Investment Pitches

Pitch Summary:
JD.com has evolved from a pioneering ecommerce platform into a leading technology and service provider with supply chain at its core. Its businesses include retail, technology, logistics, healthcare and international ventures. JD.com is a premium player in Chinese online shopping, focusing on genuine items from reputable suppliers. It sells items across a broad range of categories but it continues to have a very strong share in electronics and home appliances, its original categories, as well as other premium categories like luxury goods, cosmetics and beauty products. JD.com allows suppliers to work under either a 1P or 3P model, providing a gateway for local and international brands and merchants to enter the Chinese market. The business strategy is to offer the best price, selection and customer experience. It does this through scale advantages and its proprietary logistics network. JD Logistics, which is 63% owned and separately listed, is the leading technology-driven supply chain solutions and logistics services provider in China. As its logistics network achieves greater density, it aims to offer free and fast delivery on lower-priced items and to a broader audience, penetrating deeper into lower-tier cities and lower-price categories. Its logistics network is believed to be unmatched and difficult to replicate. While competition is fierce and other ecommerce retailers have entered the market through innovations like group buying and livestreaming, these competitors typically do not have proprietary logistics networks to fulfil orders and many top players like Kuaishou and Douyin (known as TikTok outside of China) use JD Logistics to fulfil orders. Besides its highly resilient and defensible core Chinese operations, JD.com has been building a global logistics network, aiming to power its international expansion.

BSD Analysis:
Contrarius presents a compelling bull case for JD.com based on its transformation from a pure e-commerce platform into a comprehensive technology and logistics powerhouse. The manager emphasizes JD's unmatched proprietary logistics network as a key competitive moat, noting that even competitors like Kuaishou and TikTok rely on JD Logistics for order fulfillment. The company's focus on premium categories and authentic products differentiates it in the Chinese market, while its dual 1P/3P model provides flexibility for brands entering China. Despite strong fundamental growth with revenue increasing 88% from 2019-2023 and free cash flow up 160%, the stock trades at attractive mid-single digit free cash flow multiples when adjusted for net cash. The manager views the combination of defensive market position, expanding logistics density, international growth potential, and compelling valuation as creating an exceptional risk-reward opportunity in Chinese e-commerce.

Pitch Summary:
Danaher has long checked three of Mar Vista's qualitative boxes for investment: durable competitive advantages, above average compounding of intrinsic value, and a superior capital allocation strategy. Recently, after material underperformance over the last two years, the fourth criterion was met: stock trades at a discount to our estimate of fair value. This global leader in biotechnology, life sciences, and diagnostics has established strong barriers to entry for each of its businesses. These include a loyal customer base, recurring revenues, and proprietary technology protected by patents and copyrights. Once Danaher's tools are selected for the clinical trial process of a new drug, they tend to remain in use throughout a successful drug's lifecycle. Moreover, Danaher's well-defined culture, rooted in the Danaher Business System ("DBS"), provides lasting advantages through a focus on continuous innovation, margin expansion, efficient marketing practices, and capital efficiency, all of which have consistently increased shareholder value across a diverse range of businesses. We anticipate several secular growth trends that should drive high-single-digit revenue and double-digit free cash flow growth over time. While the bioprocessing industry is currently undergoing a temporary adjustment following the COVID-era boom, a secular shift towards biologics and genomics in medicine is expected to significantly expand Danaher's market opportunities. The continued innovation and adoption of molecular diagnostics, the demand for faster and more accurate test results, and a growing installed customer base should fuel strong demand for Danaher's diagnostic products. Danaher's well-defined capital allocation strategy is poised to further accelerate intrinsic value growth. The company has a proven history of acquiring assets, optimizing their returns on capital through the DBS process, and often divesting these assets to benefit shareholders. The spinoff of Veralto, Danaher's water quality and product quality/innovation division, has reshaped the company's revenue mix. Biopharmaceutical manufacturing tools account for almost one-third of revenues post-spinoff. Challenges such as excess inventory from the COVID-era boom, reduced biotech funding, delays in gene and cell-based therapies, and softer demand from China have all pressured Danaher's fundamentals and stock price since late 2021. However, we view these headwinds as primarily cyclical rather than secular, and we anticipate growth to regain momentum in the coming year. Given the stock's modest discount to estimated fair value, we established a new position in our portfolio.

