Investment Pitches

Pitch Summary:
Loblaw, a subsidiary of George Weston Limited is Canada's largest grocery retailer and a national leader among the traditional supermarket industry. The company operates over 2400 stores across Canada under store banners: Loblaws, Shoppers Drug Mark/Pharmaprix, No Frills, Real Canadian Superstore, Fortinos, Zehrs Markets, Provigo, Maxi and T&T Supermarket. The company's integrated approach combines food retail, pharmacy services, and digital commerce. They've successfully developed a multi-format value architecture with discount, conventional and premium stores under different banners. Loblaws' leading loyalty program PC Optimum allows for personalized offerings in combination with PC Financial. We believe the company can continue to execute its strategy through various economic cycles, delivering attractive returns and dividend growth.

BSD Analysis:
Bristol Gate initiated a position in Loblaw, recognizing it as Canada's dominant grocery retailer with over 2,400 stores operating under multiple banners across various price points. The company's multi-format strategy spanning discount (No Frills), conventional (Loblaws), and premium (Real Canadian Superstore) segments provides comprehensive market coverage and defensive characteristics. Loblaw's integrated approach combining food retail, pharmacy services through Shoppers Drug Mart, and digital commerce creates multiple revenue streams and customer touchpoints. The PC Optimum loyalty program, combined with PC Financial services, generates valuable customer data and enhances customer retention through personalized offerings. This ecosystem approach provides competitive advantages and pricing power in the Canadian retail landscape. The company's diversified format strategy and strong market position should enable consistent execution across economic cycles. Bristol Gate expects Loblaw to deliver attractive returns and dividend growth given its market leadership, operational scale, and integrated business model in the essential consumer staples sector.

Pitch Summary:
In early August Premium Brands released earnings which provided clarity to investors regarding second half volume growth. Coming from a significant capital expenditure cycle that increased capacity in many of its production lines in the US, the company can now capitalize on increasing US demand and new product launches. It also proceeded with a sale and leaseback of a real estate asset making progress on its debt deleveraging. The company beat on EPS and revenue compared to FactSet estimates. The company also reiterated its FY25 guidance, highlighting strong expected performance for the second half of the year. Management kept the dividend constant and indicated a focus on buybacks when leverage targets are met.

BSD Analysis:
Bristol Gate maintains a positive outlook on Premium Brands following strong Q2 earnings that beat consensus estimates on both EPS and revenue. The company has completed a significant capital expenditure cycle that expanded production capacity across multiple US facilities, positioning it to capitalize on growing US market demand and new product launches. The sale-leaseback transaction demonstrates management's commitment to debt deleveraging while maintaining operational flexibility. Premium Brands' reiteration of FY25 guidance with emphasis on strong second-half performance indicates confidence in the business trajectory. Management's disciplined approach to capital allocation, maintaining the dividend while prioritizing debt reduction, reflects prudent financial stewardship. The focus on share buybacks once leverage targets are achieved suggests future shareholder returns. The company's expanded US production capacity and new product pipeline position it well to capture market share in the growing specialty foods segment.

Pitch Summary:
Toromont Industries released strong Q2 earnings on July 29, that beat analyst consensus estimates on earnings per share and revenue. Toromont seems well positioned to capitalize on the AI fuelled Data Center construction fervor, providing power generation and cooling on sight solutions. Its recent acquisition AVL, while still a small contributor at just 8% of the Equipment Group sales, it claims now over 25% of its backlog. Toromont, equipped with a pristine balance sheet has now another growth lever and investing in increasing capacity in the US to cater specifically the Data Center power solutions demand.

BSD Analysis:
Bristol Gate views Toromont Industries favorably following strong Q2 earnings that exceeded consensus estimates on both EPS and revenue. The company is strategically positioned to benefit from the AI-driven data center construction boom through its power generation and cooling solutions. The AVL acquisition, while currently representing only 8% of Equipment Group sales, has already captured over 25% of the company's backlog, indicating strong market demand for data center infrastructure solutions. Toromont's pristine balance sheet provides financial flexibility to invest in US capacity expansion specifically targeting data center power solutions. This positions the company as a key beneficiary of the ongoing AI infrastructure buildout. The combination of strong operational execution, strategic positioning in high-growth markets, and robust financial health makes Toromont an attractive investment. The company's ability to leverage its Caterpillar relationship and expand into specialized data center solutions represents a compelling growth opportunity in the current technology infrastructure cycle.

Pitch Summary:
Open Text reported earnings in early August that helped contribute to positive investor sentiment. The main driver of returns was the announcement of a management change. The board's Executive Chair T. Jenkins shared the company's focus on its core Content segment and possible dispositions of lower growth segments that was well received by the market. On the results, OpenText reported a 32% increase in cloud bookings for the quarter driven by demand for their new AI-driven Titanium X platform. The company also announced a 5% increase in its quarterly dividend and a $300 million share repurchase program. The company also provided an optimistic Fiscal Year 2026 outlook, projecting a return to total revenue and accelerated cloud revenue growth.

BSD Analysis:
Bristol Gate maintains a bullish stance on OpenText following strong Q3 results and strategic repositioning. The company's 32% increase in cloud bookings demonstrates robust demand for their AI-driven Titanium X platform, positioning them well in the enterprise software transformation. Management's focus on the core Content segment and potential divestiture of lower-growth divisions should improve operational efficiency and margins. The 5% dividend increase and $300 million share repurchase program reflects strong cash generation and management's confidence in the business. The optimistic FY2026 outlook projecting accelerated cloud revenue growth suggests the company is successfully transitioning to higher-margin recurring revenue streams. OpenText's strategic pivot toward AI-enhanced solutions and cloud-first approach aligns with enterprise digital transformation trends. The management change and portfolio optimization strategy should unlock shareholder value through improved focus and capital allocation.

