Investment Pitches

Pitch Summary:
We own JPMorgan and Bank of America shares (and Goldman Sachs, for which the recent events are far less impactful given its business mix). Bank balance sheet assets are cash, loans, and investments, with funding liabilities in the form of deposits and debt / bonds. Banks are allowed to designate their investment assets in two ways: Available for Sale (AFS) or Held to Maturity (HTM). AFS securities are held at fair value, with any moves between reporting dates reflected in mark-to-market changes, meaning their value fluctuates with interest rate and credit risk changes. HTM assets are held at cost as they are not intended to be sold. The expectation from regulators is that assets designated HTM won’t be reclassified, however, they do acknowledge circumstances can change. Should this happen, a mark-to-market revaluation is triggered, impacting their book value and regulatory capital. Reclassification of HTM assets to AFS therefore only really happens if banks are in such a tight liquidity position (due to deposit flight) that they cannot cover these outflows from their cash on hand, or even by selling their AFS assets, forcing them to eat into their nest egg of HTM securities. In SVB’s case, deposit flight occurred incredibly fast with 25% of depositors withdrawing their cash in a single day.5 This is a feature of digital banking that clearly causes greater fragility in the event of a loss of confidence. Clearly, this issue is not a risk for JPMorgan although, at first glance, it appears concerning for Bank of America. The questions one needs to ask is what needs to happen to necessitate breaking into the HTM portfolio piggy bank, and what else is happening within the bank to offset these risks. Please ask if you would like to see more detail on this working but, in summary, Bank of America would need to suffer c.50% deposit outflows to force a mark to market on their HTM assets. There are several reasons we think this is unlikely. The first is size. With $1.9 trillion of deposits (vs. SVBs c$200bn) Bank of America is a systemic part of the depositary base in the US, and system deposits would need to meaningfully contract for them to be impacted. The second is diversity. Bank of America is a broad-based bank with an array of depositors (not narrowly focused on the tech companies in Silicon Valley as SVB was). The third is support from the Fed. The new “BTFP” facility allows banks to borrow up to 100% of the par value of their HTM assets, removing the need for an outright sale.6 As of December 2022, the rise in interest rates has generated an unrealised $100bn loss on Bank of America’s HTM assets. The most likely outcome is that these bonds mature at par and no loss is suffered, although an opportunity to earn a higher return in today’s interest rate environment is of course forgone. If these bonds were bought above par, then some portion of this loss may have to be realised from 2033 onwards as this is the earliest maturity within the portfolio. The flip side is that the recent move in interest rates has also driven an $8bn realised annual increase in profits today7. In both banks, solid management decisions have avoided the duration risk trap which others have fallen into. Why Own a Stock Today? This is an evergreen question that we ask ourselves about all our portfolio holdings. With banks, as with all cyclicals, our thought process goes as follows: 1. Do we believe in structural growth? 2. Is the business less cyclical than prior cycles? 3. Could the company emerge stronger when it passes through the eye of an inevitable downcycle? We believe in the structural returns from our holdings. They have generated an average 15% return on capital in a very tricky decade, and the next cycle should present further consolidation opportunities (c.f. Credit Suisse finally retiring their investment bank). Both banks have around a third of the leverage they had prior to the 2008 crisis, and three times the liquidity. Capital-light fee-based businesses are a larger contributor to their bottom lines, and credit risk within trading has been vastly reduced due to proprietary trading regulation. Asset quality is significantly higher, with mortgages at lower loan-to-value ratios made to homeowners with higher average FICO scores. All told, the cyclicality in the businesses through asset exposure, credit risk, and balance sheet leverage are lower than any point in the recent past, and revenues are more diverse. Finally, to the inevitable down cycle. We will see in a few days the impact of the recent malaise as they report Q1 earnings, and we expect solid deposit figures following depositor flight to safety from regional banks in the US. Given the tightening of financial conditions within the regional banks, we also expect loans to migrate to the money centre banks, creating long-term customer relationships with high franchise value. Trading at 9x normalised earnings the stocks are cheap and, while we don’t have a particular view on when they might re-rate, the strength shown through this difficult period (which is likely not over) will shine through in above-average intrinsic value growth, as well as potentially higher valuations, as we move through the next five years.

