Investment Pitches

Pitch Summary:
Rolls-Royce, the third-largest holding, is a perfect example. Not to be confused with the luxury car brand, Rolls is a manufacturer of aircraft engines, propulsion solutions, and power systems. The engine business is what's known as a "razor and blade" business model, as they make most of their money by selling "blades"—the long-term service agreements linked to flying hours—rather than the "razors" (engines). But during the pandemic, all of their customers suddenly stopped shaving—the unprecedented mass grounding of planes—which put their largest business segment under significant stress. As contrarian investors, we saw this as an opportunity to buy deeply discounted shares in a company that we knew well, having owned it since 2015. Another way to think about Rolls' aviation business is with an insurance analogy. From an airline's perspective, the long-term service agreements guarantee the performance of Rolls' engines for a fixed period, usually a little over 10 years. If all goes well, Rolls collects a steady stream of cash flows—a bit like an insurer if there aren't any accident claims. But when something goes wrong, Rolls, like the insurer, is on the hook for the costs. It is therefore "underwriting" the quality and reliability of its engines, and getting the pricing right is absolutely critical. If they price too high, they risk losing business to competitors. If they price too low, they risk losing money. It's a delicate balance and one that Rolls did not always get right in the past. Long before anyone had heard of Covid, Rolls had reliability issues with its Trent 1000 engine, which is used in the Boeing 787 Dreamliner. In 2016, a number of planes were grounded when cracking was discovered in the turbine blades. The resulting reputational damage meant that some airline customers decided to switch to its main competitor GE. Rolls managed to put most of the early Trent issues behind them, but only after several years and several billion dollars of losses. As a result of the double whammy of the Trent problem followed by the pandemic, Rolls found itself chronically underperforming in what should be a fantastic business. Either through the lens of a duopoly creating a critical product, or viewing the business as an insurer with a direct relationship to their customers (that is, without the multiple layers seen in the insurance industry that each take its slice of value), Rolls' Civil Aerospace business ought to be quite profitable. That said, Rolls took full advantage of the downturn to make long overdue cost cuts across the business and has emerged stronger. Rolls is now in a position to price new and existing contracts in a way that reflects the value the company creates, driving a more healthy stream of free cash flow that should be available to shareholders over time. At the same time, fresh opportunities have emerged elsewhere in the business. Rolls' defence segment is benefitting from greater global defence spending, as Rolls is a supplier for several long-term initiatives including being selected to power submarines being built for the security alliance between Australia, the UK, and the US (AUKUS). The company's power systems segment is a direct beneficiary of AI-fuelled data centre demand, and even further upside is possible if Rolls can achieve commercial viability within its narrow-body aircraft and small modular nuclear reactor businesses. In the span of just a few years, Rolls has gone from being a stockmarket pariah to a company with multiple enduring tailwinds behind its business. This is often the point when we—as contrarians—might think about selling and recycling capital into newer ideas, but we still think Rolls is undervalued at its current share price. Putting some rough numbers on it, we think the company can deliver about £0.50 per share in free cash flow (FCF) by 2028. If we assume an exit multiple of 20 times FCF, that suggests that the share price could double from its current level. This is far from guaranteed—Rolls will need to continue to execute—but we think it remains an attractive opportunity and it is worth being patient.

BSD Analysis:
Orbis presents a compelling turnaround thesis for Rolls-Royce, emphasizing the company's transformation from pandemic victim to multi-faceted growth story. The manager highlights the attractive "razor and blade" business model in Civil Aerospace, where long-term service agreements provide recurring revenue streams tied to flight hours. Following significant cost restructuring during the downturn, Rolls-Royce has emerged with improved pricing power and operational efficiency. The investment case is strengthened by multiple growth drivers including defense spending benefiting the AUKUS submarine program, AI-driven data center demand for power systems, and potential upside from narrow-body aircraft engines and small modular reactors. With a target of £0.50 per share in free cash flow by 2028 and applying a 20x multiple, Orbis sees potential for the stock to double from current levels. The manager's long-term ownership since 2015 demonstrates deep conviction and intimate knowledge of the business fundamentals.

Pitch Summary:
During the quarter, we established a new position in Tempus AI, Inc., an intelligent diagnostics and health care data company. Founder/CEO Eric Lefkofsky says, "Tempus was designed to bring AI to diagnostics, because diagnostics sit at the epicenter of life and death decisions. Physicians rely on test results at each pivot point. When that data is connected to medical records for the patient for whom it was ordered, we have the necessary ingredients to contextualize the diagnostic and personalize it, resulting in more tailored and optimal therapies." Tempus has two synergistic business units: Genomics and Data & Other. Within the genomics business, Tempus provides diagnostic tests, particularly for cancer treatment selection. The company's labs sequence the tumor's genome and transcriptome (gene expression) and can help oncologists select the best treatment for their patients. Compared with other cancer diagnostics companies, Tempus has industry-leading tests in terms of breadth, accuracy, and turnaround time and it is the only lab that provides data on how other patients with similar clinical profiles have fared on different therapies. We think the cancer treatment selection sequencing market has a long runway for growth and Tempus is well positioned as a leader in the field. There are approximately 700,000 patients in the U.S. diagnosed with metastatic cancer each year and each patient could benefit from several therapy selection tests (solid and liquid biopsy, as well as testing upon recurrence). As access and reimbursement improves, we think cancer therapy selection diagnostics could address a $10 billion total addressable market (TAM) in the U.S. alone. We believe that Tempus's diagnostic business could more than triple in size and exceed $1 billion in revenues by 2030. The genomics testing data also feeds into Tempus's value as a data company. Tempus has amassed a huge (over 200 petabytes) proprietary multimodal dataset that combines clinical patient data (which includes clinical records and imaging data from two-way collaborations with health systems) with genomic testing data from the Genomics business. Tempus's dataset includes 7.7 million clinical records, over 1 million imaging records, over 910,000 matched clinical and molecular dataset profiles, and over 970,000 samples that were sequenced. In addition to using this data to empower more intelligent diagnostics, Tempus licenses this data to biopharmaceutical companies who use it to design smarter clinical trials and identify potential new drug targets. Tempus works with 19 of the top 20 pharmaceutical companies in this capacity and has disclosed 9-figure deals with three biopharmaceutical companies. In total, Tempus has $620 million in remaining contract value and an additional $300 million in opt-ins, compared to approximately $169 million in Data revenues in 2023. Based on our discussions with customers, they see immediate value using the data to better define biomarkers and stratify patient populations. We think this proprietary dataset is unique and would prove challenging for competitors to replicate. We also believe that it brings meaningful value to biopharmaceutical R&D and are therefore willing to underwrite a long runway for growth for Tempus as more customers take advantage of its data in their drug development programs.