Pitch Summary:
Another new position of interest: Sirius XM Holdings Inc (NSQQ: SIRI). Over the past year, Liberty Media (NSQ: LLYVA), under billionaire John Malone, merged Liberty Sirius XM with Sirius XM Inc. and spun it off into a new independent asset, Sirius XM Holdings Inc. In the process, they simplified the equity structure, so instead of having the equity owned by two distinct public companies, it's now a single company under the SIRI ticker symbol. Berkshire Hathaway (NYQQ: BRK.A) has since become a major shareholder, now owning 35% of the company through 117.5 million shares as of the last 13F filing (Berkshire has purchased additional shares after 12.31.2024). Its underlying metrics suggest this is unfairly discounting the business. For one thing, it has over 33 million subscribers as of the end of 2024 and closed a deal last year with auto manufacturers like Tesla and Rivian to offer the new SiriusXM 360L service in select models to further expand its installed base. True, growth in subscriptions has plateaued over recent years, but subscriber churn is impressively low (1.6%). For context, this churn rate is better than both Spotify (2.0%) and Netflix (1.8%) and, though they're not direct competitors, far better than other subscription services like Hulu (15%) or Paramount+ (24%). What we see is a strong subscription-based business with a 50-60% gross margin and historically a 25-30% EBITDA margin. The market seems overly reactive to revenues flattening but under-appreciative of its sheer stability and attractiveness of its subscription-based model. They are also consolidating their market position by launching a new operating platform (the aforementioned SiriusXM 360L service) that will allow them to gain insights into consumer behavior that were not previously accessible. This will enable both new monetization opportunities and also new capabilities for attracting and retaining new subscribers through a more personalized offering. This may also offer them the first chance to really capitalize on their acquisition of Pandora in 2019, perhaps by developing new advertising packages. In short, with a healthy installed base, stable subscription rates, and a more robust platform offering more options for monetization, Sirius XM offers an attractive formula for success. Even better, with Ted Weschler via Berkshire Hathaway involved, we suspect investors will see discipline in terms of capital allocation as well. Notably, Weschler has done this before to great success for firms like retailer Dillard's (NYQQ: DDS); even facing an entire industry in terminal decline (with over a thousand malls closing every year between 2017 and 2022), Dillard's stock value is at an all-time high right now ($486 per share) and has been on a steady rise since the pandemic. In short, Weschler and Berkshire Hathaway have experience with creating enormous shareholder value through sensible capital allocation. For Sirius XM, we're looking for shareholder yields (debt paydown + share repurchases + dividends) that exceed 15% at the current market cap and free cash flow. The company's own stated capital allocation focus prioritizes "deleveraging in the near-term while simultaneously enhancing stockholder returns." They are looking to reduce debt by around $700M in 2025, return a quarterly dividend of $0.27 per share, and continue a $1.2 billion common stock buyback program. To put this in perspective, SIRI's current market capitalization is $9 billion.

BSD Analysis:
GDS Investments views Sirius XM as an undervalued subscription business with exceptional stability and improving capital allocation under Berkshire Hathaway's influence. Following Liberty Media's corporate restructuring, the simplified equity structure has attracted Berkshire as a 35% shareholder, bringing Ted Weschler's proven capital allocation expertise. With 33 million subscribers and an industry-leading 1.6% churn rate (superior to Spotify and Netflix), Sirius XM demonstrates remarkable customer loyalty despite revenue growth plateauing. The manager highlights strong unit economics with 50-60% gross margins and 25-30% EBITDA margins, while the new SiriusXM 360L platform creates opportunities for enhanced monetization and personalization. The company's aggressive shareholder return program, targeting over 15% shareholder yield through $700M debt reduction, $1.2B share buybacks, and dividends, appears attractive relative to the $9B market cap. The manager draws confidence from Weschler's track record at Dillard's, where disciplined capital allocation created substantial value even in a declining industry.

Pitch Summary:
Here, we've been drawn toward a series of more cyclical companies in the early stages of emerging from a more favorable supply environment, specifically in the offshore drilling space. In particular, Tidewater (NYQQ: TDW), Valaris (NYQQ: VAL), and Schlumberger NV (NYQQ: SLB) stand out. These companies have qualities that we like. The stocks are cheap, balance sheets are strong, and the supply backdrop is becoming more favorable with fewer operating rigs in the marketplace, and significantly less competitive pressure from fracking, etc. than the start of the previous cycle. Tidewater and Valaris have fallen to around half of their 5-year stock price highs (TDW: $53 now vs. $107 at its high, VAL: $45 vs. $80). Even Schlumberger has fallen by a third ($42 vs. $61) while the global fleet of offshore rigs has almost halved over the last decade (to roughly 150 today). The restricted supply should result in higher day rates and higher margins as old contracts re-price in the coming years. Of note is the long lead times to bring on additional capacity in this industry (3 years for the average new vessel), which means that today's current tight supply will last for the foreseeable future. We are particularly encouraged by management's aggressive tilt toward shareholder-friendly policies and the fact that numerous industry "insiders" we trust, like investor John Frederiksen and investment management company Lingotto, have put equity capital into this industry in recent quarters.

BSD Analysis:
GDS Investments positions Schlumberger as a compelling value opportunity within the improving offshore drilling ecosystem, trading at $42 compared to a recent high of $61. As the world's largest oilfield services company, Schlumberger benefits from the same favorable supply-demand dynamics affecting the broader offshore sector, including a nearly 50% reduction in the global rig fleet over the past decade. The manager emphasizes that reduced competitive pressure from fracking, combined with long lead times for new capacity additions, creates a sustainable environment for margin expansion as service contracts reprice higher. Schlumberger's diversified technology platform and strong balance sheet position it well to capitalize on increased offshore activity and day rate improvements. The endorsement from respected industry investors like John Frederiksen and Lingotto, who have recently increased their sector exposure, validates the timing and attractiveness of this cyclical investment opportunity in energy services.

