Investment Pitches

Pitch Summary:
The fund's top position is RCI Hospitality (RICK). RICK is the only publicly traded owner of adult nightclubs in the US. Currently they own 57 clubs across 13 states and an additional 14 sports-bar restaurants with the "Bombshells" concept. With few municipalities issuing new adult entertainment licenses these businesses function as local monopolies with excellent unit economics. There are roughly 2200 clubs across the country and RICK estimates that 500 of which would meet their criteria for acquisition. These clubs have limited potential buyers with RICK establishing themselves as the buyer of choice for any club owners looking to sell. This provides a long runway for growth. The company announced the acquisition of Platinum West Gentlemen's Club in West Columbia, South Carolina on 4/8/25. The purchase price totaled $8.0 million with $5.5 million cash and $2.5 million seller financing at 7%. This is the second club addition of the year and fits all the standard criteria of the "Back to Basics' Capital Allocation Plan" the company has committed to. The company plans to utilize 40% of free cash flow to grow with club acquisitions and the remaining funds will go towards share buybacks, debt reduction, or dividends. Deducting the price of the real estate and then dividing the purchase price by 5 we can get a baseline for the additional revenue per acquisition. Based on the target acquisition price of 3-5x EBITDA we can expect this acquisition to add $1.25MM/year EBITDA. ($8MM -$1.75MM for real estate = $6.25MM/5 max EBITDA multiple = $1.25MM EBITDA expected.) This $1.25MM would be if they paid the full 5x multiple and also if they are unable to find cost savings and other added efficiencies after taking over operations. I would guess the actual number will be closer to $2MM or $.22/share with the current 9MM shares outstanding. Using the stock's five-year average EV/EBITDA multiple of 13.74 we get a rough value of $3.02/share for this acquisition. With 500 more like it out there and limited potential buyers, the company stock price can compound for a long time with this roll-up strategy. I expect they will have more opportunities at attractive prices during a recession. The company has repurchased over 400,000 shares in 2024 alone at the average price per share of $46.55. Given the current price of $39.98 we can expect management to be more aggressive, resulting in better value for shareholders in the future. RICK also announced the success of beta testing for their OnlyFans type social media site Favoritely.com. The site was beta tested in a small number of clubs and will now be added to 15 more clubs with positive metrics on page views, subscriptions, creator accounts and customer spending. RCI has a unique offering with Favoritely.com where the site / club relationship can act as a flywheel with the site bringing in more performers and customers to the clubs and the clubs bringing more customers to the site. The traction of the social media site and the potential upside has a large value to investors that is not reflected in the stock price at this time in my opinion. RICK will continue to be the funds top position.

BSD Analysis:
The manager presents a compelling bull case for RCI Hospitality as a unique roll-up opportunity in the adult entertainment industry. The thesis centers on RICK's monopolistic positioning as the only public consolidator in a fragmented market of 2,200 clubs, with 500 potential acquisition targets and limited competition for deals. The recent $8 million acquisition demonstrates disciplined capital allocation at 3-5x EBITDA multiples, with management's "Back to Basics" plan allocating 40% of free cash flow to acquisitions and the remainder to shareholder returns. The manager's valuation analysis suggests each acquisition could add $0.22 per share in EBITDA, worth approximately $3.02 per share using historical 13.74x EV/EBITDA multiples. Share repurchases at $46.55 versus the current $39.98 price indicate management's confidence and creates additional value through buybacks. The launch of Favoritely.com represents a significant digital catalyst, creating a flywheel effect between online engagement and physical club visits that could drive substantial incremental value not reflected in current valuations. The combination of defensive moat characteristics, disciplined acquisition strategy, and emerging digital monetization creates a compelling long-term compounding opportunity.

Pitch Summary:
Our thesis on Nintendo, the Godzilla of video gaming, is quite simple. Armed with its Apple-like iterative hardware model and software-based ecosystem, as well as a growing active player base and ever-increasing digital sales, the company should generate substantial earnings growth that is decoupled from the "boom-bust" console cycles of old. As a reminder, we've held Nintendo for six years and counting, drawn initially to its absolute and relative undervaluation and fortress balance sheet, alongside its artistic culture, iconic intellectual property, consistent ability to generate high returns on capital, and historic transition from cyclical earnings to secular growth – attributes, mind you, that remain as we type despite how far the current heavyweight champion of the video game industry has come. And yet, despite all its recent success and a 39.8% return in Q2, we believe the market continues to undervalue the long-tail potential of franchises like Mario and Zelda in an expanding digital entertainment landscape, to say nothing of Wall Street's still amusing takes on next-gen hardware and software sales. We'll get to all that shortly, but what should be immediately obvious right out of the gate is Nintendo delivered a blockbuster quarter on August 1st, powered by the Switch 2's record-breaking launch. Results that, yet again, have validated both Nintendo's hybrid Apple-like console strategy and our larger investment thesis, while also demonstrating the company's pricing power and a level of global market penetration with no historical parallel. To be frank, even the "negatives" had a silver lining in Nintendo's latest report, as the temporary margin compression that hit Nintendo's financials should revert sharply as the hardware/software mix normalizes over time and the installed base effect kicks in. In any case, with the launch of the Switch 2, Nintendo began the final stage of its ongoing business model transformation. With an active playing base of 130 million+ users, the largest and most diverse integrated hardware/software ecosystem in all of gaming, over 34 million NSO subscribers, and an industry-leading (historically under-monetized) IP library that continues to shine, getting new life in a rapidly expanding number of movies, theme parks, retail stores, general merchandise licensing, and (we strongly suspect) a whole new crop of blockbuster games from its biggest franchises. In short, the future is bright and should only get better over the next several years at an absolute minimum. With the official launch of the Switch 2 behind the company, Nintendo has embarked on a new era that should see massive and consistent growth that consensus estimates continues to miss. This remains true, even today, after the single best console launch in the history of the industry. As noted in our Q1 commentary, our anticipation of blowout Switch 2 sales starting in June proved to be an understatement. Turns out the Big N sold over 3.5 million Switch 2 consoles in the first four days after its June 5th release date – and a semi-mind-blowing 5.82 million units over the 25-day period through June-end – making it the fastest-selling video game console in not just the company's history, but the industry's. And not by a little, but by a lot. In fact, to do it proper justice, it's fair to say Nintendo's new console was one of the most successful product launches in the history of consumer products and the entertainment space more generally.