BSD Analysis:
The manager initiated a new position in Tempus AI, viewing it as a unique leader in AI-powered precision medicine with two synergistic business units creating significant competitive advantages. The genomics business provides industry-leading cancer diagnostic tests with superior breadth, accuracy, and turnaround time, uniquely offering data on how similar patients fared on different therapies. With 700,000 U.S. patients diagnosed with metastatic cancer annually and a potential $10 billion total addressable market, the manager believes the diagnostic business could exceed $1 billion in revenues by 2030. The data business represents a powerful moat, with over 200 petabytes of proprietary multimodal datasets combining clinical records, imaging data, and genomic testing results. This dataset includes 7.7 million clinical records and partnerships with 19 of the top 20 pharmaceutical companies, generating $620 million in remaining contract value plus $300 million in opt-ins. The manager emphasizes the dataset's uniqueness and difficulty to replicate, providing meaningful value to biopharmaceutical R&D for clinical trial design and drug target identification.

Pitch Summary:
Cloudflare, Inc. provides content delivery network services, cloud cybersecurity, denial-of-service mitigation, Domain Name Service, and ICANN-accredited domain registration services. Shares fell 14.5% during the quarter on remarks from the CEO about worsening macro conditions, citing the negative impact of geopolitical uncertainties on customer buying behavior. On the positive side, the company posted strong quarterly results with revenue growth of 30% year-over-year, showing evidence that the changes to the company's go-to-market strategy were resonating with solid growth across its large customer cohorts (revenues from customers spending over $100,000 represented 67% of the total, up from 62% in the first quarter of 2023), double-digit improvement in sales productivity, and new pipeline attainment ahead of plan. Cloudflare reiterated revenue guidance for the year on resilience in cybersecurity spend. While we fine-tuned our model on the back of the company's increased macro headwind commentary, pushing out revenue reacceleration estimates from the second quarter of 2024 to the first quarter of 2025, this is still ahead of guidance. We retain conviction in the long-term thesis: a strong founder-led business with a unique global network and significant pricing advantages powering a disruptive multi-product growth story with improving margins. We therefore remain shareholders.

BSD Analysis:
Despite the 14.5% stock decline due to macro headwind concerns, the manager maintains conviction in Cloudflare's long-term thesis, viewing the company as a founder-led disruptor with unique competitive advantages. The company delivered strong 30% year-over-year revenue growth, demonstrating that go-to-market strategy changes are resonating with customers. Large customer growth is particularly encouraging, with revenues from customers spending over $100,000 representing 67% of total revenue, up from 62% in the prior year. The manager notes double-digit improvement in sales productivity and new pipeline attainment ahead of plan, indicating strong execution despite macro challenges. While pushing out revenue reacceleration estimates from Q2 2024 to Q1 2025 due to geopolitical uncertainties, the manager believes this timeline remains ahead of guidance. The investment thesis centers on Cloudflare's unique global network, significant pricing advantages, and multi-product growth story with improving margins, supported by resilient cybersecurity spending trends.

Pitch Summary:
Shopify Inc. is a cloud-based software provider for multi-channel commerce. Shares declined 14.4% in the second quarter despite reporting solid quarterly results with revenue growth of 23% year-over-year, which implies continued market share gains, after the company announced it is entering an investment cycle. Since the increased investment period comes after over a year of consistent margin expansion, it left short-term-focused investors disappointed. We, however, believe that this is the right course of action for several reasons. First, the company expects solid returns on the increased marketing spend with 18-month payback periods. Second, the investment should help solidify Shopify's competitive position and drive further market share gains. Finally, the increased spend should contribute to the probability of success in newer areas of opportunity with large addressable markets, including offline commerce, international, and enterprise. Shopify shared several metrics showing early success, with gross merchandise value up 130%, 38%, and 32% year-over-year in B2B, EMEA, and offline, respectively. We remain shareholders due to Shopify's strong competitive positioning, innovative culture, and long runway for growth, as it still holds less than a 2% share of the global commerce market.

BSD Analysis:
Despite the stock's 14.4% decline, the manager maintains strong conviction in Shopify's long-term investment strategy, viewing the current investment cycle as strategically sound after a year of margin expansion. The company delivered solid 23% year-over-year revenue growth, indicating continued market share gains in the competitive commerce platform space. The manager supports management's decision to increase marketing spend with expected 18-month payback periods, believing this will solidify Shopify's competitive position and drive further market share gains. Early success metrics are encouraging, with gross merchandise value surging 130%, 38%, and 32% year-over-year in B2B, EMEA, and offline segments respectively. The investment thesis centers on Shopify's massive addressable market opportunity, holding less than 2% of the global commerce market, combined with the company's strong competitive positioning and innovative culture. The manager views short-term margin pressure as acceptable given the long-term growth runway in offline commerce, international markets, and enterprise segments.