BSD Analysis:
Mar Vista initiated a position in Danaher after the stock met their fourth investment criterion of trading at a discount to fair value following two years of underperformance. The fund emphasizes Danaher's durable competitive advantages through loyal customer relationships, recurring revenues, and proprietary technology in life sciences and diagnostics. The Danaher Business System provides operational excellence and capital efficiency across diverse businesses. Mar Vista projects high-single-digit revenue growth and double-digit free cash flow growth driven by secular trends toward biologics and molecular diagnostics. The Veralto spinoff has focused the company on higher-growth biopharmaceutical tools, which now represent one-third of revenues. Current headwinds including excess COVID-era inventory and reduced biotech funding are viewed as cyclical rather than structural challenges. The fund expects growth momentum to resume as these temporary factors normalize.

Pitch Summary:
Apple's stock was pressured in the quarter as investors fretted over softening demand for smartphones, regulatory action from the US Department of Justice, and the Chinese government mandates restricting iPhone use by government officials. Despite these near-term headwinds, we continue to believe the company remains competitively advantaged and benefits from the Apple ecosystem, which has an installed base of over 2 billion devices and over 1 billion paying subscribers. We believe the Apple ecosystem will support a more predictable cash flow stream, which should grow intrinsic value high-single-digits over our investment horizon.

BSD Analysis:
Mar Vista maintains a bullish stance on Apple despite quarterly pressure from smartphone demand concerns, regulatory challenges, and Chinese restrictions. The fund emphasizes Apple's competitive advantages through its ecosystem with over 2 billion devices and 1 billion paying subscribers. This installed base provides recurring revenue streams and customer loyalty that supports predictable cash flow generation. Mar Vista projects high-single-digit intrinsic value growth, reflecting confidence in the ecosystem's monetization potential. The investment thesis focuses on services revenue growth and ecosystem expansion rather than hardware unit growth. Regulatory and geopolitical headwinds are viewed as temporary challenges that don't undermine the core ecosystem value proposition. The fund's conviction centers on Apple's ability to generate consistent cash flows from its large, engaged user base.

Pitch Summary:
Nike's recent earnings report was a mixed bag. While revenue met expectations and earnings exceeded them, the stock price dipped due to management's cautious outlook for fiscal 2025. The company is currently undergoing a period of internal restructuring and product line adjustments, which is expected to lead to flat revenue growth in the first half of the coming fiscal year. However, this transition aims to position Nike for long-term success. Our conviction in Nike remains high, and we expect it to emerge stronger and more competitive once the restructuring is complete despite the softer revenue forecast. Nike still anticipates earnings will grow around 10% in calendar 2024 and will accelerate to 15% in 2025 as execution normalizes.

BSD Analysis:
Mar Vista maintains high conviction in Nike despite near-term headwinds, viewing current restructuring as positioning for long-term competitiveness. The fund acknowledges mixed quarterly results with revenue meeting expectations but earnings exceeding, while management's cautious 2025 outlook pressured shares. Internal restructuring and product line adjustments are expected to cause flat revenue growth in the first half of fiscal 2025. However, Mar Vista projects Nike will emerge stronger post-restructuring with improved execution capabilities. Management's guidance for 10% earnings growth in 2024 accelerating to 15% in 2025 supports the turnaround thesis. The fund views current challenges as temporary, maintaining confidence in Nike's brand strength and market position. The investment thesis centers on operational improvements driving margin expansion and growth acceleration.

Pitch Summary:
Despite underperforming during the quarter, Adobe remains a powerful player in the creative professional market. We believe the company is well-positioned to capitalize on two key trends: the ongoing shift towards digital commerce and the rise of generative AI. Adobe stands out as an early leader in generative AI, offering both standalone solutions like Firefly and integrated features within established products like Photoshop. This puts them ahead of the curve, attracting both creative professionals and marketing teams within corporations. As a result, Adobe is experiencing strong bookings growth in the mid-teens, which translates to healthy revenue, earnings, and cash flow. Based on these factors, we project continued intrinsic value growth for Adobe in the low-to-mid-teens range over our investment horizon.

