Investment Pitches

Pitch Summary:
Arvind is an Indian textile manufacturer specializing in producing fabrics and garments. Currently, most company revenues are derived from manufacturing fabrics for global clothing brands, which are then exported to other countries to assemble finished garments. However, the company has shifted its focus to its own finished garments business and Advanced Materials Division (AMD), which are less capital-intensive and more profitable than the fabrics business. As global brands focus on vertically integrated supply chains less dependent on one country, Arvind's location and ability to produce fabrics and finished garments will benefit. Additionally, Arvind has exclusive licenses from global chemical companies for compounds used in producing specialized professional uniforms such as firefighting suits, construction apparel and military uniforms. These licenses, plus a cost advantage relative to competitors in AMD, give us confidence that Arvind is well-positioned to grow this business over the long term. Hence, we initiated a position in the stock as the current valuation does not reflect the business mix shift to less capital-intensive and higher-margin areas.

BSD Analysis:
Diamond Hill initiated Arvind as a business transformation story benefiting from supply chain diversification trends. The manager sees value in the company's strategic shift from low-margin fabric manufacturing to higher-value finished garments and advanced materials, which offer better capital efficiency and profitability. The investment thesis is supported by global brands' desire for vertically integrated, geographically diversified supply chains, where Arvind's Indian location and integrated capabilities provide competitive advantages. A key differentiator is Arvind's exclusive licensing agreements for specialized compounds used in professional uniforms for firefighting, construction, and military applications. Combined with cost advantages in the Advanced Materials Division, these exclusive licenses create a defensible moat for long-term growth. The fund believes the current valuation doesn't reflect this business mix transformation toward higher-margin, less capital-intensive operations.

Pitch Summary:
Whitehaven Coal is an Australian coal mining company. Whitehaven owns and operates thermal and metallurgical coal (met coal) mines throughout Australia, concentrating on the highest quality types of coal. Historically, the company has focused on thermal coal, but recently acquired assets are expected to transform the company's revenue base into mostly met coal. After liabilities for the acquisition are paid off over the next three years, the company will have a significant increase in free cash flow that is not reflected in the current stock price. Demand for coal, specifically from Southeast Asia, will likely be stable or increase going forward. Conversely, the supply of new coal mines is expected to remain stable or decrease over the long term, creating a favorable demand/supply imbalance. We initiated a position in the stock given the favorable demand/supply conditions in coal and the deep discount to the stock's intrinsic value.

BSD Analysis:
Diamond Hill initiated Whitehaven Coal as a value play benefiting from favorable supply-demand dynamics in the coal market. The manager highlights the company's strategic shift from thermal to higher-value metallurgical coal through recent acquisitions, which should improve the revenue mix and profitability profile. A key catalyst is the expected significant free cash flow increase over the next three years as acquisition-related liabilities are paid down. The investment thesis is underpinned by structural supply-demand imbalances, with stable-to-growing demand from Southeast Asia while new mine supply remains constrained. The fund sees compelling value with the stock trading at a deep discount to intrinsic value, suggesting the market hasn't fully recognized the business transformation and favorable industry dynamics.

Pitch Summary:
CNH Industrial is a global capital goods company headquartered in the United Kingdom. The company specializes in equipment and services for the agriculture and construction industries. CNH is most known through its brands, Case and New Holland. In 2022, the company underwent a restructuring when it sold off its commercial and power train business to focus on its core competencies. The current management team has a solid execution track record and has embarked on a turnaround plan to improve distribution and operational inefficiencies that plagued the company over the last decade. Additionally, the stock is priced at a significant discount to peers and the cumulative value of its underlying businesses.

BSD Analysis:
Diamond Hill initiated a position in CNH Industrial as a turnaround opportunity trading at a significant valuation discount. The manager views the 2022 restructuring, where the company divested non-core commercial and powertrain businesses, as a positive strategic refocusing on agriculture and construction equipment. The investment thesis centers on management's turnaround plan to address historical distribution and operational inefficiencies that have hampered performance over the past decade. With established brands like Case and New Holland, CNH has strong market positions that should benefit from operational improvements. The fund sees compelling value with the stock trading at a substantial discount to both industry peers and the sum-of-the-parts value of its underlying businesses, suggesting significant upside potential as the turnaround progresses.

