Investment Pitches

Pitch Summary:
TerraVest is an acquirer and operator of steel-based storage tank and equipment businesses that has delivered shareholder returns of ~35% p.a. for the last decade. The company generates a 25% post-tax incremental return on tangible capital and has an excellent and aligned management team who own 35% of the business. We first bought shares in TerraVest last year around C$35, published a report on the company at C$45 (here), and the stock trades around C$100 today. While we think management will continue to compound capital at strong returns for many years to come, we have substantially reduced our position to allow us to invest in new ideas that we think trade at valuation discounts similar to where TerraVest was when we initially bought shares. Several members of management have sold shares recently too, although this was party in anticipation of Canada raising capital gains tax rates.

BSD Analysis:
Plural Investing highlights TerraVest as a successful capital compounder that has delivered exceptional 35% annual returns over the past decade through disciplined acquisitions in the steel storage tank sector. The company's impressive 25% post-tax incremental return on tangible capital demonstrates management's ability to deploy capital effectively in a fragmented industrial market. With management owning 35% of the business, alignment is exceptionally strong, providing confidence in continued value creation. The manager's decision to substantially reduce the position reflects disciplined portfolio management rather than fundamental concerns, as they seek new opportunities with similar valuation discounts to TerraVest's original entry point. The stock's appreciation from C$35 to C$100 validates the investment thesis, though recent management selling partly reflects tax optimization ahead of Canadian capital gains rate increases. The manager maintains confidence in TerraVest's long-term compounding ability but prioritizes capital allocation to newer opportunities with greater upside potential.

Pitch Summary:
Watches of Switzerland is a retailer and partner to Rolex and other luxury watch brands. We believe most of the company's value lies in its relationship with Rolex, which only sells through authorized retailers like WoS who act as gatekeepers to the Rolex universe. That relationship gives WoS far superior economics to a typical retailer, a result of lengthy customer waiting lists, no online competition, and no inventory risk. WoS's management are competent, experienced, and well incentivized, with CEO Brian Duffy owning nearly £40mm worth of stock. We first bought shares around £3.5 (see our report here), it trades at £4.8 today and on 12x this year's FCF despite double digit growth. We think intrinsic value in three years will be around double today's price. The company reported in September that trading was in line with expectations. Swiss watch export data is similarly supportive and shows that the US market is growing at mid-single to low-double digits, while the UK market has returned to modest growth. More importantly, our proprietary data suggests that waiting times for Rolexes in the US and UK continue to be largely stable. Three WoS stores were also granted Authorised Service Center status by Rolex in the quarter, meaning they will include Rolex-trained watchmakers to carry out services and repairs. While this will be immaterial to profits at a group level, it suggests that the relationship between WoS and Rolex continues to strengthen.

BSD Analysis:
Plural Investing maintains a bullish stance on Watches of Switzerland, viewing it as a unique luxury retailer with superior economics driven by its exclusive Rolex partnership. The manager emphasizes the company's gatekeeper role in the Rolex ecosystem, which eliminates typical retail risks through waiting lists, no online competition, and zero inventory risk. Trading at 12x FCF despite double-digit growth, the valuation appears attractive for a business with such defensive characteristics. CEO Brian Duffy's £40mm stake demonstrates strong management alignment, while recent Authorized Service Center designations signal a strengthening Rolex relationship. The manager's proprietary data on stable waiting times provides additional confidence in demand sustainability. With the stock purchased around £3.5 and trading at £4.8, the manager sees intrinsic value doubling over three years, supported by continued market growth in both the US and UK.

Pitch Summary:
Seaport Entertainment is a spinoff with a rights issue that a key insider is oversubscribing to. We invested around $27/shr, the stock remains around the same price today, and we believe could be worth a multiple in three years' time. The company was recently spun out of Howard Hughes, a real estate developer that owns master planned communities across the United States. These communities are desirable because Howard Hughes' control enables it to carefully design all properties and the speed at which those properties are supplied to the market, thereby making development less exposed to boom/bust cycles. While Howard Hughes has been a largely successful developer, its stock has been weighed down by substantial losses at properties it owns in the Seaport district in New York, which is one of the few areas the company owns that is not a master planned community. By spinning off these and other less desirable assets into a 'BadCo' called Seaport Entertainment, the transaction transforms Howard Hughes into a pure master planned community owner, or 'GoodCo'. While investors may naturally gravitate towards the 'GoodCo', we think that the 'BadCo' is where the bigger opportunity lies. There has likely been significant indiscriminate selling of Seaport Entertainment stock. The company owns a loss making and unusually complex set of properties, including part-empty retail and office buildings in the Seaport district of New York, a struggling food court, plot of undeveloped land, restaurants, JVs, air rights, and even a baseball team and ballpark in Las Vegas. Limited disclosure about the economics of the key assets has been given and shareholders were issued stock in Seaport Entertainment worth less than 5% of their Howard Hughes shares. We believe many investors likely sold their stock without being price sensitive. One key insider, however, is buying shares. Pershing Square is an investment firm that owns ~38% of Howard Hughes and whose Founder Bill Ackman was Chairman of Howard Hughes for 13 years, including when the spinoff was announced. As part of the spinoff Seaport is issuing new shares to fund the redevelopment of some properties and bring the company to profitability. Shareholders in Seaport were issued rights to buy 1.27 new shares at $25/shr for each existing share they held. There is also an oversubscription privilege, which means that if the rights issue is not fully subscribed those shareholders who have subscribed get to buy additional shares at $25. Importantly, Pershing Square is not only keeping its Seaport shares but has guaranteed it will exercise its rights to buy more shares. It is also taking oversubscription a step further by guarantee it will buy all other issued shares at $25 that other shareholders do not, which is what would likely happen if the stock declined below $25 prior to the rights issue. In that scenario, Pershing would own 72.6% of the company. In our view, this means that Ackman believes $25 is an excellent price to buy into Seaport. While providing this backstop made the spinoff easier and Pershing's stake in Howard Hughes will be worth around six times as much as its stake in Seaport even if it must purchase all new shares, there are other ways Seaport could have raised capital without Pershing's support. Owning 72.6% of a publicly traded company could also bring additional regulatory and reporting headaches to Pershing. We agree that Seaport is attractively valued. Post rights offering, the company will have a market cap of $330mm at today's prices and net cash of $50mm. For context, Howard Hughes invested at least $1.3bn into these assets, and likely closer to $1.5bn once various JVs and opaque assets are included. While the company is loss making, we believe it is trading for 25 cents on the dollars invested and that a new and well incentivized management team can recover a significant portion of this value. We think that Seaport has three key assets. The first is a fully entitled block of land at 250 Water St in New York, next to the historic and cobblestoned Seaport district, 5 minutes' walk from the East River waterfront and 9 minutes' walk from Wall St. The land cost $180mm and another $63mm was spent on legal fees and preparing it for development. As a result, the land is now fully approved for a 27-story building with ~547,000 sqft, including apartments overlooking the water and Brooklyn Bridge. We believe that is very rare to find fully approved land in this area of Manhattan and that the economics work for a developer to purchase it relatively soon for around $180mm. If true, this asset alone offers substantial downside protection at today's $330mm market cap. The most valuable property owned by Seaport in our view is Pier 17. Howard Hughes invested around $600mm to develop this four-story building that includes ~213,000 sqft of office space, five restaurants next to the water, and a rooftop that overlooks the Brooklyn Bridge and Manhattan skyline and lights up at night to make a stunning concert and entertainment venue. We believe this building is roughly breakeven today but there are several obvious ways operations can be improved. Most notably, around half of its office space is unleased. This was partly unlucky timing as Covid and work-from-home has structurally reduced demand for office space in Manhattan. New management plan to redevelop the space into an entertainment destination, which should increase foot traffic for all the properties in the district. We believe a well-run Pier 17 can generate up to $30mm in earnings per year at maturity. The final key asset in our view is the Tin Building, which is a luxury food court next to Pier 17 that generated $42mm in losses in 2023. That makes it by far the most problematic property Seaport owns and we think it is unlikely the building will ever be worth the $200mm Howard Hughes invested in it. However, there are clear areas for improvement and similar food courts in Manhattan are profitable. The building is currently run by Michelin-starred chef Jean-George's company, which has a contract in place that we think incentivizes it to increase costs rather than profits. That contract expires next year unless revenues increase substantially. To lead Seaport's turnaround the company has recruited Anton Nikodemus to be CEO. Nikodemus was previously President & COO of CityCenter, a 67-acre complex on the Las Vegas Strip that includes iconic properties such as the ARIA Resort & Casino. We believe Nikodemus' hospitality and entertainment experience makes him a better fit to lead Seaport in that direction than executives at Howard Hughes who have more of a real estate focus. His experience working with Live Nation and Jean-George should also help him enhance Pier 17 and the Tin Building. We find it encouraging that Nikodemus thinks the opportunity is attractive enough to relocate to New York City at the age of 60. Nikodemus once stated that "I'm an old desert rat from Arizona and my wife is also from Phoenix. We wanted to get back closer to family." We believe his $1.25mm base salary is, net of higher taxes and expenses, unlikely to have compelled him to make the move. Instead, he has received $12.4mm worth of stock and options and his future compensation is likely to be similarly tied to the stock price. We think that Nikodemus has been compelled to make a big move because he thinks his shares are likely to be worth substantially more in future. We think so too.

