Investment Pitches

Pitch Summary:
Alphabet was the top detractor during the quarter. The U.S.-headquartered company's stock price declined despite having posted fourth-quarter 2024 earnings that were in line with consensus expectations. Search revenue growth remained strong, and management reiterated that the new "AI Overviews" feature is driving higher engagement with comparable monetization. The one miss during the quarter was in the Cloud segment, where revenue grew 30% year-over-year but fell slightly short of consensus expectations. We believe the shortfall was largely due to short-term capacity constraints and that the long-term growth outlook for Google Cloud remains robust. We continue to see Alphabet as a collection of great businesses that can further benefit from the company's world class AI capabilities. With shares trading at just 15x our estimate of next year's earnings per share, we believe the stock is meaningfully undervalued.

BSD Analysis:
Despite being a top detractor in the quarter, the manager maintains a strong bullish view on Alphabet, viewing the stock decline as a temporary setback rather than fundamental deterioration. The company delivered in-line Q4 2024 earnings with continued strength in core Search revenue, enhanced by the new AI Overviews feature driving higher user engagement and monetization. While Google Cloud revenue growth of 30% year-over-year missed consensus slightly, management attributes this to short-term capacity constraints rather than demand weakness, with long-term cloud growth prospects remaining intact. The manager emphasizes Alphabet's diversified business portfolio and world-class AI capabilities as key competitive advantages. At 15x forward earnings estimates, the valuation appears compelling for a collection of high-quality technology businesses. The combination of strong fundamentals, AI leadership, and attractive valuation supports the manager's conviction in the stock's meaningful undervaluation.

Pitch Summary:
We were initially drawn to Torrid due to the company's aggressive effort to optimize its physical store base. As a legacy mall retailer, which went through a rapid store expansion phase a decade ago, Torrid has been forced to deal with the fact that traffic patterns have shifted, outdoor lifestyle malls are now more attractive destinations, and many old enclosed malls have suffered substantial traffic declines. This is an issue many retailers are grappling with. However, Torrid has now announced they will be closing around 1/3 of their stores to focus their highest-returning and most productive locations. They are able to do this because 60% of their stores are coming up for lease renewal this year, so there are no exit costs to these leases. Furthermore, Torrid is able to retain a majority of the sales from closed locations, as those customers will often go to another Torrid store in the region or go online, where Torrid generates 70% of its sales and has a strong loyalty program. The company expects 150-250bps of margin expansion from these store closures. We believe that, in aggregate, the remaining stores are comping positive, as is its online business. Other things we like about Torrid are the fact that they are the leader in a unique market niche of apparel for plus-sized women, they demonstrate strong customer loyalty, they are having success with a private-label sub-brand strategy (which could also increase margins another 100bps over time), they have very strong customer acquisition economics, and they are less fashion sensitive than many other women's apparel retailers. Finally, from an incremental ROIC standpoint, whether it be opening a new store, retrofitting an existing store, or acquiring a customer online, we believe they achieve a cash-on-cash payback in 2 years or less for each of these drivers of future growth. From a valuation perspective, whether we use a 20% p/fcf yield or 5x EV/EBITDA metric on near-term projections, we think the stock's downside is close to $2.50/share on $40-$50mm of fcf and $90-$100mm EBITDA. The biggest delta between EBITDA and FCF is $30mm of interest expense, as CURV does have about $280mm of net debt on its balance sheet. However, we believe the potential exists, if the store closure strategy plays out as the company expects, sub-brands continue to grow and we get modest leverage on positive comps, for the company to take EBITDA from $100mm to $180mm and fcf from $50mm to over $100mm over the next 3-4 years. In this case, with a strong focus on using fcf to de-lever, the company could be debt-free after year four while generating in excess of $100mm of fcf. With Torrid's current market cap of around $270mm, that would lead to a possible 4-5x in the stock over that time period to $14.00/share. With the stock now trading around $2.70, we think estimated downside of $2.50 and upside to $14.00 represents an attractive risk/reward. CURV also represents a unique case study for our strategy due to the stock-trading dynamics that provided us with this opportunity. Due to the fundamental factors I described above, we were attracted to CURV and bought a small position between $5.00-$6.00/share. We wanted some exposure, but the risk/reward was not yet what we could consider compelling enough to make it a large position. Soon after buying this small stake, their largest private equity sponsor and owner of over 50% of shares outstanding, Sycamore Partners, announced a secondary offering to sell a portion of their stake. Sycamore has been in the process of exiting this investment after multi-year holding period. This secondary did not increase shares outstanding, as it was simply Sycamore selling to the public. In fact, the company bought back shares on this secondary to reduce its overall share count. However, the stock fell from $5.10/share to its current level of $2.70 in the weeks following this secondary due to a lack of liquidity in the market and lack of demand for leveraged micro-cap legacy retailers. This essentially presented us with an immediate 50% off sale for a company that we actually liked quite a bit before this secondary announcement. Hence, we have taken CURV from one of our smallest positions to one of our largest positions. Similar trading dynamics occurred in September, 2024 when Sycamore executed a secondary and the stock more than fully recovered in the ensuing quarters. This is another great example of the type of dislocation that can commonly occur in publicly-traded micro-cap stocks, but rarely occur, if ever, in the broader public market or private markets that make micro-caps such a compelling area for alpha-generation.

