Investment Pitches

Pitch Summary:
We recently acquired shares in British American Tobacco (BTI). It's certainly no secret that the tobacco industry faces significant regulatory challenges, particularly in the U.S. combustibles sector. (Combustibles are traditional cigarette products that, when lit, the combination of the tobacco (fuel) and oxygen in the air produces a self-sustaining combustion process that consumes the tobacco. This contrasts with various heat-not-burn products, including e-cigarettes.) Despite these headwinds, however, BTI has organically grown its revenue by more than 4% annually over the last five years. The company's operating profit has also risen more than 5% per year, even as the company has distributed massive dividends. (The company currently pays a dividend yield of 10%.) BTI's current free cash flow yield exceeds 16% – a figure that climbs even higher when adjusted for the company's non-operating strategic investments. The largest of these is a 29% stake in Indian tobacco company ITC, which is worth more than £14 billion, or 27% of BTI's entire market cap of £52 billion. On this market cap, the company expects to generate £40 billion in free cash flow over the next five years. Despite significant investments in its reduced-risk businesses, BTI's free cash generation has remained robust, growing consistently over the past five years. Yet despite this impressive track record, the stock has traded sideways for more than a decade. BTI has recently begun selling some of its ITC shares, intending to utilize the proceeds for share buybacks. While the company expects to maintain an ownership interest in ITC for strategic reasons, excluding this stake, BTI's free cash yield exceeds 20%. Following its purchase of Reynolds in 2017, BTI embarked on a process of reducing debt. To meet the upper end of its leverage target, an additional $1.7 billion is required, a figure BTI could fund utilizing cash generated from operations within months – not years. Once BTI reaches this target, we anticipate the company will ramp up its share buyback program and likely repurchase a material percentage of its shares, potentially drawing additional interest to the stock. We have historically had success investing in companies transitioning from a focus on reducing leverage to enhancing shareholder returns, as they often experience a valuation boost post-inflection. What has also been overlooked by the market is BTI's rapid transformation away from traditional combustibles. Its New Categories business (tobacco-free, reduced-risk products) has grown by 30% annually over the last five years and turned profitable in 2023 – two years ahead of the company's initial target. We expect revenues in New Categories to continue growing at double-digit rates, with a substantial improvement in the margin profile over time. While we estimate BTI is worth at least $40 per share today (compared to our purchase price of approximately $30), as the company's revenue mix shifts further toward its New Categories growth business, the equity has the potential to substantially rerate. Although currently trading at only six times earnings, comparable companies like Phillip Morris International, further along in the smoke-free transformation, trade at double digit multiples.

BSD Analysis:
Moon Capital presents a compelling value thesis for British American Tobacco, emphasizing the company's transformation from traditional tobacco to reduced-risk products. The manager highlights BTI's exceptional cash generation with a 16% free cash flow yield that exceeds 20% when excluding the ITC stake, creating significant optionality for capital returns. The investment case centers on BTI's deleveraging cycle nearing completion, which should unlock aggressive share buybacks and potential multiple expansion. The New Categories business represents a key growth driver, achieving profitability two years ahead of schedule with 30% annual growth over five years. At six times earnings, BTI trades at a substantial discount to peers like Philip Morris International despite similar transformation progress. The manager's $40 price target implies 33% upside from the $30 purchase price, supported by robust fundamentals and strategic repositioning. The 10% dividend yield provides attractive income while the transformation unfolds.

Pitch Summary:
Meta, in contrast, is using AI to make money today. Behind the scenes, it has built some of the most advanced infrastructure in the world. This has quietly driven stronger-than-expected revenue growth and margin expansion. Meta's ad platform is becoming increasingly automated. It already has tools that optimise campaigns for a target return on spend. Now it's building AI systems that can generate creative assets, test variations, and automate entire campaign flows. If it works, the ad loop tightens: better performance, higher margins, and more advertiser lock-in. One expert estimated Meta could improve campaign results by 50 to 100 per cent if CPMs hold steady. That would translate into substantially more spend. But none of this is visible to the average user on Facebook or Instagram. Meta hasn't shipped anything like ChatGPT. Llama 4 was solid, but the product layer was missing. As one expert put it, "OpenAI shipped tools, memory, orchestration. Meta shipped a model and a blog post." That is the conundrum. Meta risks becoming the world's most powerful AI-powered ad platform but without a dominant AI interface of its own. That would make it valuable, but fragile - just as it's dependent today on Apple. Until AI is meaningfully integrated into Facebook, Instagram, and WhatsApp, Meta's distribution edge remains potential, not reality. Until then, nearly a billion people are building habits around ChatGPT. In consumer tech, habits are the moat. Part of the challenge is organisational. Meta's research lab, FAIR, focuses on long-term academic work. Its GENAI team builds models. Product teams are left to figure out how to turn these into usable software. The feedback loop is slow. It is the opposite of OpenAI, where everything feeds the product. Founder Mark Zuckerberg has gone into 'beast mode' to force a reset. In June, Meta made a minority investment in Scale AI, reportedly worth $15 billion. Scale's CEO, Alexandr Wang, will join Meta to lead AI efforts. The company is also acquiring a stake in NFDG to bring product specialists Nat Friedman and Daniel Gross in-house. These may be the most expensive acqui-hires in history. As I write this, Meta has also poached top talent from OpenAI, DeepMind, and Apple for eye-watering salaries and sign-on bonuses. Zuckerberg clearly wants trusted hands to unify the organisation and start shipping. The investment case hinges on execution. The components are in place: infrastructure, models, data, scale. What's missing is a product layer that puts it all in users' hands. If Meta can close that gap, the upside is enormous. If not, it may help build an AI future - while someone else owns the customer.

BSD Analysis:
The manager presents a nuanced bull case for Meta centered on its AI monetization capabilities and strategic positioning. Meta is already generating revenue from AI through its increasingly automated advertising platform, which could improve campaign results by 50-100% and drive substantial advertiser spending increases. The company possesses world-class AI infrastructure, models, data, and scale - all the necessary components for success. However, the manager identifies a critical execution risk: Meta lacks a consumer-facing AI product like ChatGPT, potentially making it a powerful but fragile advertising platform without direct customer relationships. Zuckerberg's aggressive response includes a $15 billion investment in Scale AI, expensive talent acquisitions from OpenAI and other competitors, and organizational restructuring to accelerate product development. The investment thesis hinges on Meta's ability to integrate AI meaningfully into Facebook, Instagram, and WhatsApp to capture the consumer interface layer. If successful, the upside is enormous given Meta's distribution advantages and existing user base.