BSD Analysis:
Plural Investing presents a compelling spinoff opportunity in Seaport Entertainment, a 'BadCo' spun out of Howard Hughes that trades at just 25 cents on invested dollars. The manager's thesis centers on three key assets: fully entitled Manhattan land worth $180mm providing downside protection, Pier 17 entertainment venue with $30mm annual earnings potential, and the problematic but improvable Tin Building food court. The investment is significantly de-risked by Bill Ackman's Pershing Square backstopping the rights offering at $25, signaling strong insider conviction. New CEO Anton Nikodemus brings relevant hospitality experience from CityCenter and is heavily incentivized with $12.4mm in equity compensation. The manager believes indiscriminate selling has created an attractive entry point for a turnaround story with multiple upside catalysts. At a $330mm market cap with $50mm net cash, the valuation appears compelling given the underlying asset base and improvement potential under new management.

Pitch Summary:
On this theme, we recently added a familiar name to the portfolio, MDA Space Ltd. We have owned MDA in the past through our successful investment in Maxar Technologies Inc. which was initially formed via a merger with MDA. MDA was subsequently spun-out while Maxar was eventually sold. MDA is a market leader in geointelligence, robotics and satellite systems with a long history of innovation in space technology. The company was historically a capital intensive and lumpy business highly dependent on unpredictable government contracts which has likely prevented investors from taking a fresh look at the business. The new MDA is a high-quality company with a balanced mix of customers focused on high margin, recurring revenue. With a huge back log, key flagship contract programs which provide years of predictable growth and several potential contracts which remain outstanding catalysts, the company is well positioned to serve the growth space market while trading at what we view as an attractive valuation.

BSD Analysis:
The managers present a compelling bull case for MDA Space, positioning it as a beneficiary of secular growth trends in the space industry including satellite broadband demand, declining launch costs, and increased geopolitical importance of space assets. They emphasize the company's transformation from a historically lumpy, government-dependent business to a higher-quality operation with diversified customers and recurring revenue streams. The investment thesis centers on MDA's market leadership in geointelligence, robotics, and satellite systems, supported by a substantial backlog and multi-year flagship contracts that provide revenue visibility. The managers highlight several potential contract awards as outstanding catalysts that could drive further growth. Their familiarity with the company through previous successful investments in Maxar Technologies adds credibility to their assessment. The combination of secular industry tailwinds, improved business quality, predictable growth drivers, and what they view as attractive valuation creates a compelling risk-adjusted opportunity in the expanding space economy.

Pitch Summary:
DMC Global (BOOM) – This is a special situation, similar to Vimeo in Q1. There is an offer on the table to buy DMC Global at $16.5/share. It looks credible, but DMC and its buyer – a billionaire – have not talked with each other. DMC Global is an industrial business with three units – Arcadia, a building products company similar to Apogee but smaller, not as strongly performing, and west coast based; DynaEnergetics, DMC's original business, which offers 'perforation' services to oil companies (meaning dynamite to blow up land for fracking and other oil drilling); and NobelClad, which sells heat-resistant metals to a variety of businesses. This is not the sort of business I'd normally own. But the offer is credible, and BOOM was already undergoing a strategic review, which can mean a sales process. There are some other weird notes around management here. The stock isn't terrible to own at its 52-week low of $10.5 (we bought shares at $13). Our worst case is if DMC sells off its oil-oriented businesses at a low price to focus on Arcadia, and that's what I'm watching out for.

BSD Analysis:
The manager presents DMC Global as a special situation investment driven by a potential acquisition at $16.5 per share by a billionaire buyer. The company operates three distinct business units: DynaEnergetics (oil services perforation), NobelClad (heat-resistant metals), and Arcadia (building products). While acknowledging this isn't a typical investment for the fund, the manager sees compelling risk-reward dynamics with shares purchased at $13 versus the $16.5 offer price, representing potential 27% upside. The company was already conducting a strategic review, suggesting management openness to a sale process. The key risk identified is potential value destruction if management sells the higher-value oil services businesses at depressed prices to focus solely on the underperforming Arcadia division. At the 52-week low of $10.5, the downside appears limited while the acquisition offer provides a clear catalyst for value realization.

Pitch Summary:
ABM (ABM) – ABM stands for American Building Maintenance. This company is primarily a janitorial company – schools, businesses, and airports outsource their janitorial services by hiring ABM. ABM also offers parking lot maintenance, facility engineering, and provides airport services (passenger assistance, logistics, catering). This is a boring business. Its 'steady' business lines have grown revenue at about 4% a year since 2019, and it's hard to see it doing better than GDP growth. But we're only paying 14 times earnings or so, and from our experience owning airport shares, know that this business should do well even in hard times. The two upside kickers are a) similar to Apogee's challenge with office buildings, ABM is struggling in its business and industry line, and if that ever goes back to normal, that could be a tailwind, and b) it is building out a microgrid and electric vehicle power station installation business. ABM's 'project' business, which is less stable, has grown 9.4% a year since 2019, and while this is only 25% of the overall business, it at least has a profile that could outpace the steadier business and transform ABM's overall business.

BSD Analysis:
The manager presents ABM as a defensive value play with potential upside catalysts in emerging growth areas. The core janitorial and facility services business provides steady, recession-resistant cash flows growing at approximately 4% annually, consistent with GDP growth. At 14x earnings, the valuation appears reasonable for this stable business model. The manager identifies two key upside drivers: recovery in the struggling business and industry segment as office occupancy normalizes, and growth in the higher-margin project business focused on microgrids and EV charging infrastructure. The project segment has demonstrated strong 9.4% annual growth since 2019 and represents 25% of total business, providing potential for business mix improvement. The manager's experience with airport-related investments gives confidence in ABM's resilience during economic downturns, making this a compelling risk-adjusted investment with both defensive characteristics and growth optionality.

Pitch Summary:
Apogee (APOG) – Apogee makes glass, framing systems, and aluminum or glass doors for buildings, especially commercial and office buildings. I like the company's management. The CEO is a former 3M executive, and is focusing the company on constant margin and business improvement, and while that is easier to say than do, the company's track record so far is successful – 500 basis points in gross margin improvement and 400 basis points in operating margin improvement from 2022-2024 (and over 200 points of each so far in fiscal year 2025), and both above pre-pandemic levels. On top of that, Apogee is a big but regional player in a fractured market, which means it has room for growth either via acquisition – and it just announced the purchase of a coatings company – or through taking market share. It's reasonably priced if not better, and while it is a cyclical company and won't thrive in a recession, I think we're paying a reasonable multiple for long-term growth.

