Investment Pitches

Pitch Summary:
Leonardo is a global leader in the defence industry with capabilities extending across in aerospace, defence electronics, cybersecurity and space. The company participates in major international strategic programs such as the Eurofighter Typhoon and has a well-diversified global sales footprint. With the Russian invasion of Ukraine raising the risk of a high-intensity conflict on European territory, and US prioritisation of strategic interests in the Indo-pacific region, we believe that European defence spending will experience a major up-cycle in the coming decade, with the potential to add over EUR 80bn to the regional defence budgets to meet the NATO requirement to spend 2% of GDP on defence. Furthermore, Leonardo is a beneficiary of two other secular trends within this space to which it is over-indexed: increased spend (as a proportion of the total defence budget) on major equipment procurement and the increased value of electronic content within key platforms. Beyond the supportive environment, a new CEO has taken over the reins and is keen to turn around a company that has historically underperformed industry peers despite possessing various high-quality assets. The company is exceedingly cheap compared to its peer group if it can execute on financial targets set out in its recent industrial plan, which we believe are conservative.

BSD Analysis:
Lansdowne views Leonardo as positioned to benefit from a major European defense spending upcycle driven by geopolitical tensions and NATO requirements. The manager estimates over EUR 80bn could be added to regional defense budgets to meet the 2% GDP spending target. Leonardo is well-positioned for two secular trends: increased major equipment procurement spending and higher electronic content in defense platforms. The company participates in strategic programs like Eurofighter Typhoon and maintains diversified global sales. A new CEO brings turnaround potential for a company with high-quality assets that has historically underperformed peers. The fund believes Leonardo trades at a significant discount to peers despite conservative financial targets in its industrial plan. The combination of favorable industry dynamics, operational improvement potential, and attractive valuation creates a compelling investment opportunity.

Pitch Summary:
During Q1, we added to our long standing holding in KBC. Over 2023, the business was impacted by several adverse shocks, from regulatory (ECB mandated increase in capital requirements in spite of no change to the Bank's credit risk profile) to political (numerous State sponsored retail bond issuances in Belgium forcing deposit flight from the banking system). In an environment of rapidly rising ECB policy rates, the Bank's more balanced business model (NII represents only c. 50% of Group revenues vs >80% for other rate sensitive banks) reduced upside beta of earnings to the interest rate cycle. However, we think that the outlook is now more supportive for the Bank. The one off increase in capital requirements has been absorbed by the Bank's organic capital generation and the Belgian government has changed the terms of its 2024 retail bond issuances to make it less appealing to investors post tax deductions. In addition, the impending ECB rate cut cycle should reinforce the attractions of KBC's more balanced business model. At just 9x earnings for sustainable 8% dividend yield, we view the shares as being substantially underpriced and hence, increased our holding in the name.

BSD Analysis:
Lansdowne added to their long-standing KBC position despite the bank facing regulatory and political headwinds in 2023. The manager views KBC's balanced business model as a competitive advantage, with net interest income representing only 50% of revenues versus 80%+ for rate-sensitive peers. This diversification provided downside protection during rising rates but limited upside participation. The fund believes the outlook has improved as KBC absorbed ECB capital requirement increases through organic generation and Belgian government bond terms became less attractive. The impending ECB rate cut cycle should favor KBC's balanced model over pure rate-sensitive banks. At 9x earnings with an 8% sustainable dividend yield, the manager sees substantial undervaluation. The decision to increase the holding reflects confidence in the bank's resilient business model and attractive valuation metrics.

Pitch Summary:
ASML is the leading producer of front-end lithography equipment used in the production of semiconductors globally. What is unique about ASML is its monopolistic position in the latest generation of lithography equipment in Extremely Ultraviolet (EUV) machines. ASML is a company that we have closely monitored as we favourably view its high-quality defensible position in the semiconduction value chain, earning remarkable ROIC of >30%, and its critical importance in the advancement of technology. Earlier this year, we took the opportunity to build a starter position in the name. ASML's strong bookings number of EUR 9.5bn in Q4 2023 in addition to TSMC's higher than expected capex spend guide of USD 28 to 32bn gave us confidence in their 2025 sales targets, allowing us to underwrite double digit topline growth which is well supported by a credible backlog. We continue to monitor the stock and could look to increase our position over time as we increase our conviction levels.

BSD Analysis:
Lansdowne initiated a starter position in ASML, recognizing the company's monopolistic position in EUV lithography equipment essential for advanced semiconductor manufacturing. The manager highlights ASML's exceptional ROIC of over 30% and its critical role in technology advancement as key investment drivers. Strong Q4 2023 bookings of EUR 9.5bn and TSMC's elevated capex guidance of USD 28-32bn provide confidence in ASML's 2025 sales targets. The fund underwrites double-digit topline growth supported by a credible backlog, indicating strong demand visibility. ASML's defensible market position in the semiconductor value chain offers significant competitive advantages. The manager views this as a high-quality business with sustainable competitive moats. The position sizing suggests a cautious but optimistic approach with potential for expansion as conviction builds.

