Investment Pitches

Pitch Summary:
JOE owns approximately 168,000 acres in the Florida Panhandle. It has been widely known that JOE traded for a tiny fraction of its liquidation value for years, but without a catalyst, it was always perceived to be "dead money." Over the past few years, the population of the Panhandle has hit a critical mass where the Panhandle now has a center of gravity that is attracting people who want to live in one of the prettiest places in the country, with zero state income taxes and few of the problems of large cities. The oddity of the current disdain for so-called "value investments" is that many of them are growing quite fast. I believe that JOE may grow revenue at a rapid rate for the foreseeable future, with earnings growing at a much faster clip. Meanwhile, I believe the shares trade at an attractive multiple on Adjusted Funds from Operations (AFFO), while substantial asset value is tossed in for free. Besides the valuation, growth, and high Return on Invested Capital (ROIC) of the business, why else do I like JOE? For starters, land tends to appreciate rapidly during periods of high inflation—particularly an inflationary period where interest rates are likely to remain suppressed by the Federal Reserve. More importantly, I believe we are about to witness a massive population migration as people with means choose to flee big cities for somewhere peaceful. I suspect that every convulsion of urban chaos and/or tax-the-rich scheming will launch JOE shares higher, and it will ultimately be seen as the way to "play" the stream of very wealthy refugees fleeing for somewhere better.

BSD Analysis:
Kupperman's St. Joe thesis combines traditional value investing with demographic and political migration trends in Florida. The company owns 168,000 acres in the Florida Panhandle, historically trading below liquidation value but now benefiting from population inflection points. The manager identifies rapid revenue and earnings growth potential as the region reaches critical mass for development. The investment offers multiple value drivers: attractive AFFO multiples, substantial embedded land value, high ROIC, and inflation protection through real asset ownership. The thesis anticipates accelerated wealthy migration from high-tax, urban areas to Florida's tax-friendly environment. Political and social tensions in major cities could serve as catalysts for further migration waves. This represents a demographic play with strong asset backing and multiple expansion potential as development accelerates.

Pitch Summary:
It may take some time still, but I believe that society will eventually settle on nuclear power as a compromise solution for baseload power generation. This will come at a time when there is a deficit of uranium production, compared with growing demand. As aboveground stocks are consumed, uranium prices should appreciate towards the marginal cost of production. Additionally, there is currently an entity named Sprott Physical Uranium Trust (U-U – Canada) that is issuing shares through an At-The-Market offering, or ATM, in order to purchase uranium (we are long this entity). I believe that these uranium purchases will accelerate the price realization function by sequestering much of the available above-ground stockpile at a time when utilities have run down their inventories and need substantial purchases to re-stock. The combination of these factors ought to lead to a dramatic increase in the price of uranium as it will take multiple years for sufficient incremental supply to come online—even if the re-start decision were made today.

BSD Analysis:
Kupperman's uranium thesis centers on a structural supply-demand imbalance as nuclear power gains acceptance for baseload generation amid the energy transition. The manager identifies a critical inflection point where above-ground uranium inventories are being depleted while new mine development faces multi-year lead times. Sprott Physical Uranium Trust serves as both an investment vehicle and a catalyst, with its ATM program actively removing physical uranium from the market. The fund's position benefits from utility restocking needs after years of inventory drawdowns, creating sustained demand pressure. The thesis anticipates uranium prices moving toward marginal production costs as the market tightens. This represents a commodity play with strong fundamental support and a clear supply-demand catalyst through Sprott's ongoing uranium purchases.

Pitch Summary:
In 2020 when oil traded below zero, drilling activity ground to a halt and many energy service providers declared bankruptcy. Many of these businesses had teetered on the verge of bankruptcy for years due to reduced demand and over-leveraged balance sheets. The bankruptcies led to consolidation and reduced future industry capacity, removing future competition in the recovery. With oil prices now recovering, I believe that demand for drilling and other services will increase from subdued levels. While producers have been slow to increase spending on exploration despite recoveries in energy prices, I believe that this only extends the timing on the thesis. In the end, the only way to reduce future energy prices is to see a dramatic increase in global oilfield services spending. Any postponement of this spending only leads to higher prices and more wealth transfer from the global economy to the oil producers, which will likely end up resulting in an increase in spending on exploration and production. We purchased many of these positions at fractions of the equipment's replacement cost, despite restored balance sheets and positive operating cash flow. As spending in the sector recovers, I believe that the potential for cash flow will become more apparent and this equipment will trade up to valuations closer to replacement cost.

BSD Analysis:
Kupperman's Tidewater position reflects the same energy services consolidation thesis as Valaris, focusing on offshore support vessels rather than drilling rigs. The investment capitalizes on the dramatic capacity reduction following 2020's industry distress, when vessel operators faced bankruptcy and fleet rationalization. Tidewater's restructured balance sheet and positive operating cash flow provide downside protection while the company trades at a significant discount to asset replacement cost. The manager anticipates that recovering offshore activity will drive utilization rates and day rates higher, leading to substantial cash flow generation. The delayed recovery in offshore capex extends the investment timeline but potentially amplifies returns as supply-demand imbalances become more acute. This represents a leveraged play on offshore energy activity with strong asset backing and improving industry fundamentals.

Pitch Summary:
In 2020 when oil traded below zero, drilling activity ground to a halt and many energy service providers declared bankruptcy. Many of these businesses had teetered on the verge of bankruptcy for years due to reduced demand and over-leveraged balance sheets. The bankruptcies led to consolidation and reduced future industry capacity, removing future competition in the recovery. With oil prices now recovering, I believe that demand for drilling and other services will increase from subdued levels. While producers have been slow to increase spending on exploration despite recoveries in energy prices, I believe that this only extends the timing on the thesis. In the end, the only way to reduce future energy prices is to see a dramatic increase in global oilfield services spending. Any postponement of this spending only leads to higher prices and more wealth transfer from the global economy to the oil producers, which will likely end up resulting in an increase in spending on exploration and production. We purchased many of these positions at fractions of the equipment's replacement cost, despite restored balance sheets and positive operating cash flow. As spending in the sector recovers, I believe that the potential for cash flow will become more apparent and this equipment will trade up to valuations closer to replacement cost.