BSD Analysis:
The manager presents a comprehensive turnaround thesis for Torrid, focusing on strategic store optimization and margin expansion opportunities in the plus-sized women's apparel niche. The company is closing approximately one-third of underperforming stores with minimal exit costs due to favorable lease renewal timing, while retaining sales through regional store transfers and online channels that represent 70% of total sales. Expected margin expansion of 150-250 basis points from closures, combined with private-label sub-brand growth adding another 100 basis points, creates a compelling operational improvement story. Torrid's market leadership in plus-sized apparel, strong customer loyalty, superior customer acquisition economics, and less fashion-sensitive positioning provide competitive advantages. The manager calculates attractive risk/reward with $2.50 downside support versus potential $14.00 upside if the company executes its deleveraging strategy over 3-4 years. A technical opportunity emerged when Sycamore Partners' secondary offering created a 50% price dislocation despite no fundamental deterioration, allowing the manager to significantly increase position size at deeply discounted levels.

Pitch Summary:
Lloyds Banking Group was the top contributor during the quarter. The U.K.-headquartered diversified bank's stock price rose throughout the quarter as it posted fiscal-year 2024 results where net-interest income modestly outperformed consensus expectations. In addition, Lloyds issued fiscal-year 2025 and 2026 guidance forecasting robust net-interest margin expansion and announced a 1.7 billion GBP (Great Britain Pound) share buyback. We continue to monitor the Motor Vehicle provision following the onerous appellate court ruling and are optimistic about a favorable ruling from the Supreme Court. In our view, the bank has a strong management team and a balance sheet with high levels of capital, liquidity and reserves which can help it unlock further value.

BSD Analysis:
The manager maintains a bullish stance on Lloyds Banking Group following strong Q4 2024 results that exceeded net interest income expectations. The bank's forward guidance through 2026 projects robust net interest margin expansion, indicating management confidence in profitability growth. The announcement of a £1.7 billion share buyback program demonstrates strong capital generation and management's commitment to returning cash to shareholders. While the fund acknowledges regulatory overhang from Motor Vehicle provisions related to an appellate court ruling, they express optimism about a favorable Supreme Court outcome. The manager emphasizes the bank's strong balance sheet fundamentals, including high capital ratios, liquidity buffers, and reserves. The combination of experienced management, solid financial positioning, and capital return initiatives supports the investment thesis for continued value creation.

Pitch Summary:
RxSight is a provider of premium IOLs known as Light Adjustable Lenses (LALs), which allow physicians and patients to make adjustments following an initial cataract surgery to optimize their vision. RXST is a classic razor and blade model, as the LALs are used in conjunction with the company's Light Delivery Devices (LDDs). Shares of RXST have fallen significantly due to a severe moderation in the company's growth in the past few quarters, as well as projections going forward. This slowdown is the result of a combination of slowing consumer discretionary spend (premium IOLs are highly discretionary), potential penetration issues in the US, and some trialing of new multifocal IOLs that are not directly competitive with the LALs. We believe the market has severely overreacted to these issues and RxSight remains a strategic asset in the space with a private market value well above the current stock price. Our downside is anchored by about $220mm of net cash on its balance sheet (about $5.50/share) vs the current stock price of $7.50. We think with the recent slowdown of LDD sales, the more consumable LALs could represent about 75%-80% of their current revenue base of $100-$125mm or $80mm. We would estimate LAL lenses also carry a gross margin in excess of 80%. Whether we value downside at 0.5x total revenue, below consensus revenues of $100mm + $220mm cash ($6.70), or 1x $80mm of 80% GM LAL revenues + cash ($7.50), we would deem fairly hard downside support to be around $6.50/share. We do believe RXST will maintain at least 10% of the premium IOL market in the US, which is now about 100,000 lenses per year. That market share could go to 15%, but probably not too much higher. However, even a low-single digit market share of the ex-US premium IOL market, which the company has not yet penetrated, would represent at least another 100,000 lens potential. We think any strategic acquirer that already has a fully built-out global distribution network for cataract surgeries would see real value in RXST on the lens revenues alone. We would estimate that if RXST held its 100k lens volume in the US and was able to generate another 100k-120k of lens volume ex-US, they could generate at least $150mm of LAL revs that would generate a 50% contribution margin to a strategic acquirer or $75mm x 15x multiple is $1.1bln + $200mm cash is $1.3bln of potential enterprise value or over $30/share. As a stand-alone company with modest penetration of international and using a $150mm of out-year companywide revenue estimate, we think RXST should be worth at least $15-$20/share. With the stock trading at $7.50 and our current estimate of downside support around $6.50, we think the company represents an attractive risk/reward and have increased our position in RXST.

