Investment Pitches

Pitch Summary:
Anywhere Real Estate – real estate brokerage franchisor Anywhere was the top detractor in the quarter. The biggest headline for the industry was the settlement by the National Association of Realtors regarding how realtor buyer commissions are paid and structured. Anywhere had already settled its part of this litigation last year and does not owe a portion of the big headline numbers reported recently. The bigger questions for us are how these changes will impact long-term commission rates and when the overall housing market will normalize. We remain confident that in any version of a normal environment, the company will be trading at a single-digit multiple of eventually growing FCF. That said, Anywhere has struggled with a lack of value growth recently even though CEO Ryan Schneider has taken steps within his power to position the company to weather this tough environment.

BSD Analysis:
Despite being the quarter's top detractor, the manager maintains a bullish long-term view on Anywhere Real Estate. The investment thesis relies on the eventual normalization of housing market conditions and commission structures. The company's early settlement of NAR litigation provides a competitive advantage by avoiding the large settlement costs facing peers. Management under CEO Ryan Schneider has taken proactive steps to position the company for challenging market conditions. The manager's confidence in single-digit FCF multiples during normalized conditions suggests significant upside potential from current levels. However, the acknowledgment of recent value growth struggles indicates near-term headwinds remain. The bull case depends on housing market recovery and the company's ability to maintain market share through industry disruption. The manager appears to be taking a contrarian position during a difficult period for the real estate brokerage industry.

Pitch Summary:
White Mountains Insurance Group – insurance conglomerate White Mountains was another strong contributor for the quarter. While there was not a lot of news in the quarter, the market is starting to recognize the strategic steps the company has made since we invested in late 2021. White Mountains remains a solid, defensively positioned company with a net cash balance sheet. We are excited about the recent acquisition of Bamboo, a company that focuses on homeowners' insurance in the currently dislocated market of California. We believe this is yet another great opportunistic and contrarian move by CEO Manning Rountree and team. We released a podcast with Manning in January that you can listen to for a broader overview of White Mountains. We trimmed our position after strong performance in the quarter.

BSD Analysis:
The manager maintains a bullish outlook on White Mountains despite trimming after strong performance. The investment thesis centers on the company's strategic transformation under CEO Manning Rountree since the manager's late 2021 investment. The net cash balance sheet provides defensive characteristics and acquisition flexibility in volatile markets. The Bamboo acquisition represents opportunistic capital deployment in California's dislocated homeowners insurance market, demonstrating management's contrarian investment approach. This move aligns with White Mountains' history of identifying undervalued opportunities in stressed insurance markets. The market's growing recognition of strategic initiatives suggests the investment thesis is playing out as expected. The manager's decision to trim rather than exit indicates continued confidence in the long-term value creation potential under current management.

Pitch Summary:
CNX Resources - natural gas company CNX Resources was a top contributor in the quarter. It's been a tough natural gas price environment over the last several months, but CNX came into this year more hedged than peers and with a strong balance sheet that has funded continued share repurchase at a double-digit annualized pace. It is also executing well operationally. Our partners CEO Nick DeIuliis and Chairman Will Thorndike continue focusing on growing long term free cash flow (FCF) and value per share. The quarter saw EQT, a larger competitor in the Appalachian basin, decide to recombine its pipeline business with its upstream business. CNX had already done this in 2020 at what we believe was a better time and a better price, so it was nice to see additional validation of this decision. CNX remains very discounted and one of our stronger value growers over the last few years, which is why we added to our position earlier in the quarter when it was trading at a larger discount.

BSD Analysis:
The manager demonstrates strong conviction in CNX Resources despite challenging natural gas market conditions. The investment thesis is built on superior capital allocation and operational execution relative to peers. CNX's hedging strategy provides downside protection in volatile commodity markets while maintaining upside exposure. The company's aggressive share repurchase program at double-digit annualized rates creates meaningful value for remaining shareholders. Management's focus on free cash flow generation and value per share aligns with shareholder interests. The 2020 pipeline integration decision appears prescient given EQT's recent similar move, validating management's strategic timing. The manager's decision to add to the position during weakness demonstrates confidence in the long-term value proposition and suggests the current valuation remains attractive.

Pitch Summary:
Oscar - health insurance and software platform Oscar Health was the top contributor in the quarter, after the stock returned over 60%. In January, CEO Mark Bertolini spoke at conferences highlighting 30%+ projected revenue gains for 2024 along with additional margin opportunity. Later in the quarter, Oscar reported year-end results that beat expectations again. In addition to strong growth in members and cash flow, the company's technology platform is turning the corner, becoming a contributor rather than the non-earning asset it was when we first invested. We trimmed the position on the back of strong performance in the quarter, but Oscar remains one of our top holdings.

BSD Analysis:
The manager maintains a bullish stance on Oscar Health despite trimming the position after strong performance. The investment thesis centers on the company's transformation from a technology-heavy startup to a profitable health insurer with meaningful scale. CEO Mark Bertolini's guidance of 30%+ revenue growth for 2024 demonstrates strong momentum in member acquisition and retention. The technology platform has evolved from a cost center to a value driver, suggesting improved operational efficiency and competitive positioning. Strong cash flow generation and consistent earnings beats indicate the business model is maturing successfully. The manager's decision to maintain Oscar as a top holding despite trimming reflects confidence in the long-term value creation potential. The combination of growth, improving margins, and technology differentiation supports the continued bull case.