BSD Analysis:
Mar Vista remains bullish on Adobe despite quarterly underperformance, viewing the company as well-positioned for digital commerce and AI trends. The fund emphasizes Adobe's early leadership in generative AI through standalone solutions like Firefly and integrated features in core products like Photoshop. This AI integration attracts both creative professionals and corporate marketing teams, driving customer adoption. Strong mid-teens bookings growth demonstrates healthy demand and translates to robust revenue, earnings, and cash flow generation. Mar Vista projects low-to-mid-teens intrinsic value growth, reflecting confidence in Adobe's market position and AI capabilities. The investment thesis capitalizes on the digital transformation of creative workflows and marketing processes. Adobe's established customer base and AI innovation provide competitive moats in the creative software market.

Pitch Summary:
Microsoft continues to occupy a strong position, poised to capture market share as businesses navigate the transition to a digital-first landscape and embrace generative AI-driven solutions. The company's commanding presence in the enterprise arena, combined with its comprehensive product portfolio encompassing Infrastructure-as-a-Service (IaaS), Platform-as-a-Service (PaaS), and Software-as-a-Service (SaaS), establishes it as a crucial provider of IT solutions for companies of all sizes. Microsoft is effectively executing its strategy in a sizable market by offering a roadmap for digital transformation and adoption of AI-driven solutions, such as ChatGPT, while enhancing productivity and reducing costs. Consequently, we anticipate that Microsoft's solutions should exhibit resilience even in a more challenging macroeconomic environment, supporting low double-digit growth in intrinsic value within our investment horizon.

BSD Analysis:
Mar Vista maintains a bullish outlook on Microsoft, emphasizing the company's leadership in enterprise digital transformation and AI adoption. The fund highlights Microsoft's comprehensive cloud portfolio spanning IaaS, PaaS, and SaaS as competitive advantages in capturing enterprise market share. Integration of generative AI solutions like ChatGPT positions Microsoft to drive productivity gains and cost reductions for customers. The investment thesis centers on Microsoft's ability to monetize the digital transformation trend across enterprise customers of all sizes. Mar Vista projects low double-digit intrinsic value growth, reflecting confidence in the company's market position and execution capabilities. The fund views Microsoft's solutions as recession-resistant given their productivity-enhancing nature. Strong enterprise relationships and AI leadership support the long-term growth trajectory.

Pitch Summary:
TransDigm delivered another impressive quarter, exceeding analysts' expectations for both earnings and profitability. Its gross and EBITDA margins widened significantly, driven by strong performances in commercial aerospace and defense. Revenue growth in commercial aerospace aftermarket parts (+27%) and new defense orders were key contributors to this outperformance. Management responded by raising the full-year 2024 forecasts for revenue and profitability. Continued growth in both defense and commercial aftermarket should be fueled by recovering passenger traffic, higher aircraft utilization, and a strong bookings backlog. With domestic travel exceeding pre-pandemic levels and international travel nearing full recovery, TransDigm appears well-positioned for continuous growth. This, combined with its efficient operations, should drive long-term stock price appreciation.

BSD Analysis:
Mar Vista expresses strong conviction in TransDigm's aerospace recovery story, emphasizing margin expansion and aftermarket growth. The company delivered 27% growth in commercial aerospace aftermarket parts, demonstrating pricing power and market recovery. Management's raised 2024 guidance reflects confidence in sustained momentum across defense and commercial segments. The fund highlights TransDigm's positioning to benefit from normalized travel patterns and increased aircraft utilization rates. Strong bookings backlog provides revenue visibility, while efficient operations drive margin expansion. The investment thesis capitalizes on the aerospace cycle recovery with domestic travel above pre-pandemic levels. Mar Vista views the combination of operational leverage and market recovery as drivers for long-term appreciation.

