Investment Pitches

Pitch Summary:
SECURE Waste Infrastructure Corp (SES.TO) – SECURE is primarily a waste management business catering to the needs of Western Canada's oil industry. You will find a longer more detailed writeup of SECURE in the appendix to this letter. The short version is that SECURE was formerly an oil services business characterized by extreme cyclicality, and in fact only changed its name from SECURE Energy Services to SECURE Waste Infrastructure earlier this year. However, today ~80% of cash flows are recurring in nature, while previously 60% of cash flows were highly cyclical. Additionally, in my view the company's accounting is completely misleading, and hides the fact that following certain common-sense adjustments, economic EBITDA margins are north of 30% while mechanical screeners would tell you that EBITDA margins are closer to 4%. This explains why shares remain cheap, and a recent forced sale of comparable assets provides a valuation floor at multiples that are higher than the prices we paid for our shares, and confirms that they are indeed cheap. Further evidence of downside protection comes from a recent tender offer that was undersubscribed, suggesting that the supply of sellers near current prices is limited. At the same time, management is properly incentivized to be buyers of their own stock, and they are doing exactly that, having repurchased 19% of shares in 2024, and continuing to aggressively repurchase shares this year. With stable and predictable cash flows and an under-levered balance sheet, I expect this pattern of shrinking the float to continue for the foreseeable future, which by itself suggests that an equity CAGR in the low 20% range in the years to come is possible even absent multiple expansion. However, given that the starting valuation is in line with that of a forced sale, multiple expansion is likely. There is quite a bit of path dependency here, but assuming SECURE's multiple does re-rate closer to other waste industry peers over the next few years, an equity CAGR of 30 to 40% is possible.

BSD Analysis:
The manager identifies a compelling transformation story where SECURE evolved from cyclical oil services to 80% recurring waste management revenues. The key insight is misleading GAAP accounting that obscures true 30%+ EBITDA margins due to pass-through oil trading revenues. Management aggressively repurchased 19% of shares in 2024 with continued buybacks, supported by 1.3x leverage versus 2-2.5x target. Downside protection comes from recent forced asset sale at 7.5x EBITDA, above current valuation. The thesis projects 20-40% equity CAGR through multiple expansion toward waste peer multiples plus continued share reduction. Western Canada's stable oil production provides recurring cash flows with regulatory moats and limited competition.

Pitch Summary:
Last quarter, we wrote about a new small position in Syensqo, a spin-out of Solvay, while alluding to a new top 5 position that we were still accumulating at year-end. That position is the former parent, new Solvay (Belgium: SOLB), which we unveiled on April 3rd at the Sohn Investment Conference in New York. SOLB is an essential chemicals business. Its key products are soda ash (sodium carbonate) and BICAR (sodium bicarbonate), peroxides, silicas, fluorine and rare earth formulations and solvents. We established our position at an average price of €22.89 per share. By our estimates, SOLB earned over €5 pro forma per share last year. This year, due to falling soda ash prices, earnings are likely to be in the high €3s or low €4s. We believe this will be a trough result and that the shares were undervalued at less than 6x those earnings. Over the intermediate term, management intends to cut costs and expand some operations, which if successful, should help generate earnings of almost €7 per share by 2028. The company has a conservative balance sheet and a nearly 10% dividend yield. SOLB shares ended the quarter at €25.30.

BSD Analysis:
Greenlight Capital established a top 5 position in Solvay, viewing the essential chemicals company as significantly undervalued at less than 6x trough earnings. The manager believes current earnings of high €3s to low €4s represent a cyclical bottom due to falling soda ash prices, with pro forma earnings of over €5 per share last year providing a baseline. Management's cost-cutting initiatives and operational expansion plans could drive earnings to nearly €7 per share by 2028, representing substantial upside potential. The investment thesis is supported by Solvay's conservative balance sheet and attractive nearly 10% dividend yield, providing downside protection and current income. The company's essential chemicals portfolio, including soda ash, sodium bicarbonate, peroxides, and specialty formulations, serves critical industrial applications with stable demand characteristics. Greenlight's conviction is evidenced by making this a top 5 position and presenting the thesis at the prestigious Sohn Investment Conference. The 10.5% gain from entry price to quarter-end validates the manager's timing and valuation assessment.

Pitch Summary:
Clarus Corp. (CLAR) – Clarus is a consumer products business focused on outdoor adventure gear. Their Outdoor segment is best known for Black Diamond climbing gear, and their Adventure segment is best known for Rhino-Rack roof racks. Clarus is subscale and undergoing a reset after expanding their SKU count a bit too much. The lack of scale and previous lack of focus leads to GAAP financials that are not pretty; the company struggles with profitability. However, looking past what the quants can see, in my view the company has real brand value. Reviewing precedent transactions suggests that outdoor adventure brands trade hands at 1-2x sales, yet Clarus is valued by the market at less than 0.4x sales. By itself this smells like a value trap, but when you consider the alignment and interests of largest shareholder and Chairman Warren Kanders, the picture begins to change. Kanders owns ~18% of the shares at present, has recently bought shares in the open market, and also owns a series of options on 1,000,000 more shares that will only vest if shares trade at greater than $15, $18, or $50 by 2033. Kanders has a long history of value creation, and while thus far his tenure at Clarus has not mirrored his other successes, he is unlikely to sit still. The most recent evidence of this was the May announcement that Clarus would be selling PIEPS, a small subsidiary focused on snow safety, for 1.7x sales and effectively an infinite multiple of EBITDA. It is not exactly clear what will happen next with Clarus, but with plenty of cash on the balance sheet, no real debt, a motivated and experienced operator at the helm, and a totally bombed out valuation, there are multiple ways for us to win. If I had to guess, I would say that over the next 6 to 18 months or so the company will continue to rationalize its operations, and then run a sale process for its remaining assets. Assuming the mid-point of the historic range, shares would be worth around $11.00 gross of any taxes (which are likely to be limited) in an out-right sale of the company. However, given Kanders's options, it is also possible the assets are sold while the entity survives. In this case, I would think that shares would price in some discount to the cash on the balance sheet while Kanders finds some other way to deploy the cash. In both cases, I believe shares are worth more than double today's prices.

