Investment Pitches

Pitch Summary:
Our other significant detractor this year has been Eurofins Scientific, which was attacked in a short-seller report during the quarter and lost a quarter of its value. This after a shaky couple of years in which Eurofins saw pricing pressure on its core diagnostic testing business in France. The short-seller report made some justified criticisms: Eurofins for years has had too many transactions with its founder and CEO, Dr. Gilles Martin, who owns some laboratory facilities personally and leases them to the company. These are disclosed, including the levels of rent the company pays to Dr. Martin, and are not new. And for 25 years these relationships did not prevent Eurofins from being one of the best performing stocks in Europe. I believe the report was riddled with dubious assertions. Among other things, the short sellers did not seem to understand that Eurofins is a laboratory testing business and not an inspection and certification business. So, their report made claims about the company's productivity metrics being suspiciously better than its peers – because it identified the wrong peer group. Eurofins won't announce second quarter results until late July, but we expect to hear about healthy testing volumes, stronger margins and a sizable stock buyback.

BSD Analysis:
The manager maintains a bullish stance on Eurofins Scientific despite a 25% decline following a short-seller attack. While acknowledging legitimate governance concerns regarding related-party transactions with founder-CEO Dr. Gilles Martin, the manager argues these issues are disclosed and haven't impaired the company's 25-year track record as one of Europe's best performers. The manager dismisses the short-seller report as fundamentally flawed, noting the authors misclassified Eurofins as an inspection/certification business rather than a laboratory testing company, leading to inappropriate peer comparisons. The manager expects upcoming Q2 results to show healthy testing volumes, margin improvement, and significant capital returns through buybacks. This represents a contrarian bet that the market overreacted to governance concerns while overlooking the underlying business fundamentals and recovery trajectory.

Pitch Summary:
On the negative side of the ledger, Five Below lost 49% of its value in the first half of the year, with most of the drop happening in the second quarter. Five Below sells low-priced merchandise to a wide demographic swath, but about half of its customers have household income of less than $50,000 a year. These folks have pulled back on spending. In addition, Five Below is one of many retailers battling a shoplifting problem as some cities have stopped prosecuting petty crime. Store profit margins have shrunk as thefts have risen, but the double-whammy is that sales also decline when retailers take steps to make it harder to steal, such as putting more items behind lock and key. I believe Five Below is having some success reducing theft, but that may be coming at the expense of lower sales. As I finished this letter, Five Below announced that it has parted ways with long-time CEO Joel Anderson amid continuing sluggish results. The stock took another leg down in valuation from already depressed levels. Clearly, the company is struggling and I will be reexamining our thesis for owning it. Over the past five years, Five Below has grown sales by 18% annually and net earnings by 15%, as theft compressed profit margins. That's still a level of growth most businesses aspire to reach. The CEO job ought to be one of the more desirable ones in retail.

BSD Analysis:
The manager presents a bearish view on Five Below following a 49% decline in the first half of 2024. The company faces significant headwinds from reduced consumer spending among its core demographic (households earning under $50,000) and rising theft issues that compress margins while also reducing sales when anti-theft measures are implemented. The recent departure of long-time CEO Joel Anderson amid sluggish results signals deeper operational challenges. Despite historical growth of 18% annual sales and 15% earnings growth over five years, the current environment of weakened low-income consumer spending and retail crime presents structural challenges. The manager acknowledges the need to reexamine the investment thesis, suggesting potential position reduction or exit. The combination of margin compression, sales headwinds, and leadership transition creates a challenging turnaround scenario.

Pitch Summary:
Pinduoduo (NYSE: PDD) is an online market place that is unlike anything we have ever seen before in terms of efficiency, viral growth and cut throat capitalism. PDD is growing so fast that a dedicated sell side analyst admitted in their latest quarterly report, which saw PDD grow revenue by 131% and net income by 202%, that it was likely the 'biggest beat' that they had ever seen in their career. Started in 2015, PDD's initial platform innovated 'team buying' via social media, whereby the more friends you added to a purchase, the lower the price would become. PDD turned their buyers into their marketers which not only dramatically lowered their customer acquisition cost but also rapidly increased the purchasing volumes they could offer merchants. Furthermore, in a move that's similar to TikTok, PDD leveraged its data to algorithmically adjust the product page to dramatically increase user engagement and retention. Instead of just searching for a product, the app had an uncanny ability to show consumers what they were most likely to buy, even if they didn't know they needed it. When PDD says they remain committed to providing customers with the lowest cost, they mean it. Instead of just promising a lowest price guarantee like Western retailers, PDD employs an automatic price tracking system that instantly lowers a seller's price if it is found to be cheaper on another platform. Merchants tolerate such brutal tactics due to the large amount of volume that PDD offers with its approximately one billion active users. In less then a decade, PDD has grown into the second largest online retailer in China. This is a stunning accomplishment given Alibaba's strong lead in what is the most mature e-commerce market globally. PDD has an incredibly fast moving, flat management structure, with US$35bn in sales and just 17,000 employees, it's staying lean as it grows; its revenue per employee metric has quadrupled in the past five years. What's most interesting for Western investors was the September 2022 launch of Temu which was PDD's move into international markets. Temu's initial growth hack in the US was by shipping directly from China and keeping orders under $800, it could avoid US tariffs that bulk semi-hosted peers like Amazon had to pay. A January 2023 Bernstein analysis showed a median 32% price savings on Temu vs Amazon for nearly identical items. The app went viral after Temu's 2023 Super Bowl ad which told Americans that they could 'shop like a billionaire', a message that resonated strongly with lower income consumers. Similar to PDD's initial China strategy, the app offered discounts for bringing on new users. The company continued to invest into their Temu fly-wheel with an estimated $2bn in Facebook ads. Temu quickly became the most downloaded app in the US in 2023, a position it retains to this day. The marketing dollars appear well spent as Temu's customer retention is double that of Walmart, Target and even direct Chinese peers like Shein. Temu wasn't the first to identify the direct import loophole, (Shein and Wish had been taking advantage of it for over a decade), but Temu was able to execute best and became the biggest online discount retailer in the US in less than a year. Although the initial advertising campaign and generous subsidies at Temu meant that PDD was running their international operations at a loss, most analysts now believe the company is breaking even on a gross profit basis. There are certainly risks to owning a Chinese stock, especially as both US political candidates seem all but certain to significantly increase Chinese tariffs and even a potential Temu ban is not without question. We would counter that any tariff increase will be applied to all retailers, including Amazon. Secondly, Temu has been aggressively moving to a semi-hosted model (similar to Amazon) that does not rely on the tariff loophole and will greatly decrease shipping times. Interestingly, Amazon is now trying to copy Temu's direct shipping strategy but we believe they will struggle to be as efficient as PDD and their consumers, trained for years to expect overnight shipping will be frustrated by the more than week long delivery times. Finally, although the US is Temu's largest market, it is no longer the majority of its revenue and ultimately at today's valuation and given the value of PDD's aggressively expanding China business, investors are receiving Temu's optionality at zero cost. As impressed as we are with the incredible execution of PDD, what made us willing to wade into the difficult waters of China was the incredible valuation of the shares. At the end of the second quarter and adjusting for current unrestricted cash, PDD was trading for just 8x 2025 GAAP estimates, with forecasted revenue growth of 29% and immense long term earnings potential as it increase its low ~6% take rate. While we are mindful of the risks, we view PDD as worthy of an appropriately sized position in the fund.

