Investment Pitches

Pitch Summary:
A good example is REA, the Australian real estate portal that allows real estate agents to match sellers with potential buyers. We first bought REA in the International Small Company portfolio at its inception in 2013 and added it to the International All Company strategy in 2020. At that time, we thought that REA fit the International All Company portfolio based on its industry and business model. In addition, we verified that REA had sufficient shares available for trading (by looking at float and average daily trading volume, among other things) so that we could build and exit a position without unduly affecting share prices. Finally, there's capacity. Brown Capital does not want to own too high a percentage of a company's total shares outstanding. Today, REA's market capitalization is around 28 billion AUD (or $19 billion USD) so we can have quite sizable positions in REA in both portfolios without owning too much of the company from a risk-management point of view.

BSD Analysis:
Brown Capital Management views REA Group as a prime example of their portfolio construction strategy, holding the Australian real estate portal in both their International Small Company and International All Company strategies. The manager emphasizes REA's strong business model as a digital marketplace connecting real estate agents with buyers and sellers. The company's substantial market capitalization of approximately $19 billion USD provides sufficient liquidity and capacity for meaningful position sizes across multiple portfolios. REA represents a successful graduation story, having been initially purchased in the Small Company portfolio in 2013 before being added to the All Company strategy in 2020. The manager's confidence is demonstrated through their willingness to maintain significant exposure across multiple strategies. The digital real estate platform benefits from network effects and market leadership in the Australian property market. Brown Capital's long-term holding period reflects their conviction in REA's durable competitive advantages and growth prospects.

Pitch Summary:
In industrials, we trimmed Illinois Tool Works and initiated a position in a similar high-quality diversified industrial franchise, Parker-Hannifin, a motion and control technologies company with growing aerospace and defense exposure currently representing about 40% of the business. While both companies are high-quality diversified industrial franchises, the latter has been able to grow faster by pivoting toward a longer-cycle A&D business, yet its stock continues to trade at a discount relative to its peers.

BSD Analysis:
The manager initiated Parker-Hannifin as a replacement for Illinois Tool Works, viewing both as high-quality diversified industrial franchises but preferring Parker-Hannifin's superior growth profile. The company's motion and control technologies business benefits from significant aerospace and defense exposure, representing approximately 40% of operations and providing longer-cycle, more predictable revenue streams. This strategic pivot toward A&D markets has enabled faster growth compared to traditional industrial peers while maintaining the defensive characteristics of diversified industrial operations. Despite this superior growth trajectory and strategic positioning, the stock continues trading at a discount to peer valuations, creating an attractive entry opportunity. The manager values the combination of high-quality franchise characteristics, accelerated growth through A&D exposure, and relative valuation discount. The longer-cycle nature of aerospace and defense contracts provides more visibility and stability compared to shorter-cycle industrial end markets, supporting sustainable growth and margin expansion over time.

Pitch Summary:
In IT, we bought Broadcom as we believe the company has a long runway for growth with its custom silicon business, which should be more durable and less volatile than other components within the AI food chain. We also believe the acquisition of VMware creates another opportunity for steady, subscription-based durable growth that is still in its early innings. We believe the stock has an attractive risk/reward profile given the reasonable visibility toward mid-teens EPS growth at a low-20s P/E multiple.

BSD Analysis:
The manager initiated a position in Broadcom, attracted by the company's differentiated positioning within the AI ecosystem through its custom silicon business. Unlike other AI-related components, Broadcom's custom silicon offering is viewed as more durable and less volatile, providing sustainable competitive advantages. The VMware acquisition adds another growth vector through steady, subscription-based revenue streams that are still in early development stages. The manager sees significant runway for both business segments to drive long-term growth. The investment case is supported by reasonable visibility toward mid-teens EPS growth, which appears attractive when combined with the stock's low-20s P/E multiple valuation. This combination of growth visibility and reasonable valuation creates what the manager views as an attractive risk-reward profile. The dual growth engines of custom silicon and VMware's subscription model provide diversified exposure to technology trends while maintaining more predictable revenue characteristics than typical semiconductor cyclicality.

Pitch Summary:
Starbucks is an iconic global coffee roaster brand with a deep-rooted heritage of communal experience centered around coffee consumption. From the business standpoint, it offers attractive exposure to breakfast/morning food and beverage consumption, which tends to be stickier and more habitual. While the company has been going through a challenging period operationally, we think new CEO Brian Niccol brings enormous credibility supported by a long and successful career that includes impressive turnarounds at Taco Bell and Chipotle. Niccol's operational expertise gives us confidence he can improve the customer experience while restoring business profitability by taking Starbucks to its successful roots. We think the stock offers very good value for what the business is capable of on a normalized basis.