Pitch Summary:
One timely position to discuss is Bassett Furniture ("BSET"). BSET is a 120-year-old manufacturer, wholesaler, and retailer of upper-middle / upper-end furniture. This is an asset heavy company. On the back-end they own and operate 2 wood manufacturing facilities in Virginia, 2 upholstery facilities in North Carolina and Alabama, and 3 warehouses. They own and operate 8 retail locations that cover more than 200k sq feet of retail space; and they operate another 49 owned stores that are leased. Additional distribution comes from 31 Bassett branded retail stores operated by 3rd parties, as well as wholesale sales into other retailers. Up until 2022 BSET had an internal distribution (trucking) company; this was sold to J.B. Hunt for $87mm with part of the proceeds used for a special dividend. BSET has historically generated a 4-5% EBIT margin across its wholesale and retail business. Right now they are slightly loss making as the industry works through a glut in supply. LTM revenue is at $390mm which is right around where the company used to run pre-covid. Of course sales could dip further as retailers de-stock and demand lags given higher interest rates and slower home sales. But long-term I think it is fair to assume that this company could generate something like $20mm of EBIT. The current situation is not lost on management. In their most recent quarterly press release, BSET discussed plans the impetus to return to profitability and specifically noted a plan to reduce warehouse and delivery costs by 2% points. This will be accomplished through the consolidation of retail distribution facilities and improved capacity utilization. For each 1% increase to margins, the company would generate an incremental $4mm of EBIT. They also have a plan in place to improve their wholesale sales by showcasing their best products (custom upholstered furniture) with a slimmed down version of their store-in-store presence. The risk-reward here seems compelling. From a downside protection perspective, BSET is currently trading at a price of $13.50 but has tangible book value of over $19. Cash accounts for a large part of their book ($70mm or $8/share) and their real estate is not properly marked. For instance, the reported value of their 8 owned retail stores is just $24mm or $119/sq foot. My review of listings near these storefronts shows that most are offered at over $300/sqft. Assuming this low-end price, their retail properties are worth $36mm more than they are recorded at on the books (+4.19/share). Should BSET achieve $25mm of EBIT, a 5x multiple would put their enterprise value at $125mm and market value at $195mm or over $22/share (66% upside). This stock truly flies under the radar as it has just $120mm market capitalization and does not host conference calls.

BSD Analysis:
The manager presents Bassett Furniture as a compelling turnaround opportunity trading below tangible book value with significant real estate upside. BSET trades at $13.50 versus tangible book of $19, with $70mm cash ($8/share) providing substantial downside protection. The company's owned retail properties are carried at $119/sqft versus comparable market listings at $300+/sqft, suggesting $36mm in hidden real estate value. Management has outlined specific margin improvement initiatives including warehouse consolidation and improved capacity utilization, targeting 200bps of cost reduction. The furniture industry is currently working through supply gluts and demand headwinds from higher rates, but BSET's historical 4-5% EBIT margins suggest $20-25mm normalized earnings potential. At 5x EBIT multiple on $25mm earnings, the stock could reach $22/share representing 66% upside. The company's small $120mm market cap and lack of conference calls contribute to its under-the-radar status.

Pitch Summary:
During the quarter I uncharacteristically built a position from nothing into our top holding. Clean Harbors ("CLH") is the largest US hazardous waste management company. Before digging into CLH I would like to diverge with a bit of personal history. In my early 20's I worked at Macquarie Bank where our team was responsible for acquiring investments on behalf of our managed infrastructure funds and the bank's balance sheets. One of my first assignments was the acquisition of a publicly traded municipal solid waste (MSW) management company (Waste Industries). While not technically infrastructure per-se, MSW has similar characteristics like being an essential service, operating regional monopolies, and controlling scarce assets. In any case we paid something like 8-9x EBITDA which was a premium to the then trading multiple. Waste Industries is now a small part of GFL Environmental which trades at 12x EBITDA. And GFL is actually at a notable discount to its peers of Waste Management, Republic Services, and Waste Connections that are at 15x. While hindsight is 20/20, buying into this asset class 15 years ago would have been a home-run given their strong cashflow and multiple expansion. While hazardous waste is not entirely comparable to their MSW brethren, CLH has many attractive attributes. They own and operate scarce assets including nine incinerators and eight landfills where new supply is limited by a complex permitting process and significant construction cost. They maintain vertically integrated operations that allow it to control waste from collection through transportation and disposal; this activity similarly requires specialized permits for which the company maintains over 500. As the largest player in the space, CLH has a proven history of managing waste properly – a key consideration amongst customers given environmental ramifications. They also have scale benefits that include route-based efficiencies, capacity utilization, and the deepest breadth of service offering. I view their business in broadly two segments, Environmental Services and Safety-Kleen Oil. Environmental Services provides waste remediation and cleaning services for various industries with particular concentration in chemical, manufacturing, refining, and auto service. Though many of these end-markets are individually cyclical, the diversification of their product offering and customer base will somewhat offset this. Additionally, these sectors should benefit from the ongoing shift to reshoring and increased regulatory / environmental scrutiny. Safety-Kleen Oil provides used motor oil collection and recycling; it is the most volatile part of CLH as profitability is largely determined by commodity prices. This business is currently depressed and accounts for just 13% of their consolidated EBITDA. CLH is taking steps to structurally improve these operations. For instance, by separating their feedstock during collections they can offer Group III base oils that receive a meaningful premium to Group II. CLH has historically operated the Environmental Services business at a low to mid-20's EBITDA margin. This is noticeably lower than the 30% range that most MSW operate in; this differential is even more jarring on an EBIT basis as CLH is less capital intensive than MSW. In early 2022 Republic Services acquired hazardous waste competitor US Ecology. A key part of their thesis was that they viewed the hazardous waste sector equivalent to the MSW sector 20 years go. Republic has said that they see 10 percentage points of margin expansion, to be achieved through further consolidation and a more rational approach to pricing. Since the acquisition, Republic has taken two double digit pricing increases and witnessed expanding margins. This approach is benefiting the industry as a whole, with CLH margins up 1.6% in 2023 to reach 24.5%. CLH is currently trading at 10.6x consensus EBITDA for 2025, a meaningful discount to their MSW peers. Assuming the base oil business is worth just 3.0x EBITDA, the remaining business is trading at 10.8x. This is entirely too low given their market positioning, essential service offering, and meaningful barriers to entry. Furthermore, this discounted multiple gives no optionality to further margin improvement. If margins were to increase another 500bps (obviously over the long-term), consolidated EBITDA would be 20% above consensus and the multiple would fall to <9x. Keep in mind that Republic acquired US Ecology at almost 14x trailing EBITDA.

