Investment Pitches

Pitch Summary:
Herc Holdings (HRI): Herc Holdings is a heavy equipment rental company. It was opened as a division of rental car giant Hertz in 1965 and continued operating as a subsidiary until it was finally spun off by the parent in 2016. Today, HRI has about 400 branches and manages a $6.3 B fleet of machines that is well-balanced across both across equipment type and customer group (see charts below). Heavy machinery industrials are an obvious beneficiary of a few large long-term tailwinds, such as increased infrastructure investment and housing shortfalls. Rental equipment providers in particular stand to gain from continued share gains in rental penetration, which has increased consistently in recent decades, but at 55-60% is still far below the 80%+ levels seen in other developed countries such as the UK and Japan. Scale players such as HRI also have the opportunity for accretive bolt-on acquisitions in what is a relatively fragmented industry; rolling up smaller operators at 3.5-4.5x synergized EBITDA multiples creates value when your stock trades above 10x. These acquisitions allow them to either quickly enter greenfield territories or add density (and thus operating efficiency) to the existing network. As a result, rental companies have consistently gained share of the US equipment rental market (see chart below). The pipeline remains strong throughout the industry, and HRI sees an opportunity for around $500 M a year in strategic acquisitions (versus a $430 M total M&A investment last year), so I would expect this share to continue to expand in the years ahead. Management seems up to the task of executing on this opportunity. The current CEO, Larry Silber, has been at the helm for nearly a decade, over which time HRI has handily outperformed the indices. He has a background in both industrial operations and private equity, a useful combination in a business where efficiency and thoughtful M&A are important pieces of the puzzle. Executive compensation targets are fairly standard; importantly, however, they include a "returns on revenue earning equipment" metric that deters value-destructive growth for its own sake. While HRI has done a good job closing the financial gap with competitors United Rentals (URI) and Ashtead (which owns Sunbelt Rentals) since becoming an independent company, we think there are still a few levers that can be pulled to reduce it even more. Beyond the typical scale benefits, additional acquisitions to increase branch density (HRI made 12 in 2023 alone) should allow for overhead leverage and enhanced fleet efficiency. Prioritization of its higher-margin specialty fleet, which is currently less than a quarter of the total, will bear fruit over time as it slowly gains share of the total OEC. HRI's dollar utilization in FY23 was 45%; for comparison, URI finished last year at 57%. Of course, there are some differences in terms of fleet and customer compositions, but these companies rent very similar equipment to very similar end markets. URI has a head start, but there's no reason HRI, under the current team, can't continue to climb toward its levels. Herc's 2023 results were solid, with 20% revenue growth and 11% EPS growth on a 10% return on capital. This was achieved despite a material drag from its Cinelease business, which offers lighting and grip equipment to motion picture studios. As the industry has moved toward having these items included as part of studio ownership, rather than rented, results in this unit have deteriorated. Rather than moving outside its circle of competence and purchasing studio real estate, HRI has made the prudent decision to instead divest these assets. A sale process is underway, and upon completion, it will immediately boost headline earnings and sales growth figures. HRI has also demonstrated intelligent capital allocation via its shareholder return programs; in 2023, they completed a material buyback (4% of shares) at discount prices while also raising the dividend. We expect the same for 2024 as well following the completion of the Cinelease divestiture should the stock remain range-bound. Net leverage is 2.5x currently, within both historical ranges and HRI's targeted 2-3x band. Pro forma for the divestiture of Cinelease, the stock seems undervalued on the basis of the remaining operations, which posted 24% sales and 18% earnings growth last year. Indeed, while the broader market sets new records, HRI remains below its all-time high reached in fall 2021 despite having increased EPS by 64% in the two years since then. Trading multiples remain below long term pre- and post-pandemic averages, both on a trailing and forward basis. There will likely be some rental sales deceleration this year as they lap these outsized figures, but the myriad of tailwinds to the industry remain intact, and at 12x 2024 earnings we aren't paying a premium for it. So what is the business worth? Over time, I have put less emphasis on exhaustively modeling every line item across multiple financial statements, instead trying to prioritize being approximately correct rather than precisely wrong. It seems in general my time is better spent trying to find situations where there are reasonably few key input drivers, making a directionally correct estimate of what those will probably look like in a few years, and then purchasing the ones that offer a discount to intrinsic value/margin of safety and that fit in the portfolio within the makeup of our current holdings. The bottom line is that it seems like HRI should be able to generate both sales growth and operating leverage to produce outsized earnings growth; combining that with the potential for multiple expansion and share count reductions, the equity should have all three value creation engines firing in the years ahead. To put some numbers around it, if HRI can grow rental revenue at 7-10% a year while continuing to make progress on their efficiency initiatives, we should see earnings of around $500 M by 2027, depending on the ultimate M&A cadence. On 26 M shares (2% reduction annually), this works out to just under $19 in EPS. On a 18x trailing earnings multiple (below both the market and HRI's long-term averages), we arrive at a $350 share price, good for a 30% IRR from here. A scenario analysis, which flexes a few of these key input drivers, suggests this is a reasonable (41st percentile) target. Thus, much like our UFPT and MYRG ideas, this isn't a particularly complex thesis. Herc is a good company operating in an attractive industry trading at a discount to peers and its own multiples, and there are credible reasons to think that future years will be even better than the current. With a sub-$5 B market capitalization, it's a bit under the radar, but it's likely more investors will take notice as the core business continues to grow and the drag from its money-losing segment is removed. The balance sheet is in good shape, so interim cash flow generation gives management some flexibility around capital allocation, and their track record on that front is strong.