BSD Analysis:
Latitude’s thesis on Bank of America is that the market is overstating its interest-rate and liquidity risk: they estimate it would take roughly a 50% deposit outflow to force sales of HTM securities, a scenario they view as unlikely given its size, diversified deposit base and access to the Fed’s BTFP facility. They emphasize that unrealised losses on HTM bonds are largely a timing issue and that rising rates have simultaneously boosted current profits, while the bank has lower leverage, higher liquidity and better asset quality than pre-crisis. At about 14x trailing and low-teens forward earnings—only modestly above its 10-year average P/E—BAC offers a reasonable valuation for a scaled franchise with improving returns and operating leverage. Earnings growth should be driven by deposit repricing normalisation, fee income and potential share buybacks as capital builds, though a deeper recession could pressure credit costs and delay capital return. Relative to regional banks, BAC also stands to gain share in both deposits and lending as customers migrate toward perceived safety, reinforcing the medium-term compounding story.

Pitch Summary:
We own JPMorgan and Bank of America shares (and Goldman Sachs, for which the recent events are far less impactful given its business mix). Bank balance sheet assets are cash, loans, and investments, with funding liabilities in the form of deposits and debt / bonds. Banks are allowed to designate their investment assets in two ways: Available for Sale (AFS) or Held to Maturity (HTM). AFS securities are held at fair value, with any moves between reporting dates reflected in mark-to-market changes, meaning their value fluctuates with interest rate and credit risk changes. HTM assets are held at cost as they are not intended to be sold. The expectation from regulators is that assets designated HTM won’t be reclassified, however, they do acknowledge circumstances can change. Should this happen, a mark-to-market revaluation is triggered, impacting their book value and regulatory capital. Reclassification of HTM assets to AFS therefore only really happens if banks are in such a tight liquidity position (due to deposit flight) that they cannot cover these outflows from their cash on hand, or even by selling their AFS assets, forcing them to eat into their nest egg of HTM securities. In SVB’s case, deposit flight occurred incredibly fast with 25% of depositors withdrawing their cash in a single day.5 This is a feature of digital banking that clearly causes greater fragility in the event of a loss of confidence. Clearly, this issue is not a risk for JPMorgan although, at first glance, it appears concerning for Bank of America. The questions one needs to ask is what needs to happen to necessitate breaking into the HTM portfolio piggy bank, and what else is happening within the bank to offset these risks. Please ask if you would like to see more detail on this working but, in summary, Bank of America would need to suffer c.50% deposit outflows to force a mark to market on their HTM assets. There are several reasons we think this is unlikely. The first is size. With $1.9 trillion of deposits (vs. SVBs c$200bn) Bank of America is a systemic part of the depositary base in the US, and system deposits would need to meaningfully contract for them to be impacted. The second is diversity. Bank of America is a broad-based bank with an array of depositors (not narrowly focused on the tech companies in Silicon Valley as SVB was). The third is support from the Fed. The new “BTFP” facility allows banks to borrow up to 100% of the par value of their HTM assets, removing the need for an outright sale.6 As of December 2022, the rise in interest rates has generated an unrealised $100bn loss on Bank of America’s HTM assets. The most likely outcome is that these bonds mature at par and no loss is suffered, although an opportunity to earn a higher return in today’s interest rate environment is of course forgone. If these bonds were bought above par, then some portion of this loss may have to be realised from 2033 onwards as this is the earliest maturity within the portfolio. The flip side is that the recent move in interest rates has also driven an $8bn realised annual increase in profits today7. In both banks, solid management decisions have avoided the duration risk trap which others have fallen into. Why Own a Stock Today? This is an evergreen question that we ask ourselves about all our portfolio holdings. With banks, as with all cyclicals, our thought process goes as follows: 1. Do we believe in structural growth? 2. Is the business less cyclical than prior cycles? 3. Could the company emerge stronger when it passes through the eye of an inevitable downcycle? We believe in the structural returns from our holdings. They have generated an average 15% return on capital in a very tricky decade, and the next cycle should present further consolidation opportunities (c.f. Credit Suisse finally retiring their investment bank). Both banks have around a third of the leverage they had prior to the 2008 crisis, and three times the liquidity. Capital-light fee-based businesses are a larger contributor to their bottom lines, and credit risk within trading has been vastly reduced due to proprietary trading regulation. Asset quality is significantly higher, with mortgages at lower loan-to-value ratios made to homeowners with higher average FICO scores. All told, the cyclicality in the businesses through asset exposure, credit risk, and balance sheet leverage are lower than any point in the recent past, and revenues are more diverse. Finally, to the inevitable down cycle. We will see in a few days the impact of the recent malaise as they report Q1 earnings, and we expect solid deposit figures following depositor flight to safety from regional banks in the US. Given the tightening of financial conditions within the regional banks, we also expect loans to migrate to the money centre banks, creating long-term customer relationships with high franchise value. Trading at 9x normalised earnings the stocks are cheap and, while we don’t have a particular view on when they might re-rate, the strength shown through this difficult period (which is likely not over) will shine through in above-average intrinsic value growth, as well as potentially higher valuations, as we move through the next five years.