BSD Analysis:
The manager presents a compelling value thesis for Clean Harbors, building it into their top holding based on structural advantages in hazardous waste management. CLH operates scarce assets including nine incinerators and eight landfills with high barriers to entry due to complex permitting and construction costs. The company maintains over 500 specialized permits and benefits from scale advantages in route optimization and service breadth. The manager draws parallels to municipal solid waste companies that have seen significant multiple expansion over the past 15 years. CLH trades at 10.6x 2025 EBITDA versus MSW peers at 15x, despite similar essential service characteristics and regional monopoly dynamics. The Environmental Services segment has shown margin improvement from industry consolidation and pricing discipline, with EBITDA margins expanding 160bps to 24.5% in 2023. The depressed Safety-Kleen Oil segment represents potential upside as commodity prices recover and the company upgrades to higher-margin Group III base oils.

Pitch Summary:
Our biggest position is Alphabet, the holding company for Google. It is currently about 12 percent of funds under management. This has been a large position for over ten years. We bought a large position in Google in October 2010, and the stock immediately dropped 11 percent. That was an astonishingly good purchase and if we had held it all from October 2010 until the end of this month the gain would have been about 1300 percent. Alas we did not hold it all. We have trimmed it many times – and it is now merely a large position. (We have lived to regret every single trim…) In April, they put out simply astonishing results. Google Search is a 280-billion-dollar business growing over 10 percent per annum, and seemingly accelerating. This is beyond our wildest fantasy about how good Google could get. And we mean that. We had – from inception of the position in 2011 – a view about how big Google could get – a view that turned out to be precisely wrong. We quantified that view in our end of 2015 client letter. To quote: 1. Global GDP is roughly $77 trillion USD, 2. The highest advertising spend in the world as a proportion of GDP is the USA at about 1.3 percent. Most the rest of the world is below 1% and usually a fair bit below 1%. 3. Suppose that the whole world gets a reasonable developed country level of advertising spend – say 1 percent of GDP. Global spend is 1.0 percent of 77 trillion dollars is 770 billion dollars. This is enormously generous. 4. Suppose - and this is also enormously generous - that Facebook and Google get to be 30 percent of this or $231 billion in advertising spend. (This is over three times current revenue.) 5. Suppose - and this is more reasonable - that having achieved global domination their pre-tax margin is 40 percent. (Google is running about 25 percent these days…) Then the pre-tax earnings would be $92 billion. 6. Suppose (and this is a little harsh) that they pay 30 percent tax on this. Then the post-tax earnings would be about $65 billion. 7. Now suppose that you want to put that on 15 times absolutely terminal earnings assuming everything goes right. The valuation should be $970 billion dollars. At the time the combined market cap of Google and Facebook was about $780 billion. We thought at the time that Google and Facebook were "fully valued". We did not sell Google because we did not have sufficient other places to invest the money that we thought was of similar quality and reasonably priced. Anyway – the combined market cap of Alphabet and Meta (the old Google and Facebook) is now nearly $3.4 trillion – about 3.5 times what we thought a maximum terminal value for these stocks was. It is worth stating how we were wrong. 1. Global GDP is closer to $110 trillion than $77 trillion. We should have included some growth in global GDP. 2. Advertising spend keeps going up and will wind up over 1 percent of global GDP – primarily driven by online and, of course, Google. a. Firstly, online advertising can be measured – and as people worked out advertising actually works they buy more of it, and b. Online creates new people that must advertise. Once for example there was a fishing shop at Hyams Beach, a tourist town south of Sydney. It has closed now – at least in part because people buy fishing tackle online. The online replacement must advertise. But more importantly the local fishing guides used to advertise by sticking a sign up in the local fishing shop. Now they buy words like "deep sea fishing Jervis Bay" on Google. Total advertising spend thus rises. 3. Facebook and Google are already over 30 percent of global advertising. Google's advertising revenue alone is now about a quarter of a percent of global GDP and growing much faster than global GDP. 4. We underestimated the long-term margin. Meta margins are just on 40 percent now, Google is in the low 30s. But, in both cases, this is after expensing what will wind up being a whole lot of growth expenditure (such as on AI development). 5. The tax rates paid are going to wind up less than 30 percent, and 6. The end multiple will wind up being more than 15 times earnings – especially as these are somewhat inflation resistant businesses. In other words, we were close to comprehensively wrong. Except in one thing. We continued to hold Google stock because it was growing, the business was in the upper few percentiles for quality, and we did not have enough ideas that were sufficiently better than Google to induce us to sell. And so it is now. We hold the position subject to finding sufficiently good ideas to replace it. The uncomfortable implication is that the main reason we have held Google is that we could not find anything we liked more. We did not hold it because we were smart and realized the revenue would go to seemingly well over a quarter of a percent of global GDP. We were utterly wrong about how good Google's prospects were. Our estimates – with the benefit of hindsight – are simply comically low. But, if we look at Google against current multiples and growth, it is just not that expensive. But it is also just not that explicable. And we do not see good reason for holding 12 percent of the portfolio at a valuation and business performance we see as inexplicable. Expect us to trim it irregularly – maybe sharply if we find a position we like more.

