Investment Pitches

Pitch Summary:
We have initiated a mid-sized position in Bavarian Nordic. This Danish vaccine producer is mostly known for its Jynneos franchise, vaccines for smallpox and monkeypox. Rare diseases those, but the latter of the two has become a hot topic for the stock in recent years, and it often spikes (and subsequent declines) as outbreaks come and go with varying frequency. That adds an optionality to the story but is obviously difficult to build a case on. What attracts us is the strong performance Bavarian has shown in its travel vaccine franchise, where products against rabies and TBE are showing strong progress. TBE – which has a certain 'ick' factor attached to it as it is spread by ticks – is getting more attention as it benefits from a warmer, wetter climate. To us, travel vaccine appears to be an attractive business for Bavarian to grow, also via acquisitions. It's often a very small portion of the sales in big pharma companies, likely to be slightly neglected. Generic competition is not an issue. Through this, Bavarian has started to build a bread-and-butter business which reduces the overall risk level in the share. The company recently announced that its project to consolidate vaccine production is going as planned, and this will improve margins in 2025.

BSD Analysis:
Protean initiated a mid-sized position in Bavarian Nordic, focusing on the company's travel vaccine franchise rather than its more volatile monkeypox/smallpox vaccine business. The manager sees strong growth potential in travel vaccines, particularly for rabies and tick-borne encephalitis (TBE), with TBE benefiting from climate change trends. The investment thesis centers on Bavarian's ability to build a stable, recurring revenue base through travel vaccines, which are often neglected by large pharma companies and face no generic competition. The manager views this as an attractive acquisition opportunity for Bavarian to consolidate market share. Production consolidation efforts are expected to improve margins in 2025, while the travel vaccine business reduces overall portfolio risk compared to the episodic nature of outbreak-driven vaccine demand.

Pitch Summary:
The real estate company Intea refused to follow the PR consultants' playbook during the IPO process. Instead of showing up everywhere to tell us all about how great they are, about its rosy outlook and tempting financial targets, they chose to keep a low profile with few media appearances. After spending the last 15 years at Sweden's business daily Dagens Industri, covering numerous IPOs, there is one conclusion: like with any pushy salesperson, it's not the ones most eager to see their names in print that represent the best business opportunities. And it's always better to let the numbers do the talking, rather than talking about numbers that never materialize. Intea kept a low profile because they could. Instead of squeezing the last penny out of the most price-insensitive investors (looking at you AMF), the owners accepted a somewhat lower price to smoothly inject 2 billion SEK of new equity into the business. The capital will generate more than enough to offset the dilution. Intea's portfolio consists of high-quality specialized properties, primarily leased to public tenants on long-term leases. These include police stations, college facilities, and prisons. The operational risk is as low as it gets, with low vacancy rates and longstanding, stable counterparties. So far, it sounds like a reasonable defensive option in a sector where office owners are struggling due to both a weak economic cycle and structural factors. Meanwhile, perceived low-risk apartment companies don't generate enough cash flow to impress anyone with their low-yielding asset base. Stable cash flow isn't much fun if it's stable at a low level. Intea offers higher yields than the office segment, but without the headwinds. And it's more than just a reasonable defensive option due to its high project activity, with 3.7 billion SEK in ongoing developments. This gives our company a clear growth trajectory, with the project developments serving as the value driver. Based on company guidance, the 2 billion SEK will be deployed at a yield on cost of about 6.5 percent, in a business that values its properties at 5.2 percent. That gap translates into profits. And there is more to come. The Swedish Prison and Probation Service expects to increase the number of places in detention centers and prisons from 9000 in 2024 to 27,000 by 2033. "Such rapid and intense expansion will be challenging," as the Swedish Prison and Probation Service states in its capacity report. State-owned Specialfastigheter is the number one player when it comes to prisons, and apart from Intea, Erik Selin's Skandrenting is the only private prison owner. For property owners in general, the glory days of the sub-zero interest rate era are gone. The Swedish 10-year yield is now a tad higher than when the Riksbank started lowering interest rates back in May. The US 10-year yield is up close to 100 basis points since the Fed's first cut in September. This means you shouldn't expect yield compression to do the trick - real estate companies must take the value creation into their own hands. Just as it should be. Over the coming three years, Intea will be among the few listed Swedish real estate companies posting double-digit compound annual growth rates in both NAV and cash earnings, adjusted for dividends. IPOs are tightly managed spectacles, but despite the highly orchestrated nature of these events, there hasn't been much daylight for those who subscribed to the previous two real estate IPOs. Sveafastigheter, SBB's rental apartment business, has yet to close above the issue price and is down 9 percent to date. Prisma Properties, a company with a focus on discount retailers and fast-food restaurants, stayed afloat on its first day in June but is down 12 percent since then. After two broken IPOs in the sector, the investment banks got a happy ending. Intea has gained a healthy, but not overwhelming, 10 percent since its IPO in mid-December. The shares still trade with a discount to NAV and an implicit yield of 5,3 percent based on next year's numbers. Both the CEO and CFO have bought more shares after the IPO. They know that Intea's growth trajectory relative to its price bodes well relative to the sector.