Pitch Summary:
Shares of Keurig Dr Pepper (KDP) were purchased in the quarter. KDP is a leading beverage company with a diversified portfolio spanning carbonated soft drinks, coffee, energy drinks, and premium waters. The company was established in 2018 following the merger of Keurig Green Mountain Coffee and Dr Pepper Snapple. Some of its well-known brands include Dr Pepper, Snapple, Canada Dry, A&W, Evian, Green Mountain Coffee Roasters, Peet's Coffee, and others. KDP's increasing exposure to high-growth categories such as energy drinks (C4 Energy, GHOST) and ready-to-drink coffee, coupled with an improving at-home coffee business, position it well for sustained long-term growth. KDP also has a strong innovation pipeline, with new product launches in carbonated beverages and coffee. In the coffee segment, Keurig remains the number one single-serve brewer in North America. Despite macroeconomic headwinds, KDP has maintained mid-single-digit revenue growth and high-single-digit EPS growth in recent years, differentiating it from other Consumer Staples companies. Management has also enacted a cost savings plan from sourcing and distribution consolidation as well as administrative streamlining. Shares of KDP were purchased at 16.6x 2025 earnings with a dividend yield of 2.8%.

BSD Analysis:
The manager initiated a position in Keurig Dr Pepper, viewing it as an attractive diversified beverage play with exposure to high-growth categories. The investment thesis centers on KDP's strategic positioning in energy drinks and ready-to-drink coffee segments, which offer superior growth prospects compared to traditional carbonated beverages. The company's dominant market position in single-serve coffee brewing through Keurig provides a defensive moat in North America. Management's execution on cost optimization through supply chain consolidation and administrative efficiency improvements supports margin expansion potential. The valuation at 16.6x forward earnings appears reasonable for a consumer staples company delivering mid-single-digit revenue growth and high-single-digit EPS growth, particularly given the 2.8% dividend yield. KDP's differentiated growth profile within the typically slow-growth consumer staples sector makes it an attractive defensive growth play. The strong brand portfolio spanning multiple beverage categories provides diversification and cross-selling opportunities.

Pitch Summary:
We added about 3.5% of the fund to VF Corp at $12.29. VF Corp is going through a turnaround, with a new CEO working to fix its brands and balance sheet. I think that this is an excellent business and that management is fixing the company's problems. Given the situation, I thought the price was too low, and we added to our position.

BSD Analysis:
The manager added 3.5% to VF Corporation at $12.29, viewing the turnaround under new leadership as an attractive opportunity. VF Corp owns premier apparel brands including The North Face, Vans, Timberland, and Dickies, but has faced operational and financial challenges under previous management. The investment thesis centers on the new CEO's ability to restore brand performance and strengthen the balance sheet. The manager characterizes VF as fundamentally an 'excellent business' with strong brand assets that are temporarily undervalued due to execution issues. The significant position increase reflects confidence in management's turnaround strategy and belief that the market is overly pessimistic about the company's prospects. This represents a classic value play on a quality franchise trading at distressed levels due to operational missteps. The manager's emphasis on brand quality and new leadership suggests a multi-year recovery story.

Pitch Summary:
We added about 4% of the fund to Enhabit at $8.69. The company has dealt with many issues since its spinoff two years ago—some of which were self-inflicted—and is now going through a proxy contest. This has led to an attractive stock price, and I believe that the company is addressing its own problems and has gotten some relief from the industry issues (such as weak CMS pricing and a shortage of nurses) that have hamstrung it over the past few years. Regardless of whether the proxy contest goes the way I would like, I think that the company's financials will look better in a year, and the price we paid to add will look extremely attractive.

BSD Analysis:
The manager significantly increased the Enhabit position by 4% at $8.69, viewing the proxy contest and operational challenges as creating an attractive entry point. Enhabit has struggled since its 2022 spinoff from Encompass Health, facing both self-inflicted operational issues and industry-wide headwinds including weak CMS reimbursement rates and nursing shortages. The manager believes these problems are being addressed and that industry conditions are improving. The investment thesis is based on operational turnaround potential and relief from sector-wide pressures that have depressed performance. The manager expresses confidence that financial metrics will improve over the next year regardless of proxy contest outcomes. This represents a contrarian bet on a distressed healthcare services company where temporary issues have created significant value opportunities. The substantial position increase demonstrates strong conviction in the turnaround story.