Pitch Summary:
Shares of Coupang, Inc., Korea's largest e-commerce marketplace, appreciated 17.8% in the second quarter on strong quarterly results with revenue growth of 33% year-over-year (in constant currency, excluding the impact of an accounting change for fulfillment services and the acquisition of Farfetch), showing continued acceleration from 20% growth in the first quarter of 2023, and 29% growth in the fourth quarter of 2023, driven by market share gains within Korean e-commerce and retail overall. EBITDA margins in its core Product Commerce segment also continued to surprise to the upside, reaching 7.2%, up 210bps year-over-year. We view Coupang as one of the most competitively advantaged e-commerce businesses globally, with significant runway for both revenue and earnings growth as the company continues to gain market share in the U.S. $500 billion-plus Korean retail market, while expanding its offerings into additional categories, expanding its ecosystem via a third-party marketplace, expanding internationally and continuing to invest in infrastructure density to further capture inefficiencies, enhancing the customer experience and improving profit margins.

BSD Analysis:
The manager views Coupang as one of the most competitively advantaged e-commerce businesses globally, with the company demonstrating accelerating growth momentum in Korea's massive retail market. Revenue growth of 33% year-over-year shows continued acceleration from prior quarters, driven by sustained market share gains in Korean e-commerce and retail. The improving unit economics are particularly compelling, with EBITDA margins in the core Product Commerce segment reaching 7.2%, up 210 basis points year-over-year. The investment thesis centers on Coupang's significant runway for growth within Korea's $500+ billion retail market, where the company continues expanding into new categories and building out its third-party marketplace ecosystem. The manager emphasizes the company's infrastructure investments to capture inefficiencies, enhance customer experience, and improve profit margins, while also noting international expansion opportunities.

Pitch Summary:
CrowdStrike Holdings, Inc. is a cloud-architected SaaS cybersecurity vendor offering endpoint security, threat intelligence, and cyberattack response services. Shares continued their strong performance from the first quarter and were again a top contributor, rising 19.6% in the second quarter on better execution than peers in the broader security space. The company reported strong quarterly results with 33% year-over-year revenue growth, driven by customers standardizing their cyber-security spend on CrowdStrike with free cash flow margins reaching 35%. With accelerating share gains in its core endpoint detection and response market, emerging products including Cloud, Identity, and SIEM reaching material scale, and newer products in Data Protection and AI ramping quickly, net new annual recurring revenue and total revenue look to sustain a long duration of growth. With its leading competitive positioning in cybersecurity, the growing threat landscape (which is also driven by the advancements in AI, making hackers more dangerous), its unique lightweight, single-agent, architecture, and its platform approach, we retain conviction in CrowdStrike, which is emerging as the security platform to beat in terms of scale, profitability, and free cash flow conversion.

BSD Analysis:
The manager expresses strong conviction in CrowdStrike as the emerging leader in cybersecurity platforms, driven by superior execution relative to peers and accelerating market share gains. The company delivered impressive 33% year-over-year revenue growth with free cash flow margins reaching 35%, demonstrating both growth and profitability. The investment thesis centers on CrowdStrike's unique lightweight, single-agent architecture that enables customers to standardize their cybersecurity spending on one platform. The manager highlights the company's expanding product portfolio beyond core endpoint detection, with Cloud, Identity, and SIEM products reaching material scale while newer AI and Data Protection offerings ramp quickly. The growing threat landscape, amplified by AI making hackers more dangerous, creates a favorable tailwind for cybersecurity demand. CrowdStrike's platform approach and competitive positioning suggest sustainable long-duration growth in net new annual recurring revenue.

Pitch Summary:
NVIDIA Corporation sells semiconductors, systems, and software for accelerated computing, gaming, and GenAI. NVIDIA's stock continued its run, rising 36.8% in the second quarter and finishing the first half of 2024 up 150.7%. NVIDIA continued to report unprecedented growth at scale, with quarterly revenues of $26 billion growing 262% year-over-year, datacenter segment revenues of $22.6 billion up 427% year-over-year, and operating margins of 69.3%. NVIDIA's growth is even more impressive as it is approaching a new product cycle with Blackwell going into production in the third quarter and speaks to the urgency of demand for GPUs as customers are not waiting for the next generation architecture despite its improved performance to cost ratio. The Blackwell architecture, and in particular, the new GB200 NVL72/36 racks, which the company believes would become "the new unit of compute" (and will start shipping in 2025) would in our view: 1) increase the company's content per server (for example an NVL72 rack would have 18 compute trays with 4 Blackwell GPUs and 2 Grace CPUs in each, and 9 switch trays with NVIDIA content); and 2) further strengthen its competitive advantages as the demand for datacenter-scale computing grows due to scaling laws (models become more capable with size and as they are trained on more data), new model types (such as Mixture of Experts that increase the demand on sharing of data between GPUs) and model optimization mechanisms (such as tensor parallelism, pipeline parallelism, and expert parallelism – which also increase the demands from the connectivity layer), and increase the relative importance of NVIDIA's networking and full-system capabilities and in particular the capabilities enabled by the latest generation of NVLink – connecting up to 576 GPUs together, up from 8. While the stock's strong performance has pulled forward some of the longer-term upside (which we manage through position sizing), we remain early in the accelerated computing platform shift and in the adoption of AI across industries and therefore remain shareholders.

BSD Analysis:
The manager maintains a strong bullish stance on NVIDIA despite the stock's 150.7% year-to-date performance, viewing the company as the dominant force in the AI revolution. The investment thesis centers on NVIDIA's unprecedented revenue growth of 262% year-over-year to $26 billion, with datacenter revenues surging 427% to $22.6 billion and operating margins reaching 69.3%. The upcoming Blackwell architecture represents a significant catalyst, with the GB200 NVL72/36 racks positioned to become "the new unit of compute" starting in 2025. The manager emphasizes NVIDIA's strengthening competitive moat through advanced networking capabilities and full-system integration, particularly the latest NVLink technology connecting up to 576 GPUs. While acknowledging valuation concerns due to the stock's run-up, the manager believes we remain in the early stages of AI adoption across industries. The position sizing reflects risk management while maintaining conviction in the long-term accelerated computing platform shift.