BSD Analysis:
The manager initiates a position in Apogee based on strong operational execution and margin expansion under new leadership. The company has demonstrated impressive margin improvement with 500 basis points of gross margin expansion and 400 basis points of operating margin improvement from 2022-2024, now exceeding pre-pandemic levels. The former 3M executive CEO is driving a culture of continuous improvement that appears to be delivering tangible results. The investment thesis centers on the company's position as a large regional player in a fragmented market, providing opportunities for both organic market share gains and strategic acquisitions. The recent coatings company acquisition demonstrates management's commitment to growth through M&A. While acknowledging the cyclical nature of the commercial building market, the manager believes the valuation provides adequate downside protection while offering meaningful upside potential as the operational improvements continue.

Pitch Summary:
Atkore (ATKR) is the most interesting case, and the most painful as our top loser for the second straight quarter. We have been waiting to see what the industrial maker of PVC pipes and metal conduits among other products will look like when things are 'normal'. It jacked up prices during the pandemic, and those prices have declined for the last couple years. The latest earnings report made clear that management is not quite sure when the bottom hits. On top of that, a customer sued Atkore and other PVC pipe companies, accusing them of price fixing and collusion. This echoed a short-seller argument against Atkore. The lawsuit is primarily pegged to circumstantial evidence as well as a PVC industry publication. If true, it would be a deal-breaker as far as management credibility. But it seems to be a tough case to prove, and conversely shows what a strong position Atkore has. With infrastructure bills, data center demand, the need to harden our electrical grid, solar power demand, and more, there are positive momentum drivers for Atkore's business. It has good position in its markets. Imagine all of its windfall pricing power goes away and the company reverts to FY 2020 net income. Adjust for Atkore's acquisitions since, as well as its reduced share count, and you get $5.77/share earnings. The company traded at ~14x trailing GAAP earnings before the pandemic. If I apply a penalty multiple of 12x earnings, we get $69/share. Analysts currently expect Atkore to have double those earnings in 2025. If Atkore can bottom there, the shares are probably worth above $140, with the company set to grow again. It's painful that shares have fallen to $85 or so, and the lawsuit risk is not zero, but I think there's a good chance Atkore will work. As long as we can ride out this transition.

BSD Analysis:
The manager presents a detailed contrarian thesis on Atkore, acknowledging significant near-term headwinds while maintaining conviction in the long-term value proposition. The company faces pricing normalization after pandemic-driven price increases and is dealing with a price-fixing lawsuit that creates credibility concerns. However, the manager sees multiple structural growth drivers including infrastructure spending, data center demand, electrical grid hardening, and solar power expansion. The valuation analysis is compelling, suggesting the stock trades at a significant discount even in a normalized earnings scenario. At current levels around $85, the manager calculates fair value at $69 in a bear case and above $140 if earnings recover to analyst expectations. The investment thesis relies on the company's strong market position and the manager's belief that current challenges are transitional rather than permanent.

Pitch Summary:
Navios Maritime is a company in a sector that is infamous within the value investor community: maritime shipping. 'Worse', it is part of the infamous corner within shipping: Greek/Mashall Islands Shipping. So let me explain how awful this sector is. First of all, maritime shipping is a capex heavy, highly cyclical industry: companies need to invest a lot upfront and are extremely inflexible in the capacity they offer: the ships need to sail because they will rust away no matter what, and if more capacity is needed, they can't scale up. In the prior decade, overcapacity led to extremely depressed freight rates. The whole industry, burdened with high debt loads, had to offer their services at levels that were only economically feasible if you didn't take write-downs on the ships into account. Many of these companies were loss-making for almost ten years, and a lot of them, such as ZIM Integrated Shipping, even went bankrupt. The business is, as analysts call it while making a dirty face, 'commoditized': many players offer undifferentiated products, creating a cutthroat market in which market participants undercut their competitors until no one makes a profit anymore. On top of that, the Greek/Marshall Islands part is arguably even uglier. Greek shipping has a long history of self-dealing and bad investment habits by CEO's and Navios is no different. One can even say it is exemplary: Their CEO Angeliki Frangou first sold part of the company to herself. Then she hired the services of her spun-off company on behalf of Navios at not-so-great rates, essentially draining Navios of its profit. And then, Frangou bid on her own company through Navios by offering 20% of Navios shares! How could she get away with this? That's where the Marshall Islands comes in: Because Navios is domiciled in the Marshall Islands on paper, it is exempt from many corporate governance standards that we take for granted: very low fiduciary duty standards, fewer grounds for shareholder lawsuits, etcetera. In practice this means it is very difficult to challenge board decisions and provide 'oppression remedy': protecting minority shareholders against the actions favouring only majority shareholders. The Marshall Islands also gives management a lot of flexibility do deal with mergers and acquisitions as they see fit: blocking them or pushing them through against the will of shareholders. So why did we buy into Navios nonetheless? The reason is there are quite a few mitigating circumstances. Vitally, the fact that the CEO has become a major shareholder aligned her interests a lot better with (other) shareholders. While robbing from a company where you own 20% can still be profitable, it just makes less sense. To us it is clear she has already made her move. And to make this point even clearer, she initiated an enormous stock buyback program as soon as her Navios' position had cleared and has recently even expanded it. In 12 months' time Navios has changed from a stubborn self-dealer to an admirable shareholder friendly corporation. But of course we will remain vigilant. With that out of the way: we wouldn't be a shareholder if Navios hadn't had fabulous metrics that made all this hassle worthwhile to begin with. And indeed, we were primarily attracted to the fact that Navios was trading at a P/E of 2.0, but also had very low debt relative to their assets and was trading at a high discount to tangible book value. The stock has gone up over 100% since we bought six months ago. There's still room for it to go up more, but for now we see more upside in our other stocks.

BSD Analysis:
The manager presents a compelling turnaround thesis for Navios Maritime Partners, acknowledging the sector's notorious reputation while identifying key catalysts for improvement. The investment case centers on dramatic valuation metrics - a P/E ratio of 2.0, low debt-to-assets ratio, and significant discount to tangible book value. The critical transformation involves CEO Angeliki Frangou's shift from self-dealing to shareholder alignment after becoming a 20% owner herself. This ownership change has catalyzed aggressive shareholder-friendly actions including substantial stock buyback programs. The manager views the governance improvements as sustainable given the CEO's now-aligned incentives. Despite acknowledging ongoing sector headwinds and cyclical challenges, the 100% return in six months validates the thesis. The position appears to be reaching fair value as the manager notes seeing "more upside in other stocks," suggesting potential trimming ahead.