Pitch Summary:
Here, we've been drawn toward a series of more cyclical companies in the early stages of emerging from a more favorable supply environment, specifically in the offshore drilling space. In particular, Tidewater (NYQQ: TDW), Valaris (NYQQ: VAL), and Schlumberger NV (NYQQ: SLB) stand out. These companies have qualities that we like. The stocks are cheap, balance sheets are strong, and the supply backdrop is becoming more favorable with fewer operating rigs in the marketplace, and significantly less competitive pressure from fracking, etc. than the start of the previous cycle. Tidewater and Valaris have fallen to around half of their 5-year stock price highs (TDW: $53 now vs. $107 at its high, VAL: $45 vs. $80). Even Schlumberger has fallen by a third ($42 vs. $61) while the global fleet of offshore rigs has almost halved over the last decade (to roughly 150 today). The restricted supply should result in higher day rates and higher margins as old contracts re-price in the coming years. Of note is the long lead times to bring on additional capacity in this industry (3 years for the average new vessel), which means that today's current tight supply will last for the foreseeable future. We are particularly encouraged by management's aggressive tilt toward shareholder-friendly policies and the fact that numerous industry "insiders" we trust, like investor John Frederiksen and investment management company Lingotto, have put equity capital into this industry in recent quarters.

BSD Analysis:
GDS Investments views Valaris as an attractive cyclical play benefiting from a fundamentally improved offshore drilling market structure. Trading at $45 versus a five-year high of $80, Valaris offers significant upside potential as the offshore drilling sector emerges from a prolonged downturn. The manager highlights that the global offshore rig fleet has contracted by nearly 50% over the past decade, creating a supply-constrained environment with reduced competitive pressure from onshore fracking. This supply discipline, combined with three-year lead times for new rig construction, ensures sustained pricing power as day rates and margins improve during contract repricing cycles. Strong balance sheets and shareholder-friendly capital allocation policies enhance the investment appeal. The validation from respected industry investors like John Frederiksen and Lingotto, who have recently deployed capital in the sector, provides additional confidence in the timing and quality of this cyclical opportunity.

Pitch Summary:
Here, we've been drawn toward a series of more cyclical companies in the early stages of emerging from a more favorable supply environment, specifically in the offshore drilling space. In particular, Tidewater (NYQQ: TDW), Valaris (NYQQ: VAL), and Schlumberger NV (NYQQ: SLB) stand out. These companies have qualities that we like. The stocks are cheap, balance sheets are strong, and the supply backdrop is becoming more favorable with fewer operating rigs in the marketplace, and significantly less competitive pressure from fracking, etc. than the start of the previous cycle. Tidewater and Valaris have fallen to around half of their 5-year stock price highs (TDW: $53 now vs. $107 at its high, VAL: $45 vs. $80). Even Schlumberger has fallen by a third ($42 vs. $61) while the global fleet of offshore rigs has almost halved over the last decade (to roughly 150 today). The restricted supply should result in higher day rates and higher margins as old contracts re-price in the coming years. Of note is the long lead times to bring on additional capacity in this industry (3 years for the average new vessel), which means that today's current tight supply will last for the foreseeable future. We are particularly encouraged by management's aggressive tilt toward shareholder-friendly policies and the fact that numerous industry "insiders" we trust, like investor John Frederiksen and investment management company Lingotto, have put equity capital into this industry in recent quarters.

BSD Analysis:
GDS Investments presents a compelling cyclical opportunity in Tidewater, capitalizing on a dramatically improved supply-demand dynamic in offshore drilling. The manager emphasizes that Tidewater trades at approximately half its five-year high ($53 vs $107), while the global offshore rig fleet has nearly halved over the past decade to roughly 150 vessels. This supply restriction, combined with reduced competitive pressure from fracking compared to previous cycles, creates a favorable pricing environment for day rates and margins as contracts reprice. The three-year lead time for new vessel construction ensures the current tight supply will persist, providing sustained pricing power. Strong balance sheets and shareholder-friendly management policies further enhance the investment thesis. The manager gains additional confidence from respected industry insiders like John Frederiksen and Lingotto making recent equity investments, validating the sector's attractiveness at current valuations.

Pitch Summary:
To that end, we are continuing to hold onto our relatively new position in Nike. We wrote in more detail about the appeal of Nike Inc. (NYQQ: NIKE) in our October 2024 letter, and if anything, we are even more encouraged. Nike offers a classic example of a fundamentally strong company riding through a rough patch, causing the market to unfairly discount its value. Admittedly, Nike is not facing an easy fix. Nike's poor handling of the distribution side of its business over the last few years was a genuine mistake. They cut off ties with retailers because they (under previous leadership) felt they could build their online business (Nike Direct) and simply cut out the middleman. Initially, this effort seemed to yield promising results. However, over time, reduced physical availability made it harder for people to buy its products, and it began to lose brand relevance as it lost shelf space to competitors; hence the market devaluing the stock. Nike is under new leadership now: newly installed CEO Elliott Hill, a former insider has already begun a series of initiatives designed to restore Nike's prominence in stores, leveraging his pre-existing relationships. He's trying to restore Nike's culture (he has vowed to "put sport back at the center of everything we do"), rebuild relationships with both retailers and stewards of the brand, and put more emphasis on groundbreaking product development. On that last point, John Hoke, Nike's chief of innovation, has said he is focused on apparel and footwear that "will blow athletes' minds and shock the world of sports." He cites the example of active wear that can, for example, adjust to whether the wearer is running up- or downhill. We were already confident in Nike's ability to outperform its current pricing, this newfound focus on rebuilding relationships and restoring Nike's old culture (the one that once made it the dominant market leader worldwide) has given us even more enthusiasm for the position.

