Investment Pitches

Pitch Summary:
As at the time of writing, we've recently reduced a significant portion of our Centrus Energy holdings as the uranium sector becomes over-hyped. Centrus Energy does 3 main things. The company imports enriched uranium and on-sells it to utility customers, its engineers help to build, restart and maintain nuclear power plants and it is currently piloting the enrichment of uranium with the US government to very high levels for small modular reactors (SMRs). While Big Tech's recent announcements of using uranium to power data centres is positive for the future of the sector, many of the revenues from these contracts won't be seen until 2030 at the earliest. As such, we've used the rally in the stock to reduce our positioning.

BSD Analysis:
Fawkes Capital demonstrates disciplined profit-taking in Centrus Energy, recognizing the disconnect between current valuations and revenue realization timelines. The manager acknowledges Centrus's strategic positioning across three key uranium market segments: enriched uranium trading, nuclear plant engineering services, and cutting-edge SMR enrichment pilot programs with the US government. While Big Tech's nuclear power commitments validate the long-term thesis, the fund correctly identifies that meaningful revenue impact remains years away, with most contracts not generating cash flows until 2030 or later. This represents prudent portfolio management, using sector euphoria to reduce exposure while maintaining conviction in the underlying fundamentals. The decision reflects sophisticated understanding of market timing versus fundamental value, capitalizing on near-term momentum while recognizing extended monetization cycles. Centrus retains strategic value through its unique SMR enrichment capabilities and government relationships, but current pricing appears to discount overly optimistic timelines.

Pitch Summary:
Celestica is a contract manufacturer of electronic components. In particular, Celestica manufactures various data centre components for hyperscaler customers. They provide solutions for storage, compute and connectivity. Despite doubling earnings, generating a 20% return on equity (which is growing) and having long-standing relationships with their hyperscaler customers developing data centre products at a time of scarcity, the stock trades at a valuation far below its peers.

BSD Analysis:
Fawkes Capital presents Celestica as a classic value opportunity in the high-growth data center supply chain, trading at a significant discount despite superior fundamental performance. The company has achieved earnings doubling while generating an expanding 20% return on equity, indicating strong operational execution and capital efficiency. Celestica's established relationships with hyperscaler customers provide sticky, high-quality revenue streams in storage, compute, and connectivity solutions during a period of acute component scarcity. The valuation disconnect versus peers suggests the market is undervaluing Celestica's exposure to structural data center growth trends. This positioning captures the AI infrastructure buildout through a profitable, established player with proven hyperscaler relationships. The combination of strong financial metrics, strategic customer positioning, and valuation discount creates an attractive risk-adjusted opportunity in the critical data center ecosystem.

Pitch Summary:
We believe GEO Group stands to benefit from the likely forthcoming changes to US immigration policy following the election as well as from lower interest rates. GEO Group owns and operates various prison and immigration centres mainly in the US but also in other parts of the world. Both Trump and Harris have committed to fixing the immigration problems on the Southern border. If elected president, Harris committed to signing the bipartisan Senate border bill into law. Trump has pledged to fix the border crisis by putting in place as stronger measures as possible. A significantly increased amount of electronic monitoring of immigrants, which is included in the bipartisan Senate bill, could cause GEO Group's operating earnings to skyrocket. GEO Group is the dominant supplier of this service and access to the high-margin technology benefits from scale. Even without a major change in policy, reduced interest rates alone would justify a higher capitalisation factor. Given the low valuation with which GEO Group trades, we believe the risk-reward is skewed.

BSD Analysis:
Fawkes Capital identifies GEO Group as a politically agnostic beneficiary of bipartisan immigration reform, with both presidential candidates committed to border security enhancements. The investment thesis hinges on electronic monitoring expansion, where GEO holds dominant market position with high-margin technology that benefits from operational scale. The manager highlights a dual catalyst structure: policy-driven earnings acceleration through increased monitoring services, and valuation re-rating from declining interest rates improving capitalization multiples. The current low valuation provides downside protection while offering asymmetric upside from either catalyst. This represents a contrarian bet on a politically sensitive sector where fundamental business drivers transcend partisan politics. The electronic monitoring angle differentiates this from traditional prison operator exposure, focusing on higher-margin technology services. GEO's scale advantages in this specialized market create meaningful barriers to entry and pricing power.

