Investment Pitches

Pitch Summary:
Tesla, Inc. designs, manufactures, and sells fully electric vehicles, related software and components, and solar and energy storage products. The company has contributed positively to our results, with growing investor confidence in Tesla's promising AI initiatives, its stabilizing financials, and the release of highly anticipated new vehicle models aimed at accelerating growth. Despite macroeconomic challenges, delivery data in key markets like China have shown considerable improvement while the energy segment's growth remains robust, and the segment's gross margins reached a record 30%. These factors supported stronger than expected profitability, including a 20% increase in overall gross profits last quarter, reversing a declining year-over-year trend. Tesla is channeling these funds into its AI developments, including autonomous-driving technologies and humanoid robots. During the quarter, the company expanded its cutting-edge computing center in Texas and introduced an enhanced version of its Full Self Driving software, version 13, which has demonstrated significant improvements over earlier iterations. With rapid product innovation and expectations for a favorable regulatory environment under the incoming Trump administration, investors are increasingly optimistic about the accelerated rollout of robotaxi technology. Further, Elon Musk's recent commentary suggests that Tesla's humanoid robot start-up business may scale faster than many had anticipated. We continue to believe that Tesla remains the innovation leader in real-world, physical AI, and these developments have only provided further support for our view.

BSD Analysis:
The manager presents a compelling bull case for Tesla centered on the company's AI transformation beyond traditional automotive manufacturing. Tesla's financial stabilization is evident through record 30% energy segment gross margins and 20% quarterly gross profit growth, reversing previous declines. The investment thesis emphasizes Tesla's leadership in real-world AI applications, particularly autonomous driving and humanoid robotics. The manager highlights significant technological progress including the expanded Texas computing center and improved Full Self Driving software version 13. Regulatory tailwinds under the Trump administration are expected to accelerate robotaxi deployment. The humanoid robot opportunity represents a potentially massive new revenue stream that could scale faster than anticipated. Tesla's unique position as an innovation leader in physical AI applications differentiates it from pure software AI companies.

Pitch Summary:
CrowdStrike provides cybersecurity products and services that offer endpoint protection and threat intelligence solutions, enabling customers to prevent damage from targeted attacks, detect advanced malware and search all endpoints. The company's open cloud architecture enables it and third-party partners to rapidly innovate, build and deploy new cloud modules that can provide customers with enhanced functionality across a myriad of use cases. We see the cloud cybersecurity market as positioned to experience strong growth over the next few years, driven by continued migration from on-premises to cloud-based architecture. We believe CrowdStrike can benefit from this trend due to its early-mover advantage, multiple product offerings and native integrations with leading cloud platforms. The increasing threats from state-sanctioned cybercriminals using high-performance computing and AI necessitate higher spending on advanced cybersecurity products. The total addressable market (TAM) is projected to grow significantly over the next four years. Additionally, CrowdStrike's cloud-native architecture and unified platform approach provide competitive advantages, resulting in high customer retention and widespread adoption of multiple modules.

BSD Analysis:
The manager presents a strong bull thesis for CrowdStrike based on secular growth drivers in cloud cybersecurity and the company's competitive positioning. The investment case centers on the ongoing migration from on-premises to cloud-based security architecture, where CrowdStrike holds an early-mover advantage with its cloud-native platform. The manager emphasizes the company's unified platform approach that enables cross-selling multiple modules, driving high customer retention and expanding wallet share. Rising threats from state-sponsored actors using AI and high-performance computing create a compelling need for advanced cybersecurity solutions. The expanding total addressable market over the next four years provides a substantial growth runway. CrowdStrike's open architecture allows rapid innovation and third-party integrations, creating network effects and competitive moats. The company's ability to deliver enhanced functionality across multiple use cases positions it well to capture increasing cybersecurity spending as organizations prioritize threat protection.

Pitch Summary:
GE Aerospace designs and produces commercial and defense aircraft engines, integrated engine components, electric power, and mechanical aircraft systems. The industry has high entry barriers and is concentrated among few players. Despite its cyclical nature, the demand for travel is driven by global middle-class growth. Boeing and Airbus have long order books, ensuring steady demand for engines and spare parts. The company also benefits from high-margin services for existing aircraft fleets, with services accounting for 70% of its commercial engine business. GE Aerospace serves customers worldwide. We see GE Aerospace making significant strides in its commercial engine business, which is expected to boost future services revenue growth. Over the past five years, the company has undergone substantial restructuring and simplification, including divesting its healthcare and energy businesses. The company now operates in three segments: Commercial Engines & Services (CES), Defense & Propulsion Technologies (DPT) and Insurance. Long-term revenue guidance is for high single-digit growth, and management has a goal of $10 billion in annual operating profit by 2028, with an expected 20% annual earnings growth. Following years of restructuring, we see GE Aerospace now positioned to return capital to shareholders through dividends and share repurchases.

