Investment Pitches

Pitch Summary:
Our next biggest gainer was Alphabet. The negative recent headlines questioning Alphabet's competitive position in an AI driven world have been replaced by those recapping what was a strong Q1 2024 earnings result. All the key segments including Search, YouTube, and Google Cloud saw strong revenue gains while delivering strong adjusted operating margins of ~33%, a result of more disciplined operating costs and spend. Core search - which was one of the concerns of increased AI adoption - actually saw market share gains and increased revenue 14% y-o-y. Google's internal generative AI has gradually been rolled out in key markets and initial results have been positive and has shown increased search usage by users. YouTube ad revenues increased by ~20% y-o-y, and Google Cloud revenue increased by ~28% y-o-y. It is early days in the AI evolution, but one only has to look at the capital spending numbers from the likes of Alphabet, Microsoft and Meta to wonder if "the customer" is the big winner here. We are confident Alphabet will navigate this aspect sensibly.

BSD Analysis:
The manager demonstrates confidence in Alphabet's ability to successfully navigate the AI transition while maintaining its dominant market position. Strong Q1 2024 results across all key segments validate the investment thesis, with search revenue growing 14% year-over-year despite AI disruption concerns. The 33% adjusted operating margins reflect disciplined cost management and operational efficiency. YouTube's 20% revenue growth and Google Cloud's 28% growth highlight the company's diversified revenue streams and cloud computing momentum. The successful rollout of generative AI features has actually increased search usage, contradicting bearish AI displacement narratives. While acknowledging the competitive AI landscape and significant capital expenditures across tech giants, the manager expresses confidence in Alphabet's strategic positioning. The combination of market share gains, margin expansion, and AI integration supports continued outperformance potential.

Pitch Summary:
If you're like me - every month you eagerly look forward to receiving the next issue of LP Gas Magazine (The Propane Industry's Most Trusted Resource). This is the industry our top gainer TerraVest inhabits. Since our last report, TerraVest reported strong earnings and recently announced another "typical TerraVest" acquisition. TerraVest entered into an agreement to acquire Advance Engineered Products based in Regina, Saskatchewan. Advance is a leading Canadian manufacturer and service provider in the tank trailer industry in Canada. We think they paid a very attractive price for Advance. TerraVest also recently issued some shares in a secondary offering - to reduce leverage subsequent to this acquisition. We applaud their recent moves and despite a share price that about doubled in the period we think TerraVest still sells at a reasonable price.

BSD Analysis:
The manager expresses strong confidence in TerraVest's strategic execution and acquisition strategy. The fund views the recent acquisition of Advance Engineered Products as a value-accretive transaction completed at an attractive price, demonstrating management's disciplined capital allocation approach. The company operates in the specialized propane and tank trailer manufacturing industry, which appears to be experiencing favorable conditions. Despite the stock doubling during the period, the manager believes the shares remain reasonably valued, suggesting continued upside potential. The secondary offering to reduce leverage post-acquisition demonstrates prudent financial management. TerraVest's consistent acquisition strategy and strong earnings performance support the bullish thesis. The manager's positive commentary on management's execution capabilities reinforces confidence in the investment.