BSD Analysis:
Alphabet represents Bronte's largest position at 12% of assets, held for over a decade since 2010 with approximately 1300% gains despite multiple trims. The fund's April 2024 assessment reveals Google Search as a $280 billion business growing over 10% annually and accelerating, far exceeding their original projections. Their 2015 analysis estimated a maximum terminal value of $970 billion for Google and Facebook combined, yet the current combined market cap approaches $3.4 trillion. The managers acknowledge comprehensive forecasting errors, underestimating GDP growth, advertising spend expansion, margin improvement, and multiple expansion. Google's advertising revenue now represents about 0.25% of global GDP and continues growing faster than GDP itself. Despite admitting the business performance is "inexplicable" at current scale, they maintain the position due to lack of superior alternatives. The fund signals potential irregular trimming if better opportunities emerge, highlighting the challenge of position sizing when fundamental analysis proves inadequate for exceptional businesses.

Pitch Summary:
Hibbett is an unusual long for us. It is consumer facing and we rarely own consumer stocks. Secondly, we wrote it up – extensively – recently. As disclosed on Form 13G, we own a bit over five percent of the company and it is the only time Bronte has ever filed such a substantial shareholder notice. Hibbett received and accepted a bid from JD Sports – the Manchester based, but global, sneaker retailing giant. It is tempting to declare victory and move on. But we are into post-mortem – if only to be honest to ourselves. This deal – and the price – brings into question our thesis for Hibbett. We genuinely believed that Hibbett profits would be higher in five years. And not by a little bit. The argument was simple. Nike (in particular) had a strategy of killing any distributor who they perceived as not additive to the Nike brand and showering with love any retailer who was additive to the Nike Brand. We explained at length why we thought Hibbett was additive to Nike. Also, we thought that Nike would neuter their competition – destocking many players – possibly eventually including the super-giant Foot Locker. Since then, Nike has made marginally conciliatory moves to Foot Locker – but broadly nothing has changed. Foot Locker produced results that look like a slow track to bankruptcy. Our thesis looked intact. So, it is very difficult to explain why Hibbett management – who we think are honest and competent - agreed to a deal at 10 times current year earnings. By far the most likely hypothesis is that we were wrong – and the management – who know the business better than us disagree that the long-term direction of profits is up – and thought that 10x earnings was a good price. However, we are open to any other interpretation people might have.

BSD Analysis:
Bronte Capital held a significant 5%+ position in Hibbett, believing the athletic retailer would benefit from Nike's strategy of favoring distributors that enhance the Nike brand while eliminating those that don't. The fund's thesis centered on Hibbett's unique positioning serving underserved communities through its City Gear franchise, making it additive to Nike's brand reach. They expected Hibbett's profits to grow substantially over five years as Nike continued to destock competitors like Foot Locker. However, JD Sports' acquisition of Hibbett at 10x earnings has caused the managers to question their analysis. The acceptance of what they view as a modest valuation by Hibbett's management suggests the long-term profit trajectory may not be as favorable as anticipated. This represents a case where the investment thesis appeared sound but management's actions indicated different expectations about future profitability. The fund acknowledges this outcome challenges their understanding of the sneaker retail dynamics.

Pitch Summary:
Vistry, our UK Partnerships business (dubbed by some the "NVR of Europe"), grew revenue by 30% and completions by 35% in 2023. Vistry continues to guide to a near doubling of adjusted operating profit over the medium term, from last year's £490 million to greater than £800 million (60%+ cumulative growth) in the next several years. And let's not forget, the company is in the midst of returning £1bn to shareholders via buybacks and dividends by 2026, which is over 25% of the current enterprise value. Simply put, Vistry could generate £1.50-2.00 of earnings per share in a few years. Given the quality of the business, should probably trade at 15-20x earnings. There is a reasonable case this stock could triple over the next few years.

BSD Analysis:
The manager positions Vistry as the "NVR of Europe," highlighting its differentiated partnerships business model in UK housing. The company demonstrated strong operational performance with 30% revenue growth and 35% completion growth, indicating robust demand and execution capabilities. Management's guidance for near-doubling of operating profit from £490 million to over £800 million represents significant earnings growth potential over the medium term. The substantial capital return program of £1 billion through 2026 represents over 25% of current enterprise value, demonstrating management's confidence and commitment to shareholder returns. The manager's valuation analysis suggests potential earnings of £1.50-2.00 per share, which at appropriate 15-20x multiples could support significant stock price appreciation. The combination of earnings growth and capital returns creates a compelling total return opportunity.

Pitch Summary:
CTT, our "sleepy" Portuguese conglomerate, grew recurring EBIT by 36%, free cash flow by 40%, and its "Express and Parcels" segment revenue by 32% in 2023. Maybe not so sleepy after all. After beating and raising guidance several times last year, the company guided for further growth in 2024. 2024 EBITDA should exceed €150 million, while 2025 guidance is for €175 million at the midpoint. These figures compare to the current enterprise value of around €600 million, putting valuation at a very cheap sub-4x level. The company continues to monetize non-core assets such as its excess real estate while repurchasing shares daily. In a few years, this business could generate €200 million of EBITDA and have 125 million shares outstanding. At a highly conservative 6x multiple, that would put the stock at ~€10, more than double the current price. At a more appropriate 8x multiple: €13 per share (almost a triple).