Pitch Summary:
Another position we have in Korean defense is in Poongsan, whose business is focused on two seemingly unrelated areas – copper refining and munitions. The world has very few munitions pure plays as most of these businesses are either owned by governments or small parts of large conglomerates. As mentioned earlier, the price of 155mm shells has doubled or more and shortages have become extreme. By law, Korea does not allow defense exports to war zones which is why they are not selling their arms directly into Ukraine. Rather, the orders have been to restock inventory in Europe and the U.S. Poongsan's munitions can be used with Korean howitzers and tanks as well as western produced equipment. The company recently announced a doubling of capacity for its munitions business. Disclosure is very limited but given what we have seen from European peers (namely Rheinmetall discussed below), we suspect the margins on these exports are in the 25-30%+ range, dramatically higher than domestic Korean margins. Historically, the copper refining division has contributed 50-60% of company earnings and, as a result, the market has placed a low earnings multiple on the stock, typically 4-8x p/e. With the increased contribution from defense, the mix from copper should drop substantially and the market should place a much higher multiple on earnings. Recently, Rheinmetall purchased a private munitions producer in Spain paying 1.2 billion Euros for 400 million of sales. Using this ratio to value, Poongsan would at least double the stock price and we would still get the copper business for free. It should also be noted that copper is seeing a resurgence in price which is expected to drive Poongsan's copper profits much higher as well.

BSD Analysis:
The manager identifies Poongsan as a rare munitions pure-play benefiting from extreme ammunition shortages and price inflation. The investment thesis centers on a dramatic business mix shift from copper refining (historically 50-60% of earnings) to high-margin munitions exports. With 155mm shell prices doubling and capacity doubling announced, the manager expects export margins of 25-30%+ versus much lower domestic margins. The valuation opportunity stems from the market's historical 4-8x P/E multiple based on the low-margin copper business. As defense contribution rises, the manager expects multiple re-rating using Rheinmetall's recent acquisition as a benchmark (3x sales), which would double Poongsan's stock price while getting the copper business "for free." The thesis is further supported by rising copper prices providing additional upside to the legacy business.

Pitch Summary:
Hyundai Rotem is a manufacturer of tanks and trains. The company has an initial contract for 180 tanks called the "K2" out of a framework agreement with Poland for a total of 1,000 units. The "K2" can trace its heritage back to the American Abrams tank that General Dynamics produced. Much of Korea's defense industry has legacy connections to the U.S., extending as far back as the Korean War. As a result of Rotem's success with the K2, the company's defense exports have surged from 0% in 2020 to an estimated 70%+ of defense sales in 2025. Similar to Hanwha Aerospace, the profit margins on these export sales approach 20%+ versus low-single-digits for domestic Korean sales. As a result, the overall contribution to profits from defense sales is expected to rise to 90%+ of company earnings. Romania is also rumored to be negotiating an order for 250 tanks and the Czech Republic is expected to place an order as well. The stock is currently valued at about 12x forward earnings, but as with Hanwha, we think there is significant upside to these numbers as margins are being underestimated and potential orders from additional countries are not being considered.

BSD Analysis:
The manager presents a compelling thesis on Hyundai Rotem's transformation from a domestic rail and defense manufacturer to a major defense exporter. The key catalyst is the massive Polish tank order (1,000 K2 tanks) which has fundamentally shifted the company's business mix and profitability profile. Defense exports have exploded from 0% to an estimated 70%+ of defense sales by 2025, with export margins of 20%+ versus low-single-digit domestic margins. This margin expansion should drive defense contribution to 90%+ of company earnings. The manager sees significant valuation upside from the current 12x forward P/E, arguing that the market is underestimating both margin improvements and the pipeline of additional European orders from Romania and Czech Republic. The thesis capitalizes on Europe's defense spending surge and Korea's unique position as a modern, full-scale defense equipment producer.

Pitch Summary:
TIS, Inc. (Japan) is one of Japan's largest IT services companies. We are familiar with TIS as we previously owned it but sold it when the stock price reached our estimate of intrinsic value. More recently, the stock has underperformed because growth is likely to slow next year due to the completion of several large-scale projects, which makes for a difficult comparison base. However, excluding these large projects, business fundamentals remain robust as IT spending in Japan continues to be very strong. In our view, the country lags most developed nations in digitizing its economy. This fact, combined with its shortage of IT engineering talent, should bode well for Japanese IT spending in the future. In addition to long-term structural demand for IT services, we like that TIS is led by a strong management team with a good track record of creating shareholder value through smart capital allocation decisions.

BSD Analysis:
The manager re-initiated a position in TIS after previously selling at full valuation, taking advantage of recent underperformance to re-enter at attractive levels. While near-term growth may decelerate due to difficult comparisons from completing large-scale projects, the underlying business fundamentals remain strong with robust IT spending trends in Japan. The investment thesis centers on Japan's significant digitization lag compared to other developed markets, creating substantial long-term demand for IT services. A shortage of IT engineering talent further supports pricing power and demand sustainability. The manager particularly values TIS's experienced management team with a proven track record of shareholder value creation through disciplined capital allocation. The combination of structural digitization tailwinds, supply constraints in IT talent, and quality management provides a compelling long-term investment opportunity despite near-term growth headwinds.

Pitch Summary:
Fielmann (Germany) is one of the largest optical retail companies in the world. It provides eyewear, contact lenses, hearing aids and primary eyecare services—all products that benefit from steady demand and significant barriers from online disruption. Industry headwinds related to higher costs and weak consumer confidence have weighed on the stock price, but we are comfortable with Fielmann's defensive positioning and pricing actions to offset inflation. The company's margins have declined in recent years due to investments in internal initiatives that are nearly completed, which should provide the opportunity for improved cost control and profitability going forward. We believe the company's fundamental performance is nearing an inflection point, and we were able to purchase shares at a discount to our estimate of intrinsic value.