Pitch Summary:
With that as the intro, early last quarter, we bought a small position in a company called Alarum. Formerly known as Safe-T, this is an Israeli proxy network company that is inflecting on profitability after a decade of losses. Things really started to turn around in 2019, when Alarum bought a company named NetNut for ~$10 million. At this point, NetNut was doing just over $2 million in sales and its founder, Moshe Kramer, wanted some liquidity. Over the past 4 years, revenue in that business has grown to $31 million. NetNut provides B2B proxy network software that allows customers to scrape data from websites at scale. Over the past year, there has been a tailwind from AI as LLMs need lots of structured data from across the internet. What's interesting is that investors view proxy networks suspiciously but LLMs use them to scrape training data. It's all about perception. In the fall of 2021, Alarum bought Cyberkick, a consumer facing cybersecurity business but has already decided to shutter it. In Q2, the company recognized a $6 million goodwill impairment, which made the GAAP numbers screen very poorly. NetNut provides a residential proxy network that allows businesses to scrape websites at scale. Whether it be an airline that wants to track competitor pricing or an advertiser that wants to verify email addresses, proxy networks enable this. A proxy network is essentially a software program that allows the scraper to constantly change its IP address to get around scraping protections. NetNut has more than 85 million residential IP addresses that it sources through a partner called DiviNetworks which works with 200 internet service providers. Generally, the more residential proxies a company can obtain, the better its scraping potential. One thing that is important to note is that retention rates are fairly high in this business because customers need to constantly refresh most of the data they need scraped. The company's net retention rate has been accelerating and reached 166% last quarter and that is before its new products have really ramped up. That means the large customers are getting an increasing amount of value from NetNut core offering. Unsurprisingly, e-commerce sites are a large buyer of this type of product. Sophisticated e-commerce sites will scrape pricing data for competitors and change prices in real-time on thousands of different products. This requires fresh data and the ability to get around scraping limitations. The numbers are pretty if you dig around. Q3 '23 was really the first GAAP profitable quarter because Q2 had the goodwill impairment. However, the company has been EBITDA breakeven since Q1 '23. What's really key is that NetNut is far more profitable than the Cyberkick business, which is almost fully wound down. In the Q1 '24 financials, free cash flow margins were nearly 38% and NetNut revenue grew 14% quarter-over-quarter which can be annualized to almost 70% growth. So here we have a company growing about 70% with 38% margins. You certainly don't see that every day. The company also now has $15 million net cash and should remain profitable from here on out. The company's top two competitors do more than $300 million in revenue collectively so it's safe to say there is plenty of market opportunity left. Management pegs the overall opportunity in the billions as the proxy network provides footholds for other products. For instance, the company recently launched its Search Engine Results Page API that enables better SEO and its highly anticipated AI Data Collector should be launching at the end of Q3 this year. Most recently, there are estimates that the largest competitor, Bright Data, is doing $190 million in revenue. Further, it's important to note that customers often use multiple proxy networks to have redundancy. Some providers get blocked from specific sites while others may have success. It all depends on the quality and density of the IP addresses of the proxy networks. The company's two main competitors are Bright Data and OxyLabs, both of which are private. And then there are several more including SOAX, IPRoyal, and a newcomer in the AI space called Nimbleway. Bright Data (formerly known as Luminati Networks) was purchased by private equity, EMK Capital, for $160 million in 2017 for about 6x sales. Until recently, Alarum was trading for less than that so I viewed that as a floor valuation-wise. Bright Data is the largest competitor, boasting enterprise clients like Shopee, Microsoft, and McDonalds. The company has also created turnkey datasets that customers can buy separately rather than needing to scrape the data themselves. This is a route that NetNut is trying to monetize as well. The moat in this space is mainly a scale advantage. Bigger players tend to have access to more IP addresses which enables better scraping. A lot of smaller players will buy data center proxies because they are cheaper but they can also be blocked much more easily. The real value is in residential proxies that are either purchased from internet service providers or actually retrieved through providing a P2P VPN service. Right now, NetNut has 85 million IP addresses, Bright Data has 77 million, and OxyLabs has 102 million. NetNut was able to scale to this as its former CEO, Barak Avitbul, founded a software company that helped ISPs in 2004. His relationships in the industry helped NetNut acquire the strong proxy network to scale as they have done. Unfortunately, Avitbul is no longer with the company as he stepped away in December of 2021. There is a slight switching cost for large projects if a customer has to set up all of the workflows again. And then brand is very important. One reason Luminati Networks changed their branding is because there have been many lawsuits against the company, both from competitors and customers. Relatedly, Bright Data won a $7.5 million judgment against OxyLabs for patent infringement and NetNut got a case dismissed in late 2021 that Bright Data brought against it. But the point stands that brand matters. OxyLabs and Bright Data are the two names that have the biggest presence but NetNut has a solid position and is viewed quite positively despite what, in my opinion, is a terrible name. Though NetNut doesn't necessarily have the widest moat, it has done a good job of delivering a solid product at a reasonable price and the fact that the industry has grown is lifting all boats but there are definitely risks involved with this investment. First, the company has a long history of losses and they did a poor acquisition of Cyberkick. They bought it in July of 2021 for $12 million and started winding it down about 2 years later because they wanted to get profitable. Now that the company has profits, there are questions about capital allocation. There is clear evidence that NetNut is quite profitable as a standalone business but management may use profits to do another poor acquisition. Second, and related, management said this in Q2 '23, "And this does not account for an additional $2.2 million in non-dilutive financing we have available to us. As such, we are in a great position to continue executing and see no near-term scenario requiring us to raise additional funds." But then they proceeded to do a $4 million private placement just a couple of months later at a bad price – well, great for the Chairman, CEO and CFO that invested $1 million, collectively. If management says one thing and does another, they have to build back trust. And the fact that the CEO and founder, Shachar Daniel, has been there for 10 years means that he's overseen everything, especially the history of losses and bad acquisitions. But now he has far more skin in the game so it's probable that he won't be as quick to dilute shareholders. Third, there are potential existential risks about privacy and security. Website content delivery networks like Akamai and Cloudflare have rate limiter products that can curb scraping tools. But proxy networks constantly rotate IP addresses as a workaround. There are third-party IP address blocklists out there that can be used to fight this problem but it's incredibly difficult to block rotating residential proxies because they are real IP addresses. Since they are real, it's perfectly legal. But it's something to keep in mind – it's possible that rotating proxies can be curbed technologically in the future. Moreover, there are litigious risks concerning privacy. Meta and X recently sued Bright Data for not complying with their terms of service, accusing the company of illegally scraping data. The legality of some of this is somewhat hard to nail down but walled gardens will continue to try to make it harder for proxy companies based on stricter terms of service. However, the judgment from the Meta case was recently in favor of Bright Data, a strong precedent that alleviates much of this risk. Fourth, since NetNut isn't the largest company in the space, it doesn't have the same scale advantages that Bright Data and OxyLabs have. For example, Bright Data has a 60 GB plan that costs $8/GB for residential proxies. Compare this to NetNut which has a 50 GB plan that costs a little over $10/GB. So Bright Data, being more than 5x larger, can price at ~20% less since it can spread the cost of acquiring proxies across a larger swath of customers. Even still, the market is quite large and Bright Data is still growing nicely at its size so there is plenty of room for multiple players. While the industry has seen quite a few price cuts at the lower end of the market, NetNut's accelerating net retention rate flys in the face of competitive worries for the time being. We are keeping a close eye on these dynamics as the industry is rapidly changing. I do think there is limited pricing power in the industry but the need for data will grow much faster than pricing pressures. This is the broad thesis but it's still important to watch how competition affects NetNut's long-term earnings power. The current CEO, Shachar Daniel, has been with the company since the beginning in 2013. He owns a 4% stake which would be much larger if there hadn't been so many dilutive raises over the decade. The company has a strange history as it spent the better part of 4 years trying to beta test different cybersecurity products at the beginning. Nothing really stuck so they pivoted to buy a few companies and they struck gold with NetNut. Importantly, the founder of NetNut is still with Alarum as the VP of R&D. Management doesn't particularly strike me as incredible but I think the recent focus on profits and the willingness to ignore the sunk costs of Cyberkick so quickly after the acquisition are two strong pieces of evidence that things are turning around. The share count is 7.8 million ADS's fully diluted (the ADS ratio is 10:1). On a $41 stock price (our average cost is much lower), the market cap is $320 million. After $15 million in net cash, the enterprise value is around $305 million. So NetNut is less than 7x forward sales. When we first purchased the stock, it was less than 4x sales so even though the multiple has not quite doubled, the stock has quadrupled since our first purchase. But where things really start to get interesting is if the Q1 '24 numbers can be improved upon. The company did $3.2 million in cash from operations, which is very similar to FCF since it's such a capital light business. And since most customers pay monthly, there isn't a ton of deferred revenue. Annualizing that, we get about 23x FCF for a SaaS company with big tailwinds and a huge combination of growth and profit potential. The stock has had quite a run so I'm not expecting a similar trajectory but if we can get to $20 million in FCF next year, a 20x multiple still implies about 30% upside over the next 18 months. If the company can execute on its strategy of moving up the value chain into data insights and foster growth through its new products, 23x forward FCF may still look like a bargain. If growth slows substantially among industry price cuts and if we see any more management shenanigans, we will likely have to exit the position swiftly. This is certainly not a buy-and-forget type of investment.

BSD Analysis:
The manager presents a compelling turnaround story in Alarum, an Israeli proxy network company that has transformed from a decade of losses to profitability through its NetNut acquisition. The core thesis centers on NetNut's B2B proxy network software that enables large-scale data scraping, benefiting from AI tailwinds as LLMs require structured internet data for training. The business demonstrates exceptional unit economics with 70% annualized growth, 38% free cash flow margins, and 166% net retention rates, indicating strong customer value expansion. The company operates in a scale-driven industry where larger IP address pools provide competitive advantages, with NetNut holding 85 million residential IPs versus competitors Bright Data (77M) and OxyLabs (102M). At current valuations of 7x forward sales and 23x FCF, the manager sees potential for 30% upside if the company reaches $20M FCF with a 20x multiple. However, significant risks include management's history of poor capital allocation, competitive pricing pressures from larger rivals, and potential regulatory/technological threats to proxy network legality. The investment requires active monitoring given the competitive dynamics and management execution risks.