BSD Analysis:
The manager presents a compelling turnaround thesis centered on Warren Kanders' significant ownership and alignment. With 18% ownership plus options that vest only at $15-50 by 2033, Kanders has strong incentives to unlock value. The company trades at 0.4x sales versus 1-2x for outdoor gear peers, suggesting meaningful undervaluation. Recent PIEPS divestiture at 1.7x sales demonstrates asset monetization capability. The thesis relies on operational rationalization followed by strategic alternatives, with downside protection from cash-heavy balance sheet and no debt. Management's track record of value creation and recent open market purchases support conviction. Target price of $11 represents 100%+ upside based on precedent transaction multiples.

Pitch Summary:
LP is a business we invested in mid-2023 and represents a Low-Risk Turnaround where the proposition is a commodity-to-specialty transformation story. The company is a leading manufacturer of wood-based building materials produced from its 24 mills and finishing plants, comprising ~4bn sq. ft of Oriented Strand Board (OSB) capacity and ~2bn sq. ft of siding capacity. Historically, OSB was the core output of LP but is a commoditised product in which LP is a price-taker. Group profits and losses swung around and led to highly volatile earnings over the years for a business at the whim of the underlying OSB price. Siding on the other hand is a genuinely differentiated product that gives LP pricing power and generates consistent incremental margins of 25-30%. Made in the same mills as OSB using engineered wood flake and embossed with a grain finish (a processing marvel we've witnessed first-hand at a mill in Upper Michigan), LP 'Smartside' is a sustainable way to wrap homes in an attractive durable substrate that is gaining popularity among small and medium builders. CEO Brad Southern, an ex-forester that took over in 2018 having spent years in the siding business recognised the potential value in remixing the business from OSB to siding and is the architect of the strategy. This is being achieved by repurposing existing mills to increase siding capacity, innovating new high value products (e.g. pre-painted panels and lap board for the repair and remodel market) and improving brand awareness in the distribution network. LP have a significant opportunity to gain share from inferior substrates (e.g. vinyl and PVC) and, over time, displace some fibre cement from incumbents like James Hardie. In Atlanta we visited a construction site of homes wrapped in LP siding and met with the owner of the building company who espoused the virtues of the product. It is cheaper, lighter, more durable, and easier to handle for small crews than fibre cement, which is heavy, brittle and breaks if dropped. This means less wastage and lower labour requirements on the job site, all of which saves the builder money. What's more, as it's made from real wood it looks better and allows the homebuilder to cite the carbon negative aspects of the project. The challenge for LP has been breaching the stronghold of relationships between James Hardie and the large volume builders in the US, which will take time. On this point, a recently announced nationwide supply agreement between LP and Lennar, one of the biggest homebuilders in the US, is highly encouragaing.

BSD Analysis:
Cooper Investors views Louisiana-Pacific as a compelling Low-Risk Turnaround executing a commodity-to-specialty transformation under CEO Brad Southern's leadership since 2018. The investment thesis centers on LP's strategic shift from volatile OSB commodity business to higher-margin siding products with 25-30% incremental margins and pricing power. LP's 'Smartside' engineered wood siding offers competitive advantages over traditional materials - cheaper, lighter, and more durable than fiber cement, while being more sustainable than vinyl/PVC alternatives. The fund conducted on-site due diligence, witnessing the product's manufacturing process and meeting builders who praised its cost and labor advantages. The recent nationwide supply agreement with major homebuilder Lennar validates LP's strategy to penetrate relationships traditionally dominated by James Hardie, representing a significant breakthrough in market access.

Pitch Summary:
Following a significant decline in its share price from recent highs, we began repurchasing the shares of Basic-Fit, the largest Pan-European operator of low-cost gyms, in Q1, and continued to build a position into Q2. Growth in the business has recently slowed due to the combination of macroeconomic consumer softness, inflation, and political instability. In light of this recent softness, investor sentiment has turned cautious, with some now raising "blame the victim" questions about growth cannibalization, member churn, price elasticity, and incremental returns on capital. This has led to an almost 50% share price decline over roughly the past year. At this point, investors appear to accord little if any growth prospects to the company. The shares sell at 8x 2024 FCF and 6.4x 2025 estimated FCF. This is an all-time low as a public company, and far below the 15-30x FCF range in which BFIT has historically traded. We believe the slowdown in BFIT's growth is temporary, and that as the external factors behind it dissipate, EBITDA growth will return to its previous mid-high teens level over the next 3-5 years, with continued strong unit economics. The company has a significant multi-year growth runway tied to relatively low fitness penetration in its major markets and the ability of its low-cost, high-value, gym model to expand the overall market for entry by new members. Therefore, we believe BFIT represents attractive value and will re-rate once growth returns to more normalized levels. To add some detail: With 1,506 clubs opened (as of April 28th), BFIT is already ~3x the size of its next largest European competitor. Since 2016, and despite the pandemic gym shutdowns, BFIT's club growth has compounded at 19%, membership at 18%, revenue at 22% and underlying EBITDA less rent expense at 18%. However, fitness penetration in the company's major markets ranges from just 9% to 18%, compared with 22% in the US. This suggests a multi-year TAM expansion for the company. Studies have shown that fitness is a high priority for younger adults in Europe. As low-cost airlines in Europe have expanded the travel market, we believe the same will be true of low-cost gyms. BFIT has guided to its club network growing to 1,575 by year-end 2024, with a healthy new pipeline of future openings. Currently, 53 clubs are under construction, 104 contracts signed, 149 contracts are being negotiated, and over 400 sites are being researched, which suggests strong near-term growth opportunities. Management has suggested a long-term goal of 3,000 to 3,500 clubs by 2030. The company's clubs enjoy strong unit economics. On average, a club matures after ~2 years, typically reaches profitability in the fifth month after opening, and exhibits a less than 3-year payback on an EBITDA basis. Mature clubs exhibit 45%+ EBITDA margins and 30%+ ROIC. Management is highly experienced, having been in the industry at a predecessor company since 1984 (and under the Basic-Fit brand since 2011), and has established a strong track record of growth. Basic-Fit's CEO and founder, René Moos, is also well aligned with investors with his 11.7% ownership position in the company. On its own, the existing BFIT club base is able to generate ~€592 million in EBITDA at full maturity. On the current enterprise value, this represents an EBITDA multiple of just ~3.7x. Once growth returns to more historical levels, the shares should re-rate closer to their historical average valuation. On consensus FY25 EBITDA, if the EBITDA multiple were to increase to only 9x (the low end of its historical range), this would translate into a share price of €41.47, or just under 2x its current €22 share price. Using the midpoint of its historic range, the stock would trade at €56.40, almost 200% upside from today's price.