BSD Analysis:
Kupperman presents a compelling contrarian thesis on offshore drilling services, capitalizing on the industry's post-2020 consolidation and capacity destruction. The manager's investment rationale centers on purchasing distressed assets at deep discounts to replacement cost while balance sheets have been restructured. The thesis relies on the inevitable recovery in exploration spending as oil producers face pressure to increase supply to moderate energy prices. The fund acquired positions when drilling equipment traded at fractions of replacement value, positioning for multiple expansion as cash flows recover. The delayed capex cycle creates a longer runway for the thesis to play out, with higher oil prices potentially accelerating the timeline. This represents a classic value play with strong cyclical recovery potential in a consolidated industry structure.

Pitch Summary:
Initial coverage was on Dec 16, 2021. Then, the follow-up report was on Feb 17, 2022. Sell-side brokers have no interest in the company; falsely represent bookings as sales; and false financial advertising to SEC; the company is unable to make any significant sales;

BSD Analysis:
authID.ai develops biometric identity authentication platforms. Bears argue the company lacks scale, with immaterial revenues relative to larger competitors like Okta and Microsoft. Persistent cash burn and limited customer wins raise dilution concerns. While cybersecurity tailwinds exist, authID has yet to prove it can secure significant contracts or establish network effects in a crowded field.

Pitch Summary:
Upslope's thesis on Hershey is similar to BC in that the company should be able to navigate the cocoa crisis better than smaller competitors due to its scale and experience. However, there are some important differences and additional points to note: (1) With chocolate inflation continuing to rise sharply, consumers are likely to trade down to cheaper products (Barry Callebaut noted this on its April 10 earnings call). While Hershey has some diversification outside of chocolate, its chocolate offerings contain relatively lower amounts of cocoa and sell at lower price points vs. premium competitors. Like BC, this means Hershey should be positioned to take share in the current challenged market. (2) Hershey's scale and experience mean it should also have the tools (e.g. hedging programs and sourcing) to navigate the cocoa crisis better than smaller competitors. Should cocoa remain elevated for an extended period, it seems likely the industry would see quite a few smaller competitors wiped out. This would benefit large, established players like Hershey. (3) If/when cocoa prices do revert, Hershey should benefit as prices lag commodity declines and margins expand. This could occur in an environment with reduced competition (prior point). (4) Finally, it's worth acknowledging that we don't really know how the cocoa shock will affect Hershey. It is entirely possible that Hershey has so little cocoa in its products that the financial impact won't be particularly dramatic. If this is the case, point (3) above would be moot, but shares should see significant relief.

BSD Analysis:
Upslope's Hershey thesis leverages the company's market position during the cocoa crisis, emphasizing its competitive advantages over smaller rivals. The manager highlights Hershey's lower cocoa content and price points as defensive characteristics that should drive market share gains as consumers trade down during inflationary periods. The investment case relies on Hershey's scale advantages in hedging and sourcing, positioning it to survive an extended period of elevated cocoa prices while smaller competitors face elimination. The thesis anticipates margin expansion when cocoa prices eventually revert, potentially in a less competitive landscape. Notably, the manager acknowledges uncertainty about Hershey's actual cocoa exposure, suggesting the financial impact may be less severe than feared. Trading at attractive valuations with normalized free cash flow yields of 6-7%, Hershey offers defensive characteristics with potential upside from both market share gains and eventual commodity normalization.

Pitch Summary:
Barry Callebaut is a defensive, reasonably high-quality business facing several temporary challenges. The troubles can partly be traced back to a plant contamination scare in late 2022. This was a catalyst for change at the company, ultimately resulting in a CEO transition and implementation of a multi-year streamlining and modernization program. These changes had just begun when cocoa prices started to take off. As an outsourced chocolate producer, BC appears more directly in the line of fire of cocoa prices. However, recent results (covering the early ramp in prices) and outlook have not quite shown this and are aligned with Upslope's key thesis points: (1) BC's vertically integrated model and role as the largest global manufacturer of cocoa and chocolate products, position it better than any competitor to navigate the crisis. Simply put, BC has a major competitive advantage in times of supply crisis due to better sourcing and financing capabilities. This should enable share gains that should at least partly offset market and volume headwinds. Recent results also show the company's cost pass-through mechanisms working very well. (2) With cocoa prices catching financial and mainstream press headlines daily, valuation at decade+ lows, and EPS estimates already down sharply, such worries seem extremely well-known. Bottoms (or tops, in the case of cocoa prices) are impossible to time; but, it's hard to argue the pendulum hasn't already swung sharply in one direction. (3) While not an original view, it seems highly likely the great cocoa squeeze will end like virtually every other extreme commodity squeeze in history. We don't know the timing or trigger, but ultimately cocoa prices should revert and collapse. Forward-looking markets should only need to see a way out of the crisis – not an immediate exit. Should this coincide with BC's efficiency efforts already underway, it could provide a strong tailwind to free cash flow for years to come.

BSD Analysis:
Upslope presents a compelling contrarian thesis on Barry Callebaut during the unprecedented cocoa price surge. The manager argues that BC's vertically integrated model and position as the world's largest chocolate manufacturer provides a competitive moat during supply crises through superior sourcing and financing capabilities. The thesis centers on BC capturing market share while smaller competitors struggle, supported by effective cost pass-through mechanisms already demonstrated in recent results. With shares trading at decade-low valuations and consensus estimates already slashed, the manager believes negative sentiment is fully reflected in the stock price. The investment relies on the historical pattern of commodity price reversions, positioning BC to benefit from both operational efficiency improvements and eventual cocoa price normalization. Risk factors include continued cocoa price volatility and potential balance sheet strain, but the defensive nature of the chocolate business and BC's market-leading position provide downside protection.

Pitch Summary:
Cipher Pharmaceuticals holds the Canadian distribution rights for MOB-015, a promising topical treatment for toenail fungus developed by Moberg Pharma. The treatment's ability to achieve high mycological cure rates with a safer profile than oral alternatives positions it well for market success. The ongoing phase three trial aims to optimize the treatment regimen to improve complete cure rates, potentially enhancing its market appeal. Cipher stands to benefit from the anticipated shift in the toenail fungus treatment landscape, similar to the transition seen in dandruff treatments from oral to topical solutions.