BSD Analysis:
The manager views Starbucks as an iconic global brand with deep-rooted heritage and strong positioning in the sticky breakfast and morning consumption category. Despite recent operational challenges, the appointment of new CEO Brian Niccol provides significant confidence in a successful turnaround. Niccol's proven track record of impressive turnarounds at Taco Bell and Chipotle demonstrates his operational expertise and ability to restore profitability while improving customer experience. The manager believes Niccol can return Starbucks to its successful operational roots, leveraging the brand's inherent strengths in communal coffee experiences. The investment thesis centers on the disconnect between current valuation and the business's normalized earnings potential under improved management. The combination of a world-class brand, defensive consumption characteristics, and proven turnaround leadership creates an attractive risk-reward opportunity. The manager sees significant value creation potential as operational improvements restore the company's historical performance levels.

Pitch Summary:
Skepticism over the consumer has left some high-quality stocks with depressed valuations and allowed us to reduce our consumer discretionary underweight with the addition of O'Reilly Automotive and Starbucks. While we have been cautious on retailers for quite some time, auto parts retailer O'Reilly is a best-in-class, high-quality operator with high returns on invested capital and a solid history of consistent execution and sustainable share gain, and it enjoys rational competitive dynamics in the broader industry. In addition, auto parts retailing carries some counter-cyclicality as consumers tend to hold on to their cars longer, requiring more repair and maintenance, during softer economic environments. We think a high-quality franchise like O'Reilly trading at a reasonable valuation in an otherwise expensive market is worth our attention and we initiated a starter position.

BSD Analysis:
The manager initiated a position in O'Reilly Automotive, capitalizing on consumer skepticism that has created attractive valuations in high-quality retail names. Despite historical caution on retailers, O'Reilly stands out as a best-in-class operator with exceptional returns on invested capital and a proven track record of consistent execution and sustainable market share gains. The company benefits from rational competitive dynamics within the auto parts industry, providing a more stable operating environment than typical retail sectors. The counter-cyclical nature of auto parts retailing offers defensive characteristics, as economic softness typically leads consumers to extend vehicle ownership, driving increased repair and maintenance spending. The manager views the combination of high-quality franchise characteristics and reasonable valuation as compelling in an otherwise expensive market environment. The starter position reflects confidence in the long-term investment merits while acknowledging the initial cautious approach to retail exposure.

Pitch Summary:
Air Products and Chemicals (APD) has also made strong contributions recently, delivering operationally and announcing a major offtake agreement for its NEOM green hydrogen project in June. Strong fundamentals for APD are shining through a soft Chinese industrial economy, and it continues to shore up the strength of its core industrial gases franchise, committing to not invest additional capital on big projects until they soak up existing capacity, putting a management structure in place to allow for more accountability and announcing board-initiated succession planning that will help built investor confidence for the future. The company is also tightening up its operational focus by divesting non-core assets and streamlining operations.

BSD Analysis:
The manager expresses strong confidence in Air Products and Chemicals, highlighting recent operational delivery and strategic progress. The major NEOM green hydrogen offtake agreement represents significant validation of the company's hydrogen strategy and future growth potential. Despite headwinds from a soft Chinese industrial economy, APD's strong fundamentals continue to shine through, demonstrating the resilience of its core industrial gases franchise. Management's disciplined capital allocation approach, including the commitment to absorb existing capacity before new investments, shows prudent financial stewardship. The implementation of enhanced accountability structures and board-initiated succession planning addresses governance concerns and builds investor confidence. The company's operational focus through non-core asset divestitures and streamlined operations positions it for improved efficiency and returns. This combination of strategic progress, operational excellence, and disciplined capital management supports the bullish investment case.

Pitch Summary:
Despite these stock-specific headwinds, we're confident our portfolio continues to own high-quality franchises able to generate excess returns in various economic environments. Sherwin-Williams, for example, has seen its shares rise even while its end markets have not really recovered. As the Fed raised rates aggressively to combat inflation, existing homes turnover came to a halt. Turnover of existing housing stock is Sherwin-Williams's bread and butter business as homeowners typically paint as they are ready to sell and new owners repaint when they buy. Despite slow end market demand and because Sherwin-Williams is a best-in-class operator, it continues to execute well and gain share, taking advantage of some disarray among competitors, allowing it to hold on to pricing and benefit from some raw material deflation.

BSD Analysis:
The manager highlights Sherwin-Williams as an exemplary high-quality franchise capable of generating excess returns across economic cycles. Despite challenging end markets due to halted housing turnover from aggressive Fed rate hikes, the company has demonstrated resilience with rising share prices. The manager emphasizes Sherwin-Williams' best-in-class operational execution, enabling market share gains amid competitor disarray. The company has successfully maintained pricing power while benefiting from raw material cost deflation, showcasing strong margin management. The investment thesis centers on the company's ability to outperform even when its core housing turnover market remains depressed. This operational excellence and competitive positioning are viewed as sustainable advantages that will drive long-term value creation regardless of housing market conditions.

