Investment Pitches

Pitch Summary:
Climb Global Solutions (CLMB) is an information technology distributor with a strong presence across North America and Western Europe. Key investment highlights of Climb include: • Serves over 7,000 customers and vendors through more than 100 curated partnerships • Specializes in cloud-based and data center software distribution • Differentiates itself by identifying and partnering early with emerging, disruptive technology vendors—enabling robust organic growth. • Strong capital allocation track record with four accretive acquisitions completed by 2023 • Compelling valuation, trading at a market multiple despite expectations for sustained 10–15% EPS growth • Focus on responsible business practices and robust cybersecurity enhances its investment appeal Additionally, a newly installed, experienced management team has repositioned CLMB from a transactional model to a sales and marketing oriented culture. This shift, combined with a revamped vendor recruitment strategy, has helped attract high-value software partners in areas such as security and networking.

BSD Analysis:
The manager presents CLMB as an attractive technology distribution play with multiple growth drivers and compelling valuation. The company's scale advantage is evident through 7,000+ customers and vendors across 100+ partnerships, providing diversified revenue streams. CLMB's specialization in cloud-based and data center software distribution positions it well for secular technology trends. The early identification and partnership strategy with disruptive technology vendors creates a competitive moat and enables robust organic growth. Management's strong capital allocation track record, demonstrated through four accretive acquisitions by 2023, suggests disciplined growth execution. The valuation appears attractive, trading at market multiples despite expectations for sustained 10-15% EPS growth. The management team's strategic repositioning from transactional to sales-oriented culture, combined with enhanced vendor recruitment, should drive higher-value partnerships in security and networking segments.

Pitch Summary:
Limoneira Company (LMNR) was our largest detractor during the quarter. The company concluded its strategic review and chose to prioritize internal growth initiatives rather than pursuing external alternatives. While this decision is intended to create long-term value, it introduced short-term uncertainty that weighed on investor sentiment. In short, our thesis remains that the company's assets currently trade at less than half of their true private market value. This is supported by the fact that management's strategy to increase cash flows and returns on capital is sound, focusing on: • Converting lemon acreage to avocados which are 5 times more profitable per acre • Monetizing land and water rights • Optimizing existing lemon acreage to improve cash flow stability and lessen market volatility.

BSD Analysis:
Despite being the quarter's largest detractor, the manager maintains a strong bull thesis on LMNR based on significant asset value disconnect. The core investment premise centers on assets trading at less than half their private market value, suggesting substantial upside potential. Management's strategic focus on converting lemon acreage to avocados represents a compelling value creation opportunity, with avocados generating five times more profit per acre. The monetization of land and water rights provides additional value realization pathways beyond agricultural operations. The optimization of existing lemon acreage aims to improve cash flow stability and reduce market volatility exposure. While the company's decision to pursue internal growth over external alternatives created short-term uncertainty, the manager views this as a long-term value creation strategy. The investment thesis relies on asset value recognition and operational improvements driving returns on capital.

Pitch Summary:
Aris Water Solutions (ARIS) was the top contributor to portfolio performance in Q1 2025, driven by solid execution on both operational and strategic fronts. The company provides infrastructure and water recycling solutions to energy producers in Texas. The company reported strong Q4 results: • Adjusted EBITDA of $54.5 million and revenue of $118.6 million—both exceeding consensus estimates • Increased dividend by 33%, reinforcing confidence in its free cash flow profile • Successfully integrated recently acquired assets in Texas and New Mexico, notably McNeill Ranch, has reduced operating costs and expanded long-term growth opportunities. With growing regulatory focus on water reuse and a rising demand for sustainable infrastructure, ARIS is well-positioned to benefit from secular ESG trends.

BSD Analysis:
The manager presents a compelling bull case for ARIS based on strong operational execution and strategic positioning. The company exceeded consensus estimates with $54.5 million in adjusted EBITDA and $118.6 million in revenue, demonstrating solid fundamental performance. Management's confidence is evident in the 33% dividend increase, signaling strong free cash flow generation capabilities. The successful integration of acquired assets, particularly McNeill Ranch, has created operational synergies through cost reduction and expanded growth opportunities. The manager emphasizes ARIS's strategic positioning to benefit from secular ESG trends, particularly the growing regulatory focus on water reuse and sustainable infrastructure demand. The company's specialized focus on water recycling solutions for energy producers in Texas provides a defensible market position. The investment thesis aligns with long-term sustainability trends while delivering immediate operational results.

Pitch Summary:
During the quarter, we increased our exposure to the energy transition by adding Range Resources (RRC) and Antero Midstream Corp (AM) to our portfolio. Both companies play critical roles in energy and electrification. Electrification is expected to see significant demand growth in the coming years and decades. While Range focuses on natural gas production, Antero specializes in transporting, gathering and processing natural gas as well as operating water handling for its customers. It acts as a toll company with stable cash flows and sports a 5.6% dividend yield. We believe that Range and Antero are both attractively valued, boast experienced management teams, and benefit from significant competitive advantages.