BSD Analysis:
Cipher Pharmaceuticals' strategic position as the Canadian distributor of MOB-015 aligns with the growing demand for safer and effective topical treatments for toenail fungus. The treatment's potential to disrupt the market is underscored by patient anecdotes highlighting the limitations and safety concerns of current oral treatments. As Moberg Pharma refines the dosage regimen to address the complete cure rate issue, Cipher is poised to capitalize on the anticipated market shift. The parallels with the evolution of dandruff treatments suggest a significant opportunity for Cipher in the Canadian market.

Pitch Summary:
Moberg Pharma has developed MOB-015, a novel topical treatment for toenail fungus that effectively penetrates the nail to deliver high concentrations of terbinafine, an antifungal agent, to the nail bed. The treatment shows promise in achieving high mycological cure rates, comparable to oral terbinafine, but with a safer profile. The ongoing phase three trial aims to optimize the dosage regimen to improve complete cure rates by adjusting the treatment phases. The potential for MOB-015 to disrupt the $3-5 billion toenail fungus treatment market is significant, given its safety and efficacy compared to existing treatments.

BSD Analysis:
The patent extension application for MOB-015 provides insights into the treatment's mechanism, highlighting its ability to hydrate the nail and deliver effective antifungal concentrations. Despite the low complete cure rate due to overhydration, Moberg is testing a revised dosage regimen to address this issue. The market demand for a safe and effective topical treatment is evident from patient anecdotes and the limitations of current oral treatments, which pose safety risks. MOB-015's potential to transform the toenail fungus treatment landscape mirrors the shift seen in dandruff treatments, moving from oral to topical solutions.

Pitch Summary:
With the shares up 3x since our purchase in late 2021, it's an obvious question if they remain as attractive today. I absolutely believe they are. There are two main points that I think are under appreciated about Fairfax in 2024. First, is the value of the insurance float. Float is a term used to represent the money that insurance companies can invest from policyholder premiums ahead of any claims. Fairfax's investment float per share has increased from $935 in 2021 to $1,525 today. At the same time, interest rates have increased across the yield curve, for example, the 2 year bond yield moved from 0.2% at the time of our purchase to 5% today. While interest and dividends have increased from an annualized run rate of $466mn to an astounding $2.15bn at present. What's so wonderful about a well run insurance company like Fairfax is not only do they make money on the float but since their claims are less than the premiums they take in, the cost of this float is actually negative! Secondly, the bond portfolio at Fairfax is highly conservative and this provides incredible optionality should the economy fall into recession. As can be seen in the chart to the right, the yield spread on corporate bonds, meaning how much investors demand to take on the additional risk of lending to a business instead of the US government, is at a historic low. Similar to how Fairfax wisely didn't reach for yield during the era of low interest rates, they are neither reaching for yield at low corporate bond spreads. If there is a period of severe economic distress, this would very likely see the yield spread on corporate bonds spike again which would give Fairfax the option to move into higher yielding corporate bonds, further increasing interest income. Interestingly, Fairfax has now grown to the 26th largest company in the S&P/TSX Composite, yet it is still not in the TSX 60. Any potential inclusion into this index would see a rush of buying from fund managers to make sure they were not underweight. Fairfax today is trading just under our estimate of 2024 book value and 6.7x earnings.

BSD Analysis:
The manager maintains a strong bullish stance on Fairfax Financial despite the stock's 3x appreciation since late 2021. The investment thesis centers on two key underappreciated factors: the dramatic improvement in insurance float economics and the defensive positioning of their bond portfolio. Float per share has increased 63% from $935 to $1,525 while rising interest rates have boosted annual interest and dividend income from $466 million to $2.15 billion - a nearly 5x increase. The negative cost of float creates a powerful compounding mechanism where Fairfax profits from investing policyholder premiums while maintaining underwriting profitability. The conservative bond portfolio positioning provides significant optionality during economic stress, as corporate bond spreads currently sit at historic lows and would likely spike during recession, allowing redeployment into higher-yielding assets. Additional catalysts include potential TSX 60 inclusion despite being the 26th largest TSX company, which could drive index fund buying. At 6.7x earnings and trading below estimated 2024 book value, the valuation remains attractive despite the substantial prior gains.

Pitch Summary:
We also initiated a new position in VeriSign, Inc. (VRSN), operator of critical internet infrastructure known as the Domain Name System (DNS). DNS enables the translation of easily recognizable/memorable website names into their assigned numeric Internet Protocol (IP) address. This IP address contains the information necessary to route a connection from the source computer to the requested data or service. VeriSign oversees the DNS for all ".com" and ".net" websites under its contract with the Internet Corporation for Assigned Names and Numbers (ICANN) — the global nonprofit that oversees domain names and IP addresses globally — and has done so with no service interruptions since 1991. Under the terms of the contract, VeriSign earns a modest annual fee from the owner of each address in its digital "address" book, enjoys contractually agreed-upon price escalators, and maintains a presumptive right of renewal into the future. Given the evergreen nature of its contract and the mission-critical nature of its offerings, we believe VeriSign has a very wide moat (competitive advantage) around its business, and we were pleased to acquire shares at a discount to our estimate of value.

BSD Analysis:
Weitz initiated a position in VeriSign based on its monopolistic control over critical internet infrastructure through its exclusive contract to operate the DNS for all .com and .net domains. The managers highlight VeriSign's exceptional competitive moat, stemming from its ICANN contract that provides recurring revenue streams, contractual price escalators, and presumptive renewal rights. The company has maintained perfect service uptime since 1991, demonstrating operational excellence in mission-critical infrastructure. VeriSign's business model generates predictable cash flows from domain registration fees, creating a highly defensive revenue stream. The evergreen nature of the contract and the essential role of DNS in internet functionality provide significant barriers to entry. Weitz acquired shares at what they believe is a discount to intrinsic value, suggesting attractive risk-adjusted return potential. The investment aligns with their Quality at a Discount framework, targeting a high-quality business with durable competitive advantages trading below fair value.