Pitch Summary:
Walt Disney's latest financial results displayed considerable progress, leading to an increase in stock price. The most noteworthy factor was the improved performance of its streaming business. With media profitability recovering, management is optimistically guiding for 20% earnings growth in 2024. This positive outlook is also supported by lower costs and robust performance from its parks division. Walt Disney's streaming service is on track to become profitable by its fiscal fourth quarter. This aligns with our original investment thesis, which expected the direct-to-consumer (DTC) business to move from a loss of $2 billion to a profit of $1 billion. Even after the recent stock price increase, Walt Disney remains undervalued relative to Netflix. We expect this gap to shrink as its streaming business matures and becomes increasingly profitable over the next few years.

BSD Analysis:
Mar Vista maintains a bullish stance on Disney, highlighting the company's streaming turnaround as the primary catalyst. The fund's thesis centers on Disney's direct-to-consumer business transitioning from a $2 billion loss to $1 billion profit, with streaming profitability expected by Q4. Management's guidance for 20% earnings growth in 2024 reflects operational improvements across streaming and parks divisions. The fund views Disney as undervalued relative to Netflix, expecting valuation convergence as streaming margins improve. Lower cost structure and strong parks performance provide additional earnings support. The investment thesis appears well-positioned given Disney's progress toward streaming profitability and diversified revenue streams. Mar Vista's confidence in the streaming transformation suggests they view current headwinds as temporary.

Pitch Summary:
Novonesis is the new name for the recently merged Novozymes and Chr. Hansen. The combined company is a dominant leader in biosolutions, notably enzymes and cultures, for more than thirty different industries and wields a broad biological toolbox to develop innovative solutions across various domains. Half of Novonesis' portfolio focuses on enabling better lives and foods while the other half is dedicated to a better environment such as reducing chemical use and promoting climate-neutral practices. The company enjoys durable competitive advantages due to switching costs, intellectual property, and scale advantages. We project revenues will grow mid-to-high single digits on the strength of innovation, secular demand for safer, cleaner solutions and improved pricing power. Returns on invested capital should march higher as stronger revenue growth and operating leverage drive double-digit profit growth.

BSD Analysis:
Mar Vista initiated a position in Novonesis, the merged entity of Novozymes and Chr. Hansen, viewing it as a dominant biosolutions leader with significant competitive advantages. The fund highlights the company's broad biological toolbox serving over thirty industries with solutions focused on better living and environmental sustainability. Novonesis benefits from switching costs, intellectual property protection, and scale advantages that create durable competitive moats. Mar Vista projects mid-to-high single-digit revenue growth driven by innovation and secular demand for cleaner, safer solutions. The investment thesis centers on the company's ability to improve pricing power and achieve operating leverage as the merger synergies materialize. The fund expects returns on invested capital to improve as revenue growth accelerates and operational efficiency gains drive double-digit profit growth. This represents a play on the secular trend toward sustainable industrial solutions and biotechnology innovation.

Pitch Summary:
Apple's stock was pressured in the quarter as investors fretted over softening demand for smartphones, regulatory action from the US Department of Justice, and the Chinese government mandates restricting iPhone use by government officials. Despite these near-term headwinds, we continue to believe the company remains competitively advantaged and benefits from the Apple ecosystem, which has an installed base of over 2 billion devices and over 1 billion paying subscribers. We believe the Apple ecosystem will support a more predictable cash flow stream, which should grow intrinsic value high-single-digits over our investment horizon.

BSD Analysis:
Mar Vista maintains a bullish stance on Apple despite multiple near-term pressures including smartphone demand concerns, DOJ regulatory action, and Chinese government restrictions. The fund emphasizes Apple's competitive advantages through its ecosystem of over 2 billion devices and 1 billion paying subscribers. The investment thesis centers on the predictable cash flow generation from Apple's services and ecosystem lock-in effects. Mar Vista projects high-single-digit intrinsic value growth, suggesting confidence in Apple's ability to navigate current challenges. The fund views temporary headwinds as disconnected from Apple's long-term competitive positioning and cash generation capabilities. The ecosystem's scale and subscriber base provide revenue stability and growth visibility beyond hardware cycles. This represents a long-term value perspective that looks through cyclical smartphone demand and regulatory uncertainties to focus on Apple's durable competitive advantages.