BSD Analysis:
The manager presents a compelling bull case for Herc Holdings, a heavy equipment rental company spun off from Hertz in 2016. The thesis centers on multiple structural tailwinds including infrastructure investment, housing shortfalls, and continued rental penetration gains in the US market, which at 55-60% lags developed peers like the UK and Japan at 80%+. The company operates in a fragmented industry ripe for consolidation, with HRI targeting $500M annually in bolt-on acquisitions at attractive 3.5-4.5x EBITDA multiples while trading above 10x itself. Management under CEO Larry Silber has demonstrated strong execution over nearly a decade, with the company posting 20% revenue growth and 11% EPS growth in 2023 despite headwinds from its underperforming Cinelease division. The pending divestiture of Cinelease should provide an immediate boost to growth metrics and free up capital for core business investment. At 12x 2024 earnings, the stock trades below historical averages despite 64% EPS growth since 2021, offering an attractive entry point. The manager's $350 price target implies a 30% IRR based on 7-10% revenue growth, operational improvements, and multiple expansion to 18x earnings.

Pitch Summary:
Take a company like Cameco Corporation ('CCO'), which is well known as the second largest uranium miner in the world. But, we are of the view that the nuclear fuel cycle aspect of their business is underappreciated and therefore, could drive further material share price appreciation from current levels. With their Westinghouse acquisition closing in November of 2023, CCO now has a dominant position in nuclear fuel conversion, with their Port Hope and Smithfield facilities. Through their Westinghouse business they are the OEM or technology provider for approximately half of global commercial nuclear power plants and provide services to two thirds of the world's operating fleet. In a world with rising energy demand, we believe CCO's exposure to this trend with their downstream investments in the nuclear fuel cycle is significantly underappreciated, which should drive further share price appreciation from current levels.

BSD Analysis:
The manager presents a compelling bull case for Cameco Corporation based on the underappreciated value of their nuclear fuel cycle operations beyond uranium mining. The November 2023 Westinghouse acquisition significantly enhanced CCO's strategic positioning, creating a dominant nuclear fuel conversion capability through their Port Hope and Smithfield facilities. This vertical integration provides exposure to approximately 50% of global commercial nuclear power plants as an OEM/technology provider, with services extending to two-thirds of the world's operating fleet. The investment thesis centers on rising global energy demand driving increased nuclear power adoption, particularly accelerated by AI-driven data center construction requiring substantial power infrastructure. The manager believes the market has not fully recognized the value creation potential from CCO's downstream nuclear fuel cycle investments. The Amazon-Talen Energy nuclear power deal exemplifies the premium pricing environment emerging for nuclear energy, supporting the broader uranium renaissance theme. This positions CCO to benefit from both uranium price appreciation and expanding nuclear fuel services demand.