BSD Analysis:
GDS Investments maintains a bullish stance on Nike, viewing it as a fundamentally strong company temporarily discounted due to distribution missteps under previous leadership. The manager highlights Nike's strategic error of cutting retailer relationships to focus on direct-to-consumer sales, which ultimately reduced physical availability and brand relevance. Under new CEO Elliott Hill, a company insider, Nike is implementing a turnaround strategy focused on restoring retail relationships, rebuilding company culture around sports, and emphasizing innovative product development. The manager is particularly encouraged by Nike's focus on groundbreaking technology, such as adaptive activewear that responds to running conditions. This represents a classic value opportunity where temporary operational challenges have created an attractive entry point for a dominant global brand with strong fundamentals. The manager's increased enthusiasm suggests confidence in the new leadership's ability to execute the turnaround and restore Nike's market position.

Pitch Summary:
Here, we've been drawn toward a series of more cyclical companies in the early stages of emerging from a more favorable supply environment, specifically in the offshore drilling space. In particular, Tidewater (NYQQ: TDW), Valaris (NYQQ: VAL), and Schlumberger NV (NYQQ: SLB) stand out. These companies have qualities that we like. The stocks are cheap, balance sheets are strong, and the supply backdrop is becoming more favorable with fewer operating rigs in the marketplace, and significantly less competitive pressure from fracking, etc. than the start of the previous cycle. Tidewater and Valaris have fallen to around half of their 5-year stock price highs (TDW: $53 now vs. $107 at its high, VAL: $45 vs. $80). Even Schlumberger has fallen by a third ($42 vs. $61) while the global fleet of offshore rigs has almost halved over the last decade (to roughly 150 today). The restricted supply should result in higher day rates and higher margins as old contracts re-price in the coming years. Of note is the long lead times to bring on additional capacity in this industry (3 years for the average new vessel), which means that today's current tight supply will last for the foreseeable future. We are particularly encouraged by management's aggressive tilt toward shareholder-friendly policies and the fact that numerous industry "insiders" we trust, like investor John Frederiksen and investment management company Lingotto, have put equity capital into this industry in recent quarters.

BSD Analysis:
GDS Investments positions Schlumberger as a compelling value opportunity within the improving offshore drilling ecosystem, trading at $42 compared to a recent high of $61. As the world's largest oilfield services company, Schlumberger benefits from the same favorable supply-demand dynamics affecting the broader offshore sector, including a nearly 50% reduction in the global rig fleet over the past decade. The manager emphasizes that reduced competitive pressure from fracking, combined with long lead times for new capacity additions, creates a sustainable environment for margin expansion as service contracts reprice higher. Schlumberger's diversified technology platform and strong balance sheet position it well to capitalize on increased offshore activity and day rate improvements. The endorsement from respected industry investors like John Frederiksen and Lingotto, who have recently increased their sector exposure, validates the timing and attractiveness of this cyclical investment opportunity in energy services.

Pitch Summary:
Here, we've been drawn toward a series of more cyclical companies in the early stages of emerging from a more favorable supply environment, specifically in the offshore drilling space. In particular, Tidewater (NYQQ: TDW), Valaris (NYQQ: VAL), and Schlumberger NV (NYQQ: SLB) stand out. These companies have qualities that we like. The stocks are cheap, balance sheets are strong, and the supply backdrop is becoming more favorable with fewer operating rigs in the marketplace, and significantly less competitive pressure from fracking, etc. than the start of the previous cycle. Tidewater and Valaris have fallen to around half of their 5-year stock price highs (TDW: $53 now vs. $107 at its high, VAL: $45 vs. $80). Even Schlumberger has fallen by a third ($42 vs. $61) while the global fleet of offshore rigs has almost halved over the last decade (to roughly 150 today). The restricted supply should result in higher day rates and higher margins as old contracts re-price in the coming years. Of note is the long lead times to bring on additional capacity in this industry (3 years for the average new vessel), which means that today's current tight supply will last for the foreseeable future. We are particularly encouraged by management's aggressive tilt toward shareholder-friendly policies and the fact that numerous industry "insiders" we trust, like investor John Frederiksen and investment management company Lingotto, have put equity capital into this industry in recent quarters.

BSD Analysis:
GDS Investments views Valaris as an attractive cyclical play benefiting from a fundamentally improved offshore drilling market structure. Trading at $45 versus a five-year high of $80, Valaris offers significant upside potential as the offshore drilling sector emerges from a prolonged downturn. The manager highlights that the global offshore rig fleet has contracted by nearly 50% over the past decade, creating a supply-constrained environment with reduced competitive pressure from onshore fracking. This supply discipline, combined with three-year lead times for new rig construction, ensures sustained pricing power as day rates and margins improve during contract repricing cycles. Strong balance sheets and shareholder-friendly capital allocation policies enhance the investment appeal. The validation from respected industry investors like John Frederiksen and Lingotto, who have recently deployed capital in the sector, provides additional confidence in the timing and quality of this cyclical opportunity.

Pitch Summary:
Here, we've been drawn toward a series of more cyclical companies in the early stages of emerging from a more favorable supply environment, specifically in the offshore drilling space. In particular, Tidewater (NYQQ: TDW), Valaris (NYQQ: VAL), and Schlumberger NV (NYQQ: SLB) stand out. These companies have qualities that we like. The stocks are cheap, balance sheets are strong, and the supply backdrop is becoming more favorable with fewer operating rigs in the marketplace, and significantly less competitive pressure from fracking, etc. than the start of the previous cycle. Tidewater and Valaris have fallen to around half of their 5-year stock price highs (TDW: $53 now vs. $107 at its high, VAL: $45 vs. $80). Even Schlumberger has fallen by a third ($42 vs. $61) while the global fleet of offshore rigs has almost halved over the last decade (to roughly 150 today). The restricted supply should result in higher day rates and higher margins as old contracts re-price in the coming years. Of note is the long lead times to bring on additional capacity in this industry (3 years for the average new vessel), which means that today's current tight supply will last for the foreseeable future. We are particularly encouraged by management's aggressive tilt toward shareholder-friendly policies and the fact that numerous industry "insiders" we trust, like investor John Frederiksen and investment management company Lingotto, have put equity capital into this industry in recent quarters.