Pitch Summary:
Crowdstrike: Crowdstrike was founded in 2011 in Austin Texas as a cloud native single platform cybersecurity company. Since that time, Crowdstrike has grown from a single cloud based cybersecurity module to a comprehensive platform offering customers 28 modules across a wide range of cybersecurity needs via its Falcon platform. Building out its product offering in a modular fashion on the same cloud based lightweight agent is a key advantage for Crowdstrike. Crowdstrike modules work across multiple clouds, offer the fastest implementation in the industry, and are uniquely capable of protecting the security of cloud based workloads. Cybersecurity is a large industry that is rapidly transitioning from a series of best of breed solutions into an industry in which customers are consolidating around platforms. Crowdstrike is a key beneficiary of this trend. 65% of Crowdstrike customers utilize 5 or more modules and this number is only going to go higher. These modules are sold on a subscription basis and Crowdstrike has ambitions of growing its annual recurring revenue from the current level of $3.6B to $10B and beyond. Unlike many of its competitors who were founded as single products available for one-time purchase or more recent competitors who have stitched together capabilities across multiple areas of cyber security via acquisition, Crowdstrike is predominantly a homegrown suite of modules built on the same cloud based lightweight agent. Even the capabilities that have been acquired are meticulously integrated into the Crowdstrike platform before being made available to customers. All of this positions Crowdstrike as a long-term winner as the cybersecurity space consolidates around a small handful of platforms. Crowdstrike boasts the fastest growth rate among the large cybersecurity firms and for that matter among all of the large enterprise software companies. We view Crowdstrike as being to cybersecurity what ServiceNow is to workflows and believe that the company has ample opportunity to grow within its existing markets and expand into adjacent cybersecurity solutions. We initiated a 3% position in Crowdstrike in early June.

BSD Analysis:
Burke Wealth Management initiated a new position in CrowdStrike, viewing it as the dominant platform winner in the consolidating cybersecurity market. The investment thesis centers on CrowdStrike's cloud-native Falcon platform, which has evolved from a single module to 28 comprehensive cybersecurity modules built on a unified lightweight agent architecture. This platform approach provides competitive advantages including fastest industry implementation, multi-cloud compatibility, and superior cloud workload protection capabilities. The manager emphasizes the land-and-expand model's effectiveness, with 65% of customers using 5+ modules and growing module adoption driving subscription revenue growth. CrowdStrike's $3.6B annual recurring revenue base targets expansion to $10B+, supported by organic development rather than acquisition-based growth strategies used by competitors. Burke draws parallels to ServiceNow's workflow dominance, positioning CrowdStrike as the category-defining platform as enterprises consolidate from best-of-breed point solutions to integrated cybersecurity platforms. The company's fastest growth rate among large cybersecurity and enterprise software firms supports the thesis of market share gains in a large, growing addressable market.

Pitch Summary:
Nvidia: Nvidia shares are up a smooth 149% year to date including a 37% gain in the second quarter. Given that Nvidia entered this year with a market cap in excess of $1 Trillion, this is a truly historic move. Every step of the way along this incessant march higher, investors have massively underestimated both the size of the data center opportunity in AI, the opportunity related to the transition of the roughly $1 Trillion in legacy data center architecture from CPU centric to more GPU centric, and the duration of Nvidia's competitive dominance. We've made this point before, but it is worth making it again: This is not a bubble. Nvidia earned $0.33 in 2022 and is expected to earn over $4 in 2025. This move has been earnings driven. That said, there will come a time when Nvidia shares stop growing at the rate of bacteria and will instead appreciate at a rate more similar to the typical dominant businesses in an enormous market with a long runway of growth. We think that this transition takes place once the broader investment community gets a better handle on Nvidia's true earnings power. This doesn't mean that Nvidia won't still exceed consensus expectations. It just means that the magnitude of the earnings beats will be more akin to gradual upward adjustments rather than wholesale step function changes in analyst models. After Nvidia's Q1-24 earnings release and Q2-24 guidance, we think we are getting closer to that point. Nvidia reported first quarter revenues of $26B, including $22.6B of data center revenues. This was well ahead of the guidance of $24B +/-2% provided with the Q4-23 earnings release. These were clearly outstanding results and generally came in slightly ahead of the buyside "whisper" number. The guidance for Q2 revenues was for revenues of $28B +/-2%. For the first time in a year, this was consistent with our internal estimates. While Nvidia will likely exceed the high end of this range, the magnitude of the upside surprise is getting smaller. This is all a perfectly normal process and one that we would expect to unfold as Nvidia transitions from freak of nature to a strong performing compounding growth stock. So, with that as a backdrop for the Q1 release and Q2 guide, why is it that the stock has rallied 30% since the release. In our view, this is because the durability of Nvidia's dominance in the data center is coming into clearer focus. During Nvidia's majestic run over the past year, investors have been grappling with both the size and durability of the opportunity. As noted, the revenue guide for the second quarter indicates we are starting to get our arms around the magnitude of Nvidia's data center opportunity. The other issue at hand is the durability of its dominant position. Even as Nvidia was blowing out quarterly revenue results over the past year, there were whispers of heightened competition in the space both from competitors such as AMD and Nvidia's hyperscale customers who don't like being beholden to Nvidia for entry into the world of artificial intelligence. Those beating the competition drum have two problems: First, the software in every new Nvidia chipset is backward compatible with the last edition and forward compatible to the next. This is how you get ecosystem lock-in. Every AI application developer is working on Nvidia's CUDA programming language. Second, Nvidia has accelerated its cadence of new product releases from every other year to an every year event. Each new product release delivers an order of magnitude improvement in both performance and energy efficiency. Because they are compatible with prior product releases, customers don't simply wait for the next product introduction before buying but rather take what they can get when they can get it knowing that future purchases will come with a lower total cost of ownership. Even if a competitor were to be first to market with a faster, better performing data center solution, the lock-in to the Nvidia ecosystem is growing so powerful that this probably wouldn't matter much. This last point is purely theoretical as nobody is within shouting distance of Nvidia when it comes to chip design for accelerated computing. I think this point on the durability of dominance is what drove the most recent step function change in Nvidia's stock price.

