Investment Pitches

Pitch Summary:
During Q2, we added to our position in Intercontinental Exchange (ICE). We originally invested in ICE in April 2023 when the FTC's challenge to the company's proposed acquisition of Black Knight impacted the share price. While the deal overhang has lifted, we believe a re-rating opportunity from a structural and cyclical acceleration of growth is still ahead. Importantly, we expect that AI will drive new growth opportunities across most of ICE's businesses, extending the runway for value creation. ICE is a collection of dominant information services and exchange assets that automate diverse and large asset classes (Energy, Mortgages, Fixed Income, Rates and Equities) while producing vast amounts of proprietary data. CEO Jeff Sprecher has led ICE for over 20 years. Under his visionary leadership, the company has compounded organic revenue and EPS at ~5% and ~15%, respectively, and adopted new modalities through organic investment and strategic acquisitions, most notably creating the flagship clusters of Energy and Mortgage, franchises we believe are of very high business quality. On the horizon, we expect an acceleration of growth to a consistent low double digit organic algorithm in these businesses, and a re-rating of the stock as price follows value creation. ICE generates 30% of revenue from its Energy franchise, which holds dominant positions across the oil, natural gas, and environmental futures markets. In recent years, ICE's Energy futures franchise has accelerated markedly, and we believe the 25% growth experienced in 2023 is set to sustain into 2024. This rapid growth is driven by rising demand for natural gas and the globalization of natural gas markets following the significant build out of liquified natural gas (LNG). We expect global natural gas demand to accelerate over the next several years due to the well-publicized growth in electricity demand in developed markets, as well as coal-to-gas switching in developing markets to reduce CO2 emissions. The pace of globalization of natural gas markets is also accelerating we believe due to a key innovation by US LNG exporters, who have modified LNG contracts from being long-term bilateral agreements with "destination clauses" to contracts where cargoes are purchased "free on board" and can be directed by the buyer to any location on the globe subject to market prices in Asia and Europe. Both megatrends are benefiting ICE's natural gas futures complex, specifically its seaborne TTF / JKM contracts that are central to LNG trading. ICE generates another 20% of revenue from its Mortgage franchise, which is the only scale software vendor in Mortgages. Following the acquisitions of Ellie Mae and Black Knight, ICE now has the building blocks needed to automate the highly analogue and parochial mortgage origination and servicing ecosystem in the US: over 50% market share in mortgage origination software, over 50% market share in mortgage servicing software, the largest third-party app marketplace, the system of record for mortgage servicing rights, and the definitive database for mortgage loan performance. By creating a 360-degree view of the customer, we believe ICE will ultimately create a life-of-loan platform that reduces the high costs and inefficient wait times of originating and servicing mortgage loans, while at the same time harnessing the vast amounts of mortgage data on its platforms for primary and secondary market participants to trade on. In less than a year since the acquisition of Black Knight, ICE has already had strong commercial success with cross-sell wins at J.P. Morgan, M&T Bank, Fifth Third Bank and Lennar to name a few, as well as new product rollouts like its GenAI conversational assistant for its servicing platform. As ICE consolidates the market on one end-to-end platform, it will also retain a significant portion of these productivity gains, in our view, fueling strong double-digit growth once we emerge from the mortgage market bottom in 2024.

BSD Analysis:
Third Point added to ICE after initially investing during the Black Knight acquisition overhang in April 2023, seeing a re-rating opportunity from accelerating growth across the company's dominant exchange and data franchises. The fund highlights CEO Jeff Sprecher's 20-year track record of compounding organic revenue at 5% and EPS at 15% annually through strategic acquisitions and organic investment. Third Point expects AI to drive new growth opportunities across ICE's businesses, extending value creation runway. The manager is particularly bullish on ICE's Energy franchise (30% of revenue), which experienced 25% growth in 2023 driven by rising natural gas demand and LNG market globalization. Third Point sees structural tailwinds from electricity demand growth and coal-to-gas switching globally, benefiting ICE's TTF/JKM contracts central to LNG trading. The Mortgage franchise (20% of revenue) represents the only scale software vendor in mortgages, with over 50% market share in both origination and servicing software following the Black Knight acquisition. Third Point expects ICE to create a comprehensive life-of-loan platform that captures productivity gains while monetizing vast mortgage data, with early cross-sell success already evident at major clients like JPMorgan and M&T Bank.

