Investment Pitches

Pitch Summary:
Finally, HDFC Bank has seen slower deposit growth recently and is working through post-merger integration with its former parent, HDFC Limited. We view these as near-term business issues and continue to view HDFC's management team as industry-leading. As such, we believe HDFC remains well-positioned as one of the dominant banks in the attractively growing Indian economy.

BSD Analysis:
Polen Capital maintains a bullish stance on HDFC Bank despite near-term integration challenges, emphasizing the long-term opportunity in India's growing economy. The slower deposit growth and post-merger integration issues with HDFC Limited are viewed as temporary operational challenges rather than structural problems. Polen's confidence in HDFC's industry-leading management team suggests strong execution capability to navigate the integration successfully. As one of India's dominant private sector banks, HDFC is well-positioned to benefit from the country's economic growth, rising income levels, and increasing financial inclusion. The merger with HDFC Limited creates a larger, more diversified financial services platform with enhanced scale and market presence. India's attractive demographic profile, growing middle class, and underpenetrated banking market provide a favorable long-term backdrop for HDFC's growth. The bank's strong brand, extensive distribution network, and superior asset quality position it to gain market share as the Indian banking sector evolves. Polen's conviction reflects confidence in HDFC's ability to emerge from the integration period as an even stronger competitor in the Indian financial services market.

Pitch Summary:
CVS Health Corp. (CVS) is a diversified healthcare company operating as a Pharmacy Benefits Manager (PBM), health insurer, and retail stores and pharmacies. In January, CVS and other health insurers with large Medicare Advantage plans rose after the Centers for Medicare & Medicaid Services (CMS) published better-than-expected reimbursement rates for 2026. CVS maintained that momentum in February by reporting expected fourth-quarter results. It then reported decent quarterly results. The PBM segment and physical stores were in line with expectations. However, Aetna incurred losses across multiple lines of business, driven by Medicare Advantage and the Exchanges. Despite this, the losses in the health insurance segment were less severe than anticipated, leading to a positive market reaction.

BSD Analysis:
The manager maintains a constructive view on CVS despite mixed operational results across its diversified healthcare platform. The positive catalyst came from better-than-expected Medicare Advantage reimbursement rates for 2026, providing visibility into improved profitability for this key segment. While the Aetna insurance division experienced losses in Medicare Advantage and Exchange plans, the manager emphasizes these losses were less severe than feared, suggesting operational stabilization. The PBM and retail pharmacy segments performed in-line with expectations, indicating steady cash flow generation from core operations. CVS's diversified model provides multiple revenue streams and cross-selling opportunities across its integrated healthcare ecosystem. The manager appears to view current challenges as transitory headwinds rather than structural issues. The stock's positive reaction to better-than-expected insurance losses suggests the market was overly pessimistic about the company's prospects.

Pitch Summary:
Temenos experienced weakness last quarter following the publication of a "short report" that accused the company's management of utilizing aggressive accounting practices. We do not take such allegations lightly and have discussed them at length with Temenos' management team. Furthermore, the company's management extensively addressed and refuted the allegations at a recent investor day. We continue to be comfortable with Temenos' accounting practices and view them as appropriate for an enterprise software company.

BSD Analysis:
Polen Capital maintains confidence in Temenos despite the short seller attack, viewing the accounting allegations as unfounded after thorough due diligence. The firm's extensive discussions with management and the company's detailed refutation at the investor day provide comfort regarding the integrity of financial reporting. Polen views Temenos' accounting practices as appropriate for an enterprise software company, suggesting the short report may have mischaracterized standard industry practices. The weakness following the short report likely created a temporary valuation disconnect for a fundamentally sound business. Temenos operates in the attractive banking software market, providing mission-critical core banking systems that have high switching costs and generate recurring revenue. The company's software solutions are essential for financial institutions' daily operations, creating a defensive revenue base. As a leading provider of banking technology, Temenos benefits from digital transformation trends in the financial services industry. Polen's continued conviction suggests they view the current situation as a temporary setback rather than a fundamental challenge to the investment thesis.