Pitch Summary:
PotlatchDeltic Corp (PCH): PCH is one of three publicly traded timber REIT's. The company is vertically integrated allowing them to be one of the lowest cost providers of wood products and has the most leverage amongst peers to an improving overall lumber price environment. Lumber prices should benefit from an improving housing environment driven by peaking/lower interest rates, a lack of overall housing supply, a growing cohort of homebuyers, and an undersupplied timber market. The company pays a consistently growing dividend, maintains a strong balance sheet, has consistently generated FCF throughout economic cycles and opportunistically repurchases their stock.

BSD Analysis:
Bernzott Capital initiated a position in PotlatchDeltic, viewing it as a compelling play on the timber and lumber recovery cycle. The manager highlights PCH's competitive advantage through vertical integration, positioning it as one of the lowest-cost wood product providers with maximum operational leverage to rising lumber prices. The investment thesis centers on multiple housing market catalysts including peaking interest rates, constrained housing supply, demographic tailwinds from growing homebuyer cohorts, and an undersupplied timber market. The company's financial profile appears attractive with consistent free cash flow generation across economic cycles, a growing dividend policy, and opportunistic share repurchases. PCH's status as one of only three publicly traded timber REITs provides scarcity value in accessing this asset class. The timing appears strategic as the manager anticipates an improving housing environment that should drive lumber price appreciation.

Pitch Summary:
During 1HFY24, MWY finally delivered its long-awaited grain strategy, announcing that it had agreed to sell 5.15 hectares of its Geelong port site to CHS Broadbent, who will build and operate an 80,000 tonne grain storage and export terminal. The sale price of $15.5m for ~5 hectares (~25% of the total site area) compares favourably to the current book value of $16.5 million for the entire 19 hectare site. In addition to monetising excess land at well above book value, the agreement with CHS Broadbent also helps mitigate the significant cost of the take-or pay agreement for the shiploader owned by Geelong Port. Soon after the grain strategy news, MWY refinanced its banking facilities to be more focused on working capital rather than core debt, which better suits the needs of the business today post the sale of the plantation assets. Whilst the pace of change at MWY has been slower than we would like, significant improvements have taken place at the company over the past two years. Non-core assets have been sold, loss making businesses have been closed and the grain strategy helps defray a punitive take-or-pay contract. The asset backing of the company today (net tangible assets of $1.64 per share) is largely made up of current assets such as cash, inventory and receivables. A significant amount of the inventory balance has been converted to cash in the early part of 2HFY24 due to solid demand for woodchips from customers. This places MWY in a strong position to conduct further capital management initiatives (dividends and/or buybacks) to create value for shareholders using their balance sheet. We also look forward to further updates on the company's nascent carbon management business.

BSD Analysis:
Sandon Capital presents Midway as an asset-rich company executing a successful value realization strategy following significant restructuring. The key development is MWY's grain strategy, selling 5.15 hectares (25% of total site) of its Geelong port for $15.5 million, nearly matching the $16.5 million book value of the entire 19-hectare site. This transaction not only monetizes excess land above book value but also mitigates costs from a punitive take-or-pay shiploader agreement. The company has undergone substantial transformation over two years, including asset sales, closure of loss-making businesses, and refinancing to working capital-focused facilities. With net tangible assets of $1.64 per share consisting largely of current assets (cash, inventory, receivables), MWY has significant balance sheet flexibility. Strong woodchip demand has enabled inventory conversion to cash in early 2HFY24, positioning the company for capital management initiatives including dividends and buybacks. Sandon Capital also sees potential in MWY's emerging carbon management business. The investment thesis centers on the substantial asset backing, successful restructuring, and the company's ability to return capital to shareholders while developing new growth opportunities in carbon management.