BSD Analysis:
Riverwater added Antero Midstream as a complementary energy transition play alongside Range Resources, focusing on the critical midstream infrastructure supporting natural gas operations. Antero's toll-road business model provides stable, fee-based cash flows through gathering, processing, and water handling services, offering more predictable returns than commodity-exposed upstream operations. The 5.6% dividend yield provides attractive income while the company benefits from long-term contracts and essential infrastructure positioning. As electrification demand grows, natural gas infrastructure becomes increasingly valuable for power generation and industrial applications. The midstream model offers defensive characteristics with contracted cash flows while participating in energy transition growth. Experienced management and competitive advantages in key basins support the investment thesis, while attractive valuation metrics suggest the market underappreciates the stability and growth potential of midstream energy infrastructure.

Pitch Summary:
During the quarter, we increased our exposure to the energy transition by adding Range Resources (RRC) and Antero Midstream Corp (AM) to our portfolio. Both companies play critical roles in energy and electrification. Electrification is expected to see significant demand growth in the coming years and decades. Range is a low-cost producer with a track record of strong and evolving efforts in responsible business practices and capital allocation. Range has 30 plus years of high-quality inventory, a balance sheet levered below 1x debt to EBITDAX, and trades at a 10% free cash flow yield. We believe that Range and Antero are both attractively valued, boast experienced management teams, and benefit from significant competitive advantages.

BSD Analysis:
Riverwater added Range Resources as part of its energy transition investment thesis, recognizing natural gas's critical role in electrification demand growth. Range's competitive positioning as a low-cost producer with over 30 years of high-quality inventory provides sustainable advantages in the natural gas sector. The company's conservative balance sheet with sub-1x debt-to-EBITDAX leverage and 10% free cash flow yield offers attractive risk-adjusted returns. Management's focus on responsible business practices and disciplined capital allocation aligns with ESG considerations while maintaining operational efficiency. The long-duration, high-quality asset base provides visibility into future cash flows, while the attractive valuation metrics suggest the market undervalues the company's strategic position in the energy transition. Natural gas serves as a bridge fuel supporting renewable energy intermittency and growing electrification demand.

Pitch Summary:
We recycled the Carlyle proceeds into Pinnacle Financial Partners (PNFP). Pinnacle is a high-performing regional bank headquartered in Nashville, Tennessee, with a relationship-centric business model focused on commercial and affluent clients across the Southeast. The firm differentiates itself through a unique talent-first strategy, consistently hiring seasoned revenue producers who drive peer-leading loan and deposit growth. PNFP maintains strong asset quality with conservative loan-to-value (LTV) ratios and has proactively repositioned its securities and loan portfolios to optimize for interest rate volatility. Its strategic investment in Bankers Healthcare Group (BHG) enhances fee income and provides selective opportunities to purchase high-yielding, SBA-guaranteed loans. With industry-best Net Promoter Scores (NPS), a culture recognized nationally, and robust capital management, PNFP trades at a discount to historical valuation multiples. It currently trades at book value which presents an attractive opportunity for long-term investors seeking high-quality regional bank exposure with scalable earnings power and embedded growth levers.

BSD Analysis:
Riverwater initiated a position in Pinnacle Financial Partners, viewing it as an attractively valued, high-quality regional bank trading at book value despite superior fundamentals. The bank's differentiated talent-first strategy drives peer-leading loan and deposit growth through experienced revenue producers, while its relationship-centric model focuses on higher-value commercial and affluent clients across the Southeast. Strong risk management is evident through conservative loan-to-value ratios and proactive portfolio positioning for interest rate volatility. The strategic investment in Bankers Healthcare Group provides fee income diversification and access to high-yielding SBA-guaranteed loans. Industry-leading Net Promoter Scores and recognized culture suggest sustainable competitive advantages. Trading at historical valuation discounts despite superior metrics presents compelling risk-adjusted returns for patient investors seeking regional bank exposure with embedded growth potential.

Pitch Summary:
Our top-performing position was Mr. Cooper (COOP), a relatively recent addition from last year. As one of the nation's largest mortgage servicing companies, Mr. Cooper announced a merger with Rocket Mortgage late in the quarter at a substantial premium to its market valuation. This transaction is expected to close later this year, and since the combined entity will become a large-cap company, we plan to redeploy these proceeds into a new position aligned with our small and mid-cap mandate.

BSD Analysis:
Mr. Cooper delivered exceptional performance as Riverwater's top contributor following the announcement of its merger with Rocket Mortgage at a substantial premium to market value. The transaction validates the fund's investment thesis in one of the nation's largest mortgage servicing companies. The merger creates significant value for shareholders through the premium paid, while the combined entity's scale positions it well in the mortgage servicing industry. However, since the merged company will exceed Riverwater's small and mid-cap mandate, the fund plans to exit and redeploy proceeds into new opportunities. This represents a successful investment outcome where fundamental value was recognized through corporate activity. The timing of the addition last year proved fortuitous, capturing value in a consolidating mortgage servicing sector.