Pitch Summary:
UNH had a quarter from hell. On April 11, its stock closed at $599. About a month later, it lost over half its value, closing at $274. If the sudden evaporation of 55% of the firm's market capitalization was simply a matter of animal spirits resetting and the underlying business was unaffected, we might, with great effort, convince ourselves that this was merely a particularly dramatic display of the random walk of Wall Street. That is not what happened. In January, the company announced its 2024 results and affirmed its earnings guidance for the current year, projecting adjusted earnings would grow 7% in 2025. That was a lower-than-ideal growth rate, but the company was seeing greater healthcare utilization and dealing with unfavorable changes in Medicare payment rates. On April 7, the federal government announced that Medicare payment rates would increase by 5.1% for 2026, more than double the 2.2% it had originally proposed and materially greater than inflation. Medicare Advantage providers looked to recoup some of the margin compression they experienced in the last two years, and UNH's stock was close to its all-time high. On April 17, UNH announced first quarter adjusted earnings 4% above the prior year's, but unfortunately, UNH also revised down its earnings forecast for the full year to around $26 per share, down from $30. That is, instead of growing 7%, UNH now expected to shrink 6%, which implied an especially steep drop for the back end of the year. Then-CEO Andrew Witty gave two explanations for the change in prospects: 1) Its Medicare Advantage patients, particularly those who access Advantage through groups such as public employee retirees, consumed far more healthcare than expected. And 2) its OptumHealth division, which provides comprehensive care to its patients, added large slates of new enrollees from plans that exited the market, and those new patients were much sicker than expected, requiring more care. Perhaps these problems would be transitory. If public employee retirees were unusually crowding doctors' offices in the first quarter, maybe behavior would revert to norms over time. If seniors who had previously fallen through the gaps were now seen by Optum doctors, it would be expensive to treat right away, but then these members would be healthier next year and more profitable. It turned out the problems were not transitory. On May 13, the company announced that the increased medical usage had not only spread to other Medicare Advantage enrollees, but to its corporate and Medicaid members, particularly those with complex conditions. It pulled guidance entirely, and CEO Witty was fired with immediate effect—officially designated as a departure for "personal reasons"—and replaced by Stephen Hemsley, the company's éminence grise and CEO from 2006–2017. Witty was never ideally suited for this CEO role. He was previously the CEO of pharmaceutical giant GlaxoSmithKline, which is technically in the broader healthcare space, but drugs really are a different beast than insurance. Hemsley's many years running the core insurance business seems to be a better fit for the company's current challenges. Just two days later, on May 15, the Wall Street Journal reported that the Department of Justice was now investigating the company for criminal Medicare fraud for "upcoding" patients with medical conditions they did not have. On June 2, the Wall Street Journal ran the obligatory story lambasting Witty for being an absentee CEO who commuted by jet to Minnetonka, Minnesota, from Buckinghamshire, England, and was in over his head. Hemsley, who had started coming into the office to meet with senior executives almost daily since April, had essentially deposed Witty weeks before the formal announcement. Victory has a thousand fathers, defeat is an orphan. Where does this leave us today? The market value of UNH is around $280 billion. For that price, we are getting a company that earned $26 billion in 2024 and was originally projected to earn $27 billion this year, a real bargain at only 10 times earnings. Of course, management no longer thinks it can earn that, and for what it's worth, Wall Street analysts expect earnings to come in at about $20 billion, which is still a really attractive valuation. In some sense, the company's utilization challenges are similar to the one that Progressive faced post-pandemic when used-car prices skyrocketed and drivers got into more accidents. Progressive re-priced their policies to account for this, which hurt subscriber growth in the short term, but improved margins back to their target levels. Healthcare insurance isn't the same as auto insurance, but some of the same principles apply. UNH management is re-pricing its plans for 2026 to account for higher utilization, which should bring its margins back in line, likely giving up some growth, similar to Progressive. Given how low expectations are and how cheap the stock is, we don't think the company has to pull off anything miraculous for things to work out. The raw math is compelling, but the risks are real. A DOJ investigation is never good news. Is there more to the fraud investigation than meets the eye? How could the company, in a matter of weeks, go from a modestly rosy outlook to such a disastrous decline in guidance that resulted in firing the CEO? Has something structurally changed in the industry that we're not aware of that will permanently depress the business's economics? We're betting no. The health insurance industry is often the punching bag for the other stakeholders in the healthcare landscape and people frustrated with the American healthcare system. For decades, UNH managed to generate significant cash flow and grow it at a torrid rate despite a regular drumbeat of bad press. We continue to believe that industry fundamentals are powerful, and UNH in particular has excelled over decades. UNH provides coverage for 50 million people in the US and performs health services for over 100 million patients a year, almost a third of all Americans. We're cautiously optimistic they'll stabilize their business and the stock will eventually respond in kind.

