Investment Pitches

Pitch Summary:
Mueller Water Products (MWA) manufactures products and services used in the transmission, distribution, and measurement of water in North America. They help utilities deliver clean, safe drinking water. The company's domain strength is after the water leaves treatment and before the home, or the vast network of pipes and valves between the utility and the point of use, things like fire hydrants, brass works, and large valves. It's largely a replacement market with 40% exposure to residential and the rest utilities. Very few companies with scale compete directly with MWA. The company has significant share positions in hydrants and big gate valves. Their customer base is quite sticky, and the company has recently completed an investment cycle building a new foundry. America's water infrastructure is massive and in very serious need for upgrade and modernization. Significant federal funds have been allocated to do just this and we believe MWA is well positioned to capitalize. We estimate a reasonable PMV for MWA is approximately $25.

BSD Analysis:
The managers initiated a new position in Mueller Water Products, attracted by the company's dominant market position in critical water infrastructure components including fire hydrants and large gate valves. MWA operates in a largely replacement-driven market with sticky utility customers and limited scaled competition, providing defensive characteristics and pricing power. The investment thesis centers on America's aging water infrastructure requiring massive modernization, supported by significant federal funding allocation. The company recently completed a foundry investment cycle, positioning it to capitalize on increased infrastructure spending. With 40% residential exposure and 60% utility exposure, MWA offers diversified end-market exposure. The managers assign a $25 price target, suggesting meaningful upside potential from current levels.

Pitch Summary:
Our Energy underweight was also a slight drag, although we are optimistic about our singular investment in this sector with Chord Energy (CHRD). During Q1 the company announced a strategic combination with Canadian-based Enerplus Corporation (TSX: ERF). Enerplus is one of, if not the best remaining assets in the Bakken and we are very constructive on the financial and strategic merits of this transformational deal. CHRD will become the largest operator in the Bakken, representing about 12% of the basin's production. With a solid balance sheet post deal, CHRD will now be in the enviable position of either the basin's main consolidator or most strategic asset as a target for larger E&P companies.

BSD Analysis:
The managers express strong optimism about Chord Energy's transformational acquisition of Enerplus Corporation, positioning CHRD as the dominant Bakken operator with 12% basin production share. The strategic combination creates significant scale advantages and consolidation opportunities in one of North America's premier shale plays. Post-merger, CHRD will maintain a solid balance sheet while gaining access to what the managers consider among the highest-quality Bakken assets. The enlarged entity becomes either a natural consolidator for smaller operators or an attractive acquisition target for larger E&P companies, creating multiple value realization pathways. The managers view this as a compelling energy investment despite their sector underweight positioning.

Pitch Summary:
Our worst performer on a relative contribution basis was internet service provider Cogent Communications (CCOI). Cogent's stock had a strong run into their fourth quarter report in February, however the results, although good, were not good enough for the elevated expectations. Ultimately, CCOI's business is driven by internet traffic, which is driven by things like content on Netflix, hyperscale traffic, and AI generated traffic. We believe the correction is an overreaction and are confident the business fundamentals will eventually lead to better performance. The company has a defensible and significant cost advantage versus its competition and it is estimated that roughly 25% of the global internet traffic runs through Cogent's network, making this business a rather strategic asset.

BSD Analysis:
Despite being the fund's worst relative performer in Q1, the managers maintain a bullish stance on Cogent Communications, viewing the stock decline as an overreaction to Q4 results that missed elevated expectations. The investment thesis centers on CCOI's strategic position in global internet infrastructure, with an estimated 25% of worldwide internet traffic flowing through their network. The managers emphasize the company's defensible cost advantages and exposure to secular growth drivers including streaming content, hyperscale cloud traffic, and emerging AI-generated data flows. The correction appears to present an attractive entry point for a business with significant competitive moats and exposure to long-term internet traffic growth trends.

Pitch Summary:
Industrial stocks drove the bulk of our outperformance, led by standout specialty Industrial Distributor Core and Main (CNM).

BSD Analysis:
The manager highlights Core and Main as a standout performer that drove significant outperformance in the industrial sector during Q1 2024. While the commentary is brief, CNM appears to be a key holding that contributed meaningfully to the fund's 11.4% quarterly return versus the Russell 2000's 5.2%. The company operates as a specialty industrial distributor, which typically benefits from infrastructure spending and replacement cycles. The manager's positive tone suggests confidence in CNM's business model and market position. However, the analysis lacks specific fundamental details about valuation, growth prospects, or investment thesis beyond the strong performance attribution.