Pitch Summary:
This quarter we added to Corpay (formerly FLEETCOR), a position we initiated in the Fourth Quarter of 2023. Corpay is a collection of network assets in the payments space, most notably a fuel card business, where the company processes fuel purchases by commercial vehicle operators, and a B2B payments business where Corpay facilitates vendor payments for midmarket clients. These two segments together make up >70% of Corpay revenues. The company is run by CEO of 24 years, Ron Clarke, who in our view has delivered an impressive track record for shareholders of 20% compounded EPS growth since going public in 2010, including 15% over the last 10 years, through a combination of revenue growth, margin expansion, and accretive capital allocation in M&A and share repurchases. Over the last five years, CPAY has seen its P/E multiple significantly de-rate from the mid-20s to ~13x as market sentiment toward the company's core fuel card business soured. Firstly, growth in the segment has slowed as the market has matured. Secondly, the rise in popularity of electric vehicles (EVs) as a theme has made investors question the terminal value of a business whose main function is to process gasoline and diesel payments. Corpay has proactively prepared for an EV transition by making acquisitions in EV charging payments and adding mixed/EV fleets to its customer base, wherein CPAY earns higher unit economics on mixed fleets than it does on pure internal combustion engine fleets. Finally, the last year has demonstrated that a transition to an electric fleet is more easily said than done. With EV sales declining for industry bellwether Tesla, European EV sales declining overall, and flattening in the US, it is becoming clear that the journey of automotive electrification will be a long one. Regarding revenue growth, we believe CPAY is at a unique juncture. While the fuel card segment slows to a more mature rate of growth, the company's B2B Payments business continues to grow at 15-20% per annum, organically. While this business came from humble beginnings in 2015 with the acquisition of Comdata, at the time $162 million and more than 10% of revenue, through what we believe was excellent execution and savvy M&A, this business segment has grown to $1.2 billion and 30% of revenue today. In the next couple years, we believe B2B Payments will overtake the fuel card segment to become Corpay's biggest business. We see this as a watershed moment for the stock, which will turn investor focus from the prior driver of Corpay's revenue growth to the next one and will reassure investors that Corpay has many years of 10%+ EPS growth ahead. From a valuation perspective, it is incredibly rare to find a high EPS growth, high margin, high ROIC company trading at such a low valuation. We screened for companies with >50% EBITDA margins, 10-year EPS CAGR of >15% and 3-year median CFROI of >15%. There are just five companies in the S&P 500 with these characteristics: Nvidia, Visa, Mastercard, MSCI and Corpay. Corpay's 13x P/E valuation in the company of these other four compounding juggernauts is remarkable. Finally, CEO Ron Clarke continues to show why, in our view, he belongs on the Mount Rushmore of capital allocators. Over the last six months, Corpay has deployed more than $2 billion in M&A and share repurchases, which together we think will be 7% accretive to 2025 earnings. We love giving our capital to seasoned operators with a track record of success and skin in the game, and we look forward to seeing him continue to create value for shareholders over the coming years.

BSD Analysis:
Third Point added to its Corpay position, viewing the payments company as significantly undervalued at 13x P/E despite exceptional fundamentals. The fund highlights CEO Ron Clarke's 24-year track record of 20% compounded EPS growth through revenue expansion, margin improvement, and accretive capital allocation. Third Point sees Corpay at an inflection point where its rapidly growing B2B Payments business (15-20% organic growth) will soon overtake the mature fuel card segment as the primary revenue driver. The manager notes that EV transition fears have been overblown, with electric vehicle adoption proving slower than anticipated, extending the runway for fuel card revenues. Third Point's screening identified only five S&P 500 companies with >50% EBITDA margins, >15% 10-year EPS CAGR, and >15% CFROI - Nvidia, Visa, Mastercard, MSCI, and Corpay - making Corpay's valuation discount remarkable. The fund praises Clarke's recent $2 billion deployment in M&A and buybacks, expected to be 7% accretive to 2025 earnings. Third Point views this as a rare opportunity to invest alongside a proven capital allocator in a high-quality compounder trading at a significant discount.

Pitch Summary:
In April, we took a position in Apple, the world's leading consumer technology franchise, with an ecosystem of 2.2 billion devices spanning a broad array of form factors including smartphones, tablets, laptops, watches, earphones, and smart home devices. Apple excels in most of these device categories, with revenue share of 50-60% in several key markets. Despite Apple's dominance as a business, its stock had become increasingly "under-owned" by institutional investors and its relative multiple had compressed toward a multi-year low. We believe that this was due to several years of stagnant earnings growth, exacerbated by more recent fears that Apple may turn out to be an AI loser. Our research led us to a different conclusion: we believe AI-related demand could drive a step change improvement in Apple's revenue and earnings over the next few years. We believe Apple's recently announced "Apple Intelligence" suite of AI-enabled smartphone features – the most compelling of which is a next-generation virtual assistant – will start driving meaningful new demand within Apple's installed base, resulting in accelerating revenue growth on two fronts. First, iPhone revenue is going to see a marked improvement because Apple Intelligence features will not be backwards-compatible with existing iPhone models, creating the conditions for a forced upgrade cycle. Second, Apple's App Store is likely to become the primary distribution platform for most new consumer-focused AI apps such as OpenAI's ChatGPT (with which Apple recently announced a partnership). We expect Apple's claim on the future economics of these apps to be substantial as it exploits its distribution advantage. We believe Apple's distribution advantage stems first and foremost from its unparalleled app ecosystem – which would be virtually impossible for any competing new technology platform to replicate given the powerful two-sided network effects linking app developers and app users. In addition, Apple has AI-specific product advantages conferred by its many years of work on proprietary silicon and data privacy. These advantages will be critical to the commercialization of an AI-enabled virtual assistant, which we believe may emerge as the first "killer app" for consumer-focused AI. And while we know little about the eventual capabilities and reach of this new offering, we believe the emergence of an AI layer on iOS will increasingly augment consumers' own agencies with those of the iPhone's AI features. If Apple can execute on this opportunity, the monetization form factors will follow and have the potential to increase Apple's earnings meaningfully. This would not only be a sharp departure from the past several years of stagnant earnings growth, but also a direct repudiation of the consensus bear case. Despite the stock's recent strong appreciation, we see room for significant upside ahead as the magnitude of this new AI opportunity surprises.

BSD Analysis:
Third Point initiated a position in Apple in April 2024, viewing the stock as undervalued despite the company's dominant market position across multiple device categories with 50-60% revenue share. The fund's thesis centers on Apple Intelligence, a new AI suite that will drive a forced upgrade cycle since features won't be backward-compatible with existing iPhones. Third Point expects Apple's App Store to become the primary distribution platform for consumer AI applications, generating substantial economics from partnerships like the recent ChatGPT integration. The manager highlights Apple's competitive moats including its unparalleled app ecosystem with powerful network effects and proprietary advantages in silicon and data privacy. Third Point believes AI will create the first "killer app" for consumer-focused artificial intelligence through Apple's virtual assistant. The fund sees this AI opportunity as a catalyst for meaningful earnings acceleration after years of stagnant growth, directly contradicting the bear case that Apple would be an AI loser. Despite recent stock appreciation, Third Point maintains significant upside potential as the AI opportunity unfolds.