Pitch Summary:
Argan is an engineering firm that designs, builds and / or installs gas power plants and renewable energy farms. Both the movement towards more renewable energy in the US and AI's need for more data centres is increasing the demand for electricity. As one of only a handful of companies with the capability to build gas power plants in the US, Argan is capturing the benefit of these structural tailwinds. We believe these are longer-term trends that will benefit the business for many years to come. In the shorter-term, our tracking of completed data centres and those currently in construction points towards increased energy needs. While nuclear energy is the favoured source of non-interruptible energy supply for data centres, it takes many years to build a new plant. Small, modular reactor technology is still in its infancy. In the interim, gas power plants are the only option to fill the void when energy demand pressures are forecast to be most acute.

BSD Analysis:
Fawkes Capital presents a compelling structural thesis for Argan, positioning the company as a beneficiary of two powerful secular trends: renewable energy transition and AI-driven data center expansion. The manager identifies Argan as one of only a handful of companies capable of building gas power plants in the US, creating a scarcity value proposition. The investment thesis centers on the interim energy gap while nuclear capacity takes years to develop and small modular reactor technology remains nascent. The fund's proprietary tracking of data center construction provides tactical insight into near-term demand acceleration. This positioning captures both the immediate need for reliable baseload power and the longer-term energy infrastructure buildout. The thesis demonstrates strong fundamental research with clear catalysts tied to measurable data center construction activity. Argan appears well-positioned to monetize the critical bridge period between current energy constraints and future nuclear capacity additions.

Pitch Summary:
Sometimes that means buying high-multiple technology stocks like Alphabet and Microsoft, two of the eight companies listed above that are driving the market's high multiple. We are invested in them because we were struck by the incredible opportunity these firms have to compound earnings. Alphabet has run-rate earnings of roughly $8/share. Our cost basis in our shares is $36.54. We were not so skilled as to purchase the shares for 4.5 times earnings; we paid 22 times earnings, and the earnings almost quintupled during our ownership.

BSD Analysis:
The managers maintain a strong bullish stance on Alphabet despite acknowledging its contribution to elevated market multiples. They emphasize the company's exceptional earnings compounding ability, with their investment demonstrating remarkable success as earnings nearly quintupled during their ownership period. With a cost basis of $36.54 per share and current run-rate earnings of approximately $8 per share, their position has generated substantial returns through earnings growth rather than multiple expansion. The managers originally paid 22 times earnings, which has compressed significantly as earnings scaled. Their thesis centers on Alphabet's continued ability to compound earnings over time, viewing the current high multiple as justified by the company's growth prospects. The investment exemplifies their strategy of identifying businesses with exceptional long-term earnings power, even when trading at premium valuations. They remain optimistic about Alphabet's future earnings growth potential despite recent quarterly results that didn't quite meet high investor expectations.

Pitch Summary:
We think Progressive is the most sophisticated auto insurer in the business. It leverages its vast amount of driver data and is usually one of the first in the industry to recognize important shifts in things like driver behavior and collision costs. Progressive was one of the first to raise rates aggressively in 2021 to offset the higher costs from the more frequent car crashes and higher repair costs post-Covid. By raising prices before its competitors did, Progressive lost customers and wasn't able to grow as fast as it usually does. The rest of the industry has since caught up and increased rates. Progressive's rates are now comparatively attractive once again, and that's led to highly profitable growth. Through September 30, its premiums are up 20% over last year, which is great for a low-growth industry like auto insurance.