BSD Analysis:
The manager presents a detailed value-oriented case for RxSight, emphasizing the company's unique Light Adjustable Lens technology in the premium IOL market with a classic razor-and-blade business model. Despite recent growth deceleration due to discretionary spending pressures and US penetration challenges, the manager believes the market has overreacted to temporary headwinds. The investment thesis is anchored by substantial downside protection from $220 million net cash ($5.50/share) and high-margin consumable LAL revenues representing 75-80% of the business with 80%+ gross margins. The manager calculates downside support around $6.50/share while seeing significant upside potential through international expansion and strategic value. Conservative estimates suggest 10-15% US market share sustainability with untapped international opportunities potentially doubling lens volume. Strategic acquirer value could reach $30+/share based on global distribution synergies, while standalone fair value ranges $15-20/share. At $7.50 current price versus $6.50 downside support, the asymmetric risk/reward profile justifies position increases.

Pitch Summary:
Informa TechTarget was the second largest detractor in our portfolio this quarter. We originally purchased the stock for two primary reasons. First, our belief that TechTarget, which has a very strong competitive position in technology-related B2B marketing, was approaching a fundamental trough in its business due to a pullback in spending by its customers. Standalone TechTarget had been through these cycles before and has always come out the other side with strong rebounds. We also thought the merger with Informa would be highly accretive and expand earnings power, even if the current downcycle persisted, based on projections put out by management upon the merger announcement. Unfortunately, after the merger closed, the combined company revised numbers meaningfully downward from the original projections and provided little hope of achieving those numbers in the near to intermediate term. There is also a chance that we may have misread the duration of this downcycle, potentially due to new potential threats from AI to its core business, along with overestimating the financial benefits of this merger. Because we are now forced to question both of the fundamental precepts behind our investment, we chose to sell our TTGT position and redeploy the proceeds into companies in which we have more confidence in future outcomes.

BSD Analysis:
The manager exited TechTarget after the investment thesis broke down on multiple fronts, demonstrating disciplined risk management when core assumptions prove incorrect. The original bull case rested on TechTarget's strong competitive position in B2B technology marketing and the belief that the business was approaching a cyclical trough, with historical precedent for strong recoveries. The Informa merger was expected to be highly accretive and expand earnings power even during the downcycle. However, post-merger reality diverged significantly from management projections, with meaningfully downward-revised numbers and little near-term hope for improvement. The manager acknowledges potential misreading of the downcycle duration, possibly due to AI threats to the core business model, and overestimation of merger synergies. Faced with questioning both fundamental investment precepts, the manager chose to exit and redeploy capital into higher-conviction opportunities, exemplifying the importance of intellectual honesty and capital preservation in micro-cap investing.

Pitch Summary:
Sysco Corporation is one of the largest food service distribution companies globally. We appreciate that food service distribution is a stable industry that has historically grown slightly faster than food spending. This is because of a continued secular shift to food away from home and that scale-advantaged companies, like Sysco, benefit from better procurement terms from suppliers and demonstrate high operational efficiency. Recently, growth in the company's largest and most profitable customer segment, independent restaurants, has slowed, but Sysco is increasing headcount and changing compensation incentives in its salesforce, which we think will reinvigorate growth and prove beneficial for long-term shareholders. In our view, Sysco remains a high-quality company with a credible management team, so we were happy to purchase shares at a discount to peers and the company's own historical trading multiple.