BSD Analysis:
Protean participated in Intea's IPO, attracted by the company's low-key approach and focus on specialized government properties with long-term leases. The manager appreciates Intea's portfolio of police stations, educational facilities, and prisons leased to stable public sector tenants, offering low operational risk and steady cash flows. With 3.7 billion SEK in ongoing developments and 2 billion SEK in new equity, Intea is positioned for significant growth in a sector facing structural headwinds. The company can deploy capital at a 6.5% yield on cost while properties are valued at 5.2%, creating immediate value. A major catalyst is Sweden's prison expansion from 9,000 to 27,000 places by 2033, with limited private competition. Trading at a discount to NAV with a 5.3% yield and insider buying post-IPO, Intea offers compelling risk-adjusted returns in a challenging real estate environment.

Pitch Summary:
We have initiated a mid-sized position in Bavarian Nordic. This Danish vaccine producer is mostly known for its Jynneos franchise, vaccines for smallpox and monkeypox. Rare diseases those, but the latter of the two has become a hot topic for the stock in recent years, and it often spikes (and subsequent declines) as outbreaks come and go with varying frequency. That adds an optionality to the story but is obviously difficult to build a case on. What attracts us is the strong performance Bavarian has shown in its travel vaccine franchise, where products against rabies and TBE are showing strong progress. TBE – which has a certain 'ick' factor attached to it as it is spread by ticks – is getting more attention as it benefits from a warmer, wetter climate. To us, travel vaccine appears to be an attractive business for Bavarian to grow, also via acquisitions. It's often a very small portion of the sales in big pharma companies, likely to be slightly neglected. Generic competition is not an issue. Through this, Bavarian has started to build a bread-and-butter business which reduces the overall risk level in the share. The company recently announced that its project to consolidate vaccine production is going as planned, and this will improve margins in 2025.

BSD Analysis:
Protean initiated a mid-sized position in Bavarian Nordic, focusing on the company's diversification beyond its volatile monkeypox vaccine franchise. The manager highlights the strong performance of Bavarian's travel vaccine business, particularly rabies and TBE vaccines, which benefit from climate change trends and represent an attractive acquisition target from larger pharma companies. The travel vaccine segment offers stable, recurring revenue with limited generic competition, reducing overall portfolio risk. The company's ongoing vaccine production consolidation project is expected to improve margins in 2025. This investment thesis centers on Bavarian's transformation from a volatile biodefense play to a more stable travel vaccine business with acquisition-driven growth potential. The manager views this diversification as creating a "bread-and-butter" business that de-risks the investment while maintaining upside optionality from the monkeypox franchise.

Pitch Summary:
We discussed the rationale for our investment in HCA, the leading for-profit hospital operator and outpatient services provider in the U.S. in our December 2023 Quarterly report. 2024 has been a consistent year of execution by the HCA management team, but a volatile year from a share price perspective. The share price was $270 at the start of calendar 2024, peaked at $415 in October 2024 and ended the year around $300. There has also been a material devaluation of HCA from an earnings multiple perspective. We discussed on page 6 that we have been careful to limit our exposure to businesses that could be materially impacted by changes in Government policy. We underestimated the market's sensitivity to the outcome of the U.S. election as it relates to HCA's business outlook. Mr Market has classified HCA as a 'Democrat/Biden winner' and a 'Republican/Trump loser'. Mr Market is fearful that healthcare policy under Trump and Republicans will be materially adverse for HCA. This is a highly complex area, but the heart of concerns is people will have less coverage and less access to healthcare services provided by HCA, and HCA will overall receive lower reimbursement for the provision of healthcare services. One area that has justifiably garnered significant attention is Health Exchanges. This segment of demand accounts for around 7% of HCA's volume, up from 4% pre COVID, and a little over 8% of total revenue. The programs subsidise health care premiums for less affluent Americans, with around 20 million people currently benefitting from lower insurance costs. The subsidies are substantial, with the Congressional Budget Office estimating the cost to the Federal Government is around $30bn to $40bn per annum. It is estimated that millions of Americans will not be able to afford insurance coverage or will have to drop down a tier of coverage if these subsidies are not extended at their maturity date at the end of 2025. Some people may revert to coverage from their employer or may end up being covered by Government programs. Some people will be uninsured. The net impact on HCA cannot be quantified with precision, but if Trump and the Republicans follow through with current expectations for these subsidies to end or at a minimum be restrained, some degree of negative impact on HCA is likely. Another area is Medicaid, where States have programs in place to provide supplementary payments to cover the cost of providing care for qualified people, with the Federal Government generally providing matching funding. Again, there is concern that these supplementary payments will reduce, impacting reimbursement rates to HCA. It is important to remember that HCA predominantly operates in Republican States (Texas and Florida alone account for almost 60% of HCA's hospital beds). Republican voters get sick too. Around 60% of HCA's revenue is generated from inpatient service and 40% from outpatient services. Many of HCA's competitors are owned by religious and other not-for-profit groups as well as more rural competitors that lack profitability, balance sheet, scale and diversity of healthcare services and facilities compared to HCA and are less able to absorb reimbursement and occupancy pressures and continue to provide high quality care. Many of HCA's hospitals have regional leadership in the provision of higher acuity care, including experienced physicians and higher quality facilities. Industry structure and HCA's leading competitive position are key attributes of why we consider HCA to be a high-quality business. A few of HCA's hospitals were unfortunately impacted by the 2024 hurricane season, with some of these facilities continuing to be impacted in 2025. Excluding the impact of these storms, HCA has been exceeding its financial guidance and our base case expectations, and management has recently confirmed operating conditions remain in line with expectations and are expected to continue into 2025. We also expect insurance to cover part of the hurricane related losses. While we agree there are risks for HCA, policy support is likely to be less advantageous during the Trump presidency, and some negative impact on HCA's financial performance is likely due to the strength of the election results for Trump and Republican Party, the HCA share price has materially over-reacted, falling from the top end of our view of the fair value range, to well below fair value, currently trading below 13x 2025 earnings. HCA's financial position continues to strengthen, with financial leverage reducing over time. We believe the current base case risk adjusted return is compelling, downside risks are manageable and have been using the share price weakness to increase our investment in this very high-quality business.