BSD Analysis:
The managers view Progressive as the industry leader in auto insurance sophistication, emphasizing its data analytics capabilities and proactive pricing strategies. They highlight Progressive's early recognition of post-Covid cost inflation and aggressive rate increases in 2021, which temporarily hurt growth but positioned the company advantageously. With competitors now catching up on pricing, Progressive's rates have become relatively attractive again, driving strong premium growth of 20% year-over-year through September. This growth rate is particularly impressive in the typically low-growth auto insurance sector. The thesis centers on Progressive's superior data-driven approach to pricing and risk assessment, combined with its current competitive positioning following industry-wide rate adjustments. The managers appear confident in Progressive's ability to maintain profitable growth as market dynamics normalize. The company's strategic foresight in pricing ahead of competitors demonstrates operational excellence that should continue to drive outperformance.

Pitch Summary:
Hain Celestial Group is a recent addition to the portfolio. Since taking the helm in January 2023, CEO Wendy Davidson has been instrumental in driving the company's transformation. Davidson has simplified the business by divesting non-core brands, focusing on higher-margin, core products, and implementing effective cost-saving measures. These initiatives have already led to noticeable improvements in operational efficiency, lower working capital needs, margin expansion, and a more consistent and desirable brand portfolio, positioning the company for attractive sustainable growth. As a result of these efforts, which have positioned the company well for several dollars of free cash flow per share in coming years, Hain Celestial Group now has lower leverage than most of its peers and stronger top and bottom-line growth prospects, yet the company trades at a highly discounted multiple on a forward-looking view.

BSD Analysis:
The manager presents a compelling turnaround story for Hain Celestial under new CEO Wendy Davidson's leadership since January 2023. The investment thesis centers on successful operational transformation including portfolio simplification through non-core brand divestitures and focus on higher-margin core products. Management's cost-saving initiatives have already delivered tangible results with improved operational efficiency, reduced working capital requirements, and margin expansion. The streamlined brand portfolio positions the company for more sustainable and predictable growth going forward. The manager highlights the company's improved financial profile with lower leverage than industry peers and stronger growth prospects across both revenue and profitability metrics. Despite these operational improvements and financial strengthening, the stock trades at a significant valuation discount on forward metrics. The manager expects the company to generate several dollars of free cash flow per share in coming years, suggesting substantial upside potential. This combination of successful turnaround execution and attractive valuation creates a compelling risk-adjusted investment opportunity.

Pitch Summary:
Genius is not as well-known but possesses a bright future as a fast-growing company that has become a critical cog in the sports betting value chain. The company has exclusive data rights deals with many leagues including the English Premier League and the NFL (which owns an equity stake in the company) which afford the company the right to collect, synthesize and share pre-game and in-game data with their casino and sportsbook partners to generate betting lines.

BSD Analysis:
The manager presents a bullish case for Genius Sports as a critical infrastructure provider in the rapidly growing sports betting ecosystem. The investment thesis is built on the company's exclusive data rights partnerships with major sports leagues including the English Premier League and NFL, creating significant competitive moats. The NFL's equity stake in the company validates the strategic value of Genius Sports' technology platform and data capabilities. The company's role in collecting, synthesizing, and distributing real-time sports data to casino and sportsbook operators positions it as an essential intermediary in the betting value chain. This data monopoly with major leagues provides pricing power and recurring revenue visibility as sports betting continues to expand across new markets. The manager views Genius Sports as a fast-growing company with significant upside potential despite being less well-known than other gaming stocks. The combination of exclusive content rights and growing sports betting adoption creates a compelling long-term growth trajectory.

Pitch Summary:
Caesars Entertainment is the owner of a strong casino and entertainment brand, with a diverse portfolio of properties strategically focused on both physical and digital growth. The company's leadership in the U.S. casino and resort industry is underpinned by its expansive footprint, including marquee properties on the Las Vegas strip, new and existing regional casinos in growing markets, and its growing Caesars Sportsbook platform. With the ongoing recovery in leisure and travel post-pandemic, combined with the secular tailwinds in online sports betting and iGaming, Caesars is well-positioned to capture growth across multiple segments. Recently emerging from a sizeable multi-year investment cycle, shares of Caesars look attractive on a mid-teens yield of forward cash-flows. Some recent refinancings and a share buyback highlight the improved look of the company's financials.