BSD Analysis:
Oakmark initiated a position in Sysco Corporation, one of the world's largest food service distributors, attracted by the industry's stability and historical growth above food spending rates. The managers appreciate the secular shift toward food away from home and Sysco's scale advantages in procurement and operational efficiency. While acknowledging recent growth slowdown in the profitable independent restaurant segment, they view management's salesforce expansion and compensation restructuring as catalysts for renewed growth. The investment thesis is supported by Sysco's high-quality business model and credible management team. Oakmark capitalized on valuation opportunities, purchasing shares at a discount to both peer multiples and the company's historical trading range, viewing this as an attractive entry point for long-term shareholders.

Pitch Summary:
Lakeland was the top detractor in our portfolio this quarter. We bought the stock due to our belief that new CEO Jim Jenkins will use his M&A experience, honed as a corporate lawyer and head of corporate development at Transcat, Inc (TRNS) (a true micro-cap success story that we greatly respect) to leverage Lakeland's legacy capabilities in protective clothing and build a much larger company focused on the more advanced and profitable segments of protective gear within the fire and industrial markets. Our belief is that these are attractive end-markets, and when Lakeland builds ample scale in its business, the company should generate substantial earnings power, which could drive the stock to a price that is multiples of its current level. Lakeland has gone from being a contributor to a detractor in our portfolio due to two sub-par quarterly reports. The narrative I just described led to a large increase in the stock prior to the most recent quarters. However, a combination of slower than expected growth, missed margin expectations, tariff issues, acquisition integration issues, investor communication issues, and IT weaknesses has led many investors to question whether CEO Jenkins is actually an "operator" that can execute on this vision or is he just a "deal guy", which can only take you so far. Hence, a powerful narrative-driven story focused on out-year earnings power and potential multiple expansion has rapidly moved to a show-me story trading at troughish near-term multiples, which is not all that unusual in the micro-cap space. We continue to believe that over the longer term, CEO Jenkins and Lakeland will successfully execute on the vision, and we therefore continue to hold the stock.

BSD Analysis:
The manager maintains conviction in Lakeland Industries despite recent underperformance, betting on new CEO Jim Jenkins' M&A expertise gained from his successful track record at micro-cap success story Transcat. The investment thesis centers on leveraging Lakeland's legacy protective clothing capabilities to build scale in higher-margin, advanced protective gear segments within attractive fire and industrial end-markets. The manager believes successful execution could generate substantial earnings power and drive the stock to multiples of current levels. However, recent execution challenges including slower growth, margin misses, tariff issues, acquisition integration problems, and IT weaknesses have shifted investor sentiment from narrative-driven optimism to skepticism about Jenkins' operational capabilities versus deal-making skills. The stock has moved from trading on future earnings power potential to trough-level near-term multiples, typical of micro-cap disappointments. Despite these setbacks, the manager retains long-term confidence in the strategic vision and continues holding the position.

Pitch Summary:
Pernod Ricard is the second largest producer of premium spirits globally, with over 240 brands distributed across more than 160 markets. Importantly, the company generates most of its revenue from brown spirits, such as whiskey and Cognac, and has the highest exposure in the sector to this category, which is particularly attractive due to high barriers to entry driven by aged inventories. Pernod Ricard also has the most regionally diversified portfolio among peers, with leading scale in its key markets of India, China and France. This further strengthens barriers to entry and has provided a long history of attractive returns and healthy cash conversion for the company. Additionally, we believe the company is poised to benefit from structural tailwinds stemming from premiumization trends and emerging markets growth where it has more exposure than its peers. Lastly, we like that Pernod Ricard is still led by the company's founding family, which is aligned with shareholders as they own 14% of the equity. We believe CEO Alexandre Ricard has a good track record and is committed to growing shareholder value by improving execution, operations and organizational culture, which we view as self-help opportunities to close the company's margin gap relative to peers. The company's share price has come under pressure alongside other spirits producers as a result of post-Covid-19 industry de-stocking and demand normalization, which provided an attractive entry point to invest in this above-average company at a below-average price.

BSD Analysis:
Oakmark initiated a position in Pernod Ricard, the second-largest global premium spirits producer with over 240 brands across 160+ markets. The managers value the company's dominant exposure to brown spirits like whiskey and Cognac, which offer high barriers to entry due to aged inventory requirements. Pernod Ricard's regional diversification across India, China, and France provides leading scale and strengthens competitive moats. The investment thesis centers on structural tailwinds from premiumization trends and emerging market growth where the company has superior exposure versus peers. Oakmark appreciates the founding family's continued leadership and 14% ownership stake, viewing CEO Alexandre Ricard's operational improvements as self-help opportunities to close margin gaps. They capitalized on post-COVID industry destocking and demand normalization to acquire shares at attractive valuations.