BSD Analysis:
The manager presents a compelling bull case for Nintendo based on its successful transition from cyclical console cycles to a sustainable ecosystem model. The Switch 2's record-breaking launch validates the thesis, with 5.82 million units sold in 25 days representing the fastest console launch in industry history. Nintendo's 130+ million active user base and expanding digital ecosystem create recurring revenue streams beyond traditional hardware cycles. The manager emphasizes Nintendo's undervalued IP portfolio spanning movies, theme parks, and merchandise, suggesting significant monetization upside. Despite the stock's 39.8% Q2 return, the manager believes Wall Street continues to underestimate the platform's long-term growth potential. The investment thesis centers on Nintendo's Apple-like iterative model creating predictable, secular growth rather than boom-bust cycles. With strong pricing power and global market penetration, Nintendo appears positioned for sustained outperformance as the gaming ecosystem matures.

Pitch Summary:
Delivery Hero – German-listed food delivery business Delivery Hero was also a top detractor. Despite reporting inline results and upgrading its revenue guidance, the stock underperformed due to competition concerns in Korea, its largest market, and the potential entry of China's largest food delivery platform into the Middle Eastern market, starting with Saudi Arabia, a crucial and profitable market for Delivery Hero. However, there were several positive developments. The company struck a deal to sell its Taiwan business to Uber for $950 million, nearly three times the enterprise value (EV) to gross merchandise value (GMV) multiple at which Delivery Hero was trading. In other words, Delivery Hero is selling 3% of their GMV for 8% of the group's EV. This accretive transaction will help reduce financial leverage, although the market is not pricing it in until the deal closes next year after the competition review. Additionally, we are excited about board renewal activity. A credible activist shareholder took a meaningful stake and joined the board, and Prosus, another investment of ours that owns 30% of Delivery Hero, is also engaging more with the management team. We see significant opportunities for improved returns through revenue optimization, cost efficiencies, and portfolio rationalization, and we expect the renewed board to pursue these initiatives with urgency.

BSD Analysis:
Longleaf maintains a bullish stance on Delivery Hero despite competitive concerns, focusing on value-creating corporate actions and governance improvements. The manager acknowledges competitive pressures in Korea and potential Middle Eastern competition but emphasizes several positive catalysts. The Taiwan asset sale to Uber for $950 million represents exceptional value realization—selling 3% of GMV for 8% of enterprise value at nearly three times Delivery Hero's trading multiple. This accretive transaction will reduce financial leverage and demonstrate the portfolio's underlying value. Board renewal activity provides additional upside, with a credible activist joining the board and Prosus (another Longleaf holding with 30% ownership) increasing engagement with management. The manager sees significant opportunities for value creation through revenue optimization, cost efficiencies, and portfolio rationalization. The renewed board composition suggests these initiatives will be pursued with urgency. This situation represents a classic value play where corporate governance improvements and strategic actions can unlock substantial value despite near-term competitive headwinds.

Pitch Summary:
Pulmonary arterial hypertension (PAH) is a serious and potentially life-threatening lung disease whose root causes span a wide range, from hereditary factors to underlying cardiovascular health conditions to systemic diseases like HIV and connective tissue disorders. PAH impacts an estimated half a million individuals around the globe, with around 50,000 American patients currently under treatment. Liquidia Corp (LQDA) developed a product called Yutrepia, which uses treprostinil via a dry powder inhaler to treat PAH and a related disease, pulmonary hypertension associated with interstitial lung disease (PH-ILD). LQDA began the regulatory approval process for Yutrepia in 2020. This caught the attention of United Therapeutics Corp (UTHR), which had a near-monopoly on PAH and PH-ILD treatments. While Liquidia's Yutrepia was a better product than UTHR's products, the incumbent was able to delay its launch for years in the court system by alleging patent infringement. Thus, Liquidia became a special situation where the main analytical questions were not scientific or regulatory, which traditional biotech investors focus on, but rather the ultimate litigation outcome between LQDA and UTHR and then the commercial potential of Yutrepia, which fit our skill set. In September 2022, following a legal ruling that adversely affected Yutrepia's potential timeline to launch, LQDA stock fell sharply and traded in the $4-$5/share range. In the base rate, Liquidia had an 85% chance of winning its litigation war with UTHR (it's generally very difficult for biotech incumbents to defend themselves against new competitors by proving patent infringement). But LQDA's case was much stronger than the base rate: we felt the probability of LQDA prevailing in the litigation was extremely high. We also felt that once the court battle with UTHR was over, LQDA would launch Yutrepia for the treatment of PAH and PH-ILD very successfully. Given the superiority of Yutrepia, we felt the probability of LQDA taking over 50% or more of this market was high, although we knew LQDA had to clear the legal process prior to launch. Assuming LQDA splits the market with UTHR, we believe its stock could ultimately trade to ~$50/share, possibly more given that its market continues to grow. Our initial purchases in September 2022 were between $4-$5/share. While it took longer than anyone expected, LQDA ultimately prevailed in court. The legal process is now largely behind them, and Yutrepia is set to launch in May 2025. LQDA shares have performed well so far in 2025, as the company released data at the JP Morgan conference in January, further confirming what investors have always believed - that LQDA has superior products to UTHR. We believe an outcome similar to Verona's is possible for Liquidia. Verona's share price has more than tripled since their product launch in August 2024. We think LQDA could double this year, and then more than triple over the next few years as Yutrepia begins to prove its potential as a new and disruptive blockbuster drug. We think the possibility of Liquidia being acquired after they launch is reasonable, and would not be surprised if they were acquired in the next 2 years.