BSD Analysis:
The manager presents a compelling bull case for GE Aerospace based on the company's dominant position in a high-barrier aerospace duopoly. The investment thesis centers on the company's transformation from a conglomerate into a focused aerospace pure-play, with 70% of commercial engine revenue coming from high-margin aftermarket services. The manager highlights strong structural tailwinds including Boeing and Airbus order backlogs that ensure steady demand, plus global middle-class growth driving long-term travel demand. Management's ambitious target of $10 billion in annual operating profit by 2028 implies significant margin expansion potential. The 20% expected annual earnings growth reflects the operating leverage inherent in the services-heavy business model. Post-restructuring, the company is positioned to return substantial capital to shareholders through dividends and buybacks. The concentrated industry structure and high switching costs provide pricing power and competitive moats that should support sustained profitability.

Pitch Summary:
DSM-Firmenich (DSM), the Dutch-Swiss nutrition, health and bioscience company, was one of the largest detractors. Despite a decline in share price, the company continued to increase its sales across segments following customer destocking in 2023. Within its largest segment—perfumery and beauty—we believe DSM will uniquely benefit, as customers look to differentiate their products and increase fragrance dosage levels. The company has also made progress on the integration of its 2023 merger with Firmenich, a catalyst we previously identified, which we expect to create further sales and product development synergies. With low leverage, the company is in a strong position to pursue additional bolt-on acquisitions and return cash to shareholders, all while it executes on shedding lower-margin segments. As such, during the quarter, the company completed the sale of its yeast extracts and marine-lipid business and remains on track with plans to divest its animal nutrition and health segment. We believe this should enhance overall profitability, as DSM's global scale, close relationships with customers, and ability to innovate allow the company to continue to gain global market share across the businesses it operates.

BSD Analysis:
The manager maintains a bullish stance on DSM-Firmenich despite recent share price weakness, viewing the decline as disconnected from improving operational fundamentals. The investment thesis centers on the company's recovery from 2023 customer destocking and the successful integration of the Firmenich merger, which is expected to generate meaningful sales and product development synergies. Within the core perfumery and beauty segment, DSM is positioned to benefit from customer trends toward product differentiation and increased fragrance dosage levels. The company's portfolio optimization strategy, including the divestiture of lower-margin segments like yeast extracts and animal nutrition, should enhance overall profitability and focus. DSM's strong balance sheet with low leverage provides financial flexibility for bolt-on acquisitions and shareholder returns while executing the restructuring plan. The manager emphasizes DSM's competitive advantages including global scale, deep customer relationships, and innovation capabilities that should drive market share gains. The combination of merger synergies, portfolio optimization, and market positioning suggests multiple catalysts for value creation despite near-term headwinds.

Pitch Summary:
Ashtead Group, a U.K.-headquartered equipment-rental company, was the leading detractor for the quarter. Though rental revenues grew 2% year-over-year, shares declined as weaker local commercial construction markets weighed on growth and fleet utilization. In December, Ashtead also announced its intention to move to a U.S. primary listing (while retaining a U.K. listing), a reflection of the company's large U.S. footprint. This process will take time, as management intends to first discuss the proposal with shareholders before putting forward a formal resolution. Despite the cyclical nature of the construction industry, which can impact short-term results, we believe Ashtead will continue to gain market share in North America as more customers choose to rent rather than purchase equipment. We estimate rental penetration in the U.S. (~90% of EBITDA) is roughly 55% compared to 75% in the U.K., which provides ample runway. During our nearly four years as shareholders, Ashtead has further consolidated the rental industry, which we believe should result in a more disciplined and attractive market. The company also continues to make progress on the catalyst of growing its higher-margin specialty business, which includes HVAC equipment and scaffolding. Moreover, we believe Ashtead will be able to further utilize its national footprint and procurement power to increase its market share and enhance its free cash flow (of which it plans to return up to $1.5 billion to shareholders via buybacks over the next 18 months).

BSD Analysis:
Despite being a detractor during the quarter, the manager maintains a bullish long-term view on Ashtead based on structural market share gains and industry consolidation trends. The thesis centers on the ongoing shift from equipment ownership to rental in North America, where penetration remains at 55% versus 75% in the UK, providing significant runway for growth. The manager highlights Ashtead's role in consolidating the rental industry over their four-year holding period, creating a more disciplined competitive environment. The company's focus on expanding higher-margin specialty businesses like HVAC and scaffolding represents an additional growth catalyst beyond traditional construction equipment. Ashtead's national footprint and procurement scale provide competitive advantages that should drive market share gains and free cash flow enhancement. The planned $1.5 billion shareholder return over 18 months demonstrates strong capital allocation discipline. While near-term construction market weakness and the proposed US primary listing create some uncertainty, the manager's conviction appears rooted in the long-term structural opportunity and Ashtead's execution capabilities.