Pitch Summary:
Outset Medical is a company that we made a large position when it fell below $1.00/share due to dilution from a very constructive financing with several high-quality healthcare investors, which essentially prevented a liquidity crisis for the company. Outset provides dialysis equipment and consumables for healthcare facilities and the home. We believe the company is reasonably well positioned with a recurring revenue model and good growth prospects. Our ability to purchase the stock at highly attractive valuations was due to several technical inefficiencies endemic to the micro-cap cap market, which is what we love about the space. The choppy trading of shares after the stock fell below $1.00 cumulated when they announced a reverse stock split via a press-release in March, which sent the stock down over 30% in the pre-market that day, even though the company had already announced its intention to authorize a reverse stock split on its 4Q24 earnings call in February. Due to our liquid asset base and belief in the company's long-term prospects, we were able to buy aggressively in the pre-market and the stock has more than tripled since then. Yet again, this is a classic case of us gaining confidence in an early-stage growth company through our fundamental research, which allowed us to rapidly take advantage of a temporary and unusually attractive entry point due to a trading dislocation in the micro-cap market.

BSD Analysis:
The manager capitalized on extreme technical inefficiencies in Outset Medical, a dialysis equipment and consumables company with a recurring revenue model and solid growth prospects. The investment opportunity emerged when the stock fell below $1.00 due to dilution from a constructive financing round with high-quality healthcare investors that prevented a liquidity crisis. The manager exploited micro-cap market inefficiencies, particularly when the stock dropped over 30% in pre-market trading following a reverse stock split announcement, despite this information being previously disclosed on the Q4 earnings call. The fund's liquid asset base and deep fundamental research enabled aggressive buying during the technical dislocation. The stock has since more than tripled, validating the manager's contrarian approach and ability to distinguish between temporary trading dislocations and fundamental deterioration. This exemplifies the alpha-generating opportunities available in the inefficient micro-cap market segment.

Pitch Summary:
Brenntag is a global leader in the production and distribution of specialty and commodity chemicals. In our view, Brenntag is an advantageously positioned specialty chemicals distributor thanks to its robust network of customers and suppliers, which is a market that has historically grown faster than broader chemical manufacturing. We believe this market is coming out of a cyclical trough with indicators suggesting better growth to come. Moreover, the company's management team is implementing a multi-year plan to reorganize the business structure to better align with the distinct needs of specialty and commodity markets, increase focus on value-over-volume, sharpen incentives, and trim the company's cost structure. Recent temporary challenges in the business environment have weighed on Brenntag's share price, presenting us with the opportunity to initiate a position in the dominant industry player at a discount to our estimate of intrinsic value.

BSD Analysis:
Oakmark initiated a position in Brenntag, the global leader in chemical distribution, viewing it as advantageously positioned with a robust network spanning customers and suppliers. The managers believe the specialty chemicals market is emerging from a cyclical trough with improving growth prospects ahead. They appreciate management's multi-year restructuring plan focused on better aligning business segments, emphasizing value over volume, and reducing costs. The investment thesis is supported by Brenntag's dominant market position and the specialty chemicals segment's historically faster growth compared to broader chemical manufacturing. Oakmark capitalized on temporary business challenges that depressed the share price to acquire the dominant industry player at a discount to intrinsic value.

Pitch Summary:
Legacy Education is a relatively recent IPO that is a for-profit education company focused on the healthcare vertical. The company is poised to capitalize on a large supply/demand gap of trained healthcare workers over the next decade, which we believe provides a long-duration growth opportunity for Legacy. The company maintains very strong incremental returns on capital as it builds new campuses, expands programs across its growing campus base, and makes selective acquisitions. Furthermore, due to the unique regulatory nature of the education vertical, it is one of the few industries that has seen little competition from private-equity backed companies. Regulatory dynamics also slow the pace of expansion for existing competitors. We believe the combination of these dynamics should extend the duration of this growth opportunity beyond what you would normally see in most industries experiencing a supply/demand gap and attractive economics for supply expansion. These positive industry dynamics are not unrecognized by the stock market, as larger peers Universal Technical Institute (UTI), Lincoln Educational Services (LINC) and Adtalem (ATGE) have performed very well. However, with a market cap of around $150mm and current revenue base of around $65mm, we believe LGCY will benefit from being able to grow off a much smaller base. It is also trading at a substantial multiple discount to its larger peers. We view LGCY as a classic core growth holding.