Pitch Summary:
GXO Logistics experienced a setback this quarter. Customer volumes dropped 9%, stalling any organic growth. This slump was primarily driven by weakness in the omnichannel retail and consumer packaging sectors. As a result, the company's 2024 forecasts fell short of analyst expectations, leading to a drop in share price after the announcement. Despite cyclical headwinds, there are signs of a turnaround for GXO. Management indicated that customer volumes in January have already begun to improve. Additionally, they expect easier comparisons in the later half of 2024 to further aid recovery. To us, this suggests that the first half of 2024 may be the cyclical low point, with a rebound on the horizon. Over the next few quarters, GXO should get back on track towards achieving its long-term financial goals.

BSD Analysis:
Mar Vista views GXO's current weakness as cyclical rather than structural, maintaining a bullish long-term outlook despite near-term headwinds. The fund acknowledges the 9% volume decline and weakness in omnichannel retail and consumer packaging but emphasizes early signs of recovery. Management's indication of improving January volumes and easier second-half comparisons supports the cyclical trough thesis. Mar Vista believes the first half of 2024 represents the cyclical low point for GXO's business. The investment thesis centers on the company's ability to return to its long-term financial targets as customer volumes normalize. The fund appears confident in GXO's market position and operational capabilities despite temporary demand weakness. This represents a contrarian view that current challenges are temporary and that GXO will benefit from eventual demand recovery in logistics and e-commerce fulfillment.

Pitch Summary:
Despite underperforming during the quarter, Adobe remains a powerful player in the creative professional market. We believe the company is well-positioned to capitalize on two key trends: the ongoing shift towards digital commerce and the rise of generative AI. Adobe stands out as an early leader in generative AI, offering both standalone solutions like Firefly and integrated features within established products like Photoshop. This puts them ahead of the curve, attracting both creative professionals and marketing teams within corporations. As a result, Adobe is experiencing strong bookings growth in the mid-teens, which ultimately translates to healthy revenue, earnings, and cash flow. Based on these factors, we project continued intrinsic value growth for Adobe in the low-to-mid-teens range over our investment horizon.

BSD Analysis:
Mar Vista maintains conviction in Adobe despite quarterly underperformance, viewing the company as a leader in generative AI integration. The fund highlights Adobe's dual positioning in digital commerce transformation and AI innovation through products like Firefly and AI-enhanced Photoshop. Strong mid-teens bookings growth demonstrates customer adoption of Adobe's AI-enhanced creative tools across both professional and corporate segments. The investment thesis centers on Adobe's ability to monetize AI capabilities within its established creative software ecosystem. Mar Vista projects low-to-mid-teens intrinsic value growth, reflecting confidence in Adobe's competitive moat and AI leadership. The fund views temporary underperformance as disconnected from strong underlying fundamentals and customer demand. Adobe's early mover advantage in generative AI positions the company to capture significant value from the AI transformation in creative workflows.

Pitch Summary:
Amazon is experiencing a surge in profitability, reflected in significantly higher retail profit margins. Strategic cost reductions in headcount and fulfillment have materialized into financial gains. While the unexpected pandemic-driven demand surge necessitated a rapid expansion of fulfillment infrastructure, this initially impacted operating profits. However, current unit sales growth has effectively reached equilibrium with fulfillment capacity. This balance is leading to positive adjustments to both earnings and intrinsic value estimates. Should the economic climate continue to improve, we believe Amazon's investment potential aligns with its projected 15-20% intrinsic value growth trajectory.

BSD Analysis:
Mar Vista highlights Amazon's operational leverage story as fulfillment capacity utilization normalizes post-pandemic expansion. The fund emphasizes how strategic cost reductions in headcount and fulfillment operations are driving significant retail margin improvement. Amazon's ability to balance unit sales growth with existing fulfillment capacity represents a key inflection point for profitability. The investment thesis centers on the company's transition from growth-at-all-costs to profitable growth, with operating leverage driving earnings expansion. Mar Vista projects 15-20% intrinsic value growth, suggesting confidence in Amazon's ability to monetize its infrastructure investments. The fund views the current environment as favorable for Amazon's margin expansion story. This represents a maturation of Amazon's retail business model, where scale advantages and operational efficiency drive sustainable profitability growth.