Pitch Summary:
Sony—the global provider of videogames and consoles, image sensors, music and movies—was a top contributor for the period. The company reported strong results driven by third-party gaming revenue and record PlayStation 5 console profitability. This was achieved despite lower console sales, which, in our view, exemplifies the strength of PlayStation's network effects. PlayStation is the world's largest gaming platform with 116 million monthly active users, making it an attractive market for game developers and allowing users to play the most advanced games at lower costs than PCs. In its pictures segment, Crunchyroll (the anime business Sony acquired from AT&T in 2020) signed a distribution agreement with YouTube Primetime Channels, the market-share leader in streaming services, which we believe will increase Crunchyroll's subscriber base. Though a singular example, it illustrates management's ability to better execute and further improve the segment's profitability, a catalyst we previously identified. In addition, Sony reported improved sales of image sensors for mobile products as the global smartphone market continued its gradual recovery. Sony's image sensor business has the largest global market share, and we believe, longer term, it is uniquely positioned to benefit from increasing demand for both autonomous driving technology in vehicles and improved image quality in smartphone cameras. As such, we continue to admire Sony's capacity to build on its industry leadership and optimize its operations, which includes its plan for a partial spinoff of its financial services segment in October 2025.

Pitch Summary:
Cameco, one of the world's largest uranium producers, was a major contributor during the period. With the continued focus on artificial intelligence (AI) and clean energy, the demand for nuclear energy remained robust. Some of the largest companies in the world, such as Amazon, Google and Meta, announced nuclear-power agreements in the quarter. Given Cameco's tier-one assets in reliable jurisdictions, proven operating experience and strong reputation, we believe the company is in a unique position to benefit as various industries and governments pursue clean, reliable and scalable sources of energy. Correspondingly, Cameco increased its production outlook, having already secured commitments that net an average of 29 million pounds per year over the next four years. We believe Cameco's continued ability to efficiently increase production while securing long-term contracts will lead to sustainably higher levels of normalized free cash flow. While its Canada-based mines and Westinghouse unit are executing well, production was recently suspended at Cameco's Inkai joint venture in Kazakhstan. We believe production will restart soon and note that Cameco's share of Inkai's production amounts to less than 10% of total Cameco volumes, a figure that can be offset with increased production at the company's MacArthur River and Key Lake mines in Canada.

BSD Analysis:
The manager presents a compelling bull case for Cameco based on the structural shift toward nuclear energy driven by AI power demands and clean energy initiatives. The thesis centers on Cameco's tier-one asset base in stable jurisdictions and its proven operational track record positioning it to capitalize on robust uranium demand. The company has already secured long-term contracts averaging 29 million pounds annually over four years, providing revenue visibility and supporting the manager's expectation of sustainably higher normalized free cash flow. While production at the Inkai joint venture in Kazakhstan was temporarily suspended, this represents less than 10% of total volumes and can be offset by increased production at Canadian operations. The manager's confidence in Cameco's ability to efficiently scale production while maintaining long-term contract discipline suggests strong execution capabilities. The convergence of AI infrastructure buildout and decarbonization efforts creates a favorable demand backdrop for nuclear energy. Cameco's strategic positioning as a leading uranium producer with reliable assets appears well-suited to benefit from this multi-year growth cycle.

Pitch Summary:
Microchip Technology, the microcontroller (MCU) and analog semiconductor producer, was one of the largest detractors for the period. Revenues continued to decline amid the severe inventory correction, which has persisted in most end markets other than defense and aerospace since early 2023. In addition, Microchip's board unexpectedly announced that CEO Ganesh Moorthy (who led the company since 2021) would retire with the current chairman and long-tenured former CEO Steve Sanghi returning. Sanghi returned on an interim basis, allowing the company to focus on turnaround efforts without near-term plans to search for a replacement. We have admired Sanghi's skill at navigating past chip cycles and will closely track the company's ability to execute on restructuring initiatives, which aim to resize its manufacturing footprint and reduce inventory. This includes plans to soon shut down the company's wafer fabrication facility in Arizona, which the company expects should generate annual cash savings of approximately $90 million. Despite recent missteps in inventory management that were exacerbated by cyclical headwinds, we are optimistic about management's plans to right-size its business. Moreover, we remain confident that Microchip's broad portfolio is uniquely positioned to increase its market share in 16- and 32-bit MCUs and areas, including IoT, 5G infrastructure, autonomous driving and data centers.

BSD Analysis:
Despite cyclical headwinds and inventory challenges, the manager maintains confidence in Microchip's long-term positioning and turnaround prospects. The return of former CEO Steve Sanghi provides experienced leadership during this difficult period, given his proven track record navigating previous semiconductor cycles. The company is taking decisive restructuring actions, including closing the Arizona fab facility to generate $90 million in annual savings and right-sizing manufacturing capacity. Microchip's diversified portfolio across 16-bit and 32-bit microcontrollers positions it well for secular growth themes including IoT, 5G infrastructure, autonomous vehicles, and data centers. While near-term inventory corrections persist across most end markets, the company's broad market exposure and cost reduction initiatives should drive margin recovery as demand normalizes.

Pitch Summary:
Lennar, one of the nation's largest homebuilders, was the biggest detractor for the quarter. The rapid and unexpected increase in mortgage rates resulted in new orders being below prior guidance. As the company attempted to offset the higher mortgage rates' impact on affordability through short-term incentives, gross margins also suffered. Lennar remains committed to its volume-based strategy and plans to continue to use dynamic pricing and digital marketing to drive sales. Longer term, the underlying demand for homes remains very strong, while the chronic supply shortage continues (the result of years of underproduction and restricted land permitting). In addition to focusing on volume, Lennar also continues to execute on the previously identified catalyst of shifting toward an asset-light, land-light business model (i.e., 82% of land controlled via options versus 18% owned, an improvement from 76/24 just one year ago) and remains open to opportunistic acquisitions, such as the recently announced acquisition of Rausch Coleman Homes, which will expand Lennar's footprint in Arkansas, Kansas and Missouri.