BSD Analysis:
Tidefall Capital presents a compelling bull case for PDD based on exceptional execution and attractive valuation despite geopolitical risks. The manager highlights PDD's innovative 'team buying' social commerce model that turned customers into marketers, dramatically reducing customer acquisition costs while driving viral growth. The company's algorithmic product recommendation system and automatic price tracking demonstrate technological sophistication that has enabled it to become China's second-largest e-commerce platform in under a decade. Temu's international expansion represents a significant growth catalyst, leveraging direct shipping from China to offer 32% price savings versus Amazon while achieving superior customer retention rates. The manager acknowledges tariff and regulatory risks but argues these are manageable given Temu's transition to a semi-hosted model and geographic diversification. At 8x 2025 earnings with 29% revenue growth and a low 6% take rate offering margin expansion potential, the valuation appears compelling. The investment thesis centers on PDD's operational excellence, international optionality, and deep value characteristics that justify the China risk premium.

Pitch Summary:
Afya stock price has suffered this year from reasons that aren't entirely clear. The business continues to execute well, Brazilian policy continues to be supportive of growth in the short, medium, and long term, and the Bertelesmann family continues to increase its stake, now at ~70% of shares outstanding. Importantly the Bertelsmann family bought ⅓ of the co-founder's class B stock, and ½ of the class A shares held by the founding family for $180mm on July 2nd. I believe the Bertelsmann family intends to take Afya private as the needs of the founding Esteves family and the cash flow of the Bertelsmann family office dictate. The Brazilian Reais has been weak this year, but the stock's decline is not commensurate with FX weakness and I believe the stock's weakness will be relatively short lived. Afya's stock too has been a beneficiary of the recent US economic data and interest rate cut speculation over the past few days.

BSD Analysis:
The manager sees Afya as an undervalued Brazilian medical education company with strong operational performance despite unexplained stock price weakness. The investment thesis centers on a potential take-private transaction by the Bertelsmann family, which recently increased its stake to approximately 70% through a $180 million purchase from founding shareholders. Supportive Brazilian policy for medical education growth provides a favorable regulatory backdrop across multiple time horizons. The manager believes current valuation doesn't reflect the company's execution quality or growth prospects, with currency weakness only partially explaining the stock's decline. Recent insider buying at significant scale suggests strategic intent beyond passive investment. The combination of operational excellence, regulatory tailwinds, and concentrated ownership by a strategic buyer creates multiple value drivers. Interest rate cut speculation has already begun benefiting the position, validating the manager's contrarian stance on this emerging market growth story.

Pitch Summary:
Green Plains has suffered from investor mismanagement, but appears to have found discipline in recent weeks. At an investor conference during the 2nd quarter, the Company created unnecessary uncertainty around timelines and economics for various efforts, and spoke carelessly about future plans. Two of the timelines they seemingly pushed out, they were able to execute on time, late in June/early July, and their base business has become much more profitable late in the second quarter. Corn is now unusually cheap across the futures curve and they should be able to ensure their operating costs are low, well into next year. This is extremely supportive for the business. But Green Plains committed several gaffes including mentioning that the advantage of a standalone company was the ability to issue stock - during a time when the company has a standstill agreement with an activist investor while it runs a strategic review process. Finally, the EPA passed rule making that was ultimately neutral for the company, but created confusion, and pushed out other rule making that will impact the company at the periphery, but creates uncertainty for other players in the industry. Our view continues to be that in a year, Green Plains' economic model will be strong, the stock is cheap, and that the expiration of the standstill agreement will result in either a new management team and/or the sale of the company at a much higher price in the second half of 2024, or early 2025.

BSD Analysis:
The manager views Green Plains as a turnaround story with significant upside potential despite recent management missteps and communication failures. The investment thesis relies on improving operational fundamentals, with the base business becoming more profitable in late Q2 and favorable corn pricing providing cost advantages through 2025. Key catalysts include the expiration of a standstill agreement with an activist investor, which could trigger management changes or a strategic sale at higher valuations. The manager acknowledges execution risks and regulatory uncertainty but believes the current valuation is attractive relative to the company's improving economics. The position represents a contrarian bet on operational improvement and potential corporate action. Recent delivery on previously delayed timelines suggests management is regaining credibility. The combination of cheap input costs, improving margins, and potential strategic alternatives creates multiple paths to value realization within the next 12-18 months.

Pitch Summary:
Builders First Source has suffered so far this year due to elevated mortgage rates that have dramatically weakened demand for new homes and renovations. The White Brook Insights piece published on housing the week of July 1st, is a good overview of the industry thesis on Builders First Source. In short, while the 2Q earnings report could be negative, I believe building will resume as the 30 year mortgage rate falls to less than 6.75% and the stock will perform well from here over the next 3 to 5 years as housing supply must still catch up with demand and require new homes to be built.

BSD Analysis:
The manager maintains a bullish stance on Builders First Source despite year-to-date underperformance driven by elevated mortgage rates suppressing new home construction and renovation activity. The investment thesis centers on a housing supply-demand imbalance that will require significant new construction once mortgage rates decline below 6.75%. While acknowledging near-term headwinds including potentially negative Q2 earnings, the manager expects a multi-year recovery cycle as housing demand normalizes. The position reflects a contrarian bet on the homebuilding supply chain during a cyclical downturn. The 3-5 year investment horizon suggests confidence in structural housing demand drivers. Recent interest rate cut speculation and small-cap rotation have provided early validation of the thesis. The manager's detailed housing industry analysis through White Brook Insights demonstrates deep sector expertise supporting this conviction play.