Pitch Summary:
TransDigm delivered another impressive quarter, exceeding analyst expectations on both earnings and profitability. Its gross and EBITDA margins widened significantly, driven by strong performances in commercial aerospace and defense. Revenue growth in commercial aerospace aftermarket parts (+27%) and new defense orders were key contributors to this outperformance. Management responded by raising full-year 2024 forecasts for revenue and profitability. Continued growth in both defense and commercial aftermarket should be fueled by recovering passenger traffic, higher aircraft utilization, and a strong bookings backlog. With domestic travel exceeding pre-pandemic levels and international travel nearing full recovery, TransDigm appears well-positioned for continuous growth. This, combined with its efficient operations, should drive long-term stock price appreciation.

BSD Analysis:
Mar Vista views TransDigm as a beneficiary of the aerospace recovery cycle with strong execution driving margin expansion. The company's 27% growth in commercial aerospace aftermarket parts demonstrates the strength of its high-margin, mission-critical components business. Management's raised 2024 guidance reflects confidence in sustained demand from both commercial and defense segments. The fund highlights TransDigm's positioning in the aftermarket cycle, where recovering passenger traffic and higher aircraft utilization drive parts demand. Strong bookings backlog provides revenue visibility, while the company's efficient operations leverage fixed costs for margin expansion. Mar Vista expects the combination of travel recovery momentum and TransDigm's operational excellence to drive continued stock appreciation. The investment thesis centers on the company's exposure to secular aerospace growth trends and its ability to generate superior margins through its specialized product portfolio.

Pitch Summary:
Walt Disney's latest financial results showcased significant progress, leading to an increase in stock price. The most noteworthy factor was the improved performance of its streaming business. With media profitability recovering, management is optimistically guiding for 20% earnings growth in 2024. This positive outlook is also supported by lower costs and strong performance from its parks division. Walt Disney's streaming service is on track to become profitable by its fiscal fourth quarter. This aligns with our original investment thesis, which expected the direct-to-consumer (DTC) business to move from a loss of $2 billion to a profit of $1 billion. Even after the recent stock price increase, Walt Disney remains undervalued relative to Netflix. We expect this gap to shrink as its streaming business matures and becomes increasingly profitable over the next few years.

BSD Analysis:
Mar Vista maintains a bullish stance on Disney, highlighting the company's streaming turnaround as the key catalyst. The fund's original thesis of a $3 billion swing from losses to profitability in the DTC segment is materializing, with streaming profitability expected by Q4. Management's guidance for 20% earnings growth in 2024 reflects operational improvements across streaming, parks, and cost management. The fund views Disney as undervalued relative to Netflix, suggesting significant upside as the streaming business matures. Strong parks performance and media profitability recovery provide additional earnings support. The investment thesis centers on Disney's transformation from a traditional media company to a profitable streaming competitor. Mar Vista expects the valuation gap with Netflix to narrow as Disney's streaming margins improve over the next few years.

Pitch Summary:
ASIRO (TSE:7378) also reported its 1st quarter 2024 result with revenue +40.7% on the prior year. Profit was negative due to a minor impairment of the Bikkore business, which funny enough was the one I was not sold on in our write up, so I am not mad to see focus shifted away from it. Free cash flow amounted to ¥96m and pre-investment EBIT was ¥208m, up 19.3% on the prior year. Overall, the progress is very sound and the trust remains a satisfied shareholder. Interestingly, the group has a target of ¥5.5B in revenue and ¥1.1B in EBIT by October 2025, but has also outlined a 2028 plan which the CEO has quoted in the 1Q transcript: 'Regarding the investments we are currently making, the main focus is on increasing medium- to long-term growth potential rather than short-term performance. We believe that even if we stop investing in FY25, we will be able to concentrate resources on existing businesses and that our growth will not stop.' This therefore implies that the group will be able to generate a drastically improved return on its invested capital over time. Whether that is true or not, it is still exciting to think that it may be possible. Unfortunately, however, after an email I was informed that the company is ceasing it's English disclosures…bad timing.