BSD Analysis:
Despite near-term headwinds from rising mortgage rates impacting orders and margins, the manager maintains conviction in Lennar's long-term prospects. The fundamental housing shortage remains acute due to years of underbuilding and restrictive permitting, creating a structural tailwind for demand. Lennar's strategic shift to an asset-light model is progressing well, with 82% of land now controlled via options versus owned outright, reducing capital intensity and risk. This operational flexibility should enhance returns on invested capital over time. The company's volume-focused strategy and digital marketing capabilities position it to capture market share during cyclical downturns. Strategic acquisitions like Rausch Coleman Homes expand geographic diversification while the dynamic pricing model helps optimize margins across cycles.

Pitch Summary:
Ameriprise Financial, the asset and wealth manager, was the top contributor for the quarter. The company benefited from rising equity markets and client inflows, with total assets under management and administration up 22%. Wealth management reported $8.6 billion in client net inflows during the quarter, bringing its total client assets to a record high, passing the $1 trillion mark. During our time as shareholders, Ameriprise has continued to execute on its shift toward fee-based, lower capital-intensive financial advice and asset-management businesses (and away from insurance products). Today the advice and wealth management segment, combined with the asset management segment, account for over 80% of the company's revenues. This has served to unlock excess capital (of which it returned $713 million to shareholders during the third quarter). In addition, the company takes pride in its ability to attract and retain financial advisors, providing tools and technology that allow them to be more productive and to better serve their clients. As a testament to its success, the company boasted a record 21 advisors ranked in the most recent Barron's Top 100 Independent Financial Advisors list. Moreover, we believe the firm's diversified model and strong balance sheet should allow it to continue to invest for future business growth while returning capital to shareholders over the long term ($11.9 billion returned to shareholders over the past five years).

BSD Analysis:
The manager highlights Ameriprise's successful business model transformation and strong operational execution. The company has effectively shifted toward higher-margin, fee-based wealth management and asset management services, which now comprise over 80% of revenues. This strategic pivot has generated significant operating leverage, evidenced by 22% growth in assets under management and $8.6 billion in quarterly net inflows. The milestone of surpassing $1 trillion in client assets demonstrates scale and market position. Strong advisor retention and recruitment capabilities, validated by 21 advisors on Barron's Top 100 list, provide sustainable competitive advantages. The capital-light business model generates substantial excess cash, enabling both growth investments and shareholder returns totaling $11.9 billion over five years.

Pitch Summary:
Capital One Financial was a top contributor to performance during the quarter. There is now an increased likelihood its proposed $35-billion acquisition of Discover Financial Services will close in 2025. The deal, designed to create the largest credit card issuer in the U.S., initially faced scrutiny from the Biden administration due to antitrust concerns. However, Donald Trump's election victory raised expectations for a more favorable regulatory environment under the new administration. If completed, the acquisition would make Capital One the sixth-largest bank and the second-largest credit card issuer by purchase volume in the U.S. Gaining Discover's network—which is as widely accepted domestically as Visa, Mastercard and American Express—would enhance Capital One's ability to streamline operations and capture greater value across a larger customer base as consumers increasingly shift from cash to digital payments.

BSD Analysis:
The manager presents a compelling bull case for Capital One centered on the transformative $35 billion Discover acquisition. The deal would create the largest credit card issuer in the U.S. and position Capital One as the sixth-largest bank by assets. The Trump administration's more favorable regulatory stance significantly increases the probability of deal closure, removing a key overhang. The strategic rationale is strong—acquiring Discover's widely accepted payment network would allow Capital One to capture value across the entire payment ecosystem rather than just issuing cards. This vertical integration should drive operational efficiencies and margin expansion as digital payment adoption accelerates. The timing appears favorable given the secular shift from cash to digital payments.

Pitch Summary:
DSM-Firmenich (DSM), the Dutch-Swiss nutrition, health and bioscience company, was one of the largest detractors. Despite a decline in share price, the company continued to increase its sales across segments following customer destocking in 2023. Within its largest segment—perfumery and beauty—we believe DSM will uniquely benefit, as customers look to differentiate their products and increase fragrance dosage levels. The company has also made progress on the integration of its 2023 merger with Firmenich, a catalyst we previously identified, which we expect to create further sales and product development synergies. With low leverage, the company is in a strong position to pursue additional bolt-on acquisitions and return cash to shareholders, all while it executes on shedding lower-margin segments. As such, during the quarter, the company completed the sale of its yeast extracts and marine lipid business and remains on track with plans to divest its animal nutrition and health segment. We believe this should enhance overall profitability, as DSM's global scale, close relationships with customers, and ability to innovate allow the company to continue to gain global market share across the businesses it operates.