Pitch Summary:
Enad also announced weak quarterly results primarily attributable to ToadMan and the timing of revenue recognition at Daybreak Games. ToadMan's underperformance was not a shock to us, given the industry-wide layoffs and numerous project cancellations this year (As a reminder, Toadman is a work-for-hire game studio). However, after the quarter, Enad took corrective action that impacted over 100 staff at Toadman, bringing it to immediate profitability. Daybreak's live service portfolio of games was a mixed bag, with both the Everquest titles outperforming our expectations while games like DC-Universe Online struggled to retain players. My Singing Monsters performed better than we expected this quarter, growing revenues sequentially, and with the game's seasonality (related to its anniversary updates), revenues for the game should be stronger in the second half of this year. Shortly after quarter end, Enad acquired the game studio Singularity 6 and their free-to-play live service title Palia. Palia is a "cozy game" where players "craft, cook, fish, and farm with friends." For those unfamiliar with the title, it'd fall into the same genre as Animal Crossing and Stardew Valley. Palia is still in early access (meaning it's incomplete) and is only available on PC and Nintendo Switch today. Enad paid $5M to acquire the company and will be investing an additional $10M to expand the game as they prepare for its official release across all platforms in 2025 (PC, Switch, Xbox, and PlayStation). Included in the acquisition is a contingent consideration where Ji Ham once again proved his ability to structure deals favorably and in a risk-averse fashion. Like the Cold Iron deal, Enad will fully recoup its $15M investment into Palia before any contingent consideration is paid. Afterward, Enad will split the cash flow from the title for five years following the closing date of the acquisition. Enad expects Singularity 6 to operate at a breakeven or slightly positive EBITDA level for the remainder of the year and to turn cash flow positive during 2025. Another development worth mentioning is that on August 16th, the movie Aliens Romulus was released in theatres to good reviews and a $100M+ box office. This bodes well for Cold Irons' upcoming Aliens title, set to release in 2025, and essentially functions as free marketing for the game. Despite the weak quarter, Enad reiterated their full-year guidance of SEK 1.8B in revenues with 22-25% EBITDA margins. Whether they hit these numbers will mostly depend upon the performance of Mech Warrior Clans, which is slated for release later this year.

BSD Analysis:
The manager remains constructive on Enad Global 7 despite weak quarterly results, attributing the underperformance to temporary factors at ToadMan and revenue timing issues at Daybreak Games. The investment thesis benefits from management's decisive cost-cutting actions that brought ToadMan to immediate profitability and the strategic acquisition of Singularity 6 for $15M total investment. The Palia acquisition demonstrates CEO Ji Ham's disciplined deal structuring, with Enad fully recovering its investment before any contingent payments and securing favorable cash flow sharing terms. The gaming portfolio shows mixed but improving trends, with Everquest titles outperforming and My Singing Monsters growing sequentially. Key catalysts include the 2025 multi-platform launch of Palia, the upcoming Aliens game benefiting from the successful Aliens Romulus movie release, and the pending Mech Warrior Clans release. Management's reiterated guidance of SEK 1.8B revenue with 22-25% EBITDA margins provides a clear performance benchmark. The combination of portfolio optimization, strategic acquisitions, and upcoming game releases supports the bull case despite near-term headwinds.

Pitch Summary:
AstroNova declined ~20% following what optically seemed to be a disappointing quarter. The top line declined ~7% y/y on a consolidated basis, with both of their segments also showing y/y revenue declines. However, pulling back the curtain reveals that the business is still trending in the right direction, and the issues plaguing the quarter were one-time in nature. Their test and measurement business experienced shipment delays from a supplier, and narrow-body aircraft production continues to be on a slow ramp. Product identification had a $4.5 million order pushed out a quarter, which led to an ~8% decline in revenues that would have instead been double-digit growth. However, despite this revenue decline, operating margins still expanded by 290bps for the segment. Furthermore, the company reiterated this year's guidance of mid-single-digit organic growth, 13%-14% EBITDA margins, and 100bps of margin expansion in each of the next two years. Before the quarter, AstroNova made a ~$26M acquisition of MTEX, a Portugal-based label, packaging, and printing solutions manufacturer. This acquisition expanded AstroNova's product lines to large format printing, direct-to-fabric printing, and direct-to-film printing, to name a few. While we don't know the exact financial breakdown of MTEX yet, older annual reports from the company point towards them potentially boasting 20%+ EBITDA margins (after adjusting from Portuguese accounting standards to GAAP). Furthermore, if we read through their website and product offerings, they utilize their own printhead and ink delivery technology, which allows them to have better control over their supply chain as well as higher margins on their ink. We would not be surprised to see AstroNova utilizing MTEX's printhead, ink, and delivery systems in their new and updated product offerings. MTEX has also been growing its topline at a very healthy double-digit clip the past few years (more than doubling revenues since 2020 while also walking away from some lower margin business), and management believes this growth trajectory will continue into future years. Based on our rough estimates, AstroNova likely paid 9x+ EBITDA and 2x+ this year's revenue for the business. Given the healthy multiples paid and the lack of information we have today, I am not assigning any additional value to this acquisition, but I believe if they can continue their double-digit growth rate, this could prove to be a highly accretive acquisition with numerous quantitative and qualitative benefits. AstroNova has been the firm's largest position since launch, but sadly, its share price performance has been lackluster, to say the least, being up only slightly from our cost basis. This is despite their EBITDA growing from $8M at the time of our purchase to $17M as of the most recent quarter. Put differently, they have more than doubled their EBITDA in less than two years, but their stock hasn't moved. Furthermore, this year's guidance implies strong margins exiting the year, and with the acquisition of MTEX, normalization of Aerospace, and the numerous cost-saving initiatives we've spoken about in previous letters, future margin levels should be materially higher than today's. We expect that AstroNova will continue to grow their topline at mid-single digits while growing the bottom line faster, leading to $30M+ of EBITDA in 2026. Based on these estimates, we believe AstroNova is trading at an incredibly undemanding valuation of less than 5.0x EBITDA and 6.0x UFCF before any incremental cash generation.