BSD Analysis:
The manager identifies Legacy Education as a compelling growth story positioned to benefit from a significant healthcare worker shortage over the next decade. The investment thesis is anchored on strong unit economics with excellent incremental returns on capital from new campus development, program expansion, and selective acquisitions. Regulatory barriers create a protective moat, limiting private equity competition and slowing competitor expansion, which should extend the duration of this growth opportunity beyond typical supply/demand imbalances. The company trades at a substantial valuation discount to larger peers like UTI, LINC, and ATGE despite operating in the same favorable market dynamics. With a $150 million market cap and $65 million revenue base, Legacy has significant runway for growth from a smaller base compared to established competitors. The manager views this as a core growth holding that should benefit from both fundamental execution and multiple expansion as the company scales.

Pitch Summary:
Airbnb is an online marketplace to list, discover and book unique accommodations worldwide. The company benefits from a strong network effect between its guests and hosts. We believe there is a long growth runway as global travel is an attractive market, and alternative accommodations have been taking share. We anticipate Airbnb will drive further growth by creating more valuable services for both sides of its network. This includes the potential for paid placement, which has created significant economic value for comparable marketplaces. In our view, management is aligned with shareholders and well qualified to lead Airbnb as the company attempts to capture these growth opportunities. Short-term concerns about the macro travel environment and declining margins stemming from growth investments allowed us to purchase shares at a discount to our estimate of business value.

BSD Analysis:
Oakmark initiated a position in Airbnb, viewing it as a dominant online marketplace with strong network effects between guests and hosts. The managers believe the company has significant growth potential as alternative accommodations continue gaining market share in the attractive global travel market. They see opportunities for Airbnb to monetize its platform further through services like paid placement, similar to successful marketplace models. The investment thesis centers on management's alignment with shareholders and ability to execute on growth initiatives. Oakmark took advantage of short-term macro concerns and margin pressure from growth investments to purchase shares at what they consider a discount to intrinsic value.

Pitch Summary:
ThredUp is a leading online marketplace for second-hand clothing with a unique infrastructure that we believe is very difficult to replicate. We accumulated many shares of this company at prices below $1.00/share. As was also the case with Outset Medical (OM) (comments below), we saw trading become somewhat irrational due to technical factors when the stock fell below $1.00/share, which provided us with a great opportunity. ThredUp has worked very hard over the past several years to become free cash positive and accelerated this effort with the divestiture of its money-losing business in Europe. Simultaneously, they began to see several key KPI's meaningfully improve due to increased adoption of artificial intelligence that led to a step-up in search and conversion results. Finally, they benefitted from the implementation of tariffs, which has served to improve the relative value-proposition of second-hand apparel and reduce online customer acquisition competition from international apparel manufacturers. All these positives came together soon after the stock fell below $1.00, which has led to strong capital appreciation to over $7.00/share.

BSD Analysis:
The manager presents a compelling turnaround story for ThredUp, emphasizing the company's unique and difficult-to-replicate marketplace infrastructure for secondhand clothing. The investment thesis centers on operational improvements including achieving free cash flow positivity through European business divestiture and meaningful KPI improvements driven by AI adoption enhancing search and conversion metrics. The manager capitalized on technical trading inefficiencies when the stock fell below $1.00, accumulating shares at deeply discounted levels. External tailwinds from tariff implementation have strengthened ThredUp's value proposition relative to international competitors while reducing customer acquisition costs. The dramatic appreciation from sub-$1.00 to over $7.00 per share validates the manager's contrarian positioning during the technical dislocation. This represents a classic micro-cap opportunity where fundamental improvements converged with favorable external factors to drive substantial returns.

Pitch Summary:
Molina Healthcare is a leading managed care company. Molina is the fourth largest player in managed Medicaid but has consistently delivered industry-leading growth and margins. In our view, this is thanks to the company's exceptional management team and culture of operational excellence. We think Molina has a long runway for growth via continued share gains in Medicaid and untapped opportunities in their Medicare and Marketplace business segments. Recently, fundamentals have been pressured by an unprecedented redeterminations cycle in Medicaid, and valuations have compressed due to uncertainty around policy changes in a new political administration. We believe earnings pressure from redeterminations is temporary and any Medicaid policy changes will prove manageable, providing us an opportunity to purchase shares at a meaningful discount to intrinsic value.