Pitch Summary:
For the first time since inception, I bought a pure-play defense company. Kratos ("KTOS") develops and produces a range of systems for national security with a focus on hypersonic technologies and unmanned aircraft. While they trade at a significant premium to traditional defense primes, this premium is warranted given their market positioning. Predominately, the company's core business principles are unique in emphasizing the development of products quicker and at a lower cost than their peers. A read through their materials is littered with statements like "affordability is a technology" and "better is the enemy of good enough." These are not just empty words. In 2024 KTOS was able to develop the Erinyes Hypersonic Test Vehicle in 3 years at a cost of less than $15mm. At a unit cost of just $5 million, Erinyes can provide test runs at a fraction of the cost of alternative prototypes. Their success in this arena is a large reason why they were able to win their first ever prime contract award with the $1.45bn Multi-Service Advanced Capability Hypersonic Test Bed (MACH-TB) 2.0 program. Under MACH-TB 2.0, KTOS is aiming to achieve 1 test per week, a vast improvement from the monthly cadence under Mach-TB 1.0. Given the rapidly evolving military environment and the need to reduce government spend, speed and cost efficiencies are critical. KTOS is able to achieve these efficiencies due to their operational focus (i.e. "fail fast, learn faster"), close integration with development partners, and drawing on resources from alternative sources such as university research departments. KTOS has direct exposure to key areas of growth in defense spend: hypersonic and drones. Both of these markets are forecast to grow at a double-digit rate globally as militaries aim to maintain air superiority and increase autonomy. After relative muted hypersonic spend compared to investments made by China, the US military has emphasized our need to catch up. The aforementioned MACH-TB 2.0 program is indicative of this as it was procured via an Other Transaction Authority, which bypasses the traditional contract process and allows the DoD to engage with non-traditional contractors, offer greater flexibility in terms, and sidestep bureaucratic hurdles. Development of the Golden Dome should provide a further tailwind, especially as it relates to KTOS' exposure to command, control, and communications systems.

BSD Analysis:
The manager presents a compelling bull case for Kratos based on their differentiated approach to defense contracting that emphasizes speed and cost efficiency. The investment thesis centers on KTOS's unique positioning in high-growth defense segments, particularly hypersonic technologies and unmanned systems, which are forecast to grow at double-digit rates globally. The company's operational philosophy of "fail fast, learn faster" has translated into tangible results, evidenced by their development of the Erinyes Hypersonic Test Vehicle in just 3 years for under $15 million. This operational excellence secured them their first prime contract award worth $1.45 billion under the MACH-TB 2.0 program, representing a significant milestone. The manager acknowledges the premium valuation but argues it's justified given the company's market positioning and growth prospects. The investment benefits from secular tailwinds including increased U.S. military focus on hypersonic capabilities to compete with China and the broader trend toward defense autonomy. The use of Other Transaction Authority for the MACH-TB 2.0 contract demonstrates the DoD's commitment to working with innovative, non-traditional contractors like KTOS.

Pitch Summary:
Consumer Staples notably diverged from its typical defensive characteristics. Our long-term holding Limoneira (LMNR) sold off after announcing the conclusion of its strategic review without an outright sale of the company. Limoneira represented the strategy's worst performer this quarter. We are preparing a deep dive outlining our investment thesis in detail, which we will publish by the end of April. In short, our thesis remains that the company's assets currently trade at less than half of their true private market value. This is supported by the fact that: Management's strategy to increase cash flows and returns on capital is sound, focusing on: Converting lemon acreage to avocados which are 5 times more profitable per acre; Monetizing land and water rights; Optimizing existing lemon acreage to improve cash flow stability and lessen market volatility.

BSD Analysis:
Riverwater maintains a bullish stance on Limoneira despite the stock being the quarter's worst performer following the company's announcement that its strategic review concluded without a sale. The fund's thesis centers on a significant valuation disconnect, believing the company's assets trade at less than half their private market value. Management's strategic pivot appears sound, focusing on converting lemon acreage to more profitable avocado production (5x higher profitability per acre), monetizing valuable land and water rights, and optimizing existing operations for improved cash flow stability. The agricultural real estate angle provides additional value through land appreciation and water rights monetization. While the failed strategic review disappointed investors, the underlying asset value and operational improvements suggest potential for significant upside once market sentiment improves.