Pitch Summary:
Intellego is a Swedish company specializing in dosimeters for ultraviolet light. There are three types of UV – A, B, and C. UVA rays are long-wave (315-400 nanometers) that typically cause skin cancer. UVB rays are medium length (280-315 nm) which usually cause sunburn. And UVC rays are short-wave (100-280) that gets absorbed by the ozone layer so we don't hear about it too often. However, it has germicidal properties which means it is good for disinfecting. Intellego's dosimeters react to UV light and change color so that practitioners can measure the magnitude of UV for specific purposes. The original vision was from the founder/CEO, Claes Lindahl, when he bought the formulation in 2011 to see if he could help reduce sunburns. The idea was to provide a wristband that would change colors when you needed to reapply sunscreen. That product still exists but Lindahl found it to be too expensive to scale a consumer brand so the company pivoted to B2B sales in other applications. With COVID, the one market that really took off was healthcare, which makes up roughly 70% of the current business. As mentioned, UVC light is germicidal which is great for disinfecting but it's also invisible so how do you know it's working? That's where dosimeters come into play. They are small paper cards that change color based on how much UV light they are exposed to. Seems like a relatively simple business, right? Just sell paper cards to hospitals for less than $2 a pop and then sit back and relax. Well, it's not quite that easy. Since the cost per card is so low, it doesn't make economic sense to have a salesforce going door-to-door among all of the different hospitals. So the company sells through distributors of UVC light into hospitals. The actual big light provider sells to the hospital and then the salesperson can add in dosimeters for validation. Unfortunately, the dosimeters weren't selling through very quickly because it wasn't high-value enough for the salesperson. So now Intellego is backward vertically integrating and has purchased a couple of equipment resellers. The first one was Daro Group, one of the leading water disinfecting providers in the UK, for $12 million USD. Daro is set to grow 15% and be profitable this year. Intellego also started another reseller named Yuvio which offers UVC lamps for hospital settings. One interesting piece about this is that Yuvio resells OhmniLabs UVC robots, among other brands, that zoom around a room with a lamp to disinfect it. The autonomous robot companies love dosimeters because they reveal just how well the robots work compared to a stationary lamp. The stationary lamp may work very well in one particular area but germs obviously aren't isolated to specific areas. Further, UVC companies that have low quality machines don't like dosimeters since they expose the lack of radiation and therefore the lack of disinfection. Dosimeters are about 95% gross margins so the capital equipment reselling is much more capital intensive and low margin (far lower ROIC). However, it feels like a necessary step right now as the company tries to build distribution muscle and its moat. As of Q2 2024, the company has done just over $22 million in revenue over the past twelve months at roughly 80% gross margin and 50% EBIT margin. Daro accounted for about one-third of the business in Q1 and dosimeters made up the rest. If we remove Daro, we find that dosimeters clock in at nearly 70% EBIT margins. Dosimeters, alone, also grew over 100% on the back of several large deals. It's clear a very good business to sell as many dosimeters as possible but the problem of the low price tag still remains so it doesn't make economic sense to sell directly to hospitals. Further, European hospitals aren't exactly the most well-funded institutions. That's why the curing side of the business is pretty exciting. The company has been in a two-year-long process with a German multinational that does more than $20 billion in revenue to sell dosimeters that validate UV light in the manufacturing process. By the end of the year, we should have some positive news from this customer. Instead of selling a dosimeter for $1.50, they typically sell it for $5 in the curing vertical and this contract alone could be worth the majority of the entire market cap if it takes off like Lindahl thinks it can. Intellego is not limited to Europe though. The company's heads of sales for North America and Asia actually work remotely in Alabama and Atlanta respectively. In fact, the founder even works from home. That's one reason why opex has been so low and the company is able to put up such strong operating margins. There are about 6,000 hospitals in the US, which combine to account for about 1 million beds. In Europe, there are more like 30,000 hospitals that contain 2.3 million beds. Depending on how many dosimeters a hospital would use per day, we can come up with a healthcare TAM. At $1.50 per dosimeter, at 5 dosimeters per day, we get nearly a $100 million market if we assume all of those hospitals. We can change the dosimeters per day which is the real variable that has an impact. That's why real-time validation is so important. Most hospitals with stationary UVC lamps may use a dosimeter initially and then think there's no reason to use another one if the lamp hasn't moved. That may be the case but it's not the case with autonomous UVC robots that are cleaning an entire area as we discussed. But the healthcare market is likely much smaller than the curing market. Intellego also uses its dosimeters in greenhouses in its horticulture verticals but let's not even attribute much TAM to that as it's still early days. The curing market is mainly focused on manufacturing companies. An automaker might use UV lights to speed up the paint-drying process, saving time and thereby money. In order to measure the level of radiation a dosimeter would be used. Anything that needs to be dried and hardened may be a potential market for dosimeters. The CEO/founder measures this market in the billions but that might be aggressive. Even so, directionally, the curing market is larger than $100 million and the average selling price for a dosimeter is more than 3x what it is in hospitals. I think the main question most investors would have is: how defensible is a paper card? The answer is: you'd be surprised. Claes has three patents on the intellectual property, including very interesting applications like a QR code that would direct a UV robot to increase or decrease UV intensity and then shut-off based on the color of the dosimeter card. There is also an app that users can scan the cards and keep a running log of the exact color of each card for liability purposes. Imagine if someone got an infection after leaving the hospital and wanted to sue the hospital. Well, the hospital lawyers could show how well the area where the patient was staying was sanitized using the color of the card. In fact, hospitals in China are already starting to standardize this protocol for similar reasons. Further, if you Google "UV dosimeters" almost all of the ones you'll find are Intellego's brand, even if they don't explicitly say so since Intellego does white-labeling as well. The fact that Intellego is such a well known name in the industry coupled with its low-cost operation, means there is very little room for competitors to undercut on price. These cards sell for $1.50! Is it worth saving 50 cents in the event that the new card doesn't work as well and doesn't have a digital record management system? It's just not really worth it. Now, at some point, if you're using 100 dosimeters per day, it adds up. But the average healthcare associated infection costs $36,000 so dosimeters really act like insurance. It's about validation and liability related to UV. In curing, if the light isn't perfectly placed where you need it, an extra 30-60 minutes of curing time could be very costly. It's well worth just going with the established market leader. Another risk to mention is radiometers. These are electronic readers of UV light. They are typically at least a few thousand US dollars, routinely reaching $5,000, but they don't have to be replaced. So it's a larger investment upfront but they can't be easily positioned to optimally measure UV light. I'm eagerly on the lookout for flexible radiometers but none have come to market yet. At the moment, due to the low cost and ease of use, dosimeters solve customers' problems much better than radiometers. There are plenty of risks with this story. First, the cash flow and balance sheet aren't nearly as strong here as the companies I usually invest in. Intellego put in a strong cash flow performance in Q1 but heavily invested in capex to buy autonomous UV robots through its Yuvio subsidiary in Q2. Along these lines, the first thing investors flag when looking at Intellego is the huge accounts receivables balance. In Q4 2023, receivables were 92 million SEK on roughly 107 million dosimeters sales for the year. Very roughly that implies 12 month payment terms. Management has explained that this was necessary in order to prove their value and then payment terms will shorten as time goes on. They are now guiding for receivables to be between 25-35% of overall revenue, which, if you annualize Q1's results, it's about 36%. So they are certainly on the right track. However, if we continue to see long payment terms, and cash keeps getting consumed, I think this will be a thesis breaker since customers aren't truly paying for the value they're seeing. Further, the balance sheet isn't necessarily strong enough to weather it for much longer. My thesis is fairly focused on cash flow as I believe this year will be important for shortening payment terms and see some larger curing customers who should have the coffers to pay for the dosimeters. The company has also been able to sell Yuvio systems immediately (not leasing) as customers are eagerly ordering the advanced technology. Second, there is a long checkered history with the company's board. Over the past year, 4 of them have stepped down. To many investors, this is a glaring red flag. However, I think it's more a function of the founder's lack of network/resources in the early days rather than any maleficent intentions. Henrik Börjesson, Anders Ardstål and Per-Ola Rosenqvist have all stepped down, creating some controversy. Mr. Rosenqvist was convicted of insider trading so obviously he would have to leave the board. But that was his personal decision, not Claes'. Mr. Börjesson didn't think he was qualified enough to take the company to the next level and Mr. Ardstål had too much on his plate. Third, the company's last auditor wasn't great, which certainly added some bite to the bear pitches. But at Intellego's last annual meeting, they announced an engagement with Deloitte and I'm looking forward to the first full-year audit. There was an accounting issue with the Daro acquisition that was yet another example of Intellego's need to professionalize. Fourth, the company still doesn't have a full-time CFO. Further, the company had to delay its Q2 earnings report because its temporary CFO was on vacation. That doesn't happen in professional organizations and shows that the company still has a long way to go in maturing. Intellego is Claes Lindahl's baby (CEO). He founded the company in 2011 and is still running it 13 years later. There have been many ups and downs over the years, including several years to even get the technology working and now the struggle of scaling the company despite a few problems with the auditor and board. With all of the challenges, Lindahl has remained strong and hasn't wavered. In fact, over the last 4 months, he has personally bought over $400k USD and nows owns more than 12% of the company. I don't think it's unreasonable to believe that the company could do $20 million in EBIT over the next 18 months. With $6 million in cash build, that would be a little bit more than 3x '25 EV/EBIT. For a company that could continue growing over 30%, with no customer concentration, a founder at the helm, a huge runway, and repeat customer behavior, that is far too cheap.