BSD Analysis:
Buckley Capital presents a sophisticated special situations investment in Liquidia Corporation, demonstrating expertise in litigation-driven biotech opportunities rather than traditional drug development risk. The manager identified a compelling asymmetric opportunity when LQDA traded at $4-5 per share in September 2022, following adverse legal rulings in its patent dispute with incumbent United Therapeutics. The investment thesis centered on superior litigation odds (85% base rate success for challengers, with LQDA's case being even stronger) and Yutrepia's product superiority in treating PAH and PH-ILD affecting 50,000 US patients. Buckley's analysis focused on commercial potential post-litigation victory, estimating 50%+ market share capture could drive the stock to ~$50, representing 10x+ upside from entry levels. The legal victory has materialized as expected, with Yutrepia launching in May 2025 and positive clinical data confirming product superiority. The manager draws parallels to Verona Pharma's successful launch trajectory, expecting LQDA to double in 2025 and potentially triple over subsequent years, with acquisition potential adding further upside optionality in this growing market.

Pitch Summary:
S&P Global Inc. (SPGI) -3.4%, was a laggard in the first quarter. SPGI's credit ratings play an important role in the financial system worldwide. Fixed income investors value the ratings SPGI assigns, as it helps them assess risk and properly price assets. Debt and bond issuers value the ratings SPGI assigns as it lowers their financing costs even after accounting for rating agency fees. SPGI's expertise has been built up over many decades, and despite repeated attempts, the credit rating duopoly of SPGI and Moody's has proven nearly impossible for newcomers to disrupt. In addition to overcoming the incumbents' existing network effect, regulations require emerging competitors to have a nationally recognized statistical rating organization (NRSRO) designation from the Securities and Exchange Commission (SEC). SPGI's wide moat (scale, brand, network effects) in credit ratings gives the firm strong pricing power. The company typically increases the price of its ratings by 3-4% per year. However, credit ratings are cyclical, as revenues rely on new debt and bond issuance volumes across capital markets. Following years of strong issuance when interest rates were at historical lows, SPGI has seen a falloff in volumes over the past two years. The good news is that while debt issuance can experience short-term downturns, corporations cannot hold off on issuing debt indefinitely. Over the next five years, an estimated $12 trillion of corporate debt will mature (up +11% compared to 2022), creating a large volume of new debt issuance that SPGI will be requested to rate. When combined with steady growth in SPGI's data-driven Indices and Market Intelligence unit, we remain highly confident that the reacceleration of debt issuance across the globe will result in strong returns for SPGI over the coming years.

BSD Analysis:
Despite SPGI's -3.4% quarterly underperformance, GreensKeeper maintains a bullish long-term outlook based on the company's entrenched competitive position and cyclical recovery prospects. The manager emphasizes SPGI's critical role in global financial markets, where both debt issuers and investors rely on its credit ratings for risk assessment and pricing. The firm's decades-built expertise and regulatory barriers (NRSRO designation requirements) create an effective duopoly with Moody's that has proven resilient against disruption attempts. GreensKeeper highlights SPGI's pricing power, evidenced by consistent 3-4% annual rate increases, supported by strong network effects and brand recognition. While acknowledging the current cyclical downturn in debt issuance volumes following the low interest rate environment, the manager views this as temporary. The compelling catalyst is $12 trillion in corporate debt maturities over the next five years (11% increase from 2022), which will drive substantial refinancing activity and rating demand. Combined with steady growth in the higher-margin Indices and Market Intelligence segments, this debt maturity wave positions SPGI for strong returns as issuance volumes normalize.

Pitch Summary:
Eurofins – The global leader in laboratory testing and services Eurofins detracted for the quarter. The company had a relatively quiet quarter until the final week of June when the share price fell over 20% following a short report by Muddy Waters. Eurofins has since issued a rebuttal. Our pre-investment analysis had already examined the key issues raised in the report, reaffirming Eurofins as one of our top investments. While frustrated by the timing, Eurofins must wait until it reports its first-half results in late July to respond with tangible actions. However, the company and its controlling shareholder/CEO have indicated they may consider significant share purchases if current prices persist. Despite the short-term setback, our long-term outlook on Eurofins remains positive. The short report may ultimately prove beneficial, as Eurofins is now looking to find a finite solution for one of the core issues raised, the historic related party transactions, all over a decade ago, that left the founder and controlling shareholder as a significant landlord for the group. They are also revisiting capital allocation priorities, which may result in larger near-term returns to shareholders.

BSD Analysis:
Longleaf maintains unwavering conviction in Eurofins despite the Muddy Waters short attack, viewing the 20% price decline as an overreaction that creates additional value. The manager's confidence stems from thorough pre-investment due diligence that already examined the issues raised in the short report, reinforcing their view of Eurofins as a top investment. Management's indication of potential significant share purchases at current prices demonstrates strong insider conviction and shareholder-friendly capital allocation. Longleaf sees the short report as potentially beneficial, forcing management to address historic related party transactions from over a decade ago and revisit capital allocation priorities toward larger shareholder returns. The company's position as the global leader in laboratory testing and services provides a strong competitive moat. The manager's frustration with timing rather than fundamentals suggests they view this as a temporary setback in a high-quality business. This situation exemplifies classic value investing—maintaining conviction when short-term market volatility creates attractive entry points in fundamentally sound companies.

Pitch Summary:
Verona Pharma plc (NASDAQ: VRNA) has developed a product called ensifentrine (Ohtuvayre), a bronchodilator and anti-inflammatory agent for maintenance treatment of COPD. COPD, more commonly known as smoker's lung, is caused by pollution or smoking. Diagnosis of COPD lowers life expectancy by approximately 6 years. Symptoms of COPD are shortness of breath, cough, wheezing, and sputum. COPD affects approximately 400 million people worldwide, with 8.6m people treated in the United States. We began following VRNA after the science had been de-risked in late 2022. We believed at the time that VRNA had a novel mechanism in COPD, a disease with no incremental new therapy in the last 20 years. We and others believed VRNA would likely be bought out, which ultimately did not happen. VRNA thus became an "anti-merger arbitrage" special situation stock, with high turnover in its shareholder base: In the lead-up to Verona's FDA approval (PDUFA) date in June 2024, the stock declined sharply from the low $20s to $12. Initial consensus estimates for VRNA peak sales were around $1-$1.5bn, which we believed were far too low: Roughly 50% of the 8.6m COPD patients in the US are still symptomatic, or 4.3m people. We thought ensifentrine could capture 10%+ market share given that roughly 60% of COPD patients are seen by 3,000 clinicians. Our market share estimate was also well in line with precedent drugs, given that currently there are 3 different COPD therapies with 10% market share or greater. All in, we believed $4.5bn in peak sales was realistic, significantly ahead of consensus. A business like Verona can earn a 50%+ EBITDA margin, and so we believed we were potentially buying Verona below 1x EBITDA looking ~5 years out. At that point, in late May and early June 2024, we made VRNA a low-single digit position. We estimated that we were paying ~1x forward earnings if the drug was successful, which could generate a 10x return or greater. We also thought there was a very high probability of the drug being successful, creating a very asymmetric investment. Fast forward to today, the launch has gone extremely well, and VRNA is now trading up substantially since the launch. We still think there is significant opportunity from here as the launch has exceeded all expectations, and it is possible our estimate of earnings proves conservative.