BSD Analysis:
The manager initiated a position in Fielmann based on its defensive market position and attractive valuation following recent weakness. As one of the world's largest optical retailers, Fielmann benefits from steady demand for eyecare products and natural barriers to online disruption in this service-oriented industry. While industry headwinds including inflation and weak consumer confidence have pressured the stock, management's pricing actions should help offset cost pressures. Margin compression from internal investment initiatives is nearing completion, positioning the company for improved cost control and profitability recovery. The manager views current fundamentals as approaching an inflection point and was able to acquire shares at a significant discount to intrinsic value. The defensive nature of the eyecare market combined with the company's market leadership provides downside protection while offering upside potential as margins recover.

Pitch Summary:
St. James's Place (U.K.) was a top detractor during the quarter. In January, the wealth manager reported net inflows for 2023 that were £4.6 billion lower than in 2022. The disappointing update came on the heels of the company's announcement of a large overhaul of its fee structure. In February, the company reported full-year 2023 results. Underlying cash results fell below our expectations primarily due to the margin from new business and other revenues and expenses. The big miss, in our view, was the large provision charge that St. James's Place took to account for potential client reimbursements. There were increasing complaints from clients that the company was charging them without actually dispensing any advice. St. James's Place conducted an internal investigation, which cited service gaps that existed before the company implemented Salesforce in 2021. The provision charge covers the appointment of an investigative assessment, the anticipated cost of refunding service fees, the administration costs to operate the refund program, and an interest expense to compensate for the time value of money. We met with management following the release of results and continue to believe in the long-term prospects of St. James's Place.

BSD Analysis:
Despite significant near-term headwinds, the manager maintains conviction in St. James's Place's long-term prospects. The wealth manager faced substantial challenges in 2023, including £4.6 billion lower net inflows and disappointing cash results that missed expectations. A major provision charge for client reimbursements reflects service gaps and fee structure issues that preceded the 2021 Salesforce implementation. The company is addressing client complaints about being charged without receiving advice through an internal investigation and comprehensive refund program. While the fee structure overhaul and provision charges create near-term pressure, management engagement suggests confidence in the underlying business model. The manager's continued belief in long-term prospects indicates they view current challenges as temporary operational issues rather than fundamental business deterioration.

Pitch Summary:
Konecranes (Finland) was a top contributor during the quarter. In February, the industrials company reported a strong set of fourth-quarter results. Organic revenue growth came in above our expectations, mainly driven by the service and port solutions segments. Service sales increased by 11% in local currencies, driven by strength in both spare parts and field service. We like that Konecranes' service business is delivering higher growth that is largely recurring in nature and of much higher quality than the growth in the equipment manufacturing divisions. This is a key component of our investment thesis. In addition, port solutions grew revenue by over 38% in local currencies in the fourth quarter as the business delivered on high order intake from prior periods while comparable EBITA margins increased. Also of note, port solutions entered 2024 with an order book higher than the previous year. Lastly, Konecranes reported 2024 guidance largely in line with our expectations. We continue to believe this investment offers an attractive upside.

BSD Analysis:
The manager maintains a bullish stance on Konecranes based on strong Q4 results that exceeded expectations. The investment thesis centers on the company's high-quality service business, which grew 11% and provides recurring revenue streams superior to the cyclical equipment manufacturing segments. Port solutions delivered exceptional 38% revenue growth while maintaining strong margins and entering 2024 with a robust order backlog. The manager appreciates the defensive characteristics of the service business model and views the current valuation as offering attractive upside potential. Management's 2024 guidance aligns with expectations, providing confidence in the company's trajectory. The combination of recurring service revenues and strong port solutions momentum supports the bullish outlook.

Pitch Summary:
Managed care organisations (MCOs) serve the vast US healthcare market, which is more complex than those elsewhere. In the US, most working people get health insurance through their employer, and decades ago this was the MCOs' core business. For these plans, relationships with local hospitals matter far more than national bargaining power, so local scale is essential. A smaller portion of working people buy insurance individually. Those who cannot afford private insurance get coverage through Medicaid, which is run by individual states with additional funding from the federal government, and most older people receive at least part of their care through the federal government's Medicare scheme. Both Medicare and Medicaid plans can be administered by the MCOs. But the MCOs are not just insurers—they increasingly own and manage physician practices, care centres, and pharmacies, making them better placed to connect the dots for patients across this complex system. Dealing with that complexity is hard. Insurance underwriting skill is important but insufficient. A successful MCO needs good local scale to negotiate prices with care providers and good national scale to negotiate drug prices. To meaningfully improve the efficiency of the overall system, MCOs also need to be plugged into care providers to help the system shift from fee-based care, which incentivises activity regardless of outcomes, to value-based care, which aligns costs with outcomes for patients. UnitedHealth's Optum unit has been especially successful in integrating parts of the healthcare chain to lower costs and improve care for patients. For new entrants, the healthcare market has been a tough nut to crack: Amazon, JP Morgan, and Berkshire Hathaway announced to great fanfare that they were entering the health insurance market in 2018, only to abandon the venture three years later. With this industry setup, the MCOs benefit from two long-term tailwinds: an aging population, and increased outsourcing of Medicare and Medicaid administration. Propelled by the aging population, US healthcare spending is growing by about 5% per annum, a little faster than the wider economy, and the MCOs are getting exposure to more of that growth as they administer more Medicare and Medicaid plans and build out their health services businesses. This has been a winning formula historically, with UnitedHealth and Elevance growing earnings per share by 15-17% per annum over the last ten years. Indeed, we find the two companies rather special investment opportunities when comparing their moats, growth runways, returns on capital, historical track records, and management quality with how the stocks are priced by the market. Today those prices look reasonable, due to pessimism we see as excessive. Looking through each of those bear points, we remain confident that the companies can continue to deliver as they have in the past. Healthcare spending should continue to grow a little faster than the US economy, and the companies should continue to grow moderately faster than wider US healthcare spending as more people adopt MCO-administered Medicare and Medicaid plans, and as the leading companies take market share from their competitors within those plans. Meanwhile, we see Elevance and especially UnitedHealth taking intelligent risks in building out their own care networks, positioning them to drive better efficiency and outcomes across the system—and to be rewarded for it. Stacking those up, we believe the companies can grow earnings per share by 12-15% per annum for years to come. UnitedHealth normally trades at a similar price-earnings multiple to the S&P 500. It now trades at a discount. Elevance, which has somewhat lower returns on capital than UnitedHealth, trades at an unusually large discount to the US market. In both cases, that is despite long-term growth prospects that we believe are above-average. At the portfolio level, the MCOs are also appealingly defensive, as their profits have little to do with the broader economic cycle.