BSD Analysis:
Latitude frames JPMorgan as a structurally advantaged money-centre bank that has avoided the duration-risk mistakes seen at regional peers and is positioned to capture deposit inflows and loan migration as smaller banks retrench. They highlight strong capital and liquidity, improved asset quality and diversified fee income, arguing that cyclicality is materially lower than pre-2008 while returns on equity have averaged around the mid-teens through a difficult decade. At roughly 15x trailing earnings and a mid-teens ROE, JPM trades at only a modest premium to its long-run P/E yet still offers an attractive risk-adjusted earnings yield for a franchise of this quality.:contentReference[oaicite:1]{index=1} Rising rates have expanded net interest income and should continue to support earnings as long as credit costs remain contained. The key upside catalyst is continued market-share gain in deposits and corporate lending as weaker competitors retrench, while risks include a sharper credit cycle or regulatory tightening that crimps returns.

Pitch Summary:
The company has $200m debt yielding 6%, which is equal to all the profits the company could make in its glory period; equity is overvalued; the company is only riding the AI wave;

BSD Analysis:
BigBear.ai markets AI and analytics to U.S. government clients. Bears cite overpromising, ongoing losses, and reliance on government contracts. Revenue growth has lagged amid execution issues and balance sheet strain. Competition from larger AI players threatens positioning. Equity dilution remains a recurring risk.

Pitch Summary:
The company will fail within 12 months without additional financing; expected to lean into an AI hype to raise cash from unsuspecting retail investors;

BSD Analysis:
Presto’s AI ordering tools face weak adoption, poor unit economics, and scalability concerns. Despite labor-saving claims, conversions to scale have lagged. Cash burn and reliance on financing add dilution risk. Larger players like Toast and NCR pose competitive threats.

Pitch Summary:
The company failed to benefit from the last two uranium bull markets (`06 and `10); none of the estimated resources can be mined profitably at current uranium prices; acquired 5 mines for $350mil, yet none can also be mined;

BSD Analysis:
UEC has accumulated uranium assets but remains promotional, loss-making, and reliant on equity issuance. Few cash-generating projects exist, and production timelines are distant. While uranium sentiment is strong, the gap between investor enthusiasm and UEC’s operating reality remains wide.

Pitch Summary:
Potential Tesla's bid is unlikely as other less-risky options are present; "Green Mining & Green Tech" claims are false; experts think $2-3bil acquisition is possible, half of the current price; another potential bidder - Rio Tinto passed; lost Mitsui as a client; overvalued (87% above the comparable figures);

BSD Analysis:
Sigma Lithium is a Brazil-based producer dependent on a single project. Risks include execution challenges, cost control, and lithium price volatility. Environmental or political disruption could derail output. The single-asset profile amplifies downside if demand falters or competition increases.