Pitch Summary:
Tencent Holdings provides various internet, mobile and communication services in China. The company owns dominant ecosystems in messaging (WeChat), social networking (QQ and Qzone), payment services, gaming (the #1 global online gaming company) and a mobile app store. After weakness in its gaming business in the recent past, the company reported better-than-expected results and gave more promising forward guidance, which suggests gaming recovery is in sight. We continue to believe Tencent's ability to monetize this large installed user base over the long term is not reflected in the current stock price.

BSD Analysis:
Diamond Hill maintains a bullish view on Tencent, seeing the Chinese internet giant as undervalued relative to its monetization potential. The manager emphasizes Tencent's dominant position across multiple digital ecosystems, including messaging through WeChat, social networking, payments, and gaming where it holds the #1 global position. Recent better-than-expected gaming results and improved forward guidance signal a recovery in this key business segment after previous weakness. The investment thesis centers on Tencent's massive installed user base and the company's ability to extract more value from these users over time through its integrated platform approach. Despite recent positive performance, the fund believes the market hasn't fully recognized the long-term monetization opportunity from Tencent's ecosystem dominance.

Pitch Summary:
Spotify is a Swedish-headquartered global online streaming service and marketplace platform that distributes primarily audio content. Users sign up for an ad-supported or paid monthly subscription and get access to the company's industry-leading content library, which includes songs, podcasts and audiobooks. Positive performance was driven by an announcement of price increases in its core markets and a new tiered pricing structure that should allow further monetization of its user base and better margins over the long term.

BSD Analysis:
Diamond Hill views Spotify favorably as a dominant global audio streaming platform with significant monetization opportunities ahead. The manager highlights the company's industry-leading content library spanning music, podcasts, and audiobooks, which creates a comprehensive entertainment ecosystem. Recent positive performance was driven by strategic pricing initiatives, including price increases in core markets and introduction of tiered pricing structures. These pricing actions demonstrate Spotify's pricing power and ability to extract more value from its massive user base. The fund sees these monetization improvements as driving better margins over the long term, suggesting the investment thesis focuses on the company's ability to convert its scale and market position into improved profitability.

Pitch Summary:
Taiwan Semiconductor is the largest microchip fabrication company in the world. The company has substantial competitive advantages in digital chip manufacturing and possesses a broad portfolio of semiconductor processes serving various end markets. Shares of Taiwan Semiconductor outperformed due to strong financial performance and increasing optimism about the growth of AI. We continue to believe the quality of the business and growth of artificial intelligence and 5G smartphones is not fully reflected in the share price. Additionally, while we acknowledge the geopolitical concerns associated with a Tawain-based company, we believe the stock's valuation is attractive relative to other AI-exposed companies around the world.

BSD Analysis:
Diamond Hill maintains a bullish stance on Taiwan Semiconductor, viewing it as undervalued despite strong recent performance driven by AI optimism. The manager emphasizes TSMC's dominant market position as the world's largest contract chip manufacturer with substantial competitive moats in advanced semiconductor fabrication. The investment thesis centers on the company's exposure to two major secular growth drivers: artificial intelligence and 5G smartphone adoption. While acknowledging geopolitical risks related to Taiwan's strategic position, the fund believes these concerns are already reflected in the valuation, making TSMC attractive relative to other AI-beneficiary stocks. The manager sees the current share price as not fully capturing the company's business quality and long-term growth potential from these technology megatrends.

Pitch Summary:
Starbucks is the global leader in the coffee industry. Given its significant scale, we believe Starbucks can maintain its average ticket growth and drive decent traffic growth, which should allow for some margin expansion. While macroeconomic and competitive pressures remain intense in China, the country accounts for a minimal percentage of today's earnings, and we believe the current valuation embeds little to no contribution from China over the long term, which we view as too cynical. As the share price declined recently amid near-term concerns surrounding store sales in North America and China, we capitalized on what we considered an attractive entry point.

BSD Analysis:
Diamond Hill initiated a position in Starbucks, capitalizing on recent share price weakness to establish an attractive entry point. The fund's thesis centers on the company's global leadership position and significant scale advantages in the coffee industry. Management expects Starbucks to maintain average ticket growth while driving traffic increases, leading to margin expansion opportunities. A key aspect of the investment case involves the market's overly pessimistic view of China operations, where Diamond Hill believes current valuations embed minimal long-term contribution despite the country's growth potential. The managers view recent concerns about North American and Chinese store sales as temporary headwinds creating an opportunistic buying opportunity. This represents a contrarian bet on a quality consumer brand trading below intrinsic value. The investment reflects confidence in Starbucks' ability to navigate competitive pressures while leveraging its scale for sustainable growth.