BSD Analysis:
The managers present a compelling contrarian case for UnitedHealth Group following a dramatic 55% stock decline from $599 to $274. The thesis centers on valuation attractiveness, with the company trading at approximately 10x earnings based on 2024's $26 billion in earnings, or 14x if using Wall Street's reduced $20 billion estimate for 2025. The fund acknowledges significant operational challenges including higher-than-expected medical utilization across Medicare Advantage, corporate, and Medicaid segments, leading to earnings guidance cuts and CEO Andrew Witty's termination. However, they draw parallels to Progressive's successful repricing strategy post-pandemic, expecting UNH to similarly adjust 2026 plan pricing to restore margins. The managers view the leadership change to Stephen Hemsley, the former CEO with deep insurance experience, as positive for navigating current challenges. While acknowledging risks including the DOJ fraud investigation and structural industry concerns, they believe UNH's dominant market position serving 50 million covered lives and 100 million patients annually, combined with historically strong cash flow generation, supports their cautiously optimistic outlook for business stabilization and eventual stock recovery.

Pitch Summary:
American International Group Inc. (AIG) is a leading commercial insurance company, providing property-casualty insurance, life insurance, and risk management products. Over the quarter, shares of AIG rose after the insurer authorized the repurchase of $7.5 bn of common stock and announced an ambitious 2025-2027 growth target for operating earnings per share. We believe AIG is poised for further improvements in operating performance. AIG has an improving return on equity and good management that is committed to smart allocation of its excess capital, which its current valuation does not fully reflect.

BSD Analysis:
The manager presents a bullish thesis on AIG based on capital allocation and operational improvements. The $7.5 billion share buyback authorization and ambitious earnings growth targets for 2025-2027 demonstrate management's confidence in the business trajectory. The fund highlights AIG's improving return on equity as evidence of operational progress under competent leadership. The manager believes the current valuation fails to reflect the company's improving fundamentals and disciplined capital allocation strategy. This represents a classic value play where operational improvements and shareholder-friendly actions should drive multiple expansion. The insurance sector positioning provides defensive characteristics while the capital return program offers near-term catalysts. The manager's confidence in management quality suggests sustainable competitive advantages in the commercial insurance space.

Pitch Summary:
Teleperformance's stock price has been under pressure this year due to a combination of factors. The first is a weaker macroeconomic backdrop that has led to a short-term reduction in customer spend. We have seen this dynamic across the IT services industry and do not believe it is specific to Teleperformance. Secondly, the company's 2023 acquisition of Marjorel may be slower to integrate than initially expected. We believe the company's competitive advantages are unchanged, and we view the weaker operating performance as a function of the economic backdrop. The stock's current forward 12-month P/E multiple of 6x reflects negative sentiment toward the industry. In the long run, our research indicates that the company can grow its earnings at a healthy double-digit rate.

BSD Analysis:
Despite near-term headwinds, Polen Capital maintains a bullish long-term view on Teleperformance based on attractive valuation and intact competitive advantages. The current 6x forward P/E multiple reflects excessive pessimism and creates a compelling entry point for a quality business. The reduction in customer spending appears cyclical rather than structural, affecting the broader IT services industry rather than being company-specific. While the Marjorel acquisition integration is proceeding slower than expected, this represents a temporary execution issue rather than a fundamental problem with the business model. Teleperformance's global scale, operational expertise, and diversified client base provide competitive moats in the customer experience management industry. The company benefits from the ongoing trend toward outsourcing of customer service functions, particularly as businesses seek cost efficiencies. Polen's research suggests the company can achieve healthy double-digit earnings growth over the long term as economic conditions normalize and integration synergies materialize. The current weakness presents an opportunity to own a market-leading business at a discounted valuation.

Pitch Summary:
Aon was another contributor to relative performance during the quarter. The company ended its FY2023 with high-single-digit organic revenue growth and low-double-digit profit growth, which aligns with our long-term expectations. Management is guiding for mid-single-digit or better organic revenue growth for FY2024, with expectations for expanding operating margins. Additionally, Aon's acquisition of NFP brings the company into the middle-market insurance brokerage space for the first time, where we think its brand and scale should be advantageous.

BSD Analysis:
Polen Capital views Aon favorably based on the company's consistent execution and strategic positioning in the insurance brokerage industry. The high-single-digit organic revenue growth and low-double-digit profit growth in FY2023 demonstrate Aon's ability to expand margins while growing organically. Management's guidance for mid-single-digit revenue growth with expanding margins suggests continued operational leverage in the business model. The NFP acquisition represents a strategic expansion into the middle-market segment, where Aon's established brand and global scale should provide competitive advantages. This acquisition diversifies Aon's client base and creates cross-selling opportunities across different market segments. As a leading insurance broker, Aon benefits from increasing insurance penetration globally and rising premiums, which drive commission growth. The company's risk management and human capital consulting services provide additional revenue streams and deepen client relationships. Polen's confidence reflects Aon's ability to generate consistent cash flows and expand market share through both organic growth and strategic acquisitions.