Pitch Summary:
Following a period of uncertainty, BCI has now completed the financing for the salt first component of the Mardi salt and potash project. Credit approvals for the $981 million of project finance required for the Mardie salt project were received from all key debt providers in December 2023. This was followed by a $315m equity raise which should form the final component of equity funding. In addition, the 2023 convertible notes issued to Wroxby, Australian Super and Ryder Capital (all major shareholders of the company) were converted to equity. As at 31 December 2023, the Mardi project was approximately one third complete. Now that sufficient funding is in place, and offtake contracts are being executed, we look forward to project construction proceeding and the first shipment of salt in 2H 2026, coinciding with an expected shortage in the global salt market. The economics of the Mardi project remain very attractive with annual free cash flow of $225m expected to be generated when the project achieves steady state salt and potash production.

BSD Analysis:
Sandon Capital presents BCI Minerals as a compelling development story with the Mardie salt and potash project now fully funded and progressing toward production. After a period of financing uncertainty, the company secured $981 million in project finance from key debt providers and completed a $315 million equity raise, providing the final funding component. The conversion of convertible notes from major shareholders including Wroxby, Australian Super, and Ryder Capital to equity demonstrates strong institutional support. With the project approximately one-third complete as of December 2023 and offtake contracts being executed, BCI is well-positioned for construction completion and first salt shipment in 2H 2026. The timing aligns favorably with an expected global salt market shortage, providing strong pricing tailwinds. The project economics are highly attractive, with Sandon Capital highlighting expected annual free cash flow of $225 million at steady-state production combining both salt and potash. The investment thesis centers on the successful project financing, favorable market timing, and the substantial cash generation potential once the Mardie project reaches full production capacity.

Pitch Summary:
The stabilisation that has taken place at MFG over the past 6-9 months has been encouraging, both at the corporate level and within the funds management business. The Board has been strengthened with the addition of a number of new directors with requisite funds management experience, costs have been removed from the business, a new Managing Director has been appointed to the Funds Management business and after a long period of decline, funds under management have stabilised and even grown marginally (aided by strong equity markets rather than inflows). Furthermore, concerns related to the liability on options over closed class units in Magellan Global Fund (ASX: MGF) have now been resolved through the buyback of 750 million MGF options. This coincided with the responsible entity (RE) of MGF deciding to proceed with a conversion of the closed class units to open class units. The new board, led by MFG Executive Chairman, Andrew Formica, has moved expeditiously to address a number of legacy issues. With most of these now in the rear-view mirror, we look forward MFG turning its attention to the last of the low-hanging fruit, capital management. We believe it can easily deliver on both growth opportunities and capital management, or in other words, "walk and chew gum."

BSD Analysis:
Sandon Capital presents Magellan Financial Group as a stabilization and recovery story following a period of significant challenges. The manager highlights encouraging developments over the past 6-9 months, including board strengthening with experienced funds management directors, cost reduction initiatives, and the appointment of a new Managing Director for the funds management business. Critically, funds under management have stabilized and begun growing marginally after a prolonged decline period. A major overhang has been resolved through the buyback of 750 million MGF options, eliminating concerns about the liability on closed class units, with the responsible entity proceeding to convert these to open class units. Under Executive Chairman Andrew Formica's leadership, the new board has expeditiously addressed legacy issues. Sandon Capital believes most problems are now resolved and expects management to focus on capital management initiatives, which they view as "low-hanging fruit." The fund is optimistic that MFG can simultaneously pursue growth opportunities while implementing capital management strategies. The investment thesis centers on the successful stabilization of the business and the potential for both operational improvements and shareholder-friendly capital allocation.

Pitch Summary:
A2B Shareholders approved the scheme of arrangement to sell the company to Singapore's ComfortDelGro for $1.45 per share. The scheme consideration comes on top of a $0.60 per share fully franked special dividend that was paid in January 2024 following the sale of A2B's remaining properties. When we first invested in A2B, its market capitalisation was approximately $110 million and the company was committed to a strategy that we believed was eroding the value of the business. Our campaign to change the Board, including the appointment of Mark Bayliss as Executive Chairman, has led to a significant change in fortunes for A2B and its shareholders. Mark and his team have executed one of the most successful corporate resurrections we have witnessed – non-core property assets have been sold, the core taxi despatch and payments businesses have been successfully turned around, and these efforts have been capped off with the announcements of the large special dividend and the scheme implementation agreement with ComfortDelGro. The company today has a market capitalisation of more than $260 million (prior to the payment of the special dividend). In less than three years, more than $150 million of shareholder value has been created.