Pitch Summary:
International Paper is one of the US's largest manufacturers of containerboards, which is used to make corrugated boxes and other packaging materials. We expect that as the demand environment improves and the company focuses on its commercial execution, it will be able to improve profitability and bring operating margins back to normalized levels. Given what we view as an attractive valuation for a high-quality company, we capitalized on the opportunity to initiate a position in Q2.

BSD Analysis:
Diamond Hill initiated a new position in International Paper, viewing it as an attractively valued opportunity in the containerboard manufacturing space. The fund expects improving demand conditions and enhanced commercial execution to drive margin expansion back to normalized levels. The investment thesis centers on the company's scale advantages as one of the largest US containerboard manufacturers, positioning it to benefit from packaging demand recovery. The managers see the current valuation as compelling for a high-quality asset in the essential packaging materials sector. This represents a contrarian play on industrial materials during a period when the sector has underperformed. The timing suggests confidence in a cyclical recovery for packaging demand. The position reflects Diamond Hill's value-oriented approach of identifying overlooked quality companies trading below intrinsic value.

Pitch Summary:
Catapult International: a high quality "pick and shovel" play on elite sports. We believe it is one of the most misunderstood companies listed on ASX. It has few sell-side analysts, who in any event can only spend limited time on the company, given their other commitments. There is a need to disaggregate the accounts and reconcile cash flow, which takes some degree of time, and the company has differing margins across its three main businesses (including media). There is no publicly listed cohort, and the unlisted competitors (especially Agile Sports Technology – "Hudl") guard their financials and IP closer than nuclear launch codes. More pointedly, we see few analysts who have a comprehension of what's happening with sports media and the long-term high growth in revenues to elite sports/sports teams. That's why we have spent significant space in explaining why we don't believe this is a trend which will be under meaningful pressure, though inevitably there will be abatements of growth rates from time to time. Bluntly, we have rarely seen an industry environment so conducive to a company's growth; so it's simply down to Catapult management to execute. The key for Catapult is to grow the cross sell of P&H into T&C since it has the desirable impact of locking in the client, lengthening signed contracts as well as enhancing margin, since profitability in the T&C vertical is commensurately greater than P&H. Based on the company's numbers at 31 March 2024, Catapult had 483 pro-teams (up 32% on prior year) across the two verticals. That's around 11.5% penetration of Catapult's client base. Not only does that modest figure provide scope for growth, but gains in the area are additive to the average US$24k per year average contract value. One of the features of the business we love is that as a top-line professional team, you cannot do without products such as Catapult for match day but specifically for training.

BSD Analysis:
The manager identifies Catapult as a high-quality "pick and shovel" play benefiting from the massive growth in elite sports revenues and media rights. The company provides mission-critical performance analytics and wearable technology to professional sports teams, creating a sticky, recurring revenue model with low churn rates (3.5%). The key growth driver is cross-selling from Performance & Health (wearables) to Tactics & Coaching (video analysis), which significantly increases contract values and margins while extending customer relationships. With only 11.5% penetration of their client base using both verticals, substantial expansion opportunity exists. The business model benefits from the fact that elite sports teams view these services as essential rather than discretionary, given the massive investments in player salaries and the competitive advantage provided by data analytics. The company has successfully transitioned to a SaaS model and achieved free cash flow positivity, positioning it to benefit from the structural growth in global sports monetization. Management execution remains the primary risk, but the industry tailwinds are exceptionally favorable.

Pitch Summary:
This makes the investment case for Lagardère very attractive: there is effectively a Vivendi "put" – a value below which the shares are unlikely to fall, but in our view significant upside as the travel retail business will find a new home, either as part of a separate spin; at worst retained within a listed, rerated Lagardère which is very much the downside case or far more likely, sold to a third party. Private equity and Middle Eastern sovereign wealth (or a combination) would be obvious buyers given their other interests (past and present) in the sector. Our sum of the parts valuation of €32.40 per Lagardère share is tabulated below: €million Comments Travel retail 3,350 9x business cash flow as defined Book publishing 3,350 9x EV/EBITDA per analysis above Other assets 180 Independent experts less "Paris Match" sale Capitalised costs (126) 9x central costs of €14 million Net debt (2,100) June 2024 = €2,255 but seasonal peak TOTAL 4,564 Per share €32.40 30 June share price €20.70 represents 36% discount We have NOT applied a holding company discount since we view Lagardère as likely being dissected as part of the Vivendi separation which makes the significant passive valuation very appealing.