BSD Analysis:
Orbis presents Elevance Health as an attractive managed care investment alongside UnitedHealth, benefiting from the same structural industry tailwinds and defensive characteristics. The manager emphasizes Elevance's strong historical performance with 15-17% annual EPS growth over the past decade, driven by the aging US population and increased government outsourcing of healthcare administration. While acknowledging that Elevance has somewhat lower returns on capital compared to UnitedHealth, Orbis views this as reflected in the valuation, with Elevance trading at an unusually large discount to the broader US market. The investment thesis centers on the company's ability to capitalize on healthcare spending growth outpacing GDP, market share gains in Medicare and Medicaid programs, and the defensive nature of healthcare demand. Orbis projects continued EPS growth of 12-15% annually for Elevance, supported by the company's strategic investments in building out care networks to improve system efficiency. The manager views current pessimism around managed care organizations as excessive, creating an attractive entry point for a high-quality defensive growth story with above-average long-term prospects.

Pitch Summary:
Managed care organisations (MCOs) serve the vast US healthcare market, which is more complex than those elsewhere. In the US, most working people get health insurance through their employer, and decades ago this was the MCOs' core business. For these plans, relationships with local hospitals matter far more than national bargaining power, so local scale is essential. A smaller portion of working people buy insurance individually. Those who cannot afford private insurance get coverage through Medicaid, which is run by individual states with additional funding from the federal government, and most older people receive at least part of their care through the federal government's Medicare scheme. Both Medicare and Medicaid plans can be administered by the MCOs. But the MCOs are not just insurers—they increasingly own and manage physician practices, care centres, and pharmacies, making them better placed to connect the dots for patients across this complex system. Dealing with that complexity is hard. Insurance underwriting skill is important but insufficient. A successful MCO needs good local scale to negotiate prices with care providers and good national scale to negotiate drug prices. To meaningfully improve the efficiency of the overall system, MCOs also need to be plugged into care providers to help the system shift from fee-based care, which incentivises activity regardless of outcomes, to value-based care, which aligns costs with outcomes for patients. UnitedHealth's Optum unit has been especially successful in integrating parts of the healthcare chain to lower costs and improve care for patients. For new entrants, the healthcare market has been a tough nut to crack: Amazon, JP Morgan, and Berkshire Hathaway announced to great fanfare that they were entering the health insurance market in 2018, only to abandon the venture three years later. With this industry setup, the MCOs benefit from two long-term tailwinds: an aging population, and increased outsourcing of Medicare and Medicaid administration. Propelled by the aging population, US healthcare spending is growing by about 5% per annum, a little faster than the wider economy, and the MCOs are getting exposure to more of that growth as they administer more Medicare and Medicaid plans and build out their health services businesses. This has been a winning formula historically, with UnitedHealth and Elevance growing earnings per share by 15-17% per annum over the last ten years. Indeed, we find the two companies rather special investment opportunities when comparing their moats, growth runways, returns on capital, historical track records, and management quality with how the stocks are priced by the market. Today those prices look reasonable, due to pessimism we see as excessive. Recently, UnitedHealth has had its own problems. In February, one of its recently-acquired units suffered a cyberattack, threatening patient data and necessitating a halt in billing and payment services to some care providers. The episode reveals a threat to the broader healthcare industry, as patient data is seen as highly valuable to bad actors. To its credit, UnitedHealth advanced more than $3 billion from its own balance sheet to help providers suffering through the outage, and it has since restored payment services. While the cyberattack was serious, we believe its perceived impact on UnitedHealth's intrinsic value will be short lived. UnitedHealth is also the subject of a US anti-trust investigation. We struggle to see an argument that UnitedHealth has harmed its customers. Its Optum care provider business helps achieve better outcomes for patients at a lower cost. UnitedHealth connecting the dots from government programs to plan administration to care providers has been a net positive for patients and for the financial soundness of the US healthcare system. Looking through each of those bear points, we remain confident that the companies can continue to deliver as they have in the past. Healthcare spending should continue to grow a little faster than the US economy, and the companies should continue to grow moderately faster than wider US healthcare spending as more people adopt MCO-administered Medicare and Medicaid plans, and as the leading companies take market share from their competitors within those plans. Meanwhile, we see Elevance and especially UnitedHealth taking intelligent risks in building out their own care networks, positioning them to drive better efficiency and outcomes across the system—and to be rewarded for it. Stacking those up, we believe the companies can grow earnings per share by 12-15% per annum for years to come. UnitedHealth normally trades at a similar price-earnings multiple to the S&P 500. It now trades at a discount. Elevance, which has somewhat lower returns on capital than UnitedHealth, trades at an unusually large discount to the US market. In both cases, that is despite long-term growth prospects that we believe are above-average. At the portfolio level, the MCOs are also appealingly defensive, as their profits have little to do with the broader economic cycle.