Pitch Summary:
GE does not have the reputation for being a company that has market power, a reinvestment opportunity, and a founder's mindset. However, during our research on portfolio company HEICO, we realized that there could be a hidden aerospace jewel sitting within GE. In this letter we aim to show that GE Aerospace does in fact satisfy all three of our investment criteria, continues to provide a compelling return opportunity, and therefore warrants being one of the largest positions in the fund. Founded in 1892, GE has one of the most storied histories in business. Under Jack Welch, GE grew from a ~$14bn market cap industrial company in 1981 to a $600bn high-flying conglomerate, before he retired in 2001. However, during the years of rapid growth the seeds were sown for a long and painful decline under the leadership of his successor Jeff Immelt. By the end of 2018 the company's market cap had declined by 88%. Immelt's successor, who became CEO in August 2017, was unable to halt the decline and was removed by the board in October 2018. At that point, GE had gone from being the world's most valuable company and embodiment of conglomerate success, to an over-levered collection of disparate businesses that needed to be broken up. The fall of GE was so dramatic that it was chronicled in Mann and Gryta's excellent book Lights Out: Pride, Delusion, and the Fall of General Electric. The short version is that GE owned several strong cash generative assets with market leading positions. However, the cash was reinvested at very low and frequently negative returns. Furthermore, Welch created and Immelt perpetuated a culture that was so focused on short-term financial results that the company increasingly traded off long-term free cash flow growth for quarterly EPS. This was predominantly achieved through an ever-increasing financial arm, called GE Capital, which at one point contributed over 50% of EPS. GE Capital was so poorly managed that it had to be bailed out in 2008 due to the overly aggressive use of commercial paper funding and an ill-advised move into subprime mortgages. The subprime mortgage failings also led to a $1.5bn settlement with the DOJ in 2019. Other problems included underpricing long-dated care insurance that resulted in a ~$15bn increase to expected liabilities in 2017 and a subsequent $200m fine from the SEC for accounting disclosure violations. Unfortunately, the problems were not limited to GE Capital. For example, in their Power division they built a large gas turbine business on long-dated service contracts that had positive earnings but low to negative free cash flow. Such decisions and the misguided 2015 acquisition of Alstom's energy business resulted in a $23bn write down in 2018. In April 2018, Larry Culp joined the board of GE, and after turning down the job of CEO twice, he ultimately accepted the offer in October 2018. Culp was the CEO of Danaher from 2001-2014 and one of the core architects of the legendary Danaher Business System. Over his tenure, Danaher's TSR compounded at 14% per year versus 5% for the S&P 500. Once he took over GE, he quickly recognized that it was essential to reduce the company's debt load, before breaking GE apart. In 2020 he sold GE's Biopharma assets to Danaher for ~$20bn and in 2021 he sold GE's leasing assets to AerCap for ~$30bn, thereby shutting down GE Capital. This combined with cutting the dividend to $0.01 allowed him to pay down ~$100bn of GE debt. The three remaining assets by 2023 were GE Healthcare, GE Power, and GE Aerospace. In January 2023, GE spun off 80% of GE Healthcare, which has a current market cap of ~$35bn and sold another ~10% in Q1 of 2024. In April 2024, GE completed its final separation by spinning off 100% of their Power business as GE Vernova, which currently has a ~$50bn market cap. The remaining company that we are shareholders of today is GE Aerospace with Larry Culp as CEO. Today GE Aerospace (GE) is the global leading provider of jet engines. Approximately 75% of GE's revenues come from Commercial Engines & Services (CES) and we estimate that GE has ~70% market share of commercial engines. The remaining ~25% of revenues come from Defense & Propulsion Technologies (D&PT) segment, which consists of engines and services for military aircraft (where GE has ~40% market share), avionics, and additive technology. It is important to note that GE supplies engines both for commercial narrowbody (short haul) and widebody (long haul) planes. The narrowbody business is run through a 50/50 JV with Safran called CFM International. The business model of jet engines consists of low margin sales of new engines and high margin aftermarket services paid for by the owner of the plane. GE will sell new engines to airlines or leasing companies at very low margins or even at a loss in order to then provide the buyer with spare parts and services for the lifetime of the engine. Engines are the most complex and highly regulated part of the plane. Specifically, regulation dictates maintenance cycles based on utilization, and most of the replacement parts come directly from the engine supplier. This in turn puts GE into a position of strong pricing power for their aftermarket services every year. The result is that the aftermarket services of an engine not only have very high margins, but also generate more than 3.5x the revenue of the initial engine sale. This aftermarket dynamic leads to one of the largest and most defensible profit pools in the entire aerospace ecosystem. To illustrate this point, we can start with the sale of a single $100 airline ticket, which represents the top of funnel for all air travel. Based on IATA data we estimate that of the $100 approximately $93 are the operating costs of the airline. Of the $93 operating cost, Aircraft Monitor estimates that 10-15% is aircraft maintenance, of which 35-40% is spent on engine maintenance. This means that for every $100 spent on air travel, ~$4.5 gets spent on engine maintenance. To showcase how this flows through to the distribution of profits in the industry, we can look at the cumulative operating profit of the various industry players between 2015 and 2019. Over this period the ~330 airlines in IATA's database, that represent ~80% of the market, generated a cumulative operating profit of ~$268bn, Airbus and Boeing's commercial segment combined generated ~$28bn, and other large non-engine suppliers like Honeywell Aerospace and Parker Hannifin generated ~$17bn and $2bn, respectively. Meanwhile, GE generated $30bn of operating profit over the same period, which is evidently disproportionate to its share of industry spend and a clear demonstration of market power. We are convinced that the switching costs in the aftermarket and their scale are the two main contributors to GE's market power. The scale benefits are self-evident. GE has ~70% market share of installed engines, making it the world's largest supplier of commercial jet engines. GE therefore benefits from a high trust relationship with airlines and receives more data on the performance of their engines, which they use to improve engine performance further. This trust is built throughout the life of an engine platform, which lasts multiple decades. GE's scale combined with the regulatory approvals required to certify an engine makes it virtually impossible for a new competitor to enter the market. GE has the necessary reputation for building high quality engines and their scale enables them to absorb losses on new engine sales that a subscale player could not. To sustain its dominant market share and pricing power, GE relies on high switching costs. Once a customer has chosen an engine, they are locked into that provider's spare parts. This is largely due to the complexity and subsequent cost of reverse engineering engine parts. In addition, every spare part needs to be FAA approved, which is especially difficult for any part that can compromise the safety of an engine. Finally, more than half of planes are owned by leasing companies who need to maintain the resell value of their planes and therefore only use original spare parts. HEICO is the global leader for reverse engineered airplane parts and even they have not been able to significantly penetrate the engine market. We therefore estimate that more than 80% of spare parts come directly from the engine maker, where the remainder mostly consists of used parts. Given that an engine will be on a narrowbody plane for over twenty years and on a widebody plane for over thirty years, one can see that this is an extremely durable lock-in. Furthermore, regulation dictates the maintenance cycles, which ensures airlines cannot avoid replacing parts to avoid the cost. The result is very substantial and sustainable pricing power. The ability to raise prices above inflation every year is a compelling contributor to free cash flow growth, but not sufficient if there is no ability to reinvest in volume growth. Fortunately, GE benefits from the secular demand for air travel, the fact that engines have the highest wear and tear on a plane, and weak competition. The relevant demand metric for air travel would be the global hours flown, but the best proxy we have available is IATA's number of global flights. From 2009 through 2019 the number of annual flights has grown from 25.9m to 38.9m or a 4% CAGR. At the same time, GE has managed to grow its market share of installed engines from ~63% in 2015 to ~70% today. GE has been able to achieve this by continuing to invest in innovation and building further customer trust but has also benefited from mismanagement at competitors. We do not see the secular tailwind of airline fleet growth abating. Airbus makes a similar case to their investors, estimating the global fleet of passenger and freighter aircraft will grow from 22,880 in 2020 to 46,560 in 2042, or a 3.3% CAGR. It is also important to highlight that fuel costs and more stringent ESG requirements are pushing airlines to upgrade their fleet, given that the new GE engines are ~15% more efficient than the predecessor models. This creates the conditions for an excellent reinvestment opportunity. As we have highlighted in our previous letter, if a business has created a position for themselves where they have substantial market power, we want to make sure that the people running the company are not overplaying their hand and thereby hurting the company's long-term prospects. We believe that Culp is the type of leader who is acutely aware of the risk that trading off long-term prosperity for short-term gains poses. Especially after saving GE from the consequences of decades of short-term decision-making. Culp is also extremely focused on the operational and cultural improvements an organization can attain by adopting lean manufacturing standards. At Danaher he helped to introduce lean operating methods and continuously improved the underlying business quality through strategic capital allocation, which still drives the culture of that organization today. We expect to see a similar cultural shift at GE over time as well. In addition, the GE board structured Culp's compensation such that he is very well aligned with shareholders. The result is that he owns ~2m units of GE, in the form of PSUs and common shares worth >$300m, making him a true owner. Furthermore, Culp's strong track-record of capital allocation gives us confidence that cash will either be returned to shareholders or redeployed at high rates of return. As demonstrated above, we believe GE's exceptional market power will allow it to continue to price their aftermarket services above inflation and thereby protect its returns, while the secular tailwinds of air travel and their strong competitive position should allow GE to grow the business with very high incremental returns. Culp's leadership and the culture he is building should reduce the risk that GE will make short-term decisions that hurt the company's long-term prospects. Looking out ten years, we estimate volume growth of engines and services will be MSD per year, while pricing will contribute MSD growth per year, which together results in HSD revenue growth. Pricing above inflation and operational efficiency gains from the implementation of lean should drive margin expansion, which in turn should drive free cash flow growth of LDD per year over the next ten years. Given the high incremental returns, GE will be able to return significant amounts of capital to shareholders at the same time. A very compelling proposition in our view.