BSD Analysis:
Burke Wealth Management maintains a strong bullish stance on Nvidia, emphasizing that the 149% year-to-date rally is fundamentally driven by earnings growth rather than speculative fervor. The manager highlights Nvidia's dramatic earnings trajectory from $0.33 in 2022 to an expected $4+ in 2025, demonstrating the company's transition from cyclical gaming exposure to AI infrastructure dominance. The investment thesis centers on two key competitive advantages: ecosystem lock-in through CUDA programming language compatibility and accelerated product development cycles delivering order-of-magnitude performance improvements annually. Burke notes that Q1 2024 revenues of $26B (including $22.6B data center) exceeded guidance, though beat magnitudes are normalizing as the company matures. The manager views competitive threats from AMD and hyperscale customers as manageable due to Nvidia's entrenched software ecosystem and technological leadership in accelerated computing. While acknowledging position size management through trimming, Burke maintains conviction in Nvidia's durable dominance in the AI infrastructure buildout.

Pitch Summary:
Disney has unique assets – differentiated content – that have enabled it to earn franchise-like profits and returns over time. It is through this content that Disney creates the universes and characters that drive movie theater revenue, TV licensing revenue, subscription revenue, music revenue, merchandise revenue and more. The universes and characters are then brought to life at Disney's parks, resorts and other experiences around the world. Certain aspects of the business are undergoing significant changes, which are pressuring near-term earnings and cash flow generation. However, we believe the intrinsic value of the unique assets remains intact. As Disney adjusts its monetization methods to match a new reality, its earnings and free cash flow generation will eventually reflect the franchise nature of its unique assets.

BSD Analysis:
Centerstone's Disney investment thesis focuses on the enduring value of the company's unique content assets and intellectual property portfolio. The fund emphasizes Disney's ability to monetize its content across multiple revenue streams including theatrical releases, licensing, streaming subscriptions, merchandise, and theme park experiences. This multi-platform approach creates a powerful flywheel effect where content drives engagement across all business segments. Centerstone acknowledges current operational challenges and earnings pressure as the company adapts its monetization strategy to evolving media consumption patterns. However, the fund believes these near-term headwinds mask the intrinsic value of Disney's irreplaceable content library and character franchises. The investment thesis relies on Disney's ability to successfully transition its business model while maintaining the franchise economics that have historically driven superior returns. Centerstone views current weakness as a temporary disconnect between market perception and underlying asset value.

Pitch Summary:
AIA Group is a prominent insurance and financial services company operating in the Asia-Pacific region. It was established as an independent company in 2010 and has grown to become one of the largest insurers in Asia, with a robust presence in markets such as Hong Kong, Mainland China and Southeast Asia. The company specializes in life insurance, retirement planning, and wealth management, catering to a diverse clientele across different demographic segments. The company generates approximately half its revenue from Hong Kong, reflecting its longstanding dominance in the local insurance market. Mainland China contributes around 20% of the company's total revenue, while Southeast Asia, encompassing markets like Singapore, Malaysia, Thailand, and Vietnam, typically accounts for another 10% to 20% of AIA's revenue. It is generally a market leader in these markets as well. The stock price has declined materially from its 2021 highs due to several factors. Among these is the broader economic environment in Asia, which has faced periods of slowdown and volatility, affecting consumer spending and investor confidence. Additionally, regulatory changes in key markets, such as adjustments to insurance policies and compliance requirements, have added operational challenges and impacted profitability. Moreover, competition within the insurance sector has intensified, with new entrants and innovative digital platforms altering market dynamics. Lastly, the reluctance among global investors to consider China-related stocks has certainly added another dimension. For all these reasons, and perhaps more, the stock currently trades at a historically low valuation which we believe is unjustified given its positive attributes. Among these is its status as a profitable, growing and dominant insurer in a region with an ample appetite for its products.

BSD Analysis:
Centerstone presents AIA Group as an undervalued opportunity in Asian insurance markets, emphasizing the company's dominant market positions across key geographies. The fund highlights AIA's leadership status in Hong Kong (50% of revenue), meaningful presence in Mainland China (20% of revenue), and strong positions across Southeast Asian markets. The investment thesis centers on the disconnect between current valuation and fundamental business quality. Centerstone acknowledges multiple headwinds including Asian economic volatility, regulatory changes, increased competition, and broader investor aversion to China-related stocks. However, the fund believes these factors have created an unjustified valuation discount for a profitable, growing insurer operating in markets with strong demographic tailwinds and insurance penetration growth potential. The company's diversified geographic footprint and market-leading positions provide defensive characteristics. Centerstone views current historically low valuations as an attractive entry point for a quality franchise business.

Pitch Summary:
Worldline is a European payment service provider (PSPs). While PSPs can provide a variety of different services, Worldline focuses on merchant acquiring and payment processing. It supports over 1.4 million merchants primarily in central/western Europe (Germany, Switzerland, France and the Benelux region). Facilitating digital payments is a high fixed cost (infrastructure investment), low marginal cost (supporting additional merchants or payment volume costs very little) business. Scale is a significant advantage. Worldline is the largest merchant acquirer in continental Europe by revenue and dollars of payments managed. It is over 30% larger than the number two player and over two times the size of the number three player. Having a local footprint is essential for merchant acquirers in Europe, in order to support the specific needs of merchants in each country. Each country has its own language, payment habits, regulations, payment networks, banks and merchants. Worldline has a good competitive position with a strong local market share across its geographic footprint. It also has a solid balance sheet. The share price declined significantly over the past year for three reasons: 1) a weaker economic environment in certain European countries where Worldline has a meaningful presence, specifically Germany; 2) fears of disruption from new "fintech" players, which we believe are unfounded; and 3) the announced termination of merchant relationships due to evolving regulatory requirements in October 2023. Regarding the last point, while these merchants accounted for less than 3% of annual revenue, the announcement may have created an association in the mind of investors between Worldline and Wirecard, which collapsed in one of Europe's biggest corporate scandals in 2020. We believe investors are prone to sell first and ask questions later. After conducting extensive research on the issue, we have no reason to believe it goes beyond what was announced. Shareholder activism over the last several months led Worldline to make meaningful changes to the board of directors, including the appointment of a new Chairman. These changes, in our opinion, should result in greater oversight and better communication going forward. We expect shareholder confidence to recover with time.