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

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

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

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

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

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

Pitch Summary:
Perrigo Company PLC (PRGO) is an existing deep value holding that has slumped lately, but we're encouraged by the self-help progress. Shares of the consumer health company, with private-label brands spanning allergy and pain relief to digestive health products, fell in response to news that the cost to remediate its infant formula plants will run higher than expected. Last September, the Food and Drug Administration updated industry guidelines for the agency's approach to inspections and compliance for infant formula production. This included more frequent cleaning of manufacturing facilities, resulting in a slowdown in production. While the stock reacted to the disappointing infant formula update (which impacts 12% of company sales), we took away notable positives from PRGO's earnings update including clear signs of progress on market share, margins, and free cash flow generation. More recently, shares have recovered after the CEO appeared at an industry conference and reported faster-than-expected progress made on infant formula remediation. Ongoing progress on the issue should help refocus investors on the positive developments underway. Part of PRGO's self-help strategy includes making its U.S. operation look more like its business in the United Kingdom, where higher priced versions of the same molecule are manufactured/sold through PRGO's existing footprint (analogous to a "good/better/best" product offering often deployed by retailers). In a very asset-efficient manner, these newer products can be sold at 2 to 2.5 times the gross margin of a store-branded drug. Perrigo is also in the process of eliminating unproductive product lines, as more than 1,500 stock keeping units drive just 1% of operating profit. The stock is enjoying considerable insider buying and is attractively priced at just 12 times earnings.

BSD Analysis:
Heartland maintains conviction in Perrigo despite recent weakness from higher-than-expected infant formula remediation costs, viewing it as a deep value opportunity with compelling self-help catalysts. While infant formula issues (12% of sales) pressured shares, the manager emphasizes positive progress in market share, margins, and free cash flow generation across the broader business. The investment thesis centers on PRGO's operational transformation, including replicating its successful UK model in the US market where higher-margin products can achieve 2-2.5x gross margins versus store brands. Management's portfolio optimization strategy involves eliminating 1,500 unproductive SKUs that generate only 1% of operating profit, improving overall efficiency. Recent faster-than-expected infant formula remediation progress and significant insider buying support the turnaround narrative. At 12x earnings with multiple self-help initiatives underway, PRGO offers attractive risk-adjusted returns as operational improvements gain traction.

Pitch Summary:
Another new position is The Hershey Company (HSY), the leading chocolate confectionary company in North America with a growing presence in salty snacks and non-chocolate confections. The maker of such popular brands as Hershey's, Reese's, Cadbury, and Jolly Rancher has historically traded at a premium to its consumer staples peers. But in an environment where consumer finances are stressed and input costs are climbing, that premium has disappeared. The stock is down 35% from its 2023 peak due to volume headwinds and margin pressures brought about by rising prices. We believe Hershey simply needs to demonstrate to investors that these headwinds are cyclical and temporary in nature, while once again showcasing its ability to balance superior profitability with modest growth and stable market share. Cocoa prices, a key input for HSY, have seen a nearly unprecedented price spike on supply disruptions in West Africa (where the majority of global supply originates). While we cannot predict when cocoa prices deflate, we are confident HSY and its largest competitors will be slow to reverse price increases required to recoup the input cost squeeze. Encouragingly, after being hampered by supply chain constraints in the post-COVID-19 environment, HSY has a greater innovation slate and more capacity in place to grow in the coming years. The stock, meanwhile, now trades near historic lows relative to other blue chip consumer staples, the consumer staples sector as a whole, and the broad market.

BSD Analysis:
Heartland established a new position in Hershey, capitalizing on the stock's 35% decline from 2023 peaks due to volume pressures and cocoa cost inflation. The manager views current headwinds as cyclical, believing Hershey will demonstrate its historical ability to balance profitability with growth and market share stability. The investment thesis relies on Hershey's pricing power during the unprecedented cocoa price spike, with management confident that price increases will be maintained even after input costs normalize. Post-COVID supply chain improvements have enhanced HSY's innovation capacity and production capabilities for future growth. The manager sees attractive relative valuation as the stock trades near historic lows versus consumer staples peers and the broader market. The combination of temporary margin pressures, enhanced operational capacity, and compelling relative valuation creates an attractive entry point for this defensive consumer staples leader.