BSD Analysis:
Zeno presents a compelling turnaround thesis for GE Aerospace following Larry Culp's successful restructuring and spin-off strategy. The fund argues that GE Aerospace possesses exceptional market power through its ~70% commercial engine market share and razor-blade business model, where low-margin engine sales generate 3.5x revenue through high-margin aftermarket services over 20-30 year engine lifecycles. The investment case centers on three pillars: durable competitive moats from switching costs and regulatory barriers, secular growth from 3-4% annual air travel expansion, and superior leadership under Culp who previously delivered 14% annual returns at Danaher. The manager emphasizes GE's pricing power in aftermarket services, estimating that $4.50 of every $100 airline ticket flows to engine maintenance, with over 80% of spare parts sourced directly from original manufacturers. Zeno projects mid-single-digit volume and pricing growth driving high-single-digit revenue growth, with margin expansion from lean manufacturing implementation generating low-double-digit free cash flow growth over the next decade. The thesis relies heavily on Culp's operational expertise and shareholder-aligned compensation structure, positioning GE Aerospace as the fund's largest holding with expectations for sustained outperformance.

Pitch Summary:
Kraken Robotics is a marine technology company based in Newfoundland, Canada, that develops and manufactures devices for underwater exploration, surveying, automated underwater vehicles (AUVs) and batteries. The company was founded in 2008 as Kraken Sonar Systems and through a series of mergers and acquisitions, it has since grown to become a leader in the field of marine robotics, sensors, and underwater batteries. The company sits in a unique position in the marine technology market, as there is incredible interest from governments around the world to explore autonomous underwater vehicles, and there are very few companies that have the battery and sensor technology required to build AUVs. Kraken Robotics offers a range of products that cater to various applications and industries, such as oil and gas, defense, ocean science, and renewable energy. Their business is broken down into three segments: sensors, batteries, and services. Some of their main product lines are: • KATFISH: A towed synthetic aperture sonar system that provides high-resolution seabed imagery and bathymetry. • SEAPOWER: A pressure-tolerant battery system that can power underwater vehicles and devices for long durations. • AQUAPIX: A miniature interferometric synthetic aperture sonar that can be integrated into various platforms, such as ROVs, AUVs, and USVs. • ALARS: An autonomous launch and recovery system that can deploy and retrieve underwater vehicles and devices without human intervention. Krakens pressure neutral Subsea batteries "SEAPOWER" have no known competitors that can match the depth of 6000 m at the same energy density. Their batteries were developed over the course of 15 years at ENITECH Subsea GmbH, which was acquired in 2017 by Kraken Robotics. ENITECH developed pressure-tolerant components that can operate satisfactorily under high pressure (hyperbaric or hydrostatic, such as oil baths) without the need for a high-pressure enclosure. The company's unique pressure-tolerant molding technology enables 6,000-meter-rated encapsulation in silicone instead of oil-compensated or titanium pressure housings. The technology results in packaging solutions that are less expensive, more compact, lighter, and less prone to underwater corrosion and biofouling. This gives them a significant advantage over other subsea batteries on the market, as they can power underwater vehicles and sensors for longer durations and in harsher environments. Kraken's SEAPOWER batteries are also modular, scalable, and customizable, allowing them to meet the diverse needs and specifications of various customers and applications. With their unique and valuable features, Kraken's SEAPOWER batteries have the potential to revolutionize the subsea industry and create new opportunities and markets for the company. I believe Kraken has an extremely rare product monopoly in a niche and burgeoning underwater AUV market. Kraken Robotics has a global presence, with offices and facilities in Canada, the United States, the United Kingdom, Germany, Denmark, and Brazil. The company employs over 250 people, including engineers, scientists, technicians, and business professionals. The company has also established partnerships and collaborations with various organizations, such as the Royal Canadian Navy, Ocean Infinity, the Royal Australian Navy, and the German Navy. The two key figures behind Kraken Robotics' success have been its founder, Karl Kenny, and its current CEO, Greg Reid. Kenny founded Kraken Sonar Systems back in 2008. The company was focused on software-defined sonar technology. Kenny was the CEO of Kraken after its reverse merger with Anergy Capital in 2015, which brought the company public on the Canadian Venture Exchange. Kenny later oversaw the key acquisition of ENITECH Subsea in 2017 that combined Kraken's sensor technology with ENITECH SEAPOWER batteries and developed software, making it possible to build many of the new AUVs coming on the market now. Kenny retired and was succeeded as CEO of Kraken by Greg Reid in early 2023. Reid has over 25 years of experience in the marine industry, with a background in engineering, management, and finance. He joined Kraken in 2015 as the chief financial officer. Under his leadership, Kraken has expanded its product portfolio, increased its revenues, raised growth capital, and strengthened its market position. As CFO, Reid has been a key decision-maker driving the company's strategic acquisitions in recent years and scaling their existing business. While it is clear Kenney was the visionary and innovator that led Kraken to bring together the exceptionally well-positioned marine portfolio, Reid is the person to scale the business and grow it into a larger commercial organization. Anduril Industries, a VC backed defense company with billons of funding and ambitions of developing the future of robotic defense, is building a new manufacturing facility for autonomous underwater vehicles (AUVs) in Rhode Island. The facility in Quonset Point will enable large-scale production of the Dive-LD family of AUVs so that Anduril can keep ahead of customer demand, the company said in a 17 release. The facility, when fully ramped up, will be able to produce 200 Dive-LD AUVs per year. The facility is expected to open in early 2025. Each Dive-LD contains several SEAPOWER batteries, Kraken