BSD Analysis:
The manager maintains a bullish stance on AstroNova despite recent share price weakness, viewing the 20% decline as a temporary setback caused by one-time issues rather than fundamental deterioration. The thesis centers on the company's strong operational progress, with EBITDA more than doubling from $8M to $17M in under two years while the stock price remained flat. The recent $26M acquisition of MTEX expands AstroNova's capabilities into large format and direct-to-fabric printing, potentially adding a business with 20%+ EBITDA margins and double-digit revenue growth. Management's guidance for mid-single-digit organic growth and 100bps of annual margin expansion over the next two years supports the investment case. The manager projects $30M+ EBITDA by 2026, implying the stock trades at less than 5.0x forward EBITDA. The combination of margin expansion, acquisition synergies, and aerospace normalization creates multiple catalysts for value realization. Despite being the fund's largest position since inception, the manager remains confident in the fundamental trajectory and valuation disconnect.

Pitch Summary:
The business is at its peak; SYM will be short of revenue expectations; overvalued (EV/EBITDA 52x vs. peer of 14x); the business model is simply a 'contract manufacturer' vs. the claimed AI-powered robotic technology;

BSD Analysis:
(Repeat entry — Symbotic). Shorts emphasize valuation risk, customer concentration (Walmart), and lumpy revenue recognition. While automation demand is secular, execution hinges on scaling beyond Walmart and stabilizing margins. With stock priced for hypergrowth, any slowdown could compress multiples. Catalysts/risk checks: backlog conversion, new large-customer wins, and gross margin trajectory.

Pitch Summary:
Alfa is our largest investment, and I wanted to provide an overview of the investment thesis to help you understand why that is the case. The quick synopsis is that it is a good business that is going through a corporate simplification process that is likely to serve as a catalyst for value realization, and which is trading at close to my Worst case value estimate and at less than half of my Base case value. In my Base case, Alfa is trading at 5x earnings or a ~ 20% Free Cash Flow (FCF) yield post-spin. Alfa has two businesses, which is down from four that it had a few years ago. The main business, Sigma, is a branded food business focused on meats and dairy and is the intended sole future business of the company. The second business, Alpek, is a commodity chemical producer with global scale in its markets. It is publicly traded and is 82% owned by Alfa. The stated intent towards which Alfa's management has been working is to spin off Alpek just as it has done in the past with its other non-core businesses. The gating factor for that event is that management wants the remaining company to be at less than 2.5x Debt/EBITDA leverage post-spin to maintain strong investment grade credit rating. Currently, excluding Alpek it would be closer to 3.5x levered. Therefore, the timing of the spin is going to be mainly determined by when leverage can be reduced to 2.5x. There are four drivers for that leverage to come down: Cash flow generated by Sigma, Growth in Sigma's EBITDA, Cash flow generated by Alpek and sent to Alfa in the form of a dividend, Sale of non-core assets that the company is pursuing, such as corporate real estate. Some of these factors are within management's control while others depend primarily on the external environment. For example, as I will discuss in a moment, Alpek's business is going through a cyclical downturn, which is depressing its profitability and the amount of cash flow it is generating. Also, to sell non-core assets there needs to be a buyer willing to pay an appropriate price. So, while there is some uncertainty as to when the spin-off of Alpek will happen, over the last several quarters I have detected an increased sense of urgency on the part of the management, both with respect to their words, and with respect to their actions. I can't pinpoint the timing of the catalyst with precision but would be surprised if it took more than two years to accomplish the deleverage and spin-off process. Let's examine Sigma, which is the whole of the intended future company, as a business. It sells branded meats (e.g. cold-cuts, sausages, etc) and milk-based products (e.g. yogurts) in four main markets: Mexico, U.S., Latin America and EU. Of these, Mexico is the largest and the most profitable. This is due to structural reasons – the company's brands are strong and its customers, such as the small local bodegas, are small and fragmented. This contrasts with the company's most challenged business in the EU where it distributes its products through large chains with much greater bargaining power. Sigma's financial characteristics support my conclusion that it is a good, growing business. It grew revenues approximately 4% per year over the last decade, and operating income at an approximately 6% rate. In the recession year of 2020 its organic sales dropped less than 2%. While that probably understates how much sales would drop in a normal recession without the COVID benefit of consumption shifting from eating out to eating at home, this is still a sign of a resilient business. Margins have been in a relatively tight range over the last ten years. Over the last three years the segment averaged an after-tax Return on Net Assets of around 35%. No, this is not a hyper-growth business, but all indications are that it is a business growing at a moderate rate with attractive financial characteristics. Qualitatively, consumers form habits for the brands of food that they eat, and so change happens slowly in the family kitchen. If you want to test this and you have kids, try to get them to eat a different brand of sausage or Ketchup! The flip side of this not being a rapidly growing business is that there is a high chance of its key characteristics remaining very similar in 10 or 20 years to what they are today. That's a good thing, as it allows us to be more confident about predicting future cash flows. The above table shows my model of Alfa once it becomes just Sigma and absorbs corporate costs. I estimate that Net Income/equity FCF will range between USD $250M and $400M with a Base Case of ~ $350M. Alpek, of which Alfa owns 82%, is its own publicly traded company that focuses on chemicals such as PET and Styrenics. It has important global positions and good scale. It is a very cyclical and capital intensive business, which also currently happens to be near its trough profitability. However, it has generated strong cash flow over the full economic cycle, and with appropriate competitive position it isn't a bad business. Nobody knows when the cycle will turn, but in recent quarters the key measure of industry profitability, reference margins per pound, has shown signs of increasing off the bottom. Importantly, Alpek has been a very cash-generative business, even in tough times. Combined with moderate financial leverage, this is not a business whose survival depends on how quickly the cycle will turn. Looking at full-cycle average levels of profitability, I estimate that Alpek is capable of generating between ~ USD $200M and $300M of annual cycle-average equity FCF. Valuing this at between 7x and 13x equity FCF with a Base case of 10x, I estimate that Alfa's 82% stake in Alpek is worth between USD $1.2B and $3.2B with a Base case of $2.1B. For reference, Alpek is currently trading at a market capitalization of $1.26B, or just above my Worst case value. This isn't unusual for a cyclical near the trough of the cycle and represents an extra source of upside once the cycle turns. Returning to Alfa, the corporate owner of both Sigma and Alpek, we get the following picture. We have a company with a market capitalization of USD $2.7B. If we were to subtract even the worst case value of Alpek, consistent with the current depressed market price, and account for the free cash flow that needs to be used to reduce debt to target levels, that would result in Sigma trading at 7x my Base case earnings/FCF. If we were to use my Base case value for Alpek, that ratio would decline to under 5x. We don't need to squint through a magnifying glass to see that the stock is very cheap almost any way that you look at it. No investment is without risk. Yes, it's a Mexican company, although one that sells its products in many countries. Yes, it's a smaller company compared to a larger peer like Hormel which is in a similar business to Sigma and trades at 20x earnings. However, we have the key ingredients for a successful investment: a good business, honest people trying to do the right thing, a catalyst on the horizon that is likely to help with unlocking value, and a very low price.