Pitch Summary:
Bajaj Auto is one of the leading manufacturers of two-wheeler and three-wheeler vehicles in India and among the top five globally. It is a high-quality company that has delivered returns on equity in excess of 20% on average over the last 10 years. Bajaj Auto is benefitting from growth both inside and outside of India. Domestically, rising household wealth and increasing market penetration is boosting the company's earnings outlook. Wealthier consumers are boosting demand for the company's higher-end bikes (with engines larger than 125cc) and away from entry-level models. Exports are also a significant portion of Bajaj's business: 40% of its sales volume is exports to countries across Latin America, Africa, the Middle East, and South Asia. We expect improving export demand, especially from Latin America and Asia.

BSD Analysis:
Harding Loevner identifies Bajaj Auto as a high-quality automotive manufacturer with exceptional financial performance, having delivered over 20% ROE on average over the past decade. The investment thesis is built on a dual growth strategy spanning domestic and international markets. Domestically, the company benefits from India's rising household wealth, which is driving premiumization as consumers shift from entry-level motorcycles to higher-end bikes with engines larger than 125cc, improving margins and profitability. The international diversification story is equally compelling, with exports representing 40% of sales volume across Latin America, Africa, the Middle East, and South Asia. This geographic diversification reduces dependence on any single market while capitalizing on emerging market growth trends. The manager expects particularly strong export demand from Latin America and Asia, providing additional growth drivers beyond the domestic Indian market. The combination of quality metrics, domestic premiumization trends, and international expansion positions Bajaj Auto as a compelling emerging markets play.

Pitch Summary:
Supreme Industries is the largest manufacturer of plastic products in India. Its core product segment—plastic pipes—serves a diverse range of end markets. These include household applications such as bath fittings, plumbing, and agricultural use, as well as industrial applications such as sewage treatment systems. Plastic pipes are in high demand in India. Only 40% of urban households in the country have piped sewage and that number should steadily increase as incomes rise with economic growth. In fact, there is so much competition in this market that in India plastic pipes are branded products advertised to generate brand recognition among consumers. In a fairly fragmented market—independent manufacturers comprise close to 30% of the market—Supreme Industries' key competitive advantages are its strong brand and its wide retail distribution network across the country. That should allow the company to take market share in an expanding market, resulting in strong earnings growth over the next five years.

BSD Analysis:
Harding Loevner presents a compelling infrastructure play on India's urbanization through Supreme Industries, the country's largest plastic products manufacturer. The investment thesis centers on the massive infrastructure gap in India, where only 40% of urban households have piped sewage systems, creating substantial demand for plastic pipes as incomes rise. The company benefits from a fragmented market structure where independent manufacturers hold 30% market share, positioning Supreme Industries to gain share through its competitive moats of strong brand recognition and extensive retail distribution network. The manager emphasizes that plastic pipes have become branded products in India due to intense competition, highlighting the importance of Supreme's brand equity. With India's steady total factor productivity growth providing a supportive economic backdrop, the company is well-positioned to capitalize on the country's infrastructure development needs. The timing appears opportune given the recent market correction that made Indian valuations more attractive after trading near five-year highs.

Pitch Summary:
On a far more positive note, Charter announced a ~$35 billion acquisition of Cox Communications (Cox) this past May. In short, we love the deal. At a time of near maximum pessimism around cable in general, CHTR is acquiring Cox at essentially no premium and the Cox family is rolling most of its equity into CHTR securities. Considering the tax benefits from the conversion of Cox partnership units (Liberty's DNA remains strong at CHTR) and using CHTR's sandbagged $500 million of targeted cost savings (take the over), CHTR is paying <6x EBITDA for Cox. For some perspective, this multiple is ~30% lower than what CHTR paid in its highly successful acquisition of Time Warner Cable back in 2016. Furthermore, the low purchase multiple does not consider the enormous revenue opportunity in mobile, as Cox only has ~200,000 mobile subscribers across its ~12 million footprint versus CHTR's 10.4 million subscribers across ~57 million passings. A final benefit of the deal is that it should expedite the closing of CHTR's acquisition of Liberty Broadband's CHTR shares, with the purchase of Liberty Broadband's CHTR shares and the Cox transaction expected to close in mid-2026. LBRDA recently spun off shares in GCI Communications, which we believe are materially undervalued and which we will discuss further in future letters.

BSD Analysis:
The manager expresses strong enthusiasm for Charter's $35 billion Cox Communications acquisition, viewing it as exceptionally well-timed and structured. The deal occurs during peak cable industry pessimism, allowing Charter to acquire Cox at essentially no premium with the Cox family rolling equity into Charter securities. At less than 6x EBITDA (including tax benefits and conservative $500 million cost synergies), the valuation represents a 30% discount to Charter's successful 2016 Time Warner Cable acquisition. The mobile opportunity appears particularly compelling, with Cox having only 200,000 mobile subscribers across 12 million homes versus Charter's 10.4 million mobile customers across 57 million passings, suggesting significant cross-selling potential. The transaction also accelerates the Liberty Broadband cleanup, with both deals expected to close mid-2026 rather than the original 2027 timeline. The manager views this as a classic contrarian investment, acquiring scale assets at attractive valuations during maximum industry pessimism, with multiple operational and strategic synergies to drive future value creation.