Sensors, and utilizes Kraken software to help manage both the power and sensors within the Dive-LD. In total, each Dive-LD will be equipped with $2.5m of Kraken SEAPOWER batteries and $0.5m of Kraken sensors and software. Anduril has already secured a $18.6 million contract with the US Navy to produce Dive-LD and has a co-development partnership in place with the Royal Australian Navy. If Anduril can ramp up their Rhode Island facility to full production of 200 Dive-LD systems per year, the revenue opportunity for Kraken is ~$600 million per year. We expect that in the near term, the facility will produce between 25 and 50 Dive-LDs starting in 2025, which could be a $100 million to $250 million opportunity in the near term. Due to the Dive-LD design already utilizing multiple products from Kraken and the lack of any competitive Deepsea batteries with an operational depth of 6000 m at similar energy density, it is highly likely that all Dive-LD systems will incorporate Kraken products. In anticipation of Anduril sourcing all the parts from Kraken for the Dive-LD, it would make sense for Kraken to set up a battery manufacturing location near the Rhode Island Anduril facility. Kraken is an acquisition target for Anduril here, as they can pay $300m now (current market cap of Kraken * 60% premium or $1.85/share) for Kraken, or they pay them +$100m a year for the next 10 years for batteries and sensors and keep the 45% gross margins. Anduril recently raised $1.5 billion in funding at the end of last year to support their ongoing programs, so they have plenty of capital for an acquisition of this size. Small acquisitions are a core part of Anduril's strategy, having made five acquisitions to date of small defense technology companies, including Dive Technologies, the company that developed the Dive-LD. A more recent development in marine space has been the push to build large AUVs that are essentially replacements for submarines, known as Extra Large AUVs (XL-AUVs). XL-AUVs are different than smaller AUVs (like the Dive-LD) in that they have increased battery capacity, size, maneuverability, carry munitions, and allow much longer duration at sea without refueling. The main goal of XL-AUVs is to monitor, deter, and provide response capabilities for navies without having men at sea for long periods of time. Due to this fact, these XL-AUVs require large amounts of batteries. The XL AUVs are being developed globally by navies around the world and include defense contractors Boeing, Anduril, Saab AB, Kongsberg, Oceaneering, BAE Systems, and several smaller contractors. Of note to Kraken is the Anduril Ghost Shark, which is confirmed to use $8 million of Kraken SEAPOWER batteries and sensors per vehicle. The Ghost Shark program is run as a co-development program between Anduril, the Royal Australian Navy, and the Australian Defense Science and Technology Group (DSTG). Under their current $90 million co-development agreement, Anduril is to deliver three Ghost Sharks by June 2025. The first was delivered ahead of schedule and on budget in April. If successful, it is likely that the Ghost Shark program will Outside of that, it is likely that a handful of other AUV manufacturers are using Kraken SEAPOWER batteries, but none have been announced. The XL-AUV segment will be a huge driver for both segments for the next 10 years. Outside of the massive opportunity that Kraken has to support Anduril's DIVE-LD and Ghost Shark programs, the companies' other segments have strong tailwinds driven by the autonomous ambitions of western countries Navy's. Their services business is largely driven by contracts with global navies and private ventures for offshore wind, oil and gas, and offshore infrastructure looking to complete underwater sonar surveys (via KATFISH). This business is lumpy due to contract timing and execution schedules but has been able to scale to about $20 million of anticipated revenues in 2024, up from $8 million in 2023 and $15 million in 2022. This business will likely continue to grow from here at a slower pace than the growth expected in 2024, but it will continue to expand. They do have some visibility in their service business due to the contracts lasting for multiple years once they are won with a specific navy. They do not share the backlog, but from my understanding, they are likely to expect double-digit growth from the 2024 level. The subsea batteries and sensors segment outside of Anduril will continue to grow rapidly. Kraken has released press releases highlighting their subsea battery sales. It is clear that Kraken have other demand outside of Anduril. In Kraken's Q1 revenue press release, the company provided 2024 revenue guidance of $90-100 million. Of that $100 million, roughly $80 million is expected to be batteries and sensors, which implies significant growth in 2024 and over $56 million in 2023. The market for Kraken's products is still in its infancy, but I believe that due to their position in the battery market, the company could see significant growth due to the overall growth of the AUV market over the next 10 years. Kraken could easily become a multi-billion-dollar defense contractor in a few short years. With the backdrop of understanding the position in which Kraken currently sits in Deepsea Batteries, it is easy to come up with a huge valuation for the company when their counterparty opportunity with Anduril could be ~$400-$800m/year. But that opportunity is clearly still years away and depends largely on the demand for Dive-LD AUVs and the success of the Ghost Shark program. We took the approach of valuing the company with and without the Anduril opportunity to see if the Anduril opportunity is never realized and if the outcome is still positive. In the base case, we modeled the Andruil opportunity at a modest 40 Dive-LD/year run rate in 2026 and 5 Ghost Shark deliveries. Under that scenario, shares of Kraken will be valued at $5.74 per share in 2026, which is 400% upside to the current price of $1.15 per share, or a 90% IRR over 2.5 years. In the downside case, we modeled the business without any Anduril revenue. Under that scenario, shares of Kraken will be valued at $2.1/share in 2026, which is 82% upside to the current price of $1.15/share, or a 27% IRR over 2.5 years. An upside case could easily be modeled at 4x the value of the base case if you believe Andruil scales their Dive-LD production and expands their Ghost Shark program. In conclusion, I believe that with the unique position in which Kraken sits in a burgeoning industry and a line of sight to a potentially large opportunity in front of it, Kraken is an excellent investment at the current value of 13.9x 2024 EBITDA.