BSD Analysis:
GDS Investments presents a compelling cyclical opportunity in Tidewater, capitalizing on a dramatically improved supply-demand dynamic in offshore drilling. The manager emphasizes that Tidewater trades at approximately half its five-year high ($53 vs $107), while the global offshore rig fleet has nearly halved over the past decade to roughly 150 vessels. This supply restriction, combined with reduced competitive pressure from fracking compared to previous cycles, creates a favorable pricing environment for day rates and margins as contracts reprice. The three-year lead time for new vessel construction ensures the current tight supply will persist, providing sustained pricing power. Strong balance sheets and shareholder-friendly management policies further enhance the investment thesis. The manager gains additional confidence from respected industry insiders like John Frederiksen and Lingotto making recent equity investments, validating the sector's attractiveness at current valuations.

Pitch Summary:
To that end, we are continuing to hold onto our relatively new position in Nike. We wrote in more detail about the appeal of Nike Inc. (NYQQ: NIKE) in our October 2024 letter, and if anything, we are even more encouraged. Nike offers a classic example of a fundamentally strong company riding through a rough patch, causing the market to unfairly discount its value. Admittedly, Nike is not facing an easy fix. Nike's poor handling of the distribution side of its business over the last few years was a genuine mistake. They cut off ties with retailers because they (under previous leadership) felt they could build their online business (Nike Direct) and simply cut out the middleman. Initially, this effort seemed to yield promising results. However, over time, reduced physical availability made it harder for people to buy its products, and it began to lose brand relevance as it lost shelf space to competitors; hence the market devaluing the stock. Nike is under new leadership now: newly installed CEO Elliott Hill, a former insider has already begun a series of initiatives designed to restore Nike's prominence in stores, leveraging his pre-existing relationships. He's trying to restore Nike's culture (he has vowed to "put sport back at the center of everything we do"), rebuild relationships with both retailers and stewards of the brand, and put more emphasis on groundbreaking product development. On that last point, John Hoke, Nike's chief of innovation, has said he is focused on apparel and footwear that "will blow athletes' minds and shock the world of sports." He cites the example of active wear that can, for example, adjust to whether the wearer is running up- or downhill. We were already confident in Nike's ability to outperform its current pricing, this newfound focus on rebuilding relationships and restoring Nike's old culture (the one that once made it the dominant market leader worldwide) has given us even more enthusiasm for the position.

BSD Analysis:
GDS Investments maintains a bullish stance on Nike, viewing it as a fundamentally strong company temporarily discounted due to distribution missteps under previous leadership. The manager highlights Nike's strategic error of cutting retailer relationships to focus on direct-to-consumer sales, which ultimately reduced physical availability and brand relevance. Under new CEO Elliott Hill, a company insider, Nike is implementing a turnaround strategy focused on restoring retail relationships, rebuilding company culture around sports, and emphasizing innovative product development. The manager is particularly encouraged by Nike's focus on groundbreaking technology, such as adaptive activewear that responds to running conditions. This represents a classic value opportunity where temporary operational challenges have created an attractive entry point for a dominant global brand with strong fundamentals. The manager's increased enthusiasm suggests confidence in the new leadership's ability to execute the turnaround and restore Nike's market position.

Pitch Summary:
Kinaxis delivered a strong quarter that underscored its leading position in supply chain orchestration and growing relevance in a world of increasing supply and demand volatility. Revenue growth accelerated to 16%, a 5-percentage point acceleration compared to the previous quarter. This was fuelled by a record number of new business wins and performance across all regions. To better capture the value of its evolving architecture and AI product offering, the company introduced a new usage-based pricing model on top of recurring subscription fees. The new pricing model creates potential for further revenue growth acceleration while keeping costs constant, which bodes well for the company's outlook on profitability. With a record pipeline and a win rate exceeding 60% against legacy competitors, Kinaxis remains well positioned to lead the transition toward agentic supply chain management.

BSD Analysis:
The fund manager presents a compelling bull case for Kinaxis based on accelerating revenue growth and strong competitive positioning. The 16% revenue growth represents a significant 5-percentage point acceleration, driven by record new business wins across all regions. The introduction of a usage-based pricing model alongside recurring subscriptions creates an attractive revenue expansion opportunity while maintaining cost discipline, potentially driving margin expansion. The company's 60%+ win rate against legacy competitors demonstrates clear competitive advantages in supply chain orchestration software. With supply chain volatility increasing globally, Kinaxis appears well-positioned to capitalize on growing demand for AI-powered supply chain management solutions. The record pipeline suggests sustained growth momentum ahead.

Pitch Summary:
Catapult provided a positive trading update ahead of its FY26 results in May, alongside an investor day that reinforced management's long-term ambitions, including a pathway to US$1 billion in ACV. FY26 ACV is expected to grow 27–28% to US$133–134 million on a constant currency basis, inclusive of the recently acquired IMPECT. Adjusting for acquisitions, underlying growth appears broadly consistent with prior periods, an encouraging sign that momentum in the core business remains intact. This strength is increasingly flowing through to profitability, with EBITDA expected to rise by ~50% year-on-year and the Rule of 40 improving sequentially from the 33% reported in the first half. Having recently inflected to free cash flow positive, the second half appears softer from a cash flow perspective, driven primarily by weaker collections following the integration of recent acquisitions. At the same time, share-based compensation has stepped up due to equity issued to IMPECT's founders as retained employees, complicating the near-term path to accounting profitability. Stepping back, we view these dynamics as temporary, with underlying fundamentals remaining intact and the business in a strong financial position, debt-free and with approximately US$50 million in cash.