BSD Analysis:
Buckley Capital presents a compelling bull case for Verona Pharma based on superior market opportunity analysis and successful commercial execution of ensifentrine for COPD treatment. The manager identified a significant disconnect between consensus peak sales estimates of $1-1.5 billion and their proprietary analysis suggesting $4.5 billion potential, driven by a large addressable market of 4.3 million symptomatic US COPD patients and concentrated prescriber base. The investment thesis was built on ensifentrine representing the first novel COPD mechanism in 20 years, targeting a disease with 400 million global patients and significant unmet medical need. Buckley capitalized on technical selling pressure ahead of FDA approval, establishing a position around $12 when the stock declined from the low $20s due to failed buyout expectations. The manager's asymmetric risk-reward analysis proved prescient, estimating 1x forward earnings entry with 10x+ return potential and high probability of success. Since the August 2024 launch, the drug has exceeded expectations and the stock has tripled, validating Buckley's contrarian market sizing analysis and demonstrating their expertise in healthcare special situations investing.

Pitch Summary:
Merck & Co (MRK) +21% was our third largest contributor in the quarter. MRK's performance was primarily driven by the recent FDA approval for Winrevair, one of its pipeline therapies. Winrevair is set to launch as the first disease-modifying treatment for pulmonary arterial hypertension (PAH). PAH is a rare, rapidly progressing disease in which the blood vessels narrow in the lungs, increasing blood pressure and leading to heart failure. It affects roughly 40,000 people in the US alone, with a high fatality rate. Winrevair is the first drug that targets the root cause of PAH and has shown improved pulmonary function along with a reduced occurrence of fatalities or worsening events during clinical trials. Beyond the significant societal benefits, the Winrevair approval is an important milestone in protecting MRK's revenues in the coming years. Large drug manufacturers like MRK generate most of their profits from therapies during the post-approval phase while they are still under patent protection. With the Keytruda® patent cliff looming in 2028, the Winrevair approval positions MRK to make up for a significant portion of that future revenue loss.

BSD Analysis:
GreensKeeper's bullish thesis on Merck centers on the transformative potential of Winrevair, the first disease-modifying treatment for pulmonary arterial hypertension (PAH). The manager emphasizes both the humanitarian impact and commercial significance of this breakthrough therapy, which addresses a rare but fatal disease affecting 40,000 Americans with limited treatment options. Winrevair's first-in-class status and demonstrated clinical efficacy in improving pulmonary function while reducing fatalities positions it for substantial market penetration and pricing power. Strategically, the FDA approval addresses a critical concern for MRK investors: revenue diversification ahead of the Keytruda patent cliff in 2028. The manager views Winrevair as a key component in offsetting the anticipated revenue decline from Merck's blockbuster oncology franchise. This pipeline success validates MRK's R&D capabilities and drug development expertise, suggesting potential for additional breakthrough therapies. The combination of immediate commercial opportunity and long-term patent protection provides a compelling investment case for sustained revenue growth and market outperformance.

Pitch Summary:
We are very excited about our investment in Basic Fit today. Basic Fit is the largest owner of low cost gyms (similar to Planet Fitness in the US) in Europe. Basic Fit has an absolutely dominant position in the space, with over 1,600 gyms in France, Spain, the Netherlands, Belgium, Luxembourg, and Germany. Basic Fit is larger than all of its smaller competitors combined. At maturity, a Basic Fit gym earns 30%+ ROIC and in some geographies over a 40% EBITDA margin. This is truly a dominant and very well positioned business. Basic Fit is well positioned in this macroeconomic environment, with little to no exposures to tariffs. We also believe that Europe is likely to have significant fiscal expansion to support its economies, and so as a region, we are bullish on Europe. This is showing in Basic Fit's data, with a very strong start to 2025 in their important January and February joiner season. We believe they have turned the corner and have several strong years ahead of them, and as they begin to beat investor expectations, the stock should rerate significantly. Recently, Basic Fit decided to invest in opening up its gyms in France 24 hours a day, 7 days a week. This investment cost them 35m euros, which surprised the market in March because they guided below consensus expectations for 2025. We believe strongly in this investment, for a few reasons. Firstly, the entire 35m euro cost is additional staffing, which we believe will only be temporary in nature. There is a French law prohibiting gyms from being run staffless overnight, and this is currently being litigated in the court system, and we believe the law now has a good chance of being overturned. If that were to happen, Basic Fit would get all the benefit of their gyms being open 24/7 and the entire 35m euro cost goes away. In a less optimal but still positive outcome, Basic Fit can roughly halve their staffing cost by switching from contractors to full time employees. They are employing more expensive contractors today because they believe they will ultimately be able to run these gyms without staff, and it is difficult to terminate full time employees in France. They do not want that liability if they are able to go without staff. So they are temporarily using higher cost contractors until they get clarity on whether they will be able to run them without staff. What this means in practical terms is that 2026 consensus numbers are far too low. Consensus EBITDA assumes the 35m euro investment stays forever, which will not be the case. This leads to significantly lower FCF/share expectations for 2026. We think the stock is worth north of 50 euros per share today and that they have set themselves up to start beating and raising vs. expectations, which should get the stock going in the right direction. Historically, they traded at 15-30x FCF and 9-13x EBITDA, which would lead to prices 200%+ higher just on today's numbers, and the business is still growing double digits.