BSD Analysis:
The manager presents a compelling bull case for Intellego, a Swedish UV dosimeter manufacturer trading at attractive valuations despite significant execution risks. The investment thesis centers on the company's dominant market position in UV validation through simple paper cards that change color when exposed to UV light, serving healthcare disinfection and industrial curing markets. With 95% gross margins on dosimeters and 70% EBIT margins in the core business, Intellego demonstrates exceptional unit economics when excluding recent capital-intensive acquisitions. The manager highlights a potential inflection point with a major German multinational customer that could drive dosimeter pricing from $1.50 to $5.00 in the curing vertical, representing significant margin expansion. However, the investment carries substantial operational risks including weak cash flow management, extended 12-month payment terms that are only recently improving, governance issues with four board departures, and lack of a permanent CFO. The manager's valuation target of 3x 2025 EV/EBIT appears reasonable given the 30%+ growth potential and founder-led structure, but execution on cash collection and professionalization will be critical catalysts.

Pitch Summary:
Tesla (which has been a core holding since 2016) represents a significantly larger weighting in our portfolios due to our belief of its immense market opportunity—especially relative to Waymo. With its scalable, vision-based Full Self-Driving (FSD) system, Tesla, in our opinion, has created a vast, proprietary technological edge—which has now resulted in a significant relative unit economic edge. Tesla is a divisive company led by an even more divisive leader. But beyond the headlines, we believe Tesla has quietly produced one of the most unassailable and lucrative moats of the modern business era. The proprietary nature of their FSD computer and neural net architecture—combined with their global fleet collecting real-world data—has created a self-reinforcing product development cycle. We believe the nature of this dynamic could keep Tesla ahead indefinitely on an exponential curve: today in transportation—and in the future with robotics. These developments could catapult Tesla's market value over time. If their execution proves successful—and we anticipate it will—today's valuation (at roughly $800 billion) offers a compelling risk/reward for investors with (1) a long-term outlook and (2) an appetite to participate in perhaps the most consequential business and technology story of the late 2020s and early 2030s.

BSD Analysis:
Nightview Capital presents a compelling bull case for Tesla centered on its Full Self-Driving technology and autonomous vehicle capabilities. The fund believes Tesla has developed an unassailable competitive moat through its vision-based FSD system, proprietary neural network architecture, and massive real-world data collection from its global fleet. This creates a self-reinforcing cycle where more data improves the AI models, leading to better autonomous driving capabilities. The manager emphasizes Tesla's scalable approach compared to competitors like Waymo, which relies on expensive LIDAR and detailed mapping. At an $800 billion valuation, Nightview sees compelling risk/reward for long-term investors willing to participate in what they view as a transformational technology shift. The fund has held Tesla since 2016 and significantly increased its weighting based on conviction in the autonomous driving opportunity. They believe Tesla's technological leadership positions it to dominate not just transportation but future robotics applications as well.

Pitch Summary:
AppFolio is a leading provider of cloud-based software solutions designed to empower real estate businesses to thrive in today's competitive market. Founded in 2006, they offer a comprehensive suite of tools that streamline operations, enhance customer experiences, and drive growth with the sweet spot customer being an owner of 50+ units. The platform is built on a foundation of innovation and efficiency. Leveraging cutting-edge technology, including artificial intelligence and automation, to simplify complex tasks and reduce manual workload. This frees up property managers to focus on strategic initiatives and deliver exceptional service. AppFolio offers three core products: 1. AppFolio Property Manager Core: Ideal for small property management companies, providing essential features for accounting, transactions, and stakeholder interactions. 2. AppFolio Property Manager Plus: Designed for growing businesses, offering additional features like affordable housing management, student housing support, and enhanced accounting capabilities. 3. AppFolio Property Manager Max: Tailored to large-scale property management operations, featuring advanced leasing tools, CRM functionality, and increased customization options. On top of the above core products, AppFolio Property Manager offers Value Added Services that complement our core products and streamline essential business processes. These services focus on marketing, leasing, payments, screening, and risk mitigation. We think the bulk of the future margin expansion will come from these value added services, which we'll touch on more below. The core product generates roughly $2 per unit per month in revenue for property owners, while value-added services add approximately $5 per unit per month in fees. These fees can be paid by the owner or passed on to the renter. We think AppFolio has a durable growth model; annual recurring revenue (ARR) has scaled 10x to $750M since the 2015 IPO and the platform now boasts 19,941 property manager customers and 8.3 million units under management, generating an estimated 2024 annualized revenue per unit (ARPU) of $85.8. Management has successfully scaled this business profitably, primarily due to two compelling factors. AppFolio boasts an impressive lifetime value to customer acquisition cost ratio and minimal share-based compensation relative to revenue. Notably, the business has achieved substantial growth without external funding, relying solely on internally generated cash flow since its IPO. The revenue mix has shifted, with SaaS revenue now accounting for 25% and payments, fintech, and AI (value-added services) comprising 75%. Since Q1 2021, core product revenue has grown at a 5.7% compound annual growth rate (CAGR), while value-added services have experienced a 23% CAGR. We anticipate AppFolio will significantly improve its operating margin to 24% in 2024, the highest in a decade. This growth is expected to exceed the combined operating profit of the previous 10 years, driven by economies of scale. We believe this growth will be fueled by increased unit growth through market share gains, higher average revenue per user (ARPU) from a new pricing tier, and continued adoption of payment and fintech services. We believe AppFolio's growth potential is supported by its reinvestment opportunities and strong competitive position within a stable and growing market. The rental housing industry in the U.S. represents a significant market, with approximately 35% of all housing units being rentals. The number of renter-occupied units has steadily increased at a 1% CAGR since 1941, reaching roughly 45.2 million units today. AppFolio holds a leading position, managing approximately 6.2 million residential units, representing a 14% market share. The company continues to expand its market share by growing its managed units at a rate of 10-12% per year, outpacing its competitors. The competitive landscape has undergone significant consolidation over the past 30 years, resulting in a total of 5 players. AppFolio is the only publicly traded company among them. The three main competitors are RealPage, a privately held company acquired by Thoma Bravo for $10 billion in 2021. RealPage is facing challenges due to its leveraged roll-up structure and ongoing antitrust lawsuit. Yardi, founded and led by CEO Anant Yardi, offers a less competitive product with a poor user interface. Entrata, a relatively new entrant, is a formidable competitor but remains significantly smaller than AppFolio and lags behind in terms of online visibility. The final piece of this puzzle is the alignment of significant insiders. From an interview with Reece Duca, who is a Partner at Investment Group of Santa Barbara, speaking about AppFolio he stated the following: 'We invested in the IPO, we purchased after the IPO from other investors. And pre IPO, there were other strategic investors and their mandates can change, they make an investment in year two, and in year seven, they have somebody else running their strategic investments and they decide they're willing to sell it--so all along this spectrum, from Series A to public companies, and then you look at it, and you say we know the company backwards and forwards, we know the management backwards and forwards, we know the opportunity backwards and forwards. Why would we harvest it and then recycle the money when we have an opportunity to continue to be big owners in an exceptional company?' Mr. Duca alone owns almost one-fifth of the shares outstanding and ~40% of voting power at AppFolio while founder and board observer, Klause Schauser controls 20.9% of the voting power. While this doesn't guarantee success, it does help to know your capital is invested alongside what appears to be long-term oriented owners. We acquired a business that is outperforming its competitors, has no debt, is backed by long-term oriented shareholders, and offers significant growth and margin expansion potential. We paid approximately 40 times free cash flow, which might seem expensive initially. However, we believe the business will achieve over 100% growth in free cash flow per share in 2024 and continue to grow at a rate of 20% or more for several years starting in 2025.