BSD Analysis:
Orbis presents a compelling bull case for UnitedHealth Group, emphasizing the company's dominant position in the complex US healthcare system through its managed care operations and integrated Optum unit. The manager highlights UnitedHealth's historical track record of 15-17% annual EPS growth over the past decade, driven by structural tailwinds including an aging population and increased government outsourcing of Medicare and Medicaid administration. The investment thesis centers on UnitedHealth's competitive moats through local and national scale advantages, its successful vertical integration strategy via Optum that improves patient outcomes while reducing costs, and the defensive nature of healthcare spending. Despite recent headwinds including a cyberattack and antitrust investigation, Orbis views these as temporary issues that have created an attractive entry point. The manager projects continued EPS growth of 12-15% annually, supported by healthcare spending growth outpacing GDP and market share gains in government programs. With UnitedHealth trading at a discount to the S&P 500 despite superior growth prospects, Orbis sees significant value in this defensive growth story.

Pitch Summary:
D'Ieteren was the top contributor during a month in which the company reported full year results. The shares rose +16% adding +78bps to AGT's NAV. We had been adding to the position during January and February, which combined with strong share price performance has pushed the company to be our third largest position (5.8% of NAV). Although in our last update we wrote more extensively about D'Ieteren's newer holdings TVH and PHE, the bulk of the value and crux of the investment case lies in Belron, the global no.1 operator in the Vehicle Glass Repair and Replacement ("VGRR") industry which accounts for 61% of our estimated NAV. Belron continues to benefit from structural trends toward increased windshield complexity and the proliferation of Advanced Driver Assistance Systems ("ADAS"), with recalibrations now accounting for 36% of replacement jobs. Belron is many multiples larger than competitors with >40% US market share and this results in significant scale advantages in terms of purchasing economies of scale and cost leadership, as well as relationships with insurance partners who are industry gatekeepers and account for c.70% of jobs. Moreover, scale has allowed for technological investment, which has become increasingly relevant as ADAS recalibrations – which require more expensive capital equipment - have grown to become a larger proportion of replacement jobs. Mom and pop operators are increasingly ill-suited to meet the increased technical complexity required for new vehicles. As such we expect Belron to continue taking share and driving growth. For FY23 Belron grew sales +9% organically with a further boost of +2% for M&A. Positive mix effect and price increases saw operating margins increase +226bps to 20.5%, which led operating profits to increase +22% year on year. For the year ahead, management are forecasting sales to grow at mid-to-high-single digits and margins to continue towards what for some time now has appeared a relatively modest 2025 margin target of 23%. We expect Belron to provide updated targets at next year's Capital Markets Day – which will be the first since Carlos Brito became CEO. As readers may remember, in 2021 a consortium of private equity investors (led by Hellman & Friedman) became minority shareholders in Belron at a €21bn enterprise value. We estimate the EV is closer to €24.5bn today (17x our 2024e EBIT), and note D'Ieteren's 50% equity interest accounts for 61% of D'Ieteren's NAV. In due course we expect a liquidity event for these investors to help highlight Belron's significant value, and like situations such as this where we are aligned with highly incentivised PE co-owners and management teams. As such we see scope for a further narrowing of D'Ieteren's 33% discount, as well as NAV growth underpinned by strong earnings growth prospects.

BSD Analysis:
AVI views D'Ieteren as an attractive investment primarily driven by its 50% stake in Belron, the global leader in vehicle glass repair and replacement. The investment thesis centers on Belron's dominant market position with over 40% US market share and significant competitive advantages through scale economies and insurance partnerships. Structural tailwinds from increasing windshield complexity and Advanced Driver Assistance Systems create barriers to entry for smaller competitors while driving margin expansion. Belron delivered strong FY23 results with 9% organic sales growth and 226bps margin improvement to 20.5%, with management targeting 23% margins by 2025. The presence of private equity co-investors (Hellman & Friedman) who invested at €21bn enterprise value in 2021 provides validation and potential catalyst for value realization. AVI estimates current enterprise value at €24.5bn and expects a future liquidity event to highlight Belron's value, helping narrow D'Ieteren's 33% holding company discount.