Pitch Summary:
Workday (WDAY) is a leader in cloud application software for back-office business functions including human capital management, financials management, and ERP (enterprise resource planning). Stock price was negatively impacted by a reduction in 2025 revenue guidance. Management noted the pressure on current year sales is macro-related. We believe Workday has a formidable competitive advantage that trades at an attractive valuation for a company with premier franchise potential.

BSD Analysis:
The manager maintains conviction in Workday despite recent guidance reduction, viewing the stock weakness as a buying opportunity for a market-leading SaaS company. Workday's dominant position in cloud-based human capital management and enterprise resource planning software creates significant competitive moats through high switching costs and deep customer integration. The 2025 revenue guidance cut appears to be macro-driven rather than company-specific, suggesting temporary headwinds rather than structural challenges. The fund emphasizes Workday's "formidable competitive advantage" and "premier franchise potential," indicating confidence in the company's long-term market position. The current valuation is viewed as attractive relative to the company's quality and growth prospects in the enterprise software market. This represents a contrarian value play on a high-quality SaaS leader during a temporary growth deceleration. The manager appears confident that Workday's competitive advantages will drive superior returns once macro conditions improve.

Pitch Summary:
Our largest and highest-conviction investment is Valaris (VAL). Valaris is the largest offshore drilling company in the world. As mentioned earlier, the developed world – predominantly Europe – has set out on a crusade to destroy its energy sector. Meanwhile, demand for oil keeps growing at roughly 0.4x global GDP growth, down from 0.8x a decade ago. This demand gets fulfilled by production growth in Offshore Brazil and Western Africa, with some growth coming out of the Middle East as well. Fortunately for VAL, these are all offshore regions which require their rigs to drill wells. Offshore oil projects are generally part of very long-term plans. They should all be economically viable as long as oil stays above $50 or $60 per barrel. And offshore even has the lowest carbon footprint of all oil & gas projects. Oil & gas have been in a downcycle since 2014. When the price of oil collapsed in 2014, many oil rigs were 'stacked' in the Canary Islands in hope of better times. No offshore rigs have been ordered since then. As demand for rigs has slowly recovered, all those rigs have returned to work. And while the number of idle rigs has dried up, the day rates those rigs charge their customers has risen steadily. Meanwhile, all the large rig operators except Transocean have filed for bankruptcy at least once. They emerged from bankruptcy with clean balance sheets. We have owned Valaris in funds we managed previously since its emergence from bankruptcy in 2021. At that time, day rates for deepwater rigs were around $200k / day (versus all-in costs of just below $200k / day) and the thesis was that the market would tighten and day rates would go up. 3 years later, the market has tightened and day rates have now breached $500k / day. At those day rates, VAL should generate around $1,650m in free cash flow compared to a market cap around $5b – roughly 3x FCF. VAL just needs a few more quarters to put its entire fleet to work at current day rates. We also believe day rates could rise further from today's levels. That makes VAL cheap-to-supercheap on a FCF basis. By buying VAL at today's price, you effectively buy a fleet of deepwater rigs and shallow water Jackups for an equivalent price of $250m per deep water rig. In June, competitor Noble Corp acquired Diamond Offshore for an equivalent price of $350m per rig. Those rigs cost around $750m to build 10 years ago. Given inflation and a higher cost of capital, it should cost anywhere between $1b to 1.5b to build an equivalent rig today. Importantly, no bank or shipyard today would be willing to finance the construction of a new rig given the uncertainty in the industry. After all, a rig is built for a lifetime in excess of 20-30 years. If day rates continue to rise in line with our expectations, we believe Valaris should trade closer in line with its replacement cost, which is 4x to 6x the current share price. Add a few years of FCF generation, and VAL is setting up to be a multi-bagger. Our conviction stems from the simplicity of this thesis. We only have to look at Tidewater's recent performance to see what happens when FCF generation starts to really get going. In fact, we believe that most Tidewater investors will gladly change their position for the much cheaper Valaris. Nobody who follows the industry seems to dispute the FCF generation potential of VAL. However, the market seems to be waiting for the actual inflection in FCF to happen in early 2025. Given the upside we see in this stock, we are happy to be a few quarters early.

BSD Analysis:
Night Watch presents a compelling value thesis on Valaris, the world's largest offshore drilling contractor, based on a cyclical recovery in day rates and structural supply constraints. The manager's thesis centers on the dramatic improvement in day rates from $200k to $500k per day over three years, driving the company toward generating $1.65 billion in free cash flow against a $5 billion market cap. The investment case is strengthened by the complete absence of new rig orders since 2014 and the prohibitive cost of replacement rigs ($1-1.5 billion today versus $750 million historically). With offshore demand growing in Brazil, West Africa, and the Middle East, and the existing fleet nearly fully utilized, Valaris trades at a significant discount to replacement value. The manager's valuation framework suggests 4-6x upside potential based on replacement cost analysis, supported by recent M&A activity showing higher per-rig valuations. The timing appears favorable as the company approaches full fleet utilization in early 2025, positioning it as a potential multi-bagger investment.