BSD Analysis:
L1 Capital views HCA Healthcare as significantly oversold following Trump's election victory, with the stock falling from $415 to around $300 despite strong operational execution throughout 2024. The manager acknowledges legitimate concerns about potential healthcare policy changes, particularly regarding Health Exchange subsidies (7% of volume, 8% of revenue) and Medicaid supplementary payments that could reduce reimbursements. However, L1 emphasizes HCA's defensive positioning with 60% of hospital beds in Republican states like Texas and Florida, arguing that 'Republican voters get sick too.' The fund highlights HCA's competitive advantages including superior scale, balance sheet strength, and regional leadership in high-acuity care compared to non-profit and rural competitors. Despite hurricane-related disruptions, HCA continues exceeding financial guidance and maintaining strong operating conditions into 2025. Trading below 13x 2025 earnings with improving financial leverage, L1 believes the market has overreacted to policy uncertainty. The manager is using the weakness to increase position size, viewing current valuations as well below fair value with compelling risk-adjusted returns.

Pitch Summary:
"As we look into the future, it's clear that artificial intelligence is poised to become a world-changing General Purpose Technology" Brad Smith, Vice Chair & President of Microsoft, January 2025. We continue to view AI (broadly defined) as a game changer for most industries, and one if not the most important developments from an investment perspective. AI is a large and complex area with immense potential, but also inherent uncertainty. The technology being developed is ground-breaking, and by definition, unprecedented. There is a myriad of issues that are unknowable, many with significant financial implications for companies operating in the industry today, or who may be affected by AI tomorrow. No-one knows with certainty how quickly AI applications will be broadly developed and commercialised, the cost of developing and servicing this technology, infrastructure requirements such as power and cooling, or the investment return on the tens of billions of dollars being invested. Category 2 includes companies which provide 'AI as a service' and facilitate other companies to develop and implement AI in their business. The hyperscalers such as Azure (Microsoft), Amazon Web Services (Amazon.com) and Google Cloud Platform (Alphabet) are leaders in this category. These companies are not in the business of building and selling datacentres as such, rather using the computing power and infrastructure they are investing in to develop a range of products and services, including AI centric capabilities, for their own requirements, as well as for third parties. Again, at the risk of over-simplification, category 1 companies are providing the track and locomotives, while category 2 companies are developing and operating the railway network and providing rail transport and logistics services in the rapidly developing AI world. To stretch our analogy further, it is currently a rush to lay the track and build out the railway network as fast as possible to reach as many customers in as many regions for today and the future. Management leadership of the big technology companies have openly stated the risk of under-investing in this stage of the AI industry's development is dramatically greater than the potential for over-investing. Category 2 is extremely capital intensive, and only the largest technology businesses in the world have the financial resources, people and technical capabilities to lead this investment. Returning to Microsoft, the company has many leading franchises, including cloud computing infrastructure and services (Azure), computing operating systems (Windows), business productivity software (Office, Dynamics), corporate networking and human resources (LinkedIn), Gaming (Xbox, Activision) amongst others, but Microsoft has not led in all areas. Microsoft basically missed the mobile revolution losing out to Apple and Alphabet (Android), with a forlorn late attempt to improve their competitive position through the acquisition of Nokia. In certain areas of hardware Microsoft is a small niche player (Surface) and in Search, Bing is a distant number 2 to Google. In AI, Microsoft, though ChatGPT and other capabilities, has a leadership position today. Given the importance of AI as a 'world-changing General Purchase Technology', management is not going to hold back on investment to position Microsoft as a leader of this most important category into the future. While there are different ways to measure investment, there is no doubt Microsoft is a leader, if not the leader in capital investment into all things AI related. "In FY2025, Microsoft is on track to invest approximately $80 billion to build out AI-enabled datacenters to train AI models and deploy AI and cloud-based applications around the world." Brad Smith, Vice Chair & President of Microsoft, January 2025. The investment thesis for Microsoft has shifted from being a capital light, software centric business generating enormous amounts of free cashflow, to a business which retains all these software capabilities and associated cashflow but is now reinvesting a significant proportion of the cashflow generated into AI infrastructure. While we are incredibly excited by the opportunities for Microsoft to commercialise this investment through the provision of both category 2 and category 3 products and services, to date the return on this immense level of investment is uncertain. This uncertainty has dragged on the near-term share price performance of Microsoft. Microsoft, with a market capitalisation of over US$3 trillion, is an extremely large and diverse business. We have not tried to cover every factor affecting the market's assessment of the company. There is only space for one headline and today AI related developments and sentiment is crowding out all other considerations. In our view, one of the greatest under-appreciated strengths of Microsoft is its latent pricing power. Just as an interesting anecdote to illustrate this point that many readers may be able to relate to, Microsoft recently increases the price of a personal Office 365 subscription in Australia by around 40%, following a 10% increase last year. Microsoft has increased pricing around the world to offset currency devaluation pressures and to reflect their investment in features and services that have been added to the platform. For those of you who have noticed this increased cost of your Office 365 subscription we doubt you will be happy, nor do we expect you cancelled your subscription. You can take some offsetting comfort that you are financially benefitting through the L1 Capital International Fund's investment in Microsoft. To conclude, it hasn't been a 'bad' year for Microsoft's share price performance, but it has underperformed the rest of the Magnificent 7 materially and the broader U.S. market modestly. We believe this share price performance reflects unjustified concern about the level of investment Microsoft is making in all things AI, and we expect Microsoft will generate strong returns on this investment over time. If not, Microsoft will pull back on this level of investment, which will be materially negative for Nvidia and other companies operating in this industry. At the current share price, we consider Microsoft to be trading at or below the bottom end of our base case fair value range, and the company remains one of the largest investments in the Fund.