BSD Analysis:
The manager maintains conviction in DSM-Firmenich despite recent share price weakness, viewing it as a temporary disconnect from improving fundamentals. The company is benefiting from post-destocking sales growth across segments, with particular strength in perfumery and beauty where customers are increasing fragrance dosage levels for product differentiation. The 2023 Firmenich merger integration is progressing well and should deliver meaningful sales and R&D synergies. Management is executing a focused portfolio strategy by divesting lower-margin businesses like yeast extracts and animal nutrition while concentrating on higher-value segments. The company's strong balance sheet with low leverage provides financial flexibility for bolt-on acquisitions and shareholder returns. The manager believes DSM's global scale, customer relationships, and innovation capabilities position it to gain market share in its core nutrition, health, and beauty markets as the portfolio optimization strategy enhances overall profitability.

Pitch Summary:
Microchip Technology, the microcontroller (MCU) and analog semiconductor producer, was one of the largest detractors for the period. Revenues continued to decline amid the severe inventory correction, which has persisted in most end markets other than defense and aerospace since early 2023. In addition, Microchip's board unexpectedly announced CEO Ganesh Moorthy (who led the company since 2021) would retire with the current chairman and long-tenured former CEO Steve Sanghi returning. Sanghi returned on an interim basis, allowing the company to focus on turnaround efforts without near-term plans to search for a replacement. We have admired Sanghi's skill at navigating past chip cycles and will closely track the company's ability to execute on restructuring initiatives, which aim to resize its manufacturing footprint and reduce inventory. This includes plans to soon shut down the company's wafer fabrication facility in Arizona, which the company expects should generate annual cash savings of approximately $90 million. Despite recent missteps in inventory management that were exacerbated by cyclical headwinds, we are optimistic about management's plans to right-size its business. Moreover, we remain confident Microchip's broad portfolio is uniquely positioned to increase its market share in 16- and 32-bit MCUs and areas, including IoT, 5G infrastructure, autonomous driving and data centers.

BSD Analysis:
Despite being a detractor, the manager maintains a constructive view on Microchip Technology through the current cyclical downturn. The company faces near-term headwinds from inventory corrections across most end markets, though defense and aerospace remain resilient. The return of former CEO Steve Sanghi provides experienced leadership during this challenging period, given his proven track record navigating previous semiconductor cycles. Management is executing restructuring initiatives including facility closures that should generate $90 million in annual savings while right-sizing the business for future growth. The manager believes Microchip's diversified portfolio positions it well to gain market share in microcontrollers and benefit from secular growth trends in IoT, 5G infrastructure, autonomous driving, and data centers. This represents a contrarian bet on cyclical recovery and the company's competitive positioning in key growth markets once inventory normalization occurs.

Pitch Summary:
Sony—the global provider of videogames and consoles, image sensors, music, and movies—was a top contributor for the period. The company reported strong results driven by third-party gaming revenue and record PlayStation 5 console profitability. This was achieved despite lower console sales, which, in our view, exemplifies the strength of PlayStation's network effects. PlayStation is the world's largest gaming platform with 116 million monthly active users, making it an attractive market for game developers and allowing users to play the most advanced games at lower costs than PCs. In its pictures segment, Crunchyroll (the anime business Sony acquired from AT&T in 2020) signed a distribution agreement with YouTube Primetime Channels, the market share leader in streaming services, which we believe will increase Crunchyroll's subscriber base. Though a singular example, it illustrates management's ability to better execute and further improve the segment's profitability, a catalyst we previously identified. In addition, Sony reported improved sales of image sensors for mobile products as the global smartphone market continued its gradual recovery. Sony's image sensor business has the largest global market share, and we believe, longer term, it is uniquely positioned to benefit from increasing demand for both autonomous driving technology in vehicles and improved image quality in smartphone cameras. As such, we continue to admire Sony's capacity to build on its industry leadership and optimize its operations, which includes its plan for a partial spinoff of its financial services segment in October 2025.

BSD Analysis:
The manager presents a strong bull thesis for Sony based on the company's diversified entertainment and technology portfolio with multiple growth drivers. PlayStation's dominant market position with 116 million monthly active users creates powerful network effects, driving third-party gaming revenue and record console profitability despite lower unit sales. The Crunchyroll distribution partnership with YouTube demonstrates management's strategic execution in expanding the anime streaming business. Sony's image sensor division maintains global market leadership and is positioned to benefit from secular growth trends in autonomous vehicles and smartphone camera improvements. The planned partial spinoff of the financial services segment in October 2025 represents a value-unlocking catalyst. The manager appreciates Sony's ability to leverage its industry-leading positions across gaming, entertainment, and imaging technologies while optimizing operational efficiency across its diversified business segments.

Pitch Summary:
Norwegian Cruise Line Holdings, one of the world's largest cruise ship operators, was a major contributor during the quarter. With post-pandemic consumer sentiment regarding the cruise industry continuing to improve, the company has seen strong advanced booking trends, improving occupancy levels and an upward momentum in pricing. Norwegian Cruise Line has also simultaneously executed on optimizing ship operating costs and instituting a new fuel purchasing program, which has allowed the company to offset inflation. Furthermore, the company continues to make progress on its multibillion-dollar efforts to upgrade and expand its fleet, with one of the company's newest ships, Allura, ready to set sail in 2025. We believe the company's cost-saving initiatives and fleet improvements will lead to higher levels of profitability and free cash flow, allowing the company to continue to reduce debt and increase its intrinsic value.