BSD Analysis:
Centerstone views Worldline as an attractive opportunity in European payment processing, emphasizing the company's dominant market position and scalable business model. The fund highlights Worldline's status as the largest merchant acquirer in continental Europe, with over 30% market share advantage versus competitors. The high fixed cost, low marginal cost economics create significant barriers to entry and operating leverage potential. Centerstone believes recent share price weakness is largely temporary, driven by economic headwinds in Germany, unfounded fintech disruption fears, and investor overreaction to regulatory merchant terminations representing less than 3% of revenue. The fund conducted extensive due diligence on the Wirecard association concerns and found no substantive issues. Recent board changes and shareholder activism should improve governance and communication. The investment thesis relies on the company's structural competitive advantages in fragmented European markets and eventual recovery of investor confidence.

Pitch Summary:
Barry Callebaut is the dominant player in chocolate production and is also the market leader in cocoa bean processing. It is vertically integrated and has scale across every step of the value chain, from the sourcing and processing of cocoa beans to the production of chocolate. With its global chocolate manufacturing footprint and significant chocolate production, it can cluster production volumes to be closer to its customers and to drive higher capacity utilization of its production lines. In its chocolate production business, Barry Callebaut has a cost-plus pricing model in which it passes on price fluctuations of raw materials and other production costs directly to its customers, which makes its margins less volatile. Cocoa bean prices can be volatile and Barry Callebaut's cost-plus pricing model is critical in driving less risk. Over the past year, cocoa bean prices have risen significantly and reached record highs. In this challenging environment, Barry Callebaut's cost-plus pricing model worked as expected and its chocolate production business generated solid profit per ton in its most recent earnings report. It also demonstrated the benefits of having an integrated model. As one of the only vertically integrated players, Barry Callebaut has a competitive edge in sourcing. It proactively prepared for this challenging environment and indicated it has secured its cocoa bean supply for its 2024 fiscal year. With its strong competitive position, we believe Barry Callebaut is well-positioned to take market share in a volatile environment.

BSD Analysis:
Centerstone presents a compelling case for Barry Callebaut based on its dominant market position and vertically integrated business model. The fund highlights the company's cost-plus pricing structure as a key competitive advantage, allowing it to pass through volatile cocoa price fluctuations to customers while maintaining stable margins. This pricing model proved effective during recent record-high cocoa prices, with the company generating solid profit per ton. The vertical integration provides sourcing advantages that few competitors possess, enabling proactive supply chain management. Barry Callebaut's global manufacturing footprint allows for optimized production clustering near customers, driving higher capacity utilization. The fund believes the company is well-positioned to gain market share during volatile commodity environments due to its structural advantages. The investment thesis centers on the company's ability to maintain profitability through commodity cycles while leveraging its scale and integration benefits.

Pitch Summary:
Bank Grupo Financiero Banorte dropped, along with other Mexican shares, after Claudia Sheinbaum won a landslide election victory. Initial market concerns over the potential for business-unfriendly policies appear unfounded. Sheinbaum has already met with some of the largest companies in Mexico, where she emphasised a collaborative approach, and Banorte's management appears optimistic about the political backdrop.

BSD Analysis:
The managers view the post-election decline in Banorte as an overreaction to political uncertainty rather than fundamental deterioration. Their assessment suggests initial market fears about business-unfriendly policies under President Sheinbaum were misplaced, with early signals pointing toward a collaborative approach with the private sector. Direct engagement between the new administration and major Mexican companies, including positive feedback from Banorte's management, supports this view. The managers likely see this as an opportunity to own a leading Mexican bank at attractive valuations following temporary political volatility. Banorte's position as one of Mexico's largest financial institutions should benefit from continued economic growth and financial sector development. The investment thesis relies on Mexico's structural economic advantages and Banorte's market-leading position in a growing financial services market.

Pitch Summary:
Ryanair fell 19.8% after its chief executive warned of customer resistance to further above-inflation price increases. However, the airline has consistently taken market share across Europe by passing cost savings on to passengers and remains significantly cheaper than competitors. It could be about to increase cashflows following a period of intense investment in new planes.

BSD Analysis:
The managers view Ryanair's 19.8% decline as a temporary setback rather than a fundamental deterioration. While management's commentary about pricing resistance created near-term concerns, the managers emphasize Ryanair's proven ability to gain market share through cost leadership. The airline's structural cost advantage versus competitors provides pricing flexibility and defensive positioning during economic uncertainty. The investment thesis centers on Ryanair's completion of a major fleet expansion cycle, which should drive improved cash flow generation as capital expenditure moderates. The managers appear confident that Ryanair's low-cost model will continue capturing market share in Europe's fragmented airline market. The recent weakness may present an attractive entry point for a company with strong competitive positioning and improving cash flow dynamics.

Pitch Summary:
Cosmetics company Estée Lauder fell 30.5%. The business has gone through a turbulent period, driven by weakness in China as post-lockdown consumer demand remains weak and distributors work through high stock levels. While the share price reflects a short-term slowdown, our meetings with the company, industry experts and competitors have highlighted the strength of its product portfolio and the beauty sector's long-term growth prospects. Further, management's cost-cutting programme means an expected sales recovery should be accompanied by an expansion in profit margins.