BSD Analysis:
The manager presents CTT as an undervalued Portuguese logistics company experiencing significant operational momentum. The company delivered exceptional growth with 36% recurring EBIT growth, 40% free cash flow expansion, and 32% Express & Parcels revenue growth, demonstrating strong execution across key segments. Management's track record of beating and raising guidance multiple times suggests conservative forecasting and operational excellence. The current valuation appears extremely attractive at sub-4x enterprise value to EBITDA, well below industry peers. The dual strategy of monetizing non-core real estate assets while executing daily share repurchases creates multiple value creation levers. The manager's scenario analysis suggests potential returns of 100-200% based on conservative 6-8x EBITDA multiples, reflecting significant upside potential from current levels.

Pitch Summary:
At the end of February, Clarus closed on the sale of its Precision Sport segment for $175 million. This brought the company to a net cash position of over $1 per share. With its stock price hovering around $6, Clarus' enterprise value is approximately $185 million. At its recent analyst day, the company laid out a path to generating ~$50 million of EBITDA in 2026, more than 100% growth from 2024's expected level. Obviously, investors don't believe this guidance is likely to be attained. If Clarus hits the 2026 forecast, the stock could perhaps triple. If it doesn't, I believe we still have a large margin of safety at the current price. After all, Clarus has a fortress balance sheet and a history of realizing value for its brands when warranted (including the sales of POC, Gregory, and recently, Sierra and Barnes). This stock is out of favor to an extreme degree. I believe the set-up is highly asymmetric. Upside is perhaps a double or triple over a few years, while I believe the risk of permanent capital loss is limited.

BSD Analysis:
The manager identifies Clarus as a compelling asymmetric opportunity trading at extreme valuation levels. The recent $175 million Precision Sport divestiture has strengthened the balance sheet significantly, creating a net cash position exceeding $1 per share. With the stock trading around $6, the enterprise value of approximately $185 million appears deeply discounted relative to management's 2026 EBITDA target of $50 million, representing over 100% growth. The manager emphasizes the asymmetric risk-reward profile, with potential upside of 200-300% if targets are achieved, while downside protection comes from the fortress balance sheet and management's proven track record of monetizing assets. The company's history of successful brand divestitures demonstrates capital allocation discipline and provides additional downside protection through asset optionality.

Pitch Summary:
APi grew adjusted EBITDA 16%, net income 20%, and free cash flow 30% last year, deleveraging in the process. APi continues its evolution towards more recurring inspection and service revenue, expanding its margins in the process. It is positioned for further acquisitive growth this year and beyond as it pursues its "buy and build" strategy.

BSD Analysis:
The manager presents a bullish case for APi Group based on strong operational performance and strategic positioning. The company delivered impressive growth metrics with 16% EBITDA growth, 20% net income growth, and 30% free cash flow expansion while simultaneously reducing leverage. The transition toward recurring inspection and service revenue represents a strategic shift that should improve margin stability and predictability. The "buy and build" acquisition strategy positions APi for continued growth through strategic acquisitions in a fragmented market. The combination of organic growth, margin expansion, and acquisitive opportunities creates multiple avenues for value creation. The deleveraging trend enhances financial flexibility for future investments and acquisitions.

Pitch Summary:
We added shares of Richardson Electric Company (RELL) in 1Q24, as we see a strong balance sheet, compelling upside potential with multiple avenues to grow, a solid financial profile with net cash on the balance sheet and significant investor neglect. Richardson's products include electron tubes and microwave generators, old technologies that are finding new life in the semiconductor manufacturing industry and in multiple green energy applications. RELL has a strong financial profile. RELL has over $22 million net cash on its balance sheet and no debt. RELL has $116 million in inventory – a level exceeding its March 31st enterprise value of $110 million – with roughly 90% in finished goods inventories. Importantly, these inventories are supported by long-term orders, such as supplying GE windmill battery replacement units. RELL forecasts returning to a positive free cash flow position in FY25 (May), as sales recover, and inventory is delivered. Further, although we do not ascribe any value to this in our valuation, RELL's headquarters and main facility in La Fox, IL sits on 125 acres, much of it unused. We estimate that RELL could monetize roughly 100 acres if desired. RELL's management team has been a good steward of capital and has further indicated that it will sell or shut its smaller health care unit if it does not begin to show profitability as it exits this fiscal year. RELL, in our view, is suffering from significant investor neglect currently, due to the downcycle in the semi-conductor capital equipment cycle. RELL's largest customer is Lam Research (LRCX), but RELL sells to most of the major suppliers in the industry including Applied Materials, MKS Instruments and Tokyo Electric. Due to limited sell-side coverage, we think investors are misunderstanding the decline in RELL's earnings from semi-equipment suppliers in 2024 due to the cycle, and have ascribed no value, or vision, to the ability of RELL's sales and earnings to recover with the eventual cycle recovery. We see substantial neglect in the fact that RELL's customers, e.g. LRCX, are trading at near all-time highs as RELL trades near multi-year lows. We see the CHIPS Act, the Inflation Reduction Act, artificial intelligence, a PC refresh cycle, 5G, EV's and autonomous driving and the internet of things all as drivers to the semi-cycle over time. RELL's products are essential and proprietary and should continue to capture significant orders. Further, LRCX believes the pending up cycle will be stronger than any past peak and is offering financial support to suppliers (RELL does not need this support) to keep their capacity in place. We see RELL's emerging Green Energy Solutions, or GES unit, as another source of strong earnings upside for RELL, that is significantly neglected by investors. RELL has developed engineered solutions for multiple uses in the replacement of lead acid batteries in green energy offerings like windmills and locomotives. RELL's battery replacement modules are approved for GE wind turbines and are an aftermarket solution offered on the GE marketplace site. There are up to 18 modules in each GE windmill, and RELL's units last up to 10-years, vs. 2-years for lead acid batteries. These units are plug-and-play replacements for lead acid batteries. As it is incredibly expensive to service these windmills, up to 300 feet off the ground, RELL's units are not only more efficient, but also a better cost of service for the operators. There is an in-place market of roughly 35,000 GE windmills worldwide. RELL is also working with Suzlon Energy in India on a similar pitch energy module, where battery life for windmills can be as short as 6-months due to humidity. RELL has also designed back-up battery replacements for generators in the base stations of Siemens and GE windmills. RELL is also working with both Progress Rail (CAT) and Wabtec (with a GE joint venture) to replace lead acid batteries in the starter unit of diesel trains. Additionally, RELL has completed battery module shipments for its first delivery of an all-electric train, used on-site in a mining operation, and longer-term could benefit from the increase in electric train utilization, likely first for subway and commuter rails. RELL also is a leading supplier of magnetrons used to grow synthetic diamonds, very high-quality real diamonds that are increasingly preferred by consumers due to the i) lower cost ii) clean ESG profile due to no mining and iii) conflict free nature versus natural diamonds. Our AFV driven price target is up over 100% from its quarter-end price of $9.13 per share. We base this target only on a recovery to FY2023 revenue and earnings levels. We view this near term AFV target as extremely conservative, as it is under RELL's 2023 $24.97 share price in February 2023. This AFV target is supported by its current balance sheet, its earnings recovery power and its growth potential. However, we do see a significant multi-year growth opportunity for RELL and think management can achieve its long-term goal of $500 million in revenue in a few years, vs. the FY23 reported $246 million.