Pitch Summary:
Speaking of Vistry, our British homebuilder, I want to give an update on the write-up I published last year (link). To re-cap, Vistry has gone all in on the 'Partnership Model', in which it pre-sells large volumes of affordable homes to local housing authorities and investors in exchange for a bulk discount. The proceeds free up Vistry's own balance sheet and allow it to earn high returns on capital. Over the next three years as Vistry sells its legacy landbank into new partnership projects, it plans to return GBP 1 billion surplus capital, equal roughly to a quarter of its current market cap. On a trip to London in February, I visited Acton Gardens to see a successful Partnership project for myself. Vistry subsidiary Countryside began this brownfield redevelopment in 2011 in partnership with the housing association L&Q and the Ealing Council (link). In total, over eleven phases, around 1,600 dilapidated flats will be demolished and replaced with more than 3,300 new ones—some of which are earmarked for private sale but most for affordable housing. One of the remaining old blocks was featured in the opening credits of the popular 1980s British TV show 'Only Fools & Horses' and was derelict even then (link). While more dense, the new blocks completed so far are modern and attractive, built around leafy parks and community facilities. Private sales have been strong, even through the post-COVID downturn. Since we invested, Vistry has announced a series of large, new Partnership agreements and completed its first GBP 50 million tranche of buybacks. Management has become more excited about the wood frame homes manufacturing facility they obtained in 2022 when they acquired Countryside. These will expedite development, save building costs and reduce new homes' carbon footprint. While I am sad to see American activist investor Jeffrey Ubben depart the board after he closed his fund (link), I welcome his peer and fellow American Usman Nabi to take his place (link). Unfortunately for Vistry's plans to buy back stock, the share price appreciated meaningfully after the company was compared favourably to American homebuilder NVR on a popular investing podcast (link). NVR is America's original asset-light home builder, having begun optioning land from master developers when it emerged from bankruptcy in the early 1990s. Not only did this transform NVR's balance sheet, it reduced NVR's risk by eliminating the need to hold land and homes built on spec. NVR has delivered a 20% p.a. compound return since listing in 1987 (a 760x total return) and was the only major US homebuilder not to report losses during the Subprime Mortgage Crisis. Vistry is trying to emulate NVR and even welcomed former NVR director Paul Whetsell to its board in 2023. However, it's important to recognise the differences between the two companies. NVR sells individual homes to individual buyers, whereas Vistry will sell projects of potentially thousands of homes to institutional buyers. Vistry's projects are, therefore, more complex and more at risk of cost inflation and delay. NVR dominates the Washington DC metropolitan market, where it enjoys local scale advantages and brand recognition. Vistry is spread across Britain, though it is already using its size and pipeline to negotiate lower costs. Finally, planning is easier to obtain in the US and there is a deeper market for land options, allowing NVR to easily deploy an ever-larger amount of capital. This last point is both a challenge and an opportunity for Vistry. Because of an urban planning system based on discretion rather than transparent rules, Britain's housing crisis is arguably more severe than America's (link). NIMBYism reigns supreme. The most important question, in my opinion, is whether the Partnership Model can unlock supply by enlisting Vistry's partners to lobby local planning authorities on its behalf. After all, those responsible for delivering affordable housing are often colleagues with those responsible for approving it. Management made encouraging remarks to this effect on the 2H23 earnings call and I am keen to see them press this advantage. In the best case, Vistry will grow by growing the market, delivering for shareholders and society. I am more confident in Vistry now that I've had seven months to watch management execute and competitors fail to respond. CEO Greg Fitzgerald is a great operator and a renegade thinker (link). Over the next three years, the company will transform its balance sheet and business model, becoming a 'manufacturer' like NVR, albeit with the differences I outlined above. Management's forty per cent return on capital target looks more and more achievable given the strength of demand, faster asset turnover, standardisation and economies of scale. Even after appreciating materially since our purchase, Vistry trades at just over book value with the prospect of a very attractive capital return. I am excited for us to be along for the ride.

BSD Analysis:
The manager presents a compelling bull case for Vistry Group based on its transformative Partnership Model, which pre-sells affordable housing projects to institutional buyers and generates high returns on capital. The thesis centers on Vistry's evolution into an asset-light manufacturer similar to successful US homebuilder NVR, with plans to return £1 billion in surplus capital over three years. Management's 40% return on capital target appears increasingly achievable through faster asset turnover, standardization, and economies of scale. The manager conducted on-site due diligence at Acton Gardens, validating the model's execution and noting strong private sales even during market downturns. Key catalysts include new Partnership agreements, ongoing buybacks, and potential planning advantages through partner lobbying. The investment benefits from strong management under CEO Greg Fitzgerald and trades at attractive valuations near book value despite recent appreciation. The manager acknowledges execution risks but expresses growing confidence after observing seven months of successful implementation without competitive response.