BSD Analysis:
Buckley Capital presents an enthusiastic bull case for Basic-Fit as Europe's dominant low-cost fitness operator with significant operational leverage and misunderstood near-term investments. The manager emphasizes the company's market-leading position with over 1,600 gyms across six European countries, generating exceptional unit economics with 30%+ ROIC and up to 40% EBITDA margins at maturity. The investment thesis hinges on a temporary margin compression from a €35 million investment in 24/7 operations in France, which Buckley views as strategically sound but misunderstood by consensus. The manager expects this cost to be eliminated or significantly reduced through either regulatory changes allowing unstaffed operations or cost optimization through employment structure changes. Buckley believes 2026 consensus estimates are too conservative, failing to account for the temporary nature of these costs and the strong operational momentum evidenced by robust January-February membership growth. With historical trading multiples of 15-30x FCF and 9-13x EBITDA, the manager sees potential for 200%+ upside from current levels, setting a €50+ price target while the business continues double-digit growth.

Pitch Summary:
Bio-Rad – Life sciences company Bio-Rad was the top detractor in the quarter. The company was one of our new investments last year, and so far, we have been early on our expectations for their life sciences business to return to more normal pre-COVID growth trends. We still believe that growth tailwinds are delayed, not derailed, and there have been no new material threats to Bio-Rad's competitive position since we established our position last year. We are encouraged by the company's use of a strong balance sheet to repurchase shares opportunistically. Current margins are below peer levels, suggesting potential for improvement, thereby further increasing FCF per share. The market also continues to undervalue their multi-billion-dollar stake in Sartorius. We anticipate Bio-Rad will return to solid growth. Many of its peers are valued as if this growth is already occurring, even in this tough industry environment. While we can't predict the exact timing, we believe this recovery will happen sooner than the market expects.

BSD Analysis:
Despite Bio-Rad being a top detractor, Longleaf maintains strong conviction in their bull thesis, viewing recent weakness as a timing issue rather than a fundamental problem. The manager acknowledges being early on their expectation for the life sciences business to normalize post-COVID but emphasizes that growth tailwinds are delayed, not derailed, with no new competitive threats emerging. Bio-Rad's opportunistic share repurchases using a strong balance sheet demonstrate disciplined capital allocation during the downturn. The company's margins currently trail peer levels, suggesting significant improvement potential that would further enhance free cash flow per share. Longleaf highlights the market's continued undervaluation of Bio-Rad's multi-billion-dollar Sartorius stake as an additional value component. The manager's confidence stems from peer valuations that already reflect growth recovery while Bio-Rad trades at a discount despite similar fundamentals. This contrarian position reflects classic value investing—buying quality companies during temporary setbacks when the market overreacts to near-term challenges.

Pitch Summary:
Behind all of this is Nvidia. Supply is tight and it is playing kingmaker, trying to commoditise its largest customers while cultivating a new class of vertically integrated partners. Nvidia is aligned with Oracle and holds equity in CoreWeave. It wants its chips deployed visibly and at scale. So far, it is getting its way. For hyperscalers, the logic of custom silicon is clear. Nvidia's pricing power is real and inference costs are spiralling. ASICs offer lower cost, better integration, power efficiency, and more control. But while this sounds ideal on paper, it is hard to deliver in the real world. Custom chips work best when workloads are stable and scale is extreme. AI is neither. Models have evolved quickly, shifting, for example, from transformers to diffusion, and from instruction-tuned to multimodal. Fixed-function chips, by design, are not built to adapt. If the model shifts, their value evaporates. As one expert put it, "If you spend all this money building something and then you find out the workload changes underneath you, you're basically stuck." GPUs hedge that risk. They are flexible, programmable, and updatable. Moreover, Nvidia's integration across chips, software, and networking, plus its ability to deliver everything from servers to full data centres, delivers a coherence and efficiency few can match. Its annual product cadence also means that the cost of switching keeps rising. Nvidia's NVLink, its high-bandwidth interconnect, underpins training at scale, where GPUs must coordinate across racks. NVLink Fusion, announced this year, may extend that advantage by letting custom chips plug into Nvidia's system rather than replace it. However, many inference tasks can be handled independently, one GPU at a time. That lowers the importance of networking, and with it, Nvidia's edge in tightly integrated systems. This has given AMD a window to become more than a second source. Its MI300X is now deployed at Microsoft, Meta, Oracle, and Dell. In some inference workloads, it beats Nvidia's H100. As one expert put it, "ROCm used to be a science project. Now we're finally seeing it run real workloads." AMD plans to ship full-rack MI400 systems next year. It still trails in training, but inference gives it a real wedge into the market. AMD is also leaning into openness. ROCm is open source, its interconnects run over Ethernet, not proprietary links, and it is sticking with x86 CPUs. That may appeal to buyers wary of lock-in or reluctant to cross-compile for ARM. Demand for alternatives is real. But for now, Nvidia still sets the pace. Its software remains unmatched. As one expert put it, "CUDA is Nvidia's real moat... Even if someone came along with a better chip, you'd need years to match their [ecosytem]". It also continues to deliver system-wide. "What you're really buying is the whole platform, software, networking, orchestration. It's not just a GPU anymore." As another expert put it, "What customers want is predictability. Nvidia delivers systems that just show up, plug in, and scale. Nobody else can say that." One final advantage is Nvidia's lock on leading-edge capacity at TSMC, a key enabler of power efficiency and performance. AMD and even well-funded ASIC efforts often find themselves waiting in line. That said, the risks are real. Nvidia's growth is tied to hyperscaler capex, which can freeze or shift quickly. ASICs pose a threat in stable, high-volume use cases like video, recommendations, and edge inference. And while Nvidia dominates training, demand may plateau as models get smaller and more efficient. Much of its strength also reflects the fragility of its partners. If OpenAI slows, CoreWeave stumbles, or pricing pressure builds, Nvidia's leverage could erode.