BSD Analysis:
The manager presents a bullish thesis on Caesars Entertainment based on its diversified casino portfolio and digital expansion opportunities. The investment case centers on the company's strategic positioning across physical and digital gaming channels, including its Las Vegas Strip properties and growing Caesars Sportsbook platform. The manager highlights secular tailwinds from online sports betting and iGaming growth, combined with post-pandemic leisure travel recovery. The valuation appears attractive with shares trading at a mid-teens forward cash flow yield following completion of a major investment cycle. Recent financial improvements including refinancing activities and share buybacks demonstrate management's confidence and improved capital allocation. The thesis suggests Caesars is well-positioned to capitalize on multiple growth vectors across traditional casino operations and digital gaming expansion. The manager views the current valuation as compelling given the company's market leadership position and diversified revenue streams.

Pitch Summary:
Sow Good faced significant challenges in the second quarter, with management's lack of preparation for summer heat leading to a product recall. The entry of Mars into the freeze-dried snacks category further complicates the competitive landscape. With uncertainty surrounding the sustainability of Sow Good's earnings, the stock is unlikely to experience a significant rerating in the near term. Investors should remain cautious and monitor the company's strategic responses to these challenges.

BSD Analysis:
Sow Good's recent setbacks highlight the importance of operational preparedness and competitive awareness in the consumer goods sector. The product recall due to heat-related issues underscores the need for robust supply chain and quality control measures. Mars' entry into the market presents a formidable challenge, requiring Sow Good to differentiate its offerings and strengthen its market position. The company's ability to navigate these challenges and sustain earnings growth will be critical. Investors should closely watch management's strategic initiatives and market developments.

Pitch Summary:
Laird has demonstrated a strong turnaround, with shares reaching multi-year highs following a secondary offering. The company's record quarter and raised guidance have been well-received by the market, leading to increased investor confidence. Laird's strategic initiatives appear to be paying off, making it the largest position in the portfolio. The company's ability to sustain this momentum and capitalize on its winning formula will be key to its continued success over the next 12 months.

BSD Analysis:
Laird's recent performance underscores the potential for technology companies to achieve significant growth through strategic execution and market adaptation. The positive market reaction to the company's raised guidance indicates strong investor confidence in its future prospects. As Laird continues to innovate and expand its market presence, maintaining operational efficiency and capitalizing on emerging opportunities will be crucial. The company's ability to navigate industry challenges and leverage its technological expertise will determine its long-term success. Investors should monitor management's strategic decisions and market trends closely.

Pitch Summary:
Simply Better Brands has shown resilience by continuing to grow sales through new account wins and robust online sales. The CEO's recent purchase of 500k shares and increased participation in investor conferences demonstrate confidence in the company's growth prospects. Despite a recent 40% correction due to warrant exercises by legacy shareholders, the stock is beginning to recover. The company's ability to land new stores, launch new flavors, and meet guidance will be crucial for market confidence and future growth.

BSD Analysis:
Simply Better Brands operates in the competitive consumer goods sector, where brand differentiation and market penetration are key to success. The CEO's share purchase signals strong insider confidence, which is often a positive indicator for investors. The recent stock correction presents a potential buying opportunity, especially if the company can capitalize on new store openings and product launches. However, the impact of warrant exercises highlights the importance of monitoring shareholder actions and their effects on stock performance. Continued execution on strategic initiatives will be vital for sustaining growth momentum.