Pitch Summary:
Shares of the British OSB Group constitute a new addition to Vltava Fund's portfolio. This is a smaller and very specialised bank that provides mortgages to professional lessors of predominantly residential (buy-to-let) properties. It has a long tradition and a strong position in this market segment. Tax changes in the UK since 2016 have made it easier to own residential property through an Ltd company, and especially if the owner holds multiple properties. Traditional large banks have more or less pulled back from lending to professional "buy-to-let" (or BTL) entrepreneurs, leaving the market opportunity to smaller and specialist institutions such as OSB. The opinions occasionally expressed suggesting that the BTL business is risky are, in our opinion, not grounded in reality. We think BTL is less risky than lending against properties that are occupied by their owners. OSB's long-term results demonstrate this. Allowances for bad loans are typically in the lower tenths of 1 per cent (ca 0.25%). This is a very low number and indicates low-risk lending. In addition, loans are pledged against properties with an average LTV (loan-to-value) ratio of 64%. OSB is a bank whose loans are fully funded by deposits on the liabilities side and is not dependent on the availability of bond financing or the interbank market. OSB is remarkably efficient, having a cost/income ratio of around 30% that almost any other bank would envy. Long-term ROTE (return on tangible equity) is above 15% and ROE (return on equity) is more or less the same. The bank regularly pays a large dividend and at the same time buys back its own shares. For such an established and quality business, we would not expect it to trade at a price below book value and with a P/E near 5. The dividend yield is 7%. This is perhaps due to the fact that last year's profits dropped because of specific accounting rules requiring that earnings reflect negative expectations for client behaviour caused by the rapid rise in interest rates. This does not, however, change the long-term attractiveness of the business and so this year should mark a return to normal. How is it possible that such an appealing stock is trading in the market at such a discounted price? Because it is almost completely ignored by most investors. The investments of passive investors (i.e. most of the money in the markets) are placed elsewhere. OSB is a smaller bank, a so-called small cap. Passive money tends to avoid these. It also mostly avoids banking as a sector and, finally, it has shunned UK equities in recent years. British markets have been among the least sought after markets for some time. Taken together, this is almost a perfect storm. But for us, it's absolutely ideal and we can't help but reiterate opinions that we hope the prevalence of passively invested money in the markets continues as long as possible. Banks are relatively straightforward to value, and a well-performing bank can also be a very good long-term investment. In fact, capital accumulation occurs relatively quickly in banks and compounding of interest can run similarly briskly there. In looking at a bank's balance sheet, one sees that it consists almost entirely of financial items. A bank has no factories, no production lines, no large inventories, no big capital expenditures, no large research and development expenditures, and so on. A bank's profits are almost purely credited to its equity. This, then, means they can grow rapidly at high ROEs. The long-term return to an investor in bank shares (when reinvesting dividends) is approximately equal to the bank's long-term average ROE while holding constant the price-to-book (P/B) multiple. OSB's long-term ROE can be expected to be around 17% and, as the bank is now trading at 0.8 times book value, the stock's long-term return will most probably exceed the long-term ROE. With its ROE of 17%, we see a reasonable P/B value for the bank somewhere above 1.25 (given that it is a smaller bank). Book value growth per share should also be supported by share buybacks, which are now being made below that price level. OSB's shares are very cheap, and the expected long-term return from holding them (inclusive of reinvested dividends) could be around 20% p.a. Much more that can be expected from the stock market and that is why the shares find themselves in our portfolio.

BSD Analysis:
The manager presents a compelling bull case for OSB Group, a specialized UK bank focused on buy-to-let mortgages. OSB benefits from large banks retreating from this market segment, creating opportunity for specialists like OSB to capture market share. The business demonstrates exceptional operational metrics with a 30% cost/income ratio, 15%+ ROTE, and remarkably low loan losses of just 0.25%. The 64% average loan-to-value ratio and deposit-funded model provide strong risk management. Despite these quality metrics, the stock trades at 0.8x book value with a 5x P/E and 7% dividend yield, creating significant valuation disconnect. The manager attributes this mispricing to passive investor avoidance of small-cap UK banks. With an expected 17% long-term ROE and current discount to book value, the manager projects potential 20% annual returns including dividends. The investment thesis capitalizes on market inefficiencies created by passive investing trends while accessing a high-quality, profitable niche banking franchise.

Pitch Summary:
CVS used to be a very popular stock in the markets. The share price growth, along with investor optimism, peaked sometime in mid-2015. Thereafter, investor enthusiasm gradually began to wane and criticism of management's capital allocation surfaced. The criticisms intensified especially in late 2017, when CVS announced its acquisition of the health insurer Aetna for USD 69 billion. This price was very excessive and the acquisition also saddled CVS with a large debt burden for many years to come. The stock price responded with further gradual, significant decline. The stock came onto our radar in 2020, when it was very cheap. CVS's business looked solid to us and generated strong free cash flow. Our positive view of the company was reinforced when CEO Larry Merlo announced his departure in that year. He had been behind the acquisition of Aetna, and new CEO Karen Lynch, who had been Aetna's CEO up until that time, announced that her main goals would include reducing debt and returning excess cash to shareholders. The poor acquisition of Aetna was not her doing and she had enjoyed a good reputation as Aetna's CEO. We succumbed to the belief that overpriced acquisitions were a thing of the past and that the new management would allocate CVS capital more efficiently. We were wrong. For a while, it looked like management was on the right track and the share price was rising. But then management reverted to its original acquisition practices. CVS announced two more large acquisitions in 2022 and 2023. These were Signify Health and Oak Street Health. The prices of both acquisitions made no sense to us at all. We realised that relying upon management to begin behaving rationally in terms of capital allocation was not enough, and particularly so in cases of companies where this has not been the case in the past. So, we began gradually to reduce our position in CVS and now the company is no longer in the portfolio. Had we reacted faster, we could have made more money in this stock. In any case, we regard CVS to be our biggest buying mistake of recent years. In the hands of more capable management and with a rational allocation of capital, CVS stock could be at three times its price today. In this instance, we underestimated the negative impact of the human factor on the value of the company. This is a very important lesson for the future.