BSD Analysis:
Buckley Capital identifies Basic-Fit as a compelling contrarian opportunity following a 50% share price decline driven by temporary macroeconomic headwinds rather than fundamental deterioration. The manager emphasizes BFIT's dominant market position as Europe's largest low-cost gym operator, 3x larger than its nearest competitor, with a proven track record of 19% annual club growth since 2016. The investment thesis hinges on the significant runway for fitness penetration expansion in European markets (9-18% vs 22% in the US) and the company's ability to democratize fitness access through its low-cost model. Strong unit economics support the growth story, with clubs reaching profitability within five months and generating 45%+ EBITDA margins at maturity with 30%+ ROIC. The valuation appears deeply discounted at 6.4x 2025 FCF versus the historical 15-30x range, with the existing club base alone worth 3.7x EBITDA at full maturity. Management's long-term vision of 3,000-3,500 clubs by 2030 from the current 1,506 provides substantial growth visibility, while founder-CEO René Moos' 11.7% ownership ensures strong alignment.

Pitch Summary:
One of the biggest industry crises we've observed in recent years is continuing to play out across the commercial aviation industry. After following the space for over a decade we recently invested in AerCap Holdings N.V (AER) which we see as an attractive and asymmetric Asset Play opportunity. AER is the world's largest commercial aircraft owner and lessor. Aircraft leasing is a straightforward business and AER derives modest scale benefits from being the leading lessor globally. Over time AER has generated a return on equity in the low teens range and has compounded book value per share at ~14% p.a. from 2006 to 2023 while navigating many global crises along the way. We've been particularly impressed by CEO Aengus Kelly who has built a multi-decade track record of value creation through astute capital allocation. This has included value accretive M&A, well-timed orders from large aircraft original equipment manufacturers (OEMs) at favourable prices (e.g. during the peak of COVID in 2020) and opportunistic share repurchases. As with any financing-type business, risk management of the balance sheet is particularly important. We note AER's management team have done an excellent job in this respect as well; liquidity is well managed and gearing levels are appropriate. A key industry observation over the last couple of years has been the commercial aerospace sector's supply challenges. Simply put, the large airframers can't produce enough aircraft to satisfy demand. Deliveries from major OEMs in 2018 were roughly 1,600 aircraft. Five years later they mustered less than 1,300, despite a strong demand backdrop and healthy order books. The feedback through our ongoing engagement with companies across the value chain indicates no quick fix for the supply challenges. Numerous obstacles must be overcome, including mismatched incentives across the supply chain and a shortage of skilled labour at key industry chokepoints. For example, a major element of running aircraft is the need for scheduled servicing in the repair shop, either the airframe itself or with the engine taken off-wing for specific attention. Highlighting this on a recent call whilst discussing Maintenance, Repair and Overhaul (MRO), Aengus observed, "There is tremendous strain in the MRO network. When you have strain in a system, things rarely go well." Technical problems with recently launched aircraft (see the news headlines around Boeing) and new generation engines are an associated outcome that only exacerbate the issues. AER is a significant beneficiary of these dynamics as it owns an asset base in increasingly short supply. Market values for used aircraft are rising, as are lease rates. Today AER trades at roughly net book value, which we think undervalues the true value of the group. In 2023 AER sold over USD$2bn in used aircraft at an 80% premium to net book value, with aircraft sold to sophisticated buyers such as airlines and other leasing companies. This gives a good sense of the latent value on offer today for AER.

BSD Analysis:
Cooper Investors views AerCap as an attractive asymmetric Asset Play opportunity, capitalizing on the ongoing commercial aviation industry crisis. As the world's largest aircraft lessor, AER has demonstrated strong historical performance with low-teens ROE and 14% annual book value growth from 2006-2023. The fund praises CEO Aengus Kelly's capital allocation track record, including value-accretive M&A and opportunistic aircraft purchases during COVID. The investment thesis centers on supply-demand imbalances in commercial aviation, where aircraft deliveries have declined from 1,600 in 2018 to under 1,300 in 2023 despite strong demand. AER benefits from owning increasingly scarce assets, with rising aircraft values and lease rates. Trading at net book value, the fund sees significant undervaluation, supported by AER's 2023 aircraft sales at 80% premiums to book value.