BSD Analysis:
L1 Capital views Microsoft as undervalued despite its massive $80 billion AI infrastructure investment, arguing the market is unjustifiably concerned about uncertain returns on this capital deployment. The manager positions Microsoft as a leader in 'AI as a service' through Azure, competing with Amazon Web Services and Google Cloud Platform in facilitating enterprise AI adoption. While acknowledging Microsoft's historical misses in mobile and search, L1 emphasizes the company's current AI leadership position through ChatGPT and other capabilities. The fund highlights Microsoft's underappreciated pricing power, citing recent 40% increases in Office 365 subscription costs that customers absorbed without cancellation. Despite underperforming the Magnificent 7 in 2024 with only 13% returns, L1 believes the market is overreacting to AI investment uncertainty. The manager expects Microsoft to generate strong returns on its AI investments over time, viewing the current valuation as at or below fair value. Microsoft remains one of the fund's largest holdings, reflecting high conviction in the long-term AI monetization thesis.

Pitch Summary:
Industrials sector exposure made a positive impact during the quarter, thanks in large part to ownership of AtkinsRealis Group Inc. (ATRL). AtkinsRealis has a global footprint with expertise in infrastructure, energy, and environmental solutions. With around 20% of its revenue coming from the U.S., AtkinsRealis is poised to benefit from the Trump administration's emphasis on re-shoring and increased infrastructure spending. Another key component of AtkinsRealis' business is its nuclear segment, which represents roughly 13% of revenue and has experienced strong growth amid renewed investment in nuclear energy. The company is well-positioned to capitalize on potential life extensions of existing reactors and the construction and maintenance of new facilities using CANDU nuclear technology.

BSD Analysis:
Barometer's position in AtkinsRealis contributed positively to industrials sector performance, supported by the company's diversified global engineering and consulting platform. The investment thesis benefits from multiple structural tailwinds, including the Trump administration's focus on reshoring and infrastructure investment, which should drive demand for AtkinsRealis' U.S. operations representing 20% of revenue. The company's nuclear segment, comprising 13% of revenue, is experiencing strong growth amid renewed global investment in nuclear energy. AtkinsRealis is strategically positioned to capitalize on reactor life extensions and new facility construction using proprietary CANDU technology. The company's expertise spans infrastructure, energy, and environmental solutions, providing diversified exposure to secular growth trends. Management's global footprint and specialized capabilities in critical infrastructure sectors support sustainable competitive advantages. The convergence of reshoring, infrastructure spending, and nuclear renaissance creates multiple growth vectors for the business.

Pitch Summary:
The pool owned Howmet throughout the quarter which has been a strong positive contributor to pool performance on a year-to-date basis as well. Howmet continues to benefit from dislocations in commercial aircraft and commercial aircraft engine production that has caused aircraft owners to keep planes in service longer. Since Howmet provides aftermarket aircraft parts and service, their business continues to grow nicely as these dislocations continue to persist.

BSD Analysis:
Barometer maintained its position in Howmet Aerospace throughout Q4, with the stock delivering strong positive returns both quarterly and year-to-date. The investment thesis capitalizes on supply chain disruptions in commercial aircraft and engine production that have created favorable market dynamics. These production dislocations are forcing aircraft owners to extend the service life of existing fleets rather than replacing them with new aircraft. Howmet's aftermarket parts and services business directly benefits from this trend, as older aircraft require more maintenance and component replacement. The company's positioning in the high-margin aftermarket segment provides recurring revenue streams with strong pricing power. Management expects these supply chain disruptions to persist, supporting continued growth in Howmet's core aftermarket business. The structural nature of these industry dislocations suggests sustainable tailwinds for the company's performance.