Pitch Summary:
We started building a position in News Corp last year and wrote it up in the April 2023 newsletter, highlighting the deeply discounted valuation and the overlooked quality and prospects for Dow Jones generally, and its Professional Information Business ("PIB") specifically. In recent months we have added to the position such that it is now our largest position (6.7% of NAV). In February, News Corp reported a solid set of results which have seen the shares rise +8% subsequently. For the quarter ending December 2023, group EBITDA (which includes the consolidated stake in REA Group) increased by +16%, some +12% ahead of consensus expectations. Results showed the strong continued evolution of Dow Jones (37% of NAV), where revenues grew +4% and EBITDA +17% as margins expanded +320bps to 27.9%. The key driver here was PIB, where revenues grew +13%, led by Dow Jones Risk & Compliance and Dow Jones Energy. We argued last year that that these assets were overlooked by the market and misunderstood by the sell side, who carried Dow Jones at derisorily low multiples in their sum-of-the-parts ("SOTP") models, and for whom the ramp up in margin and evolution of business quality was missed. The margin impact is coming through and investors – aided by improved disclosure – are starting to appreciate the attractive nature of these sticky, largely recurring and high margin revenue businesses. We note that sell side analysts have started to increase the multiple at which they carry Dow Jones in their SOTP models, but the prospects and value of these businesses remains overlooked by many. Indeed, we certainly do not believe these attractions are captured in News Corp's current valuation, with the company trading at a 38% discount to our estimated NAV. Adjusting for the stake in REA, the stub trades at an implied value of $5.4bn, or approximately 4.7x next year's EBITDA. We estimate that Dow Jones alone is worth ~1.6x the implied stub value and note that the New York Times at 15x and Info Services peers which trade between 19-29x. Management have become increasingly vocal about the undervaluation. As CEO Robert Thomson described on the last earnings call, the company is engaged in "serious introspection about structure…[and] how to fully monetize a precious, prestigious portfolio that has an obvious growth trajectory. That is indeed not an evolution, but a revolution". At current prices, the market is seemingly ascribing a low probability to "a revolution", with significant upside if management do indeed take concrete and tangible steps to unlock value. Combined with strong operating and earnings momentum, prospective returns appear attractive.

BSD Analysis:
AVI Global Trust has built News Corp into their largest position at 6.7% of NAV, viewing the shares as deeply undervalued at a 38% discount to estimated NAV. The investment thesis centers on the overlooked quality of Dow Jones, particularly its Professional Information Business which grew revenues 13% with expanding margins. The manager argues that sell-side analysts have historically undervalued Dow Jones in sum-of-the-parts models, missing the evolution toward sticky, recurring, high-margin revenue streams. Recent results showed group EBITDA up 16% and Dow Jones margins expanding 320bps to 27.9%, validating the thesis. Management's increasingly vocal stance on undervaluation and CEO comments about potential structural changes suggest catalysts for value realization. The stub trades at only 4.7x next year's EBITDA while comparable media assets trade at much higher multiples. AVI sees significant upside if management takes concrete steps to unlock value through structural changes.

Pitch Summary:
Take one of our largest holdings, Alphabet Inc. (GOOGL), for example. The following question is highly difficult to answer: "How will AI affect Google's dominance in Search over the next ten years?" Still, analysts and investors everywhere are compelled to come up with an answer. Arguably, investors are instead substituting a much easier question: "How is Google performing in the AI development race right now?" Google's Gemini (Bard) project has very publicly had its own unique struggles. On February 26, Alphabet's share price declined over 4% after a debacle involving its generative AI and "woke" culture. The shares continued to slide over the week and into the next as every broadcaster, columnist, and other talking-head questioned whether the company had lost its way. By March 6, the shares had fallen nearly 10% on what I would argue is a non-event. We increased our holdings on the way down. Google may be a step behind in AI development, but these bumps should be expected when dealing with technological frontiers. Furthermore, it hasn't seemed to have an effect on Search up to this point. Search-threatening generative AI projects have been around for well over a year now. Yet, Google's global market share in Search has not been subject to anymore fluctuation than it has over the last decade. Not to mention the fact that Google has latent margin expansion opportunities through cost cutting which seem to be ignored. The shares were trading at a discount to a reasonable estimate of fair value, the business is of great quality, and there were reasons to believe that there could be a behavior-driven mispricing. Is Google having its Kodak moment? I am willing to bet otherwise.

BSD Analysis:
The manager increased Alphabet holdings during AI-related volatility, viewing market concerns as behavioral overreaction rather than fundamental deterioration. The investment thesis centers on Google's enduring search dominance, which has shown no material market share erosion despite over a year of generative AI competition. The manager argues investors are substituting the easier question of current AI development performance for the more complex assessment of long-term search impact. Google's Gemini struggles triggered a 10% decline that the manager characterized as a "non-event," providing attractive entry opportunities. The position benefits from Google's high-quality business model, latent margin expansion potential through cost reduction, and attractive valuation relative to intrinsic value estimates. The manager dismisses "Kodak moment" fears, betting that temporary AI development setbacks don't threaten Google's core search franchise. This contrarian stance capitalizes on availability bias where recent negative AI headlines disproportionately influence investor sentiment despite limited fundamental impact on the underlying business.

Pitch Summary:
Pluxee N.V. is a provider of a specialized and closed-network payments system for customers and merchants. The network is employee benefits focused and initially started with meal and food vouchers. Pluxee maintains a network of employers and merchants and issues prepaid cards for employees to use based on some predefined employer benefit (food stipends, lodging, transportation, medical care, etc.) Pluxee collects a fee from both sides of the network, which has averaged a total 4.2% of volume issued historically. In addition, due to the prepaid nature of the network, Pluxee generates a substantial float which earns additional interest income. The employer benefits come with substantial tax savings for both the employer and the employee, which drives the bulk of the demand for Pluxee's services. Additionally, these benefits are operationally difficult to facilitate without the help of Pluxee or another competitor due to stringent regulatory requirements. The industry has been subject to good returns, but with higher interest rates and broadening tax-exemptions, both profitability and demand for these services have increased. Pluxee earns high returns on capital and benefits from strong barriers to entry (I estimate that the business earns 20% returns on incremental invested capital from payment fees alone). The industry is an oligopoly, but truly defaults to a duopoly between Pluxee and Edenred. Edenred is the #1 player in the space but has recently come under regulatory review for bid rigging in their Italian markets. I view Pluxee as having an attractive valuation with more head room to grow into as an independently focused unit. At our initial purchase, Pluxee traded at around a 7-8% NTM FCF yield depending on how the float is accounted for. Like Syensqo, Pluxee is also a spin-off. There is a growing debate as to whether or not spin-offs still provide sources of good returns. That is a fair concern. Markets change and adapt; it's unlikely that investors would still do well to blindly buy every spin-off like once before. Some, however, still seem to be mispriced for no other good reason. If you look carefully, you can still see signs of the herded selling in less liquid spins. Take Pluxee for example. On February 7, the shares traded down nearly 10% in the opening seconds of the day. By 9:20 (20 minutes into the European session), the discount had been snapped up almost in its entirety. Was there a negative overnight headline? No. Was there any negative news with competitors or the industry? No. It was just that the shares had finally cleared overnight and were available for sale in European retail accounts. A large number sold the newfound holding at their first chance without any hesitation.