Pitch Summary:
We recently added Hilton Grand Vacations (HGV) to our portfolio at an average price of ~$42.10 per share. HGV is a bulletproof business run by a great management team, trading at an incredible price. HGV is the market leader in the timeshare industry, which has grown mid single digits annualized since the 1970s. The company earns revenues in four different ways: Real estate-Selling timeshare contracts to members (~53%) Financing -Offering financing for members who do not pay cash for their timeshare (~12%) Rental & Ancillary -Renting unused inventory (essentially hotel rooms) to non-members (~7%) Club & Resort-Charging management/membership fees to operate clubs and resorts (~28%) Over the last few decades, the timeshare industry has matured, and shifted towards large strong branded players who can offer members the security of their ownership into the future and a very broad, geographically diverse portfolio of worldwide properties. As a result of these favorable competitive dynamics, the large hotel brand-affiliated players—HGV, Marriott Vacations Worldwide, and Travel & Leisure—have been gaining share. The three have increased their combined market share both organically and via acquisitions from 44% in 2020 to 66% in 2023. HGV has grown the fastest, having transformed significantly since its 2017 spin-off from Hilton Hotels with its acquisition of Diamond Resorts in 2021 and its recent acquisition of Bluegreen Vacations (closed in January). We believe this trend will continue into the future, enabling HGV to grow in excess of the overall timeshare market. Over 50% of HGV's segment-adjusted EBITDA is from sources that are substantially recurring: club membership fees, resort management fees, and financing fees. Timeshare sales are of course more cyclical, and can be economically impacted during a recession. However, HGV has demonstrated sales resilience through multiple cycles. Over the last 20 years, HGV has a track record of steady growth in "tours," which are two-day stays given for free to families in exchange for watching a two-hour sales presentation. Importantly, its close rate of converting these leads into timeshare contract sales has held steady within a tight range, averaging 15% during this period. During the Great Financial Crisis, HGV's revenue only declined 3% vs. 35% for the overall industry, and it eventually took significant share from competitors, growing its market share from 5% in 2007 to 13% in 2017. To take another example, following the COVID shutdowns, HGV's sales rebounded to their pre-pandemic levels quickly. In the medium to long-term, the company has significant growth opportunities from both existing and new customers. As a baseline tailwind, for each $1 of initial purchase, existing owners will purchase an estimated $1.19 in additional upgrades on average over the next 20 years (60% of the profit from a customer comes after the first purchase). The company's new HGVMax program focuses on this upgrading opportunity, and data shows that the recent 2020-22 cohort of owners is upgrading faster and more often than in the past. The company's hotel-brand affiliation with Hilton, combined with its partnerships with Bass Pro Shops and Great Wolf Lodge, also provide significant opportunities for lead generation in reaching a diversified new customer base. In the next few quarters, HGV's fundamentals and growth should outpace the industry, driven by: 1) recoveries in Maui & Japan, 2) synergies from the Bluegreen Vacations acquisition and 3) easier comparisons beginning in the second half of FY24. Any possible reduction in interest rates in the near future would also provide some tailwind to contract close rates and mitigate the risk of defaults. Management has been using its excess cash flows to re-invest in the business, repurchase shares and reduce leverage. The company has plans to both continue to repurchase about $100 million of stock per quarter and reduce leverage from 3.7x (after the Bluegreen Vacations acquisition) to 2x-3x. HGV's current valuation is an attractive entry point, as the market does not fully recognize the value of the company's brand, resilient business model, management, and embedded opportunities to grow EBITDA in the mid single digits and EPS and FCF/share at a double digit clip for an extremely long period of time. Pre-COVID, the stock traded at between 8.5 and 13 times forward EBITDA, and its overall historical range is 7x-13x. The shares currently trade at an EV/EBITDA multiple of about 6.9x consensus FY25 (December) earnings, and a FCF multiple of 4.5x respectively. As our near-term catalysts play out, we believe the shares could potentially double in the next 12 to 24 months.

BSD Analysis:
Buckley Capital presents a compelling bull case for Hilton Grand Vacations, emphasizing the company's market-leading position in the consolidating timeshare industry. The manager highlights HGV's diversified revenue streams, with over 50% of EBITDA coming from recurring sources like membership and management fees, providing defensive characteristics during economic downturns. The thesis centers on HGV's demonstrated resilience through past cycles, including only a 3% revenue decline during the Great Financial Crisis versus 35% for the industry. Key growth drivers include the recent Bluegreen Vacations acquisition synergies, recovery in Maui and Japan markets, and the company's proven ability to generate additional revenue from existing customers through upgrades. The valuation appears attractive at 6.9x forward EV/EBITDA, well below the historical 7x-13x range, with management actively returning capital through $100 million quarterly share repurchases while deleveraging from 3.7x to 2x-3x. The manager sees potential for shares to double over 12-24 months as catalysts materialize.

Pitch Summary:
A company that welcomes uncertainty is CME Group (CME), a Stalwart in which we recently reinitiated a position, having successfully invested historically. Value latency has re-emerged with the shares materially underperforming over the last five years. As the largest derivatives exchange globally, CME offers leading liquidity pools to risk managers across multiple asset classes including equities, interest rates, FX, energy and agricultural commodities. The management culture at CME exemplifies the pragmatic, no-nonsense Midwest attitude that we admire of Chicagoans - no coincidence that the portfolio owns five Chicago-based companies today. This was reinforced in a recent meeting with newly appointed CFO Lynne Fitzpatrick. CME know what they are and what they're not, with a solid track record throughout market fads and blow-ups. The story of CEO Terry Duffy calling out Sam Bankman-Fried as 'an absolute fraud' (at the time he was lauded across the land as a visionary genius) is one recent example of their nose for risk. We see several avenues for CME to grow earnings and cash flows today, irrespective of market volatility, as well as continuing to pay a special dividend implying a yield of ~4-5%. The business rarely changes hands as cheaply as it does today, trading at an average market multiple versus typically trading at a 30-60% premium. With this business routinely generating over 50% returns on invested capital and carrying no debt today, CME is far from an average business.