BSD Analysis:
The manager presents Alfa as the fund's largest position, emphasizing the compelling valuation at 5x earnings post-spin with a 20% free cash flow yield. The investment thesis centers on a corporate simplification catalyst, with management working to spin off the cyclical Alpek chemicals business to focus on the stable Sigma food operations. Sigma demonstrates attractive defensive characteristics with 4% annual revenue growth over the past decade, less than 2% sales decline during 2020 recession, and 35% return on net assets. The business benefits from strong brand loyalty in fragmented Mexican markets, contrasting with more challenging EU operations facing large retail chains. The manager expects the spin-off within two years as leverage reduces to target levels. At current prices, investors essentially receive Sigma at 5-7x earnings after accounting for Alpek's value, compared to peer Hormel trading at 20x earnings.

Pitch Summary:
IGT is a new small investment in the "Undervalued with a Catalyst" category. The company is comprised of two businesses: a lottery operator and a designer of new slot machine games plus related products. The former is a good, stable business with low cyclicality, high barriers to entry and switching costs but modest growth. The latter can be a good business, but is highly cyclical, very competitive and susceptible to product cycle hits and misses. IGT was already in the process of spinning off its non-lottery businesses and merging them with Everi Holdings (EVRI), when the private equity firm Apollo announced that it will be buying the combined post-spin entity. This new deal results in a much higher all-cash payment to IGT than was contemplated under the spin-off. The deal is expected to close in about a year. Following the transaction, the remaining IGT will be a pure play lottery operator with a lot of extra cash that it can use, in part, to buy back shares. The lottery business is only mildly cyclical and has withstood the introduction of new forms of online gambling. The company operates in two primary geographies, U.S., where contracts are awarded at the state level, and in Italy, where it is done nationally. My research suggests that the incumbent lottery operator is very hard to replace due to both perceived and real switching costs. No bureaucrat is going to be very excited to take on the massive career risk of something going wrong unless there is a compelling reason to do so. My understanding is that in the past decade only one major U.S. state contract has changed hands for this reason. Furthermore, this business is built around long-term contracts that expire at different times, which further mitigates the risk of something going wrong. The company's largest contract, in Italy, is coming up for renewal in 2025, which is a risk. The chances of them losing the contract are small, but there is a risk that Italy will attempt to extract additional concessions (e.g. a larger upfront payment) on the terms. This is a risk that I am monitoring, but I believe it to be manageable both in terms of magnitude and likelihood. In about a year's time, I expect us to have gotten a durable, modestly growing lottery business for under 10x earnings. That is substantially below the intrinsic value of the cash flow stream or comparable private market transactions in the industry. The downside to the Worst case scenario in which Italy's contract is lost and the U.S. business does not grow is less than 25%. This results in attractive risk/reward for a good business with a clear catalyst. While today the company is neglected due to its complexity, once it is a simple monoline business with good economic characteristics the gap between price and intrinsic value is more likely to close. If it doesn't, the company should have ample capital to buy back a meaningful portion of its shares, further increasing the intrinsic value per share for the remaining owners. In the meantime, we get to collect a 3.5%+ dividend yield while we wait.

BSD Analysis:
The manager presents a compelling catalyst-driven investment in IGT, focusing on the upcoming spin-off and Apollo acquisition that will transform the company into a pure-play lottery operator. The thesis centers on the defensive characteristics of lottery operations, including high switching costs and long-term government contracts that create significant barriers to entry. The manager's research indicates only one major U.S. state contract has changed hands in the past decade, demonstrating the stickiness of these relationships. The valuation appears attractive at under 10x earnings post-transaction for a stable, cash-generative business. Key risks include the 2025 Italy contract renewal, though the manager views this as manageable. The investment offers asymmetric risk/reward with less than 25% downside in a worst-case scenario while providing a 3.5%+ dividend yield and potential for significant share buybacks with excess cash.