Pitch Summary:
BarFresh faced significant challenges in Q3, primarily due to a slowdown in account wins and higher than expected cash burn. Despite resolving supply chain issues and receiving a price target raise to $6, the stock underperformed. The company's cash reserves are low, but management has shifted towards stock-based compensation and secured a credit revolver. While Q3 and Q4 are expected to be strong, the company may need to undergo dilution to sustain growth. The upcoming earnings report is anticipated to be strong, but the preference is to re-enter the stock post-dilution.

BSD Analysis:
BarFresh's recent performance highlights the volatility in the food and beverage sector, especially for companies heavily reliant on account wins and efficient cash management. The resolution of supply chain issues is a positive sign, but the company's financial health remains a concern. The strategic shift towards stock-based compensation and securing a credit revolver indicates management's proactive approach to managing liquidity. However, potential dilution could impact shareholder value in the short term. Investors should closely monitor the upcoming earnings report and management's guidance for future quarters.

Pitch Summary:
Cancer-linked, forever-chemicals found in its biggest brands; the company deliberately uses uncommon, hard-to-detect compounds to avoid detection; the brand could have material damage and litigation risks;

BSD Analysis:
Hershey faces commodity inflation (cocoa, sugar), slowing volumes, and pricing fatigue. Structural concerns include exposure to discretionary snacking and competition from private label. ESG scrutiny around cocoa supply chains adds brand risk. Catalysts: cocoa pricing, elasticity after hikes, retailer negotiations. Counterpoints: brand equity is strong, but shorts see margins peaking into commodity pressure.

Pitch Summary:
The fund's top position is RCI Hospitality (RICK). RICK is the only publicly traded owner of adult nightclubs in the US. Currently they own 56 clubs across 13 states and an additional 13 sports-bar restaurants with the "Bombshells" concept. With few municipalities issuing new adult entertainment licenses these businesses function as local monopolies with excellent unit economics. There are roughly 2200 clubs across the country and RICK estimates that 500 of which would meet their criteria for acquisition. These clubs have limited potential buyers with RICK establishing themselves as the buyer of choice for any club owners looking to sell. This provides a long runway for growth. Share price has taken a hit and with the stock currently trading at a double-digit free cash flow yield. The company has responded with aggressive share buybacks. Management has retired 401,093 shares for the year as of 8/5/24, amounting to roughly 4.5% of shares outstanding. In addition, the company announced a 16.7% divided increase to $.07/share on 9/3/24. I am happy to hold and allow dividend reinvestment and management share repurchases to compress the spring for future returns. During this time, I look forward to the launch of OnlyFans competitor site AdmireMe. I believe RICKs clubs and a platform like OnlyFans will create value for both assets and prove to be the company's main asset in a decade's time if successful. No change in thesis.

BSD Analysis:
The manager presents a compelling bull case for RICK based on its unique market position as the only publicly traded adult nightclub operator in the US. The investment thesis centers on the company's monopolistic characteristics driven by regulatory barriers, as few municipalities issue new adult entertainment licenses. With 56 clubs across 13 states and identifying 500 potential acquisition targets from a universe of 2,200 clubs, RICK has established itself as the consolidator of choice in a fragmented industry. The manager views the current valuation as attractive, citing a double-digit free cash flow yield despite recent share price weakness. Management's capital allocation strategy appears shareholder-friendly, with aggressive buybacks retiring 4.5% of shares outstanding and a 16.7% dividend increase. The manager sees additional upside potential from the upcoming launch of AdmireMe, an OnlyFans competitor that could create synergies with the physical club business. The thesis remains unchanged despite recent volatility, suggesting strong conviction in the long-term value proposition.