BSD Analysis:
The manager remains bullish on ASIRO despite mixed Q1 2024 results, viewing the 40.7% revenue growth as validation of the investment thesis. While profits were negative due to Bikkore business impairment, this was viewed positively as the manager had previously expressed skepticism about that division. Strong operational metrics include ¥96M free cash flow and ¥208M pre-investment EBIT (up 19.3% year-over-year), demonstrating underlying business health. Management's ambitious targets of ¥5.5B revenue and ¥1.1B EBIT by October 2025 suggest significant scale potential. The 2028 strategic plan indicates current investments prioritize long-term growth over short-term performance, with management confident that growth momentum will continue even after investment spending moderates in FY25. This implies substantial improvement in return on invested capital as the business matures. The cessation of English disclosures represents a communication challenge but doesn't alter the fundamental investment case. The manager's characterization as a 'satisfied shareholder' despite disclosure changes suggests strong conviction in the operational trajectory and management's capital allocation strategy.

Pitch Summary:
Getbusy (LSE:GETB) released its full year 2023 report which I viewed as somewhat of a disappointing year. Revenue was up 10% in constant currency terms which was 'fine' but the group suffers most from a change in UK R&D tax credit rules which will likely halve their claim (~£0.3m less WC benefit) and a shift towards Smartvault resale partners which pay monthly, diluting the group's proportion of annual renewals. Obviously, this is intended to be worthwhile but this and the R&D claim have resulted in a free cash outflow of (£1.0m) for the year, meaning that the business will likely have to reduce its reinvestment rate to self-fund in the short-medium term future. On a positive note, the group shifted away from non-accountant subscribers in favour of larger firms which has assisted both ARPU (£281 up from £256) and monthly churn (reducing from 0.9% to 8%). Although if you take out the run-rate from the Virtual Cabinet unlimited upgrade that came in in the 1st half, the 2nd half ARR only grew 3% which is far from where I would like it to be. Nevertheless, the group trades at 1.7x EV/Sales and 5.4x their 'standstill EBITDA' and management are heavily incentivised to realise a divestment of some kind at a substantial premium.

BSD Analysis:
The manager expressed mixed sentiment on GetBusy following a 'disappointing' 2023 performance that revealed both operational challenges and strategic positioning issues. Revenue growth of 10% in constant currency was deemed merely 'fine,' while structural headwinds emerged from UK R&D tax credit rule changes (reducing benefits by ~£0.3M) and a strategic shift toward monthly-paying resale partners that dilutes annual renewal concentration. These factors contributed to negative £1.0M free cash flow, likely forcing reduced reinvestment rates and constraining growth funding. However, positive developments include improved customer quality through focus on larger accounting firms, driving ARPU from £256 to £281 and dramatically improving churn from 0.9% to 8% monthly. Excluding Virtual Cabinet upgrades, second-half ARR growth of only 3% remains concerning for a SaaS business. The valuation appears attractive at 1.7x EV/Sales and 5.4x 'standstill EBITDA,' with management incentives aligned toward value realization through divestment at a premium.

Pitch Summary:
Orchard Funding (LSE:ORCH) once again updated the market with the detection of a small case of fraud in their loan book from a specific introducer. This introducer has current loans amounting to £0.5m with the business of which Orchard is raising a full provision for and is reviewing the entire loan book for any further fraudulent introducers. The market reacted in kind with an intraday decline of 33.9% on the date of announcement. The provision was 55% of the company, a purchase of the Gresham stake of ~15% could get them ample voting power force a take private (atleast this is the view of a certain ex-shareholder), so there is a hesitancy to go 'too' heavy on Orchard. It is so cheap that there is a risk that the Takhar family acts on crystallising that.