Pitch Summary:
PayPal has been a long-standing holding for Wedgewood, since 2015. After taking some of our gains around the company's COVID-19-fueled peak in 2021, we have been adding to the stock slowly over the past two years, taking it back to a significant position in the portfolio. We would like to update you on our current thinking. Like most "COVID-19 stocks", a variety of companies (e.g., Amazon) benefited from artificially high growth rates due to the COVID-19 lockdowns and subsequent stimulus; fundamentals at PayPal saw a normalization as the world returned to normal through 2021-2022. Similar to most of those companies, many PayPal investors had incorrectly assumed their artificially elevated growth rates during the COVID-19 period would continue for years and were surprised when the normalization occurred, leading to a decline in the Company's admittedly overheated stock. The big difference between PayPal and many of these stocks (e.g., Amazon once again) is that PayPal still has not recovered from this broad normalization period. When fundamentals at a previously loved company take a negative turn - as happened with many of the COVID-19 stocks when artificially high growth rates were normalized – we generally see investors tend to look past the obvious culprit and do their best to uncover other problems that may be problems at all. In this case, it seemed that a few bears could see the culprit that seemed rather clear to us - namely, the very rational normalization in growth rates after a period of wildly inflated growth. Certainly, we observed this phenomenon around the post-COVID-19 normalization, when not just at PayPal but at almost all the COVID-19 beneficiaries experienced a sharp decline. The impact of this event in the significant downturn in technology stocks as the market adjusts to a new normal. In PayPal's case, the winding down of the company's long-standing relationship with eBay also coincided with this period of normalization, contributing a bit more to the bust side of the boom/bust cycle everyone else was experiencing. The eBay situation had been coming for years, as anyone paying attention should have known - still, the timing of the final closure of the compounded the already negative PayPal stock sentiment. Investors then began to propose a variety of additional theories about what was going wrong. Many of these theories can be categorized under the broad heading of "share loss," where a variety of smaller payment platforms, digital wallets, ancillary service offerings all were (and still are) considered existential threats to PayPal. Before the Federal Reserve's significant rate hiking program, the Buy Now Pay Later (BNPL) providers were one of the theoretical issues for PayPal, for example. Setting aside the questionable business case of borrowing money in order to lend it to consumers at zero percent - a business case that became even more questionable as the cost of borrowing rose significantly - there was plenty of noise around PayPal losing share to BNPL providers, because investors could see outsized growth rates from those providers, whereas PayPal's growth rates were relatively lower. Obviously, smaller companies with mathematically have an easier time showing faster growth rates than larger companies due to growing from a lower base. More to the point, this also doesn't mean the large companies have necessarily "lost share" in the industry, if they continue to grow along with the broad industry. To track broad industry growth for PayPal, we follow the Company's total payment volume (TPV) growth in relation to Visa, MasterCard and broad U.S. e-commerce growth, among other things. As you can see in the chart below, PayPal routinely tracks at or near the top end of these broad industry trends, so arguments regarding share loss is puzzling to us. We need to emphasize too that one of the primary drivers of the investment case here is the payments market is still growing strong, and a large market growing at such rates has room for more than several players to succeed. A smaller player growing at a higher growth rate than PayPal means neither that PayPal is neither losing share, nor that PayPal is unable to continue as a successful business. Another component of the negative sentiment around the Company was uncertainty around the leadership of the Company. Long-time CEO Dan Schulman and CFO John Rainey both announced their retirements during the post-COVID-19 deceleration period. The Company spent a significant amount of time finding their respective replacements. Further confusing matters, some investors (including us) had been fans of the company's management team and hoped the Company would name replacements who would continue the long-time strategy of growing profitably; others hoped to see more growth-oriented leadership (or, in our thinking, growth that does generate much bottom-line profitability, common enough in large-cap tech). The Company named a CFO replacement, Blake Jorgensen, who had medical issues and had to leave almost immediately after his arrival. Subsequently, the Company has appointed replacements for both major roles. Alex Chriss joined as CEO from Intuit toward the end of 2023 and Jamie Miller joined as CFO from Ernst & Young shortly afterward. Although it is obviously early in this new leadership team's tenure, everything we have been hearing from them leads us to believe they will continue the company's successful long-term strategy of building lasting profitable growth. Although the negative commentary around the company has wandered from topic to topic, perhaps the most recent commentary has been some concern around the import of Company's declining profitability within their merchant services. We also agree this is one of the issues raised by the broad market on PayPal's current fundamentals that matters most. It definitely is true that the Company's margin on transactions has been declining over the past few years as it aggressively expanded its Braintree service, a payment platform for merchants that can accept almost all major forms of digital payments. While Braintree is unlikely ever to be more profitable than the company's flagship PayPal button on a transaction margin basis, its profitability has been artificially low while the company has expanded significantly, with the company sacrificing pricing to build a large beachhead of share in this service. Notionally, we are not fans of companies sacrificing margins to grow; however, what sets PayPal apart is that the total company remained quite profitable as it pursued this aggressive growth in one side of the business. We also would note that Venmo is another growing service that is less profitable than the core PayPal branded business, and the market absolutely loved Venmo not so long ago. We would be much more concerned with the Braintree growth, and its impact on total company profitability, if we expected the current growth rates and margins to continue into the many years ahead. However, the company has made it clear that it is at or near the end of the initial beachhead phase of its Braintree strategy. New CEO Alex Chriss has been addressing this topic specifically, saying they now have a solid position in the industry, they will be taking more normalized pricing, and they also will be expanding a variety of higher-margin ancillary services they can now roll out to their established customer base. We believe this will lead to improving transaction margins in the next several quarters and will begin to remove this particular concern for the market. Overall, the overwhelmingly negative sentiment in the stock of late, has given us the opportunity to reload our position in the stock. We continue looking at the fundamentals: for example, the company reported +23% earnings per share growth and +13% TPV growth for 2023, growing at or near the top end of the digital payments market. Perhaps the crisis imbedded in PayPal's current stock valuation is not so dire. Because the market ultimately acts as a brutal weighing-machine, thus we are strong believers that reality does win eventually, and the reality of the Company's improving fundamentals will eventually be reflected in a more appropriate higher stock valuation. We will admit we were a bit taken aback when the company provided its initial outlook for flat 2024 earnings per share growth versus 2023, announced on its fourth quarter earnings report in early February. It was difficult for us to see what would cause such a slowdown in the Company's growth rates while the Company was talking about initiatives to improve profitability - especially in the Braintree business. So, while the market beat the stock up again, our impression is that this guidance was quite conservative. Not surprising, in the couple of months since the Company provided this initial guidance, the management team has been presenting at investor conferences, acknowledging their conservativism. Trends within the business have remained steady in relation to the healthy 2023 trends. The Company continues to implement improved margin plans at Braintree and to push innovations that will be helpful to Braintree's platform of consumer, small business payors, and merchants. The Company is also cutting headcount by +9%, and management will buy back at least as much stock as it did last year, representing another -8% reduction in share count. All of which we expect to be supportive of notably better results than management's initial 2024 guidance. It is our experience these "wandering bear thesis" stories tend to come to an end at a point that is often difficult to predict. Shorter-term investors tend to move in a herd, meaning a stock can move meaningfully in a short time once the tide turns – that is, as both financial expectations and the multiple the market applies to those expectations rise simultaneously. We would highlight similar enough dynamics that played out at Meta Platforms, which has been one of our largest holdings for some time. Meta Platforms was a significant COVID-19 beneficiary; the boost to its e-commerce customers led to significant advertising growth rates for the company. With hindsight clarity, they too saw the broad normalization that most everyone else experienced. However, it is important to recall at the same time the normalization was happening, the Company was dealing with a few additional issues - most importantly, changes Apple had made to make it more difficult for the Company to target ads to Apple hardware users, plus seemingly out of control out-sized billion-dollar capex spending. Just as we are seeing with PayPal now, as Meta Platforms investors started looking past these concerning issues, valuation improved noticeably from very low levels. In the fullness of time, the tide turned in sentiment of a secular fundamental turn because the company made some good choices on expense control and capital allocation. The result was rapid and significant move in the stock as reported earnings continue to rebound sharply. Per our three-decade playbook, it is important to have significant positions in these types of situations before the turning point arrives. While we are certainly not forecasting a similarly-sized move in PayPal stock as in the booming stock of Meta Platforms, we continue to maintain a larger position in PayPal stock in anticipation of this turning point, and we are confident it is coming.