Pitch Summary:
Finally, we initiated a new position in Schlumberger (SLB), the leading oil services provider with $35 billion in revenue. SLB is poised to be the primary beneficiary of increasing upstream E&P spending as major Integrated Oil companies like Exxon, Shell, and Chevron, along with State-Owned Energy Companies, intensify their focus on expanding deepwater and conventional oil and gas projects. This renewed interest in investing in conventional greenfield energy projects follows a decade of underinvestment in exploration and development. During this period of underinvestment, incremental oil growth has been largely driven by increased short-cycle, less capital-intensive US shale oil production. However, we are witnessing signs of plateauing US shale oil production, indicating that future incremental oil demand will likely need to be met through new deepwater and international projects. This shift away from US Shale production towards conventional oil projects aligns with SLB's strengths. The company is also a leading service provider for mega-gas projects in the Middle East and Asia. The decade-long industry downturn has streamlined the competitive landscape to SLB's benefit. Through strategic consolidation and continuous investment in innovative technologies, SLB has successfully widened its competitive moat compared to its peers in the oil services market. We anticipate SLB can achieve low double-digit revenue growth over the next several years. Additionally, we believe the company can maintain operating margins between 15-20% while generating 10% or higher returns on invested capital throughout the upcoming upstream oil & gas investment cycle. Despite SLB's market-leading position and accelerating top-line growth, the shares are trading at their lowest valuation metrics since the oil-service downturn of 2016-2018 or the depths of the Pandemic in 2020. Currently, shares are trading at just 10.5x forward earnings estimates of $4.10 per share for 2025. Our estimates for normalized earnings power range from $3.10 to $4.80 per share. Considering SLB's dominant market position, high-teen profit margins, low-teen revenue growth, and moderate leverage of 1.0x net debt-to-EBITDA, we believe an appropriate valuation multiple for SLB shares is 16-20x estimated earnings. This would result in an estimated intrinsic value range of $50-$96 per share. We initiated our position at $43.

BSD Analysis:
The manager initiated a new position in Schlumberger, viewing it as the primary beneficiary of a structural shift from US shale to conventional deepwater and international oil projects after a decade of E&P underinvestment. With US shale production plateauing, major integrated oil companies and state-owned entities are refocusing on conventional greenfield projects that align with SLB's core competencies. The decade-long downturn consolidated the competitive landscape in SLB's favor through strategic acquisitions and technology investments, widening its competitive moat. The manager projects low double-digit revenue growth, 15-20% operating margins, and 10%+ ROIC throughout the upcoming investment cycle. Despite market leadership and accelerating growth, shares trade at 10.5x 2025 earnings estimates of $4.10, the lowest valuation since 2016-2018 or pandemic lows. With normalized earnings power of $3.10-$4.80 per share and applying 16-20x multiples, intrinsic value ranges $50-$96 versus the $43 entry price, suggesting significant upside potential.

Pitch Summary:
We have also decided to exit our position in CVS. When we initially invested, we overestimated the company's potential for normalized earnings power. We no longer believe that CVS can achieve earnings power of $8.00-$9.50 per share within the medium term. Primarily, we misjudged the operating leverage in the Medicare Insurance business. The losses associated with rising medical expenses were significantly greater than our downside scenarios anticipated. These issues were exacerbated by the government's decision to cap insurance premiums for both Medicare and Medicaid in response to higher inflation. Furthermore, the company made two substantial acquisitions, Signify Health and Oak Street Health, totaling $18 billion in cash. We expected these acquisitions to contribute $0.25-$1.00 to earnings power. Unfortunately, they remain unprofitable and have required ongoing investments. As capital allocation is a critical aspect of company management, the disappointing execution of these acquisitions has diminished our confidence in their ability to create shareholder value. Coupled with the mismanagement of the Insurance business, we have lost faith in management and have chosen to move on.

BSD Analysis:
The manager exited CVS after acknowledging significant misjudgments in the original investment thesis, particularly around Medicare insurance operating leverage and earnings power potential. Medical expense losses exceeded worst-case scenarios, compounded by government premium caps on Medicare and Medicaid during inflationary periods. Two major acquisitions totaling $18 billion - Signify Health and Oak Street Health - failed to deliver expected $0.25-$1.00 per share earnings contributions and remain unprofitable with ongoing capital requirements. The manager originally projected $8.00-$9.50 normalized earnings power but abandoned this target given operational challenges. Poor capital allocation execution on acquisitions combined with insurance business mismanagement led to complete loss of confidence in management's ability to create shareholder value. This represents a clear admission of investment error and thesis breakdown across multiple business segments.