BSD Analysis:
Despite the significant 30.5% decline, the managers maintain conviction in Estée Lauder as a contrarian value opportunity. Their extensive due diligence, including meetings with management, industry experts, and competitors, reinforces confidence in the company's fundamental strengths. The current weakness stems from China-specific headwinds including weak post-lockdown demand and distributor inventory normalization, which the managers view as temporary. The investment thesis relies on Estée Lauder's premium brand portfolio and the structural growth of the global beauty market. Management's proactive cost-cutting initiatives position the company for operating leverage when sales recover, potentially driving margin expansion above historical levels. The managers appear to be buying into temporary weakness in a high-quality franchise with strong long-term prospects.

Pitch Summary:
Eicher Motors, the manufacturer of the Royal Enfield motorcycle, rose 17.7%. We only recently added Eicher to our portfolio, due to expectations of volume recovery in India's premium motorcycle sector where the company has a 45% market share.

BSD Analysis:
The managers initiated a new position in Eicher Motors based on expectations of a cyclical recovery in India's premium motorcycle segment. The 17.7% quarterly gain validates their timing, as the company benefits from its dominant 45% market share in the premium motorcycle category. The investment thesis centers on volume recovery in a market segment where Eicher's Royal Enfield brand has established strong consumer loyalty and pricing power. The managers likely see this as a play on India's growing middle class and increasing discretionary spending on premium lifestyle products. With the company's market-leading position, any sector recovery should disproportionately benefit Eicher Motors. The recent addition to the portfolio suggests the managers view current valuations as attractive relative to the recovery potential.

Pitch Summary:
HDFC Bank returned 17.4% on renewed interest following the Indian election, due to the likelihood of higher government spending and improving liquidity conditions.

BSD Analysis:
The managers view HDFC Bank as benefiting from India's post-election political stability and expected fiscal expansion. The 17.4% quarterly return reflects market optimism about improved operating conditions for Indian banks. With Modi's coalition government likely to increase infrastructure spending to maintain political support, HDFC Bank should benefit from increased lending opportunities and improved credit demand. The managers appear confident in India's economic trajectory, with the fund maintaining a 4% allocation to Indian markets. Enhanced liquidity conditions should support loan growth and potentially improve net interest margins. The investment thesis relies on India's continued economic expansion and HDFC Bank's position as a leading private sector bank to capture this growth.

Pitch Summary:
Taiwan Semiconductor Manufacturing Company (TSMC) returned 22.5%. The world's leading semiconductor manufacturer is seeing its sales and profits grow meaningfully as its clients attempt to meet surging demand for AI chips, while its dominant market position allows it to raise prices, expanding profit margins. Healthy free cashflow (the money left over after all liabilities have been met) can also be reinvested into building capacity for the next generation of semiconductor chips, widening the technological advantage over its competitors.

BSD Analysis:
The managers highlight TSMC's exceptional positioning in the AI-driven semiconductor boom, with the company benefiting from both volume growth and pricing power. The 22.5% quarterly return reflects strong execution as TSMC capitalizes on surging AI chip demand from major clients. The company's dominant market position enables margin expansion through price increases, while robust free cash flow generation supports reinvestment in next-generation capacity. This creates a virtuous cycle where TSMC can maintain and extend its technological leadership over competitors. The investment thesis centers on TSMC's role as the critical enabler of the AI revolution, with sustainable competitive advantages in advanced chip manufacturing. The managers view the company as well-positioned to capture disproportionate value from the ongoing AI infrastructure buildout.