BSD Analysis:
The manager presents a compelling sum-of-the-parts analysis valuing Lagardère at €32.40 per share versus the current €20.70, representing 36% upside potential. The investment thesis centers on the strategic value of two distinct, high-quality businesses: travel retail (valued at €3.35 billion) and book publishing (€3.35 billion). The travel retail division benefits from the post-COVID recovery in global travel and operates in monopolistic airport environments with significant pricing power. The book publishing business (Hachette) is the world's second-largest general publisher with high returns on capital and strong cash generation. The key catalyst is Vivendi's planned corporate restructuring, which should unlock value through asset separation or strategic sales. The manager expects private equity or sovereign wealth funds to be natural buyers for the travel retail business, while the publishing assets fit strategically within Vivendi's media portfolio. The downside is protected by Vivendi's effective "put" option, making this an asymmetric risk-reward opportunity.

Pitch Summary:
All four of the securities, in our opinion, trade at significant discounts to intrinsic value, discounts driven by different influences. Moreover, there are both diverse AND common catalysts to closing these value gaps. Public market value recognition in the two downstream companies – Vivendi and Lagardère - will be driven by separation of Vivendi into four distinct listed companies; there is an interplay here with Lagardère in that its book publishing business (Hachette) is complementary to the magazine/online media assets (Prisma) within Vivendi itself. It makes little sense, in our opinion and in that context, for there to be a 37% minority in Hachette for no reason. However, at this stage, which we believe will change over time, the fortunes of Odet and Bolloré are driven far more by the share price of Universal Music Group (UMG.AS), the option value inherent in holding over €6billion of cash, and the ~€3bn value of Bolloré's 30% shareholding in Vivendi. Any changes in Lagardère and Vivendi offer incremental value to the Odet and Bolloré holding companies. That's why we feel comfortable owning all four securities.

BSD Analysis:
The manager views Vivendi as trading at a significant discount to intrinsic value with multiple catalysts for value realization. The primary catalyst is the planned separation of Vivendi into four distinct listed companies, which should unlock substantial value currently obscured by the conglomerate structure. The strategic rationale includes potential synergies with Lagardère's Hachette publishing business and Vivendi's Prisma media assets, suggesting further corporate activity. Vivendi's 30% ownership by Bolloré provides additional upside leverage to any value creation initiatives within the broader Bolloré ecosystem. The company benefits from high-quality media assets including stakes in Universal Music Group and Canal+ Group. The manager expects the corporate restructuring to drive meaningful value recognition as individual business units receive appropriate market valuations rather than being buried within a complex holding company structure.

Pitch Summary:
Hence at end June 2024, we view Bolloré as trading at a 65% discount to NAV, well above the prevailing discounts of ~40% of other European family-controlled conglomerates; more pointedly, the discount has blown out nine percentage points in a year despite the removal of transaction closure uncertainties and a 36% lift in the price of its largest investment. A year ago in QR#2, on pages 26 and 27, we tabulated estimates of the value of Bolloré at €13.15 per share; the tabulation showed a near perfect symmetry in netting off the value of the energy distribution business, storage systems and films plus assorted investments against the capitalised value of holding company costs. At this stage, therefore, we feel it is reasonable to simplify Bolloré down to an effective four-line table. Hence, after solving for the self-control loop, which we estimate reduces Bolloré capital from 2,850million shares to an estimated 1,156million, we can arguably simplify Bolloré down as follows: As at 30 June 2024 €million Comments Cash (net) 6,248 Deconsolidation as per December 2023 report Universal Music Group (18%) 9,056 326m shares at €27.78 Vivendi (~30%) 2,928 300m shares at €9.76 TOTAL 18,232 €15.77 per share

BSD Analysis:
The manager identifies Bolloré as trading at an extreme 65% discount to net asset value, significantly wider than the typical 40% discount for European family-controlled conglomerates. The simplified valuation framework reveals a clear path to €15.77 per share versus the current €5.48, driven by three core assets: €6.2 billion in net cash, an 18% stake in Universal Music Group worth €9.1 billion, and a 30% position in Vivendi valued at €2.9 billion. The discount has paradoxically widened despite the successful completion of major asset sales and a 36% appreciation in UMG shares, creating an increasingly compelling opportunity. The substantial cash position provides significant optionality for value-accretive investments or shareholder returns. Management's clear focus on simplification and value extraction, combined with the quality of underlying media assets, supports the thesis that this discount should narrow materially over time.