BSD Analysis:
The manager presents a strong bull case for AppFolio based on its dominant position in property management software with 14% market share and 8.3 million units under management. The company has demonstrated impressive growth with ARR scaling 10x to $750M since IPO, driven by a shift toward higher-margin value-added services (75% of revenue) growing at 23% CAGR versus 5.7% for core products. Operating margins are expected to reach 24% in 2024, the highest in a decade, supported by economies of scale and pricing power. The competitive landscape favors AppFolio as the only public player among five consolidated competitors, with RealPage facing antitrust issues and Yardi offering inferior user experience. Strong insider alignment through Reece Duca (20% ownership, 40% voting control) and founder Klaus Schauser (20.9% voting power) provides confidence in long-term orientation. Despite paying 40x FCF, the manager expects over 100% FCF growth in 2024 and 20%+ growth thereafter, supported by the stable rental housing market growing at 1% CAGR since 1941.

Pitch Summary:
Computer Modelling Group Ltd. (CMG) is a leading global software provider specializing in complex subsurface and surface solutions for the new energy industry. With over four decades of experience in reservoir simulation, CMG offers cutting-edge technology backed by deep industry expertise. Their commitment to innovation, coupled with exceptional customer support, has earned them a strong reputation and a loyal customer base. CMG's solutions are trusted by major oil and gas companies worldwide, including 90% of the top 10 national oil companies and 70% of the leading unconventional producers. Their success is driven by a combination of factors: advanced physics, continuous product development, enhanced computational performance, user-friendly interfaces, cost-effective solutions, and a knowledgeable support team. CMG's reservoir simulators are powerful tools that model the complex behavior of oil, gas, and other fluids within underground reservoirs. By simulating fluid flow through porous rock formations, these programs help engineers, geologists, and other professionals analyze various drilling and production scenarios to optimize field performance. Due to its specialization in the oil and gas industry, CMG operates in a near-monopoly with Schlumberger as the only other major competitor. The extensive domain knowledge required to compete creates significant barriers to entry for new players. As a result, CMG's software has become mission-critical for its customers, mitigating the cyclical nature of the oil and gas industry. During the 2014-2016 downturn in the Canadian oil sands, CMG's revenues experienced a minimal decline of only 3% peak to trough. CMG is strategically expanding its offerings into the carbon capture market, which currently comprises approximately 22% of its business. Aligned with global efforts to reduce carbon emissions, the demand for carbon capture solutions is projected to surge. Given the presence of 46 operational carbon capture facilities and up to 500 in development, CMG's leadership in this field positions it for substantial future growth. Additionally, CMG's recent acquisition of Bluware strengthens its capabilities by leveraging cutting-edge cloud and AI technologies to optimize geoscience data and interpretation workflows. This enables geoscientists to make faster and more informed decisions regarding subsurface and seismic data. The combined entity boasts a robust recurring revenue base, accounting for 71% of its total revenue. This figure is anticipated to increase over time, approaching the core products' recurring revenue rate of 85%. The business's stickiness, evidenced by a customer retention rate exceeding 95%, is further solidified by annual price increases of 5-6%. CMG's historical financial performance is exceptional, with average returns on equity of 46% and returns on invested capital of 29% over the past five years. These robust returns are anticipated to continue, driven by the company's promising long-term growth prospects. The International Energy Agency (IEA) forecasts the global reservoir simulation market to reach $1 billion by 2030. Additionally, the carbon capture market is projected to attain nearly $10 billion in global revenue by 2023. With 2024 revenue approaching $109 million, CMG has significant room for expansion in both markets. CMG is embarking on a transformative journey, dubbed CMG 4.0, a new growth strategy that leverages both organic and inorganic expansion. Over time, we anticipate CMG will achieve double-digit organic growth. Additionally, the company may eventually reduce its legacy dividend and allocate that capital towards acquisitions. This combined approach is expected to drive an intrinsic compound annual growth rate (CAGR) of 20-25% for the foreseeable future. If the aforementioned points haven't already piqued your interest, consider this: Mark Miller, a well-known figure in the investment community, joined CMG's board in 2019 and became chairman in 2022. Miller's background with Constellation Software, a renowned acquirer of vertical market software companies, suggests Mark see's some potential in CMG. In addition, John Billowits, another Constellation Software board member, joined CMG's board in 2021 and was an integral part of their new inorganic strategy before departing in 2024. Moreover, Andrew Pastor, also a Constellation board member, who is a partner at EdgePoint, has made significant investments in CMG, currently owning approximately one-third of the company. The presence of these prominent figures from Constellation Software on CMG's board and significant shareholdings doesn't guarantee success, but it also doesn't hurt to have your capital in the same boat as these gentlemen. Finally, and perhaps most compelling, CMG appointed Pramod Jain as CEO in May 2022. Jain's impressive track record and insightful annual letters are highly recommended. CMG has adopted a distinctive incentive package, similar to only three other publicly traded companies: Constellation Software, Topicus, and Lumine. CMG's management incentives are tied to return on invested capital and growth. Additionally, bonuses are now paid in cash with a portion being used to purchase company shares on the open market, aligning the interests of insiders with those of all shareholders. We acquired a business operating in a duopoly, with no net debt, robust profit margins, aligned incentives, and significant growth potential, at approximately 22 times trailing free cash flow and I'm excited to see where this one goes.

BSD Analysis:
The manager presents a compelling bull case for CMG based on its dominant market position in reservoir simulation software, operating in a near-duopoly with Schlumberger. The company demonstrates exceptional financial metrics with 46% ROE and 29% ROIC over five years, supported by 95% customer retention and 71% recurring revenue. CMG's expansion into carbon capture (22% of business) positions it well for the projected $10 billion market by 2023, while the core reservoir simulation market is expected to reach $1 billion by 2030. The presence of Constellation Software alumni on the board, including chairman Mark Miller and significant shareholder Andrew Pastor, adds credibility to the investment thesis. Management alignment through ROIC-tied incentives and CEO Pramod Jain's track record further strengthen the case. The manager expects 20-25% intrinsic CAGR driven by the CMG 4.0 strategy combining organic growth and acquisitions. At 22x trailing FCF, the valuation appears reasonable for a high-quality software business with significant growth runway.

Pitch Summary:
Talkspace has undergone a significant transformation under new leadership, shifting from a cash-burning, low-growth company to a high-growth, cash-generative B2B provider. The company has diversified its revenue streams across Payor, Enterprise, and Consumer verticals, with the Enterprise segment being the most profitable. With a capital-light model and a substantial cash reserve, Talkspace has recently turned free cash flow positive and is on the brink of GAAP profitability. The onboarding of Medicare is expected to drive significant growth, increasing covered lives by 50%. The company's valuation is depressed, offering potential for substantial earnings upgrades and share price appreciation.

BSD Analysis:
Talkspace's strategic shift to focus on B2B services has positioned it for accelerated growth, particularly in the Payor segment, which is expected to benefit from the Medicare rollout. The company's commitment to maintaining fixed costs while expanding margins suggests potential for significant earnings surprises. The new CFO, with a background in investment, has initiated buybacks and insider stock purchases, signaling confidence in the company's future. Despite competitive pressures, Talkspace's large cash position provides downside protection and opportunities for strategic buybacks or M&A. The market's current undervaluation presents a compelling opportunity for multi-bagger returns if growth and margin expansion continue as projected.