BSD Analysis:
The manager remains bullish on Catapult following positive trading updates and management's ambitious long-term target of US$1 billion in Annual Contract Value. FY26 ACV growth of 27-28% to US$133-134 million demonstrates strong momentum, with underlying organic growth remaining consistent despite recent acquisitions. The company is showing impressive operational leverage with EBITDA expected to rise ~50% year-over-year and improving Rule of 40 metrics from 33% in the first half. While near-term cash flow dynamics appear softer due to acquisition integration and elevated share-based compensation from IMPECT founders, the manager views these as temporary headwinds. The company's debt-free balance sheet with approximately US$50 million in cash provides financial flexibility. The manager emphasizes that underlying business fundamentals remain strong despite short-term accounting complexities.

Pitch Summary:
Turning to Fineos, which recently held an investor day that reaffirmed our conviction and outlook for the business. Management confirmed that their previously shared financial guidance remains firmly on track, with a solid pipeline of deals and an improving margin outlook. A key takeaway from the event was the need for insurance carriers to move off from fragmented legacy systems to leverage AI effectively, providing a nice demand tailwind for modern platforms like Fineos. The company's growth trajectory is particularly attractive because it is increasingly tied to the volume of insurance premiums managed on the platform. As existing clients migrate their legacy books of business to the cloud, Fineos captures a natural and predictable path of revenue expansion without the need for large wins to meet targets. While the company continues to win new clients, its ability to hit and exceed growth targets is increasingly supported by deepening relationships with system integrators. These partnerships have matured significantly, allowing Fineos to scale its implementation capacity and reach smaller to mid-sized deals efficiently while maintaining a clear focus on long term unit economics.

BSD Analysis:
The fund manager maintains strong conviction in Fineos following an investor day that confirmed the company's financial guidance trajectory. The investment thesis centers on the structural shift in insurance carriers moving from legacy systems to modern cloud platforms to effectively leverage AI capabilities. Fineos benefits from a particularly attractive revenue model tied to insurance premium volumes, creating predictable expansion as existing clients migrate their legacy business to the platform. The company's growth strategy has evolved beyond relying solely on large new client wins to include deepening relationships with system integrators. These partnerships enable Fineos to efficiently scale implementation capacity and target smaller to mid-sized deals while maintaining disciplined unit economics. The manager views this as a sustainable competitive advantage in the insurance technology space.

Pitch Summary:
During Q1, we initiated a position in Flowers Foods (Ticker: FLO 2.45%↑) at $8.50 per share. Flowers is a 107-year-old consumer staples company best known for its packaged bread portfolio, including Nature's Own, Wonder, and Dave's Killer Bread. More recently, the company expanded into better-for-you snacks through the $795M acquisition of Simple Mills in early 2025. The stock declined from roughly $30 in late 2022 to our purchase price—a 72% drawdown. The selloff has clear drivers: structural pressure in the bread category, intensifying private label competition, incremental leverage from the Simple Mills acquisition, and a $136M non-cash impairment charge that depressed reported earnings. These are real challenges. We believe, however, the market has overcorrected, creating a dislocation between price and underlying asset value. Flowers is the second-largest packaged bread manufacturer in the U.S., behind Grupo Bimbo, forming a functional duopoly in a category with meaningful barriers to entry. The most important of these is its direct-store-delivery (DSD) network: nearly 6,000 distributor territories where independent operators own exclusive rights to deliver and merchandise products. This infrastructure is difficult to replicate and costly to rebuild. Importantly, the DSD network has observable private market value. Approximately 4,784 routes have been sold to independent distributors, with transaction comps implying roughly 14.5x average weekly sales. Applying a conservative $65,000 per route yields approximately $311M of embedded value that we believe is underappreciated by the market. Our sum-of-the-parts analysis applies similarly conservative assumptions. Core branded bakery is valued at 8x EBITDA, a discount to both public peers and recent food M&A. Dave's Killer Bread is valued at $600M, below 1x sales despite significant growth since acquisition. Manufacturing is valued at $600M, below replacement cost and modestly below book value. Simple Mills is carried at $600M in our analysis, a deliberate discount to the $795M acquisition price. Aggregating these components—core bakery ($2.72B), Dave's ($600M), Simple Mills ($600M), manufacturing ($600M), and DSD network ($311M), less $1.73B in net debt—yields approximately $3.10B in equity value, or $14.71 per share. This implies 73% upside from our entry price based on asset value alone. The primary near-term risk is the October 2026 debt maturity, which management expects to address through refinancing. Importantly, the business has remained structurally profitable for nearly two decades and maintains a consistent dividend track record. From current levels, even modest operational improvement represents incremental upside to an already asset-backed valuation.

BSD Analysis:
The manager initiated Flowers Foods at $8.50 following a 72% decline from $30, viewing the selloff as an overcorrection that created a significant dislocation between price and asset value. The 107-year-old company operates as the second-largest packaged bread manufacturer in a functional US duopoly with meaningful barriers to entry through its direct-store-delivery network of nearly 6,000 distributor territories. The manager's sum-of-the-parts analysis values the DSD network at $311 million based on observable private market transactions, applying conservative assumptions across all business segments including core bakery at 8x EBITDA and recent acquisitions below purchase price. The analysis yields $14.71 per share in equity value, implying 73% upside from entry price based purely on asset value. While acknowledging real challenges including structural bread category pressure and leverage from the Simple Mills acquisition, the manager emphasizes the company's two-decade track record of structural profitability and consistent dividend payments. The October 2026 debt maturity represents the primary near-term risk, though management expects to address this through refinancing.