BSD Analysis:
Deep Sail Capital presents a compelling bull case for Kraken Robotics, emphasizing the company's monopolistic position in deep-sea battery technology with their SEAPOWER systems capable of operating at 6,000-meter depths with unmatched energy density. The investment thesis centers on Kraken's strategic partnership with Anduril Industries, where each Dive-LD autonomous underwater vehicle requires $3 million worth of Kraken components, potentially generating $600 million annually if Anduril reaches full production capacity of 200 units per year. The manager highlights Kraken's technological moat through their pressure-tolerant battery technology developed over 15 years, which eliminates the need for expensive titanium housings and provides significant cost and performance advantages. The company's diversified revenue streams across sensors, batteries, and services provide multiple growth vectors, with 2024 guidance of $90-100 million representing substantial growth from $56 million in 2023. Management transition from visionary founder Karl Kenny to operational leader Greg Reid positions the company well for scaling operations. The valuation analysis shows compelling risk-adjusted returns, with base case projections of $5.74 per share (400% upside) and even the downside scenario without Anduril generating 82% upside. At 13.9x 2024 EBITDA, the manager views Kraken as attractively valued given its unique market position in the rapidly expanding autonomous underwater vehicle market driven by global defense spending.

Pitch Summary:
The fund's top position is RCI Hospitality (RICK). RICK is the only publicly traded owner of adult nightclubs in the US. Currently they own 56 clubs across 13 states and an additional 13 sports-bar restaurants with the "Bombshells" concept that has recently begun franchising. With few municipalities issuing new adult entertainment licenses these businesses function as local monopolies with excellent unit economics. Management has recently announced the withdrawal of applications to operate casinos in Colorado and plans to sell those properties. I do not believe the company has a competitive advantage in the casino space and it seems most investors agree as this news was followed by a strong run up in the stock price. The stock price has taken a hit this year with the drop in same store sales figures. With the recent earnings update showing the first quarterly increase in nightclub same-store sales since 2Q23 along with the $25MM increase in buyback authorization from the board of directors, I am happy to see the company prepare to take care of undervalued share price and also shed the casino division to put that capital into more club acquisitions in the future. I still believe the OnlyFans type site "AdmireMe" to have extremely strong potential and am excited to see the launch.

BSD Analysis:
The manager presents a compelling bull case for RICK based on its unique market position as the only publicly traded adult nightclub operator in the US. The investment thesis centers on the company's local monopoly characteristics, driven by restrictive municipal licensing that creates significant barriers to entry. Management's strategic decision to exit the casino business and focus on core nightclub operations demonstrates capital allocation discipline, with the market responding positively to this refocusing. The recent turnaround in same-store sales growth after several quarters of decline, combined with a $25 million share buyback authorization, suggests management confidence in the business recovery. The manager views the current valuation as attractive following the stock's decline due to temporary same-store sales weakness. The upcoming launch of "AdmireMe," positioned as an OnlyFans competitor, represents a potential digital growth catalyst that could expand the company's addressable market beyond physical locations. The combination of defensive moat characteristics, improving operational metrics, and potential digital upside creates an asymmetric risk-reward profile.

Pitch Summary:
One of the particularly strong areas of performance has been in our investments that are benefiting from the large fiscal spending in the US, specifically as it relates to the construction of data centres and the greening of the electric grid. A beneficiary of this investment was our holding Encore Wire (NYSE: WIRE). Encore Wire is a Texas-based manufacturer of copper wiring used in commercial, industrial and residential construction. We purchased Encore in early 2023 and we expected this to be a long-term holding in our equity portfolio. The business had all the characteristics we look for: good return on capital, strong potential for reinvestment in the business, and management who had a successful track record of allocating the capital of the business. On top of that, the valuation of the business was around 6x earnings when we purchased it. In April of this year, an Italian based company called Prysmian offered to buy Encore for $290 per share. Upon our review of the offer, we were disappointed with the purchase price of $290 because we believe it significantly undervalued the long-term potential value of Encore's business. We petitioned the company and its Board of Directors to reconsider the undervalued price but to no avail. The deal closed in June 2024 and clients received the $290 per share for Encore in each equity portfolio.

BSD Analysis:
Avenue Investment Management held a bullish view on Encore Wire, a Texas-based copper wiring manufacturer serving commercial, industrial, and residential construction markets. The fund identified WIRE as an attractive investment due to its strong fundamentals including good return on capital, reinvestment opportunities, and experienced management with a proven capital allocation track record. The position was purchased in early 2023 at an attractive valuation of approximately 6x earnings, positioning it as a long-term holding. The investment thesis centered on benefiting from increased U.S. fiscal spending, particularly in data center construction and electric grid modernization. When Prysmian offered $290 per share in April 2024, Avenue viewed this as significantly undervaluing the company's long-term potential, though the acquisition ultimately closed in June 2024. The successful exit demonstrates Avenue's ability to identify undervalued quality businesses in infrastructure-related sectors.