BSD Analysis:
The manager invested in Pluxee, a European employee benefits payments network, viewing it as an attractive duopoly play with strong structural advantages. The business model centers on a closed-loop prepaid card system for employee benefits, generating 4.2% fees on transaction volume plus float income from prepaid balances. Tax advantages for both employers and employees drive demand, while regulatory complexity creates barriers to entry. The manager estimates 20% returns on incremental capital from payment fees alone, supported by the oligopolistic industry structure dominated by Pluxee and Edenred. With Edenred facing regulatory scrutiny for bid rigging in Italy, Pluxee appears well-positioned as an independent focused entity. Higher interest rates have boosted both float income and service demand through expanded tax exemptions. The spinoff dynamics created clear mispricing opportunities, evidenced by the 10% intraday decline and recovery on February 7th due to mechanical retail selling. At 7-8% forward free cash flow yield, the valuation appears attractive for this high-quality recurring revenue business.

Pitch Summary:
Syensqo is a high-margin specialty chemicals producer with wide ranging end markets and operating segments. The company spun out from Solvay in December, effectively splitting the legacy organization into commoditized and specialty chemicals. Specialty chemicals producers typically carry moderate pricing power due to high switching costs although volumes are subject to the specific end markets that they are exposed to. Syensqo has some of the best margins in the industry and also one of the broadest end market portfolios. The company has a top-3 position in 90% of its markets based on sales. With spin-offs, theory would say that there is some forced selling into the initial days of trading. This suggests that an advantage could exist for those who are ready to provide liquidity, although in the case of Syensqo, there also could have been an advantage for those who took the time to read the filings. Most professionals rely on data providers such as Bloomberg, CapitalIQ, or FactSet to collect a company's financials. These data providers typically have the numbers correct, but there can occasionally be large discrepancies in unique situations. In the case of Syensqo, for weeks after the company had begun trading, these data providers had net debt listed to be in excess of €4-5 billion. The true net debt is closer to just €1 billion. This €3 billion gap is quite significant for a company that at the time had a market capitalization of less than €9 billion. We were of course not the only lucky ones to notice this (that would be naïve to assume so) but the time that it took for this to be corrected does suggest a lack of investor attention. Given the context of the spin and stale data, it's reasonable to assume that there was an advantage to be had in this situation. In terms of valuation, Syensqo trades at a low multiple both relative to peers and on an absolute basis. Part of this is due to the cyclical nature of the chemicals industry, however, I believe the discount is sufficient to overcome any cyclical headwinds. Additionally, many of Syensqo's peers are calling for a stabilization in volumes this year after significant destocking during 2023. Cyclical pressures may very well continue, but it seems as though we are getting closer to seeing them finally subside. Despite some gains, I still see Syensqo as trading significantly below fair value.

BSD Analysis:
The manager initiated a position in Syensqo, a specialty chemicals spinoff from Solvay, capitalizing on both structural and informational advantages. The investment thesis rests on Syensqo's superior industry positioning with top-3 market share in 90% of its segments and best-in-class margins within specialty chemicals. The manager identified a significant data error where financial providers incorrectly reported €4-5 billion in net debt versus the actual €1 billion, creating a €3 billion valuation discrepancy for a company with sub-€9 billion market cap. This informational edge, combined with typical spinoff forced selling dynamics, provided attractive entry opportunities. The cyclical chemicals downturn from 2023 destocking appears to be stabilizing, with peers indicating volume recovery ahead. Despite some appreciation, the manager believes Syensqo trades at compelling valuations both absolutely and relative to specialty chemical peers, with sufficient discount to weather potential continued cyclical headwinds.