BSD Analysis:
Wedgewood Partners presents a compelling contrarian thesis on PayPal, viewing the current negative sentiment as a buying opportunity. The fund argues that PayPal's post-COVID normalization has been misinterpreted by the market as fundamental deterioration, when in reality the company continues to grow at the top end of the digital payments industry with +23% EPS growth and +13% total payment volume growth in 2023. The manager dismisses market share loss concerns, noting PayPal tracks at or near the top of industry growth trends versus Visa and MasterCard. While acknowledging margin pressure from the aggressive Braintree expansion, Wedgewood believes new CEO Alex Chriss will normalize pricing and expand higher-margin services, leading to margin recovery. The fund sees parallels to Meta Platforms' successful turnaround and expects PayPal's conservative 2024 guidance to be exceeded given ongoing cost cuts, share buybacks reducing the count by 8%, and steady business trends. With the stock trading at depressed valuations despite solid fundamentals, Wedgewood maintains a significant position anticipating a sentiment reversal.

Pitch Summary:
We added about half a percent of the fund to Dye and Durham at C$13.87. After seeming to spend much of 2023 acting in the hope that Canadian real estate transaction volumes would improve, the company has spent the past few months addressing its debt problems. I appreciated this change of tack and some signs of improving demand, and so we added a little.

BSD Analysis:
The manager added a modest 0.5% position in Dye & Durham at C$13.87, encouraged by management's shift from passively waiting for real estate market recovery to actively addressing debt issues. The company provides legal technology solutions with significant exposure to Canadian real estate transaction volumes, which have been under pressure. The manager's positive view stems from two key factors: management's proactive approach to debt reduction and early signs of demand improvement in their core markets. This represents a tactical addition to an existing position, suggesting the manager sees value in the company's operational improvements and potential market recovery. The small position size indicates cautious optimism while acknowledging the cyclical headwinds facing the business. The investment appears to be a bet on both operational execution and market normalization in Canadian real estate activity.

Pitch Summary:
During the quarter we entered into a new position in KITS Eyecare, an e-commerce optical retailer which I've followed since their IPO in 2021. The investment thesis for KITS is simple; earnings power should grow significantly during the next 3-5 years. The company is operating a disruptive, low-cost business model, currently at an inflection point, growing 30-35% organically in a huge category with a large TAM, has strong operating leverage, positive cash flow, excellent management, and a net cash balance sheet. We paid less than 18x EBITDA for the above attributes, which I believe will look very cheap in the coming years. Like most of the companies in your portfolio, the best starting point for understanding the attractiveness of our investment is with the management team, particularly KITS Founder, Chairman and CEO Roger Hardy. Roger built a very similar business in the early 2000s called Coastal Contacts, which was ultimately sold to Essilor Luxottica for $430mm in 2014. Coastal was an early pioneer of e-commerce eyecare which helped reveal a strong product market fit that Roger and his co-founders set out to improve upon with KITS. I like to screen for CEOs on their 'second act', where past learnings, mistakes and successes can be applied for our benefit. Roger, COO Joe Thompson and the team check many of our boxes, not only as owner-operators but as a group spearheading a strong corporate and financial culture that would be very difficult to replicate. As you'll see below, KITS is unlike most businesses in the optical industry, where a focus on the customer typically comes second (or third), not first. Along with the favorable culture, KITS management team has engineered this business in a differentiated way as compared to most optical retailers, and in just seven years, have built a better mousetrap for e-commerce eyecare, lending itself to recurring revenue, a strong moat, a significant growth runway, and more. KITS competitive advantages should widen over time. KITS is an e-commerce retailer of contacts, glasses and accessories. The company offers a wide selection of contacts and prescription eyewear with low prices and fast shipping, along with online vision tests and prescription renewals, enabling a superior value proposition for customers versus legacy retailers. This value proposition is made possible in part by KITS ability to take cost out of the value chain by owning their own automated optical labs and selling direct to consumer. Years of investment have enabled KITS to manufacture eyeglasses in-house (as opposed to the traditional model of outsourcing to a third party), made to order in as fast as 30 minutes, while controlling quality and cost, allowing KITS to eschew traditional markups for frames and lenses typically seen throughout the industry. Despite the low price point, you won't find KITS glasses at the checkout line at the drug store. KITS quality and selection are no different than what customers would find at their optometrist office, or similar e-commerce incumbent Warby Parker, not skimping on materials and using prescription polycarbonate lenses, acetate frames, European sourced hinges, and modern designs. Customers can purchase a pair of prescription glasses for as low as $28 and receive them within 1-3 business days, leading to high customer satisfaction and repeat visits. KITS convenient, scalable and limited inventory model has been perfected during the past 7 years, and exceeds all legacy players, who burden customers with long wait times, mandatory eye exams, 1–2-week shipping, and unnecessarily high prices, in some cases between $300-$1,000 dollars for a single pair. In the optical industry, the sale of eyeglasses and lenses specifically drives the majority of industry profits. Despite the apparent simplicity, eyeglasses are complex pieces of technology that require advanced machinery and expertise to manufacture. For most brands, a lack of expertise in manufacturing requires the outsourcing of production to a concentrated group of suppliers, meaning manufacturers can charge significantly higher prices than their costs would suggest is necessary. Industry giant, EssilorLuxottica controls nearly 50% of the industry by owning many parts of the value chain, including retailers, e-commerce players and manufacturing in the form of optical labs. Because of this ownership position built decades ago, Essilor has typically been able to extract rent seeking prices for eyeglasses, despite their low cost of production, given opaque industry pricing and control of the supply chain. As a result, the historical price to value equation has been to the detriment of the consumer. This would make any industry ripe for disruption with optical care being no different. Decades ago, KITS management saw an opportunity to 'make eyecare easy' via a large gap in the market among younger consumers that were both comfortable shopping online for eyecare and would prefer a better consumer experience and more affordable price point, without skimping on quality. In other words, competitor's margins were KITS opportunity. The KITS model works in large part by choosing to make their own products, building quality relationships with suppliers, refusing to build a brick-and-mortar presence, avoiding traditional and costly marketing channels, and keeping prices low. As mentioned, KITS can manufacture a pair of prescription glasses within 30 minutes and have them out the door to a customer that same day. The cost savings that stem from this model are passed along to customers, resulting in a better customer experience via low prices and fast shipping. Although KITS gross margins lag below peers such as Essilor (65%) and Warby Parker (54%), the model requires much lower fulfillment, marketing and G&A expenses. This is a structural moat that would be difficult to breach as it would require a complete overhaul of competitors' cost structure and operating footprint along with a willingness to accept lower prices. The model has been attempted by others with limited success. Early e-commerce players such as Warby Parker focused on selling glasses first by cutting out the middleman (brick and mortar) and offering lower prices. However, selling eyeglasses first is a difficult undertaking given the lack of repeat purchases, upfront cost of acquiring customers and the challenge of retaining them. This path requires significant marketing spend and scale before dollars start rolling in, which is why most e-commerce players have yet to find the formula for profitability. KITS bucked this trend in a major way by selling contacts first. Despite the unattractive financial profile as a commoditized, lower-margin product, this was a great chess move, as contacts drive recurring purchases, meaning these early efforts resulted in customer stickiness and repeat business. Today, nearly 70% of KITS revenue comes from repeat customers, providing the perfect segway to sell eyeglasses, which is a segment of KITS business growing 40% per year. Furthermore, KITS in-house automated manufacturing capabilities took years to build and cost tens of millions of dollars, with the only capital raise to date coming from their 2021 IPO. This is not a business or industry you can attack by throwing money around. Despite a first-mover advantage, and raising hundreds of millions in venture capital, Warby Parker has lost money every year since going public. Aiding KITS execution is the $70B US optical industry, a recession resistant space which has exhibited consistent, stable growth across most economic cycles. The category is also shifting online. Since 2005, online penetration for contacts has grown from 5% to 40%, while sales of eyeglasses grew from 1% to 18%. This shift accelerated rapidly post-COVID, as the online mix for glasses was 6-8% pre-pandemic, and sits above 18% today, while 15% of contacts purchases were made online pre-COVID, increasing to over 40% today. Given global growth in myopia, further online penetration, younger consumer trends and increasing brand awareness, KITS has an enormous runway for growth. Given the above, it's no surprise that KITS has grown tremendously since its founding. Sales have grown at an average rate of 35% since 2019, with no signs of slowing down. In fact, I believe the business is at an inflection point, both company specific and industry wide, allowing growth to persist for the next decade plus. Importantly, this growth has not come at the expense of profitability, with EBITDA margins for FY25 estimated to be in the 6-8% range and growing. Free cash flow margins will remain close to that, as KITS has no debt and limited capex requirements. KITS currently trades for 1.5x sales and 22x my estimate for FY25 EBITDA. Although this does not screen headline cheap, unit economics for eyeglasses are phenomenal. I estimate that KITS has an industry-leading CAC/LTV, by acquiring customers for around $25 who then go on to spend an incremental hundreds of dollars on KITS.com within 6-12 months. Additionally, there are opportunities to improve on nearly every line item of the P&L, and this model should show strong operating leverage over time. Despite nine straight quarters of 30% or more revenue growth, KITS fulfillment costs, G&A, and sales and marketing have all trended downward as a percentage of revenue. Furthermore, this is not a post-COVID explosion in the category, as much of this growth is from incremental spending from repeat customers, while new customer growth has been modest at 7-8% per year. Therefore, I do not believe KITS is experiencing abnormal growth trends. Over time, KITS can capture an ever-bigger share of the industry by following a repeatable and effective playbook. Management believes the business can scale to CAD $250mm in revenues within 2 years, up from CAD $159mm at the end of 2024. Within five years, KITS is aiming for CAD $500mm in sales, at which point 10-15% EBITDA margins are within reach. At that scale, assuming the low-end margin range and no change in multiple, KITS stock would be worth CAD $35/share versus our average cost of around CAD $9/share. Importantly, these targets are not formal guidance, and in my view are conservative. Despite their progress, KITS brand awareness remains low, which provides further room for upside. Should I be wrong about my assumptions, I trust management, as owners, to steer the business in the right direction. An unprofitable, slower-growing Coastal was sold for 2x revenues in 2014, and I believe it's only a matter of time before KITS receives some offers from a larger optical industry player. Let's hope it's further down the road this time.