Pitch Summary:
After delivering a robust fourth quarter, SAP's stock price again rose significantly in 1Q 2024 due to solid 4Q 2023 earnings and full-year 2024 guidance that management revised modestly higher. Importantly, SAP's transition to the cloud, a core part of our investment thesis, continues at a healthy pace, and the company is seeing compelling cloud revenue growth and expanding cloud gross margins. Management is guiding cloud sales growth through 2025 in the mid-20% range, which we view as reasonable and attractive. We also view SAP as one of the more resilient software business models, as it is an essential part of its customers' day-to-day operations and cannot easily be turned off or scaled back.

BSD Analysis:
Polen Capital's bullish thesis on SAP centers on the company's successful cloud transformation, which is driving compelling revenue growth and margin expansion. The cloud transition represents a fundamental shift in SAP's business model toward higher-margin, recurring revenue streams. Management's guidance for mid-20% cloud sales growth through 2025 demonstrates strong execution and market demand for SAP's cloud offerings. The company's mission-critical ERP software creates significant customer switching costs, making SAP's revenue base highly resilient even during economic downturns. This defensive characteristic, combined with the growth potential from cloud migration, creates an attractive risk-adjusted return profile. SAP's dominant position in enterprise software and the essential nature of its products provide pricing power and visibility into future cash flows. The revised higher guidance for 2024 reflects management's confidence in the business trajectory and validates Polen's investment thesis around the cloud transformation story.

Pitch Summary:
Alphabet's Google (GOOGL) declined in the quarter after reporting mixed Q4 earnings results. Shares continue to trade at an attractive valuation despite healthy growth potential, an overcapitalized balance sheet, and significant value in Cloud, Other Bets, and new advertising products.

BSD Analysis:
The manager views Alphabet's recent decline as creating an attractive entry point for a high-quality technology company with multiple growth drivers. Despite mixed Q4 earnings that pressured the stock, the fund emphasizes Alphabet's compelling valuation relative to its growth prospects across search, cloud computing, and emerging advertising products. The investment thesis highlights the company's overcapitalized balance sheet, suggesting potential for significant capital returns or strategic investments. The manager sees substantial embedded value in Google Cloud, the Other Bets portfolio, and new advertising innovations beyond the core search business. This represents a value play on a dominant technology platform during a temporary earnings disappointment. The fund appears confident in Alphabet's long-term competitive advantages and diversification efforts across multiple high-growth technology markets. The position reflects conviction in the company's ability to monetize its technological leadership and vast user base across expanding digital advertising and cloud infrastructure markets.

Pitch Summary:
ICON was the Portfolio's largest contributor to relative performance during the quarter. The company's 4Q 2023 earnings were broadly in line, and management's guidance for the FY2024 (fiscal year) was generally better than expected, forecasting revenue growth in the mid-single-digit range and earnings growth in the mid-teens range.

BSD Analysis:
Polen Capital maintains a bullish stance on ICON following solid Q4 2023 results that met expectations and improved FY2024 guidance. Management's forecast of mid-single-digit revenue growth and mid-teens earnings growth demonstrates the company's ability to expand margins while growing the top line. The better-than-expected guidance suggests ICON is well-positioned to benefit from continued pharmaceutical R&D spending and clinical trial demand. As a leading contract research organization, ICON benefits from the outsourcing trend in drug development, providing essential services that are difficult to replace. The company's global scale and expertise in clinical trials management position it to capture market share in the growing life sciences tools sector. Polen's confidence in ICON reflects the company's competitive advantages in a resilient, growth-oriented industry. The strong relative performance contribution validates the investment thesis around ICON's earnings growth potential.

Pitch Summary:
WPP (WPP) is a large ad agency holding company. WPP's stock price came under pressure following weaker-than-expected Q424 earnings results. The company trades at a low multiple of consensus earnings with a good balance sheet, we believe WPP can deliver near mid-teens returns from the combination of capital return and capital-free organic growth.

BSD Analysis:
Despite recent earnings disappointment, the manager maintains a bullish stance on WPP based on attractive valuation and capital allocation potential. The world's largest advertising company is trading at low earnings multiples following weaker Q4 2024 results, creating a value opportunity. The investment thesis rests on WPP's ability to generate mid-teens returns through a combination of capital returns to shareholders and organic growth that requires minimal capital investment. The manager emphasizes the company's strong balance sheet as providing financial flexibility for shareholder-friendly actions. This represents a contrarian value play on a market-leading advertising agency during a temporary earnings trough. The fund appears confident in WPP's ability to recover from recent operational challenges while benefiting from the asset-light nature of the advertising business model. The position reflects conviction in the company's long-term competitive position despite near-term headwinds.