BSD Analysis:
The manager presents a nuanced bull case for NVIDIA while acknowledging significant competitive risks. NVIDIA's dominance stems from its comprehensive platform approach, combining hardware, software (CUDA), networking (NVLink), and full system integration that competitors cannot match. The company's flexibility advantage over custom ASICs is crucial as AI workloads evolve rapidly, making fixed-function chips obsolete when models shift. NVIDIA's software ecosystem remains its strongest moat, requiring years for competitors to replicate. However, the manager identifies real threats: AMD is gaining traction in inference workloads with competitive products, custom ASICs could capture stable high-volume applications, and NVIDIA's growth depends heavily on volatile hyperscaler capex spending. The company's strategic partnerships with Oracle and equity stake in CoreWeave demonstrate its effort to diversify beyond traditional customers. While NVIDIA maintains technological and ecosystem leadership, the manager suggests its dominance could erode if key partners stumble or pricing pressure intensifies.

Pitch Summary:
Our second largest contributor in the first quarter was American Express (AXP) +21.5%. AXP has been owned by the Value Fund since 2015, and we increased the size of the position in September when the stock was trading significantly below our estimate of intrinsic value. AXP's high spend, high cardholder reward formula has long been attractive to affluent consumers. The company's customers spend considerably more than users of competing card networks, allowing AXP to charge merchant rates that match or exceed those of Visa and Mastercard. AXP has had success with its model for decades, but last year, investors became skeptical that the American Express brand would resonate with younger generations. Investors were also worried about the loss of market share due to aggressive offerings from competing card issuers in the premium segment (e.g., J.P. Morgan's Chase Sapphire Reserve card). Despite the emergence of formidable competitors in the premium category, AXP demonstrated the resiliency of its model in 2023, growing revenues by 14% and cards in force by 6.5%. Notably, most of the card growth was attributable to Millennial and Gen Z consumers. As these younger generations advance in their careers, AXP will capture a portion of their growing spend. We believe AXP has a long runway of profitable growth ahead of it, which should translate into strong shareholder returns for the foreseeable future.

BSD Analysis:
GreensKeeper demonstrates strong conviction in American Express, having held the position since 2015 and opportunistically adding shares when the stock traded below intrinsic value in September. The manager's thesis centers on AXP's unique business model that attracts high-spending affluent consumers, enabling premium merchant fee pricing that rivals Visa and Mastercard despite market share concerns. The fund addresses investor skepticism about younger generation adoption by highlighting strong 2023 performance metrics: 14% revenue growth and 6.5% increase in cards in force, with most growth driven by Millennial and Gen Z consumers. This demographic shift validates the brand's enduring appeal across generations and positions AXP to benefit from these consumers' rising income trajectories. The manager views competitive threats from premium offerings like Chase Sapphire Reserve as manageable, given AXP's demonstrated resilience and differentiated value proposition. The long-term growth runway supported by demographic trends and spending power expansion reinforces the bullish outlook for sustained shareholder returns.

Pitch Summary:
Dentalcorp is a business we have owned for over two years now. Dentalcorp will nearly double its free cash flow per share from 2022, when we first invested, through the end of 2025. Dentalcorp is the largest owner of dentist offices in Canada. We were attracted to the model because of the consistency of dental practices through a variety of economic environments. We also like Dentalcorp because it has less leverage than all of its private equity owned peers, while at the same time also outgrowing all of its competitors in Canada. Dentalcorp is the acquirer of choice for independent dentist practice owners, having acquired the largest number of practices in Canada. Dentalcorp also has a 90% partner dentist retention rate since inception in 2011. Dentalcorp has 1,850+ dentists, 2,600+ hygienists, and 5,750+ auxiliary dental health professionals across Canada. The average age of partner dentists is in their early 40s at the time of acquisition, allowing for continued growth within the practice. Partnering with Dentalcorp allows dentists to focus on what they love - their team and their patients - instead of having to worry about managing a business. Dentalcorp has a cash-pay model. Most patients pay directly at the time of service, and then either the patient or Dentalcorp submits a claim to the insurance company, and then the patient gets reimbursed. This gives the business neutral to negative working capital, with limited exposure to insurance companies or government pay. Dentalcorp has a 4%+ medium term target for same practice revenue growth. They also expect to average 30-35m of annual acquired PF adjusted EBITDA, which they have done since 2018. The synergies when acquiring a practice are a 10-15% increase in practice level EBITDA margin immediately following acquisition as well as visit frequency increases of 10-15% post-acquisition. The revenue synergies are driven by an expansion of specialty service offerings following acquisition. The cost synergies are driven by better labor management, national vendor procurement with preferred supplier pricing, and a tech enabled platform driving financial efficiencies. We also like DNTL because it is rare to be able to acquire a business with acyclical revenues and profits with a large addressable market where they are the market leader, have little competition, and trades at less than 10x FCF. Typically, businesses of this nature trade at over 20x FCF.

BSD Analysis:
Buckley Capital presents a compelling bull case for Dentalcorp as a defensive, cash-generative consolidator in the fragmented Canadian dental market. The manager highlights the company's dominant market position as Canada's largest dental practice owner with over 1,850 dentists and strong competitive moats including high dentist retention rates (90%) and proven acquisition synergies. The investment thesis centers on Dentalcorp's recession-resistant business model with acyclical revenues, negative working capital from cash-pay operations, and limited exposure to insurance reimbursement risks. Key financial metrics support the bullish stance, with management targeting 4%+ same-practice revenue growth and 30-35 million in annual acquired EBITDA, while delivering 10-15% EBITDA margin improvements and visit frequency increases post-acquisition. The valuation appears attractive at less than 10x free cash flow compared to typical 20x+ multiples for similar defensive businesses. Buckley expects free cash flow per share to nearly double from 2022 to 2025, making this a core holding positioned for steady growth regardless of economic conditions.

Pitch Summary:
FedEx – Global logistics company FedEx contributed for the quarter. Late in the quarter, FedEx reported strong fiscal year results, highlighting a year of strong cost management in a challenging revenue environment. Earnings per share (EPS) increased by 19%, and reduced capital expenditures narrowed the gap between EPS and FCF per share. With the increase in FCF, the company has become a significant share repurchaser, which is a welcome change. The company also announced a strategic review of their Freight segment. Our appraisal has long accounted for the underappreciated value in FedEx's less-than-truckload operations. A potential spin-off or sale could unlock substantial value, as comparable companies like Old Dominion trade at significantly higher multiples on revenue, cash flow, and earnings than those applied to FedEx Freight by the market and our appraisal today.