BSD Analysis:
The manager presents a detailed bear case for CVS Health, highlighting persistent capital allocation issues under management. The fund initially invested in 2020 when shares were cheap and the business generated strong free cash flow, hoping new CEO Karen Lynch would improve capital discipline after the problematic Aetna acquisition. However, management disappointed by continuing poor acquisition practices with Signify Health and Oak Street Health deals in 2022-2023, both at prices the manager deemed nonsensical. The position was gradually reduced and eventually eliminated entirely. The manager acknowledges this as their biggest recent mistake, estimating the stock could trade at 3x current levels under competent management. This case study emphasizes the critical importance of management quality in investment decisions, particularly regarding capital allocation discipline. The manager learned that hoping for behavioral change from historically poor capital allocators is insufficient, especially when past patterns suggest otherwise.

Pitch Summary:
During June, we have upped our position in Truecaller. What elapsed during the final days of the months are very telling as to why we argue Truecaller is just habitually pushed back on by everyone and everybody. Since the company started monetising, it has been looking for a killer feature that will drive uptake of its consumer-facing subscription product Truecaller Premium. The features included in the package have so far been too narrow. And hopes of a diminished dependence of advertising revenues have not been high. We were thus surprised to see the lacklustre market reaction to the announcement of an insurance being included in the subscription at an unchanged price. This insures Truecaller Premium users in case of fraud in India. The average subscriber pays less than 1 USD/month for this service. Here's the beauty of it; Truecaller includes this in the existing Premium package at no change in prices, pays the premium to the insurance company but bears no other responsibility towards either party. Unsurprisingly, Truecaller raised prices for its packages earlier this year – we think this was proactively to cover for the incurred insurance premium. Effectively this also means that the "only" risk Truecaller faces from this is if claims are higher than implied by the price paid for the insurance, in which case premiums will come up (which could be mitigated by more price hikes of Truecaller Premium). And suddenly, a potential killer feature is launched. Who would not want to insure themselves and their family members against fraud? Is it a sure bet that this will make subscription penetration take off from current close to 0.5% of the user base? No. But the risk is non-zero, in fact we think it is reasonably good, that this could be the feature we have been looking for. And the share barely budged. No analyst mentioned it, no sales desk sent an IB on it, no fellow investor we have spoken to recognised it. Radio silence. Mr Misunderstood on full display, again… We bought more on the day of the announcement.

BSD Analysis:
The manager increased the Truecaller position based on a potentially transformative product development that the market has ignored. The key catalyst is the addition of fraud insurance to Truecaller Premium subscriptions in India at no additional cost to users, which could be the "killer feature" needed to drive subscription adoption beyond the current 0.5% penetration rate. The business model is attractive as Truecaller simply pays insurance premiums while bearing no direct liability, with users paying less than $1/month for the service. Management appears to have proactively raised prices earlier in the year to cover insurance costs, demonstrating strategic planning. The manager views fraud protection as a compelling value proposition that could significantly boost subscription uptake in India, reducing dependence on advertising revenue. Despite this potentially game-changing development, the market reaction was muted with no analyst coverage or investor recognition, creating what the manager sees as a classic misunderstood opportunity with asymmetric upside potential.

Pitch Summary:
During June, we initiated a position in Norva24. As the leading Northern European provider of underground infrastructure maintenance (UIM) services to municipalities, real estate operators, construction companies and industrial companies. That's business English for 'sh*t management'. The services Norva provides are typically necessary and can, at most, be postponed only temporarily. Demand is consistently growing on the back of ageing sewerage systems (in some markets, sewerage pipes are 40 years old on average, versus a normal expected lifetime of 20 years) with leakage increasing. This is further supported by regulation and climate change. Markets are growing like clockwork in the mid-single digit region, regardless of the economic environment, and is being consolidated from local family-run businesses to regional and decentralised densification-plays. So why do the chaps at Protean consider Norva a misunderstood case? Operating a service-specific fleet consisting of 1,100 vehicles, of which many are heavy and cost north of SEK 3m per vehicle requires you to have reasonably deep pockets and good customer relationships from the get-go to be profitable as a new entrant. Density is key in this business as somewhere around 55% of the cost is fixed in any given route (vehicle/depreciation, fuel, operator, overhead). Driving utilisation within a route is paramount for margins. Utilisation hinges on customer relationships. And as such you end up in a hen or the egg-issue. Deep-pocketed players lack customer relationships. Shallow-pocketed players (e.g. ex-Norva employees looking to set up a business of their own; yes, I am looking at you, Consultancies and Installers) lack the funds. This is not a business equated to providing pure installation services based on ad hoc demand or project-based orders, it requires capital and, most importantly, fingerspitzengefuhl in route planning, relationship building, and capabilities. Habitual pushbacks we have encountered include that it is 1) it remains PE-owned; 2) it is Norway-domiciled, Swedish-listed and small/obscure enough for anyone to decide not to have a view; 3) the financial structure is complex with mostly leased vehicles (and we all know what that means under an obscure IFRS 16-regime). We argue there are similarities between our raison d'etre and Norva's financial sponsor (who surely will exit at some point, but such are markets), making it a comparatively good sponsor-owner. Moreover, the Norwegian domicile but Swedish listing stems from two simple facts: 1) Norway is the best Nordic market for UIM and is also the market where Norva started, and 2) there are not an abundance of peers in Norway whereas there are arguable comparable companies in Sweden.

BSD Analysis:
The manager presents Norva24 as a misunderstood infrastructure services play with strong defensive characteristics and consolidation potential. The investment thesis centers on the non-discretionary nature of underground infrastructure maintenance, with aging sewerage systems (averaging 40 years vs. 20-year expected life) driving consistent mid-single digit growth regardless of economic conditions. The business benefits from high barriers to entry due to significant capital requirements (1,100 vehicle fleet with units costing over SEK 3 million each) and the importance of customer relationships for route optimization. With 55% fixed costs per route, utilization and density are critical for margins, creating a competitive moat that prevents both well-capitalized new entrants (lacking relationships) and undercapitalized competitors (lacking fleet investment capacity) from competing effectively. The manager views market concerns about PE ownership, Norwegian domicile, and lease accounting complexity as creating an attractive entry opportunity in a consolidating market with predictable cash flows.

Pitch Summary:
Camurus is maturing from a one product franchise (but what a franchise the Buvidal/Brixadi product is becoming) to a platform company where their long-release technology can be used in many fields, with acromegaly being the most promising. Sometimes the opportunity creates the idea, and the recent sell-down from the main owner gave us an entry opportunity which we seized.