Pitch Summary:
The pool took a position in Axon just before the company reported second quarter earnings which surprised to the upside as the company is seeing much better than expected growth in subscription services due to very high demand for AI products. Axon's AI products allow police officers to automate report writing, which frees up time for police officers to do more policing. Police departments are increasingly eager to implement this software, and their business comes at high margins for Axon which is a big part of the reason why the stock has worked so well.

BSD Analysis:
Barometer Capital initiated a position in Axon Enterprise ahead of strong Q2 earnings that exceeded expectations, driven by accelerating growth in subscription services. The investment thesis centers on Axon's AI-powered products that automate police report writing, creating operational efficiency for law enforcement agencies. This technology addresses a significant pain point by freeing up officer time for core policing activities. The high demand for these AI solutions reflects strong product-market fit in the law enforcement sector. Police departments are demonstrating increasing eagerness to adopt this software, indicating robust demand visibility. The business model generates high margins, which explains the strong stock performance and supports sustainable profitability growth. Barometer's timing appears strategic, entering before the earnings surprise that validated the AI-driven growth trajectory.

Pitch Summary:
We benefitted from this dynamic recently with the debut of Nebius Group (NBIS), an AI-infrastructure company comprised of the international assets from a Russian company we used to own called Yandex. The setup here had many of the hallmarks of a misunderstood situation, and our misfortune of being stuck with sanctioned, untradeable stock for several years following the Russian invasion of Ukraine at least had the silver lining of making us among the first to know about the NBIS debut. Upon digging in, we saw that the new firm had a core business growing rapidly (see table below) yet trading at a significant discount to comps and several promising secondary divisions that provided future optionality. Just as importantly, Nebius had shed the "ick" factor from any Russian exposure. It was a high-quality asset that would undoubtedly benefit from the insatiable demand for AI stories at reasonable prices, but it wasn't in any indices and barely showed up in any screeners. Moreover, it had an odd origin story and its divisions remain in various stages of their financial lifecycles, further adding to the barriers and delays many firms faced in taking advantage of the opportunity. All these factors allowed us to accumulate shares at attractive prices before many had even heard of the company. We think in recent weeks investors are finally arriving to the same conclusions as we did, which has helped NBIS appreciate into one of our largest positions.

BSD Analysis:
Adestella capitalized on a unique spinoff opportunity with Nebius Group, leveraging their prior Yandex ownership to gain early access to this AI infrastructure play. The investment thesis centers on NBIS being a misunderstood situation with multiple structural advantages creating temporary mispricing. The manager highlights rapid core business growth trading at a significant discount to comparable companies, plus optionality from secondary divisions in various development stages. Critically, NBIS eliminated Russian exposure concerns while maintaining high-quality assets positioned for AI demand. The company's absence from major indices and screeners, combined with its complex origin story, created informational barriers that delayed institutional recognition. Adestella's early accumulation at attractive prices before broader market awareness demonstrates their edge in identifying newly-formed entities. The recent appreciation into a top position validates their thesis as other investors reach similar conclusions. This represents a textbook example of exploiting corporate action complexity and timing advantages.

Pitch Summary:
One such candidate is long-time holding Evolution Gaming (ST:EVO). EVO is a very high-quality business with a great operating track record, and it has good prospects for the years ahead as well. Yet it has declined significantly in 2024 and currently trades at multiples below the broader US market, much less its highly-profitable peers. Meanwhile, US firms in similar industries meeting the lower thresholds of 10%+ sales growth at 20%+ EBIT margins have continued to be bid up and enjoyed another solid year of performance. Sooner or later though, the pendulum will once again swing, and we will be waiting when it does.

BSD Analysis:
Adestella maintains conviction in Evolution Gaming despite significant 2024 underperformance, viewing the decline as a temporary valuation dislocation. The manager emphasizes EVO's exceptional business quality and strong historical operating performance, positioning it as a long-term holding with solid future prospects. The investment thesis hinges on a valuation arbitrage opportunity, with EVO trading below broader US market multiples despite superior profitability metrics. Adestella notes that comparable US companies with merely 10%+ sales growth and 20%+ EBIT margins continue commanding premium valuations while EVO trades at a discount. This represents a classic international equity opportunity where high-quality European assets are undervalued relative to US peers. The manager expects mean reversion to eventually favor international stocks after 15 years of US outperformance. Evolution Gaming exemplifies Adestella's strategy of exploiting geographic valuation disparities in high-quality businesses.

Pitch Summary:
Our current portfolio has no shortage of candidates; one recent example is a small investment we made in an engine and power systems firm called Power Solutions International (PSIX). You won't find companies with huge secular tailwinds, ongoing margin expansion, and solid balance sheets trading at 7x trailing earnings when you scan through the S&P 500 components, but if you expand your horizons to sub-$500 M companies (especially ones trading over-the-counter), you can.

BSD Analysis:
Adestella views PSIX as an exemplary small-cap value opportunity that demonstrates the advantages of fishing in under-the-radar waters. The manager highlights the company's compelling valuation at just 7x trailing earnings, which is remarkable for a business exhibiting secular tailwinds and margin expansion. The investment thesis centers on PSIX being overlooked due to its sub-$500M market cap and over-the-counter trading status, creating a structural advantage for nimble investors. The company operates in the engine and power systems sector, which benefits from ongoing industrial trends. Adestella emphasizes that such attractive combinations of growth, profitability, and balance sheet strength simply don't exist at these valuations in large-cap indices. The position represents the fund's strategy of exploiting size-based market inefficiencies. This investment exemplifies how smaller funds can access opportunities unavailable to larger institutional players constrained by liquidity requirements.