Pitch Summary:
We added Booz Allen Hamilton (NYSE:BAH) to the growth portfolio in October 2023. I am highlighting Booz Allen this quarter because the exercise of comparing BAH to CACI serves as an interesting example of weighing the trade-offs between "quality" and "value" when picking stocks. Booz Allen is a technology consulting firm specializing in government contracting. Founded in 1914, Booz Allen has a storied history partnering with the US Government which includes helping the US Navy prepare for World War II. These deep roots have helped engrain the Company into the fabric of Washington DC and provide a foundation for the business' deep moat. Not resting on its laurels, Booz Allen has relentlessly re-invested in its business by acquiring and retaining the top talent and technology in the government contracting space. This has translated into Booz Allen serving as one of the most awarded government contractors. The Company is the #1 provider of artificial intelligence to the US Federal Government with nearly 200 government AI contracts spanning defense, national security, and civil missions. Frost & Sullivan ranks Booz Allen as the most innovative company in the Global Managed Detection and Response Market. The Company is also ranked highly in broader surveys including Fortune's 'World's Most Admired Companies' and Glassdoor's 'Best 100 Places to Work'. Importantly, Booz Allen's deep moat is sustainable. There is a significant incumbency bias in government contracting, especially when it comes to IT. Contractors must understand how the legacy government IT systems function to move them forward. Given that Booz Allen has had a large hand in building many of the legacy IT systems, the Company is often the most logical choice for related contracts. This makes it extremely difficult for new entrants like Accenture Federal Services to win contracts over Booz. Furthermore, contracts require employees to have government security clearances which take months and sometimes years to obtain. Competing firms simply do not have enough skilled labor with the appropriate clearances to take on the large contracts that Booz Allen specializes in. This is especially true in the niches of artificial intelligence and cyber security where Booz Allen has in many ways cornered the market on skilled labor with the relevant government clearances. In many ways, Booz Allen has an unfair competitive advantage in government contracting. This is characteristic of a great business and it shows the in the numbers. Over the past five years, BAH's revenue has organically grown by 50%, its EBITDA margin has expanded from 9.5% to 11.0%, and it has converted over 100% of its earnings to free cash flow. The Company is on pace to deliver over $10 billion in annual revenue in 2024 and has a contract backlog exceeding $30 billion which provides visibility for continued growth. Detractors would point out that Booz Allen has experienced growth during a period of above average fiscal spending growth and that defense contractors are "over-earning" due to active wars in Eastern Europe and the Middle East. I agree that a potential cut to the federal budget is the key risk to Booz Allen's business today. However, Booz Allen is levered to mission critical programs within the defense budget which won't be cut including managed IT services, cyber security, and artificial intelligence where funding is expected to increase. Booz Allen is purely a services provider and does not sell physical products that are currently being procured to fund today's wars. In fact, if the wars were to end tomorrow, Booz could actually see funding free up for the programs it works on. Finally, in an environment where the government is forced to reduce budgets, the government would need to lean into technology programs administered by Booz Allen to become more efficient. After threading the needle between qualitative and quantitative analysis, we decided to invest in Booz Allen's stock over CACI's. Booz Allen deserves to trade a higher valuation multiple because it has superior technology capabilities, a more robust organic growth strategy, a cultural advantage, is more disciplined in its capital allocation, and generously rewards shareholders with buybacks and dividends. These characteristics should allow Booz Allen's stock to continue outperforming CACI over the long run.

BSD Analysis:
The manager presents a compelling bull case for Booz Allen Hamilton based on its dominant position in government technology consulting and sustainable competitive advantages. The thesis centers on BAH's century-long relationship with the U.S. government, which has created deep institutional knowledge and incumbency advantages that are difficult for competitors to replicate. The company's leadership in artificial intelligence contracts (200+ government AI contracts) and cyber security positions it well for growing federal technology spending priorities. The manager's extensive field research comparing BAH to competitor CACI reveals superior technology capabilities, organic growth strategy, and corporate culture at Booz Allen. Financial metrics support the quality premium, with BAH achieving 50% organic revenue growth over five years, expanding EBITDA margins, and converting over 100% of earnings to free cash flow. The $30+ billion contract backlog provides strong revenue visibility, while the company's focus on mission-critical IT services, cyber security, and AI should protect it from potential defense budget cuts. Management's disciplined capital allocation, returning two-thirds of capital to shareholders through buybacks and dividends, contrasts favorably with CACI's acquisition-heavy approach.

Pitch Summary:
We added Booz Allen Hamilton (NYSE:BAH) to the growth portfolio in October 2023. I am highlighting Booz Allen this quarter because the exercise of comparing BAH to CACI serves as an interesting example of weighing the trade-offs between "quality" and "value" when picking stocks. Booz Allen is a technology consulting firm specializing in government contracting. Founded in 1914, Booz Allen has a storied history partnering with the US Government which includes helping the US Navy prepare for World War II. These deep roots have helped engrain the Company into the fabric of Washington DC and provide a foundation for the business' deep moat. Not resting on its laurels, Booz Allen has relentlessly re-invested in its business by acquiring and retaining the top talent and technology in the government contracting space. This has translated into Booz Allen serving as one of the most awarded government contractors. The Company is the #1 provider of artificial intelligence to the US Federal Government with nearly 200 government AI contracts spanning defense, national security, and civil missions. Frost & Sullivan ranks Booz Allen as the most innovative company in the Global Managed Detection and Response Market. The Company is also ranked highly in broader surveys including Fortune's 'World's Most Admired Companies' and Glassdoor's 'Best 100 Places to Work'. Importantly, Booz Allen's deep moat is sustainable. There is a significant incumbency bias in government contracting, especially when it comes to IT. Contractors must understand how the legacy government IT systems function to move them forward. Given that Booz Allen has had a large hand in building many of the legacy IT systems, the Company is often the most logical choice for related contracts. This makes it extremely difficult for new entrants like Accenture Federal Services to win contracts over Booz. Furthermore, contracts require employees to have government security clearances which take months and sometimes years to obtain. Competing firms simply do not have enough skilled labor with the appropriate clearances to take on the large contracts that Booz Allen specializes in. This is especially true in the niches of artificial intelligence and cyber security where Booz Allen has in many ways cornered the market on skilled labor with the relevant government clearances. In many ways, Booz Allen has an unfair competitive advantage in government contracting. This is characteristic of a great business and it shows the in the numbers. Over the past five years, BAH's revenue has organically grown by 50%, its EBITDA margin has expanded from 9.5% to 11.0%, and it has converted over 100% of its earnings to free cash flow. The Company is on pace to deliver over $10 billion in annual revenue in 2024 and has a contract backlog exceeding $30 billion which provides visibility for continued growth. Detractors would point out that Booz Allen has experienced growth during a period of above average fiscal spending growth and that defense contractors are "over-earning" due to active wars in Eastern Europe and the Middle East. I agree that a potential cut to the federal budget is the key risk to Booz Allen's business today. However, Booz Allen is levered to mission critical programs within the defense budget which won't be cut including managed IT services, cyber security, and artificial intelligence where funding is expected to increase. Booz Allen is purely a services provider and does not sell physical products that are currently being procured to fund today's wars. In fact, if the wars were to end tomorrow, Booz could actually see funding free up for the programs it works on. Finally, in an environment where the government is forced to reduce budgets, the government would need to lean into technology programs administered by Booz Allen to become more efficient. After threading the needle between qualitative and quantitative analysis, we decided to invest in Booz Allen's stock over CACI's. Booz Allen deserves to trade a higher valuation multiple because it has superior technology capabilities, a more robust organic growth strategy, a cultural advantage, is more disciplined in its capital allocation, and generously rewards shareholders with buybacks and dividends. These characteristics should allow Booz Allen's stock to continue outperforming CACI over the long run.