Pitch Summary:
In a similar case of post-COVID market normalization, drug distributor McKesson lowered profit guidance for its medical-surgical business twice during the period, most likely due to continued post-COVID headwinds as primary care sites are consuming less of its equipment, while its prescription technology solution segment is tied to volumes of certain high-value specialty drugs. We still believe McKesson's core pharma distribution business is very healthy, however, and it is ramping up its Optum contract in the second half of the year, while its most recent oncology practices acquisition should be accretive over the long term, enabling McKesson to continue delivering low-double-digit earnings growth without much economic sensitivity.

BSD Analysis:
The manager remains bullish on McKesson despite recent guidance cuts in the medical-surgical segment, attributing weakness to post-COVID normalization rather than structural issues. The core pharmaceutical distribution business is viewed as healthy and resilient. Key growth drivers include the ramping Optum contract in the second half and recent oncology practice acquisitions expected to be accretive long-term. The manager emphasizes McKesson's ability to deliver low-double-digit earnings growth with minimal economic sensitivity, highlighting the defensive characteristics of the pharma distribution model. The temporary headwinds in medical-surgical equipment and specialty drug volumes are seen as cyclical rather than permanent impairments. The investment case rests on the stability and growth potential of the core distribution franchise, supported by strategic contract wins and accretive acquisitions in higher-margin oncology services.

Pitch Summary:
In the information technology (IT) sector, Intel has come under additional pressure due to continued softness in the company's core PC and server markets as well as concerns on the company's longer-term competitive position. While Intel's turnaround is not happening overnight, we are constructive on the outlook into 2025: the company's product positioning should be much improved and it should be positioned to gain market share in a cyclical upswing in which it has strong earnings power. A somewhat adverse spending environment due to AI myopia has weighed on shares, but we still think the market is undershipping PCs and general servers following a COVID normalization period that saw demand get pulled ahead and then languish as companies froze IT budgets. The installed base is now getting older, and we expect a strong refresh cycle into next year. The delay is actually beneficial to Intel, whose product positioning will be all the more improved. While our investment case is not predicated on an M&A transaction, and we believe one is unlikely, the expression of interest in the company speaks to the value of the assets, which we think still trade at a meaningful discount to fair value.

BSD Analysis:
The manager maintains a constructive view on Intel despite near-term headwinds in PC and server markets. The investment thesis centers on an anticipated cyclical recovery in 2025 driven by an aging installed base requiring refresh cycles. The manager believes Intel's product positioning will significantly improve by next year, positioning the company to gain market share during the expected upturn. Current weakness is attributed to post-COVID demand normalization and AI-related spending shifts rather than fundamental deterioration. The manager views the stock as trading at a meaningful discount to fair value, with the delay in recovery actually benefiting Intel's competitive positioning. While not banking on M&A activity, recent acquisition interest validates the underlying asset value. The pitch reflects confidence in Intel's earnings power during cyclical upswings despite acknowledging the turnaround timeline extends beyond immediate quarters.