BSD Analysis:
Oakmark Select initiated a position in Molina Healthcare, viewing it as an attractive opportunity created by temporary headwinds. The managers highlight Molina's strong competitive position as the fourth-largest managed Medicaid player with industry-leading growth and margins, attributing this success to exceptional management and operational excellence. They see significant growth potential through market share gains in Medicaid and expansion in Medicare and Marketplace segments. The current investment thesis centers on temporary earnings pressure from Medicaid redeterminations and political uncertainty creating a valuation discount. The managers believe these challenges are transitory and manageable, allowing them to acquire shares below intrinsic value. This represents a classic value opportunity where short-term pressures have created an attractive entry point for a fundamentally strong business. The pitch demonstrates confidence in management's ability to navigate regulatory changes while capitalizing on long-term growth opportunities in government-sponsored healthcare programs.

Pitch Summary:
Our view is that Gränges was at the time of the IPO a company focused on a single niche: heat exchangers for vehicles. Since then, the company has broadened its offering into niche applications such as EV battery housing and specialty packaging. This reduces dependency on legacy automotive heat exchangers. This shift does not seem to be reflected in the valuation. Gränges now operates across multiple niches and avoids dependence on a single end market. In a world where tariffs trigger alarm bells, we believe Gränges finds itself on the right side of the equation, with a structural tailwind that in fact enhances Gränges' strategic position. Previously, most aluminum was rolled in Canada and transported across the border. Gränges offers regional rolling capacity, which has now become highly attractive. At the same time Gränges continues to gain market share across European automotive platforms despite industry skepticism. Expansion investments are ending in 2025 and capex is thus halving to SEK 650 million. Current pricing is attractive at ~11-12% FCF yield for 2025-2026. Heading into earnings season, foreign exchange effects might once again become a negative "surprise" line item. Discounted? Probably. But as every seasoned investor knows: a stock can rise or fall on the same piece of news multiple times. We are ready to see through the noise, as the stock offers compelling fundamental upside.

BSD Analysis:
The manager presents a comprehensive bull case for Gränges based on successful business diversification and favorable structural trends. The company has evolved from a single-niche heat exchanger supplier to a diversified aluminum specialist serving EV battery housing and specialty packaging markets, significantly reducing concentration risk. This transformation appears undervalued by the market, creating an opportunity. The tariff environment provides a structural tailwind, as Gränges' regional rolling capacity becomes increasingly valuable compared to cross-border aluminum transport. Continued market share gains in European automotive platforms demonstrate competitive strength despite industry headwinds. The completion of expansion investments in 2025 will halve capex to SEK 650 million, dramatically improving free cash flow generation. At 11-12% FCF yield for 2025-2026, the valuation appears attractive for a company with improving fundamentals and reduced capital intensity. The manager acknowledges potential FX volatility but views this as noise rather than fundamental concern, demonstrating conviction in the underlying investment thesis.

Pitch Summary:
We initiated positions in a couple of new businesses, including Veolia Environnement (Veolia). Veolia is one of the world's leading providers of solutions to the water, waste and energy management sectors. Listed in France, Veolia operates globally, including around 60% of revenue generated across Europe, as well as sizeable businesses in the U.S. and Australia. Leading market positions in macro insensitive industries management (an estimated ~85% of Veolia's businesses are macro immune), over 90% contract renewal rates, and ownership or management of essential infrastructure combine to deliver defensiveness in a range of economic conditions. Currently trading on a forward PE ratio of around 15x and a dividend yield of over 5%, we believe the company provides an attractive risk adjusted return in today's volatile economic conditions.

BSD Analysis:
L1 Capital initiated a new position in Veolia Environnement, viewing it as an attractive defensive play in the current volatile economic environment. The company's global leadership in water, waste, and energy management provides essential services with strong defensive characteristics, as approximately 85% of its businesses are considered macro-immune. Veolia's impressive contract renewal rate of over 90% demonstrates strong customer relationships and recurring revenue stability. The company's ownership and management of essential infrastructure creates natural barriers to entry and pricing power. With 60% of revenue generated across Europe and significant operations in the U.S. and Australia, Veolia offers geographic diversification. The attractive valuation metrics of 15x forward P/E ratio and over 5% dividend yield provide compelling risk-adjusted returns during uncertain times. The environmental services sector benefits from long-term secular growth trends around sustainability and resource management. L1's timing of this new position reflects their focus on defensive, high-quality businesses that can weather economic volatility while providing steady returns.

Pitch Summary:
We've also made Sinch one of our top positions. Sinch has shown encouraging trends in cash flow generation, cost control as well as early signs of a return to organic growth. We believe that a share buyback program will be initiated following the Q2 results later this month.