BSD Analysis:
LVS Advisory presents a compelling bull case for Booz Allen Hamilton based on the company's entrenched competitive position in government IT consulting. The manager emphasizes BAH's century-long relationship with the U.S. government and its dominant position in high-growth areas like artificial intelligence and cybersecurity, where the company holds nearly 200 federal AI contracts. The investment thesis centers on sustainable competitive advantages including incumbency bias, security clearance requirements that create barriers to entry, and proprietary technology capabilities that competitors struggle to replicate. Financially, the company has demonstrated strong execution with 50% organic revenue growth over five years, expanding EBITDA margins from 9.5% to 11.0%, and over 100% free cash flow conversion. The manager conducted extensive field research comparing BAH to cheaper competitor CACI, concluding that BAH's superior culture, organic growth strategy, and disciplined capital allocation justify a premium valuation. With $10 billion in expected 2024 revenue and a $30 billion contract backlog, the company appears well-positioned for continued growth despite potential federal budget pressures.

Pitch Summary:
This quarter, we initiated a position in British Land, a UK-based property REIT with a diverse, high-quality commercial real estate portfolio that includes office space, retail, and urban logistics. Like our investment in Helical, we believe the market is underestimating the long-term value of these REITs. The current focus on the short-term challenges created by higher interest rates obscures the fact that the replacement value of their properties far exceeds current trading prices. We anticipate that once interest rates stabilize (and potentially decline) alongside an improving economy, the stagnant letting environment will change, boosting the market's perception of these REITs.

BSD Analysis:
Mayar Capital initiated a position in British Land, viewing it as an undervalued UK commercial real estate opportunity. The fund believes the market is overly focused on near-term headwinds from higher interest rates while ignoring the substantial discount to replacement value. Their thesis centers on the quality and diversity of British Land's portfolio spanning office, retail, and logistics properties. The investment appears to be a contrarian bet on UK commercial real estate recovery. Mayar expects that interest rate stabilization and economic improvement will revive the letting market and drive REIT revaluation. The comparison to their existing Helical position suggests this fits their broader strategy of acquiring quality real estate assets at significant discounts. This represents a classic value play on asset-rich companies trading below intrinsic worth.

Pitch Summary:
With that said, we will take a moment to share with you another recent investment we added earlier this year into a small-cap stock that we believe quietly captures a few important tailwinds, including the growth in AI technologies. CACI International may not be a household name, but it plays an important role as a leading consultant and provider of technology solutions to the U.S. National Security Agency and Department of Defense. From a product and service standpoint, the company's offering touches several different areas, including the modernization of government technology infrastructure, such as migrating systems to the cloud. Additionally, the company also offers a wide array of services and software surrounding communication and surveillance technologies, and importantly, cyber security. During the past 20 years, the company has posted an annualized growth in revenue and earnings per share of 10% and 12%, respectively. Given its strong track record, we were surprised to find the shares trading at a significant discount to its nearest competitor, the much larger firm, Booz Allen Hamilton. However, and as we have mentioned many times during the past 12-18 months, we are continuing to find material discounts in U.S. small-cap equities. In sum, despite its faster earnings growth, CACI International trades at a 41% discount (P/E) to its larger peer. As you already know, we enjoy finding pricing discrepancies like the one above, but in this case, we are more optimistic about CACI's valuation relative to its potential to accelerate growth in the years to come. We believe CACI's growth may accelerate based on geopolitical conflicts increasingly playing out in the technology sphere and an overall acceleration in cyberattacks owed to the broader adoption of AI technologies. Unfortunately, AI tools are also being adopted for nefarious reasons, many of which are state-sponsored and are taking aim at other governments and their infrastructure. Based on data shared by Palo Alto Networks, phishing emails have increased 10-fold in the past twelve months and nation-states have been observed attempting to use AI for attacks on other countries' technology and networks. Similarly, The Economist has reported that in the past three years, ransomware attacks have increased nearly four-fold. The bottom line is that AI can be utilized to create malware in a fraction of the time it requires humans to do the same. Problematically, governments continue to rank as the number one target for these attacks. In the meantime, this new reality is showing up in the U.S. Department of Defense Budget, with the cyber budget representing the fastest-growing category. As evidenced by the 32% four-year growth in the proposed cyber budget, it is relatively clear that cyber security is an increasing priority for the Department of Defense. This is important for CACI for two reasons, with the first and most obvious being the opportunity for revenue growth, but also the second being the potential for margin expansion over time since these contracts tend to carry higher margins. CACI's strategic push towards heavier technology content in its contracts has helped the firm increase its EBITDA margins from the low 9% range to over 11% during the past ten years.

BSD Analysis:
The manager identifies CACI International as an undervalued small-cap beneficiary of accelerating cybersecurity spending driven by AI-enabled threats. The investment thesis centers on CACI's position as a leading technology consultant to the NSA and Department of Defense, with 20-year track records of 10% revenue and 12% EPS growth. The valuation opportunity is compelling, trading at 15.3x P/E versus Booz Allen Hamilton's 25.9x despite faster historical growth (12.1% vs 5.8% EPS growth). The catalyst for accelerated growth stems from escalating cyber threats, with phishing emails up 10-fold and ransomware attacks up 4-fold in recent years, driving 32% four-year growth in DoD cyber budgets. CACI's strategic shift toward higher-margin technology contracts has expanded EBITDA margins from 9% to 11% over the past decade. The manager views this as a "quiet opportunity" to capitalize on geopolitical tensions manifesting in the technology sphere, with governments representing prime targets for AI-enhanced cyberattacks. The 6.4% free cash flow yield and small-cap discount provide attractive risk-adjusted returns in a growing, mission-critical market.