Pitch Summary:
Siemens (SIE.GR) is a global leader in electrical engineering. The company focuses on industry (automation, software and drives), healthcare, and infrastructure (transport, building technologies, power distribution). Shares moved higher in the quarter as reported earnings exceeded expectations. Siemens continues to trade at a discount to the market and a significant discount to competitors due to its complexity and conglomerate discount.

BSD Analysis:
The manager views Siemens as an undervalued industrial conglomerate trading at an attractive discount despite strong operational performance. The company's diversified portfolio spans automation, software, healthcare technology, and infrastructure solutions, positioning it across multiple growth markets. Recent earnings outperformance demonstrates the underlying business strength across these segments. The investment thesis centers on the valuation disconnect, where Siemens trades at a discount to both the broader market and direct competitors due to conglomerate complexity. This creates an opportunity for value investors to access a global leader in electrical engineering and industrial automation at compelling valuations. The manager appears confident that the market will eventually recognize the intrinsic value of Siemens' diversified industrial platform. The position reflects a classic value play on a quality industrial company suffering from a conglomerate discount despite solid fundamentals and earnings growth.

Pitch Summary:
Babcock International (BAB.LN) is a UK government outsourcer with ~60% of revenue from Ministry of Defense (MoD) contracts. The company performed well in Q1 after guiding for higher revenue growth. Revenue growth and profitability should continue as the UK and other European countries invest more in defense spending.

BSD Analysis:
The manager presents a bullish case for Babcock International based on increasing defense spending trends across Europe. With approximately 60% of revenue derived from UK Ministry of Defense contracts, the company is well-positioned to benefit from rising defense budgets. The Q1 performance was strong, supported by management's guidance for accelerating revenue growth. The investment thesis is anchored on the geopolitical backdrop driving increased defense expenditures across the UK and broader European markets. This creates a favorable operating environment for government defense contractors like Babcock. The manager views the company as a direct beneficiary of the structural shift toward higher defense spending in response to regional security concerns. The position represents exposure to the defense industrial complex through a UK-based contractor with established government relationships and contract visibility.

Pitch Summary:
CVS Health Corp. (CVS) is a diversified healthcare company operating a Pharmacy Benefits Manager, health insurer, and retail stores and pharmacies. CVS outperformed in Q1 on improved earnings and forward guidance. We believe CVS is on a sustainable path to improved profitability, which will help reduce debt and restore margins.

BSD Analysis:
The manager presents a bullish thesis on CVS Health based on operational improvements and financial recovery. The fund views the company's diversified healthcare model spanning pharmacy benefits management, health insurance, and retail operations as positioned for sustainable profitability gains. Recent Q1 outperformance was driven by better-than-expected earnings and forward guidance, suggesting management execution is on track. The investment thesis centers on CVS's ability to improve margins while reducing debt levels, indicating a balance sheet repair story. The manager appears confident in the company's turnaround trajectory across its integrated healthcare platform. This represents a value play on a healthcare services company trading at attractive levels during a recovery phase. The position reflects the fund's focus on undervalued companies with improving fundamentals and clear paths to margin expansion.

Pitch Summary:
Lastly, we wrote about Equitrans Midstream (ETRN) in the 2023 mid-year letter, primarily discussing that company's long and expensive journey completing the Mountain Valley Pipeline and the short-term opportunity we took advantage of. After all the hand wringing and stress with respect to that one project the whole business will end up right where it started, as part of EQT Corp. (EQT). In March, EQT announced they are acquiring each ETRN share for .3504 EQT shares. The transaction should close within the next several weeks. EQT is the top natural gas producer in the United States with a dominant position in the Appalachian Basin and will become one of the lowest cost gas producers in the US, if not the lowest, after consummating this merger. Our fund is going to exchange the ETRN shares and become EQT owners. The investment checks important boxes for us: 1) a disciplined management team focused on tangible value creation; 2) an ability to generate significant FCF that gets returned to shareholders; 3) exposure to a commodity with strong secular demand trends, which gives us a call-option on higher prices. At only 5% of our assets it will start as a small position for us, but with natural gas prices volatile and back in the low-$2's we should have ample opportunity to exploit the volatility over time and hopefully make it bigger.