BSD Analysis:
The manager views Camurus as an attractive pharmaceutical investment transitioning from a single-product company to a diversified platform leveraging its proprietary long-release drug delivery technology. The core franchise around Buvidal/Brixadi (opioid addiction treatment) is described as strong and growing, providing a solid foundation for expansion. The key growth driver is the application of their FluidCrystal technology to new therapeutic areas, with acromegaly (a rare hormonal disorder) identified as the most promising opportunity. This represents significant market expansion potential beyond addiction medicine into endocrinology. The manager capitalized on a technical selling opportunity when the main shareholder reduced their position, providing an attractive entry point. The investment thesis centers on the platform value of the drug delivery technology and successful franchise expansion into multiple therapeutic areas.

Pitch Summary:
Metsä Board is a Finnish producer of fibre-based packaging in a range of fields, including food and retail. The 51% ownership by the Metsäliitto Cooperative has always been a conundrum in this stock. Are the ultimate interests of Finnish forest owners the same as the external owners of Metsä Board? Would the cooperative enforce investment decisions where the ultimate objective is to increase the price of wood domestically in Finland? As such, the recent decision to not proceed with the potential >EUR1bn Koskinen project was a relief. Metsä has had its recent struggles (post-pandemic destocking & Finnish strikes & an explosion in their main pulp plant) which has overshadowed the completion of some other, more sensible investment projects. Since their earnings peak in 2022, Metsä has increased their capacity in paper board by 25% and their net long pulp position has increased to 1m tonnes. The normalized earnings capacity appears underestimated, and with momentum in prices this creates a good set-up.

BSD Analysis:
The manager presents a bullish case for Metsä Board based on improved capital allocation and operational recovery. The key catalyst is management's decision to cancel the EUR1bn Koskinen project, which the manager views as disciplined capital allocation that addresses previous concerns about the cooperative ownership structure potentially prioritizing Finnish forest owners over external shareholders. Despite recent operational challenges including post-pandemic destocking, labor strikes, and a pulp plant explosion, the company has successfully expanded paperboard capacity by 25% since 2022 and increased its net long pulp position to 1 million tonnes. The manager believes the market is underestimating normalized earnings capacity as these operational issues resolve. With improving pricing momentum in the packaging sector, the setup appears attractive for a recovery play in the paper and forest products industry.

Pitch Summary:
During June, we have upped our position in Truecaller. What elapsed during the final days of the months are very telling as to why we argue Truecaller is just habitually pushed back on by everyone and everybody. Since the company started monetising, it has been looking for a killer feature that will drive uptake of its consumer-facing subscription product Truecaller Premium. The features included in the package have so far been too narrow. And hopes of a diminished dependence of advertising revenues have not been high. We were thus surprised to see the lacklustre market reaction to the announcement of an insurance being included in the subscription at an unchanged price. This insures Truecaller Premium users in case of fraud in India. The average subscriber pays less than 1 USD/month for this service. Here's the beauty of it; Truecaller includes this in the existing Premium package at no change in prices, pays the premium to the insurance company but bears no other responsibility towards either party. Unsurprisingly, Truecaller raised prices for its packages earlier this year – we think this was proactively to cover for the incurred insurance premium. Effectively this also means that the "only" risk Truecaller faces from this is if claims are higher than implied by the price paid for the insurance, in which case premiums will come up (which could be mitigated by more price hikes of Truecaller Premium). And suddenly, a potential killer feature is launched. Who would not want to insure themselves and their family members against fraud? Is it a sure bet that this will make subscription penetration take off from current close to 0.5% of the user base? No. But the risk is non-zero, in fact we think it is reasonably good, that this could be the feature we have been looking for. And the share barely budged. No analyst mentioned it, no sales desk sent an IB on it, no fellow investor we have spoken to recognised it. Radio silence. Mr Misunderstood on full display, again… We bought more on the day of the announcement.

BSD Analysis:
The manager identifies Truecaller as a misunderstood technology company with a potentially transformative product development that the market has overlooked. The addition of fraud insurance to Truecaller Premium represents a significant value proposition enhancement without increasing subscription prices, addressing a critical consumer need in India where fraud is prevalent. The company's risk-managed approach involves paying insurance premiums while bearing no direct liability, creating an asymmetric opportunity. With subscription penetration at only 0.5% of the user base, there is substantial room for growth if this feature drives adoption. The manager believes the fraud insurance could be the 'killer feature' needed to reduce dependence on advertising revenues and accelerate premium subscription growth. The complete lack of market reaction despite the strategic significance suggests significant information inefficiency. Early price increases likely preemptively covered insurance costs, indicating thoughtful management execution. The investment thesis centers on the potential for meaningful subscription revenue growth from an underappreciated product enhancement in a large addressable market.

Pitch Summary:
During June, we initiated a position in Norva24. As the leading Northern European provider of underground infrastructure maintenance (UIM) services to municipalities, real estate operators, construction companies and industrial companies. That's business English for 'sh*t management'. The services Norva provides are typically necessary and can, at most, be postponed only temporarily. Demand is consistently growing on the back of ageing sewerage systems (in some markets, sewerage pipes are 40 years old on average, versus a normal expected lifetime of 20 years) with leakage increasing. This is further supported by regulation and climate change. Markets are growing like clockwork in the mid-single digit region, regardless of the economic environment, and is being consolidated from local family-run businesses to regional and decentralised densification-plays. So why do the chaps at Protean consider Norva a misunderstood case? Operating a service-specific fleet consisting of 1,100 vehicles, of which many are heavy and cost north of SEK 3m per vehicle requires you to have reasonably deep pockets and good customer relationships from the get-go to be profitable as a new entrant. Density is key in this business as somewhere around 55% of the cost is fixed in any given route (vehicle/depreciation, fuel, operator, overhead). Driving utilisation within a route is paramount for margins. Utilisation hinges on customer relationships. And as such you end up in a hen or the egg-issue. Deep-pocketed players lack customer relationships. Shallow-pocketed players (e.g. ex-Norva employees looking to set up a business of their own; yes, I am looking at you, Consultancies and Installers) lack the funds. This is not a business equated to providing pure installation services based on ad hoc demand or project-based orders, it requires capital and, most importantly, fingerspitzengefuhl in route planning, relationship building, and capabilities.

BSD Analysis:
The manager presents Norva24 as a misunderstood infrastructure services company with significant competitive advantages and secular growth drivers. The business benefits from non-discretionary demand as underground infrastructure maintenance cannot be meaningfully postponed, creating recession-resistant revenue streams. Aging sewerage systems across Northern Europe (averaging 40 years vs. 20-year expected lifetime) drive consistent mid-single digit market growth, supported by regulatory requirements and climate change impacts. The company operates a substantial competitive moat through its 1,100-vehicle fleet requiring significant capital investment (SEK 3m+ per heavy vehicle) and established customer relationships. The business model features high fixed costs (55% per route) making route density and utilization critical for profitability, creating barriers for new entrants who face a chicken-and-egg problem between capital requirements and customer relationships. Market consolidation from family-run businesses to regional players favors well-capitalized operators like Norva24. The manager views current market skepticism as creating an attractive entry opportunity for a defensive growth business with strong fundamentals.