BSD Analysis:
Cooper Investors has reinitiated a position in CME Group, viewing it as an attractive Stalwart opportunity with significant value latency after five years of underperformance. The fund appreciates CME's position as the world's largest derivatives exchange, offering leading liquidity across multiple asset classes including equities, interest rates, FX, energy, and agricultural commodities. Management's pragmatic culture and risk management expertise are highlighted, exemplified by CEO Terry Duffy's early identification of Sam Bankman-Fried as fraudulent. The investment thesis centers on CME's exceptional capital efficiency, generating over 50% returns on invested capital with zero debt. Trading at average market multiples versus its historical 30-60% premium, the fund sees multiple growth avenues for earnings and cash flows, supported by a 4-5% dividend yield from special dividends.

BSD Analysis:
Longleaf Partners maintains conviction in FedEx despite near-term headwinds from tariff threats and weak demand for premium shipping services. The fund views the pending separation of Express and Freight operations as a significant value catalyst that will unlock shareholder value through improved operational focus and accountability. They believe the market undervalues the Freight division relative to peers, and the separation should provide greater transparency and appropriate valuation recognition. The restructuring is expected to enhance capital discipline at the Express division while providing management teams with greater strategic flexibility. Despite macro challenges, the manager emphasizes FedEx's operational resilience and ability to navigate difficult environments. The fund's continued holding through weakness demonstrates their confidence in the long-term value creation potential from the corporate restructuring. They appear to view current pressures as cyclical rather than structural, with the separation providing a clear path to value realization. The manager's tribute to founder Fred Smith reflects their respect for the company's legacy and strategic foundation.

Pitch Summary:
Alas, not every investment works out as well as Sprouts, and we sold Fortrea during the quarter because management has been unable to deliver on the margin expansion they promised. Fortrea is a contract research organization that runs clinical trials for its biopharmaceutical customers. Following its spinout from Labcorp in June 2023, we anticipated the highly regarded CEO would improve margins towards the peer average over time, a thesis he himself laid out at the time of the spin. Instead, it's been one self-inflicted problem after another, culminating in 2025 guidance that implies margins are heading the wrong way, with the high teens margins we ultimately anticipated nowhere in sight. With the thesis well off track, we took a loss in March.

BSD Analysis:
Penn Davis McFarland's exit from Fortrea represents a disciplined approach to cutting losses when investment theses fail to materialize as expected. The fund's original investment was predicated on margin expansion potential following the company's spinout from Labcorp in June 2023, with management promising to improve margins toward peer averages. The thesis appeared credible given the highly regarded CEO's track record and his explicit commitment to margin improvement at the time of the spin. However, Fortrea has consistently failed to execute on these promises, experiencing a series of self-inflicted operational problems that have prevented the anticipated margin expansion. The 2025 guidance particularly disappointed, indicating margins are moving in the wrong direction rather than toward the high-teens levels the fund had targeted. This deteriorating operational performance and management's inability to deliver on key promises led to the fund's decision to exit the position at a loss in March. The case demonstrates the importance of management execution in investment outcomes and the discipline required to exit positions when fundamental theses break down, regardless of the initial conviction level.

BSD Analysis:
Longleaf Partners views Regeneron as an attractive biotechnology investment despite recent headwinds, emphasizing the company's strong balance sheet with net cash and exceptional management team. The fund appreciates management's disciplined approach to capital allocation, particularly their avoidance of large M&A transactions that often destroy value in the biotech sector. The recent initiation of a share repurchase program demonstrates management's commitment to returning capital to shareholders when the stock trades below intrinsic value. While the market focused negatively on Eylea challenges, the manager notes this drug represents less than 20% of the company's total valuation, suggesting the market reaction was disproportionate. The negative clinical trial outcome for a potential new product created additional selling pressure, which the fund viewed as an opportunity to increase their position at attractive prices. Their willingness to add during weakness demonstrates conviction in the company's long-term prospects and diversified pipeline. The manager appears confident that current challenges are temporary and don't reflect the underlying value of Regeneron's platform and pipeline.

Pitch Summary:
Sprouts Farmers Market, the specialty grocery store chain focused on fresh produce and low cost better-for-you products, has been as outstanding performer. Our first purchase of SFM was made in the summer of 2019 at $17 and change. Several worries were weighing on the shares at the time, including the recent departure of the CEO, sluggish produce pricing and the competitive threat from Amazon's acquisition of Whole Foods, causing the multiple to contract to a reasonable 15x forward earnings. We saw plenty of room for expansion within the large and attractive natural and organic food segment of the grocery industry, and believed the depressed multiple offered an adequate margin of safety. A few weeks later, the company announced the appointment of Jack Sinclair as CEO, who had previously led Walmart's U.S. grocery business, where he drove big growth by pushing local products and fresh foods. Since that initial purchase, Sprouts has grown its store base from 320 stores to 440, and it plans to continue growing its store count by roughly 10% a year. It's ramped up its online offering, expanded the breadth of its private label products, started a loyalty program, and rolled out smaller, more productive new stores. Same store sales growth, a measure of the performance of a retailer's existing stores, hit 7.6% in 2024. With the shares up almost tenfold from our original purchase and trading at over 35x next year's earnings, we trimmed it twice during the quarter. Sprouts is, after all, a grocery store retailer and that's a multiple that would make a software company blush. We are maintaining a right-sized position as the company has substantial operating momentum, but we have taken some chips off the table as the remarkable execution seems priced in.