BSD Analysis:
Legacy Ridge views EQT as an attractive natural gas investment following the ETRN merger, which will create the largest and potentially lowest-cost gas producer in the US. The investment thesis centers on three key pillars: disciplined management focused on value creation, strong free cash flow generation with shareholder returns, and exposure to natural gas with favorable long-term demand dynamics. The managers appreciate EQT's dominant Appalachian Basin position and see the current low natural gas prices ($2 range) as creating volatility-driven opportunities to build the position over time. Starting at 5% allocation provides flexibility to increase exposure during price weakness. The combination of operational excellence, capital discipline, and commodity exposure at attractive entry levels aligns well with their value-oriented, contrarian investment approach. This represents a classic cyclical energy play with strong fundamentals and patient capital deployment strategy.

Pitch Summary:
Summit Midstream is more a bet on the jockey than the horse. This wasn't the case when I made the initial investment several years ago and I'm guilty of shifting my original investment thesis, as one is prone to do when a stock goes down over 70%. Nine out of ten times this is a big mistake, but our current wager that Heath Deneke and team will straighten this company out is looking like a decent one. Within the past couple months the company divested $700mn worth of assets (the Enterprise Value was only $1.6 billion the day before the announcement), added long-term take-or-pay contracts to the Double E pipeline, and announced a C-corp conversion. The asset sales occurred in two separate transactions, allowing SMLP to fully exit their position in the Utica and Marcellus basins at a 7.4x multiple. After the asset sale, management embarked on a broader refinancing package, issuing new Senior Secured 2nd Lien Notes due 2029 at 8.625%, while redeeming all other maturities with a little help from the credit facility. With several quarters of FCF capable of paying down the ~$120mn drawn on the revolver, by 2026 the only debt remaining should be $575mn from the new Notes. Total net obligations are down 63% in 4-years and leverage has declined from 5.4x at the end of last year to 4x today. As a result, interest expense continues to decrease materially, from $127mn in 2023 to potentially as low as $50mn by late 2025. Management has a leverage target of 3.5x before distributions on the preferred or common equity are reinstated, but we think there is a far better use of capital than dividends. The base business is worth $60-$70 a share in our opinion and Double E is worth $18+ a share, for a combined value of ~$80, or 125% above the current price. At such a steep discount to intrinsic value investors would be far better served by share repurchases than they would by dividends. We hope Heath and team change tact when that time comes, but regardless there is a lot of value left to capture.

BSD Analysis:
Legacy Ridge's SMLP investment represents a classic turnaround story centered on new management's execution capabilities. CEO Heath Deneke has orchestrated a dramatic balance sheet restructuring, divesting $700 million in non-core assets at attractive 7.4x multiples while securing long-term contracts for the Double E pipeline. The financial transformation is impressive: net obligations down 63% over four years, leverage declining from 5.4x to 4x, and interest expense potentially falling from $127 million to $50 million by 2025. The managers value the combined entity at approximately $80 per share (125% upside), split between $60-70 for the base business and $18+ for Double E. Their preference for share buybacks over dividend reinstatement at current valuations demonstrates sophisticated capital allocation thinking. This investment exemplifies their willingness to back proven management teams executing value-creating strategies in distressed situations.

Pitch Summary:
One of the sectors we know well which had been out of favor for several years has quickly come into favor: Independent Power Producers (IPPs). We've written consistently about NRG and VST since the 2019 letter, have owned each, or both, since 2018, and invested a meaningful amount of our assets in VST specifically the past few years. Nate and I intend on spending more time in the year-end letter on our updated views on the IPPs and our learnings from the on-going investment, but we were a bit surprised how quickly the narrative around these companies changed. Our Blue Sky 2030 estimates of intrinsic value converged with the share price 6-years before we thought probable. In the 2019 letter, with respect to VST, we wrote: "Over the next decade management should have close to $15 Billion to deploy to share repurchases. If you assume they have to pay an average price for the stock that's higher than the current one, and they can only repurchase 60% of shares outstanding instead of the 100% the math implies, FCF per share in 2030 would be $14. That's a $70 stock at today's valuation, but a $140 stock at a more reasonable FCF yield of 10%." And… "The IPPs are un-investable for most money managers, so there we are. When they become investable we'll probably be long gone." We're not exactly long gone, but sentiment has certainly surpassed investable. After 5+ years of VST trading between $17 - $26 a share—and $26 exactly a year ago—it hit a high of $107 in May on the heels of the Artificial Intelligence (AI) narrative and the implications for electricity demand. While we agree with the prevailing consensus view that more Data Centers will be built, Data Centers require base load energy, and that the US will probably be short base load energy, predicting the rate of any technological advancement is not our area of expertise, and we feel the margin of safety has dissipated. Therefore, what had been our largest position entering 2023 and 2024, and has been our greatest contributor to performance, is now one of the smaller positions in the fund.