Pitch Summary:
The investor has sold two-thirds of their position in SOWG due to a lack of familiarity with the freeze-dried candy market and the company's significant rerating. SOWG now trades at approximately three times this year's sales, and management has struggled to effectively communicate their story. While shares remain attractive if the company can sustain its growth trend, the investor believes there are more compelling opportunities elsewhere.

BSD Analysis:
SOWG's rerating and current valuation indicate a market reassessment of its growth prospects. The investor's decision to reduce their position reflects concerns about management's communication and the investor's limited knowledge of the market. Despite these challenges, the company's growth potential remains if it can deliver results. Investors should evaluate SOWG's market positioning and management effectiveness when considering its investment appeal.

Pitch Summary:
Barfresh has recently appointed a new VP of sales and signed contracts to expand its production capacity. The operational risks have diminished, and the stock has rallied over 200%. Future appreciation will depend on the execution of their growth plan. Analysts have recognized the company's improvements, with Maxim raising the price target to $6 from $3, indicating confidence in Barfresh's growth potential.

BSD Analysis:
The appointment of a new VP of sales and expansion of production capacity are strategic moves to support Barfresh's growth ambitions. The significant stock rally reflects market optimism, but future gains will hinge on the company's ability to execute its growth strategy effectively. The increased price target by analysts underscores the positive outlook for Barfresh. Investors should consider the company's operational execution and market dynamics when evaluating its investment potential.

Pitch Summary:
Laird has been expanding its distribution and continues to outperform competitors on Amazon. Despite the lack of significant updates, the stock has experienced high volatility, likely due to profit-taking by larger holders after a substantial price increase. The investor has slightly increased their position at $4, indicating a belief in the company's continued potential.

BSD Analysis:
Laird's strong performance on Amazon suggests a competitive advantage in online retail distribution. However, the stock's volatility highlights the risks associated with profit-taking and market fluctuations. The decision to increase the position at $4 reflects confidence in the company's ability to maintain its growth trajectory. Investors should monitor Laird's distribution strategies and market conditions to assess future performance.

Pitch Summary:
Simply Better Brands has shown exceptional performance over the past three months, with management raising guidance by $5 million and announcing potential global expansion in Costco. The company has also doubled its store count expectations, making the path to $100 million in revenue seem clear. Trubar, one of its brands, could potentially be worth five times its enterprise value within 1-2 years. These developments indicate a strong growth trajectory for the company.

BSD Analysis:
The company's strategic initiatives, such as expanding its presence in Costco and increasing its store count, are likely to drive significant revenue growth. The raised guidance reflects management's confidence in achieving these targets. Furthermore, the potential valuation increase of Trubar suggests that Simply Better Brands is well-positioned to capitalize on its market opportunities. Investors should consider the company's ability to execute its expansion plans and the potential impact on its financial performance.

Pitch Summary:
By far the biggest impact on the portfolio this quarter has been from one stock, Georgia Capital, CGEO. Georgia Capital, in the Republic of Georgia, is one of our biggest holdings and fell -26% in Q2 despite posting strong numbers at their recent earnings call, corresponding to a -3.7% contribution to the strategy composite. We previously discussed them in our Q1 2021 deep dive into the company and also in the Q4 2021 letter. However, after the end of the quarter, Georgia Capital stock recovered from the crash to a large degree and is now at a higher price than at the start of the year. The reason why CGEO is falling is due to an overall decline in all Georgian stocks in reaction to the recent protests against a law that was recently passed, "Law on Transparency of Foreign Influence". This would require media groups and NGOs that receive over 20% of their funding from foreign sources to disclose the source of their funding and register with the government. The stated goal of the law is to bring more transparency to the activity of foreign influence operations on Georgian politics. Critics of the law claim that the true reason for the law is to make it easier for the government to use extrajudicial methods of intimidation on opposition figures. They also claim it resembles restrictive Russian legislation used to suppress dissent and could undermine Georgia's democratic reforms and aspirations to join the European Union. The governments of the EU countries and the US have harshly criticized the law. I believe investors were scarred by the recent sanctions against Russia and are now reflexively dumping Georgian stocks due to a recency bias as they fear US/EU sanctions against Georgia. I expect any sanctions will be narrowly targeted against political figures and won't affect Georgia Capital or the broader economy. I will be closely following their national election in October. Assuming the political situation there remains stable, Georgia Capital is definitely the biggest bargain in our portfolio right now. Our estimate is that the conglomerate is trading at around 3x of the normalized annual operating cash flow of their underlying businesses. Most of this cash flow comes from the company's 19.7% ownership of the Bank of Georgia (LSE:BGEO) which itself has a market cap of $2.6 billion. Georgia Capital has a market cap of $588 million, so their partial ownership of the Bank of Georgia is alone worth almost as much as their own market cap! Georgia Capital is trading at 41% of the company's valuation of their NAV. The management of the company is using the cash flow from their subsidiary businesses to rapidly buyback stock and plans to repurchase around US$110M of stock between this quarter and the end of 2026 which is about 19% of outstanding shares at current prices. In the end, this price decline will have been a great thing for investors as it allows the company to buy back stock at lower prices.

BSD Analysis:
The manager presents a compelling contrarian value opportunity in Georgia Capital, viewing the 26% Q2 decline as politically-driven rather than fundamentally justified. The thesis centers on extreme undervaluation, with the company trading at just 3x normalized operating cash flow and 41% of management's NAV estimate. The manager highlights that Georgia Capital's 19.7% stake in Bank of Georgia alone is worth nearly the entire market cap of $588 million. Political concerns around Georgia's "Law on Transparency of Foreign Influence" have created investor fear of potential sanctions, which the manager believes are overblown and likely to be narrowly targeted. The investment case is strengthened by aggressive capital allocation, with management planning to repurchase 19% of outstanding shares through 2026. Strong underlying fundamentals are evidenced by solid earnings results despite the stock decline. The manager views current political uncertainty as temporary, creating an attractive entry point for patient investors willing to look past near-term volatility.