BSD Analysis:
Sandon Capital presents A2B as a highly successful activist investment and corporate turnaround story. The fund initiated their position when A2B had a market capitalization of approximately $110 million and was pursuing a value-destructive strategy. Through an activist campaign, Sandon Capital successfully changed the board composition, including the appointment of Mark Bayliss as Executive Chairman. Under new leadership, A2B executed a comprehensive value creation strategy including the sale of non-core property assets, successful turnaround of core taxi dispatch and payments businesses, and ultimately a $0.60 per share special dividend and $1.45 per share takeover by Singapore's ComfortDelGro. The total return to shareholders represents over $150 million in value creation within three years, with the market capitalization growing to over $260 million before the special dividend payment. Sandon Capital views this as one of the most successful corporate resurrections they have witnessed. The investment demonstrates the fund's activist approach and ability to drive significant value creation through board changes and strategic repositioning. This represents a completed successful activist campaign with substantial returns for shareholders.

Pitch Summary:
CYG delivered a very strong 1HFY24 result, with the encouraging trends disclosed at the AGM in October accelerating into the end of the calendar year. 1HFY24 sales of $185.3 million was up ~5.4% on the prior corresponding period (pcp). More importantly, 1HFY24 EBITDA of $9.8 million was up ~18.1% on the pcp. The initiatives to grow EBITDA margin to 10% in the medium term that were implemented early in the financial year gained momentum in the December quarter with 2QFY24 EBITDA up almost 30% on the pcp. The company is starting to display strong positive operating leverage, with earnings now growing significantly faster than revenues. This has been a long time coming and is a function of: (i) the improved service proposition allowing the company to raise prices (sell side), and (ii) the increased size of the company allowing it to extract better prices and working capital terms from its suppliers (buy side). We expect CYG's EBITDA margins to improve from below 5% currently towards the company's 10% target over the next 3 years, assuming end markets remain accommodative. Demand continues to remain solid in the company's core end markets (mining and resources, infrastructure, commercial construction and industrial) and the Enterprise Resource Planning (ERP) upgrade continues to track to schedule and budget. CYG operates in large, fragmented markets and has very modest market shares. We expect the strong top line growth that has been demonstrated over the past 5-6 years to continue into the medium term, with operating leverage and margin expansion initiatives translating to significantly improved earnings growth.

BSD Analysis:
Sandon Capital presents a strong operational improvement story for Coventry Group, highlighting the company's impressive margin expansion with EBITDA growing 18.1% despite only 5.4% revenue growth in 1HFY24. The manager emphasizes the accelerating momentum, with Q2FY24 EBITDA up nearly 30% year-over-year, demonstrating significant positive operating leverage. Sandon Capital attributes this improvement to two key factors: enhanced service proposition enabling price increases and improved supplier terms due to increased scale. The fund is particularly bullish on CYG's path toward their 10% EBITDA margin target over the next three years, up from below 5% currently. Strong demand continues across CYG's core end markets including mining, resources, infrastructure, and commercial construction. The manager views the successful ERP upgrade as supporting operational efficiency gains. Sandon Capital sees significant runway for growth given CYG's modest market share in large, fragmented markets and expects the combination of continued top-line growth and margin expansion to drive substantial earnings growth. The investment thesis centers on operational leverage, market share gains, and margin expansion in favorable end markets.

Pitch Summary:
Despite pivoting to a value realisation strategy, GDC announced that its associate investment, Etix Everywhere (Etix), acquired five data centres in France in 1HFY24. The acquisition was funded by a combination of new equity issued to Eurazeo, a current shareholder in Etix, and debt. We consider transactions like this consistent with the Etix strategy to grow, increasing its relevance to potential acquirers, which in turn will assist GDC's mandate to sell its assets over time. There has been considerable speculation in the financial press that AirTrunk, in which GDC owns an ~1% stake, has commenced a process to sell itself for a mooted enterprise value of "$15 billion-plus". This implies a value of ~$90 million for GDC's stake and represents double the current carrying value in GDC's accounts. This gives us confidence that the realisation of GDC assets will achieve closer to $3 per unit, well above the current unit price ($2.28 per unit) and the Net Tangible Asset backing reported by GDC ($2.40 per unit). We expect GDC's value realisation strategy to gain steam in the next 6 months and take 12-18 months to complete.