Pitch Summary:
Woodward is a mission-critical supplier of components and systems used in the aerospace and industrial sectors. We believe aerospace is one of the most attractive segments of the global economy. The company has a unique growth story within this industry. Design wins have allowed it to triple the dollar value of the components it manufactures for the new generation of narrowbody aircraft—predominantly the Airbus A320neo and the Boeing 737 Max. Narrowbody aircraft are the backbone of commercial aviation, flying most domestic routes as well as shorter international ones. Because it takes decades for the global fleet to turn over, the economic impact of these wins on aftermarket revenue has scarcely begun. These share gains should allow Woodward to outgrow competitors during the next decade and post EPS growth in the mid-to-high-teens. In addition, its earnings mix should improve over time as it becomes more concentrated in the aerospace aftermarket. This may cause investors to give it a premium valuation. Despite this outlook, Woodward trades at a discount to peers at a low 20s multiple of 2025 free cash flow. We estimate that 70% of Woodward's profit next year will come from aerospace and 30% from industrial. Within aerospace, 57% of segment profit comes from commercial aftermarket, 13% from new commercial aircraft, and 30% from defense. Aerospace is an attractive end market. The demand side exhibits growth well above that of the overall economy. From 1970-2020, global passenger traffic grew at a 6% CAGR. This increase was driven by a rising global middle class, the continued buildout of global airport infrastructure, and the expansion of low-cost airlines. Despite this growth, nearly 80% of the world's population has never flown on an airplane. The supply side exhibits strong moats supported by technical differentiation, regulation, and 20-year platform cycles. Components must be certified by the FAA, and leasing companies also have strict mandates. These forces lead to strong pricing power. Woodward supplies critical engine components to both CFM, a joint venture between GE and Safran, and Pratt & Whitney. These products include fuel pumps, fuel metering units, actuators, air valves, fuel nozzles, and thrust reverser actuation systems. In essence, Woodward's components support the nervous system of an airplane, translating pilot inputs into precise mechanical actions and ensuring that all parts work together smoothly. Woodward's products are typically sole-sourced, meaning it is the only company supplying the part once a system is selected for a plane or engine. The company makes modest profits selling the original equipment and higher margins selling replacement parts. Because a given model is sold for two decades, this translates to a more than 40-year aftermarket period over the platform's life, resulting in high predictability and pricing power. Woodward's technical capabilities in engine controls are unmatched. Our diligence indicates that GE tried to insource some of these capabilities but could not match Woodward's technical prowess. Pratt & Whitney uses several Woodward parts even though its sister company, Collins, sells competing ones. Within its industrial segment, Woodward sells into three primary end markets: 1) transportation (marine, natural gas trucks, and off-highway equipment), 2) power generation (natural gas turbines and diesel power systems), and 3) oil & gas. Woodward's tripling of its content share on the new generation of narrowbody aircraft is a unique growth driver versus industry peers. Current financials understate the company's potential earnings power because new generation aftermarket revenue has yet to come in, a dynamic that is about to change. The early A320neo and 737 Max aircraft are just beginning their initial scheduled engine overhauls. Over the next decade, Woodward should durably outgrow its market as older aircraft retire and the fleet transitions to this new generation. Aerospace industry aftermarket revenue should grow high single digits over time, comprised of ~4-5% passenger traffic and 3-4% price. On top of this, Woodward's content gains should contribute another 5%, leading to low double-digit civil aerospace aftermarket growth. This aftermarket revenue growth comes with attractive incremental margins, likely 45% or higher. Compared to aerospace segment margins of ~20% and overall company operating margins of ~15%, this mix shift should lead to significant margin expansion. We expect aerospace segment margins to expand from ~20% to ~28% over the next decade, with overall company margins increasing from ~15% to 23%. There is further margin upside from additional pricing actions, which we believe are a core focus of Woodward's new management team. Over time, we expect aerospace's contribution to Woodward's earnings to increase from 70% to more than 80%, and aftermarket to shift from 57% of aerospace profit to 70%. This increase in aerospace aftermarket exposure should reasonably lead to multiple expansion. The public markets have rewarded commercial aftermarket-focused companies like Transdigm, GE, and Heico with high multiples, which trade at 32x, 32x, and 60x EPS, respectively. Eagle initially invested in Woodward during the early stages of the pandemic. The stock market extrapolated a temporary travel disruption as a permanent situation. Later, the company faced supply-chain disruptions and inflation shocks that pressured its P&L and further pushed out its recovery. These challenges had little impact on our view of its long-term earnings power, enabling Eagle to build our position. Because Woodward is relatively underfollowed, it has occasional stock price dislocations, which can offer good opportunities. For example, the stock declined more than 15% on a soft earnings report in the most recent quarter, and we were able to add more to our investment. With Boeing machinists recently on strike, we would not be surprised to see aftershocks from that disruption. None of this should affect multiyear earnings. Woodward is transitioning from a good business to a great business. It was once a company that, when compared to peers, grew its aerospace business in-line, had more exposure to industrial end markets, had below-average margins, and had correspondingly higher earnings volatility. It deserved to trade at a discount. Looking forward, we expect its aerospace segment to grow at a premium to peers. Industrial end markets will become less relevant, margins will significantly rise, and earnings volatility will decline. It shares commonalities with our investments in Marriott and Hilton as they transitioned from more volatile and capital-intensive businesses to the high-growth, high-margin fee companies they are today. In 2022, Woodward brought on CEO Chip Blankenship, who we believe is an excellent fit. He is well-suited to maximize the company's long-term opportunity, both operationally and financially. He has a successful track record in aerospace and industrial businesses, having spent 24 years at GE and leading its commercial aviation division. Blankenship has meaningfully improved Woodward's operations and commercial execution, particularly around pricing, which had underperformed under prior leadership. He has also driven lean manufacturing practices to reduce unnecessary SKUs and create more consistency in the production process, an emphasis that has yielded strong results. Aerospace segment margins increased by approximately 400 basis points from 2022-2024, and industrial margins increased by more than 800. We expect Blankenship to continue these initiatives, driving further margin upside. He recently told investors, 'We're still in the early innings of this journey. I don't know whether it's inning two or inning three, but we're not at the halfway point, and we're not at the seventh inning stretch by a long shot. We have numerous value streams under transformation.' Over the coming 5-10 years, we believe that Woodward can compound revenue at high single digits with margin expansion, leading to low-teens operating profit growth. The company can use its prodigious free cash flow to repurchase stock, enabling EPS growth in the high teens. Because Woodward trades at a discount to peers and in line with the overall market, valuation risk is limited. The stock's return should roughly track with earnings growth. In the downside case, where the company doesn't execute as well as we expect, strategic buyers may be interested in acquiring it. Just as we are, larger aerospace firms are attracted to Woodward's premium aftermarket growth. Moreover, an acquirer could use its scale to drive higher margins. Investing in Woodward is analogous to owning an expanding set of royalties on global air travel. Cashflow streams with this high level of certainty should rationally be priced at a low discount rate, offering investors a skinnier return for taking less risk. Yet Woodward is priced the opposite.