Pitch Summary:
We had meaningful company developments with two names – one very negative (Compass Diversified Holdings (CODI)) and one we believe to be highly positive (Charter's acquisition of Cox Communications). We will delve deeper into both situations in an appendix to this letter, but we will provide a high-level summary here. In early May, CODI announced that it would have to restate prior year financials because of material financial and accounting issues at high-end jeweler Lugano, CODI's largest portfolio company. Moti Ferder, the founder and CEO of Lugano, resigned without severance and CODI's stock materially declined following the disclosure. We will not have full details on what transpired at Lugano until CODI completes the financial restatements. That said, based on discussions with CODI and recently disclosed legal documents, we do know that there were widespread sales, inventory and receivable valuation issues at Lugano, stemming from unauthorized jewelry sales by Moti Ferder, who somehow managed to circumvent CODI's internal controls and fool CODI and its auditors. When the entire CODI situation unfolded, we asked ourselves the basic questions: "Was CODI's senior team involved and did Lugano issues impact other subsidiaries?" If we believed the answers to be "yes," we would have sold our entire CODI position. Based on CODI's history (we are not aware of any previous accounting issues or character questions of any senior team member) and based on the individual circumstances of Lugano's issues, we concluded that the answer was "no." Furthermore, Grant Thorton, CODI's auditor, had every incentive to demand a wider company investigation if there was any reason to believe there could be issues at other portfolio companies. And they did not do so. Having a view on these most important questions allowed us to then look at CODI's total value, assuming no/limited value for Lugano. Undoubtedly, the loss of Lugano meaningfully changed our estimate of intrinsic value from over $30 per share to ~$14-$16 per share. As CODI's stock dropped to $6-$7, the company's preferred shares also fell to $14-$16 and we immediately started purchasing the preferred shares. At these prices, we locked in 13-15 percent yields despite an estimated ~$1 billion+ of equity cushion in the event of liquidation. The preferred securities became even more attractive following covenant agreements with CODI's banks and a common stock dividend suspension, both of which are highly helpful from the preferreds' perspective. We will tax-loss sell shares of CODI as appropriate and we could eventually roll the preferred position into CODI equity, but we need to see CODI deleverage through organic growth and future subsidiary sales. We also would like to see the company publicly explain how one individual was able to outmaneuver internal controls, management and auditors. For now, however, we must acknowledge that CODI's standalone equity story has been muddled by the Lugano fiasco. And for now, we believe that the preferred shares still offer a more attractive risk/reward proposition.

BSD Analysis:
The manager adopts a measured approach to CODI following the Lugano accounting scandal, pivoting from common equity to preferred shares while maintaining exposure to the underlying portfolio value. The Lugano situation involved widespread financial misstatements by founder Moti Ferder, who circumvented internal controls through unauthorized jewelry sales and customer co-investment schemes. After determining that CODI's senior management was not involved and other subsidiaries were unaffected, the manager reduced intrinsic value estimates from $30+ to $14-16 per share. Rather than exit entirely, they strategically shifted to preferred shares at $14-16, locking in 13-15% yields with over $1 billion equity cushion protection. The preferred position became more attractive following bank covenant agreements and common dividend suspension. While acknowledging the equity story is compromised, the manager views the preferreds as offering superior risk-adjusted returns, with potential to eventually rotate back to common shares once deleveraging progresses and management provides adequate explanation of control failures.

Pitch Summary:
Healthcare. While persistent economic concerns may provide a growing list of attractive "deep value" options in cyclical companies, Perrigo Co. PLC (PRGO) is an example of heavy lifting on "self-help" bearing fruit in a company that has an economically-resilient demand profile. The company, which enjoys a 50% share of store-branded, over-the-counter self-care and wellness products in the U.S., has stabilized its sales and pruned its line-up of low-margin items. Management plans to reinvest the healthy cash generated by this part of the business into its higher-margin, faster-growing branded lines in the U.S. and Europe. They also have a clear path, via manufacturing facility consolidation, to drive step-function improvement in the free cash flow margin of its infant formula business from low single digit to mid/high teens. We believe self-care companies are poised to outperform and experience multiple expansion as the industry benefits from government policy and consumer preference changes. With the evolving political view of healthcare and increased interest from consumers to get and stay healthy, we are seeing a move toward preventive care and healthy aging, driving innovative new products and services such as preventive testing, personalized supplements, and food as medicine. Traditional self-care products should also see a benefit as Health and Human Services Secretary Robert F. Kennedy Jr. focuses on improved access to safe and affordable healthcare options, lowering chronic disease rates, ending childhood chronic disease, prioritizing prevention, and promoting healthy lifestyles and better nutrition. Despite significantly improving prospects, valuations for self-care companies remain below those of consumer-packaged-goods businesses oriented toward personal care. Within self-care, we believe Perrigo is among the most attractively valued and poised to benefit as the valuation gap closes. We believe PRGO should trade at 11 times 2025 EBITDA or around 14 times earnings, which would put the stock around $40 per share, up from its current price of around $28 a share.