Pitch Summary:
Cash burning machine, expected to report losses for the next two years; $2.3bil worth of stock-based compensation; further reduction in earnings as "staking" is prohibited by the SEC; indirect regulatory risks;

BSD Analysis:
Coinbase is exposed to regulatory overhang, declining trading volumes, and reliance on retail fees. Expansion into staking and custody remains small. DEXs and global competitors threaten share. High compliance costs squeeze margins, while valuation remains tied to volatile crypto cycles.

Pitch Summary:
The main customers, which are regional banks, will continue to lose their customers; does not look attractive based on valuation (EV 30x the 2023 EBITDA, which excludes stock-based compensation);

BSD Analysis:
Q2 sells cloud software to regional banks. Short thesis highlights sluggish growth, client concentration, and fintech competition. Regional bank stress increases counterparty risk, while high R&D costs hinder profitability. Despite recurring revenues, valuation looks stretched given limited operating leverage.

Pitch Summary:
The company hid its toxic real estate portfolio using web of real and fake holding companies; $582mil off-balance liabilities is disguised; the company could have been insolvent in case of total portfolio consolidation; major financial ratios are lower than their reported levels

BSD Analysis:
Arbor Realty has faced scrutiny over its mortgage REIT model, which depends heavily on credit markets and multifamily lending. Bears argue that rising rates, deteriorating credit quality, and higher funding costs threaten both earnings and dividend sustainability. The firm’s concentration in bridge loans leaves it vulnerable if refinancing markets freeze. Leverage amplifies risk, and while Arbor highlights strong demand for rental housing, skeptics question whether earnings quality justifies the valuation given increasing defaults and stress in commercial real estate.

Pitch Summary:
Paywalled (The Bear Cave is publishing additional concerns about Coinbase (NASDAQ: COIN — $12.4 billion). The Bear Cave believes Coinbase currently faces a perfect storm of problems including ballooning losses and legal liabilities, the collapse of bank partners, and a volatile stablecoin that all add pressure to its deteriorating core business.)

BSD Analysis:
Coinbase is the leading U.S.-based crypto exchange, but shorts highlight regulatory pressure, fee compression, and overreliance on trading volumes. The SEC’s stance on crypto securities could significantly disrupt operations, while decentralized exchanges and global competitors push pricing lower. Diversification into custody and institutional services is growing but still small. Without sustained crypto bull markets, Coinbase’s high valuation looks vulnerable.

Pitch Summary:
Involved in the corruption of Ghana's politician; Ghana's authorities are unlikely to ratify its mining licenses due to corruption; PLL's Tenessee facility is dead; potential problems with regulators;

BSD Analysis:
Piedmont Lithium’s value hinges on developing its Carolina Lithium project, but delays, permitting risk, and financing needs weigh heavily. Lithium price volatility adds further uncertainty. With no near-term production and significant capex ahead, dilution risk is high. Critics argue valuation reflects excessive optimism amid intense global competition.

Pitch Summary:
Multiple failed acquisitions and the business is about to decline; growing signs of financial stress and financial reporting issues; no excess capital to meet its dividend obligation; company insiders own 0.17% of the stock; a number of major financial numbers could be false; up to 50% downside;

BSD Analysis:
Essential Utilities offers defensive exposure to water and wastewater services, but critics see valuation risk, integration challenges from acquisitions, and rising capital intensity. With high debt loads and rate lag versus inflation, profitability could suffer. While long-term water scarcity is supportive, bears believe the stock trades at a premium that overstates growth and stability.