BSD Analysis:
The fund manager presents a compelling bull case for Norwegian Cruise Line Holdings based on strong operational momentum and strategic execution. The company is benefiting from post-pandemic recovery with improving booking trends, higher occupancy rates, and pricing power. Management has demonstrated operational excellence through cost optimization initiatives and a new fuel purchasing program that helps offset inflationary pressures. The ongoing multibillion-dollar fleet modernization program, including the launch of the new Allura ship in 2025, positions the company for enhanced guest experiences and premium pricing. The manager expects these operational improvements to drive higher profitability and free cash flow generation, enabling continued debt reduction and value creation. This thesis reflects confidence in the cruise industry's recovery trajectory and NCLH's competitive positioning within the sector.

Pitch Summary:
QEP designs, manufactures, and distributes flooring installation tools for the commercial and home improvement markets. QEP's main brands include QEP, Roberts, and Capitol among others. QEP's financials have been dragged down by underperforming acquisitions in the flooring sector in 2014 and 2019. Coinciding with a new CEO in late 2023, QEP began divesting their floor covering operations and completely reshaped the financials. QEP was able to collectively divest its flooring operations for a nice chunk of capital, bringing net debt from around $30M net debt at end of FY 23, to over $30M of net cash less than 2 years later, a nice $60M+ swing that was pretty much equivalent to their market cap at the time. Amazingly, after divesting this large portion of operations, earnings have improved dramatically with operating margins rising from only 3% to now over 10% as of last quarter. To anyone that dug and saw what QEP was earning prior to its floor covering acquisitions and read through their segmented results, this was hardly a surprise. QEP's tools business seems to always have been profitable and was simply overshadowed by a less profitable, more capital intensive floor covering business. Once removed, the underlying profitability of the tools business was able to come to light. QEP's largest customer is Home Depot at around 2/3rds of Revenue. While this is a negative on one hand, they have had a strong relationship with Home Depot since Day 1. One of Home Depot's co-founders, Bernie Marcus, actually reached out to QEP's founder, Lewis Gould, over 40 years ago as their newly formed home improvement stores needed a flooring tool supplier. So while customer concentration on its face is concerning, you could find worse customers to be concentrated in than Home Depot for over 4 decades. Also, it's important to remember QEP would not be anywhere near where it is today if not for being an early supplier of Home Depot and riding their multi-decade growth wave. Hand and Power Tools is also an industry with quite a bit of historical M&A, and also importantly, brands with lasting value. Industry leaders like Stanley Black & Decker (SWK) trade at healthy EV/EBITDA multiples of 12-15x, but many smaller M&A transactions are done at relatively similar valuations of 12-13x EV/EBITDA. This is likely due to the aforementioned brand value built up over years with flooring installers and DIY homeowners in addition to the likely synergies to a larger acquirer, who is acquiring the gross profit and whatever incremental SG&A needs to be kept. The closest comparable transaction to QEP in the last few years is Worthington's acquisition of Level5 Tools (a drywall tool company) at 2.4x Sales or 13x EV/EBITDA. Level5 is in a very similar vertical to QEP and although smaller in annual revenue, pretty comparable size-wise. Level5 may not have the same customer concentration levels as QEP, so perhaps you could argue for a lower multiple for QEP given that issue along with the majority insider ownership. At $42.50/sh, QEP shares trade at only 4.5x EV/25eEBIT and I believe are worth 8-10x EV/EBIT, or $67-80/sh, implying upside of 60-90%. Since the management change in 2023, capital allocation has been excellent, mainly through the savvy divestitures, along with special dividends and some share repurchases. Management reiterated its commitment to enhancing shareholder value in December with the beginning of a regular quarterly dividend of .20/sh, so a dividend yield of almost 2% going forward. They also stated they intend to be proactive in considering additional ways of returning capital to shareholders, which may include share repurchases. I also believe it is likely they are considering acquisition candidates given their large cash balance. Given their subpar foray into flooring products, I expect any acquisition would align much closer to their branded tool expertise and they will likely be more cautious with acquisitions than in the past.

BSD Analysis:
The manager identifies QEP as a classic turnaround story where new management has successfully divested underperforming assets to reveal a highly profitable core business. The divestiture of floor covering operations transformed the company's financial profile, swinging from $30M net debt to $30M net cash while dramatically improving operating margins from 3% to over 10%. This $60M+ improvement occurred while the market cap was equivalent to that swing, highlighting the market's failure to recognize the transformation. The core tools business, historically profitable but masked by poor acquisitions, now trades at an attractive 4.5x EV/EBIT multiple compared to the manager's 8-10x fair value estimate. While Home Depot concentration (67% of revenue) presents risk, the 40+ year relationship provides stability and QEP benefited from Home Depot's multi-decade growth. Industry comparables like Stanley Black & Decker trade at 12-15x EBITDA, and recent M&A transactions suggest 12-13x valuations are achievable. The manager sees 60-90% upside potential with strong capital allocation including dividends and potential share repurchases supporting the thesis.