BSD Analysis:
Longleaf maintains a bullish view on FedEx, highlighting the company's successful cost management and capital allocation improvements in a challenging operating environment. The manager emphasizes FedEx's strong fiscal year performance with 19% EPS growth despite revenue headwinds, demonstrating operational discipline and efficiency gains. Reduced capital expenditures have improved free cash flow conversion, enabling FedEx to become a significant share repurchaser—a positive shift in capital allocation strategy. The strategic review of the Freight segment represents a potential value catalyst, as Longleaf believes the less-than-truckload operations are significantly undervalued by the market. Comparable companies like Old Dominion trade at substantially higher multiples, suggesting a spin-off or sale could unlock meaningful value. The manager's long-standing recognition of this hidden value positions them well for potential corporate actions. FedEx appears to be executing a value-creating strategy through operational improvements and strategic portfolio optimization.

Pitch Summary:
The largest contributor to portfolio returns in the first quarter was Berkshire Hathaway (BRK.A/B) +17.9%. Berkshire continues to compound intrinsic value, with operating earnings increasing by 21% in 2023. The benefits of owning a diversified collection of high-quality businesses were evident at Berkshire throughout the year. Given Berkshire's size and diversification, it comes as no surprise that a few of the company's segments are facing challenges. Berkshire's railroad operations are seeing declining railcar volumes while employee wages continue to rise, resulting in a 14% decline in operating earnings for the segment during the year. The Utilities and Energy segment also had a challenging year driven by losses relating to wildfires in Oregon and Northern California. On the positive side, Berkshire's insurance segment had an exceptional year, with a strong rebound in underwriting profitability and rising investment income at GEICO. Berkshire's diversified portfolio allows the company to consistently compound its earnings power year-over-year. Bolstered by over $163 billion in cash available to acquire additional quality businesses or repurchase its own stock, BRK remains our top holding in the Value Fund.

BSD Analysis:
GreensKeeper maintains a bullish stance on Berkshire Hathaway, emphasizing the conglomerate's ability to compound intrinsic value despite facing headwinds in certain segments. The manager highlights Berkshire's 21% operating earnings growth in 2023 and the resilience provided by its diversified business portfolio. While acknowledging challenges in railroad operations (14% earnings decline due to lower volumes and rising wages) and utilities (wildfire-related losses), the fund focuses on the exceptional performance of the insurance segment, particularly GEICO's improved underwriting profitability. The manager views Berkshire's $163 billion cash position as a significant strategic advantage for future acquisitions or share repurchases. This substantial war chest, combined with the company's proven ability to consistently compound earnings across economic cycles, reinforces GreensKeeper's conviction in maintaining BRK as their largest holding. The diversification benefit and Warren Buffett's capital allocation expertise continue to drive the investment thesis.

Pitch Summary:
Underpinning all of this is one constant. TSMC remains the lynchpin of the AI compute stack. Every major chip, whether merchant or custom, still runs through its fabs. No other foundry comes close on yield, throughput, or consistency. If anything, TSMC's importance has deepened further, thanks to its own initiative and its competitors' fumbles. In mid-2024, it unveiled its "Foundry 2.0" strategy, redefining its role beyond traditional manufacturing to include advanced packaging, testing, mask-making, and other services vital to advancing Moore's Law as transistor density gains slow. By integrating all these aspects of chip design, TSMC can deliver better results for its customers and become even more indispensable. Nowhere was that shift more visible than in 2024, when TSMC's 2.5D CoWoS packaging became a chokepoint. Nvidia's Blackwell hit thermal limits not because of bad silicon, but because packaging couldn't keep up. TSMC is doubling CoWoS capacity, but the episode showed how sensitive the stack has become. Of course, TSMC continues to push the limits of manufacturing. Its new N2 process marks a major shift beyond the long-dominant FinFET design to Gate-All-Around, a new structure that offers better control over how electricity flows through each transistor. That means less leakage, less heat, and more room for clever design. These gains don't come from adding more EUV steps, which have held steady. Instead, they come from smarter layouts, better materials, and structural innovation. The result is higher performance using less power, which is exactly what matters in AI. TSMC's lead here is real. Intel's 18A isn't in meaningful production. Samsung's SF2 is still proving itself. Both have roadmaps, but TSMC has the track record - and reputation for customer service. It protects IP, delivers yield, and hits tape-outs. As one customer put it, "They're boring and they never screw you. That's worth more than 3 per cent better performance." In response to geopolitical risks, TSMC committed to overseas expansion several years ago. This is now bearing fruit, with commercial production underway in Arizona and Kumamoto. These fabs won't match Taiwan on cost, but customers are willing to pay a premium for the security of supply. Arizona is expected to produce N2 and A16 chips by late 2025, helping anchor future demand. The risk is complacency, from investors assuming this lead is permanent, or from TSMC assuming no one can catch up. CoWoS is not the only game in town. Intel and Samsung are investing heavily in packaging. If AI shifts toward smaller, cheaper, more distributed models, bleeding-edge demand could ease. But that has not happened yet. Today, TSMC remains the best mix of power, integration, and execution at scale. No matter what kind of chip or who's designing it, all roads still lead to TSMC.

BSD Analysis:
The manager presents a strong bull case for TSMC as the indispensable lynchpin of the AI compute stack. TSMC's dominance has actually deepened through its 'Foundry 2.0' strategy, expanding beyond traditional manufacturing into advanced packaging, testing, and mask-making services. This vertical integration makes TSMC even more critical as Moore's Law slows and packaging becomes a bottleneck, as demonstrated when TSMC's CoWoS packaging constrained Nvidia's Blackwell chips. The company's technological leadership continues with its N2 process featuring Gate-All-Around transistors, delivering better performance and power efficiency than competitors. TSMC's reputation for protecting IP, delivering yield, and hitting production targets gives it a decisive advantage over Intel and Samsung. Geographic diversification through Arizona and Kumamoto fabs addresses geopolitical risks while maintaining technological leadership. The manager views TSMC as having a permanent competitive moat in an increasingly complex and capital-intensive manufacturing environment.