BSD Analysis:
Heartland views Perrigo as a compelling "self-help" turnaround story with economically resilient demand characteristics. The company dominates store-branded OTC products with a 50% U.S. market share and has successfully stabilized sales while pruning low-margin items. Management's strategy focuses on reinvesting cash flow into higher-margin branded products and consolidating manufacturing facilities to improve infant formula margins from low single digits to mid-to-high teens. The investment thesis is bolstered by favorable secular trends toward preventive care and healthy aging, supported by potential policy changes under RFK Jr.'s healthcare agenda. Despite improving fundamentals, self-care companies trade at discounts to consumer packaged goods peers, creating a valuation arbitrage opportunity. The manager provides a specific price target of $40 per share based on 11x 2025 EBITDA or 14x earnings, representing 43% upside from the current $28 price level.

Pitch Summary:
We have talked extensively about Irish bank PTSB in prior letters. While shares have significantly advanced in the first half of 2025, we believe that the bank trades far below intrinsic value. Investors continue to await the density review, and a favorable outcome here can deliver a substantial amount of excess capital that could be used for dividends and (preferably) buybacks. In mid-July, NatWest announced its exit from the bank, selling its final ~11.7% stake. This sale should help to increase PTSB's stock liquidity. NatWest's sale occurred during PTSB's "quiet period" and therefore the government did not join the sale (the government still owns ~57% of PTSB). While we would have preferred a concomitant government sale with the NatWest exit, we also believe that government sales will happen in due course. The government completely exited its position in AIB in June of this year (the government exited Bank of Ireland in September 2022) and can now turn its full attention towards its last remaining bank stake. We expect further sales over the coming year, and the combination of improving earnings, capital relief and enhanced stock liquidity should all help close the current valuation gap.

BSD Analysis:
The manager maintains a bullish view on PTSB despite significant share price appreciation, arguing the stock remains undervalued relative to intrinsic value. The investment thesis centers on multiple catalysts that should unlock shareholder value over the coming year. A pending density review could deliver substantial excess capital for dividends and share buybacks, providing direct returns to shareholders. NatWest's complete exit removes a major overhang and should improve stock liquidity, while the Irish government's 57% stake represents the next major catalyst. With successful exits from AIB and Bank of Ireland completed, the government can focus on monetizing its final banking investment. The manager expects continued government stake sales, which combined with improving operational performance and potential capital relief, should close the current valuation discount. The combination of operational improvements, enhanced liquidity, and government privatization creates multiple paths to value realization.

Pitch Summary:
Industrials. Another opportunity we see in quality value is The Middleby Corporation (MIDD), which designs and manufactures commercial food prep, residential kitchen, and food processing equipment. The company's commercial foodservice segment, which makes convection ovens, blast chillers, ranges, and fryers, accounts for around 62% of sales, with the remaining 38% equally derived from its food processing and residential business, which operates under high-end brands such as Viking, Masterbuilt, and Rangemaster. We first purchased shares of MIDD in late 2023 after the company transitioned from trading at a historic premium to industry peers to a discount despite superior profitability. We believe the derating occurred because of prior management's decision to shift away from being a pure-play commercial equipment supplier and expand into the residential market, which is its lowest-margin and most cyclical business. Today, management is attempting to boost margins across segments by accelerating brand integration and emphasizing higher margin products that provide enhanced productivity for customers. Until recently, the stock had not responded to these initiatives. In January, regulatory filings disclosed Ed Garden's activist family office, Garden Investments, had built a position in MIDD. Garden is known in the investment world for co-founding Trian Fund Management alongside famed activist investor Nelson Peltz. The stock rose around 20% on the news. Since the activist news, Middleby has announced the addition of two new board members appointed by Garden, and the company is planning to spin off the food processing segment in 2026. We expect management will eventually spin or sell its low-margin residential segment as well. Over the past 20 years, MIDD has traded at a median premium of 10% to its industrial peers. At the moment, however, its valuation stands at just 11 times EV/EBITDA over the next 12 months, a nearly 20% discount to the sector.

BSD Analysis:
Heartland initiated a position in Middleby Corporation in late 2023 when the stock transitioned from a historical premium to trading at a discount despite superior profitability. The manager attributes the derating to prior management's expansion into the lower-margin residential market. The investment thesis centers on management's margin improvement initiatives through brand integration and focus on higher-margin commercial products. A significant catalyst emerged with activist investor Ed Garden building a position, leading to a 20% stock price increase and the addition of two new board members. The company plans to spin off its food processing segment in 2026, with expectations for eventual divestiture of the low-margin residential business as well. Trading at 11x EV/EBITDA represents a nearly 20% discount to industrial peers, compared to MIDD's historical 10% premium over the past two decades. The combination of operational improvements and activist involvement positions the stock for significant revaluation.