Pitch Summary:
Camurus is maturing from a one product franchise (but what a franchise the Buvidal/Brixadi product is becoming) to a platform company where their long-release technology can be used in many fields, with acromegaly being the most promising. Sometimes the opportunity creates the idea, and the recent sell-down from the main owner gave us an entry opportunity which we seized.

BSD Analysis:
The manager views Camurus as transitioning from a single-product company to a diversified pharmaceutical platform leveraging its proprietary long-release technology. The core Buvidal/Brixadi franchise for opioid addiction treatment has established strong market traction and provides a solid foundation for growth. The company's FluidCrystal technology platform offers significant expansion potential across multiple therapeutic areas, with acromegaly representing the most promising near-term opportunity. This technology differentiation creates barriers to entry and potential for multiple product launches. The manager capitalized on a recent selldown from a major shareholder to establish the position at an attractive entry point. The evolution from single-product dependency to platform company status suggests multiple expansion opportunities and reduced concentration risk. The long-release delivery technology addresses significant unmet medical needs across various chronic conditions.

Pitch Summary:
Metsä Board is a Finnish producer of fibre-based packaging in a range of fields, including food and retail. The 51% ownership by the Metsäliitto Cooperative has always been a conundrum in this stock. Are the ultimate interests of Finnish forest owners the same as the external owners of Metsä Board? Would the cooperative enforce investment decisions where the ultimate objective is to increase the price of wood domestically in Finland? As such, the recent decision to not proceed with the potential >EUR1bn Koskinen project was a relief. Metsä has had its recent struggles (post-pandemic destocking & Finnish strikes & an explosion in their main pulp plant) which has overshadowed the completion of some other, more sensible investment projects. Since their earnings peak in 2022, Metsä has increased their capacity in paper board by 25% and their net long pulp position has increased to 1m tonnes. The normalized earnings capacity appears underestimated, and with momentum in prices this creates a good set-up.

BSD Analysis:
The manager presents a compelling turnaround thesis for Metsä Board, viewing the company as emerging from a period of operational challenges. The decision to cancel the EUR1bn Koskinen project addresses previous concerns about capital allocation conflicts between the cooperative ownership structure and external shareholders. Despite recent headwinds including post-pandemic destocking, labor strikes, and a pulp plant explosion, the company has successfully expanded paperboard capacity by 25% since 2022 and increased its net long pulp position to 1 million tonnes. The manager believes the market is underestimating the company's normalized earnings capacity following these capacity additions. With improving price momentum in the packaging sector and the operational disruptions now behind them, Metsä Board appears positioned for earnings recovery. The cooperative ownership structure, previously seen as a governance concern, may now provide stability during the recovery phase.

Pitch Summary:
Carter's, the number one branded marketer of apparel for young children in the U.S., is experiencing the same difficult comparisons facing many consumer companies. The combination of substantial accumulated inflation over the past three years and the end of pandemic stimulus payments has resulted in compressed budgets for many consumers. Children's clothing hasn't been spared from cutbacks, as evidenced by the travails of competing retailer The Children's Place. Carter's sells merchandise online and in its own branded stores as well as through major retailers like Walmart, Target, and Amazon. While Carter's operating results may remain soft in the near term, we expect the company to retain its industry leadership position. Carter's lineage extends back to 1865!

BSD Analysis:
Palm Valley maintains confidence in Carter's despite acknowledging the challenging consumer environment affecting children's apparel retailers. The fund manager recognizes that accumulated inflation over three years combined with the end of pandemic stimulus has compressed consumer budgets, particularly impacting discretionary categories like children's clothing. The struggles of competitor The Children's Place underscore the sector-wide headwinds facing the industry. However, Palm Valley emphasizes Carter's dominant market position as the number one branded marketer of children's apparel in the U.S., supported by diversified distribution channels including owned retail stores, e-commerce, and major retail partners like Walmart, Target, and Amazon. The company's 159-year operating history since 1865 demonstrates remarkable longevity and brand strength through multiple economic cycles. While acknowledging that operating results may remain soft in the near term, the manager expresses confidence in Carter's ability to maintain its industry leadership position. The investment thesis appears to center on the company's market-leading brand, diversified distribution, and historical resilience, positioning it to benefit from an eventual consumer spending recovery.

Pitch Summary:
TrueBlue, a staffer specializing in blue-collar roles, has rarely lost money over its history, but it produced operating losses over the past year and recently coughed up its worst quarterly performance ever. Unlike Amdocs, it's a highly cyclical business. The company has been behind the curve on reducing operating expenses to match falling revenues, but the new management team is adjusting the cost structure more actively since the industry pullback is continuing. We believe the company can remain near breakeven while the demand drought for staffers persists. Over the last 10 years, the average annual operating profit generated by the firm was $75 million. TrueBlue's current enterprise value is $280 million. TrueBlue has no debt and significant access to liquidity between its cash resources and credit facility. The company's stock is also trading below tangible book value. Many investors today are chasing companies that are performing well when the stock price more than reflects it. With TrueBlue, we think we're getting involved near a cycle low when the price more than reflects temporary challenges.

BSD Analysis:
Palm Valley presents TrueBlue as a contrarian value play in the cyclical staffing industry, acknowledging the company's current operational challenges while emphasizing its historical profitability and strong balance sheet. Despite producing operating losses and delivering its worst quarterly performance ever, the fund manager views this as a temporary cyclical downturn rather than structural deterioration. The investment thesis is anchored on attractive valuation metrics, with the company trading at a $280 million enterprise value compared to $75 million in average annual operating profits over the past decade. TrueBlue's financial strength is highlighted through its debt-free balance sheet and significant liquidity access, providing downside protection during the current industry recession. The manager contrasts their approach with momentum investors, suggesting they are acquiring shares near a cyclical trough when the stock price more than reflects temporary headwinds. New management's active cost structure adjustments provide additional confidence in the company's ability to navigate the downturn. The investment represents a calculated bet on cyclical recovery in blue-collar staffing demand, supported by strong fundamentals and defensive financial positioning.