BSD Analysis:
Penn Davis McFarland presents a compelling case study of successful value investing with Sprouts Farmers Market, demonstrating exceptional returns from disciplined entry timing and thesis execution. The fund initially purchased SFM at $17 in summer 2019 when the stock traded at a reasonable 15x forward earnings amid CEO departure concerns and competitive pressures from Amazon's Whole Foods acquisition. The investment thesis centered on expansion opportunities within the attractive natural and organic food segment, supported by an adequate margin of safety from the depressed valuation. The appointment of Jack Sinclair as CEO, with his proven track record at Walmart's grocery division, validated the turnaround potential. Sprouts has delivered remarkable operational improvements, growing from 320 to 440 stores with plans for continued 10% annual store growth, while achieving 7.6% same-store sales growth in 2024 through enhanced online offerings, expanded private label products, and loyalty programs. However, with shares up nearly tenfold and trading at over 35x forward earnings—an elevated multiple for a grocery retailer—the fund prudently trimmed positions while maintaining exposure to capture continued operational momentum. The case exemplifies disciplined value investing with appropriate risk management as valuations reach stretched levels.

BSD Analysis:
Despite recent underperformance, Longleaf Partners maintains conviction in Kraft Heinz based on the company's strategic shift toward premium offerings and brand portfolio optimization. The manager believes the market is overlooking the quality mix shift toward higher-margin power brands like Heinz, Philadelphia, and Ore-Ida, which should drive improved profitability over time. They acknowledge the challenging industry environment but view the company's brand strength and market positioning as competitive advantages. The potential for Berkshire Hathaway to reduce its stake adds near-term uncertainty, though the manager suggests this situation is more nuanced than market perception. The ongoing strategic alternatives exploration represents a potential catalyst that could unlock significant value through portfolio optimization or strategic transactions. The fund appears to view current weakness as temporary, driven by industry headwinds rather than company-specific fundamental deterioration. Their continued holding suggests confidence in management's ability to execute the premium brand strategy and drive long-term value creation.

Pitch Summary:
MGM Resorts – Hospitality and gaming company MGM Resorts was a contributor. The company continues to report strong quarterly results. This was recognized by the market this quarter, compared to other quarters when results went unappreciated. MGM is also one of our larger share repurchasers in the portfolio, with further simplification and value realization anticipated. We are confident that recession fears are overstated by the market as it overweights the anomaly of the 2008 financial crisis, especially considering MGM is in a better financial position today.

BSD Analysis:
Longleaf Partners expresses strong conviction in MGM Resorts, emphasizing the company's consistent operational performance and improved market recognition. The manager highlights MGM's aggressive share repurchase program, which they view as effective capital allocation that returns value to shareholders. They anticipate further corporate simplification and value realization initiatives that could unlock additional shareholder value. The fund believes recession fears are overblown, arguing that the market is incorrectly extrapolating from the 2008 financial crisis when MGM's balance sheet was significantly weaker. The manager emphasizes that MGM's current financial position is substantially stronger, providing greater resilience during economic downturns. This contrarian view suggests they see MGM as mispriced due to excessive recession concerns. The combination of strong operational results, shareholder-friendly capital allocation, and improved financial strength supports their bullish thesis on the hospitality and gaming sector leader.

Pitch Summary:
HF Sinclair – Energy infrastructure company HF Sinclair was a top contributor for the quarter. One of the primary drivers this quarter was the recent tension in the Middle East helping all things fossil fuels. More normalized refining spreads began to come into view, and HF Sinclair continued to grow its non-refining assets (which are over half of our appraisal). The company has also seen an unusually large and welcome amount of insider buying over the last year.

BSD Analysis:
Longleaf Partners maintains a bullish stance on HF Sinclair, viewing it as an energy infrastructure play with diversified value drivers beyond traditional refining operations. The manager highlights that non-refining assets comprise over half of their valuation, suggesting a more stable and diversified business model than pure refiners. Recent geopolitical tensions in the Middle East have provided tailwinds for fossil fuel companies, while normalizing refining spreads offer improved operational conditions. The significant insider buying activity over the past year signals management confidence and alignment with shareholders. The fund appears to appreciate HF Sinclair's strategic positioning and capital allocation discipline. This holding represents their conviction in energy infrastructure companies that can create value through operational excellence and strategic asset development. The manager's emphasis on the company's diversified asset base suggests they view it as less cyclical than traditional refiners.

Pitch Summary:
A new position is Ratos. This Swedish holding company is loved by few, which we can understand. It has struggled over the last couple of years, with a lack of clear strategic direction. A couple of blow-ups in the portfolio have stolen all the attention, which means that the positive development in holdings such as HL Display has gone unnoticed.

BSD Analysis:
The manager initiated a new position in Ratos, acknowledging the Swedish holding company's unpopularity and recent struggles. The investment appears to be a contrarian play, recognizing that Ratos has faced challenges including a lack of clear strategic direction and several portfolio company disappointments that have dominated investor attention. However, the manager identifies an opportunity in the market's focus on the negatives while overlooking positive developments within the portfolio, specifically citing progress at HL Display as an example of unrecognized value creation. This suggests a classic value investing approach where negative sentiment has created an attractive entry point. As an investment holding company, Ratos's value should ultimately be driven by the performance of its underlying portfolio companies, and the manager appears to believe the market is overly pessimistic about the aggregate portfolio value. The contrarian nature of this investment aligns with the fund's approach of finding opportunities in unloved situations.