Pitch Summary:
We initiated a significant position in PayPal (Ticker: PYPL 0.17%↑) at $39.84 per share. We first looked at the company in late 2023, shortly after Alex Chriss became CEO, when shares were near $60. The business had most of what we look for, but the valuation did not meet our margin of safety threshold. The roughly 40% price decline since then created a price we found compelling. The market is pricing PayPal as a business in structural erosion. That conclusion is not supported by the fundamentals. The company generates $5.6 billion in annual free cash flow, earns returns on invested capital above 20%, and yields roughly 15% on free cash flow at our purchase price. Q4 2025 results triggered the sell-off: branded checkout growth decelerated from roughly 5% to 1%, and management withdrew its multi-year outlook. The stock fell more than 20%. The market read this as confirmation of structural decay. We looked closer and disagreed. Much of the slowdown was intentional. Management deliberately shed low-margin PSP volume that had been inflating Braintree's top-line growth while contributing little to profitability. Unbranded processing volume growth fell from roughly 29% in 2023 to about 2% in Q4 2025 as a direct result. That shift made the revenue picture look worse than the underlying economics. Transaction margin dollars grew 8% and the margin rate expanded 274 basis points to 47.7%. PayPal chose margin over volume. Investors punished the optics. The business improved. Branded checkout weakness added a separate layer: softer spending among lower- and middle-income consumers, European headwinds, and deceleration in certain Asian corridors driven by tariff uncertainty. These are real pressures, and cyclical ones. They do not change the fact that the core platform continues to generate significant cash while improving its unit economics. The prevailing bear case frames PayPal as a legacy platform being displaced by rising competition. This oversimplifies a more durable reality. Payments is not a winner-take-all market — it is fragmented, multi-modal, and large enough to support multiple scale players. PayPal's global footprint has compounded a dataset on fraud, behavior, and conversion over two decades that is genuinely difficult to replicate. The competitive threat from Apple Pay and Google Pay is frequently overstated. Both originated as NFC tools designed for in-person transactions, a fundamentally different use case than e-commerce checkout. PayPal has spent two decades embedding itself into merchant infrastructure that these platforms are still working to penetrate. What the bear case consistently omits is Venmo. The platform processes more than $250 billion in annual volume with monetization still well below its earnings power potential. A 10-basis-point improvement in effective take rate alone would generate roughly $250 million in incremental high-margin revenue. Current multiples assign it almost no credit. Our analysis across EPV, SOTP, and DCF methodologies converges on meaningful upside from current prices, with our base case suggesting intrinsic value meaningfully above $60 per share. Downside is protected by a net cash balance sheet and $5.6 billion in annual free cash flow. The business does not need to grow to generate attractive returns from these levels.

BSD Analysis:
The manager initiated PayPal at $39.84 after a 40% decline created compelling valuation, viewing the market's structural erosion thesis as fundamentally flawed. The company generates $5.6 billion in annual free cash flow with 20%+ ROIC and yields 15% on free cash flow at purchase price. Management's deliberate shedding of low-margin PSP volume improved unit economics despite creating poor revenue optics, with transaction margin dollars growing 8% and margin rates expanding 274 basis points to 47.7%. The manager argues PayPal's two-decade dataset on fraud and behavior creates durable competitive advantages that Apple Pay and Google Pay cannot easily replicate, as those platforms focus on different use cases. Venmo represents significant untapped monetization potential with $250 billion in annual volume, where a mere 10 basis point take rate improvement would generate $250 million in incremental revenue. The manager's valuation analysis across multiple methodologies suggests intrinsic value above $60 per share, representing 50%+ upside from entry price. Downside protection comes from the net cash balance sheet and substantial free cash flow generation.

Pitch Summary:
As the largest position in the fund (50%) we need to discuss Alibaba's latest earnings, which left us genuinely conflicted. On the one hand, the earnings demonstrated the company's strength in Cloud, which grew 36% year-over-year, accelerating from 29% last quarter. In tandem, Alibaba is moving towards aggressive monetization of its AI portfolio by shifting from open-source to a proprietary paid enterprise model for its high-end tools: Owen3.6-Plus. All of this is good news as it reflects significant momentum in cloud computing and monetization potential for AI products. However, Alibaba's foray into the quick commerce price war with Meituan and JD.com is proving to be extremely costly without any indication of financial return to date. China e-commerce adjusted EBITA declined 43% year-over-year, with sales and marketing expenses jumping from 15.2% to 25.3% of consolidated revenue. While management has repeatedly framed quick commerce losses as strategic and temporary, there was no quantifiable framework for evaluating the progress of the initiative. Per-order economics were not disclosed. Contribution margin trajectory was not provided. The 1% growth in customer management revenue against double-digit MAU growth implies subsidy-driven user acquisition rather than genuine ecosystem engagement. We also found management's commentary during the earnings call to be unsatisfactory. In our 2024 article, Selling StoneCo Ltd. (STNE), we discussed how besides considering financial operations, we also closely monitor the way management communicates with shareholders as an indication of credibility and high-quality leadership. In business communication, jargon and euphemism are often used to present reality in the most favorable light. There are times, however, that what is unsaid is more revealing than what is, and it takes a certain qualitative instinct to read that subtext. This quarter, that instinct was triggered. We identified four specific red flags: The $100 billion self-contradiction. Management guided $100 billion in combined cloud and AI revenue over the next five years while simultaneously arguing the AI industry evolves too rapidly to forecast. When an analyst pressed for a CAGR to anchor the target, CEO Eddie Wu responded: "use your calculator." A five-year target with no interim milestones and no underlying growth framework is a marketing statement, not a financial commitment. Ten quarters of growth, zero numbers disclosed. Management has cited triple-digit AI revenue growth for ten consecutive quarters yet has never disclosed an absolute figure. The term "AI-related products" is not an industry-standard definition, leaving investors unable to independently verify what is even being measured. After more than two years of explosive growth, the continued absence of a dollar figure is a choice, not an oversight. It is one we intend to scrutinize closely in the quarters ahead. Free cash flow turned negative. Nine-month free cash flow reached negative $4.2 billion, against positive $10.0 billion in the same period last year — a swing of over $14 billion in a single year. Buybacks are now being funded from the balance sheet rather than from earnings. While the balance sheet provides ample runway ($42.5 billion in net cash), this signals a fundamentally different capital allocation posture than the one we underwrote initially. Where is Joseph Tsai? Chairman Tsai was listed as a call participant and said nothing. In prior quarters he served as the primary voice on capital allocation, buybacks, and shareholder returns. This quarter, the entirety of shareholder return commentary was reduced to a single line: "we are reinvesting our cash flow." For Western minority shareholders holding ADSs in a VIE structure, management's voluntary commitment to capital return is our primary governance mechanism. Its complete absence at the precise moment free cash flow turned negative was the most concerning signal of the quarter. One meaningful post-earnings development: Chinese regulators have reportedly intervened to end the food delivery price war, a catalyst that should accelerate quick commerce profitability. In China, we note that government risk is not an outlier event, it is a permanent condition requiring ongoing analytical judgment. We remain committed to the cloud thesis and ecosystem optionality, while closely tracking the concerns outlined above. Disclosure: We actively traded Alibaba shares during the quarter, selling at ~$155 per share and repurchasing heavily under $130 per share. Alibaba remains our largest position in the fund to date.