Pitch Summary:
If we had to assign Amazon an identity from the original Fab Four (e.g. The Beatles), it would be the quiet one, George (Harrison). Amazon contrasts Nvidia, Microsoft, and Meta, in many ways, but from an AI perspective, we appreciate its lower profile and versatility. For Amazon, Generative AI (Gen AI) represents a service that can be sold to its cloud computing customers as well as integrated into enhanced offerings for its e-commerce and advertising customers. From an operational standpoint, the technology is being leveraged to optimize cost savings throughout its inventory, warehousing, and logistics. In contrast to the other three, the firm is taking a holistic approach. This form of radical conservatism is far from the crowds and spotlight of unveiling new GPUs (Nvidia) or the latest chatbot (Microsoft/OpenAI). However, we believe it will produce more durable growth. Much like George Harrison received less song-writing recognition than Lennon-McCartney at the height of their popularity, Harrison's hits are still counted among the band's most enduring. For Amazon, durable growth will prove important since this Fab Four, like the one before it, will eventually meet its own Yoko Ono. Before we dive in, let us rewind with a brief history of the purchase and how the holding came into the portfolio. The day was March 12, 2020, and in the depths of the market's COVID-induced panic, we added Amazon shares to the portfolios making it one of the portfolio's largest holdings. Coincidentally—purely coincidentally—Amazon's shares touched their pandemic low on that same day. To be sure, our focus was not on timing the bottom, but instead on timing an exceptional bargain at 12.0x cash flow in a well-run company with years of potential growth still in its future. More generally, we were prioritizing firms that we believed could fund themselves internally during a difficult economic environment, and therefore continue to expand and add shareholder value in a downturn. Fast forward to 2024, and we believe that Amazon's growth potential, fundamental strength, and valuation (11.9x cash flow) still meet our original criterion for investment. Importantly, we believe it is well suited for today's other popular financial colloquialism—higher for longer (interest rates). One good example can be seen in the firm's rapidly growing advertising business. Advertising has always seemed like a natural growth engine to complement its e-commerce business, and this income line item has begun to thrive. During 2023, the firm's advertising business increased 24% year-over-year and now represents a $47 billion business. The recent result in 2023 heralds advertising as the company's fastest-growing and most profitable business, with a 53% sales CAGR dating back to 2015. Based on these growth and margin relationships (including its low penetration among its online sellers), it appears likely that over the next several years Amazon's advertising business will eclipse $100 billion in sales. With the advertising business carrying approximately 50% operating margins, this business is poised to become the firm's largest profit driver. While many investors would salivate to own a firm growing revenue at these rates with approximately 50% operating margins, we see Amazon's advertising business as one of several potential growth engines at the company. Looking even further out, we will be interested to see Amazon's ability to innovate its advertising business by applying its internal expertise with artificial intelligence. One possibility could be found in the eventual democratization of video advertising to smaller businesses as AI can generate content faster and cheaper than conventional ad studios, which have represented a walled garden for large consumer companies with considerable ad budgets. Of course, any discussion of Amazon's growth potential must include its long-running crown jewel, Amazon Web Services (AWS). For Amazon, AWS represents its fountainhead of profits and cash flows providing reinvestment opportunities across the business. AWS is widely regarded as the leading cloud infrastructure firm in the world, with approximately $91 billion in revenue by the end of 2023. A large piece of its success is attributed to its groundbreaking pay-per-use model that allows its customers to optimize their cloud computing needs, a break from the traditional subscription model for computing and software services. Aside from its clever breakthrough in pricing and sizable barriers to entry through $155 billion in capex, AWS continues to benefit from the steady migration of corporate data centers to a public cloud solution. Turning to AWS's generative AI (Gen AI) opportunity, we see a company that is moving from strength to strength based on these developments. The basic premise here is that AWS provides a turnkey computing platform including the necessary tools to create a large language model (LLM) or broader AI strategy. For AI adopters (customers), the sheer amount of capital needed to create an AI solution represents a barrier to entry for most companies seeking a Gen AI solution. Also important, the AWS's LLM service, called Amazon Bedrock, does not mandate the use of its own LLM solutions and allows customers to bring their own solutions, whether produced in-house or from third parties. Bedrock contrasts Microsoft's strategic focus on their proprietary Gen AI solutions. Amazon has a wide array of Gen AI apps and tools for customers to deploy, and the initial feedback from the company is that its customers do not seek a single large language model solution, but instead seek several different applications of the technology for different uses at their firms (e.g., demand is larger than expected). While the Gen AI opportunity remains in its early stages for AWS, Amazon's CEO, Andy Jassy has stated that the technology will generate "tens of billions of dollars" in additional revenue for the firm over the next several years. Based on our estimates, we believe that AWS has the likely opportunity to increase its revenue to $200 billion by the end of the decade. Not to be outdone by the high growth and high margin services businesses of AWS and Advertising, Amazon's traditional e-commerce business posted significant margin improvement over the course of 2023, which helped drive the company's consolidated operating margin to 6.4% from 2.4% in 2022. In this case, the company's large investment into a regional fulfillment system—a departure from its national model—has led to a permanently lower cost structure, owed to lower fuel costs. Interestingly, we also see the potential for Gen AI applications in the e-commerce business to move it from strength to strength compared to its competitors. In this case, the company is introducing Gen AI applications for its shoppers that can summarize thousands of product reviews, as well as help make sizing and fit selections on various apparel items. Also, the company has introduced a Gen AI shopping assistant that can provide product explanations, advice, comparisons, and other valuable information drawn from its expansive catalog. This leaves for discussion what remains the most important piece of the Amazon calculus, in our view, which is its share price valuation. In this case, we have been relieved over the course of the past year that the company's surge in growth has been accompanied by corresponding cash flows, which in turn has kept the firm's valuation at an attractive level. Applying a simple measure, in this case, Amazon's price to cash flow of 11.9x, we can see a comfortable cushion relative to its estimated long-term growth rate in cash flows of 17% annualized, as well as the S&P 500's price to cash flow of 15.0x.