Pitch Summary:
FILA is an Italian-based company that makes pencils, paper, paints, and many other products for the fine arts, school, and hobby/leisure sectors. While you have likely never heard of FILA (and no this is not the sportswear company), you may have heard of one or more of its brands (Dixon Ticonderoga, Canson, Giotto, Strathmore, or others). FILA has assembled and grown this strong portfolio of brands through strategic M&A and operational expertise, increasing Sales and Adj EBITDA over 200% since their IPO in 2015. Most importantly, FILA completed a transformational IPO of its fast growing Indian subsidiary, DOMS, last year and the market has yet to recognize the valuation implications. FILA's stock trades at around €9.50/sh and its stake in DOMS is currently valued at over €9/sh, ascribing almost no value to the remaining business generating €105M adj EBITDA per year. Admittedly, DOMS is currently trading at a more than healthy 35x fwd EBITDA, but slashing that valuation by over 65% to a more reasonable level still gives you extremely attractive look-through valuation (deducting DOMS stake @12x fwd EBITDA(€150M) from FILA's market cap of €487M) for the core FILA operations of 3.2x P/EBITDA and around 5-6x my estimate of 2025 FCF. US listed comparables of FILA, which look inferior by many metrics, trade at 3 or 4x that valuation. I believe US-listed peers (NWL probably closest comp) are the most appropriate because North America is FILA's largest and most profitable geography making up over 50% of Sales and nearly 60% of EBITDA. A quick side note of the valuation of DOMS. DOMS is a very valuable and successful company in its own right, largely due to FILA's deliberate involvement in their operations, strategy, and growth since 2015 (FILA still has 4 board members on DOMS' board). Consensus Revenue growth estimates for FY26 and FY27 for DOMS are 25.8% and 22.7% respectively, and DOMS grew revenue 34.9% YoY in its latest quarter. DOMS is a profitable, fast growing business with a large runway ahead of it as India's per capita spending on stationery and art material is far behind other developing countries and should continue to increase. At the time of their IPO, FILA's projection was for DOMS to grow revenues and profits by 20% per year for the next 5 years. DOMS looks to be easily on pace to match that and likely exceed it. Given their fast growth, high margins, and strong profitability, it's not hard to see why the market has awarded DOMS with a high multiple of EBITDA. One can quibble about whether DOMS is worth 10x, 20x, or 30x EBITDA, but no matter what it has substantial value as well as FILA's core operations. FILA's most iconic and well known brand in the US is Dixon Ticonderoga. Despite being introduced more than 100 years ago, Ticonderoga is still the #1 graphite pencil brand in the US with over 50% market share. If the name doesn't ring a bell at first, the iconic yellow and green #2 pencils with "TICONDEROGA" in green lettering certainly will. Not to be outdone, FILA's portfolio of fine art paper brands (Canson, Strathmore, and others) boast over 50% market share globally. FILA also owns many other brands which are strong in their own product categories and geographies (paints, brushes, markers, modeling clays, and more). Because of FILA's breadth of product and geographic diversification, its cash flows are extremely resilient as evidenced by its track record of no year below a 10% operating margin since 2010. Why does this opportunity exist? I believe there are a multitude of reasons: ● Lack of interest in Europe, more specifically in the smaller, less followed Italian Exchange ● Mismatch between where most profits are earned and brand loyalty resides (outside Italy) and the listing exchange ● Deconsolidation of DOMS beginning in Q1 2024 makes reported financials look weaker than reality due to the impact of DOMS results only being reported outside of operating results. (E.g., Reported sales and operating income drops of 10-15% in recent quarters is entirely due to DOMS deconsolidation. When adjusted for, sales for 2024 have been relatively flat and adj EBITDA is growing) ● Lack of overlap between shareholders/investors in FILA and DOMS. FILA's business is seasonal with a particularly strong period during back-to-school shopping. During the 4th quarter, when receivables from this period are paid down, FILA generates a large portion of its cash flow for the year. FILA also sold another 4.6% of its ownership in DOMS in December for €91M. Because of these factors, net debt will be much improved at YE from the end of Q3, perhaps down to only 1-1.5x EBITDA. Historically, FILA has been very focused on paying down debt (reduced net debt by over €220M since end of 2018), often taken on during its large acquisitions. I believe management's focus has not changed and the company could be debt free by as early as 2027, likely spurring them to search harder for accretive M&A. As an added benefit, FILA has revised its dividend payout target going forward to 20-40% of adjusted earnings so dividends will increase substantially going forward. I believe FILA's stock represents an incredible value for a high quality business with iconic consumer brands at only 3.2x core EBITDA when assigning a reasonable valuation to DOMS. If both pieces are valued at even close to fair value, I believe upside is in excess of 100%. I also believe that improved earnings, FCF, and net debt in 2025 will be a catalyst for shares to begin to re-rate. If you're interested in learning more about FILA I would suggest starting with their in-depth capital markets day presentation from November 2024.