BSD Analysis:
Eagle Capital presents a compelling bull case for Woodward based on the company's tripling of content share on new-generation narrowbody aircraft (A320neo and 737 Max), positioning it for significant aftermarket revenue growth as these planes enter their maintenance cycles. The fund emphasizes Woodward's sole-source supplier status and technical moats in aerospace engine controls, which provide pricing power and predictable cash flows over 40+ year platform lifecycles. Management expects aerospace segment margins to expand from 20% to 28% over the next decade, driven by higher-margin aftermarket revenue mix and operational improvements under CEO Chip Blankenship. The thesis centers on Woodward's transformation from a cyclical industrial company to a premium aerospace aftermarket business, similar to Eagle's successful investments in Marriott and Hilton. Eagle views the current valuation at low-20s FCF multiple as attractive given the company's growth prospects and margin expansion potential. The fund has been opportunistically adding to the position during temporary market dislocations, viewing short-term disruptions as irrelevant to the long-term earnings power. The investment represents a play on global air travel growth with high cash flow visibility and multiple expansion potential as the business mix shifts toward higher-quality aerospace aftermarket revenues.

Pitch Summary:
EW is a medtech company focused on heart disease. The main segments/products are the Transcatheter Aortic Valve Replacement (TAVR) and the Transcatheter Mitral and Tricuspid Therapies (TMTT). Both are artificial valves to replace malfunctioning ones. The market for TAVR is maturing and EW has a 60/65% market share. Each valve costs around $35k and are the most expensive ones in the market. EW created this market but now they are suffering from competition from Medtronic and Abbot. In Q2 the company revised guidance downwards for this segment (which is 90% of profits) from ~9% to ~6% - ouch. European healthcare systems are more focused on price than the US one, so the lower price point for similar valves is having an impact. I think EW will be a market share loser in Europe and to a lesser extent, in the US. The company blamed the TAVR slowdown on decreased hospital capacity for heart procedures. Which is possible, since I believe the whole TAVR market is growing, but maybe we are just witnessing a normalization of the level of procedures after the Covid backlog. TMTT is another valve for both the tricuspid and the mitral valves (These ones suffer from different issues vs the aortic valve, the main one is when the valves don't close properly, allowing some blood to go back to the auricle). This segment is growing almost triple digits and there are not any other valves in the market. Although not a valve, Abbott has the MitraClip, which consists in "clipping" parts of the valve to facilitate closure. The company has been hit by max pessimism as the multiple has come down to accommodate for HSD growth in TAVR while we wait for TMTT to become a meaningful part of revenues. I think the asymmetry comes from the expansion of the TAVR market led by EW. When new data comes out, we will see if the surgeons start placing these valves for asymptomatic patients that nonetheless have a severe aortic stenosis. Hey, even maybe the management is right and revenues reaccelerate in the US (I doubt Europe can be saved, in more than one sense) at the same time that TMTT becomes are real driver of the share price.

BSD Analysis:
Benedetti presents a contrarian bull case on Edwards Lifesciences despite recent headwinds in the core TAVR business. The manager acknowledges significant challenges including market share losses to Medtronic and Abbott, particularly in price-sensitive European markets, and Q2 guidance cuts from 9% to 6% growth. However, he sees asymmetric upside potential driven by two key catalysts: expansion of the TAVR addressable market through new clinical data supporting treatment of asymptomatic severe aortic stenosis patients, and the rapid triple-digit growth in the TMTT segment where EW maintains monopolistic positioning. The investment thesis hinges on the company's dominant 60-65% TAVR market share and premium $35k valve pricing power, combined with TMTT's potential to become a meaningful revenue driver. Benedetti views current valuation multiples as reflecting maximum pessimism, creating an attractive risk-reward profile. The timing appears opportunistic following the Q2 disappointment that compressed valuations while the underlying structural heart disease market continues expanding.