Pitch Summary:
Donaldson Company Inc. (DCI), a filtration manufacturer with more than a century of experience in air, lubricant, hydraulic, and fuel filtration applications, is a new position this quarter. DCI, an example of a stock in our quality value bucket, typically trades at a premium to its peers, an indication of the market's appreciation for its economically resilient revenues and high profit margins. However, the company has faced margin headwinds lately, in part owing to heavy upfront investment in its fast-growing life sciences segment. Moreover, several of DCI's cyclical end markets, including agricultural, mining, and construction equipment, have been under pressure as lower equipment utilization has translated into fewer filter replacements. We think investors have already incorporated the life sciences operating losses in the company's valuation, but we believe the segment will ultimately be accretive to revenue growth and margins. If life sciences operating margin approaches the corporate average of around 15% over the next two years, that could translate to a 10-15% lift in total earnings power. For context, this segment's operating margin exceeded 20% prior to the current investment phase. Investors don't typically gravitate to industrials when the ISM Manufacturing Purchasing Managers Index is declining, as was the case from late 2021 through late 2023. Donaldson, however, has historically outperformed in scenarios when industrial activity weakens owing to a revenue base that is mostly consumable. This makes Donaldson a good example of a stock that could perform well on a relative basis if the economy slips into a recession while providing significant upside potential if the economy continues to grow. DCI is trading at parity today, implying that the market is already pricing in further earnings pressure while we expect the life sciences operational improvement to help buffer potential profit risk in the company's cyclical end markets.

BSD Analysis:
Heartland initiated a position in Donaldson Company, viewing it as a quality value opportunity trading at an attractive discount. The manager believes the market has overpenalized the stock for temporary margin pressures from life sciences investments and cyclical headwinds in agricultural, mining, and construction equipment markets. The investment thesis centers on DCI's resilient consumable revenue model and the potential for significant earnings uplift as life sciences margins normalize from current losses to the corporate average of 15%. The manager expects a 10-15% earnings power increase if life sciences achieves target margins over two years. DCI's defensive characteristics during industrial downturns, combined with upside potential in economic growth scenarios, make it an attractive risk-adjusted opportunity. The stock trades at parity valuation despite the manager's expectation for operational improvements to offset cyclical pressures.

Pitch Summary:
Weir Group PLC (WEIR LN) – International Weir is a focused mining technology company. Key products include slurry pumps and ESCO ground engaging tools. The company has undergone a simplification program since Jon Stanton became CEO in 2016. Jon sold Weir's Flow Control business in 2019 and its Oil & Gas business in 2021 in order to focus on the mining end market. Today, the business employs a razor/razor blade business model, enjoys high barriers to entry, and is highly resilient. The company's core value proposition to customers is lowest total cost of ownership, which it achieves by manufacturing products that operate more efficiently (using less energy and water) and last longer than alternatives. The cloud hovering over the stock revolves around mining end market concerns, particularly the dearth of large capex projects. We believe these concerns reflect a misunderstanding of Weir's business model. Weir's revenue and profitability are driven by the aftermarket, and the aftermarket is largely insensitive to mining capex cycles as evidenced by Weir's more than 7% aftermarket revenue compound annual growth rate (CAGR) from 2011-2023. Weir targets a mid-to-high single digit organic revenue growth CAGR through the cycle, driven by a favorable ore production backdrop and growing installed base. There is also an opportunity to improve the margin as management executes on its Performance Excellence program and generates operating leverage. All in, we believe double-digit EPS growth through the cycle is an attainable target. The valuation at just over 16 times forward earnings does not reflect the quality of the transformed Weir and through-cycle EPS growth potential.

BSD Analysis:
FMI's thesis on Weir Group centers on a misunderstood business transformation and resilient aftermarket-driven model. Under CEO Jon Stanton's leadership since 2016, the company has simplified operations by divesting Flow Control and Oil & Gas businesses to focus exclusively on mining technology. The razor/razor blade model creates recurring aftermarket revenue streams that are largely insensitive to mining capex cycles, as evidenced by 7%+ aftermarket CAGR from 2011-2023. Weir's value proposition of lowest total cost of ownership through energy-efficient, durable products creates high switching costs and barriers to entry. The market's focus on mining capex concerns misses the aftermarket resilience and favorable ore production trends driving the installed base growth. With margin expansion opportunities through the Performance Excellence program and operating leverage, double-digit EPS growth appears achievable. At 16x forward earnings, the valuation fails to reflect the transformed business quality and growth potential.