Pitch Summary:
Thirdly, Airbus (AIR FP) traded materially lower after reducing their FY 2024 guidance and pushing out their A320 medium-term delivery target due to persistent supply chain challenges. The stock has declined over 20% from its recent highs, which we see as disproportionate considering the longer-term outlook for the business has not meaningfully changed, with a reduction of just over 5% to 5-year forward cumulative free cash flow (FCF). Although near-term supply is constrained, demand has never been stronger, with Airbus's backlog at an all-time high and their orderbook sold out until the beginning of the next decade. Our view is that these aircrafts will eventually be delivered and this is a timing issue with the supply chain as opposed to a structural issue with the business. We used the recent weakness to add to our position at attractive valuation levels.

BSD Analysis:
Stenham views Airbus's 20%+ decline as a significant overreaction to supply chain-driven guidance reductions and delivery delays. The fund emphasizes that the company's long-term outlook remains largely intact, with only a modest 5% reduction to 5-year forward cumulative free cash flow projections. The investment thesis is anchored on unprecedented demand strength, evidenced by record backlogs and an orderbook extending into the next decade. Management frames the current challenges as timing issues rather than structural problems, expecting eventual delivery of all aircraft in the backlog. The supply-demand imbalance creates a compelling long-term opportunity, with constrained near-term supply meeting robust demand. Stenham's decision to add to the position during the weakness demonstrates conviction in the aerospace cycle and Airbus's competitive positioning. The fund appears to be betting on the resolution of supply chain bottlenecks and the eventual monetization of the substantial order backlog.

Pitch Summary:
Secondly, Adyen (ADYEN NA) traded notably lower following their Q1 sales release as the company disappointed on net revenue growth, which came in 1% lower than market expectations. We viewed the share price drop as an overreaction given the trends were driven by short-term factors in terms of the mix of merchants that drove volumes during the period, meanwhile the longer-term outlook on volume growth and profitability for the business in fact improved. As such, we used the opportunity to increase our position.

BSD Analysis:
Stenham characterized Adyen's post-earnings decline as a market overreaction to a modest revenue miss of just 1% below expectations. The fund manager distinguished between short-term merchant mix effects that impacted Q1 volumes and the company's improving long-term fundamentals. Despite the near-term revenue disappointment, management noted that the longer-term outlook for both volume growth and profitability actually strengthened during the quarter. This divergence between short-term results and long-term prospects created an attractive buying opportunity for the fund. Stenham's decision to increase the position reflects confidence in Adyen's competitive positioning in the global payments market. The thesis appears centered on the company's ability to grow volumes and expand profitability over time, despite temporary headwinds from merchant mix dynamics. This represents a fundamental-driven investment approach focused on long-term value creation rather than quarterly fluctuations.

Pitch Summary:
Also during the quarter, I divested our entire stake in Technogym, an established Italian firm recognized for its gym equipment. This decision followed a reassessment incorporating the latest data provided by the company, which narrowed the safety margin. Furthermore, despite sound operational performance, the company appears to be trading at relatively high multiples. Ultimately, the divestment aimed to reallocate funds to more promising opportunities, such as investment in gold.

BSD Analysis:
The manager completely divested the portfolio's position in Technogym during Q2 2024, marking an exit from the established Italian gym equipment manufacturer. The decision was driven by a reassessment of the investment following updated company data that narrowed the margin of safety, a key principle in value investing. Despite acknowledging Technogym's sound operational performance, the manager determined that the stock was trading at relatively high valuation multiples, making it less attractive on a risk-adjusted basis. The divestment was part of a strategic capital reallocation to pursue more promising opportunities, specifically the gold mining ETF investment. This disciplined approach demonstrates the manager's willingness to exit positions when valuations become stretched, even for operationally sound companies, prioritizing capital preservation and opportunity cost considerations over holding onto performing assets.

Pitch Summary:
A notable addition was a Junior Gold Mining ETF, which contributed over 17% to profitability for the quarter and yielded a YTD return of 24.23%. I chose an ETF due to the complexity of analysing individual companies in the sector, particularly junior mining firms. The rationale behind this decision is straightforward: global demand for gold persists amidst political and geopolitical tensions, coupled with ongoing inflation and declining real interest rates, creating a favourable environment for gold investments. Additionally, I opted for junior mining companies given the challenges faced by larger firms in discovering new deposits amidst high operational costs. With anticipated lower interest rates, this sector may see increased merger and acquisition activity among major players, which could favour the junior miner companies.

BSD Analysis:
The manager initiated a position in a junior gold mining ETF during Q2 2024, which proved highly successful with a 17% contribution to quarterly profits and 24.23% year-to-date returns. The investment thesis centers on macroeconomic tailwinds including persistent global gold demand driven by geopolitical tensions, ongoing inflation, and declining real interest rates creating a favorable environment for gold investments. The manager specifically chose junior miners over senior producers due to the challenges larger firms face in discovering new deposits amid high operational costs. The anticipated lower interest rate environment is expected to catalyze increased merger and acquisition activity among major players, potentially benefiting junior mining companies as acquisition targets. The manager opted for an ETF approach rather than individual stock selection due to the complexity of analyzing junior mining firms, demonstrating prudent risk management while maintaining exposure to the sector's upside potential.

Pitch Summary:
Regarding Under Armour, I acknowledge the mistake stemmed from my lack of experience, which I am trying to rectify. Under Armour represented my first investment in August 2020, a company renowned for its sportswear and endorsement deals with figures like Curry and The Rock. During that period, it, like many brands, faced significant challenges due to COVID-19. Initially trading at attractive valuations, the stock surged over 150% from my initial purchase price. However, my error lay in increasing my stake under the assumption that the company remained undervalued. Under Armour lacked a competitive advantage, and experienced inventory build-up, decreases in EPS, low returns, and decreasing margins since 2021. Despite these indicators, I failed to act, not recognising these issues and neglecting to sell around the $20 mark.

BSD Analysis:
The manager acknowledges Under Armour as a significant investment mistake, representing a learning experience from his first investment in August 2020. Despite initial success with the stock surging over 150% from the purchase price, the manager increased his position under the false assumption that the company remained undervalued. The investment thesis deteriorated as Under Armour demonstrated a lack of competitive advantage in the highly competitive sportswear market. The company experienced operational challenges including inventory build-up, declining earnings per share, poor returns on capital, and contracting margins since 2021. The manager's failure to recognize these deteriorating fundamentals and exit the position around the $20 level represents a classic value trap scenario. This position continues to pose challenges for the portfolio since November 2021, serving as a cautionary tale about the importance of recognizing when an investment thesis has broken down.