Pitch Summary:
Blend Labs operates an expanding ecosystem of technology, data, and service providers that power financial service firms' consumer finance and mortgage applications. After recognizing the platform opportunity created by financial institutions spending inordinate amounts of time and money on antiquated, inflexible, and siloed technology stacks that stifled product quality and innovation, key Palantir employees founded Blend Labs to flip financial services technology stacks from vertically to horizontally integrated. After a thirteen-year journey, a collapse in its historical end markets, and a transitioned business model, Blend Labs is near an inflection point in revenues and earnings. We see five main paths to value creation. First, under the cover of fourteen straight quarters of contracting mortgage origination volumes, Blend Labs has transitioned its business model from a point solution covering mortgage applications to a platform company powering infrastructure for the banking industry. Leading this transition is Blend Builder, a development platform with modular components and integrations that enable financial institutions to create and deploy white label product offerings without having to manage back-end processes. In giving financial institutions a rich application ecosystem that frees them from design, engineering, implementation, and maintenance, Blend removes customers' internal product based silos and creates a standardized system of record that aids transparency, lowers operating costs, increases customer acquisition and conversion, and minimizes risk across their businesses. As more financial services firms use the platform, more consumers use the platform, and more service providers join the platform to serve those customers. This self-fulfilling flywheel then feeds greater scale and diversity of the customer base, accruing benefits to Blend Labs on the cost side as transaction volumes support cost advantages in technology and data services, and on the product side as greater scale supports greater product complexity and deeper industry expertise. Blend Lab's partner ecosystem and expanding horizontal integration across the financial services industry have occurred under the cover of a heavily depressed mortgage market, and we believe the benefits of the transitioned business model will be significant upon market normalization. Second, after cutting over $100 million in annualized costs, Blend Labs is free cash flow positive at trough mortgage and refinance volumes and as a platform with minimal variable costs, Blend Labs has meaningful operating leverage in a market recovery. Blend Labs has doubled its revenue mix (to 60%) in usage-based agreements where revenue growth is aligned with customer success (funded loans, new account opening, API calls, etc). This 60% revenue mix in usage based agreements coincides with a near doubling in mortgage origination market share (to 20.2% in 2024), which, when considering that Blend's customer base consists predominantly of scale players who have been investing through the downturn, represents a meaningful opportunity for market share gains in a recovery and requisite high incremental margins on pass through earnings from growing penetration of usage based agreements. Third, Blend Labs' revenue mix is shifting to less cyclical end markets that merit a higher market multiple. Today, a majority of Blend Labs' revenue mix is attributable to cyclical mortgage revenue. With the release of the Blend Builder development platform, pass through platform fees tied to consumer banking products become an outsized driver of revenue growth. The repeatable nature of constantly changing consumer banking demand profiles represent a far larger addressable market than the one or two mortgages a person gets in their lifetime. As the revenue mix shifts from mortgage to consumer banking applications, a more resilient revenue profile stands to be revalued. Fourth, Blend Labs has a significant opportunity to use its scale and captive customer demand advantages to increase average revenue per customer at high incremental margins. Today, Blend Labs charges bank customers success-based fees of roughly 7% of the value created per approved loan. The size of the market opportunity has dictated the pricing strategy with the intent of expanding product penetration across the industry before flexing any pricing power. Moving to value-based pricing would multiply revenues and earnings from core mortgage products alone. When one factors in product attachment from the growing list of products available today, there is meaningful upside as Blend Builder monetizes its platform as a development tool for customers. The historical fact pattern of Salesforce's go-to-market strategy provides an illustrative example of how this white space is developing for Blend Labs. When Salesforce went from selling to business line leaders to selling to IT departments, the business transitioned from a series of point solutions to a platform business. Blend Labs go to market strategy began with selling point solutions to business line leaders in the mortgage space, but IT departments began to realize that they could work with Blend and slim out their tech stacks as they consolidated with one vendor that can support many business lines. As usage proliferates across business lines, Blend Lab's average revenue per user has a long runway to grow both from increasing product attachment rates, and, eventually, pricing power. Fifth, we see meaningful optionality inherent in Blend Builder as a development platform with vast white space to drive horizontal integration beyond the domestic financial services industry. When Blend started rebuilding its platform four years ago, a goal was to enable scalable international growth on the rails of its domestic platform. With an initial focus on Europe and Canada, Blend has a long runway to use its playbook of proving out use cases on the largest, most demanding customers and then working across the industry to gain market share. In addition to geographic expansion, Blend has a long runway for expansion in the unautomated, undigitized financial services market for the thirty-three million small and medium sized businesses in the US. We see additional upside as Blend Labs follows Apple's App Store playbook and opens the Blend Builder platform to Independent Software Vendors to add further depth to the application ecosystem. In Blend Labs, we see an emerging platform that is horizontally integrating financial services technology stacks, and with free cash flow profitability at trough volumes and meaningful operating leverage, we see multiple long runways of earnings growth.

BSD Analysis:
The manager presents a compelling bull case for Blend Labs, viewing it as a transformative fintech platform at an inflection point. The thesis centers on Blend's successful transition from a mortgage point solution to a comprehensive banking infrastructure platform through Blend Builder, which enables financial institutions to deploy white-label products without managing back-end processes. The manager highlights five key value drivers: platform network effects creating a self-reinforcing flywheel, significant operating leverage with free cash flow positivity at trough volumes and 60% usage-based revenue mix, diversification into less cyclical consumer banking markets, substantial pricing power opportunity with current 7% success fees having room for value-based pricing expansion, and international expansion optionality. With market share doubling to 20.2% during a depressed mortgage cycle and over $100 million in cost cuts already implemented, the manager sees multiple long runways for earnings growth as the mortgage market normalizes and the platform scales across financial services.