Pitch Summary:
Amdocs, a leading software and services provider to wireless, cable, and media companies, reduced its full year revenue guidance by 0.5% and trimmed its adjusted EPS forecast by 1%. While this was immaterial to us, the market was less forgiving. The company is still modeling 7-11% EPS growth for the fiscal year. It's possible that investors may be misinterpreting the company's exposure to artificial intelligence. Amdocs has been occasionally mislabeled as a glorified call center cousin, when in fact it is a mission critical service provider to the world's most important communications enterprises, including AT&T, Bell, BT, Charter, Comcast, dish, Globe, T-Mobile, Telefonica, and Vodafone. Amdocs does everything from providing customer facing portals to handling the details of billing to helping ensure that networks are operating at peak efficiency. We like to increase our exposure to Amdocs when its valuation doesn't reflect its quality.

BSD Analysis:
Palm Valley views Amdocs as a high-quality technology services company that has been unfairly punished by the market for minor guidance adjustments. The fund manager emphasizes that a 0.5% revenue guidance reduction and 1% EPS forecast trim were immaterial, yet the market overreacted to this news. Despite the guidance adjustment, Amdocs still projects 7-11% EPS growth for the fiscal year, demonstrating underlying business strength. The manager corrects market misconceptions about Amdocs being a simple call center operation, highlighting its mission-critical role serving major telecommunications companies including AT&T, Comcast, T-Mobile, and Vodafone. The company provides essential services ranging from customer portals to billing systems and network optimization, making it indispensable to global communications infrastructure. Palm Valley sees this market overreaction as an opportunity to increase exposure to a quality business at an attractive valuation. The investment thesis centers on Amdocs' defensive market position, blue-chip client base, and the market's temporary mispricing of a fundamentally sound business with continued growth prospects.

Pitch Summary:
We purchased one new position during the second quarter. Resources Connection (ticker: RGP) is a global consulting firm focused on project execution. The company's 4,100 professionals specialize in facilitating initiatives associated with business transformation, strategic transactions, or regulatory change. Many employees have Big Four or legal backgrounds. In the mid 2000's RGP was viewed as the best public company play on Sarbanes Oxley compliance requirements, leading to a temporary profit boom. Besides consulting projects, the company also competes on the high end of professional staffing. RGP works with over 2,000 clients, including 87% of the Fortune 100. Factoring in RGP's extremely clean balance sheet, the business has never been priced this low since its IPO over 20 years ago. While results have been on a consistent downward slide for almost two years, the performance is consistent with other providers of consulting and temporary staffing. The stock's valuation multiples are appealing on both a trailing and normalized basis, although RGP's financials have not yet bottomed. RGP has generated positive free cash flow every year since going public. We believe it will survive the current industry recession.

BSD Analysis:
Palm Valley initiated a position in Resources Connection, viewing it as an attractive value opportunity in the consulting and professional staffing space. The fund manager highlights RGP's quality client base, serving 87% of the Fortune 100 companies with 4,100 professionals specializing in business transformation and regulatory compliance. Despite facing industry headwinds with results declining for nearly two years, the company maintains an extremely clean balance sheet and has generated positive free cash flow every year since going public over 20 years ago. The stock is trading at its lowest valuation multiples since IPO, creating an attractive entry point on both trailing and normalized metrics. While the manager acknowledges that financials have not yet bottomed, they believe the current downturn is cyclical rather than structural. The investment thesis centers on acquiring a quality business with strong client relationships at a historically attractive valuation during a temporary industry recession. The manager expresses confidence in RGP's ability to survive the current downturn and benefit from an eventual recovery in consulting demand.

Pitch Summary:
Fortunately, there were several exciting opportunities that came across my radar during the quarter. One of which was Lakeland Industries ("LAKE"). LAKE makes protective clothing for personal and industrial uses. Whenever there is a health scare, revenues get a boost and the price spikes off of the potential for windfall earnings; as you may have guessed, they were a Covid darling with the stock moving up 400%+ at one point. Conceptually, they are known to be a trading security and not a real holding for long-term investors. This all changed over the past year. The company replaced its entire C-suite and redirected its strategic focus to its nascent fire services division, which provides protective gear to fire departments. The firefighter turnout gear industry is $1.8bn globally and is led by market leader MSA Safety. The industry is estimated to grow 5% over the next several years and benefits from being non-discretionary in nature as it serves the safety needs of public workers. After MSA there are a host of smaller companies that provide a ripe field for acquisitions. The company is now being run by Jim Jenkins. Jim previously served as the General Counsel and VP of Corporate Development for Transcat. Transcat is a highly regarded roll-up of calibration companies which I have followed for several years (wrote it up in my Q3 letter from 2019). The new team has already completed several acquisitions and, on a pro forma basis, fire now accounts for ~40% of their revenue (up from single digits a few years ago). While the company does not disclose purchase multiples, I estimate that they have been able to acquire companies at 5x-6x EBITDA. From a strategic perspective, they have been able to expand their product suite to not only offer a broader range of products, but also products that are certified for various regulatory bodies. Furthermore, LAKE owns its own manufacturing and has the opportunity to bring it in house for acquired entities. I would not be surprised to see additional acquisitions down the road as LAKE is still net cash. MSA is currently running at 26% EBITDA margins though this includes presumably higher margin products like gas detection. European player Drager breaks out their "Safety" division margins which are at 15%, though management has also discussed changing their focus from revenue growth to increasing profitability. LAKE is guiding to 12% for this fiscal year. It seems like there should be some upside to this over-time. In any case using a 12% margin off pro forma revenue implies that LAKE is trading around 7x EBITDA and 10x FCF. This compares incredibly favorably to MSA which trades at 17x EBITDA and 25x FCF. I would expect LAKE's multiple to expand as they realize their earnings power and more investors appreciate the ongoing transformation.

BSD Analysis:
The manager identifies a compelling transformation story in Lakeland Industries, which has evolved from a cyclical COVID beneficiary to a focused fire services equipment provider. Under new leadership from Jim Jenkins (formerly of successful roll-up Transcat), LAKE has strategically pivoted to the $1.8bn firefighter turnout gear market, growing fire services from single digits to 40% of revenue through acquisitions at attractive 5x-6x EBITDA multiples. The fire services market offers non-discretionary demand with 5% annual growth, serving public safety workers with regulatory-driven replacement cycles. LAKE's valuation appears compelling at 7x EBITDA and 10x FCF compared to market leader MSA Safety at 17x EBITDA and 25x FCF. The company maintains a net cash position enabling further acquisitions, while owning manufacturing capabilities that provide integration opportunities for acquired entities. Management's 12% EBITDA margin guidance appears conservative given MSA's 26% margins and European competitor Drager's 15% safety division margins. The transformation from a trading stock to a strategic consolidator in a fragmented industry presents significant multiple expansion potential as investors recognize the sustainable earnings power.