Pitch Summary:
If that is perplexing, the situation with Compagnie de L'Odet is even more the case, especially as at the June 2023 AGM, Chair Vincent Bolloré was noting the very low price of Odet; at 30 June 2024, it had fallen 14% from then. A year ago (page 27 of QR#2), we calculated based on Bolloré's then market price, that Odet was trading at around a 5% discount to market value NAV (€1554 against mid-point NAV of €1634). The same calculations at 30 June 2024 show that Odet has slithered away to close on a 20% discount to NAV at Bolloré's market value: So we have a holding company trading at a 20% discount to an intermediate holding company with effectively three investments, which itself trades at a 65% discount to real NAV. We value Odet at over €4,700/share on the current asset base – 260% above the prevailing market price. Given the massive optionality with Bolloré's cash hoard and the clear desire of the group to commence the process of simplification and value extraction, there are few other low-moderate risk investments with such upside, anywhere on the planet.

BSD Analysis:
The manager presents a compelling case for Compagnie de L'Odet as an extreme value opportunity trading at a 20% discount to an already deeply discounted holding company. The complex cross-shareholding structure with Bolloré creates a valuation anomaly where Odet trades at €1,304 versus the manager's estimated intrinsic value of over €4,700 per share, representing 260% upside potential. The thesis centers on the significant optionality from Bolloré's €6+ billion cash position following asset sales and management's stated intention to simplify the corporate structure and extract value. The manager views this as one of the few low-to-moderate risk investments globally with such substantial upside potential, particularly given the quality of underlying assets including Universal Music Group and Vivendi stakes. The discount has actually widened despite positive developments, creating an increasingly attractive entry point. The catalyst timeline appears favorable with management actively pursuing value realization strategies.

Pitch Summary:
Microchip develops, manufactures and sells smart, connected and secure embedded control solutions used by its customers for a wide variety of applications. With over 30 years of technology leadership, Microchip's broad product portfolio is a Total System Solution for its customers that can provide a large portion of the silicon requirements in their applications. Total System Solution is a combination of hardware, software and services that helps customers increase their revenue, reduce their costs and manage their risks compared to other solutions. Microchip's synergistic product portfolio empowers disruptive growth trends, including 5G, data centers, sustainability, Internet of Things and edge computing, advanced driver assist systems and autonomous driving, and electric vehicles in key end markets such as automotive, aerospace and defense, communications, consumer appliances, data centers and computing, and industrial. We believe Microchip's Total System Solution will continue to support industry share gains and margin expansion as end-market demand for industrial and Internet of Things compute needs begins to recover off current lows. Management has accelerated the drawdown of high customer inventory levels by shutting down manufacturing facilities, and current industry data as well as commentary from peers indicates that overall end demand is seeing early signs of improvement. The company has a demonstrated track record of margin expansion, and we expect to see gross margins trough at the current level and, through internal efficiencies and pricing initiatives for its Total System Solution, expand and drive increasing operating margins and higher levels of free cash flow.

BSD Analysis:
The manager presents a compelling turnaround story for Microchip Technology based on cyclical recovery and structural competitive advantages. The investment thesis centers on the company's Total System Solution approach, which provides comprehensive hardware, software, and services that create customer stickiness and pricing power. The manager expects margin expansion as industrial and IoT demand recovers from current cyclical lows, supported by management's proactive inventory reduction through facility shutdowns. Early signs of demand improvement from industry data and peer commentary suggest the cycle may be inflecting positively. Microchip's exposure to secular growth trends including 5G, electric vehicles, autonomous driving, and edge computing provides multiple long-term growth drivers beyond the cyclical recovery. The company's 30-year technology leadership and demonstrated margin expansion track record support confidence in execution capability. The manager expects gross margins to trough at current levels before expanding through operational efficiencies and pricing initiatives, driving higher free cash flow generation.