BSD Analysis:
Rewey Asset Management presents Richardson Electronics as a deeply undervalued technology company with multiple growth catalysts across semiconductor and green energy markets. The manager emphasizes RELL's fortress balance sheet with $22 million net cash and $116 million in inventory that exceeds the company's enterprise value, creating significant downside protection. The semiconductor equipment cycle downturn has created temporary earnings pressure, but Rewey sees this as a buying opportunity given RELL's essential role supplying major customers like Lam Research and Applied Materials. The emerging Green Energy Solutions division represents a compelling new growth vector, with battery replacement modules for wind turbines offering superior economics and longevity compared to traditional lead-acid alternatives. The addressable market of 35,000 GE windmills globally provides substantial runway for expansion. Additional opportunities in electric trains and synthetic diamond production further diversify the growth profile. Rewey's 100%+ price target reflects conservative assumptions based solely on earnings normalization, suggesting significant upside potential as cycles recover and new initiatives scale.

Pitch Summary:
Columbia Banking Systems (COLB) was our weakest performer in the quarter, falling 22.91%. We see palpable neglect and undervaluation in COLB, as general fears of commercial real-estate have become overdone. Columbia Bank is the renamed Umpqua Bank, which took the Columbia name when combined in early 2023. As a commercially focused bank in WA, OR, ID and Northern CA, COLB does have more commercial loans when screened against consumer peers, and this in our view has led to selling by those who don't understand the bank. COLB is extremely profitable with a 15.14% 4Q23 ROTCE and a 11.9% total RBC ratio which is forecast to exceed 12% at 1Q24, allowing for the potential to restart share repurchases that were halted with the merger. Its loan portfolio is diversified and, in our view, high quality, and we think the fears of its non-occupied CRE portfolio are misplaced as it had a 51% loan-to-value and had a 0.00% charge-off rate in 4Q23. We see a very attractive valuation profile at .81x book value, 1.2x tangible book value, 8.2x consensus 2024 EPS and it has a 7.63% dividend yield.

BSD Analysis:
Rewey Asset Management sees Columbia Banking Systems as a high-quality regional bank trading at deeply discounted valuations due to misplaced commercial real estate fears. The manager argues that market concerns are overdone, pointing to the bank's strong credit metrics including a 51% loan-to-value ratio and zero charge-offs in Q4 2023. COLB's exceptional profitability metrics, including a 15.14% ROTCE, demonstrate operational excellence despite the challenging banking environment. The bank's strong capital position with an 11.9% RBC ratio provides flexibility for capital returns once regulatory restrictions are lifted. The valuation appears compelling at 0.81x book value and 8.2x forward earnings with a substantial 7.63% dividend yield. The recent merger integration with Umpqua creates temporary overhang but positions the combined entity for improved scale and efficiency. Rewey views the commercial real estate exposure as manageable and well-underwritten.

Pitch Summary:
ARIS Water Solutions was our strongest performer in the quarter, up 71.99%. You may recall we featured ARIS in our 4Q23 letter. We felt ARIS was extremely undervalued and misunderstood by the market, as it was likely lumped into the oil and gas group, while its business has less to do with oil and gas prices but instead is focused on recovering and recycling water associated with production. We also saw, and still see, a credible path to improving revenues and margins in its core operations. ARIS's financial strength should allow it to continue to pay a strong dividend and potentially pursue bolt on acquisitions in its core Permian basin footprint.