Pitch Summary:
We also decided to exit our positions in both Altria (MO) and CVS Health (CVS). We sold our stake in Altria due to concerns that the pace of volume declines in the legacy cigarette business was accelerating faster than anticipated as nicotine users switch to vaping and oral nicotine products. Over the past 18 months, cigarette volumes have declined at an annual rate of 12-13%, significantly worse than the 7-8% rate of decline just two years ago. Altria is no longer able to offset these steeper volume declines with price increases. Additionally, Altria's non-cigarette business is struggling to gain traction. In the increasingly popular oral nicotine segment, Altria's On! brand is growing at a decent rate but is being outpaced by Philip Morris's Zyn product, which is emerging as a clear category leader. Similarly, in the vape market, Altria's NJOY brand is facing challenges. The vape market is overwhelmed by illegal, non-regulated competition that can sell products with sweet flavors at significant discounts to regulated products. Given the lack of enforcement from the FDA or local law enforcement, we expect unregulated vape products to further erode NJOY's market share. As Altria struggles to make headway in these categories and legacy cigarettes continue to decline, we believe future revenue growth and normal earnings power could decline. We estimate that normal earnings power could fall to $4-$5 per share, resulting in an updated intrinsic value range of $32-$50 per share. We exited our position in Altria at $48. Overall, the modest share price appreciation combined with significant dividends resulted in decent gains for our portfolio.

BSD Analysis:
The manager exited Altria due to accelerating cigarette volume declines of 12-13% annually, significantly worse than the 7-8% decline rate two years prior. The company can no longer offset volume declines with price increases, creating fundamental headwinds. Altria's diversification efforts are failing as its On! oral nicotine brand is losing market share to Philip Morris's dominant Zyn product. In vaping, NJOY faces overwhelming competition from illegal, unregulated products that offer flavored alternatives at steep discounts with minimal FDA enforcement. The manager reduced normalized earnings estimates to $4-$5 per share, implying intrinsic value of $32-$50. Despite exiting at $48 with decent total returns from dividends, the thesis reflects concerns about structural industry decline and failed product diversification. The investment case deteriorated as traditional tobacco volumes accelerated downward while new product categories proved unwinnable.