Pitch Summary:
Fake financials (overstated profits which could be all fake); controlling shareholder has a history of underperformance; the company is being used as a piggy bank (loans to related parties); high delinquency rates; shady auditor;

BSD Analysis:
360 DigiTech is a Chinese fintech platform connecting borrowers with financial institutions. The short case highlights regulatory risk in China’s consumer lending sector, dependence on funding partners, and rising credit losses in subprime segments. Bears argue margins are flattered by aggressive provisioning assumptions and limited transparency in loan performance. Valuation is optically cheap but reflects geopolitical, accounting, and policy risks. Catalysts/risk checks: delinquency and charge-off trends, new PBoC regulations, and disclosure of funding partner economics. Counterpoints: secular demand for consumer credit is strong, but skeptics see QFIN as highly exposed to China’s policy unpredictability.

Pitch Summary:
Stock promotion; the company is a back-of-the-napkin nuclear idea; using interns to hype the company on news sites; the company shares the same space with an undisclosed party with hidden financial involvement; the CFO has positions in five other companies; unreasonable expenditures; poor service providers;

BSD Analysis:
NNE A/S provides engineering and consulting to pharma/biotech manufacturers. The short thesis emphasizes cyclicality in biotech capex, project-based revenue lumpiness, and high client concentration. Demand for facility design and validation services is tied to biotech funding, which has been pressured by capital market tightening. Margins are mid-teens but sensitive to utilization rates. Catalysts/risk checks: biotech funding cycles, backlog conversion, and contract win cadence. Counterpoints: NNE is a niche leader in pharma engineering, but skeptics argue valuation does not reflect the sector’s cyclical downside risks.

Pitch Summary:
During the quarter, Alibaba reported earnings that were mixed. Consolidated revenue grew mid-single digits while free cash flow decreased 56% compared to the same quarter last year. The decrease in cash flow was due to higher expenditure related to Alibaba Cloud and increased promotional spending in their Taobao and Tmall Group. The company has continued to repurchase shares at attractive levels. In the June quarter alone, Alibaba reduced their total shares outstanding by 2.3%, net of any share-based compensation. During the earnings call, CEO Eddie Wu took questions regarding the higher CapEx spend related to A.I. Wu defended the increased spend, stating, "If you look at the pipeline, you know there's going to be ongoing demand. So, whether it's for training or inference or API calls, what we see when we're making this kind of capex investments, as soon as we get a server up, a server is instantly running at full capacity. There's that kind of demand. So, we can expect to see a very high ROI over these next quarters because we're building compute power to meet existing demand and that new compute power coming online is getting instantly taken up and running at full capacity on day one." The company has continued to make strides in artificial intelligence, releasing more than 100 open-source A.I. models and boosting the capabilities of its proprietary technology. During the quarter, the number of paying users using Alibaba Cloud's AI platform increased by over 200% Q/Q. Alibaba also launched a new text-to-video tool based on its AI models. This allows users to input a prompt, and the AI will create a video based on it, similar to OpenAI's Sora. On September 20th, 2024, Alibaba announced a new collaboration initiative with Nvidia (NVDA -0.33%↓) that will enable Chinese automakers to advance the autonomous driving experience for smart vehicle owners. The collaboration brings together China's largest cloud computing platform with the globe's largest semiconductor powerhouse. While the earnings impact from this collaboration could be negligible, we find this announcement to be indicative of the lead that Alibaba has in A.I. compared to its peers. Nvidia, being the largest and most powerful player in the A.I. space, is not constrained in who they can collaborate with. The fact that they chose Alibaba to collaborate with (rather than Baidu or Tencent), is very telling of the competitive strength of Alibaba's LLM, Qwen 2.5. There are a few things that are becoming apparent as the A.I. wave continues to strengthen around the globe: 1. Alibaba is emerging as the top A.I. player in Asia (followed by Baidu and Tencent) 2. Alibaba is currently the largest Cloud Computing player in Asia 3. Demand for Cloud services and A.I. are interconnected and growing exponentially. Alibaba can benefit by providing both services to a massive user base. (1 billion + globally) 4. The use cases for A.I. applications are seemingly endless. We believe that over the next 5 years, these trends will naturally continue to the benefit of the companies that have been willing to invest at this crucial stage of development. While most of the value in Alibaba's business today is in global e-commerce, we are looking forward to the full integration of A.I. with e-commerce and all of the optionality that brings with it.

BSD Analysis:
The manager presents a compelling bull case for Alibaba centered on its emerging AI leadership in Asia and strategic positioning in cloud computing. Despite mixed Q3 earnings with declining free cash flow due to increased AI and promotional spending, the manager views these investments as necessary for long-term competitive advantage. The 200% quarter-over-quarter growth in paying AI platform users and the strategic Nvidia partnership validate Alibaba's AI capabilities and market position. The manager emphasizes Alibaba's dual advantage of being Asia's largest cloud provider while building AI dominance, creating synergies with its billion-plus user base. The thesis hinges on AI integration transforming e-commerce over the next five years, with current investments positioning Alibaba to capture exponential growth in interconnected cloud and AI services. Share buybacks at attractive valuations provide additional value creation while the company invests in future growth drivers. The manager sees significant optionality in AI-enhanced e-commerce applications beyond current valuation metrics.

Pitch Summary:
General Electric was undervalued during the pandemic due to its exposure to the aviation sector, which faced significant challenges. Despite these difficulties, GE's strong market position in commercial jet engines and its scale advantages suggested a potential for recovery. The stock's depressed price offered a margin of safety, with the possibility of substantial returns even if air travel did not fully rebound.

BSD Analysis:
General Electric's aviation segment, which powers a significant portion of commercial jet engines, faced headwinds during the pandemic as air travel plummeted. However, the company's robust infrastructure and market share positioned it well for a recovery. The stock's valuation was attractive, trading at a significant discount to its historical norms. GE's management had outlined a clear strategy to navigate the downturn, focusing on cost reductions and operational efficiencies. The potential for a 15% perpetual return, even in a conservative scenario, highlighted the asymmetric risk-reward profile. Investors should consider the broader economic recovery and the aviation industry's rebound as key catalysts for GE's stock performance.