BSD Analysis:
The manager presents an exceptionally detailed bull case for KITS Eyecare, emphasizing the company's disruptive e-commerce model in the $70 billion optical industry. The investment thesis centers on proven management led by CEO Roger Hardy, who previously built and sold Coastal Contacts to EssilorLuxottica for $430 million. KITS has engineered a superior business model through vertical integration, owning automated optical labs that can manufacture prescription glasses in 30 minutes while maintaining quality comparable to traditional retailers at significantly lower prices ($28 vs $300-1,000). The company's strategic focus on contacts first created recurring revenue streams (70% repeat customers) before expanding into higher-margin eyeglasses growing 40% annually. With 30-35% organic growth, positive cash flow, net cash balance sheet, and trading at less than 18x EBITDA, the manager sees significant operating leverage potential as online penetration accelerates post-COVID. Management targets CAD $500 million in sales within five years with 10-15% EBITDA margins, potentially driving shares to CAD $35 versus the current CAD $9 cost basis.

Pitch Summary:
We put about 2.5% of the fund into Solventum in the quarter, paying $54.01 per share. Solventum used to be 3M's highly regarded healthcare business, and was spun out in April of this year. Solventum was loaded up with debt, and 3M retained 19.9% of the company – all to provide financial value to 3M as it works through its financial, legal, and environmental liabilities. This means that Solventum will spend years paying down its debt and setting up the company – typical spinoff tasks plus a not-so-standard need to start producing the products that it sells (3M kept that know-how). All in, we have an ugly duckling – a high return on capital, cash cow spinoff, working through difficult but resolvable issues, selling at an attractive price. I love buying businesses like this, and if it drops to my next buy price, we will add to it.

BSD Analysis:
The manager initiated a 2.5% position in Solventum at $54.01, viewing it as a classic spinoff opportunity with temporary challenges. The company was spun out from 3M's healthcare division in April 2024, burdened with debt and operational complexities as 3M retained manufacturing know-how and a 19.9% stake. Despite these near-term headwinds, the manager emphasizes Solventum's underlying quality as a high-return-on-capital, cash-generating business. The investment thesis centers on the temporary nature of the spinoff-related issues, which include debt reduction and operational independence. The manager's willingness to add more shares at lower prices demonstrates conviction in the long-term value proposition. This represents a value-oriented approach to a quality healthcare business trading at distressed valuations due to structural complexities. The 'ugly duckling' characterization suggests significant upside potential once operational issues are resolved.

Pitch Summary:
Within Bel Fuse's operating footprint, around 13% of total revenues are directly exposed to tariffs via China and Mexico. Bel has shown the ability to pass cost increases through to customers, which they anticipate will continue, with minimal impact to Bel's financials. Localized manufacturing will also help offset any further impact. During the past few years, management has proven adept at navigating both internal business issues along with the difficult post-COVID economic environment that has plagued a few of their business segments. A recession would not be ideal for Bel Fuse, and following the acquisition of Enercon, they are leveraged 2.8x. however, management has always shown conservatism and Bel has a cash generative business model that provides a decent margin of safety. My estimate of intrinsic value is between $120-135/share, versus a current price of $67/share.