Pitch Summary:
Merely changing company names to seize the opportunity (first C3 Energy, then C3 IoT and now C3.ai); broken business (expensive, trailing edge and difficult to implement solutions); the service has minimal aspects of true AI; unbilled revenue went up x5 with DSO over 200 days; Update 4/4 - Kerrisdale sent a letter to AI's auditor, raising accounting concerns. Update 8/5 - The short seller tweeted Bberg's news that Baker Hughes sold more than 2.2 mil shares of AI.

BSD Analysis:
C3.ai markets AI software to enterprises across industries. Shorts highlight weak adoption, reliance on pilot projects, and cash burn. Competition from Microsoft, Google, and AWS is intense, and C3 lacks comparable resources. Growth has been inconsistent, margins remain negative, and valuation rides on AI hype. Vulnerable to sentiment reversals if adoption metrics disappoint.

Pitch Summary:
At least $250mil is overpaid for miners; 65% of the miners are not in use; the biggest source of liquidity provider - Silvergate is near bankruptcy; did not make money even when Bitcoin price rose to $47k; series of questionable payments;

BSD Analysis:
Marathon is one of the largest Bitcoin miners, but shorts argue its economics are fragile. Bitcoin volatility, energy price swings, and reliance on third-party hosting contracts make cash flows unpredictable. Environmental and regulatory scrutiny adds risk, while high debt raises sustainability questions. Absent a sustained Bitcoin rally, MARA could struggle to remain viable.

Pitch Summary:
Paywalled (Symbotic is one of many supply chain automation companies that contracts with big distribution centers to automate operations like packing, unpacking, moving, and storing products. Recent executive departures, a nosebleed valuation, the company’s reliance on a handful of customers, and a looming lock-up are among an assortment of issues that should concern shareholders.)

BSD Analysis:
Symbotic’s warehouse automation tech has drawn attention through a Walmart partnership, but skeptics highlight extreme customer concentration, profitability questions, and execution risks in scaling complex robotics. Premium valuation depends on flawless rollout and broader adoption, leaving downside if growth falters.

Pitch Summary:
Superior profit margin only due to false financials (Chinese filing greatly mismatches the SEC filing); actual employee and labor expenses could be x2 the filings to SEC; purchase of expensive franchisees from related parties; multiple counterparties are owned by company insiders; unnecessary exposure to China's real estate. Update 3/19 - Follow-up report: The company's Chairman indirectly admitted several of its accusations.

BSD Analysis:
ZTO is China’s leading courier but faces pricing pressure, regulatory oversight, and overcapacity. Competition is intense, driving margin compression. Government intervention in pricing further limits upside. Slower Chinese consumer spending adds risk despite long-term e-commerce growth.

Pitch Summary:
DOJ investigation into one of the products the company is responsible for marketing and promotion; undisclosed FDA warning letter for false and misleading marketing campaigns; unprofitable acquisitions; big losses from off-balance sheet drug developments;

BSD Analysis:
Harrow specializes in ophthalmic pharmaceuticals, largely via acquisitions and compounding. Bears see limited proprietary pipeline, high reliance on compounding vulnerable to regulatory shifts, and execution risk from acquisitions. With high debt and narrow margins, the stock looks risky relative to larger pharma peers.

Pitch Summary:
The failure rate of their first-year franchisees is 67% and expected to increase; too much reliance on the housing market (up to 95%); insiders cashed $900mil whilst the company only generated $23.4mil in cumulative net income;

BSD Analysis:
Goosehead relies on aggressive franchise expansion for growth, raising questions about sustainability. Attrition among franchisees is rising, and claims inflation pressures commissions. Trading at a premium multiple relative to peers, GSHD could re-rate lower if growth stalls.

Pitch Summary:
Bear case: Post-IPO, the company is entangled in international politics, the financial recovery is unlikely; 24% of the float is short, supporting the weak fundamentals; the company is not a true luxury company based on its margin squeeze;

BSD Analysis:
Canada Goose has hit brand saturation, with slowing growth in key markets and rising promotional activity. Climate change and warmer winters further pressure demand for high-end outerwear. With competition intensifying and margins slipping, the luxury premium looks harder to sustain.