Pitch Summary:
Charles Schwab Corp. (SCHW) – Large Cap/All Cap We last wrote about Charles Schwab a year ago in the midst of the banking crisis. At the time, the worst fears were a bank run and/or balance sheet impairment. Positively, these did not come to pass. As a refresh of our interest in the business, Charles Schwab is a leading discount broker. The business benefits from long run market appreciation and Schwab's better mousetrap has allowed it to gain share on top of market growth, which has driven long run revenue growth of 10%. The competitive advantage comes from shared economies of scale, whereby Schwab lowers costs to the customer, thereby attracting new assets which then lets them lower costs even more to the customer. The rapid rise in interest rates that precipitated the banking crisis contributed to a challenging last 18 months for Schwab, as clients moved bank cash to higher yielding instruments. This led to a significant, albeit short-term, earnings headwind. As we move into 2024, we believe the worst is behind them. We expect Schwab will experience strong earnings growth for the next few years, driven by accelerating revenue growth and renewed expense discipline. Despite this attractive outlook, Schwab trades for 21 times trough earnings and only 14 times our estimate of normalized earnings.

BSD Analysis:
FMI maintains conviction in Charles Schwab following the 2023 banking crisis, viewing recent challenges as temporary headwinds for a structurally advantaged business. The manager's thesis highlights Schwab's powerful competitive moat through shared economies of scale, enabling continuous cost reduction that attracts assets and perpetuates the cycle. The company's 10% long-term revenue growth reflects both market appreciation and sustained market share gains. While rising interest rates created near-term pressure as clients moved cash to higher-yielding alternatives, FMI expects this dynamic to normalize in 2024. The earnings recovery should be driven by accelerating revenue growth and renewed expense discipline. At 21x trough earnings and 14x normalized earnings, the valuation appears attractive for a franchise with Schwab's competitive positioning and growth prospects.

Pitch Summary:
Gates Industrial Corp. PLC (GTES) – Small Cap Gates manufactures highly engineered power transmission and fluid power solutions. The company is most well-known for its belts, which enable and control motion and are used in a broad range of applications. Blackstone took Gates public in early 2018 and remains the largest shareholder with a 27% ownership interest. Blackstone's ownership stake is an overhang on the stock as they will inevitably sell their remaining stake. Destocking and a more challenging end market have also weighed on results. These transitory pressures have provided us with an opportunity to own a high-quality, well-run industrial company with solid through-cycle growth prospects and re-rating potential. The company is a leader in its large and fragmented markets with a well-recognized brand known for quality and technological innovation. These markets are largely replacement driven, which helps to reduce cyclicality, and management is targeting a handful of growth opportunities including chain-to-belt conversions, personal mobility, and automotive aftermarket, to name a few, that should drive revenue growth at 2 times underlying industrial production growth. There is also a margin opportunity as management executes on internal initiatives to reduce costs and improve productivity. Finally, with Gates stock trading at around 12 times 2024 P/E, we believe there is an opportunity for Gates to re-rate more in-line with other high-quality industrial peers given its attractive EPS growth outlook and strong return profile.

BSD Analysis:
FMI presents a compelling value opportunity in Gates Industrial, a leading manufacturer of power transmission belts and fluid power solutions. The manager's thesis centers on temporary headwinds creating an attractive entry point for a high-quality industrial franchise. Key investment drivers include the company's dominant market position in fragmented, replacement-driven markets that reduce cyclical volatility. Management's growth strategy targeting chain-to-belt conversions, personal mobility, and automotive aftermarket applications should drive revenue growth at 2x underlying industrial production. The margin expansion opportunity through cost reduction and productivity initiatives provides additional upside. At 12x 2024 P/E, the valuation appears attractive relative to industrial peers, especially given the expected EPS growth trajectory and strong return profile once temporary pressures from Blackstone overhang and destocking cycles normalize.

Pitch Summary:
Elsewhere in our portfolio, we added to our position in the consumer health goods company Perrigo (PRGO) in the fourth quarter after its sell off, which was largely driven by troubles in the company's infant nutrition business. Last September, the Food and Drug Administration updated guidelines for the agency's approach to inspections and compliance for infant formula production. This included more frequent cleaning of its facilities, which resulted in slowing output. We see the manufacturing headwind in this space as a temporary challenge. Perrigo, in fact, recently provided an encouraging update on its remediation efforts. Ongoing progress on the issue should help refocus investors on the positive developments underway. This includes making its U.S. business, which is largely focused on lower-cost and lower-margin private label brands for retailers like Walmart and CVS, more like its European business, which focuses on higher-margin national brands. The good news: It can make this transition while utilizing its existing distribution and manufacturing footprint. Perrigo is also in the process of eliminating unproductive product lines, as more than 1,500 items drive just 1% of operating profit. Meanwhile, the stock is enjoying considerable insider buying, and we believe it is attractively priced at just 12.2 times earnings.