Pitch Summary:
Boston Scientific is a global developer, manufacturer and marketer of medical devices that are used in a broad range of interventional medical specialties. The company develops cardiovascular and cardiac rhythm management products, including imaging catheters, imaging systems and guidewires. It also makes devices used for electrophysiology, endoscopy, pain management (neuromodulation), urology and pelvic health, including laser systems, hydrogel systems and brain stimulation systems. Boston Scientific markets its products in about 130 countries; the U.S. generates about 60% of revenue. We believe Boston Scientific, as a leader in medical devices, is benefiting from the strong utilization trends coming out of COVID, positive demographic trends with aging patients, and new product innovation to gain market share. The company has executed well against the long-range plan issued last fall, which calls for organic sales growth in the range of 8%-10%, 150 basis points of operating margin expansion and category leadership over the period 2024 through 2026. Additionally, we see a consistent track record of accelerating organic sales growth and a track record of accretive M&A.

BSD Analysis:
The manager expresses strong confidence in Boston Scientific's multi-year growth trajectory driven by demographic tailwinds and operational excellence. The investment thesis combines secular growth drivers including post-COVID utilization recovery, aging population demographics, and market share gains through innovation. The company's diversified medical device portfolio across cardiovascular, electrophysiology, and other specialties provides multiple growth vectors and reduces single-product risk. Management's long-range plan targeting 8-10% organic growth and 150 basis points of margin expansion demonstrates clear strategic focus and execution capability. The manager highlights Boston Scientific's consistent track record of accelerating organic growth and value-accretive acquisitions, indicating strong capital allocation discipline. The global footprint with 60% US revenue provides both stability and international growth opportunities. This combination of demographic tailwinds, operational leverage, and proven execution creates a compelling long-term investment case in the growing medical device market.

Pitch Summary:
Amphenol is one of the world's largest designers, manufacturers and marketers of electrical, electronic and fiber optic connectors and interconnect systems; antennas; sensors and sensor-based products; and coaxial and high-speed specialty cable. The company estimates, based on recent reports of industry analysts, that worldwide sales of interconnect and sensor-related products were approximately $235 billion in 2023. The company aligns its businesses into three reportable business segments: Harsh Environment Solutions, Communications Solutions, and Interconnect and Sensor Systems. The company sells products to customers in a diversified set of end markets. We see Amphenol benefiting from increased spending by cloud service providers, hyperscalers and enterprises on new data center architectures that enable AI computing technologies. The increased interconnect content that AI-enabled data centers require, we believe, will underpin a double-digit sales growth outlook for the company over the next few years. The company has attractive end-market diversification, with exposure to both short-cycle and long-cycle, and no single end market vertical represents more than 25% of revenues. Additionally, Amphenol has strong free cash flow generation, which has supported a successful M&A strategy that has driven enhanced advancement.

BSD Analysis:
The manager presents a compelling bull case for Amphenol based on AI infrastructure demand and diversified end-market exposure. The investment thesis centers on the company's leadership position in the $235 billion interconnect market and its strategic positioning for AI data center buildouts. The manager expects double-digit sales growth driven by increased interconnect content requirements in AI-enabled data centers from hyperscalers and cloud providers. Amphenol's diversified business model provides defensive characteristics, with no single end market exceeding 25% of revenues and exposure to both cyclical and secular growth drivers. The company's strong free cash flow generation enables a successful M&A strategy for market expansion and technology advancement. The combination of AI tailwinds, market leadership, and financial strength creates multiple avenues for value creation. This positioning allows Amphenol to benefit from both the current AI infrastructure boom and longer-term digital transformation trends across industries.

Pitch Summary:
Norfolk Southern detracted from performance in the second quarter. The company reported a worse-than-expected earnings result for its first quarter in late April. In the second quarter, the company has been reporting weaker-than-expected railcar volumes on its network. This weaker volume has resulted in some sell-side analysts reducing their estimates for the second quarter of 2024. In addition, sentiment is weak because an activist shareholder was not successful in replacing the CEO of Norfolk Southern during a proxy battle in May; however, the activist did succeed in replacing some board members.