Pitch Summary:
FICO owns the proprietary algorithm used to calculate its patented FICO Score, which thousands of lenders, investors, regulators, and other industry participants use to assess the creditworthiness of consumer borrowers. We believe FICO is likely to achieve attractive shareholder returns because it possesses all the key characteristics we look for in a business. First, it owns a dominant, global protocol network. Because crowded information marketplaces are generally quite inefficient, requiring participants to maintain background knowledge on numerous providers and analytical methodologies, industries such as credit ratings tend to coalesce around one or two standards (i.e. protocols). U.S. consumer credit is no different, with the FICO Score having become the almost universally recognized standard for assessing U.S. consumer credit risk. While there is an alternative to the FICO Score called VantageScore, FICO's network is much more embedded in the credit ratings industry. In fact, 90% of large U.S. lenders use FICO scores. Even more importantly, over 95% of the total dollar volume of U.S. consumer credit securitizations solely cited FICO Scores as their credit risk measure, suggesting the global investor class derives enormous value from FICO and much less from VantageScore and other competitors. Lastly, 300 million consumers have free access to their FICO scores, which helps keep mindshare high and FICO scores relevant. FICO's network is not only unparalleled in size but also in scope. FICO Scores have been used by the three main credit reporting agencies, lenders, regulators, and investors for, in some cases, the entire 35 years since the FICO Score became widely available in 1989. VantageScore, on the other hand, wasn't even created until 2006. This difference in size and scope is hugely important to FICO investors because of the nature of network economics. In networks, value scales exponentially with the size of the network, allowing large networks to deliver far more value for users than smaller networks. This huge differential in user value enables the dominant network to charge a large premium versus competing smaller networks and yet still provide far more customer value than the smaller networks can. This ability to charge a large premium versus identical services yet still provide more value to customers is, in our opinion, the definition of pricing power, and it enables dominant networks to earn high returns on their capital. It also makes it extremely hard for smaller competitors to disrupt their leading market position. Second, FICO possesses an additional check on competing supply that we call institutional risk aversion. Institutional risk aversion is the tendency for corporations, governments, endowments, pension plans, and other institutional investors to make the "safe" choice by hiring or relying on the market leader, even if it costs more. This tendency occurs because these institutions are mostly run by employees, not owners. From the employee's perspective, the risk-reward of the unconventional choice is generally not favorable, with the chance of losing his or her job in a bad outcome often outweighing the chance of a bonus or promotion. As a result, in cases where institutions are lending money or purchasing U.S. asset-backed securities, they overwhelmingly rely on the widely recognized FICO score as the key credit risk metric. For the U.S. government, where the downside of going with the unconventional choice could be a spiraling financial crisis due to investor distrust of a less-well known credit score, this institutional risk aversion is so strong that some regulatory bodies have made it mandatory for lenders to purchase the FICO score. Third, FICO operates in a category, U.S. consumer credit, that we believe is likely to grow at least as fast as GDP over the long term. This characteristic is important because we want the network to maintain or grow its importance to society over time. If it doesn't, as in the case of many local newspapers after the advent of the internet, the network effects work in reverse, causing rapid value declines. In contrast, a growing network creates exponentially more value for each user it adds, enabling the business to take a small percentage of this increased value in the form of price increases and converting current pricing power into enduring pricing power. Fourth, FICO possesses significant untapped pricing power. Despite its rise from relative obscurity in 1989 to arguably the most important metric in U.S. consumer credit lending today, FICO kept prices in its important mortgage division flat for nearly 30 years, until 2018. And while it's raised prices aggressively since, we believe the exponential nature of network effects led to such a huge increase in the FICO Score's value that it's still dramatically underpriced. Despite raising its price per mortgage score by hundreds of percent, FICO still only charges the credit reporting agencies (Equifax, TransUnion, and Experian) $3.50 per score, which FICO calculates using the unique data each credit reporting agency has compiled on each mortgage applicant. This price of $3.50 per score compares very favorably to the $23 or more that the credit reporting agencies charge mortgage lenders per report, the approximately $5,500 of closing costs per mortgage, and the roughly $320,000 average mortgage loan originated. While there's some dispute about how many scores lenders buy during the process of underwriting and originating the average mortgage loan, given the fact that the FICO Score may be the most important metric investors use in assessing the risk of mortgage-backed securities, a price of $10 to $20 (3 to 6 scores) on a $320,000 mortgage is, in our view, insignificant. In percentage terms, it is only 0.3 to 0.6 basis points (a basis point is 1/100 of a percent). In comparison, Moody's charges around 8 basis points per year to rate corporate issuers' debt but likely reduces these issuers' borrowing costs by 30 to 50 basis points per year. After contextualizing FICOs pricing using these various methods, our conclusion is that it still possesses a great deal of untapped pricing power. In fact, we believe FICO could raise its prices by multiples and still provide net value to its customers. Fifth, FICO has a conservative balance sheet. As of March 31, 2024, FICO had a 2.65x consolidated leverage ratio versus a maximum consolidated leverage covenant of 3.5x and an interest coverage ratio of 7.97x versus a minimum interest coverage covenant of 3.0x. Moreover, FICO has few near-term debt maturities with 20% of its debt not coming due until 2026 and an additional 71% not coming due until 2028. Additionally, we believe FICO's strong pricing power enables it to raise prices to offset any cyclical volume weakness, as it has over the last few years as mortgage volumes have fallen by two-thirds since 2021. Sixth, FICO is run by an ownership-minded management team. CEO Will Lansing, who has been on the board of FICO since 2006 and CEO since 2012, has created tremendous value over the last twelve years. During his tenure as CEO, he has renegotiated customer contracts and exercised untapped pricing power in the mortgage division, eschewed acquisitions, bought back shares, and increasingly converted FICO's software business from a lumpy purchase decision to a subscription-based software-as-a-service model. As of June 30, 2024, he owns approximately 350,000 shares of stock worth over $500 million, which keeps him highly incentivized to continue driving FICO's long-term business value. Lastly, we believe investors are underestimating FICO's earnings power not only because of its untapped pricing power but also because of the U.S. mortgage market's almost unprecedented recent weakness. Despite over 30 percent growth in the country's population during the last 30 years, mortgage applications are bumping along at levels not seen since the mid-1990s. Moreover, mortgages originated in 2023 were approximately one-third of the peaks in 2005 and 2021 and a little more than half the average number of mortgages originated over the last 10 years. While we don't know when mortgage volumes will pick up, we believe investors tend to overweight the current macroeconomic backdrop in their analysis and underweight the probability of this climate changing in the future. We call this over-discounting of temporary macroeconomic issues the "market-timing mispricing" and try to take advantage of it when possible. In FICO's case, if mortgage volumes increase to the average levels of the last ten years, we estimate the company could earn over 50% more than current Wall Street estimates. In sum, we believe FICO's network effects and the risk aversion of lenders, regulators, and global investors are likely to constrain competitive supply in the U.S. consumer credit score industry, and we believe demand for credit scores is highly likely to increase along with total U.S. consumer credit, which we believe will grow roughly in-line with GDP. As a result of this constrained supply and rising demand, we believe FICO's pricing and volumes are likely to increase, enabling FICO to act as a toll-taker on U.S. GDP. Moreover, we believe FICO's earnings power is understated because of both its significant untapped pricing power and the U.S. mortgage market's cyclically-depressed volumes. If we adjust FICO's earnings for these two factors, it's much cheaper than it appears, in our opinion. As a result of this difference between current earnings and our estimate of its underlying earnings power, we believe we were able to purchase FICO at a valuation that will enable us to generate attractive long-term risk-adjusted returns.

BSD Analysis:
YCG presents a compelling bull case for FICO based on its dominant network effects in the U.S. consumer credit scoring market. The fund emphasizes FICO's near-monopolistic position with 90% market share among large lenders and 95% of securitization volume using FICO scores exclusively. The investment thesis centers on significant untapped pricing power, noting FICO charges only $3.50 per score compared to $23+ that credit agencies charge lenders, representing just 0.3-0.6 basis points on a $320,000 mortgage. YCG believes FICO could raise prices by multiples while still providing net value to customers. The company benefits from institutional risk aversion, where lenders prefer the established standard over alternatives like VantageScore. FICO operates in a growing market expected to expand with GDP, has a conservative balance sheet (2.65x leverage vs 3.5x covenant), and is led by CEO Will Lansing who owns $500+ million in stock. YCG sees current earnings as understated due to cyclically depressed mortgage volumes, estimating 50%+ upside if volumes normalize to 10-year averages.