Pitch Summary:
One company that we did add to in the quarter and has grown to a mid-sized position is Global-e. Global-e is an e-commerce logistics platform that helps online merchants sell and deliver goods cross-border. The company was founded in 2013 and headquartered in Israel. Global-e handles about $4.7bn in gross merchandise value which translates to ~$740MM in revenue with ~19% EBITDA margins and ~16% normalized PAT margins. Revenue has grown 44% (CAGR) since IPO in 2021 and is expected to grow 30% per year through 2027. The company services over 1,000 brands, across 200 markets (including Adidas, Disney, Givenchy, Hugo Boss and Burberry). Cross-border e-commerce is a rapidly growing segment, growing at almost double the pace of domestic e-commerce. The market is set to hit almost eight trillion in GMV by 2030 growing at a CAGR of 30.5%. However, it is a fragmented market as consumers are spread across the globe and have their own behaviours and preferences. Some of the biggest issues brands face with cross-border commerce include taxes/duties, additional fees and requirements to have a local presence. By becoming the merchant of record, Global-e can take care of end-to-end delivery and ensure returns are also handled smoothly. This allows for customer comfort when making a purchase. For example, Global-e worked with a Canadian ecommerce player who saw only a 20% checkout rate as international customers would bounce once they saw all fees. They adjusted the selection page to show prices, including all charges, in the local ccy, which caused checkout rates to triple. Global-e also helps its customers convert their online stores into local currency and offer local payment options (i.e. WeChat in China). Global-e is widely recognized by customers and competitors as the leading end-to-end ecommerce logistics service in the market. It has also made intelligent acquisitions of competitors to shore up market share and has an exclusive partnership with Shopify (who is Global-e largest shareholder). The biggest risk here is that the stock is not cheap. By my calculations it trades at around 30x 2027 EPS. For this valuation to hold we need to see topline growth of over 30% over the next few years. This is a tall order for any company, but I believe this to be quite doable for the likes of Global-e. Current Net Dollar Retention ratio is around 127% (2023), and the expectation is that this will likely fall to low ~120% when final 2024 numbers are announced (due to full integration of certain acquisitions). The Net Dollar Retention ratio is a bit like 'same-store sales'; it represents how much a company is growing just based on its current customer set. Given the Shopify relationship and new wins like Harrods, we think it is reasonable to assume 10% growth should be doable from new clients. To put numbers behind the thesis, I believe the Shopify business itself will grow to $1bn in GMV by 2027 (from $250mn in 2024) which would add about 5-6% a year to GMV. If you take additional new logos and the 20%+ from existing customer growth we should be able to see 30% growth the next few years. But this number must be watched, especially as the Trump administration will launch new tariffs. If growth slows, the valuation will correct accordingly.

BSD Analysis:
The manager presents a compelling bull case for Global-e, positioning it as the dominant player in the rapidly expanding cross-border e-commerce logistics market. The thesis centers on Global-e's ability to solve complex international commerce challenges by serving as merchant of record, handling taxes, duties, currency conversion, and local payment methods. The company demonstrates strong fundamentals with $740MM revenue, 19% EBITDA margins, and impressive 44% revenue CAGR since IPO. The manager highlights Global-e's competitive moat through its exclusive Shopify partnership and market-leading position serving premium brands like Adidas and Burberry across 200 markets. Key growth drivers include the cross-border e-commerce market expanding at 30.5% CAGR to $8 trillion GMV by 2030, plus a robust 127% net dollar retention rate indicating strong customer expansion. The investment case relies on maintaining 30%+ revenue growth through 2027, supported by Shopify GMV growth from $250MM to $1BN and continued new client acquisition. However, the manager acknowledges valuation risk at 30x 2027 EPS and potential headwinds from Trump administration tariffs that could impact growth assumptions.

Pitch Summary:
Activity: In December we increased our position in Estée Lauder to 2% of the fund—following a period of share price weakness. We believe the destocking/supply chain issues are temporary and that the strong brands that Estée Lauder has created over the years will endure.

BSD Analysis:
The manager increased the Estée Lauder position to 2% of the fund during December, taking advantage of share price weakness to add to the holding. The investment thesis is based on the temporary nature of current headwinds, specifically destocking and supply chain disruptions affecting the business. The fund manager emphasizes confidence in the enduring strength of Estée Lauder's brand portfolio, suggesting these are sustainable competitive advantages. The timing of the purchase during weakness indicates a contrarian approach and conviction in the long-term value proposition. The manager appears to view current operational challenges as cyclical rather than structural issues. This opportunistic buying aligns with the fund's value-oriented investment approach. The emphasis on brand durability suggests the manager values intangible assets and pricing power in the prestige beauty market.