Pitch Summary:
Shelly Group is one of the more unique opportunities that I stumbled upon in my time as an investor. Shelly Group is a 20-year-old Bulgarian-headquartered company that was originally named Teracomm Ltd. and later changed its name to Allterco AD prior to renaming the company Shelly Group in 2023. The company shares trade on the German and Bulgarian Stock exchanges. For the last 10 years, the company has focused on development in the smart device and internet of things (IoT) markets. Shelly found early success in the smart device market with the MyKi, a kid's digital watch similar to an Apple Watch, in 2015. Shortly after that, in 2018, the company launched their Shelly brand of home automation devices, which focused on ease of use, versatility, and open programmability. Early success with smart home relay switches used to automate, track, and optimize power switches has eventually allowed Shelly to expand to a wider IoT offering, which now includes energy metering, security, lighting, and control systems. Since their launch, Shelly IoT home automation devices have become well known within the DIY community as the most versatile IoT devices, delivering the highest value. There is a significant community of DIY enthusiasts in Europe that are customer advocates for Shelly Group smart home products. At the current point in time, I view Shelly Group as a very early disruptor in the IoT space. The company has a large and growing TAM, with a massive opportunity to expand into the US and into the professional installer vertical. Shelly is more than just an IoT device designer and reseller. Shelly has developed on their own IoT chip, the "Shelly Chip," which is optimized for smart home usage which is launching in their 3rd generation devices. Shelly is also working on their own Operating System to run on their devices, as they currently use a third-party OS called Mongoose OS. Shelly is creating an open system for running IoT devices selling directly to consumers, while their competitors are taking the opposite approach of creating a closed system exclusively sold through professional installers. I think the Shelly approach will end up with a larger share of the IoT market in the end and offer more value to their customers than the alternatives. The focus of the business since 2018 has been the design and marketing of smart home and industrial building optimization devices, representing over 97% of their 2023 revenues. The niche that Shelly Group fills is the DIY home automation niche, but as they expand their portfolio of products and their geographic footprint, they are beginning to expand into the professional installer market. Shelly's revenue growth since they launched their IoT offerings has been explosive, going from zero to $75 million in just 5 years, most recently showing growth of 57.3% in 2023. This explosive growth is driven by one major factor: Shelly delivers the best value to its customers. Shelly stands out from its competition on all metrics, including affordability, ease of use, available resources online for troubleshooting, and programmability. I will briefly touch on each of the metrics. On affordability, Shelly is priced between high-priced, often closed systems from Western European and US companies like Gira and Siemens and low-quality white-label Chinese products. On ease of use, Shelly's products do not require any centralized hubs or control devices and use WLAN or Bluetooth for easy connectivity. All devices can be managed via an app and are easily programmed through JavaScript. Most of their competitors force users into a specific control environment that requires specific devices to connect and program devices. On available resources, Shelly Group has a vibrant online community of DIY enthusiasts located mainly in continental Europe but expanding rapidly to the US. The company has a Facebook group with almost 90,000 followers as well as a Shelly-supported online ticket system to answer customer questions. On top of that, they offer a knowledge base website with an easy-to-navigate structure that offers APIs, documentation, and installation guides. On programmability, Shelly Group has a philosophy of openness and is agnostic to how their customers want to use their devices. Their devices are compatible with all smart home systems, including Google Home and Amazon Alexa. Connectivity to their devices is done through WLAN or Bluetooth, making them easily accessible to anyone with a smartphone or a wifi router. Their devices will also support the Z-Wave standard through their recent acquisition of Qubino in January. Their devices are programable through Javascript, certain APIs, and the Shelly app. Outside of these main points of product advantages, the business model is extremely interesting due to the Shelly Cloud or Shelly Premium App, which works on a recurring subscription model. Shelly Group relaunched their Premium App in the fall of last year with new functionality and updated features like event logs, visualization, weather-based execution, device failure detection and a whole lot more. The app costs 4 euros a month and will begin to provide some gross margin leverage into the business model. Shelly Group is run by Co-CEO's Wolfgang Kirsh, Dimitar Dimitrov, and Shelly USA CEO Svetlin Todorov. While the mix of CEO responsibilities spread across multiple people is not ideal, it does work in this situation, as the key members of the management team are also the company's largest shareholders. Dimitar and Svetlin were initially co-founders of the company, and they both own 30% and 32% of the shares, respectively. If you are looking for a founder-led management team with skin in the game, this is a near-perfect situation, with current management highly incentivized to grow the value of the company. Shelly has been able to take share quickly in the home automation market because the company is a software company with a user focus rather than a hardware company. While Shelly Group's focus has shifted over the years, its DNA is that of an engineering-led software development company. Shelly Group's initial foray into the IoT market was driven by their own developers' desire for a DIY home automation product that they could easily program themselves. From this core developer focus, the company has built a sizable business within the DIY home automation market, but they have three main levers they are working on that could provide substantial long-term growth opportunities: geographic expansion, adjacent product introduction, and penetration into the professional installer market. Currently, Shelly Group revenues are broken down geographically into 49% DACH countries (Germany, Austria, Switzerland), 43.7% rest of Europe, and 7.3% rest of the world. Shelly Group is relatively new to Amazon and supplying its products to the US. Over the next few years, as the IoT and home automation markets mature, Shelly is in a prime position to expand into the US through both the distributor channel, the online channel, and the professional channel (more on that below). Management has said they expect the US to eventually be equal to the size of the DACH business, if not larger. Shelly Group has historically sold a small number of products within their brand, mainly focusing on power switches. Since 2022, the company has expanded the number of products from 50 to close to 100. These new products have come from expanding into adjacent categories like security and lighting, as well as product lines with additional features. Shelly Blu and Shelly Qubuino product lines have recently been announced or released and have specific product features like upgraded Bluetooth range or Z-Wave device capability. Compared to some of their professional home automation competitors, Shelly still lacks products in several verticals, like home networking, video monitoring, and other IoT categories. As time goes on the product lineup will significantly expand. Shelly has a long history of profitability. They have had profitable net income every quarter since 2018. The company's management sees this profitability continuing even as their growth has taken off. Due to their asset-light model of outsourcing production, they can keep growing at a high rate without the need for incremental capex investments in production facilities. Due to this fact, there will be little need for capital on a go-forward basis outside of investments in inventory as they scale. I expect the only large capital outlays that they might make are either product expansion acquisitions or share repurchases, although due to their low liquidity, I don't expect them to buy back shares anytime soon. Currently, the shares trade at around a forward EV/EBITDA of 21x, which I view as reasonable for a company growing revenues at 45% YoY (as was just pre-announced last week for Q1 results). I view the growth potential for Shelly Group as the largest of the companies in our portfolio, as their growth levers are enormous and their penetration globally is very small. The company issued a 2026 goal last year, in which they see growing revenues to +200 million euros with an EBIT of +50 million euros. If they can execute on their plans by 2026, you are looking at a company growing revenue and EBIT at close to 40% CAGR over that period. I believe not only will Shelly grow at a 40% CAGR, but they could easily grow faster over that period and with better margins than forecasted. 21x EV/EBITDA seems fair to me for a company I want to own and allow it to grow for many years. Shelly Group is in such a unique situation because it has many growth opportunities as well as shares that are largely inaccessible to many investors or undiscovered. With the management alignment, the software developer focus on hardware, and how they fit into the competitive landscape, I believe Shelly Group is remarkably well positioned to grow into a multibillion-dollar company. The plan the company has laid out suggests they will grow by 40% for the next few years and likely above 20% for many years after that. Shelly has all the elements of an exceptional investment.