BSD Analysis:
Rewey Asset Management views ARIS Water Solutions as a misunderstood value play that was incorrectly categorized by the market as a traditional oil and gas company. The manager emphasizes that ARIS's business model is fundamentally different, focusing on water recovery and recycling services rather than being directly tied to commodity prices. This defensive positioning within the energy sector provides more stable cash flows and growth prospects. The company's strong financial position enables continued dividend payments and potential strategic acquisitions in the Permian Basin. The 72% quarterly gain validates the manager's thesis about market mispricing. The water recycling focus aligns with increasing environmental regulations and ESG considerations in energy operations. Rewey sees clear operational leverage opportunities through revenue growth and margin expansion in the core business.

Pitch Summary:
CZR is one of the largest and most iconic gaming and hospitality companies in the US, with 52 properties across 18 states. The company's hotels, restaurants, bars, entertainment, racing, retail shops and other services attract gaming customers. The physical properties and associated loyalty program also help the company acquire customers for its online sports betting (OSB) and online gaming (iGaming) platform. The company is led by gaming veteran Tom Reeg, who oversaw significant value creation at Eldorado Resorts which went on to acquire the much larger Caesars portfolio in 2020. Since making the acquisition, the combined company has grown EBITDAR by nearly $1 billion, approximately half of which came from cost synergies, with the rest coming from improved revenue optimization and the elimination of inefficient customer promotions. For example, the company removed buffets across its properties, where it was losing over $100 million per year. As such, the company's EBITDAR grew from nearly $3 billion in 2019 (pro forma) to nearly $4 billion in 2023. CZR's 2023 EBITDAR translates into over $2.6 billion of EBITDA and $1 billion of maintenance free cash flow. Importantly, >75% of total EBITDA comes from owned properties and >40% of total EBITDA comes properties owned in the capacity-constrained Las Vegas market. The value of this owned real estate is likely greater than the company's current enterprise value. Better yet, the $1 billion of maintenance FCF discussed above significantly understates the company's future earnings potential. Despite its strong EBITDAR growth relative to pre-COVID levels, the company has made several substantial investments in its business that have yet to pay off. On the physical side, CZR has deployed well over $1 billion into new and existing growth projects. This includes $650 million spent to build a new property in Danville, VA. It also includes $400 million for upgrades to its properties in Atlantic City and an additional $400 million for upgrades to its New Orleans locations. Typically, the company expects at a 15%+ return on such growth projects, though they caveat that Atlantic City will probably come in below that figure. On the digital side, CZR has invested heavily in marketing and promotions to acquire customers over the last three years. Cumulative burn in this segment has been more than $1 billion in 2021 and 2022 combined. However, the digital business finally turned marginally profitable in 2023 and management expects that it should grow to $500 million of annual EBITDA within the next couple of years. As the new projects come online, they will not only start to contribute to EBITDA, but growth capex should drop meaningfully as well. This will happen while the digital side of the business, which has a very long growth runway, continues to inflect. In a few years, CZR should be able to generate $2 billion annual free cash flow, or $9 per share. At that point, digital will still be growing nicely. As this happens, I believe that the stock should be substantially higher than its current levels.

BSD Analysis:
The manager presents a compelling bull case for Caesars Entertainment based on operational improvements, asset value, and future earnings potential. Under CEO Tom Reeg's leadership, the company has successfully integrated the Eldorado-Caesars merger, generating nearly $1 billion in EBITDAR growth through cost synergies and revenue optimization. The current $1 billion maintenance FCF significantly understates future potential as over $1 billion in growth capex investments begin paying off. The digital sports betting and iGaming segment has turned profitable after heavy customer acquisition spending and is expected to reach $500 million annual EBITDA. With over 75% of EBITDA from owned properties and 40% from capacity-constrained Las Vegas, the real estate value alone may exceed current enterprise value. The manager projects $2 billion annual FCF ($9 per share) within a few years as growth projects mature and digital continues expanding. This represents substantial upside from current levels given the quality of assets and improving operational leverage.

Pitch Summary:
But whilst you really do require resilience to cut through all the noise out there, the results can be well worth it, with Figure 6 a final example to illustrate the point. WWE (now TKO following its recent combination with Endeavour's UFC franchise), has been one of our noisiest stocks. Over more than a decade of ownership, from our Global Representative Account's inception to the company's merger last September, we've waited through three separate multi-year periods with no return at all. Each time suffering significant underperformance vs. the MSCI World. And yet overall, it has been one of our best performing holdings, delivering a near 15-fold GBP total return. It's been a rewarding, if bumpy ride, and whilst timing the ups and downs might have amped returns even further, the (in my view unnecessary) risk borne in doing could easily have undone this happy result. As Buffett says, 'When you find a truly wonderful business, stick with it. Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable.' We very much agree.

BSD Analysis:
Lindsell Train presents WWE/TKO as a compelling case study demonstrating the power of patient, long-term investing in quality businesses despite significant volatility. The manager held WWE for over a decade through three separate multi-year periods of zero returns and underperformance versus the MSCI World, showcasing remarkable conviction and patience. Despite this volatility, the investment delivered exceptional results with a near 15-fold GBP total return, making it one of their best performing holdings. The fund describes WWE as one of their 'noisiest stocks,' highlighting the emotional resilience required for successful long-term investing. The recent merger with UFC to form TKO represents a strategic combination that enhances the company's entertainment portfolio and market position. This example perfectly illustrates Lindsell Train's core investment philosophy of finding 'truly wonderful businesses' and sticking with them through market cycles. The manager emphasizes that attempting to time the market cycles would have introduced unnecessary risk that could have undermined the exceptional long-term returns.