BSD Analysis:
The manager presents a conflicted view on Alibaba, acknowledging strong cloud growth of 36% year-over-year and AI monetization progress while expressing serious concerns about management credibility and capital allocation. The fund's largest position (50%) faces headwinds from costly quick commerce price wars that drove e-commerce EBITA down 43% and sales/marketing expenses from 15.2% to 25.3% of revenue. Management's communication raised red flags including vague $100 billion AI/cloud guidance without interim milestones, failure to disclose absolute AI revenue figures despite claiming triple-digit growth for ten quarters, and negative free cash flow of $4.2 billion versus positive $10 billion previously. The absence of Chairman Joseph Tsai from capital allocation discussions coinciding with negative free cash flow particularly concerned the manager. Despite these issues, regulatory intervention to end the food delivery price war provides a potential catalyst for profitability improvement. The manager remains committed to the cloud thesis while actively trading around the position, selling at $155 and repurchasing below $130.

Pitch Summary:
The other loser so far is Ondo Plc in the UK. The company's main product is called the LeakBot which they distribute through home insurers. The technology, which has a defensible patent, monitors the temperature of a residential main water line and the ambient air temperature surrounding the pipe. When no water is being used in the house for an extended period (like overnight), the water inside the pipe should naturally warm up and equalize with the room temperature. A slow leak, even one as small as five ml per minute, constantly draws in new water from the underground supply, which is colder than the indoor air. This constant flow prevents the pipe from ever warming up completely. The LeakBot uses algorithms that look for persistent, small temperature differences that repeat during "quiet" times. The company was started in the UK, where main water lines are actually inside the house due to the potential for freezing. The company is currently working on a version of the LeakBot that works with exterior water mains, but it should take about a year to commercialize. The incidence rate of a non-weather-related water claim for home insurance companies is between 1% and 1.5%, and the average cost associated with those claims is roughly $15,000. Using just 1%, the expected loss for the insurer is about $150 per year. In the US, for a single-family home, the average premium is about $2,500 per year, so these leaks represent about 6% of premiums in the home insurance industry. So when a home insurance company can pay $60 per year (the cost of LeakBot monitoring) to detect these leaks, the return on investment is quite significant. At a 1% incidence rate, you can see that the ROI is 150%. The break-even point, where it doesn't really make sense for the home insurer to use LeakBot, is an incidence rate of below 0.4%. But when you look at the data across many different states and many different insurers, the incidence rate is at least 1%, even when you exclude roof leaks and non-pipe-related leaks. Another key thing to point out is that the company is trying to build out its own plumber network. The NPS scores for the LeakBot from homeowners are in the high 80's because they can install the device on their main water line in five minutes and then a plumber can come fix any pressurized leaks they have in their house – all for free. And the home insurance companies can save a boatload on water-related claims. It's the ultimate win-win-win. However, to send the devices to homeowners for free and build out a plumber network in advance takes a lot of money! The company is currently burning cash and will likely need to do another large raise at some point. Almost every losing investment I've ever had has been a cash burning company. So why do I think this one will be different? Well, I've spent an insane amount of time understanding the granular unit economics and I think they work (hopefully the thesis is still on track next quarter and I can dive into the nitty gritty in the next letter). Further, it's one of those businesses that gets much stronger as it gets larger. As the plumber density grows, the cost per visit decreases and the ROI for the insurers improves as more visits means more tangible evidence the LeakBots are actually catching small leaks. You can envision a scenario where LeakBots are in 10 million homes across the US and Ondo has more than 1,000 plumbers on staff. That would be like 20% of the coverage compared to the plumbing giant, Roto-Rooter. The short term is very dependent on getting to more than 300,000 registered customers as that is the breakeven point my math suggests. If that takes longer than a year, I would be hesitant that insurers are really seeing a strong ROI. That would be highly dependent on how many plumbers are in the field but management also doesn't want to dilute shareholders too much. It's a tricky balance but reflexivity is important here as it could get into a doom loop where a low share price means too much dilution to hire plumbers and therefore they can't deliver high ROI to insurance partners which means depressed unit sales and the business can't cover its fixed costs. But there is also a clear scenario where 10 million homes means $600 million in revenue at 20% margins on a $28 million market cap.

BSD Analysis:
The manager presents a detailed bull case for Ondo despite recent losses, highlighting the compelling unit economics of the LeakBot water detection system. The technology offers insurance companies a 150% ROI by paying $60 annually to prevent $150 in expected water damage claims, with break-even at just 0.4% incident rates versus actual 1%+ rates across markets. The business model creates a three-way value proposition: homeowners get free leak detection and repairs, insurers reduce claims costs, and Ondo builds a scalable plumber network. Key risks include cash burn and execution challenges in scaling to 300,000 customers for breakeven within 12 months. The manager acknowledges the pattern of cash-burning losers but believes granular unit economics support the thesis. Network effects strengthen the business as plumber density grows, reducing costs and improving insurer ROI. The bull case envisions 10 million homes generating $600 million revenue at 20% margins against a $28 million market cap, representing significant upside if execution succeeds.