Pitch Summary:
Sonova is a Swiss hearing aid manufacturer. Hearing aid companies generally have de-rated on increasing generic competition and the growing distribution strength of warehouse stores such as Costco. Sonova had a strong relationship and 50% share at Costco historically, but it was dropped in 2022. One of the key reasons investors are excited about Sonova is their re-entry at Costco. We are less enthusiastic about it, expecting their "me too" product to perhaps get 20% market share over time against several other strong competitors. We expect earnings to disappoint and the 80% premium valuation versus peers to shrink.

BSD Analysis:
The manager presents a contrarian bear case on Sonova, challenging the market's optimism about the Costco re-entry opportunity. The broader hearing aid industry faces structural headwinds from generic competition and warehouse store distribution power, creating a challenging operating environment. Sonova's historical 50% Costco share and subsequent loss in 2022 demonstrates the retailer's negotiating power and willingness to switch suppliers. The manager's skepticism about regaining meaningful market share (only 20% versus historical 50%) suggests limited upside from the Costco re-entry. With multiple strong competitors now established at Costco, Sonova faces an uphill battle to differentiate its offering. The 80% valuation premium to peers appears unjustified given these competitive challenges, creating an attractive short opportunity as reality disappoints expectations.

Pitch Summary:
Plug is a U.S.-based hydrogen company that has struggled to build a viable business. While the company aims to offer a fully integrated hydrogen solution for customers keen on transitioning to a hydrogen economy, it has struggled to make a profit, burning through $200 to $400 million per QUARTER for several years. Plug has become a habitual capital-raising machine that has massively diluted shareholders. The company's financial success hinges on the eventual emergence of a hydrogen economy – an outcome we remain skeptical about given the current economic, technical, and political challenges. We believe Plug will continue to struggle, burning cash and putting pressure on its share price.

BSD Analysis:
The manager presents a fundamental bear case on Plug Power based on persistent cash burn and questionable business model viability. The company's quarterly cash burn of $200-400 million demonstrates an inability to achieve profitability despite years of operation and investment. Continuous capital raising and shareholder dilution indicate a broken business model that destroys value rather than creates it. The manager's skepticism about the hydrogen economy's emergence addresses the core investment thesis, suggesting the entire market opportunity may be overstated. Economic, technical, and political challenges facing hydrogen adoption create multiple headwinds for the company's success. This appears to be a classic 'cash burn' short where the company faces existential funding challenges without a clear path to profitability.

Pitch Summary:
This short position is part of a broader theme we have identified in the Chinese automotive industry. Although Guangzhou produces a significant number of self-branded vehicles, the company's historical profits have been driven almost entirely by joint ventures with Toyota and Honda in China. The crushing competitive environment (led by BYD's dramatic ascent) has wiped out these foreign JV profits, with the dynamic playing out across the industry. Sales are collapsing, and the company recently reported two consecutive quarterly losses for the first time in a decade. With no clear path to recovery, we see no end in continued disappointing financial results.

BSD Analysis:
The manager presents a compelling bear case on GAC Group as part of a broader Chinese automotive industry collapse thesis. The company's historical dependence on Toyota and Honda joint ventures for profitability has become a liability as BYD's electric vehicle dominance destroys traditional automotive economics. The competitive intensity has eliminated foreign JV profits industry-wide, suggesting this is a structural rather than cyclical challenge. Two consecutive quarterly losses mark a significant deterioration for a historically profitable company, indicating the severity of the competitive pressure. With no clear differentiation strategy or path to profitability recovery, the manager expects continued financial deterioration. This short represents a structural decline story rather than a cyclical downturn, making it an attractive risk-reward proposition.

Pitch Summary:
Turning Point Brands (TPB) is a 3.5% position in the Deep Value Fund. The company holds a dominant market share in several tobacco-related end markets, most notably rolling papers/cigarette wraps and oral tobacco. Combined, these segments are expected to grow at a steady mid-single-digit rate. However, we anticipate double-digit EPS growth as the company continues to pay down debt and repurchase shares. With a 16x P/E multiple, we believe shares offer an attractive (albeit modest) return. What excites us even more is TPB's launch of its nicotine pouch product, FRE. The nicotine pouch market is large ($3bn) and growing fast (50% annually); even a low-single-digit market share could significantly move the needle for TPB and its growth prospects.

BSD Analysis:
The manager views Turning Point Brands as a stable cash generator with significant optionality in the growing nicotine pouch market. The core tobacco business provides steady mid-single-digit growth with dominant market positions in rolling papers and oral tobacco, creating defensive cash flows. Double-digit EPS growth despite modest revenue growth demonstrates strong capital allocation through debt reduction and share repurchases. At 16x P/E, the valuation appears reasonable for a stable, cash-generative business. The key upside catalyst is the FRE nicotine pouch launch, targeting a $3 billion market growing 50% annually. Even modest market share gains could materially impact growth prospects and valuation. This represents a classic 'bond with a call option' structure - stable base business with meaningful upside optionality.