Pitch Summary:
Last quarter, I wrote to you about one of our largest positions, Vestis Corporation (VSTS). At the time, it was one of my highest conviction ideas. I was convinced that this was a situation in which we were likely to have an edge, that the company was likely of above average quality, and that the shares were also likely to be trading at a discount to fair value. I hoped this would be a company that we could hold in the portfolio for years as it progressed in its transformation. However, in early February, after the company announced its quarterly earnings, it became clear to me that my initial assessment of the company's quality and intrinsic value was likely wrong based on the incremental information being given. I decided to cut the position entirely. I mentioned in my initial comments that Vestis had a lot of "wood to chop" before it would realize its full value as a standalone company. Unfortunately, it does not seem as though any wood is being chopped. Management has set targets for the company's progression over the next several years, but the guidance they have given for this year falls short of the pace required to meet long-term targets. This was not new information; management clearly communicated that the targets would have a delayed cadence in their progress. However, what was more concerning, was that the communication revolving around guidance for this year shifted from a story of gradual progress throughout the year to a story of significant progress in the back half of the year. Communication from management regarding pricing actions also moderated significantly, shifting from value-based price increases to "surgical" price increases. Put more simply, it seemed as though the can was being kicked even further down the road. Additionally, the COO (who had experience with their competitor Cintas) resigned for personal reasons. However, management did not confirm that these reasons were not due to disagreements with the company when asked about it on the call. In these situations, there is also often a line in the associated 8-K that confirms that "personal reasons" do not mean "disagreements." In this case, it was absent. The suggested discord among executives and lack of visibility into their strategy is troubling. Without the urgency to execute on these targets, management's ability to deleverage will be hampered. Without progress in deleveraging, Vestis will not be able to acquire regional competitors or organically invest to keep up with Cintas or even UniFirst. I wish them the best but no longer feel comfortable sticking around.

BSD Analysis:
The manager exited Vestis Corporation after initially viewing it as a high-conviction turnaround opportunity, citing deteriorating execution and management credibility. The thesis centered on the company's transformation as a standalone entity following its spinoff, but management's failure to meet interim targets and shifting communication around pricing strategy raised red flags. The departure of the COO with competitor experience, combined with management's evasive response about potential disagreements, suggested internal discord. The manager became concerned that without operational urgency, Vestis would struggle to deleverage and compete effectively against established players like Cintas and UniFirst. Despite realizing gains on the position, the manager acknowledged his initial quality assessment was flawed. This exit demonstrates disciplined risk management when fundamental assumptions prove incorrect, even when the position remains profitable.

Pitch Summary:
Globant S.A. provides outsourced software development, design, and digital marketing services for business customers. Shares fell after the company provided financial guidance that was below Street expectations. While management expects market share gains to continue, 2024 guidance indicates a slowdown in revenue and earnings growth. We remain investors. Despite a broad slowdown in IT spending, the company showed resilient business momentum with 18% revenue growth and 16% EPS growth in the most recent quarter, well above peer levels due to Globant's diversified customer base, favorable geographic mix, and acquisition strategy. We believe Globant has a long runway for expansion in a large global market for IT services.

BSD Analysis:
The manager's thesis on Globant emphasizes the company's relative outperformance and structural advantages despite industry headwinds. While 2024 guidance disappointed investors, Globant's 18% revenue growth and 16% EPS growth significantly exceeded peer performance, demonstrating resilience in a challenging environment. The manager attributes this outperformance to three key differentiators: a diversified customer base that reduces concentration risk, a favorable geographic mix that provides access to growth markets, and a strategic acquisition program that enhances capabilities. Despite the near-term growth deceleration, the manager maintains conviction based on Globant's market share gains and the large addressable market for global IT services. The investment case relies on the company's ability to continue taking share from competitors while the broader IT spending environment eventually normalizes.

Pitch Summary:
Shares of IT services provider Endava plc fell after the company cut guidance for the fiscal year ending June 30, 2024. Growth has slowed over the last year as business customers pulled back on discretionary IT spending due to budget pressures and macroeconomic uncertainty. Last fall, management was seeing early signs of a recovery, but new projects have taken longer to materialize as customers delay spending decisions. Higher expenses from increased staffing to meet anticipated demand weighed on margins as well. Management acknowledged that it misread the market and is taking steps to right-size the cost structure to improve margins. We remain invested because we expect these near-term headwinds to abate over time, leading to better growth as clients embrace digital transformation.

BSD Analysis:
Despite near-term challenges, the manager maintains conviction in Endava's long-term digital transformation thesis. The current weakness stems from cyclical factors as enterprise customers have delayed discretionary IT spending amid macroeconomic uncertainty, forcing management to cut fiscal 2024 guidance. The manager acknowledges management's misstep in over-staffing for anticipated demand that failed to materialize, but views the subsequent cost restructuring as necessary corrective action. The investment case rests on the belief that current headwinds are temporary and that the secular trend toward digital transformation remains intact. The manager expects client spending to normalize as economic uncertainty subsides, positioning Endava to benefit from pent-up demand for digital transformation services across its target verticals.

Pitch Summary:
Shares of alternative asset manager Apollo Global Management, Inc. outperformed after the company reported strong financial results and gave a positive outlook on growth over the next several years. In the most recent quarter, assets under management increased 19% and earnings per share increased 27%. Despite a more dovish interest rate outlook, management maintained 2024 financial guidance, which calls for 15% to 20% growth in fee-related earnings and double-digit growth in spread-related earnings. Fundraising remains strong, which supports management's goal of more than doubling the pace of capital deployment over the next five years. Management remains bullish on private credit due to growth opportunities across fixed income replacement, retirement accounts, and high-net-worth investors.

BSD Analysis:
Apollo's investment case is built on strong execution and favorable secular trends in alternative asset management. The manager highlights impressive recent performance with 19% AUM growth and 27% EPS growth, demonstrating the firm's ability to scale effectively. Management's confidence is evident in maintaining aggressive 2024 guidance despite interest rate uncertainties, projecting 15-20% fee-related earnings growth and double-digit spread-related earnings growth. The thesis is further supported by robust fundraising activity and management's ambitious goal to more than double capital deployment over five years. The manager particularly emphasizes Apollo's positioning in private credit, which benefits from structural shifts as traditional fixed income investors and retirement accounts seek higher yields, creating a multi-year growth tailwind.