividend basis after falling 16% post-announcement, AVI considers this a compelling valuation opportunity. The position increase of 57% demonstrates strong conviction in the discount-to-NAV thesis. Tax-sensitive Belgian retail selling has created what AVI views as a temporary pricing inefficiency in an otherwise fundamentally sound investment.

Pitch Summary:
Fox Corporation (Fox) is one of the value-oriented stocks in the Fund's Top 10. While regarded as a traditional media company, it has managed to outperform many of its traditional media peers. Through a combination of focusing on its core strengths and shrewd strategic and investment decisions, the company is reinventing itself as a modern entertainment powerhouse. We believe that the market is not rewarding these efforts. Traditional media operations Fox is still reliant on a cable industry which is transitioning from an all-in-one big bundle offering to a more dynamic cable/streaming hybrid model. Customers have increased their consumption of streaming services as they prefer to consume more content on-demand. Customers have also become frustrated with media producers putting content exclusively on their newly created direct-to-consumer (DTC) platforms. This has created complexity at a greater cost which lowered the value proposition of the big bundle. In retaliation, customers have "cut the cord". The industry appears to have recognized this with a number of ad-supported DTC services now being included in cable video packages. This is expected to improve the value proposition of the bundle as being a one-stop-shop for all one's video demands at a reasonable cost. Fox foresaw the challenges of linear television, and the costs associated with transitioning to streaming. Fox therefore decided to focus on live sports and live news. These are inherently consumed in a linear fashion—whether on cable or streaming—and are therefore largely immune to the disruption impacting entertainment content. As a result, Fox sold 21st Century (including its movie studio and cable channels) to Disney in 2019 at a very attractive price. The slimmed down Fox does have a very strong position in live news (Fox News) and live sports (Fox Sports). Fox News has a leading share in the cable news market, with large audiences across all political divides. Fox Sports also has a strong content offering. Over the past few years Fox has entered into valuable long term broadcasting rights agreements with the NFL, MLB, Big10 (College Football) and NASCAR. These provide a strong foundation to their offering over the next few years as sports has continued to draw in significant audiences and maintained its cultural relevance. As a result, and despite the challenges of cable television, Fox has been able to obtain price increases for its news and sports channels that have more than offset the decline in cable subscribers. As the media industry comes to terms with changes to content delivery and bundling, we believe that Fox's content is likely to form a core part of most offerings. As time passes, these traditional media operations are expected to be supported by two relatively new, but key, parts of the company. Tubi While streaming losses have accumulated for many traditional media companies, Fox has generated significant value for shareholders. In 2013, a minority investment was made into the fledgling Roku. At the onset of the pandemic, Fox sold its 5% stake in Roku for around $350m which it used to acquire Tubi for $440m. Tubi is Fox's fast-growing advertising-video-on-demand (AVOD) platform. The platform has a large library of content with over 240,000 movies and TV shows. As the pandemic set in, engagement exploded and unlike some other stay-at-home stock beneficiaries, Tubi's user base has been very resilient. Tubi's cost per thousand impressions for advertisers appears low when compared to arguably inferior advertising mediums, suggesting room for growth. This is in addition to the wider connected TV market attracting a greater share of advertising spend through superior metric tracking, enhanced targeting and higher returns on investment. It was reported in February 2023 that an offer of $2b was received for Tubi which management turned down—highlighting both management's strong track record as well as their long-term conviction in the platform and market. Venu Venu was recently announced as the new name of the sports streaming joint venture between Fox, Disney and Warner Bros. Discovery. The platform is expected to bring together some of the best sporting rights in the US under one roof. While a recent injunction has temporarily prevented Venu from launching, creating a delay in its expected debut, we are optimistic that the issue will be