Pitch Summary:
Talen is a 3% position in the Deep Value Fund. As an independent power producer (IPP), it owns the 6th largest nuclear power plant in the U.S., located in a region poised for significant power price increases driven by rising demand from data centers. Talen already secured a contract with Amazon to supply power to a data center campus at prices 50.0% above the forward curve and has the capacity to sign similar agreements in the future. While the stock may seem expensive on current earnings, it is only 12x our 2026 free cash flow estimates, a significant discount to its peers. Management continues to capitalize on this gap through an aggressive repurchase program.

BSD Analysis:
The manager presents Talen as a prime beneficiary of the data center power demand boom, with nuclear assets providing clean, reliable baseload power. The Amazon contract at 50% premium to forward curves demonstrates the company's ability to monetize the power shortage and validates the pricing power thesis. Owning the 6th largest nuclear plant in a high-demand region creates significant competitive advantages and barriers to entry. The valuation disconnect between current earnings and 2026 free cash flow (12x) versus peers suggests meaningful upside as cash generation becomes apparent. Management's aggressive share repurchase program should accelerate per-share value creation while the market recognizes the quality of the asset base. This appears to be a classic infrastructure play benefiting from secular data center growth trends.

Pitch Summary:
One of the "spicier" names in the portfolio (about a 5% position), Red Cat (RCAT) is a leading supplier of drones, primarily for military applications. The stock surged in 2024 following a major $500mm contract with the U.S. Army to provide field reconnaissance drones. Based on current orders, RCAT trades on a price-to-earnings multiple of 100x next year's earnings. However, the company's recent transformative Army contract opens the door to additional opportunities with other military branches and NATO countries. We expect the momentum of the drone theme/narrative to drive the stock's growth as the incoming Trump administration is highly supportive and weary of alternative (primarily Chinese) suppliers.

BSD Analysis:
The manager acknowledges Red Cat as a high-risk, high-reward position with significant momentum potential. The $500 million Army contract represents a transformative win that validates the company's technology and creates a platform for expansion. While the 100x P/E appears expensive, the manager focuses on the optionality this contract creates with other military branches and NATO allies. The geopolitical backdrop favors domestic drone suppliers as concerns about Chinese alternatives intensify under the Trump administration. The 'drone theme' provides narrative momentum that could drive continued multiple expansion despite rich valuation. This appears to be a momentum play betting on continued government contract wins and thematic investor interest. The manager seems comfortable with the risk given the 5% position size and transformative contract potential.

Pitch Summary:
Osaka Soda is a 3% position in the Deep Value Fund. Superficially, the company appears to be an unexciting chemicals company. A closer look, however, finds its healthcare (HC) segment, while only representing 12.5% of sales, accounted for 54% of operating profit in 2024. This success is driven by the company's market-dominant position in supplying silica gel beads, a key ingredient in the production of peptide drugs, including the blockbuster weight loss drugs, Ozempic and Wegovy. While struggling to add capacity to keep up with demand, we believe sales in the HC division will grow 20-30% for the next several years. With a P/E of 14x forward earnings, we see more than 100% upside.

BSD Analysis:
The manager has identified a hidden gem within Osaka Soda's seemingly mundane chemicals business. The healthcare segment represents a classic 'sum of the parts' opportunity, generating 54% of profits from just 12.5% of sales, indicating exceptional margins and profitability. The company's dominant position in silica gel beads for peptide drug production directly benefits from the GLP-1 weight loss drug boom, creating a compelling secular growth tailwind. Capacity constraints suggest strong pricing power and demand visibility, while 20-30% healthcare division growth should drive significant earnings expansion. At 14x forward P/E for a company with such high-quality, high-growth exposure to a massive pharmaceutical trend, the valuation appears deeply discounted. The manager's 100% upside target reflects the potential for multiple expansion as investors recognize the quality of this healthcare exposure.

Pitch Summary:
This 4.5% position is an under-the-radar Korean electrical equipment company. High-margin export sales of transformers are expected to drive a more than 50% increase in earnings for 2025. Trading at just 12x earnings, with orders booked through the end of the decade, we anticipate robust growth and a potential re-rating, which should propel the stock much higher.

BSD Analysis:
The manager identifies Iljin Electric as an overlooked Korean electrical equipment manufacturer with compelling growth prospects. The 50% earnings growth expectation for 2025 driven by high-margin transformer exports suggests strong operational leverage. At 12x earnings, the valuation appears reasonable for a company with such robust growth visibility. The key differentiator is the order book extending through the decade, providing exceptional revenue visibility and reducing execution risk. This long-term contract coverage should support both earnings growth and multiple expansion as investors recognize the quality of the business model. The combination of strong growth, reasonable valuation, and exceptional visibility makes this an attractive risk-adjusted opportunity in the Korean market.