BSD Analysis:
Heartland added to its Perrigo position following a selloff driven by FDA-related challenges in the company's infant nutrition business, viewing the regulatory headwinds as temporary. The manager sees the manufacturing disruptions from increased FDA inspection requirements as a short-term issue, with Perrigo making encouraging progress on remediation efforts. The investment thesis centers on the company's strategic transformation to shift its U.S. business model from low-margin private label products toward higher-margin national brands, similar to its more profitable European operations. This transition can be executed using existing infrastructure, providing operational leverage and margin expansion potential. Perrigo is simultaneously streamlining its portfolio by eliminating over 1,500 unproductive SKUs that generate minimal operating profit, focusing resources on higher-return products. Significant insider buying activity signals management confidence in the turnaround strategy. At 12.2x earnings, the valuation appears attractive for a consumer health company undergoing strategic repositioning with multiple margin expansion catalysts.

Pitch Summary:
This quarter, for instance, we started a new position in Chart Industries, Inc. (GTLS). We've been monitoring the stock for years and finally saw the buying opportunity we've been waiting for. As the leading producer of equipment for the shipment of liquefied natural gas (LNG), Chart Industries sold off sharply on the Biden Administration's decree to pause new export permits. We view the pause as a short-term political action in anticipation of the coming election. In any case, GTLS has robust backlogs for the next several years. And if the U.S. truly slows, Chart, an international provider, should benefit as the rest of the world accelerates LNG development. With an improved outlook due to the growth of a 2023 acquisition and its integration, Chart provides a broad product line across vast global end markets. This includes leadership in heat transfer systems and gaseous equipment used as alternatives to traditional fuels in hydrogen, carbon capture, and water treatment. Chart's Q4 was better than expected with record orders and increased sales, gross profit margin, operating income, and free cash flow. Due to above-plan integration synergies, GTLS built cash, paid down debt, and earned a recent upgrade in its bond rating. Now that one third of its revenues are coming from short-cycle maintenance and service, added benefits include higher margins and increased sustainability. The company guided to another record year. We estimate sales of $4.8 billion, up from $3.7 billion in '23. Adjusted earnings per share are estimated at $12, versus $6.09 a year ago. Priced at 8.3X estimated EBITDA, a substantial discount to peers, we view Chart Industries as an attractive value.

BSD Analysis:
Heartland initiated a new position in Chart Industries after years of monitoring, capitalizing on a sharp selloff triggered by the Biden Administration's pause on new LNG export permits. The manager views this regulatory action as temporary political posturing ahead of elections, while Chart maintains robust multi-year backlogs that provide earnings visibility. The company's international diversification positions it to benefit from accelerated global LNG development even if U.S. growth slows. Chart's 2023 acquisition integration is exceeding expectations, driving synergies and expanding the company's product portfolio across hydrogen, carbon capture, and water treatment markets. Strong Q4 results demonstrated operational momentum with record orders, improved margins, and significant free cash flow generation that enabled debt reduction and a bond rating upgrade. The shift toward higher-margin maintenance and service revenue (now one-third of total) enhances business quality and sustainability. Trading at 8.3x EBITDA versus peers, Chart offers compelling value with estimated 2024 sales growth to $4.8 billion and EPS doubling to $12.

Pitch Summary:
Kennametal (KMT), which manufactures industrial cutting tools and components, is another new position initiated during the quarter. The company operates two businesses: a metal cutting unit that sells into a variety of end markets including aerospace and defense and energy, along with an infrastructure unit that provides earth cutting and wear solutions. The company hit a rough stretch recently, due to rising raw material costs, foreign exchange headwinds, and decreased sales volume in its infrastructure segment. KMT has also experienced contracting year-over-year EBITDA growth in six of the past seven quarters. However, the company has been undergoing extensive self-help, eliminating $200 million in structural costs, reducing its headcount by 20%, and closing six plants over the past five years. In our opinion, the heavy lifting is done. If demand remains tepid, the company should continue to optimize capacity via additional cuts and more plant consolidation. EBITDA is likely to grow on flat to moderately declining revenue. And if Kennametal sees any slight uptick in demand in its end markets, it could provide an immediate and robust boost to its operating margins. Yet the stock trades at less than 8 times EBITDA on trough earnings, a 3% dividend yield and modest net leverage of 1.7x.