Pitch Summary:
Cipher Pharmaceuticals has undergone a significant transformation with the acquisition of Natroba, a dermatology product for lice and scabies. This acquisition has doubled Cipher's EBITDA and positioned the company as a growth stock with multiple avenues for expansion, including increasing Natroba's market share in the U.S. and expanding into Canada and Europe. The company's strategic moves, including leveraging new U.S. infrastructure and potential in-house production of Absorica, suggest a strong growth trajectory.

BSD Analysis:
Cipher's acquisition of Natroba at a transaction multiple of ~7.5x EBITDA is a strategic move that has already resulted in a significant market response, with shares up 70% post-announcement. The company's pro forma EBITDA multiple has expanded to ~14x, reflecting the market's recognition of the value created. With Natroba's potential market share growth, particularly given the increasing resistance to permethrin, Cipher is well-positioned to capture significant upside. The company's strategic use of its new U.S. headquarters and sales team further enhances its growth prospects. Additionally, Cipher's improved capital structure, with a mix of cash and debt financing, supports its growth initiatives while maintaining manageable leverage. The company's focus on dermatology and potential for further acquisitions, coupled with a strong management team, positions it as a compelling investment opportunity in the pharmaceutical sector.

Pitch Summary:
Argent Industrial has been repositioning itself from a low-margin South African steel trading and commodity manufacturing business to a higher-margin, specialized niche industrial supplier internationally, primarily in the UK. The company has compounded EPS at 31.7% per annum over the past decade and FCF at 24%, while trading at 5x earnings. Despite this performance, multiples have compressed. The company has adopted an active M&A strategy, acquiring international businesses and decentralizing operations, which has allowed them to maintain cost discipline and improve purchasing. The internationalization strategy is driven by the unstable business environment in South Africa, and the company has been diversifying its operations overseas since 2017.

BSD Analysis:
Argent's management has demonstrated strong capital allocation skills, having bought back approximately 40% of shares since 2017, which has driven much of the EPS CAGR. The company maintains a strong balance sheet with minimal debt and a significant cash pile, which positions it well for future acquisitions. Risks include the potential impact of Rand depreciation on international earnings growth and the inherent risks of acquisitions, especially if the company moves into non-steel areas. However, the company's focus on becoming a purer-play light industrial manufacturing company and potential relisting to LSE/AIM could act as catalysts for a rerating.

Pitch Summary:
The company is a house of cards fueled by crypto hype; the CEO's private company provides critical items and controls the entire operations of WULF; the CEO and the second & third largest shareholders are involved in crypto scandals and fraud; missing performance estimates by 80% to 90%; the team is full of 'history of failures'; unsustainable balance sheet;

BSD Analysis:
TeraWulf focuses on Bitcoin mining using nuclear and hydro-powered facilities. The bear thesis highlights commodity-like economics of mining, dependence on BTC price, and high energy intensity despite green branding. While power sourcing is cleaner than peers, profitability is still highly leveraged to BTC price volatility and halving cycles. Debt-funded expansion and dilution risks are also present. Catalysts/risk checks: BTC price movements, mining difficulty, hash rate share, and energy input costs. Counterpoints: ESG-friendly mining narrative resonates, but shorts argue economics remain unfavorable without sustained BTC bull cycles.

Pitch Summary:
IWG plc is positioned for significant growth due to its accelerating EBITDA, robust earnings momentum, and strategic buyback program. The company is expected to outperform consensus EBITDA forecasts for 2025, driven by growth in managed and franchised revenues and a substantial buyback initiative. Trading at a low multiple of 6-7x 2025 FCF, the stock offers a compelling value proposition with potential for a substantial re-rating.

BSD Analysis:
IWG's strategic focus on managed and franchised (M&F) operations is enhancing its growth trajectory, with new locations maturing and a strong pipeline of openings. The company's EBITDA is projected to grow by 10% in 2024 and 20% in 2025, supported by a significant buyback program that could drive a re-rating from 6-7x to 15x FCF over four years. This re-rating could result in a 4-5x return, or a 55% compounded annual return. Even without a re-rating, the free cash flow per share growth, bolstered by buybacks, suggests an IRR exceeding 30%. The company's leverage strategy, targeting 1x, with potential to increase to 1.5x, aligns with industry peers like Marriott and Hilton, further enhancing shareholder returns. The potential acquisition of Wework could unlock additional synergies and growth opportunities, positioning IWG as a dominant player in the flexible workspace market. Overall, IWG's combination of value, growth, and strategic initiatives presents a compelling investment opportunity.

Pitch Summary:
Hawaiian Electric Industries is nearing a resolution for its liabilities related to the Lahaina fire, agreeing to a $1.77 billion settlement. Despite this progress, the company's shares have declined following a 'going concern' warning in its recent 10-Q. While the need for financing is clear, the risk of bankruptcy appears minimal. The utility sector's risk-return profile suggests that as existential risks are quantified and mitigated, equity value can increase. Investors should focus on the company's ability to secure necessary financing and the implications for its capital structure.

BSD Analysis:
The utility sector, akin to banking, often faces limited upside due to regulatory constraints, but significant downside risks. Hawaiian Electric's current situation underscores this dynamic, with the Lahaina fire liabilities posing a substantial challenge. However, the company's proactive approach in addressing these liabilities and the potential for financing solutions could stabilize its financial position. Investors should consider the various components of Hawaiian Electric's capital structure, including common shares, preferreds, and debt, to identify the best risk-reward opportunities. The resolution of these liabilities and successful financing could lead to a revaluation of the company's equity.