BSD Analysis:
The manager has elevated Sinch to a top position based on improving operational metrics and expected capital allocation actions. The company appears to be executing a successful turnaround with encouraging cash flow generation indicating improved business quality and financial discipline. Effective cost control measures suggest management is focused on profitability optimization rather than growth at any cost. Early signs of organic growth resumption are particularly positive for a cloud communications platform, indicating market share gains and customer retention. The anticipated share buyback program following Q2 results would demonstrate management confidence and provide additional shareholder returns. This combination of operational improvement and shareholder-friendly capital allocation creates a compelling investment case. The decision to make this a top position reflects high conviction in the company's transformation and future prospects. The timing appears opportune as the company transitions from restructuring to growth mode.

Pitch Summary:
The Fund has investments in three of the Magnificent 7: Amazon.com, Microsoft, and a smaller position size in Alphabet. As noted, the market remains concerned about elevated capital expenditure, the returns the leading Cloud and AI service providers will earn on these immense levels of capex and, more recently, concerns on overall cloud and AI services demand as well as increasing general economic weakness. There are also increasing concerns that Alphabet's competitive position in Search will not be as strong in an AI-centric world. More recently, trade policy concerns are pressuring all companies, and there have been huge equity market flows from short term investors derisking their portfolios as well as likely passive investor selling pressure. While operating conditions have weakened to some extent, at current share prices, all three businesses are trading well below our base case fair value range and offer highly attractive risk adjusted returns for investors with a longer-term investment horizon. Earlier in calendar 2025 we trimmed investments in companies such as Alphabet when the share price increased to around the top end of our assessment of fair value.

BSD Analysis:
L1 Capital maintains a bullish but cautious view on Alphabet, acknowledging specific competitive threats to its core search business in an AI-driven world. The manager recognizes market concerns about elevated AI capital expenditure and questions about returns on these investments amid weakening demand conditions. Unlike Amazon and Microsoft, Alphabet faces unique challenges as AI potentially disrupts its dominant search position, creating additional uncertainty about future competitive dynamics. The fund demonstrated disciplined portfolio management by trimming the position when shares reached the top end of fair value earlier in 2025. Despite maintaining only a smaller position size relative to other Magnificent 7 holdings, L1 still views current valuations as below fair value following recent market pressure. Trade policy concerns and broad derisking have created additional selling pressure. The manager's long-term investment horizon and value-focused approach support maintaining exposure despite near-term headwinds and competitive uncertainties in the search landscape.

Pitch Summary:
Sentia is a Norwegian construction company, and the IPO was a sell-down from the Swedish investment firm Ratos, which is a holding of ours. Sentia's CEO Jan Jahren has been with the group since 1997 and subscribed for shares worth NOK100m in the listing. We were also positively surprised by the strength of the balance sheet. Sentia operates with a large net cash position, which should be default for an asset-light construction of this sort. They also have a very low amount of contract assets on the balance sheet. We remain holders.

BSD Analysis:
The manager presents a cautiously bullish view of Sentia based on strong management alignment and conservative financial structure. The CEO's NOK 100 million personal investment in the IPO demonstrates significant skin in the game and confidence in the company's prospects. His 27-year tenure with the organization provides deep operational expertise and continuity. The balance sheet strength is particularly noteworthy, with a large net cash position that provides financial flexibility and downside protection. The low contract assets suggest conservative accounting practices and reduced execution risk compared to typical construction companies. The connection through Ratos, an existing holding, likely provided additional due diligence insights. While construction is typically a cyclical and capital-intensive industry, Sentia's asset-light model and strong balance sheet appear to differentiate it from peers. The manager's decision to remain holders suggests satisfaction with the investment thesis despite the inherent sector challenges.

Pitch Summary:
Enity is a provider of mortgages in the Nordics. It doesn't compete head-on with the bigger banks. Instead, it provides mortgages for individuals that have issues getting a traditional mortgage. Despite this, Enity has a history of very low credit losses, averaging ca. 20 bps during the last five years. ROE is above 15%, growth ca. 10% p.a. and valuation remains attractive, despite a +20% gain since the listing.

BSD Analysis:
The manager presents a strong bull case for Enity based on its differentiated business model and impressive financial metrics. The company operates in a specialized niche, providing mortgages to underserved borrowers who cannot access traditional bank financing, creating a defensible market position. Despite serving higher-risk customers, Enity has demonstrated exceptional credit discipline with average losses of only 20 basis points over five years, well below industry norms. The combination of 15%+ ROE and 10% annual growth indicates strong profitability and sustainable expansion. The manager views the valuation as attractive even after a 20% post-IPO gain, suggesting further upside potential. This alternative lending model appears to have found a profitable sweet spot in the Nordic mortgage market. The strong risk management track record provides confidence in the company's underwriting capabilities and long-term sustainability.