BSD Analysis:
Heartland initiated a position in Kennametal, viewing it as another compelling turnaround story with significant operational improvements already implemented. The manager believes the company has completed the 'heavy lifting' of its restructuring program, having eliminated $200 million in structural costs, reduced headcount by 20%, and closed six plants over five years. Despite recent headwinds from raw material costs, foreign exchange, and infrastructure segment weakness that led to contracting EBITDA in six of seven quarters, the investment thesis focuses on the company's dual-business model serving aerospace, defense, energy, and infrastructure markets. The manager expects EBITDA growth even on flat to declining revenue due to the cost structure improvements already in place. At under 8x EBITDA on trough earnings with a 3% dividend yield and modest 1.7x net leverage, the valuation appears attractive for a company positioned for operating leverage expansion. Any demand uptick should provide immediate margin benefits given the streamlined cost base and optimized capacity structure.

Pitch Summary:
In the first quarter, we initiated a position in Mohawk Industries (MHK), the leading manufacturer of flooring including carpets, tiles, and wood and vinyl products for the residential and commercial markets. In recent years, Mohawk has run into difficulties owing to rising interest rates, which affects its end markets, and inflation in source materials, which cuts into margins. Between May 2021 and October 2023, the stock lost nearly two thirds of its value. But the worst of the company's pricing pressures may be behind it. And after suffering five consecutive quarters of negative year-over-year sales comps and eight out of nine quarters of negative year-over-year EBITDA growth, Mohawk reversed the trend in the past quarter. Meanwhile, the company has been undergoing extensive self-help in recent years — for instance, it has been investing in automation to boost luxury vinyl tile production in North America and Europe. While companies usually trade at high multiples at the trough, thanks to diminishing earnings, Mohawk's shares are at their lowest valuation in recent memory. The stock trades at just 6 times EBITDA and less than 11 times trough earnings while sporting a strong balance with net leverage of 1.3x.

BSD Analysis:
Heartland initiated a position in Mohawk Industries, viewing it as a classic turnaround opportunity trading at trough valuations. The manager believes the worst of the company's pricing pressures from rising interest rates and material inflation are behind it, with the stock having lost nearly two-thirds of its value from May 2021 to October 2023. The investment thesis centers on Mohawk's extensive self-help initiatives, including automation investments in luxury vinyl tile production across North America and Europe. The company recently reversed negative trends, breaking a streak of five consecutive quarters of declining sales and eight out of nine quarters of negative EBITDA growth. At just 6x EBITDA and under 11x trough earnings with modest 1.3x net leverage, the valuation appears compelling for a market leader. The manager expects operating leverage to benefit the company significantly if demand rebounds, given the cost-cutting measures already implemented. This represents a classic value play on a cyclical recovery with strong fundamental improvements already in place.

Pitch Summary:
Visa is best known for enabling consumers to make debit and credit card payments. In the year to September 2023, 4.3 billion Visa cardholders made 213 billion transactions on its network, to a total value of $12.1 trillion. Visa has consistently grown the number of cardholders on its network and the number of merchants that accept Visa payments. It benefits from the ongoing displacement of cash with cards in consumer payments. Adoption of its network is also aided by the rise of e-commerce, the development of lower friction tap-to-pay mobile payment technology, and Visa's investments in reducing fraud on its network. We believe Visa can continue to grow revenue and earnings at around 10% p.a. for many years. We made our investment in the business at a material discount to our appraisal of fair value.

BSD Analysis:
Aoris initiated a position in Visa, emphasizing the company's dominant position in the global payments ecosystem with 4.3 billion cardholders processing 213 billion transactions worth $12.1 trillion annually. The manager highlights multiple secular growth drivers supporting Visa's expansion, including the ongoing shift from cash to digital payments, e-commerce growth, and technological innovations like tap-to-pay mobile solutions. Visa's network effects create a powerful competitive moat, as the value increases with more cardholders and merchants joining the platform. The company's investments in fraud reduction enhance network security and trust, supporting adoption rates. Aoris projects sustainable 10% annual revenue and earnings growth, driven by these structural tailwinds and Visa's market leadership position. The manager emphasizes purchasing the stock at a material discount to fair value, indicating disciplined valuation-based investing. This investment aligns with Aoris's preference for high-quality businesses with predictable growth and strong competitive positioning.