Pitch Summary:
Endava plc (DAVA) is a London, UK based IT solutions company with $1.5 bn market capitalisation and 12,085 employees who are hired on an outsourced basis as project developers and designers for digital transformation, AI implementation, and data modernization projects across verticals including payments, financial services, healthcare and media, among others. Between 2016 and 2023, DAVA achieved an average annual revenue growth of over 30%. However, for FY24, Endava's revenues declined by 6.8%. This was primarily due to reduced IT spending, longer planning cycles (especially for AI projects), and a challenging macroeconomic environment. However, despite the downturn in spending, Endava has remained free cash flow positive and is currently trading at a trough multiple of trough earnings. White Falcon is long and believes that Endava is a good quality business operating in a secularly growing industry with substantial upside from these levels. The IT services industry is a toll on global IT spending which itself is a function of global revenues - both of which have been trending up and to the right. Further, many businesses, unable to manage complex technological needs internally, increasingly rely on outsourcing. The industry has grown at mid single digits for the last 20 years. While seemingly homogenous at first glance, the industry is filled with nuances that distinguish potential value traps from long-term compounders. IT spending, projected to reach $5 trillion in 2024, drives this sector, with software and IT services being the fastest-growing segments. Several factors drive success in the IT services sector: scale, culture, and switching costs. Scale is particularly important because larger firms, like Accenture with its 700,000 employees, have the resources to win big projects and absorb the costs of training and re-training their workforce on the latest technologies. This is something that smaller firms or in-house IT departments just cannot do! It allows scaled IT services firms to transition smoothly through waves of technological change, from application development to ERP implementations, to cloud migrations, and now to AI. In this industry, an IT services company will not get a $10 mn project from a client until they have done a $10 mn project in that practice in their industry and can provide a good reference. This is further exacerbated by the legal liability taken on by IT service providers. Many times, an IT services business has to organically get to that level or acquire another company that has a good reputation in that practice and industry (scaled IT players become roll-ups due to these advantages). We have observed that it is often difficult for IT services businesses to get to $1 bn in revenues but - after they hit this milestone - their growth accelerates. Endava has just reached this milestone! Switching costs play an important role in this industry. Warren Buffett bought IBM as none of the Berkshire companies switched IT service providers - same is true for others! The management and culture of IT services companies are also crucial to their success. These businesses rely heavily on people, and having a strong culture that fosters growth and learning is essential. Firms with high employee turnover, such as Infosys during periods of management instability, struggle to deliver projects on time and within budget. In contrast, Endava low attrition rate of around 10% translates into better project outcomes and higher customer satisfaction. It is important to emphasize Endava is still run by the founder, John Coterell, who is very active in the business and has significant skin in the game (15% of s/o). The company is expected to return to growth this year, with management projecting a conservative 10-11.5% year-over-year revenue growth in constant currency. This guidance does not account for potential pricing adjustments or increases in customer IT budgets. We believe they have set up the year for a beat and raise cadence when considering cross-selling opportunities from the GalaxE integration, expected budget recoveries, and the shift of AI projects from planning to execution. Revenues of $1.3 billion in 2026-27, combined with a normalized EBIT margin of 18%, would generate $235 million in EBIT for Endava. With a current market capitalization of $1.46 billion and $110 million in debt, its enterprise value stands at $1.57 billion. By 2026-27, this would imply an EV/EBIT multiple of 6.5x for a business with good economics and long-term growth potential. Even if the stock doesn't trade at its historical multiples or align with the 'in vogue' digital providers like Globant or LTI Mindtree (20-25x EV/EBIT), we believe a 12x EV/EBIT multiple would still result in a doubling of the share price to $50.

BSD Analysis:
White Falcon presents a compelling turnaround thesis for Endava, arguing the IT services provider is trading at trough valuations despite operating in a secularly growing industry. The manager emphasizes Endava's achievement of the critical $1 billion revenue milestone, which historically accelerates growth for IT services firms due to enhanced credibility and project-winning capabilities. The thesis centers on cyclical recovery from the current IT spending downturn, with management guiding for conservative 10-11.5% revenue growth that could be exceeded through cross-selling from the GalaxE acquisition and AI project acceleration. Key competitive advantages include founder-led management with significant ownership (15%), low employee attrition (10% vs industry average), and positioning in high-growth digital transformation and AI implementation services. The valuation case is compelling at 6.5x projected 2026-27 EV/EBIT, with upside to $50 per share assuming a normalized 12x multiple. The manager addresses AI disruption concerns by arguing that AI implementation requires extensive foundational work, creating new opportunities rather than displacing IT services demand.

Pitch Summary:
In August, APi announced its second-quarter earnings results, with slower-than-expected revenue growth negatively impacting the share price. While we expect near-term growth headwinds to continue putting pressure on the stock, we believe the company's long-term success will be driven by disciplined capital allocation and ongoing margin expansion.

BSD Analysis:
Despite near-term headwinds from slower revenue growth that pressured APi Group's stock price following Q2 earnings, Tourlite maintains a constructive long-term view. The fund acknowledges continued growth challenges in the near term but emphasizes confidence in management's disciplined capital allocation strategy and ongoing margin expansion initiatives. This suggests a value-oriented approach where temporary operational challenges are viewed as creating attractive entry points for a fundamentally sound business. The focus on capital allocation and margin expansion indicates APi's ability to generate returns through operational efficiency rather than just top-line growth. Tourlite appears to be taking a contrarian stance, maintaining conviction despite recent underperformance.