BSD Analysis:
The manager presents a comprehensive bull case for Amazon, emphasizing its diversified AI strategy across multiple business segments. The thesis centers on Amazon's "holistic approach" to AI implementation, contrasting it favorably with more narrowly focused competitors. The advertising business emerges as a key growth driver, generating $47 billion in revenue with 53% CAGR since 2015 and 50% operating margins, positioning it to exceed $100 billion in sales. AWS remains the profit engine with $91 billion in revenue and potential to reach $200 billion by decade-end, benefiting from the AI infrastructure buildout through services like Amazon Bedrock. The manager highlights improved e-commerce margins (6.4% vs 2.4% in 2022) driven by regional fulfillment optimization and AI-enhanced customer experiences. At 11.9x cash flow versus 17% estimated growth and trading below the S&P 500's 15.0x multiple, the valuation appears attractive. The position, initiated during the March 2020 pandemic low at 12.0x cash flow, demonstrates the manager's conviction in Amazon's long-term competitive positioning across cloud computing, e-commerce, and advertising markets.

Pitch Summary:
Enter Cyviz AS, a small Norwegian tech company, that provides solutions for meeting rooms, command and control centers, innovation centers and operation centers. It's integrated seamlessly with MS Teams and has a simple Cyviz Easy Controller to control the screens and technology. This works in a similar way to an iPad or iPhone with a touch screen and simple controls. The controller is configured to work with the meeting room display, company laptops and allows easy access to directories for other staff and rooms. Once into a meeting, elements from laptops can be dragged, pinch/zoomed and moved around alongside video feeds and configured as required. Meeting setups can be stored so that repeat meetings can be recall instantly. Cyviz also has solutions for command and control and innovation hubs across many use cases with a product that works much better than competitors. Firstly, let's highlight the negative aspects of the business, primarily being that this is not a pure software company with correspondingly ultra-high gross margins, but it does have very healthy margins for a part-hardware company. Also as we discussed earlier the product potential can be seen in the recent financial results, growing revenue at a rate of 35% annualized over the last 2 years, and with gross margins growing from 44% to 53% over that time. They have embedded Microsoft Teams into the product (Microsoft is also a client). They also have a growing number of blue chip, repeat order customers such as Accenture and Aker BP. But this successful business has been rarely discussed or analyzed by investors, funds or analysts. The current price reflects this and based on our estimates is priced at 6x our estimate of EBITDA for the next year and P/S of 0.75x. For this company with a low level of debt ($3.3m as of last quarter) the ratio to EBITDA is a helpful shorthand. And to emphasize the recent success of the company, in Q4 of 2023 they received a 169% increase in order intake versus the prior year. From our analysis this has a high correlation with revenue generation in the subsequent quarters and indicates that the next few quarters will be very successful for the company.

BSD Analysis:
Fairlight presents Cyviz AS as an undervalued Norwegian audiovisual technology company trading at attractive multiples despite strong operational momentum. The manager highlights the company's seamless Microsoft Teams integration and intuitive touch-screen controllers as competitive advantages in the corporate meeting room solutions market. Financial performance demonstrates impressive growth with 35% annualized revenue growth over two years and expanding gross margins from 44% to 53%, indicating operational leverage. The company serves blue-chip clients including Accenture and Aker BP, suggesting product quality and market acceptance. At 6x estimated EBITDA and 0.75x price-to-sales with minimal debt ($3.3M), the valuation appears compelling for a growing technology company. The 169% year-over-year increase in Q4 2023 order intake provides strong forward visibility and suggests accelerating business momentum. The manager views this as an overlooked opportunity in the corporate technology infrastructure space with significant upside potential.

Pitch Summary:
MMC is the world's leading professional services firm in risk, strategy and people. Like MCK, MMC operates in an oligopolistic industry; large insurance brokers have considerable advantages versus smaller brokers in serving global multinationals and competition is limited by the regulatory and specialized nature of insurance. The company also has the tailwind of a "hard" insurance market driving policy prices higher (which is good for broker commissions) without the commensurate underwriting risk, a resilient business model (insurance is a "must have", not a "nice to have"), and a long-term track record of profitable revenue growth.

BSD Analysis:
Bristol Gate's investment in Marsh & McLennan reflects confidence in the company's oligopolistic market position and favorable industry dynamics. The fund emphasizes MMC's competitive advantages in serving global multinationals, where scale and regulatory expertise create significant barriers to entry. The current "hard" insurance market provides a strong tailwind, driving higher policy prices and broker commissions without MMC bearing underwriting risk. The manager highlights insurance as a non-discretionary "must have" service, providing recession-resistant revenue streams. MMC's long-term track record of profitable revenue growth demonstrates management's execution capability. The investment thesis combines defensive characteristics with growth potential from market leadership and favorable insurance pricing cycles.

Pitch Summary:
MCK is one of the three largest pharmaceutical distributors in the US, servicing both drug manufacturers and health care providers. The company operates in an oligopolistic industry that has high barriers to entry. The three largest distributors now collectively control over 90% of drug sales that flow through the U.S. distribution channel. MCK has historically delivered excellent returns on capital due to good cash conversion and inventory turns along with minimal capital spending requirements. There are secular tailwinds, including an aging population, the expected growth in the use of biosimilars, their specialty segment and of GLP-1 drugs, that we believe will drive the company's ability to grow earnings, free cash flows and subsequently dividends.

BSD Analysis:
Bristol Gate's bullish thesis on McKesson centers on the company's dominant position in an oligopolistic pharmaceutical distribution industry. The fund emphasizes the high barriers to entry and the three largest distributors' collective 90% market share control, providing pricing power and stability. MCK's historical excellence in capital efficiency through strong cash conversion, inventory turns, and minimal capex requirements supports sustainable returns. Multiple secular tailwinds support long-term growth including demographic trends from an aging population, biosimilar adoption, specialty drug growth, and the emerging GLP-1 drug category. These factors should drive earnings, free cash flow, and dividend growth. The investment represents a defensive healthcare play with predictable cash flows and multiple growth catalysts.