BSD Analysis:
The manager views Next as a successful example of counter-positioning, having proactively embraced e-commerce transformation over the past decade. The investment thesis centers on Next's strategic decision to invest significantly in digital capabilities, even at the short-term expense of retail store sales. The fund manager highlights the creation of a resilient business model through integration of online and physical store operations. Next's multi-channel shopping experience is positioned as a competitive advantage, with the convenience factor of online returns processed through physical stores. The manager appears to value Next's forward-thinking approach to retail disruption rather than resistance to change. This strategic adaptation aligns with the fund's focus on businesses prepared for industry evolution. The analysis suggests Next has successfully navigated the challenging retail environment through digital transformation and operational integration.

Pitch Summary:
Unilever: As a major consumer goods company, Unilever has encountered competition from direct-to-consumer (DTC) brands that leverage online platforms to reach customers directly. This is called 'disintermediation', where the traditional distribution platform, of say a supermarket, is replaced with internet orders sent directly to the customer. These DTC brands often offer personalised products and experiences, bypassing traditional retail channels. Unilever has responded by acquiring several DTC brands to adapt to this change, acknowledging the impact of counter-positioning in the consumer goods sector. Along with our other consumer goods companies, like Colgate-Palmolive and Reckitt, Unilever have also invested heavily in digital marketing. Unlike Blockbuster, they don't have their heads buried in the sand and they are aware of the competitive threats.

BSD Analysis:
The manager views Unilever as proactively adapting to industry disruption from direct-to-consumer brands rather than being displaced by them. The investment thesis emphasizes Unilever's strategic response through acquisitions of DTC brands, demonstrating management's awareness of changing consumer preferences. The fund manager highlights significant investments in digital marketing as evidence of the company's evolution with technology trends. Unilever is positioned alongside other consumer goods holdings like Colgate-Palmolive and Reckitt as companies that recognize competitive threats. The comparison to Blockbuster's failure suggests the manager values management teams that adapt rather than resist change. This adaptive capability aligns with the fund's focus on businesses prepared for unexpected disruption. The manager appears confident in Unilever's ability to navigate the evolving consumer goods landscape through strategic acquisitions and digital transformation.

Pitch Summary:
InterContinental Hotels Group (IHG), a leading player in the hospitality industry, has faced challenges from platforms like Airbnb. Airbnb's model allows homeowners to rent out properties, offering unique accommodations often at competitive prices. This peer-to-peer approach differs significantly from traditional hotel operations and has attracted a substantial customer base. IHG's One Rewards, loyalty program has helped to counter Airbnb's challenge—creating greater customer loyalty. IHG's focus on brand diversity also protects it against this disruptive threat, as well as its more consistent quality standards—which enhances the service in customers' minds.

BSD Analysis:
The manager views IHG as successfully defending against disruptive threats from platforms like Airbnb through strategic competitive advantages. The investment thesis centers on IHG's ability to maintain market position through its One Rewards loyalty program, which creates customer stickiness and repeat business. The fund manager highlights brand diversity as a key defensive moat, allowing IHG to serve different market segments and price points. Quality consistency is positioned as a differentiating factor versus peer-to-peer accommodation platforms. The analysis suggests IHG has adapted well to industry disruption rather than being displaced by it. This defensive positioning aligns with the fund's preparedness-focused investment philosophy. The manager appears confident in IHG's competitive positioning within the evolving hospitality landscape.

Pitch Summary:
Idun Industrier is a Swedish acquisition-driven compounder with c. SEK 2.2bn in sales and EBITA margin of 14%. Idun was founded in 2013 and listed in 2021. We believe Idun has a highly qualitative and capable management team with high skin in the game (>50% of shares and >80% of votes held by insiders). The company has delivered an FCF per share growth of >30% since 2015 and since its foundation, Idun has had zero turnover in the management team. The company has a high-quality portfolio of Swedish companies that has been resilient historically, as well as during the last couple of years, despite economic uncertainty. Although we prefer self-funded growth for companies with mature characteristics, Idun is still in the early phases and ticks many of our qualitative criteria. Therefore, we also participated in Idun's share issue in September, which strengthened its balance sheet, and enabled the company to execute on an attractive acquisition pipeline. As Idun Industrier matures, we expect the company to become self-funded.

BSD Analysis:
REQ added Idun Industrier to their Nordic portfolio in June, recognizing it as an early-stage acquisition-driven compounder with strong fundamentals and exceptional management quality. The investment thesis centers on Idun's impressive track record since its 2013 founding, including over 30% FCF per share growth since 2015, 14% EBITA margins on SEK 2.2 billion in sales, and zero management turnover. The manager particularly values the high insider ownership with management holding over 50% of shares and 80% of votes, demonstrating strong alignment. While REQ typically prefers self-funded growth, they make an exception for Idun given its early development stage and high-quality characteristics. The company's portfolio of Swedish industrial businesses has shown resilience through economic uncertainty, validating the underlying business quality. REQ even participated in Idun's September equity raise, viewing it as necessary to strengthen the balance sheet and fund an attractive acquisition pipeline. The manager expects Idun to transition to self-funded growth as it matures, making this a compelling early-stage investment in what could become a significant compounder.

Pitch Summary:
In September, we decided to exit our position in Vitec, a Swedish vertical market software acquirer, following its third equity raise in just four years. Our investment philosophy prioritizes self-funded growth supported by a strong cash culture. Given Vitec's nearly four decades of history in the VMS industry, we believe it should be capable of achieving self-funded growth, which it has not demonstrated. The decision to sell was driven by several factors: the company's repeated equity raises stemming from high debt levels, weak incremental returns on capital as a result of high acquisition prices, and vague returns on organic investments. These issues collectively led us to conclude to sell our shares.