resolved. Fox's management has long resisted the temptation to move any cable-exclusive content onto a DTC service, holding out for a business model that made both financial and consumer sense. Now they have thrown their hat into the ring from a sports perspective and the timing looks right. Both Fox and Disney have locked up long term rights for the most important US sports content, namely the NFL (including the 2025 and 2027 Superbowls), the 2026 FIFA World Cup (to be held in North America), and other valuable sports rights.Venu is expected to appeal to a large portion of the cord-cutter or cord-never sports fans in the US. Over the past 5 fiscal years Fox has generated $8.7b in free cash flow, representing around half its current market value. With the added benefit of growth from Tubi and Venu, we believe the company is well positioned to increase this figure over the next 5 years. Investments and other assets Further adding to Fox's attractiveness, are a number of non-operating investments sitting within the group. On the back of the 2018 US Supreme Court decision to strike down the federal ban on sports betting, Fox entered into an agreement with The Stars Group (an experienced online sports betting company). The agreement led to the creation of the FOX Bet joint venture while Fox took a 4.99% stake in the company for $236m and the right to buy a 50% stake in the company's US business within 10 years. As the pandemic struck and the sports betting and iGaming market rapidly developed, The Stars Group (including FOX Bet) was acquired by Flutter Entertainment (Flutter). As part of the acquisition, Fox's management came to an agreement with Flutter that Fox would receive an option to acquire 18.6% of FanDuel (one of the largest sports betting platforms) in addition to a minority stake in Flutter. After going through arbitration, FanDuel's option exercise price was set based on a $20b value for the whole of FanDuel (escalating at 5% per annum). FanDuel has a strong position in the online betting market, and along with DraftKings (another of the fund's holdings) the two companies are expected to take a majority share of the market. As of today, Fox's minority holding in Flutter is valued at over $1b and management believe Fox's FanDuel option is worth $2.2b. Already these investments have appreciated over 13 times the value of the 2019 investment and are equivalent to almost a fifth of Fox's market value. Given the strong growth seen to date and continued tailwinds expected going forward, we believe these investments remain highly attractive and could become substantially more valuable to Fox over time. Fox has two other meaningful, but often overlooked assets. Firstly, the Fox lot, situated on 50 acres in the heart of Los Angeles, is a valuable trophy asset that was retained by Fox following the sale of 21st Century to Disney. The Fox studio, previously known as Movietone City, opened in October 1928 and the city grew around the lot over many decades. Recent sales of studio lots in Hollywood suggest a multi-billion dollar valuation for the asset. The second asset is less tangible—but no less valuable. On completion of the 21st Century sale, Fox obtained a tax basis on its assets equal to their respective fair market values. The result of this is an additional annual tax deduction of $1.5b per annum over 15 years, giving Fox a considerably lower cash tax rate—and higher free cash flow. Taken together, we believe that Fox's online betting investments, property assets and the value of future cash tax benefits represent almost half of Fox's current market value. Management and capital allocation As highlighted above, management have made a number of good decisions: selling 21st Century, an early-stage Roku investment transferred into Tubi, not entering the streaming market without a high conviction business model and early investments into US online betting. Management have also shown restraint with the company's balance sheet. Fox's debt is relatively modest, long-dated and investment grade (a rarity in the media industry). In addition, management has taken advantage of the undervaluation of the company and aggressively repurchased shares. Over the past 5 years, 65% of free cash flows have been invested in the company's shares which has reduced the number of shares outstanding by 25%. Summary With a rapidly growing AVOD platform, the launch of an incremental in-demand sports streaming bundle and a highly cash generative traditional media business focused on live news and live sports, we expect Fox to grow its free cash flow meaningfully over time. Combining this with the significant investments and other assets, we believe it is trading at an extremely attractive valuation.