BSD Analysis:
The manager presents a measured bull case for Bel Fuse despite acknowledging some near-term challenges. With only 13% of revenues exposed to tariffs through China and Mexico operations, the company appears relatively insulated from trade disruptions. Management's demonstrated ability to pass through cost increases to customers should help maintain margins, while localized manufacturing provides additional protection. The investment thesis is supported by management's proven track record of navigating both internal restructuring and post-COVID economic headwinds across various business segments. While the 2.8x leverage following the Enercon acquisition and potential recession risks present concerns, the manager emphasizes management's conservative approach and the company's cash-generative business model as providing adequate downside protection. At $67 per share versus estimated intrinsic value of $120-135, the position offers potential upside of 79-101%, suggesting the market has not fully recognized the company's resilience and value creation potential.

Pitch Summary:
We initiated a small position in Class A shares of Liberty Global (LBTYA), one of three share classes of Liberty Global. Liberty Global is a mobile communications company with ownership stakes in a number of European operations across Switzerland, the United Kingdom, Belgium, the Netherlands and Ireland. LBTYA trades at a more than 40% discount to our estimate of fair value and we believe company management is focused on closing this gap. The first step will be the spin-off of Liberty Global's Swiss business later this year. We estimate that the Swiss business, when separately listed, could account for more than half of Liberty Global's total current market capitalization and could leave its remaining businesses trading collectively at a more than 60% discount to fair value. The company has a history of aggressively repurchasing its own shares, having reduced share count across all three classes by nearly 60% in the past seven years. Liberty Global has announced a plan to repurchase up to another 10% of its shares this year.

BSD Analysis:
Greenlight Capital views Liberty Global as a classic sum-of-the-parts opportunity trading at a substantial discount to intrinsic value across its European telecommunications operations. The manager estimates LBTYA trades at more than a 40% discount to fair value, with management actively focused on closing this valuation gap through strategic initiatives. The upcoming spin-off of the Swiss business represents a key catalyst, as Greenlight estimates this single operation could account for over half of Liberty Global's current market capitalization. Post-spin, the remaining businesses (UK, Belgium, Netherlands, Ireland) would trade at an even steeper 60% discount to fair value, creating compelling relative value. Management's shareholder-friendly capital allocation history supports the investment thesis, having reduced share count by nearly 60% across all share classes over seven years through aggressive buybacks. The announced plan to repurchase up to 10% of shares this year demonstrates continued commitment to returning capital and unlocking value. Liberty Global's diversified European telecommunications footprint provides exposure to stable cash-generating assets in developed markets. The combination of structural discount, upcoming catalyst events, and management's proven track record of value creation through capital allocation makes this an attractive risk-adjusted opportunity in the communications sector.

Pitch Summary:
Vistry Group PLC (VTY.L) – Vistry, our asset-light U.K. homebuilder, remains in the penalty box after the winding down of its traditional homebuilding business led to accounting problems in the 2nd half of 2024. Further challenges came from affordable housing starts being down 35% in the 2023/24 period as the existing funding program approached its sunset. However, the U.K. government recently announced a new series of grants to local authorities, housing associations, and developers to focus on low-income housing, which will total £39B over 10 years. This is an improvement from the previous program, which was £11.8B over 5 years. This funding should benefit Vistry in the 2nd half of 2025 and into 2026, and power the company a long way toward their intermediate term goal of reaching $800M in operating profit. The market seems to think this goal is not attainable, but at a discount to tangible book value, Vistry could fall well short of its goals, and we should still be rewarded. I do think this goal is attainable, and if it is, we should be rewarded with multiples of our current investment with time.

BSD Analysis:
The manager identifies a recovery opportunity in UK affordable housing following temporary setbacks from business transition and funding program gaps. The new £39B government funding program over 10 years represents a significant improvement from the previous £11.8B over 5 years, providing substantial tailwinds for Vistry's asset-light model. Trading at a discount to tangible book value offers downside protection even if the company falls short of its $800M operating profit target. The combination of government funding acceleration, asset-light structure, and depressed valuation creates asymmetric risk-reward with potential for multiple returns if targets are achieved.

Pitch Summary:
We established a small long position in Roivant Sciences (ROIV). ROIV is a biotech company focused primarily on inflammation and immunology therapies. In addition to an exciting pipeline, ROIV has a strong track record of positive trial results and successful monetization of pharmaceutical assets. The market currently believes core ROIV is effectively worthless, as the company has a market capitalization of about $9 billion, but holds over $6 billion of net cash and a $2.6 billion stake in its publicly traded subsidiary, Immunovant (IMVT). We believe there are several valuable assets inside the company, notably a broad patent estate around lipid nanoparticles used in COVID vaccines for which Moderna and Pfizer may owe ROIV several billion dollars in royalties, a potential multi-billion-dollar specialty autoimmune disease drug that recently passed its 7th successful Phase 2 trial and a novel topical agent to treat skin conditions such as psoriasis and atopic dermatitis. Additionally, we believe there are several other promising earlier stage assets inside ROIV. Lastly, the management team continues to find new opportunities to in-license from larger pharmaceutical companies. ROIV recently announced a $1.5 billion share repurchase program.

BSD Analysis:
Greenlight Capital identifies Roivant Sciences as a compelling sum-of-the-parts opportunity where the market is essentially valuing the core business at zero. With a $9 billion market cap but holding over $6 billion in net cash plus a $2.6 billion stake in subsidiary Immunovant, the core operations trade at a significant discount to tangible assets. The investment thesis centers on multiple valuable hidden assets, including a broad lipid nanoparticle patent estate that could generate several billion dollars in royalties from Moderna and Pfizer's COVID vaccine usage. ROIV's specialty autoimmune drug candidate represents potential multi-billion-dollar value, having successfully completed its 7th Phase 2 trial, demonstrating consistent clinical execution. The company's novel topical treatments for psoriasis and atopic dermatitis add additional pipeline value in large addressable markets. Management's proven track record of positive trial results and successful asset monetization, combined with ongoing in-licensing opportunities from major pharmaceutical companies, supports the value creation thesis. The recently announced $1.5 billion share repurchase program demonstrates management's commitment to returning capital and closing the valuation gap. This represents a classic biotech value play with multiple shots on goal and substantial downside protection from cash and liquid holdings.