BSD Analysis:
The manager aggressively added to Orchard Funding following a 33.9% market overreaction to fraud disclosure, viewing it as an exceptional value opportunity. The fraud case involves only £0.5M from one introducer, requiring a provision of less than 3% of book value - a manageable impact that the market dramatically overweighted. Orchard's track record since 2015 IPO demonstrates strong cash generation, with cumulative dividends exceeding the current market price, indicating sustainable profitability. The company trades at approximately 20% of book value despite historically generating high single-digit to low double-digit ROE, creating a compelling risk-adjusted return profile. Majority shareholder Ravi Takhar and the Takhar family's 55%+ ownership provides governance stability and alignment. However, position sizing is constrained by takeover risk - if the Takhars acquire Gresham's 15% stake, they could force a privatization at current depressed valuations. The manager views the stock as 'so cheap' that crystallization of value through a take-private represents both an opportunity and a risk management consideration.

Pitch Summary:
Some of the proceeds were used to participate in the AF Legal (ASX:AFL) entitlement offer after the announcement of the acquisition of the Armstrong Contested Wills & Estates (ACWE) business from GTC Legal, which if you have been following AF Legal you would recognise as the failed acquisition attempt from 2022 under previous management. The ACWE business is complementary to the existing family law business for obvious reasons being an area of law which involves a highly strung family group in a different stage of life, but with many of the same motives as a family law case. On the other hand, ACWE often requires going through the courts in a time-consuming manner and this type of law is often billed near the end of a dispute, meaning that there is substantial working capital demands relative to the average mediation settled family law case. Fortunately, the acquisition includes all the current lockup of the ACWE business, which is the same as the purchase price of the business, meaning that there is little goodwill being acquired (provided that the remaining net assets being acquired are in a neutral position). With this business growing from $2m to $3.1m in revenue over the prior 3 years, not paying a dollar for the business is a great allocation of capital and I am happy to have received double the trust's full entitlement by the acceptance of all applied shortfall shares.

BSD Analysis:
The manager participated aggressively in AF Legal's rights offering to fund the acquisition of Armstrong Contested Wills & Estates (ACWE), viewing it as exceptional value creation. The acquisition represents a strategic retry of a failed 2022 transaction under previous management, suggesting improved execution capability. The ACWE business complements AF Legal's family law practice by serving similar client demographics at different life stages, creating cross-selling opportunities and operational synergies. While contested wills require more court time and have different working capital dynamics than mediated family law cases, the acquisition structure mitigates risk significantly. The purchase price equals the business's current work-in-progress lockup, essentially acquiring the business for free assuming neutral net assets. Revenue growth from $2M to $3.1M over three years demonstrates solid organic expansion. The manager's decision to accept double the trust's entitlement allocation and all available shortfall shares indicates strong conviction in the value proposition and management's capital allocation skills.

Pitch Summary:
Finexia Financial Group (ASX:FNX) was an admission of error and I have sold in full during the month after what I believe was an incredibly amateur showing for their inaugural results call from Neil Sheather who was unable to answer simple questions about significant changes in the balance sheet. The direction of the group is to lean further into private credit which I have doubts of their ability to underwrite and subsequently carry significant leverage. This lean included selling down what I believe was the crown jewel of the group, the co-investments into Stayco and Childcare funds. In addition to this, the group lost Scott Beeton to Arc Funds (ASX:ARC) impairing their ability to expand distribution. After discussion with several people who have been involved with the services and people involved in this business, this brought into question the aptitude of those running the business. The trust lost 18% on this investment over an average holding period of ~5 months, and it represented ~5% of the portfolio for the life of the investment.

BSD Analysis:
The manager completely exited Finexia after identifying multiple red flags that undermined confidence in management's competence and strategic direction. The catalyst was an 'amateur' earnings call where CEO Neil Sheather couldn't address basic balance sheet questions, raising concerns about financial transparency and management quality. The strategic pivot toward private credit was viewed negatively due to doubts about the team's underwriting capabilities and leverage management skills. The sale of high-quality assets (Stayco and Childcare fund co-investments) to fund this pivot was seen as destroying value by disposing of the 'crown jewel' assets. The departure of key distribution executive Scott Beeton to Arc Funds further impaired growth prospects. Due diligence conversations with industry contacts reinforced concerns about management aptitude. The 18% loss over five months on a 5% portfolio position demonstrates the manager's willingness to cut losses quickly when the investment thesis deteriorates.