Pitch Summary:
Does this cycling happen in real life? Perhaps not so symmetrically as to make it predictable, but the magnitude and frequency of these swings certainly aren't unusual. Figure 5 shows 20 years' worth of P/E multiples for two of our holdings; Japanese pharma company Astellas, and US drinks and snacks giant PepsiCo. Both we deem high quality companies, and both have compounded their dividends per share at double digit rates over this period. But as you can see, their valuations have swung repeatedly along the way, and not always in sync. In the speech bubbles are some cherry-picked samples of the analyst coverage from the time, indicating (anecdotally) the general mood surrounding these companies as their ratings have shifted. It wouldn't be hard to follow the crowd here into damaging trading.

BSD Analysis:
Lindsell Train positions Astellas Pharma as another example of a high-quality company that has delivered strong fundamental performance despite significant valuation volatility. The manager highlights that Astellas has compounded dividends per share at double-digit rates over a 20-year period, demonstrating the pharmaceutical company's ability to generate consistent cash flows and returns to shareholders. The fund uses Astellas to illustrate how market sentiment and analyst opinions can create dramatic valuation swings that are disconnected from underlying business performance. Despite facing periods where analysts questioned the pipeline strength and growth prospects, the company continued to deliver strong dividend growth. This case reinforces Lindsell Train's investment philosophy of focusing on business quality rather than market sentiment. The manager views Astellas as a quality pharmaceutical company that benefits from their patient, low-turnover investment approach. The example demonstrates how staying invested through valuation cycles can be rewarded when the underlying business fundamentals remain strong.

Pitch Summary:
Does this cycling happen in real life? Perhaps not so symmetrically as to make it predictable, but the magnitude and frequency of these swings certainly aren't unusual. Figure 5 shows 20 years' worth of P/E multiples for two of our holdings; Japanese pharma company Astellas, and US drinks and snacks giant PepsiCo. Both we deem high quality companies, and both have compounded their dividends per share at double digit rates over this period. But as you can see, their valuations have swung repeatedly along the way, and not always in sync. In the speech bubbles are some cherry-picked samples of the analyst coverage from the time, indicating (anecdotally) the general mood surrounding these companies as their ratings have shifted. It wouldn't be hard to follow the crowd here into damaging trading.

BSD Analysis:
Lindsell Train presents PepsiCo as a prime example of a high-quality company that demonstrates the power of long-term compounding despite valuation volatility. The manager emphasizes that PepsiCo has compounded dividends per share at double-digit rates over a 20-year period, showcasing the underlying business strength. The fund views PepsiCo as a 'high quality company' within their portfolio strategy focused on businesses with above-market rates of compounding. The analysis highlights how valuation cycles create noise that can lead to damaging trading decisions, but the underlying business fundamentals remain strong. The manager uses PepsiCo to illustrate their core investment philosophy of buying quality businesses and holding them through valuation cycles. The company's position in the stable, cash-generative beverage and snacks category aligns with Lindsell Train's preference for businesses with sustainable competitive advantages. This case study reinforces their low-turnover approach and patience-focused investment strategy.

Pitch Summary:
During the first quarter we started a new position in one such company, Roivant. Roivant is a biotech holding company with a number of focused subsidiaries, called "vants," built across various therapeutic areas to maximize ROI. The strategy is to find orphaned drug candidates that have been shelved by big pharma, create a new vant for each where the economics are usually shared with their partner, develop them with the resources and support of Roivant, and then, once de-risked, sell it. And because Roivant is incorporated in Bermuda and subject to UK tax law, they pay no capital gains tax when they sell. Led by a former Goldman Sachs banker, this has been a very successful model to date. Most recently, in December the company sold its Televant subsidiary to Roche for over $7.1 billion in cash. Following that sale, the cash on Roivant's balance sheet, plus the market value of its stakes in two publicly traded subsidiaries, yields a negative enterprise value, which means we are gaining access to many sources of potential upside for less than free. This is a mispricing that we do not believe can persist. Immunovant is the most valuable of the remaining vants, with a market cap today of approximately $4.7 billion, making Roivant's stake worth about $2.4 billion. Its focus is on autoimmune disease via an anti-FcRn platform which has the potential to be applied to many indications. This is a multi-billion-dollar commercial opportunity, and with its lead drug de-risked and the biotech M&A environment heating up, Immunovant is widely expected to be sold this year. Another interesting source of potential upside is a patent infringement lawsuit that two subsidiaries, Genevant and Arbutus, have against Moderna and Pfizer. In an understandable hurry to produce a Covid vaccine in record time under Operation Warp Speed, intellectual property of other companies was allegedly infringed upon. The likely settlement, in our opinion, will be some low- to mid-single-digit royalty on Moderna's $40 billion in legacy Covid vaccine sales. The Pfizer litigation is following a separate track, about 8 months behind, but an even bigger potential settlement lies ahead on its $80 billion in cumulative Covid vaccine sales.

BSD Analysis:
Penn Davis McFarland initiated a new position in Roivant Sciences, a biotech holding company that acquires orphaned drug candidates from big pharma and develops them through focused subsidiaries called 'vants.' The manager's thesis centers on a compelling valuation anomaly: following the $7.1 billion sale of Televant to Roche in December, Roivant trades at a negative enterprise value when accounting for cash and stakes in public subsidiaries. The firm views this as an unsustainable mispricing offering multiple sources of upside. Key catalysts include the expected sale of Immunovant (valued at $4.7 billion market cap with Roivant owning approximately 50%) in a heating biotech M&A environment, and potential patent litigation settlements against Moderna and Pfizer related to COVID vaccine intellectual property. The manager estimates settlements could yield low-to-mid single digit royalties on $40 billion in Moderna sales and $80 billion in Pfizer sales. Roivant's tax-advantaged structure in Bermuda provides additional appeal by eliminating capital gains taxes on subsidiary sales.