BSD Analysis:
The manager presents a compelling sum-of-the-parts valuation thesis for FILA, arguing the market is severely undervaluing the core business due to the recent DOMS subsidiary IPO. With FILA's DOMS stake valued at €9/share versus the total stock price of €9.50/share, the core operations generating €105M in adjusted EBITDA are essentially being valued at nothing. The manager calculates an attractive 3.2x P/EBITDA multiple for core operations when applying a reasonable 12x EBITDA to the DOMS stake, compared to US peers trading at 3-4x higher valuations. FILA's portfolio includes dominant market-leading brands like Dixon Ticonderoga (#1 US graphite pencil with 50%+ market share) and fine art paper brands with over 50% global market share. The business demonstrates remarkable resilience with consistent 10%+ operating margins since 2010 despite economic cycles. Key catalysts include improving net debt position (potentially down to 1-1.5x EBITDA), deconsolidation accounting effects masking underlying growth, and increased dividend payouts. The manager sees 100%+ upside potential if both FILA and DOMS achieve fair value recognition.

Pitch Summary:
Boeing (BA): A detractor for the period was global aerospace leader Boeing. We were able to purchase the stock at a prospective 10% free cash flow yield on a normalized scenario. Over the past couple of years the stock rebounded from operational challenges and had surged on improved free cash generation from increasing order activity, driven by global demand for aircraft. It was one of our best performers in the fourth quarter of 2023 after its November plane deliveries increased. When additional manufacturing issues surfaced in January 2024, we believed it would push restructuring efforts back enough to warrant a review by our team. Reacting quickly, we sold our position at a gain in the first quarter, albeit less than before the news.

BSD Analysis:
Sound Shore's Boeing investment demonstrates their disciplined approach to both entry and exit decisions in cyclical aerospace investments. The fund initially identified value in Boeing at a 10% normalized free cash flow yield, recognizing the company's dominant position in commercial aviation and the secular growth in global air travel demand. The investment thesis proved correct initially, with Boeing becoming one of their best performers in Q4 2023 as plane deliveries increased and operational improvements drove cash generation. However, when additional manufacturing issues emerged in January 2024, Sound Shore quickly reassessed the situation and determined these problems would likely delay the company's restructuring timeline. Their decision to exit the position at a gain, while disappointing relative to peak performance, exemplifies prudent risk management and the importance of monitoring operational execution in turnaround situations. The case illustrates how even well-researched value investments can face unexpected operational setbacks that require swift portfolio adjustments. Sound Shore's ability to recognize when their investment thesis was compromised and act decisively demonstrates experienced portfolio management.

Pitch Summary:
Teva Pharmaceutical (TEVA): Traditionally known as a generic drug company, Teva has a growing branded drug business and a promising pipeline. Following a period of poor capital allocation decisions by prior management teams, we were able to invest at a very attractive 4 times earnings and with a 20%+ free cash flow yield. New leadership has focused on execution and pipeline development, leading to upward inflection in margins and positive clinical trial results. Teva remains remarkably cheap, trading at a significant discount to its intrinsic value.

BSD Analysis:
Sound Shore identifies Teva as a classic turnaround opportunity trading at exceptionally attractive valuations following years of poor capital allocation by previous management. The fund's investment thesis centers on the company's transformation from a pure-play generic manufacturer to a diversified pharmaceutical company with growing branded drug revenues and a promising development pipeline. At 4x earnings and a 20%+ free cash flow yield, the valuation appears compelling relative to the company's improving fundamentals. New management's focus on execution and pipeline development has already yielded positive results, including margin improvements and successful clinical trial outcomes. The fund emphasizes that despite these operational improvements, Teva continues to trade at a significant discount to intrinsic value, suggesting substantial upside potential. The combination of a strengthening branded portfolio, improved operational discipline, and deeply discounted valuation creates an asymmetric risk-reward profile. Sound Shore's contrarian approach of investing during the company's restructuring phase appears well-positioned to benefit from the ongoing transformation.

Pitch Summary:
Flex (FLEX): This contract manufacturing services company has evolved from low-value, electronics assembly to high-value, specialized manufacturing for industries like medical, industrial, and automotive. CEO Revathi Advaithi instilled operational discipline and focused on core differentiation, leading to double-digit earnings growth and expanding margins. We were able to invest in FLEX at less than 8 times depressed earnings as many investors were looking in the rear-view mirror.

BSD Analysis:
Sound Shore presents a compelling transformation story for Flex, highlighting the company's strategic evolution from commodity electronics assembly to high-value specialized manufacturing across medical, industrial, and automotive sectors. Under CEO Revathi Advaithi's leadership, the company has implemented operational discipline and focused on core differentiation capabilities, resulting in double-digit earnings growth and margin expansion. The fund's investment thesis centers on the market's failure to recognize this transformation, allowing them to acquire shares at an attractive valuation of less than 8x depressed earnings. This represents a classic value opportunity where fundamental business improvements have not yet been reflected in the stock price. The shift toward higher-margin, specialized manufacturing positions Flex to benefit from secular trends in healthcare technology, industrial automation, and automotive electrification. The operational improvements under new leadership suggest sustainable competitive advantages in complex manufacturing processes. Sound Shore's contrarian approach of investing while others focus on the rear-view mirror appears well-timed given the company's strategic repositioning.