Pitch Summary:
For Leon's Furniture, only a small portion of their business will be directly affected by tariffs. As a Canadian based retailer, Leon's sources goods from countries outside of the US but does derive a small portion of revenues from the US (sub-10%). In addition, they are the largest importer in the country of containers from China, giving them tremendous negotiating leverage and the ability to weather any supply chain storms, as evidenced by their margin profile during and post-COVID when container rates skyrocketed by 5x. This is not a luxury their competitors have, and I would expect Leon's to take incremental market share in an adverse economic scenario, with the window for M&A also opening. Despite Leon's strong performance through all cycles, I believe shares remain priced as if bad news is on the horizon. I peg intrinsic value at CAD $50-60/share versus today's price of CAD $22/share.

BSD Analysis:
The manager's bull thesis for Leon's Furniture emphasizes the company's competitive advantages and resilient business model in the face of potential tariff headwinds. With minimal US revenue exposure (sub-10%) and sourcing primarily from non-US countries, Leon's appears well-positioned to navigate trade disruptions. The company's status as Canada's largest container importer from China provides significant negotiating leverage and supply chain resilience, as demonstrated during COVID when container rates increased 5x yet margins remained stable. This competitive moat should enable market share gains during economic stress while competitors struggle with supply chain challenges. The manager also sees potential M&A opportunities emerging in adverse conditions. Despite the company's consistent performance across cycles, shares appear to be pricing in negative scenarios. At CAD $22 per share, the manager sees substantial upside to intrinsic value of CAD $50-60, representing potential returns of 127-173%.

Pitch Summary:
PAR Technology Corp (PAR) – PAR, our restaurant and convenience store technology company, continues to grow revenue while keeping costs nearly flat. The first half of the year was characterized by multi-product customer wins that will bear fruit later this year. The second half of the year should see an acceleration of the Burger King rollout, as well as other large wins. CEO Savneet Singh recently indicated that the customer pipeline is bigger than it has ever been, and additional M&A is likely at some point.

BSD Analysis:
The manager highlights PAR's operational leverage with revenue growth while maintaining flat costs, demonstrating strong unit economics. Multi-product customer wins in H1 position the company for accelerating growth in H2, particularly with the Burger King rollout expansion. CEO commentary on record pipeline size suggests sustained growth momentum. The combination of organic growth acceleration and potential M&A provides multiple value creation pathways. The restaurant technology market benefits from digital transformation trends and recurring revenue characteristics.

Pitch Summary:
During FY24, Natural Resource Partners generated $250mm in free cash flow, despite met and thermal coal prices significantly lower than those of the past few years. This is the beauty of the royalty business model, with no ongoing capital requirements and minimal operating expenses. To be clear, free cash flow generated during 2025 will be lower than 2024, but within the next year or so, NRP will have the flexibility to both repurchase units and significantly increase their distributions to unitholders, amounting to a 15-20% yield on the current price. A shutdown of China as a coal export market for the US would not be good for either country, especially as the current administration aims to reinvigorate the coal industry. As a result, it's likely that cooler heads prevail. If not, NRP is nowhere near priced for perfection as intrinsic value lies between $200-250/share versus the current price of $100/share.

BSD Analysis:
The manager presents a compelling bull case for Natural Resource Partners based on its asset-light royalty business model that generated $250 million in free cash flow during FY24 despite depressed coal prices. The thesis centers on NRP's minimal capital requirements and operating expenses, which provide significant cash generation flexibility. While 2025 cash flows are expected to decline, the manager anticipates substantial capital returns to unitholders within a year, potentially yielding 15-20% at current prices. The investment appears positioned to benefit from potential coal industry revitalization under current administration policies. Despite tariff-related trade concerns with China, the manager believes geopolitical pragmatism will prevail. At current levels around $100 per share, the manager sees significant upside to intrinsic value of $200-250, suggesting the market has not fully recognized the company's cash generation potential and distribution capacity.

Pitch Summary:
The title of our Sohn presentation was "Solve AI," which was a play on Solvay's corporate name. Nonetheless, we established another new long position that actually stands to benefit from AI, which we believe is not reflected in the current stock price. HP Inc. (HPQ) sells computers, printers and adjacent products and supplies. We established an initial position at an average price of $30.76 per share, which is about 9x current year earnings estimates. Recent results reflect a two-and-a-half-year cyclical downturn in demand for computers, which followed a mini-boom driven by COVID and related demand for equipment to work-from-home. We believe that we are, at a minimum, on the cusp of a normal PC refresh cycle, which should drive earnings above estimates. HPQ has committed to return 100% of free cash flow to shareholders through buybacks and dividends. The shares have a 3.6% dividend yield and we estimate HPQ has the capacity to buy back 25-30% of the outstanding shares over the next three years. The more exciting opportunity is through a possible AI-driven PC adoption cycle, fueling higher unit prices and a more robust PC market recovery. Currently, investor attention around AI is focused on cloud service providers and related equipment. This summer, Intel plans to release a neural processing unit (NPU), which will allow AI functionality on local devices. Microsoft has teased AI features that are coming in the next Windows update later this year, which may require a computer with an NPU to fully function. One such application is believed to be 'AI Explorer,' which is described as an "advanced Copilot" with a built-in history/timeline feature that turns everything you do on your computer into a searchable repository using natural language. It is said to work across any application and allows users to search for previously opened conversations, documents, web pages and images. While we have spoken with experts that are divided between being enthusiastic and skeptical of an AI PC cycle, we don't believe any of the optimism is currently reflected in the share price.

BSD Analysis:
Greenlight Capital views HP Inc. as an undervalued cyclical recovery play with significant AI upside optionality that the market is overlooking. Trading at just 9x current earnings estimates, HPQ appears attractively valued as it emerges from a two-and-a-half-year PC demand downturn following the COVID work-from-home boom. The manager expects at minimum a normal PC refresh cycle to drive earnings above estimates, supported by the company's commitment to return 100% of free cash flow through dividends (3.6% yield) and aggressive share buybacks. HPQ's capacity to repurchase 25-30% of outstanding shares over three years provides substantial capital return and potential multiple expansion. The more compelling opportunity lies in a potential AI-driven PC adoption cycle, which could fuel higher unit prices and accelerated market recovery. Intel's upcoming neural processing unit (NPU) release and Microsoft's AI-enhanced Windows features, including 'AI Explorer' with natural language search capabilities, could drive hardware upgrade cycles. While expert opinions on AI PC adoption remain divided, Greenlight believes none of this optimism is reflected in the current share price, creating asymmetric upside potential. The investment combines defensive value characteristics with meaningful AI exposure at an attractive entry point.