BSD Analysis:
The manager presents a compelling bull case for Shelly Group, a Bulgarian IoT company disrupting the smart home automation market through a DIY-focused, open-platform approach. The investment thesis centers on explosive revenue growth (57% in 2023, from zero to $75M in 5 years) driven by superior value proposition across affordability, ease of use, and programmability compared to closed-system competitors. Key competitive advantages include proprietary chip development, asset-light manufacturing model, and strong founder-led management with 62% ownership alignment. The company trades at 21x forward EV/EBITDA despite 45% revenue growth, with management targeting €200M revenue and €50M EBIT by 2026 (40% CAGR). Three primary growth levers include US market expansion (currently 7% of revenue), product line extension (doubled to 100 products since 2022), and professional installer market penetration. The recurring subscription model through Shelly Premium App provides additional margin leverage, while consistent profitability since 2018 demonstrates operational discipline during rapid scaling.

Pitch Summary:
Some of the other losers during the month are - unfortunately - more easily explained. The Nordic fashion retailer Lindex had one of their worst quarters in recent history. Logistics was said to be the main culprit according to management and given that Lindex is moving to a new warehouse we can sympathize with that. The share remains attractively valued, and earnings momentum is likely to be regained during H2.

BSD Analysis:
Despite Lindex experiencing one of its worst quarters in recent history, the manager maintains a constructive view on the Nordic fashion retailer. The poor performance was attributed primarily to logistics issues, which management explained as temporary disruptions related to the company's transition to a new warehouse facility. The manager shows understanding of these operational challenges, viewing them as transitory rather than structural problems. The investment case rests on attractive valuation levels following the recent weakness and expectations for earnings momentum to recover in the second half of the year once logistics issues are resolved. As a Nordic fashion retailer, Lindex should benefit from normalized operations and potentially improved margins once the warehouse transition is complete. The manager appears to view the current weakness as a temporary setback in an otherwise sound business model.

BSD Analysis:
Despite being a notable detractor in April, the manager maintains conviction in Getinge, expressing confusion about the negative performance given that Q1 earnings met expectations. The manager acknowledges tariff concerns but notes these are sector-wide issues rather than company-specific problems. While there may have been elevated whisper numbers that weren't met despite hitting official expectations, the manager continues to see attractive risk/reward characteristics in the medical technology company. The investment thesis appears supported by Getinge's improving M&A strategy, with management adopting a more disciplined 'buy quality and cry once' approach that should benefit long-term value creation. As a global medical equipment provider, Getinge should benefit from healthcare infrastructure investments and demographic trends, making the current weakness potentially a buying opportunity for patient investors.

Pitch Summary:
Asmodee, the tabletop gaming spin-off from Embracer, was a strong performer for us. It has come to be one of our larger positions as we also added to the stake during the month. Sales momentum should be strong during the Jan-March quarter, as several of its distributed card games are performing well. We consider Asmodee to be an attractive combination of underlying organic growth, M&A possibilities as well as an undemanding valuation. As the shareholder list matures following the spin-off, we believe further performance could be expected.

BSD Analysis:
The manager expresses strong conviction in Asmodee, the tabletop gaming company spun off from Embracer Group, making it one of their larger positions while adding to the stake during market volatility. The investment thesis centers on multiple growth drivers including strong sales momentum expected in Q1 driven by well-performing distributed card games. The manager views Asmodee as an attractive combination of organic growth potential, M&A opportunities, and reasonable valuation metrics. The spin-off structure creates an opportunity as the shareholder base matures and potentially becomes more focused on the gaming business fundamentals. With the tabletop gaming market showing resilience and growth, Asmodee appears positioned to benefit from both operational improvements and potential strategic transactions. The manager's decision to increase the position during market weakness demonstrates high conviction in the long-term prospects.