BSD Analysis:
Legacy Ridge has significantly reduced their Vistra position after a remarkable run from $26 to $107 per share, driven by AI-related electricity demand expectations. The managers originally identified VST as deeply undervalued with substantial share buyback potential, projecting $14 FCF per share by 2030 and fair value of $70-140. Their 2019 thesis proved prescient as the stock appreciated 300%+ in just one year. However, they now view the margin of safety as dissipated despite agreeing with the fundamental thesis around data center electricity demand. The position sizing reduction reflects disciplined profit-taking rather than a fundamental disagreement with the long-term opportunity. This demonstrates strong risk management as they trim winners when valuations become stretched, even in sectors where they have deep expertise.

Pitch Summary:
Fairfax Financial Holdings ("Fairfax"), a Toronto-based global property and casualty (P&C) insurance and reinsurance conglomerate, operates a decentralized insurance model with a centralized investment approach. Its autonomous insurance units generate substantial premiums, or "float," which Fairfax's investment team deploys across public and private markets. This disciplined strategy has delivered exceptional results: over nearly four decades, Fairfax has achieved an average return on equity (ROE) exceeding 16% and a stock price compounded annual growth rate (CAGR) of approximately 18%. In July 2023, Silver Beech established a position in Fairfax at a valuation we deemed significantly undervalued. This decision followed an in-depth thematic study of "float-based" business models, which helped us build conviction in their resilience and earnings power in a rising interest rate environment. During the zero-interest rate policy (ZIRP) era post-Great Financial Crisis and COVID, float held limited value due to low time value of money. However, the sharp interest rate hikes in 2022 to curb inflation created a powerful tailwind for float-driven models. Fairfax stood out with the highest float-per-share among insurers and a prescient strategy of holding short-duration credits during ZIRP, enabling profitable reinvestment into higher-yielding, longer-duration credits with minimal capital losses as rates rose. The P&C insurance market has been in a hard market cycle since 2018, marked by rising premiums, tighter coverage, and stringent underwriting standards, driven by weather-related losses and economic and social inflation. Fairfax's management has adeptly capitalized on this attractive environment, fortifying its capital base to support robust policy growth. As the market shows early signs of softening, Fairfax has prudently moderated premium growth relative to industry averages, demonstrating restraint and disciplined growth. Since July 2023, this rare alignment of undervaluation, improving fundamentals, and exemplary execution by Fairfax's management has yielded outstanding results. Through the second quarter of 2025, our investment in Fairfax has outperformed all 50+ companies in the S&P Insurance Industry Select Index, delivering a 65% gross IRR for Silver Beech. Our investment in Fairfax embodies Silver Beech's disciplined philosophy. We seek downside-protected opportunities in undervalued companies with strong management, anchor our conviction in rigorous top-down thematic research, leverage our industry expertise to navigate capital cycles, and make concentrated investments to maximize the Fund's performance. We have actively managed Fairfax's weighting in our portfolio, capitalizing on its wide valuation gap and improving fundamentals in 2023 while gradually reducing exposure as the valuation gap narrowed. We remain shareholders of Fairfax, confident in the company's prospects for the following reasons: • Sustained Mid-Teens ROE: we anticipate Fairfax will deliver strong, consistent returns on equity over the next three years, underpinned by contractual interest income. • Hidden Book Value Upside: we believe there is hidden value across Fairfax's balance sheet. Management's conservative accounting understates the company's true book value by over 20%. • Attractive Valuation: despite the stock price appreciation, Fairfax trades at ~1.5x book value per share (~1.3x adjusted book value), a discount that belies its robust profitability, growth trajectory, proven strategy, and exceptional track record of shareholder value creation.

BSD Analysis:
Silver Beech's Fairfax position exemplifies their thematic investment approach, capitalizing on the structural advantages of float-based insurance models in rising rate environments. The fund identified Fairfax's superior float-per-share metrics and prescient duration positioning during ZIRP, which enabled profitable reinvestment as rates rose with minimal capital losses. Fairfax's 40-year track record of 16% average ROE and 18% stock price CAGR demonstrates exceptional capital allocation discipline. The hard P&C market cycle since 2018 has provided favorable underwriting conditions, with management showing appropriate restraint as conditions begin softening. Silver Beech's 65% gross IRR since July 2023 reflects perfect timing and execution, outperforming all 50+ companies in the S&P Insurance Index. The fund maintains conviction based on sustained mid-teens ROE expectations, hidden book value upside exceeding 20% due to conservative accounting, and attractive 1.5x book value trading multiple. This represents a classic Berkshire Hathaway-style float model with superior execution and valuation discipline.