Pitch Summary:
NextNav Inc. (NN) – NextNav, which is our next-gen GPS and spectrum company, continues to march the ball forward in their quest to have the FCC greenlight their spectrum for 5G use. I continue to believe that the odds of NextNav succeeding are very favorable. This belief comes from the obvious, such as reading FCC filings where NextNav is specifically named, but also from more and more articles highlighting the vulnerabilities of the existing GPS system and the National Security needs of the United States. Additionally, it is hard to interpret the official FCC Twitter/X account re-tweeting articles written by NextNav's CEO as a bad sign, and perhaps most important is reading the tea leaves and digging up the scuttlebutt surrounding the various personalities involved behind the scenes. None of this stuff goes in the spreadsheet, but all of it suggests that a Notice of Proposed Rule Making (NPRM) that supports FCC Chairman Brendan Carr's stated goals of freeing up spectrum and focusing on National Security and First Responders will be forthcoming. Carr is clearly passionate about these goals, but he lacks the budget to independently see them through. NextNav is the only solution that tackles these problems with no cost to taxpayers. Assuming an NPRM, I suspect that NextNav will find a way to monetize their spectrum in some sort of partnership or transaction with one of the mobile network operators at prices significantly higher than where shares trade today. Comparable transactions have taken place at a wide range of prices, and anything from $35-$60 per share is within the reasonable realm of possibility, although history has shown that crazy things can happen in spectrum land.

BSD Analysis:
The manager builds a regulatory catalyst thesis around FCC Chairman Brendan Carr's national security and spectrum priorities. NextNav offers the only solution addressing GPS vulnerabilities and 5G spectrum needs without taxpayer cost. Positive signals include FCC filings naming NextNav specifically and official FCC social media engagement with the CEO's content. The investment hinges on a forthcoming Notice of Proposed Rule Making (NPRM) enabling spectrum monetization through mobile operator partnerships. Comparable spectrum transactions suggest $35-60 per share valuation potential. The thesis combines regulatory momentum with national security imperatives and spectrum scarcity value.

Pitch Summary:
Lifecore Biomedical Inc. (LFCR) – Lifecore, our fill-finish CDMO, continues to work toward their dual goals of increasing capacity utilization and expanding margins. I continue to believe that achieving these goals is very much a "when" rather than an "if." This belief was founded on global supply and demand dynamics, strengthened by the BIOSECURE Act, and reinforced by the National Security Commission delivering a report and action plan to Congress, which calls for the re-shoring of the biotech supply chain. To top it off, Trump has recently stated that pharmaceuticals manufactured abroad will be subject to 200% tariffs. Considering that building and certifying new fill-finish capacity can take 4 or 5 years, it seems that it would be much easier to partner with a company like Lifecore. The sales cycle here is slow, but all indications are that the pipeline is active, and major international pharma and biotech companies have been conducting diligence on Lifecore's facilities. Shares continue to trade well below where frequent industry M&A has taken place, and as the last public domestic CDMO of any size, I believe LFCR will eventually be acquired. ~6x revenue would be a reasonable multiple based on past transactions, suggesting a price of more than $13 per share today, and closer to $16 on 2026 numbers.

BSD Analysis:
The manager presents a compelling re-shoring thesis driven by multiple regulatory catalysts including the BIOSECURE Act, National Security Commission recommendations, and potential 200% tariffs on foreign pharmaceuticals. Lifecore benefits as the last sizable public domestic fill-finish CDMO with 4-5 year lead times for new capacity creation. Active pipeline with major pharma conducting facility diligence supports near-term inflection. The investment thesis combines operational leverage from capacity utilization improvements with potential M&A at 6x revenue multiples. Target price of $16 represents significant upside based on precedent transactions and 2026 revenue projections.

Pitch Summary:
We established a new medium-sized position in Penn National Gaming (PENN) at an average price of $22.69 per share, but, for reasons discussed below, the shares fell to $18.21 by quarter-end. As referenced above, we established a medium-sized position in PENN, an operator of regional casinos. PENN's current enterprise value is just over $4.3 billion, and based on an 8-12x multiple of free cash flow, we value their land-based casinos between $4.3 billion and $7 billion. PENN also competes in online gaming, particularly sports betting, and we believe the market ascribes a substantial negative value to that effort. To be fair, the online segment has a checkered history. In 2020, PENN acquired a minority stake of Barstool Sports, and three years later agreed to purchase the rest, for a grand total of $551 million. That acquisition was a complete failure, and the company wound up abandoning the investment. It also spent $2 billion in 2021 to acquire Score Media and Gaming to establish a better online sports betting platform. Last year, it entered into a deal with ESPN to launch and operate ESPN BET. Successful sports betting franchises can have substantial value. DraftKings is the leader and is valued at over $20 billion. Through ESPN BET, PENN aspires to achieve top-three status in the industry. Given that the market is ascribing negative value to ESPN BET, it's fair to say that after the Barstool fiasco, investors have serious doubts about the company's strategy and management's competence to execute. Were the market to credit PENN with merely 15% of DraftKings' value, that segment alone would be worth $20 per share. PENN launched ESPN BET last November. The launch was largely successful and led them to achieve a top-three user share by adding one million customers in less than two months. This result was much better than expected and enabled PENN to project turning a profit a year earlier than its previous guidance. To accomplish this, the company spent more on upfront marketing to acquire customers than it had indicated. Though we had believed the rationale for increased spending was well understood, the market focused on the higher spend and punished the shares.

BSD Analysis:
Greenlight Capital sees significant value in Penn National Gaming, viewing the market's negative assessment of ESPN BET as creating an attractive entry point. The manager values PENN's land-based casino operations at $4.3-7 billion based on 8-12x free cash flow multiples, essentially covering the entire enterprise value and making the online sports betting segment a free option. Despite past failures with Barstool Sports ($551 million loss) and Score Media ($2 billion acquisition), ESPN BET's successful launch demonstrates management's improved execution, achieving top-three user share with one million customers in under two months. The market's skepticism following previous online gaming missteps has created a valuation disconnect, with ESPN BET trading at negative value despite its promising early metrics. If ESPN BET achieves just 15% of DraftKings' $20 billion valuation, it would be worth $20 per share alone, representing significant upside from current levels. The accelerated profitability timeline, moving up by one year due to strong customer acquisition, validates the strategic partnership with ESPN. However, the market's focus on higher-than-expected marketing spend rather than superior customer acquisition results reflects the ongoing skepticism that creates the investment opportunity.