Pitch Summary:
One company that benefits is X-FAB Global Foundries (XFAB FP), a portfolio company in which we increased our investment in Q3. X-FAB is a Belgian company, listed on the French stock exchange, that runs analog fabrication yards (in short: fabs) for the semiconductor industry. Said simply, they manufacture chips for their clients, whose focus is on the design of those chips. Most of those chips are used in the automotive sector, with some additional demand coming from industrial and medical applications. The number of semiconductor chips per car is growing rapidly each year, with McKinsey estimating this growth at 14-16% per year through 2030. A modern car contains between 1000 and 3000 chips. Those chips include pressure sensors, temperature sensors, current control for the battery and electric motor, advanced driver assistance, ambient lighting and actuators to control small motors for your chair, windows or mirrors. Contrary to the better-known digital chip foundries run by Taiwan Semiconductor, Intel and Samsung, analog foundries are less capital intensive (Capex / revenue in analog runs around 15%, versus 40% for digital). That doesn't mean it is more competitive. For 90% of X-FAB's products they are the sole supplier of that product. Demand is sticky. Once a chip gets designed for a new model of car, the client is unlikely to change manufacturer during the on average 12-year production of that model. Furthermore, no car manufacturer wants their car to break down because of the poor quality of a $0.50 chip. While X-FAB has 3 listed peers (Vanguard International Semiconductor, Tower Semi, Hua Hong), they often compete with chip designers who choose to do their manufacturing in-house (integrated device manufacturers, or IDMs), such as Infineon and TSMC. We believe the X-FAB model to be more efficient. Building a fab is expensive and maximizing utilization is key to running a fab profitably. To maximize utilization, you need to be an attractive partner to all chip designers. X-FAB has an edge here since no chip designer wants to share their IP with an IDM. On valuation: XFAB trades at 7x our estimate of 2024 earnings, which compares to the 15-23x multiple of their mentioned peer group, or the 15x at which it has traded historically. More importantly, we think XFAB could realistically double its earnings in the next 2 years, which would bring the upside to roughly 4-6x if it were to trade in line with peers. We identify two catalysts for this potential rerating. X-FAB is in the middle of a transformation, in which it will invest $1.2b in equipment upgrades in the 2024-26 period. For a company with a current market cap below $700m, this is a significant investment. The interesting thing is that a portion gets funded by its own customers who prepaid $350m on future orders, while simultaneously signing long-term purchasing contracts with X-FAB. Those long-term contracts significantly derisk XFAB's investment. The investments should roughly double XFAB's earnings, which would imply a very realistic 10-15% ROI. The second catalyst is an expected bottoming of the semiconductor cycle. Semiconductors have been in a downturn for 4-6 quarters. After the global chip shortages experienced in the 2020-21 timeframe, automotive suppliers started hoarding chips. When the economy slowed in 2022-23, this inventory was unwound, causing a slowdown in demand. While inventories are still slightly elevated, industry commentary indicates a return to growth in Q4. We gain confidence from the order intake which XFAB reports on a quarterly basis. Their order intake has turned sharply higher since Q1 of this year, with a book-to-bill of 1.2x in both quarters (i.e., order intake exceeds revenues by >20%). In short, we expect the automotive sector to return to growth in Q4, with industrial and medical to slowly recover during 2025. The market seems concerned about 2 risks, both of which we think are overdone. First of all, there has been a decline in sales of electric vehicles in both Europe and the US. Electric vehicles require more content than internal combustion engines. This slowdown gets offset by growing EV production in China, as well as growth in hybrid cars which require at least as much chip content as EVs. Second of all, there is fear of increasing competition from China, who has been installing semiconductor capacity over the last years. We note that this competition is more apparent in power management chips, which can often cost $100-500 per chip. Given the threat of tariffs on Chinese products, the market is also headed towards further bifurcation, where Western OEMs are unlikely to rely on Chinese suppliers. There is significant inside ownership. Around half of the shares are owned by 2 Belgian families: the Duchâtelet family and the family of Rudi de Winter, who is also XFAB's CEO. Rudi de Winter recently invested another €2.3m in XFAB at prices ~20% higher than today. The combination of undervaluation, identifiable catalysts and high inside ownership makes this a good example of our investment process. We look forward to seeing this investment play out during 2024-25.

BSD Analysis:
Night Watch presents a compelling bull case for X-FAB Silicon Foundries, positioning it as a beneficiary of the automotive semiconductor megatrend and European manufacturing competitiveness. The manager highlights X-FAB's dominant market position as sole supplier for 90% of its products, creating sticky customer relationships with 12-year production cycles that provide revenue visibility. Trading at 7x 2024E earnings versus peers at 15-23x, the valuation appears deeply discounted despite the company's competitive moats. The investment thesis centers on two key catalysts: a $1.2B capacity expansion program (funded partially by customer prepayments) that should double earnings, and a cyclical recovery in semiconductor demand evidenced by 1.2x book-to-bill ratios. Management's significant insider ownership and recent €2.3M investment by the CEO at higher prices demonstrates strong alignment. The combination of secular automotive chip growth (14-16% annually through 2030), cyclical recovery, and substantial insider ownership creates an asymmetric risk-reward profile that aligns with Night Watch's catalyst-driven value approach.

Pitch Summary:
Our new position is in shares of Brookfield Corporation (BN). We have been indirect shareholders of BN for more than a decade through our investment in Markel Group. Its stock portfolio is managed by legendary investor Tom Gayner, and throughout that time BN has been one of the largest positions within it. For a time, it was even the largest position, replacing Markel's otherwise long-term largest investment in Berkshire Hathaway. We have been following and analysing BN for more than a decade and have seriously considered including it into the Vltava Fund portfolio on several occasions. It has always come down to our not being able to determine an intrinsic value for the stock in a way that we were satisfied with. That changed the year before last, when BN reorganised the structure of its business and its subsidiaries a bit and we were able to find a relatively simple but at the same time conservative way to value the shares. BN's management regularly and over the long term publishes its own estimate of the company's value. Its latest estimate speaks of USD 84 per share. We find this number overly optimistic. We think management is assigning overly generous valuation multiples to the various parts of BN. Our own value estimate is significantly lower, but at the same time still much higher than the price at which we started buying BN (USD 41.50). Nevertheless, we do agree with BN management on one point. Their estimate of long-term shareholder value growth of 15% per year is the same as our estimate. What does BN do? BN is a leading global investment firm based in Canada and specialising in long-term management of its clients' assets. It has approximately USD 1 trillion under management and is one of just a handful of companies in the world that is able to raise USD 100 billion of new money from its clients annually. These numbers are awe-inspiring. Standing at the top of Brookfield's organisational structure is Brookfield Corporation. BN holds stakes in several additional subsidiaries. It holds 75% of Brookfield Asset Management, a company that manages client assets. It also has a 91% stake in Brookfield Reinsurance and 27% to 100% stakes in four large Brookfield exchange-traded funds. BN's income is derived from management fees, performance fees, ownership interests in subsidiaries, and from the proceeds of its own investments in situations where BN invests its own capital into various investment cases together with client capital. We consider BN to be one of the best companies in its industry and to have a very strong position in infrastructure investments. It is precisely this form of BN's investments that partly underpins our investment thesis. Over the summer, we devoted a lot of time to studying the AI-related investment wave. This spans a wide range of sectors and our view could be very briefly summarised as follows: The first-tier beneficiaries are primarily companies in the semiconductor sector, NVIDIA perhaps the most. That company is benefiting from the huge increase in investment by large technology companies to build enormous data centres. We know who NVIDIA's customers are. They are companies like Meta, Alphabet, Amazon, and Microsoft. They are investing hundreds of billions of dollars into their AI capabilities. What is not entirely clear, however, is who are and will be the customers of NVIDIA's customers, and, more importantly, when, and if, they will be able to come up with such huge demand for AI services that the profits from AI will justify and pay for the enormous investments all these companies have been making. The further we move away from the starting point that NVIDIA represents in our more broadly-reaching estimates, the less reliable those estimates are. So far, we know just one thing for sure, and that is that investments in AI capabilities are ongoing and they are huge. They are not only bringing large demand to chipmakers and the semiconductor sector but to some other sectors as well. Indeed, building AI clusters also requires the construction of new semiconductor factories, new energy sources, and all the associated infrastructure. The numbers under consideration are incredibly high. It is possible that over the next decade the construction of AI centres will necessitate a 20% increase in US energy consumption. The investment required will be measured not in the hundreds of billions of dollars, but in an order of magnitude higher. Maybe two orders of magnitude. BN has a lot of experience in financing these and similar infrastructure projects, and the AI boom represents huge potential for BN to grow further. BN is already investing in AI development and we expect the amount of money it has invested here to multiply several-fold over time. Alongside our investment in KLA Corporation, BN is the second stock that will benefit significantly from the AI boom without having to take large unknown risks.

BSD Analysis:
Vltava Fund initiated a new position in Brookfield Corporation after over a decade of analysis, finally finding a satisfactory valuation methodology following the company's business restructuring. The fund purchased shares at $41.50, significantly below both management's $84 per share estimate and their own conservative valuation. BN manages approximately $1 trillion in assets and can raise $100 billion annually from clients, positioning it among the world's elite asset managers. The investment thesis centers on BN's infrastructure expertise and its potential to capitalize on the massive AI infrastructure buildout. The fund estimates that AI data center construction could require a 20% increase in US energy consumption over the next decade, with investment needs potentially reaching trillions of dollars. BN's established track record in financing large infrastructure projects positions it to benefit from this secular trend without taking excessive risks. The fund agrees with management's 15% annual shareholder value growth target, viewing BN as a high-quality play on AI infrastructure development.