Pitch Summary:
Technology. Teledyne Technologies, Inc. (TDY), our largest holding, is the epitome of quality value. TDY has a well-managed, balanced portfolio of sensing and decision-support technologies across commercial and industrial end markets, including multiple secular growth areas spanning advanced machine vision, precision instrumentation, space and unmanned vehicles. TDY's economically-sensitive customer exposure is somewhat buffered by stable markets like pollution control, water, oceanography and climate monitoring. TDY's core markets are characterized by high barriers to entry and include niche specialized products and services unlikely to be commoditized. In a challenging quarter for large tech stocks, Teledyne shares hit an all-time high at the start of the year, after beating consensus earnings estimates and continuing to expand profit margins despite getting little help from its challenged short-cycle end markets (where TDY has some of its highest-margin products). This helped investors imagine what earnings power could be if short-cycle markets recover. TDY continues to execute on secular growth opportunities while demonstrating that its commercial businesses are more economically resilient than many tech-industrial peers. Despite this strong execution and the stock's recent performance, the shares still trade at the lower end of the relative valuation premium range TDY has carried over the past decade. As we witness a "reality check" spreading across a number of companies that were trading at what we consider undeserved valuations, we think TDY's prospects for strong relative performance remain bright.

BSD Analysis:
Heartland positions Teledyne Technologies as their largest holding and epitome of quality value investing. The manager highlights TDY's diversified portfolio of sensing and decision-support technologies across secular growth markets including machine vision, precision instrumentation, and aerospace. The investment thesis centers on the company's resilient business model with high barriers to entry and niche products unlikely to be commoditized. Despite challenging market conditions, TDY demonstrated strong execution by beating earnings estimates and expanding margins even without help from short-cycle markets. The manager views the current valuation as attractive, trading at the lower end of its historical premium range despite strong fundamentals. With secular growth opportunities and economic resilience compared to tech-industrial peers, Heartland expects continued outperformance as market valuations normalize.

Pitch Summary:
We discussed Metro Bank in more detail in our Q3 2023/2024 letters, and shares have risen materially since the bank's 2023 capital raise. That said, MTRO currently trades around tangible book value and shares are undervalued relative to the bank's high-teen return on equity (ROE) medium term targets (which would imply a forward price/earnings ratio of ~4x before capital returns if MTRO executes). More immediately, MTRO might have a significant catalyst, assuming it can escape the UK's Minimum Requirement for Own Funds and Eligible Liabilities (MREL) regulatory regime, which requires banks of a certain size to hold a specific amount of loss-absorbing capital and liabilities to ensure orderly resolution in case of failure. While this is a bit of a technical topic full of confusing acronyms, it has great significance for MTRO. As we were writing this letter, the Bank of England (BoE) announced a series of moves designed to bolster competition and growth in the UK financial service sector. One of these proposals was an increase in the MREL asset threshold from £15-25 billion in total assets to £25-40 billion. (MTRO had assets of ~£17 billion as of 03/31/25 and should be well below £25 billion over the next several years.) MTRO will likely not comment until the bank's half-year results call, but the consensus reading of the proposals suggests that MTRO will likely move from the MREL "bail-in" regime to a so-called transfer mechanism, whereby it will not be required to meet MREL above Minimum Capital Requirement (MCR). In English, this means that MTRO may no longer need its expensive senior bonds that are particularly burdensome for MTRO, given its smaller size and the fact that these bonds were issued under extreme distress. Should MTRO gain approval to exit the MREL bail-in regime, the bank would likely tender for its £525 million 12% senior bonds (~£63 million annualized interest cost). MTRO has previously estimated that an exit from MREL would increase projected ROEs by 500-700 basis points. There would be further savings when MTRO is ultimately able to refinance its £150 of 14% subordinated debt (April 2029 call date). MTRO's medium-term guidance assumes that all its high-cost debt remains outstanding (please see our Q2 2023 letter for more details). As we discussed in past letters, MTRO is still not widely covered, is illiquid (considering Jaime Gilinski's ~53% stake) and is nearly universally hated among investors and sell-side analysts for all the bank's past problems. While MTRO has certainly had its share of self-inflicted mistakes over time, there is more than a bit of irony in the fact that the BoE may now be saying that MTRO should not be subject to the very MREL rules that nearly caused the bank's downfall a couple of different times. Certainly, a recession in the UK would be bad for MTRO's commercial loan pivot, and we will continue to be conscious of position sizing, given the stock's appreciation. That said, we believe the bank has a solid organic story, could be an attractive takeover target and now looks like it will be meaningfully helped by regulatory relief.