BSD Analysis:
The manager expresses concern about Norfolk Southern's operational and governance challenges. The investment thesis faces headwinds from deteriorating fundamental performance, including worse-than-expected earnings and declining railcar volumes across the network. The volume weakness has prompted analyst estimate reductions, suggesting broader industry or company-specific challenges. The failed activist campaign to replace the CEO, while resulting in some board changes, indicates ongoing governance tensions and strategic uncertainty. The combination of operational underperformance and unresolved leadership questions creates a challenging investment environment. Weak sentiment following the proxy battle suggests limited near-term catalysts for improvement. The manager's bearish stance reflects concerns about both the operational trajectory and management's ability to execute turnaround strategies. This positioning suggests the manager may be considering position reduction or exit given the multiple headwinds facing the company.

Pitch Summary:
Darling Ingredients detracted from portfolio performance in the quarter, as shares continued to be weak following an in-line quarterly earnings report where the company provided initial 2024 EBITDA guidance of $1.3B to $1.4B, below consensus estimates. On a positive note, the company called out improving fat prices exiting the first quarter. Additionally, in its renewable diesel joint venture, the company has worked through higher-cost feedstocks contracted during start-up, so renewable diesel margins should improve on the lower input prices. We believe there are several catalysts for Darling going forward, including the blenders tax credit transitioning to a producer's tax credit on January 1, 2025 and positive commentary around contracting sustainable aviation fuel (SAF) at a $1-$2 per gallon premium to renewable diesel. SAF production starts were pulled forward to the fourth quarter from prior guidance of early 2025.

BSD Analysis:
Despite recent underperformance, the manager maintains a constructive view on Darling Ingredients, focusing on multiple upcoming catalysts. The investment thesis centers on margin recovery in the renewable diesel business as higher-cost startup feedstocks are worked through and input prices normalize. The manager identifies significant regulatory tailwinds, particularly the transition from blenders to producers tax credit in 2025, which should improve economics. The sustainable aviation fuel (SAF) opportunity represents a premium pricing catalyst, with $1-2 per gallon premiums over renewable diesel and accelerated production timelines. Improving fat prices provide additional margin support for the core business. While near-term EBITDA guidance disappointed, the manager appears confident in the structural drivers and regulatory support for renewable fuels. The combination of operational improvements, regulatory benefits, and premium product mix suggests potential for significant margin expansion. This contrarian positioning reflects confidence in the longer-term value creation despite current market skepticism.

Pitch Summary:
Alphabet contributed to portfolio performance in the second quarter, boosted by a strong earnings report featuring better-than-expected revenues across all businesses. The company's positive commentary on the long-term monetization of its AI investments, dividend initiation and increase in its share buyback program contributed to the strong performance. Additionally, evidence increasingly suggests that competitors' GenAI use cases have not disrupted Alphabet's search business, allowing the company to maintain its market leadership and attract incremental advertising dollars.

BSD Analysis:
The manager expresses strong confidence in Alphabet's resilient business model and AI monetization strategy. The investment thesis is built on three key pillars: robust financial performance across all business segments, successful AI investment monetization, and defensive market positioning. The manager highlights that competitive GenAI threats have not materially disrupted Alphabet's core search franchise, demonstrating the durability of their market leadership. The company's capital allocation strategy, including dividend initiation and expanded share buybacks, signals management confidence and shareholder-friendly policies. The ability to attract incremental advertising dollars despite AI competition validates the strength of Alphabet's advertising ecosystem. This defensive positioning combined with AI upside optionality creates an attractive risk-adjusted investment profile. The manager's bullish stance reflects confidence in both the core business resilience and emerging AI revenue opportunities.

Pitch Summary:
Nvidia contributed to portfolio performance in the second quarter as investors continued to view positively the new product roadmap for the rest of the year. The company sees accelerating demand for its GPU semiconductors from hyperscalers and enterprises. Nvidia's GPU semiconductors continue to be the industry-leading building blocks of the accelerated computing data center architecture to drive AI compute and applications.

BSD Analysis:
The manager maintains a bullish stance on Nvidia, highlighting the company's dominant position in AI infrastructure. The investment thesis centers on accelerating demand for Nvidia's GPU semiconductors from hyperscalers and enterprises building AI-enabled data centers. The manager emphasizes Nvidia's technological leadership, noting that their GPUs remain the industry-leading building blocks for accelerated computing architectures. The positive investor reception of Nvidia's product roadmap suggests continued innovation and market expansion opportunities. This positioning aligns with the broader secular trend toward AI adoption across industries. The manager's confidence appears well-founded given Nvidia's established market leadership and the structural shift toward AI computing. The investment benefits from both current demand acceleration and long-term AI infrastructure buildout trends.