Pitch Summary:
One holding I have adjusted is a previously undiscussed name, Victory Capital Holdings ("VCTR"). VCTR is a traditional asset management firm with ~$175bn of assets under management ("AUM") that was taken private through a management buy-out in 2013 and relisted in 2018. The company is incredibly shareholder friendly. With a diligent focus on cost management VCTR operates at EBITDA margins close to 50% and generates prodigious cashflow. This cashflow has historically been used for shareholder returns (45% towards dividends and buybacks since IPO) and M&A. Since the initial management buy-out the company has completed 7 acquisitions which have grown their AUM from $18bn to $170bn, diversified the product offering and client base, and provided incremental operating efficiencies. I initiated a position in Q4 of 2021 when they sold off following a disappointing quarter, and added as valuation became increasingly attractive throughout 2022. As the risk/return dynamics became less favorable this year, I pared back on our holdings. In April VCTR announced that they would acquire Amundi USA. I viewed this as an incredible acquisition and subsequently repurchased what I had sold earlier this year, and then some. I actually paid higher prices than what I had sold at; there is no use in being anchored to our prior selling price, especially when new information emerges. The transaction grants Amundi parent 26% equity ownership in VCTR in exchange for $104bn in AUM or 38% of the pro forma AUM. This is an attractive ratio and the fact that VCTR operates with some debt makes it even more so. VCTR stock has moved up since announcement, but at current levels it implies that they are paying ~5.2x synergized EBITDA. I tend to trust their synergy targets as it only incorporates expense savings and VCTR has a track-record of exceeding these. The real kicker here is potential revenue synergies as VCTR and Amundi parent are concurrently entering into a 15-year distribution agreement for US/non-US investment products. Since Amundi is one of the largest European asset managers with $2.2tn in AUM, I would expect that this arrangement could lead to some meaningful flows for "tiny" VCTR – and the fact that Amundi is taking stock gives them financial incentives to do so.

BSD Analysis:
The manager presents a compelling bull case for Victory Capital Holdings based on the transformative Amundi USA acquisition. VCTR operates as a highly efficient asset manager with 50% EBITDA margins and strong cash generation, having grown AUM from $18bn to $170bn through strategic acquisitions since 2013. The Amundi deal is particularly attractive at 5.2x synergized EBITDA, bringing $104bn in AUM and establishing a 15-year distribution partnership with Amundi's massive $2.2tn European platform. This creates significant revenue synergy potential beyond the conservative expense savings already factored into management's targets. The manager demonstrates conviction by repurchasing shares at higher prices following the acquisition announcement, recognizing the strategic value despite near-term price appreciation. VCTR's shareholder-friendly capital allocation (45% to dividends and buybacks since IPO) and proven M&A execution track record support the investment thesis. The distribution agreement with Amundi provides a unique growth catalyst that could drive meaningful AUM inflows to the relatively small VCTR platform.

Pitch Summary:
ResMed And The Risk That GLP-1s Ruin The Runway For Growth

Investors would be aware that ResMed became a significant position for the Auscap funds in the second half of 2023. It is a founder-led business that sells CPAP (continual positive airway pressure) devices to sufferers of obstructive sleep apnea (OSA). Following a recall by its major competitor, Phillips, ResMed is the dominant player within its sector, having grown earnings per share by 15% per annum for the last decade with a consistent return on equity above 20%.

ResMed sold off in the last year due to the perceived potential impact of a class of drugs referred to as Glucagon-Like Peptide 1 agonists, or GLP-1s, which assist patients in losing significant amounts of weight. There is a strong correlation between OSA and weight. GLP-1 drugs could potentially reduce the number of patients that suffer from OSA thereby reducing the size of its market. However, the evidence is far from conclusive. ResMed noted that a current study of 660,000 patients with GLP-1 initiation and an OSA diagnosis saw a 10.5% increase in the likelihood that the patient would initiate positive airway pressure (PAP) therapy if they are prescribed a GLP-1 drug. Patients on GLP-1s also had higher PAP resupply rates 1 and 2 years post setup.

A recent high-profile study called SURMOUNT-OSA has driven another sell off in recent weeks. Having spoken to many industry participants, the concerns currently appear overblown. There remain many outstanding issues with concluding that GLP-1s should be the primary treatment for OSA. The benefits of GLP-1s take time, with the weight loss and health benefits of the SURMOUNT-OSA study measured over 52 weeks. CPAP by contrast delivers benefits immediately, and untreated OSA can increase all-cause mortality. Patient adherence, noticeable side effects from GLP-1s and whether patients can maintain the weight loss post treatment are all ongoing issues. Ultimately it may be the case that a combination of treatments is most effective for OSA. The cost of GLP-1 drugs is currently extremely high and it is not clear to what extent reimbursement will be available.

Feedback suggests that ResMed remains the strongly preferred CPAP standard of care, with physicians tending to view GLP-1s as an adjunctive OSA therapy to CPAP. Significantly, demand trends for the CPAP sector remain extremely strong. It also appears that the sudden focus on weight and health that has arisen from the GLP-1 fervour has substantially increased awareness of OSA, an under-diagnosed condition, which is increasing the number of patients looking for a solution. ResMed management estimates the current global OSA market to be roughly 1 billion people, and in FY23 ResMed had just 23.5 million connected devices in market. Awareness is likely to increase further with Samsung's new Galaxy Watch which detects signs of sleep apnea.

ResMed is currently trading on a forward price to earnings multiple that is a discount to where it has traded historically, and even more so relative to the broader market, which we think is a great opportunity to buy in at an attractive price for long term investors. We see a significant runway for earnings growth for ResMed over the coming years.

BSD Analysis:
Auscap presents a compelling bull case for ResMed, viewing the recent GLP-1 drug concerns as overblown and creating an attractive entry point. The fund manager emphasizes ResMed's dominant market position following Philips' recall, with the company demonstrating strong historical performance including 15% annual EPS growth over the past decade and consistent 20%+ ROE. The thesis centers on the massive addressable market opportunity, with management estimating 1 billion people globally suffering from OSA while ResMed only has 23.5 million connected devices in market. Auscap argues that GLP-1 drugs are more likely to be adjunctive therapy rather than replacement treatment, citing physician preferences and immediate CPAP benefits versus the time required for GLP-1 effectiveness. The manager sees increased OSA awareness from health trends as a positive catalyst. With ResMed trading at a historical valuation discount, Auscap views this as an opportunistic entry point for a company with significant earnings growth runway in an underpenetrated market.