Pitch Summary:
United Bancorporation of Alabama is poised to significantly enhance its book value and earnings by repurchasing its ECIP preferred shares at a steep discount. The Treasury's potential move to allow banks to buy back these shares at a fraction of their face value presents a lucrative opportunity for UBAB. With a tangible book value of $128.4 million, repurchasing $123.75 million in preferred shares at 20% of par could result in an after-tax gain of approximately $74 million, boosting the tangible book value per share to $57.20. This accretive transaction is contingent on meeting certain lending thresholds, but UBAB's strong financial position suggests it is well-placed to capitalize on this opportunity.

BSD Analysis:
The ECIP program, initially designed to support low-income communities, has inadvertently created a windfall for participating banks like United Bancorporation of Alabama. The Treasury's discomfort with the program and its potential wind-down could accelerate the repurchase process. UBAB's ability to meet the 'deep impact' and 'qualified' lending criteria will be crucial in executing this strategy. The bank's robust capitalization and successful track record in community lending enhance its prospects of achieving these thresholds. As more banks look to extinguish their preferreds at a discount, UBAB's proactive approach could set a precedent, potentially leading to a re-rating of its stock as the market recognizes the value accretion.

Pitch Summary:
Cronos Group is positioned as a high-growth cannabis company with significant competitive advantages, including a strong brand presence with its Spinach brand and strategic backing from Altria. Despite a challenging industry environment characterized by price deflation and high excise taxes, Cronos has demonstrated impressive revenue growth and market share gains. The company's substantial cash reserves provide a margin of safety and optionality for future investments, positioning it well for long-term success as the industry matures and rationalizes.

BSD Analysis:
Cronos Group's recent performance highlights its ability to capture market share and improve operational efficiency, as evidenced by a 46% year-over-year increase in net revenue and a significant reduction in operating expenses. The company's strategic investments in GrowCo and its focus on brand development have contributed to its competitive positioning. With a robust balance sheet featuring approximately $800 million in cash, Cronos has the financial flexibility to pursue growth opportunities and withstand industry volatility. The potential for regulatory changes, such as excise tax reform, could further enhance profitability. As the global cannabis market expands, Cronos is well-positioned to leverage its early mover advantages and partnerships with major tobacco companies to capture significant market share, particularly in emerging international markets.

Pitch Summary:
Legal finance is a niche alternative asset class that typically involves an investor funding expenses associated with a legal claim (litigation or arbitration) in exchange for a portion of any ultimate award (settlement or judgement for damages). Burford Capital ("Burford") is a leading global legal finance company dual listed on NYSE and LSE with over fifty lawyer-investment professionals, a $7 billion legal finance portfolio, and experience working with every major corporate law firm to source investment opportunities. In its 15 years since inception, Burford has achieved an elite 27% gross IRR / 1.8x gross return on invested capital ("ROIC") track record on realized investments. Importantly, Burford funds commercial litigation, and does not fund consumer litigation. Consumer litigation, such as personal injury, usually involves inexperienced consumers and attracts more scrutiny from politicians, regulators, and consumer protection law. Burford relies on two sources of capital to fund its legal finance investments: (1) Burford's own balance sheet and (2) third-party capital from Burford's private funds managed for institutions. The second is easier to value because there are several asset managers with similar asset-light business models that generate attractive recurring and high-margin cash flows. But third-party asset management is a small part of Burford's value relative to its balance sheet finance segment. Burford's balance sheet funds most of its investment opportunities and is the company's major growth and profit center. Compared to an asset-light asset manager, evaluating a balance sheet finance company that specializes in legal finance is more difficult due to few comparable companies, complex accounting, lumpy cash flows, and a constant stream of news related to obscure legal cases that may or may not be important. Given its niche investment category, funding mix, and irregular cash flow profile, Burford is one of the more misunderstood companies we have studied. We believe Burford is an attractive investment opportunity because: High-quality business: Legal finance's attractive risk-adjusted returns: Burford has been able to generate attractive risk-adjusted returns in legal finance (15-year since inception track record realizing a 27% gross IRR / 1.8x gross ROIC on realized investments). These returns are strong and unlevered. Returns are also acyclical because legal finance outcomes are significantly less sensitive to economic and interest rate volatility than other assets. Long investment runway: the global legal market is large and growing. Legal finance's share of legal market spend should continue to grow due to strong customer value proposition. Corporate plaintiffs dislike typical legal compensation models that charge by hour irrespective of the case outcome; legal finance helps solve this problem by funding case costs. Law firms are attracted to legal finance providers as they reduce the number of contingency cases and enable plaintiffs to pursue litigation seen as too expensive. Intellectual property: intellectual property is a competitive advantage in legal finance. Approximately 70% of Burford's investments result in settlement. The details of a settlement are almost always private. This prevents competitors from learning about the profitability of the case and matching such profitability to its unique counterparties and legal jurisdiction. Arbitrations are also generally private. Burford's intellectual property is its deep catalog of proprietary case data that enables it to compete more effectively. Indeed, we believe this competitive advantage is slowly materializing as a greater portion of Burford's recent investments resulted favorably in settlement. High returns on equity: Burford's legal finance has produced enviable returns, but this performance requires a team of highly trained and well-compensated lawyer-investors. Compensation, administrative platform expenses, and taxes dilute Burford's strong case-level unlevered returns. However, Burford does use debt to accretively fund investment opportunities. When normalizing for the company's lumpy case profits, compensation, and accretive leverage, we believe Burford generates 25% returns on equity and has margin of safety even if go-forward returns on equity are lower. Aligned management team: Burford's management team own ~9% of outstanding shares worth $250M+. The bulk of senior management's compensation is deferred and linked to the realized performance of the company's legal finance portfolio and private funds. Asymmetric upside: in addition to its high-quality business, Burford offers asymmetric upside. Burford's largest, most profitable holding is a $16 billion judgement in U.S. courts against Argentina named the "YPF case." Burford's pro-rata share of the YPF case is $6 billion and accrues post-judgement interest at ~5% per year. The precise outcome of this highly litigated and extraordinary case is unknown given the difficulty of enforcing a judgement against Argentina. Burford will likely settle for a lower amount rather than collect the full judgement. How much lower? In our view, even a nominal settlement would be met favorably as we believe the current stock price gives the company close to zero credit for the YPF case. Argentina's new pro-capitalism leader, President Milei, understands the importance of the YPF case for attracting new investment in Argentina and publicly stated in a TV interview about the YPF case that "we have the willingness to pay." Regardless, we expect Argentina will take the YPF case to the U.S. Supreme Court to limit the Argentine presidential administration's legal liability. Milei needs to publicly demonstrate that his administration has exhausted all legal options, especially given the long history in Argentina of presidential administrations suing prior ones for their actions. Attractive valuation: we have argued that Burford is a high-quality company that generates 25% returns on equity in a normalized environment with a long runway of investment opportunities. Excluding the YPF case, we believe Burford is worth $14+ per share. The YPF case introduces uncertainty into the overall fair value estimate, so we've created a table below that sensitizes the YPF case judgement recovery against investment upside. In our view, the significant YPF case uncertainty presents a massive opportunity for long-term-oriented Burford investors. Burford investors are getting paid to wait for the ultimate YPF recovery outcome and stand to benefit from the significant interim compounding of the company's balance sheet legal finance portfolio.