BSD Analysis:
REQ exited their position in Vitec Software Group in September, citing fundamental concerns about the company's capital allocation and financial management. Despite Vitec's nearly four decades of experience in the vertical market software industry, the manager was disappointed by the company's inability to achieve self-funded growth, which is a core requirement of REQ's investment philosophy. The decision was triggered by Vitec's third equity raise in just four years, indicating persistent capital needs that conflict with REQ's preference for cash-generative, self-funding businesses. The manager identified several red flags including high debt levels necessitating equity raises, weak incremental returns on capital due to overpaying for acquisitions, and unclear returns on organic investments. For a mature VMS company with decades of operating history, these issues suggest poor capital discipline and execution. REQ's exit reflects their unwillingness to compromise on quality standards, particularly regarding cash generation and capital efficiency, even in a sector they generally favor.

Pitch Summary:
During November, DCC, a portfolio holding since the fund's inception, revealed an important strategic shift. The company plans to divest its healthcare and technology assets to focus entirely on its energy division. This division, which specializes in distributing energy products such as LPG to businesses and consumers, has always been the largest contributor to DCC's portfolio. The energy division accounts for 74% of the group's profits and has delivered an impressive 16.4% annual earnings growth over the past decade, with a return on capital employed nearing 20%. Additionally, the division has achieved an average cash conversion rate of 101% over the last 10 years, making it a highly attractive business. While DCC has been a weaker performer for us, delivering only a 7% total return since launch, we have continued to invest because of its strong underlying fundamentals and attractive valuation. The sale of DCC's other divisions is expected to generate extraordinary dividends.

BSD Analysis:
REQ maintains their position in DCC despite underwhelming performance, viewing the company's strategic refocusing as a positive catalyst. The manager acknowledges DCC has been a weaker performer with only 7% total returns since the fund's inception, but they remain committed based on strong underlying fundamentals and attractive valuation. The key development is DCC's decision to divest healthcare and technology assets to focus exclusively on the energy division, which distributes LPG and other energy products. This division represents the crown jewel, accounting for 74% of group profits with impressive metrics including 16.4% annual earnings growth over the past decade, nearly 20% return on capital employed, and 101% average cash conversion over 10 years. The strategic simplification should unlock value by allowing management to focus on their highest-quality, most profitable business while generating extraordinary dividends from asset sales. REQ views this as validation of their patient approach to holding quality businesses through temporary underperformance, expecting the refocused entity to deliver improved returns.

Pitch Summary:
In April, we added Ametek to the portfolio. Ametek manufactures niche-engineered products with 42 subsidiaries operating across a highly diversified range of industries, including aerospace, healthcare, energy, advanced technology, and more. With nearly a century as a public company and several name changes throughout its history, Ametek has undergone a remarkable transformation. Initially, 80% of its business was focused on commoditized electric motors, but over time it shifted to cutting-edge instruments, precision components, and specialty materials. Today, Ametek's subsidiaries operate with substantial entrepreneurial autonomy, each holding its own profit and loss responsibility. Within this decentralized framework, a common thread unites them: niche market leadership. Many of these business units are leaders in their niche markets, typically within markets with a total size under $300 million. This positioning allows them to dictate terms and avoid aggressive competition—illustrating the beauty of small markets, a defining characteristic of our holdings. A key factor in Ametek's success has been its cultural continuity. Over the last 55 years, the company has had only four CEOs, all promoted internally, underscoring its focus on stability, internal growth, and alignment with long-term strategies. Similarly, 75% of its business unit managers are promoted from within, blending technical expertise with deep understanding of the company's culture. This approach has driven remarkable growth, with sales rising from $30 million in 1955 to nearly $7 billion today and operating margins improving from 12% in the early 2000s to approximately 26%. We are impressed by Ametek's long history of durable growth, its long-tenured management team, decentralized culture, and strong capital allocation mindset. With its proven track record of consistent margin improvement and a robust acquisition pipeline, we are confident in Ametek's incremental compounding journey as a portfolio holding.

BSD Analysis:
REQ added Ametek to their portfolio in April, viewing it as a compelling acquisition-driven compounder with nearly a century of operational excellence. The manager highlights Ametek's successful transformation from a commoditized electric motor business to a diversified manufacturer of niche-engineered products across aerospace, healthcare, energy, and advanced technology sectors. The investment thesis centers on Ametek's decentralized operating model, where 42 subsidiaries maintain entrepreneurial autonomy with full P&L responsibility while dominating small niche markets typically under $300 million in size. This positioning provides pricing power and competitive moats. REQ particularly values the company's cultural continuity, evidenced by only four CEOs over 55 years and 75% internal promotion of business unit managers. The operational track record is impressive, with sales growing from $30 million in 1955 to nearly $7 billion today and operating margins expanding from 12% to approximately 26%. The manager views Ametek as an ideal fit for their acquisition-driven compounder strategy, offering durable growth, proven capital allocation, and a robust acquisition pipeline for continued compounding.