BSD Analysis:
The manager presents a compelling turnaround story for Metro Bank, emphasizing significant regulatory catalyst potential despite past operational challenges. Trading near tangible book value, MTRO appears undervalued relative to management's high-teen ROE targets, which would imply a forward P/E of approximately 4x. The key catalyst involves potential escape from the UK's MREL regulatory regime following Bank of England proposals to raise asset thresholds from £15-25 billion to £25-40 billion. With MTRO's assets at ~£17 billion, regulatory relief could eliminate the need for expensive senior bonds, potentially saving £63 million annually and boosting ROEs by 500-700 basis points. The bank carries additional high-cost debt (14% subordinated bonds) that could be refinanced, further enhancing returns. Despite negative sentiment from past issues and limited analyst coverage, the manager views MTRO as an attractive contrarian play with solid organic growth prospects and potential takeover appeal, while acknowledging recession risks to the commercial lending pivot.

Pitch Summary:
While six months of data proves little, several of the overseas names detailed in previous letters -- including PTSB, Millicom (TIGO), Metro Bank (MTRO), Glenveagh (GLV) -- have performed well during the first part of 2025. TIGO announced a special dividend of $2.50 per share following the sale of its infrastructure assets (primarily cellular towers). This payment is in addition to the $3.00 annual dividend announced earlier this year. We remain hopeful that TIGO's proposed acquisition of Telefonica Colombia (and its government partner), as well as the acquisition of the 50% government stake in TIGO's own Colombian operations, will close sometime this year. Both deals would be meaningfully accretive to TIGO's free cash flow, and this series of deals would essentially create a near duopoly in a country with over 50 million people. TIGO continues to execute well, and the company has announced two other smaller deals (Uruguay and Ecuador) over the past 3 months. While shares have advanced, we still see considerable upside.

BSD Analysis:
The manager maintains a bullish stance on Millicom (TIGO) despite recent share price appreciation, highlighting strong execution and multiple value-creating catalysts. The company has returned significant capital to shareholders through a $2.50 special dividend from tower asset sales, supplementing the $3.00 annual dividend. The key investment thesis centers on pending Colombian acquisitions that would create a near-duopoly in a market of over 50 million people, with both deals expected to be meaningfully accretive to free cash flow. Management continues to demonstrate disciplined capital allocation through additional smaller acquisitions in Uruguay and Ecuador. The manager views the current valuation as attractive despite recent gains, suggesting the market hasn't fully recognized the strategic value of the Colombian consolidation opportunity. The combination of strong dividend yields, accretive M&A activity, and market consolidation positions TIGO for continued outperformance.

Pitch Summary:
We consider Gates Industrial Corporation plc (GTES), one of the leading global manufacturers of belts and hoses used in vehicles and industrial machines, to be an all-weather stock set up to perform well relative to small-cap Industrials in all types of macro environments. Yet the shares have fallen 21.7% since Feb. 19 along with the entire Industrial sector amid concerns of a trade war. Ironically, the company's biggest end market is auto replacement parts, representing 36% of sales. The threat of tariffs significantly boosting the overall price of new cars should make consumers hold onto their existing vehicles longer, which should be good for Gates. If the macro environment deteriorates, we believe the company will face less downside pressure than most Industrials owing to the large percentage of revenues it derives from the less-cyclical replacement markets. On the other hand, should the macro environment improve, Gates could see significant revenue upside as cyclical Industrial end-markets have been pressured by a weak economy for multiple quarters. The company's recent self-help efforts have also led to margin improvement through material cost reduction and footprint optimization. Those moves should help offset any margin pressure that could occur from end-market weakness. The company appears to have significantly improved its balance sheet, with leverage currently at 2.2 times net debt to EBITDA, down from its pre-COVID-19 levels of 3-4 times. At this current leverage profile, Gates should be positioned to return more of its free cash flow to shareholders in the form of share repurchases. Yet the stock trades at just 13 times earnings and 9 times EBITDA, which is relatively low compared to other Industrial businesses with a similar margin profile.

BSD Analysis:
Heartland views Gates Industrial as an all-weather industrial play that should outperform regardless of macro conditions, despite the recent 21.7% decline amid trade war concerns. The manager highlights the defensive nature of the auto replacement parts business (36% of sales), which could actually benefit from tariff-induced higher new car prices as consumers extend vehicle ownership. The company's diversified end-market exposure provides downside protection during economic weakness while offering upside leverage during recovery. Recent self-help initiatives including cost reduction and footprint optimization have driven margin improvement and should offset potential end-market pressures. The significantly improved balance sheet with leverage declining from 3-4x to 2.2x net debt-to-EBITDA positions the company for increased shareholder returns through buybacks. Trading at 13x earnings and 9x EBITDA, the valuation appears compelling relative to industrial peers with similar margin profiles.