BSD Analysis:
Silver Beech presents a compelling bull case for Burford Capital, emphasizing the company's dominant position in the niche legal finance market with an impressive 15-year track record of 27% gross IRR and 1.8x ROIC on realized investments. The manager highlights Burford's sustainable competitive advantages, including proprietary case data from 70% settlement rates and deep relationships with major law firms, which create barriers to entry in this specialized field. The investment thesis centers on normalized 25% returns on equity driven by the company's balance sheet legal finance operations, supported by management's significant 9% ownership stake and performance-linked compensation structure. The asymmetric upside opportunity stems from the $16 billion YPF case against Argentina, where Burford holds a $6 billion pro-rata share that the market appears to value at near zero. With Argentina's new pro-business President Milei expressing willingness to pay and the base business valued at $14+ per share excluding YPF, the manager sees substantial upside potential across various settlement scenarios. The acyclical nature of legal finance returns and the large, growing addressable market provide additional support for the long-term investment case. Silver Beech's valuation analysis suggests 7-133% upside depending on YPF case recovery rates, making this a high-conviction position with significant optionality.

Pitch Summary:
Cooper-Standard is positioned to benefit from pent-up demand in the automotive sector, leveraging its strong operating capabilities and a currently undervalued stock price. The company has shown resilience through improved earnings, better pricing strategies, and cost reductions, despite high leverage. With Moody's upgrading its debt rating, the risk of default is perceived to be lower, supporting the potential for a turnaround.

BSD Analysis:
Cooper-Standard's recent developments indicate a strategic focus on deleveraging and improving operational efficiency. The company's EBITDA margins have shown improvement, suggesting that management's efforts to streamline operations are bearing fruit. Despite a challenging macroeconomic environment, including potential softening in auto production volumes, Cooper-Standard's market share gains and margin expansion are promising. The automotive sector's dynamics, such as the aging vehicle fleet and rising dealer incentives, could drive higher production volumes, benefiting Cooper-Standard. However, high financing costs remain a barrier to new vehicle purchases, although potential interest rate cuts by the Federal Reserve could alleviate this issue. Investors should monitor macroeconomic indicators and production volume trends closely, as these will significantly impact Cooper-Standard's financial performance and stock valuation.

Pitch Summary:
Lumine Group, a spin-off from Constellation Software, reported a challenging quarter with a 25% revenue growth but a -12% organic growth. Despite the negative headline numbers, the company is strategically improving the quality of its acquired businesses. The decrease in cash flows from operations is attributed to non-cash changes, and when adjusted, shows a significant year-over-year increase. The focus on maintenance and recurring revenues, which remained stable, indicates a deliberate shift towards higher quality revenue streams. The use of contingent consideration suggests that acquired businesses are performing as expected, reinforcing the notion that the negative organic growth is part of a strategic plan.

BSD Analysis:
Lumine Group's management appears to be intentionally focusing on enhancing the quality of its acquisitions, even at the expense of short-term organic growth. The stability in maintenance and recurring revenues, despite declines in less reliable sales, supports this strategy. The company's ability to manage large acquisitions effectively is evident from the normalized cash flow growth. Shareholders' reluctance to sell and the quick buying of any dips indicate strong confidence in the company's long-term value creation. While the current allocation in the portfolio is significant, the strategic moves by Lumine suggest potential for sustained growth, aligning with shareholder expectations.

Pitch Summary:
Stagnant business growth (the main business grew 1.3% between 2019 and 23); leverage acquisitions ($2.1 bil for 8 deals, doubling Net Debt/EBITDA from 1.5x to 2.7x); disengaged CEO with little skin in the game; difficult to justify multiples, up to 80% downside;

BSD Analysis:
Zebra Technologies builds barcode scanners, RFID systems, and related software. Shorts emphasize cyclical headwinds in enterprise hardware spending, slowing replacement cycles, and margin pressure from competition. With a history of strong execution, the main bear angle is valuation vs. slowing growth trajectory and customer pushouts in cyclical verticals like retail/logistics. Catalysts/risk checks: order book trends, inventory digestion, gross margin shifts, and new product ramp (e.g., RFID). Counterpoints: Zebra has niche dominance, but shorts argue current multiples overstate durability of growth.