Pitch Summary:
Prosus – Global consumer internet group Prosus contributed for the quarter. Nearly 80% of Prosus's net asset value (NAV) comes from its stake in Tencent, which saw improved trends in gaming and advertising. Profits grew much faster than revenue due to a shift towards higher-margin revenue streams. Tencent continued its significant share repurchases aiming to buyback HK$100 billion worth of shares this fiscal year. Additionally, Prosus achieved profitability in its consolidated e-commerce portfolio while maintaining strong top-line growth, marking an important milestone that demonstrates management's focus on profitable growth rather than growth at any cost. Most importantly, capital allocation has shifted towards shareholder returns, with Prosus buying back 22% of its float over the last two years, resulting in material NAV per share accretion.

BSD Analysis:
Longleaf presents a compelling bull case for Prosus, emphasizing the company's transformation toward profitable growth and shareholder-friendly capital allocation. The manager highlights that 80% of Prosus's NAV derives from its Tencent stake, which is benefiting from improved gaming and advertising trends with accelerating profit growth driven by higher-margin revenue streams. Tencent's aggressive HK$100 billion share buyback program further enhances value. Prosus has achieved a critical milestone by reaching profitability in its consolidated e-commerce portfolio while maintaining strong revenue growth, demonstrating disciplined management execution. The most compelling aspect is Prosus's capital allocation shift, with the company repurchasing 22% of its float over two years, creating material NAV per share accretion. This combination of operational improvements at Tencent, e-commerce profitability, and aggressive shareholder returns positions Prosus as an attractive value play in the global consumer internet space.

Pitch Summary:
Tencent, once behind, is catching up fast. Its Hunyuan model now runs across WeChat and Tencent Meeting—powering translation, summarisation, content creation, and search. For specialist tasks, it taps DeepSeek in a modular, mix-and-match approach. Like Meta, Tencent prioritises scarce compute for internal use, not resale. AI is already lifting Tencent's revenues: ads are more targeted, multiplayer online games are using AI to onboard and retain users, and digital assistants are being deployed across enterprise services. The next big step is a native agent inside WeChat - not a general-purpose chatbot, but a vertically integrated assistant tied to Mini Programs, payments, and the social graph. With so much already embedded in WeChat, that will be a hard product to copy.

BSD Analysis:
The manager presents a compelling bull case for Tencent based on its rapid AI integration and unique ecosystem advantages. Tencent's Hunyuan AI model is already deployed across key platforms like WeChat and Tencent Meeting, driving immediate revenue benefits through more targeted advertising, improved gaming user retention, and enhanced enterprise services. The company's strategic approach of prioritizing internal AI deployment over external sales mirrors Meta's successful model. Tencent's most significant opportunity lies in developing a native AI agent within WeChat that leverages the platform's comprehensive ecosystem of Mini Programs, payments, and social connections. This vertically integrated approach creates a defensible moat that would be extremely difficult for competitors to replicate. The manager views Tencent as successfully catching up in the AI race while maintaining its distribution advantages through China's dominant social platform.

Pitch Summary:
Millicom – Latin American wireless and cable company Millicom was the top contributor for the quarter. This quarter saw significant FCF growth due to operational improvements driven by Iliad's growing influence at the company, as mentioned in previous letters. Organic revenues rose approximately 4%, while total costs decreased by about 3.5%, leading to a more than 20% increase in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and a rise in the stock price. However, the quarter ended with Iliad proposing to buy the entire company for $24 per share, around the current market price but well below our value. The bid seems aimed at managing regulatory thresholds for acquiring over 33% of a Luxembourg company, even if the initial tender offer is rejected. We continue to monitor developments actively, while remaining confident in the company's continued strong performance and intrinsic value.

BSD Analysis:
Longleaf maintains a bullish stance on Millicom, highlighting strong operational momentum driven by Iliad's influence. The company delivered impressive quarterly results with 4% organic revenue growth and 3.5% cost reduction, resulting in over 20% EBITDA growth and significant free cash flow expansion. The manager views Iliad's $24 per share takeover proposal as opportunistic and below intrinsic value, suggesting the bid is primarily aimed at managing Luxembourg regulatory thresholds rather than reflecting fair value. Longleaf's confidence in the company's operational trajectory and intrinsic value remains intact despite the takeover uncertainty. The Latin American wireless and cable operator appears well-positioned for continued performance improvements. The manager's emphasis on monitoring developments while maintaining conviction suggests they view current market pricing as attractive. This position represents a classic value play where operational improvements are driving fundamental value creation ahead of market recognition.

Pitch Summary:
A position in PNC Financial (PNC) was established during the quarter. PNC Financial is a large regional bank with $560 billion in assets and 2,200 branches across the Mid-Atlantic, Midwest and Southeast with retail and corporate banking operations as well as asset management services. In 2022, PNC acquired the US subsidiary of Spanish financial group BBVA, increasing PNC's size by roughly 25%. The bank has also been successful at organically expanding its customer base, both in commercial banking and in retail. Its expanding client base has led to solid loan, deposit, and fee income growth. Shares of PNC were purchased at 13.1x earnings with a 3.4% dividend yield.

BSD Analysis:
The manager established a new position in PNC Financial, attracted by the regional bank's substantial scale and geographic diversification across key US markets. The investment thesis is built on PNC's successful integration of the BBVA USA acquisition, which expanded the bank's footprint by 25% and enhanced its competitive positioning. The bank's organic growth strategy has proven effective, with expanding customer relationships driving loan, deposit, and fee income growth across both commercial and retail segments. At 13.1x earnings, PNC trades at a reasonable valuation for a large regional bank with $560 billion in assets and a diversified revenue stream. The 3.4% dividend yield provides attractive income while the bank benefits from potential interest rate tailwinds. PNC's extensive branch network of 2,200 locations across the Mid-Atlantic, Midwest, and Southeast provides strong market presence and customer acquisition capabilities. The combination of organic growth momentum and successful M&A integration positions PNC well for continued market share gains in key regional markets.