BSD Analysis:
Contrarius presents a compelling bull case for Fox Corporation, viewing it as an undervalued media transformation story trading at an attractive valuation. The manager's thesis centers on Fox's strategic focus on live sports and news content, which are inherently linear and immune to streaming disruption, differentiating it from struggling traditional media peers. The acquisition of Tubi for $440m using proceeds from a Roku stake sale demonstrates shrewd capital allocation, with the AVOD platform showing resilient user growth and significant monetization potential. Fox's sports betting investments through Flutter Entertainment and FanDuel options are valued at over $3b, representing nearly 20% of the company's market cap and providing substantial optionality. The upcoming Venu sports streaming joint venture with Disney and Warner Bros Discovery positions Fox to capture cord-cutting sports fans while leveraging valuable NFL, MLB, and FIFA World Cup rights. Management's disciplined approach includes maintaining an investment-grade balance sheet while aggressively repurchasing 25% of shares outstanding over five years. With $8.7b in free cash flow generation over the past five years representing half the current market value, Contrarius expects meaningful cash flow growth from Tubi expansion and Venu launch, supported by hidden assets including valuable Los Angeles real estate and $1.5b annual tax benefits.

Pitch Summary:
Azelis Group is a global pure-play specialty chemical distributor, offering technical and application expertise to its customers on its product portfolio of unique low-volume, high-impact chemistries. The industry is highly fragmented with few companies able to offer the level of differentiated value-added services required to effectively bring manufacturer products to market. Azelis' position as a global player with a robust network across industries has facilitated sticky long-term relationships with top-tier manufacturers. We believe the company will compound earnings over time as it gains share in a growing end market with continued manufacturer outsourcing, attractive operating leverage, and a long tail of accretive M&A opportunities. Macro-economic weakness, post-Covid-19 benefit normalization, and private equity ownership overhangs have created an opportunity to invest in this high-quality stock at a discount to peers.

BSD Analysis:
The managers present a compelling bull case for Azelis Group as a pure-play specialty chemicals distributor with significant competitive advantages. The investment thesis rests on the company's differentiated value-added services in a highly fragmented industry where few competitors can match their technical expertise. Their global network and sticky relationships with top-tier manufacturers provide a strong moat and recurring revenue base. The managers see multiple growth drivers including market share gains, continued manufacturer outsourcing trends, operating leverage, and accretive M&A opportunities. They view current market conditions as creating an attractive entry point, with macro weakness, post-COVID normalization, and private equity overhangs depressing the valuation relative to peers. This appears to be a high-conviction position where temporary market dislocations have created an opportunity to invest in a quality franchise with strong structural growth prospects at a discount.

Pitch Summary:
Megacable Holdings was the top detractor during the quarter. The Mexico-headquartered cable company reported disappointing second-quarter results, in our view, with earnings before interest, tax, depreciation and amortization missing consensus expectations and underperforming our full-year estimates. A key issue was customer churn, which management emphasized has peaked and subscriber growth should inflect upwards in the coming quarters. Additionally, Mexican equities were negatively impacted during the quarter due to investor concerns of the newly elected president. We continue to monitor the situation closely. Positively, capital expenditures are decreasing, and management emphasized that generating free cash flow is now a top priority as they do not foresee any significant investment projects in the near term.

BSD Analysis:
The managers express a cautious but not entirely negative view on Megacable Holdings following disappointing Q2 results that missed both consensus and their internal estimates. The primary concern centers on customer churn, though management indicates this has peaked with subscriber growth expected to recover. The investment case is complicated by broader Mexican equity market weakness due to political uncertainty surrounding the new president. However, the managers identify positive developments including reduced capital expenditures and management's renewed focus on free cash flow generation. The absence of significant near-term investment projects should support cash flow improvement. While maintaining the position, the managers are closely monitoring both company-specific execution and broader Mexican political developments. This appears to be a 'wait and see' approach where they're giving management time to execute the turnaround while political uncertainties resolve.

Pitch Summary:
St. James's Place was the top contributor during the quarter. After several months of negative news flow relating to Consumer Duty regulation fee changes and levied penalties from the Financial Conduct Authority, the U.K. wealth manager's stock price rose materially. This occurred based on first half of 2024 earnings that included a reaffirmed view of the near-term fees and penalty provisioning for the business as well as medium-term ambitions to double company earnings through a combination of a strong cost-savings program and gradual migration of non-fee generating gestation assets to fee-paying assets. We met with CEO Mark Fitzpatrick after the earnings release and found the company's outlook credible. We have also spoken to several large St. James's Place wealth management practices to gain conviction on the company's growth ambitions. In our view, its strong growth prospects after its fee reset, low valuation and strong wealth management franchise make the business an attractive investment.

BSD Analysis:
The managers maintain a bullish stance on St. James's Place despite recent regulatory headwinds from Consumer Duty changes and FCA penalties. The investment thesis centers on the company's ambitious plan to double earnings through operational efficiency and asset migration from non-fee generating to fee-paying status. Management's direct engagement with CEO Mark Fitzpatrick and wealth management practices reinforces their conviction in the turnaround strategy. The fund views the regulatory fee reset as creating an attractive entry point, with the stock trading at a low valuation relative to its wealth management franchise quality. The combination of strong growth prospects, cost-saving initiatives, and the company's established market position supports the bullish outlook. This appears to be a classic value play where temporary regulatory pressures have created an opportunity to invest in a quality franchise at a discount.