Pitch Summary:
Headquartered in the UK, Compass is the world's largest contract catering business. It serves over 16 million meals a day across tens of thousands of corporate offices, hospitals, schools and universities, mining sites, and sporting and entertainment venues. A growing share of catering sites are being outsourced to third parties like Compass, allowing its customers to focus on their core businesses. Compass has consistently outgrown its catering peers and has industry-leading rates of customer retention and satisfaction. On average it keeps its customers for 25 years. We had previously owned Compass Group and sold it from the portfolio in March 2020. The business recovered faster from the COVID-19 pandemic than we anticipated and has emerged from the pandemic competitively stronger.

BSD Analysis:
Aoris re-initiated a position in Compass Group, recognizing the company's dominant position as the world's largest contract catering business serving 16 million meals daily. The manager highlights the secular trend of outsourcing catering operations, which allows customers to focus on core business activities while benefiting from Compass's specialized expertise. The company's competitive strength is evidenced by industry-leading customer retention rates, with an average customer relationship spanning 25 years, indicating high switching costs and customer satisfaction. Aoris acknowledges their previous ownership and March 2020 sale, noting that Compass recovered from the COVID-19 pandemic faster than expected. The manager believes the company emerged from the pandemic with enhanced competitive positioning, likely due to weaker competitors exiting the market or struggling with recovery. This repurchase reflects Aoris's willingness to revisit quality businesses when valuations become attractive and fundamentals improve.

Pitch Summary:
Atlas Copco is a global provider of industrial equipment that's used to make a wide range of manufacturing processes more efficient. These include air compressors used in many industrial processes, vacuum pumps used to create a particle-free environment for semiconductor manufacturing, and power tools and machine vision used in industrial applications like automotive manufacturing. The company is based in Sweden, and last year celebrated its 150th anniversary. Atlas Copco generally has leadership positions in profitable, high-value niches of the broad markets in which it operates. It chooses to operate only in product categories where it can provide differentiated technology, whose value proposition is clearly measurable, and where customers are willing to pay for this value. For example, energy consumption makes up about 80% of the lifetime cost of an air compressor, so a more energy-efficient model can represent considerable savings to customers. The company supports its premium products with premium servicing, delivered by its team of 4000 highly skilled technicians. It earns over one-third of its revenue from spare parts, maintenance and repair services, and consumables and accessories used with its equipment. These services allow Atlas Copco to engage more frequently and create stronger relationships with its customers. Services have gradually become a larger proportion of Atlas Copco's revenue as they've been adopted by a growing percentage of its customers. Atlas Copco is widely revered for its corporate culture and the quality of its business leaders. It's a self-selecting entrepreneurial environment where employees are encouraged to take accountability for their own career and learning journey. The company supports them with extensive training and development materials, and with a high degree of internal mobility – any employee can apply for any open position at any group company around the world. In return, employees are expected to be committed to the company's vision, strategy and structure. These attributes have allowed Atlas Copco to deliver long term organic revenue growth of around 6% p.a. and a return on invested capital well above 20%, which has remained resilient even through cyclical downturns. It adds another few percent of profit growth each year from acquisitions that operate in areas close to its existing businesses, and in many cases help to strengthen them. We expect the business to continue growing profitably at a healthy rate for many years to come.

BSD Analysis:
Aoris presents Atlas Copco as a high-quality industrial equipment manufacturer with strong competitive positioning in profitable niches. The manager emphasizes the company's differentiated technology and value proposition, particularly in energy-efficient air compressors where energy costs represent 80% of lifetime expenses. Atlas Copco's business model benefits from recurring revenue streams, with over one-third of revenue coming from higher-margin services, spare parts, and consumables. The company's corporate culture and employee development programs are highlighted as key competitive advantages, supporting talent retention and operational excellence. Financially, Atlas Copco demonstrates impressive metrics with 6% annual organic growth and returns on invested capital exceeding 20%, maintained even during economic downturns. The manager views the company's acquisition strategy as value-accretive, targeting complementary businesses that strengthen existing operations. This pitch reflects Aoris's preference for established, market-leading businesses with sustainable competitive advantages and consistent profitability.