BSD Analysis:
Sandon Capital presents a compelling value realization play in Global Data Centres, focusing on the significant upside potential from asset sales. The manager views Etix Everywhere's acquisition of five French data centers as strategically positive, as it increases Etix's scale and attractiveness to potential acquirers, ultimately benefiting GDC's exit strategy. The key catalyst is the potential sale of AirTrunk, where GDC holds approximately 1% stake, with media speculation suggesting a $15+ billion enterprise value. This would value GDC's AirTrunk stake at around $90 million, double its current book value. Sandon Capital believes this validates their target valuation of $3 per unit for GDC, representing significant upside from the current $2.28 unit price and above the $2.40 net tangible asset backing. The fund expects the value realization strategy to accelerate over the next 6 months, with completion anticipated within 12-18 months. The investment thesis is based on the substantial discount to intrinsic value and the catalysts driving asset monetization in the high-growth data center sector.

Pitch Summary:
The operating and financial improvement at FWD gathered momentum in 1HFY24. Despite revenue growth of only 3%, the company turned from a loss of $0.8 million in 1HFY23, to a solid profit of $3.9 million in 1HFY24. The turnaround in Building Solutions continues with a return to a profit of $3.2 million following a loss of $2.3 million in the prior corresponding period (pcp). With that business now focused on standardised, repeatable work and the benefits from the national procurement strategy starting to flow, we expect significantly improved results from the Building Solutions segment in FY24 and beyond. The Community Solutions business is benefiting from a strong demand environment and rising room rates, with earnings increasing 82% to $4.7 million in 1HFY24. The medium-term outlook is very strong following the ramp up of the five-year agreement with Rio Tinto in April 2024. There are a number of significant projects planned or under construction in the Northwest of Western Australia in the oil and gas, fertiliser and green energy sectors. Given the lack of accommodation in and around Karratha, FWD's Searipple accommodation village remains well placed to satisfy likely strong demand for accommodation over the medium term.

BSD Analysis:
Sandon Capital presents a strong turnaround story for Fleetwood, emphasizing the company's dramatic operational improvement from a $0.8 million loss to a $3.9 million profit in 1HFY24. The manager highlights the successful restructuring of the Building Solutions division, which returned to profitability through a focus on standardized, repeatable work and implementation of a national procurement strategy. The Community Solutions business is performing exceptionally well, with 82% earnings growth driven by strong demand and rising room rates. A key catalyst is the five-year agreement with Rio Tinto commencing in April 2024, providing significant revenue visibility. Sandon Capital is particularly bullish on the medium-term outlook, citing numerous planned projects in Western Australia's Northwest across oil and gas, fertilizer, and green energy sectors. The fund views FWD's Searipple accommodation village as strategically positioned to capitalize on the accommodation shortage in the Karratha region. The investment thesis centers on FWD's operational turnaround, strong demand fundamentals, and strategic positioning to benefit from the resource sector boom in Western Australia.

Pitch Summary:
COG's 1HFY24 result continued the solid growth trajectory seen over the past few years. Revenue growth against the prior corresponding period (pcp) of 45%, partly supported by acquisitions, was very strong and resulted in growth in earnings per share before amortisation (EPSA) of 12%. The strong results in the company's burgeoning Novated Leasing business more than offset the weaker result in the Asset Management & Lending business which is suffering some shorter-term margin compression, as interest rate increases work their way through the portfolio. This highlights the benefits of the increasingly diverse suite of products that COG brokers can offer their clients. COG looks set to further increase its customer offering by moving into financial advisory through the acquisition of a 19.9% stake in Centrepoint Financial Ltd (ASX:CAF). The company has highlighted Financial Advisory as its next growth vertical. This will add to its existing verticals: Broking & Aggregation, Novated Leasing and Asset Management & Lending. COG has demonstrated strong and consistent earnings growth for the past 5 years, both organically and through acquisition. Given their dominant position in the SME broking and aggregation market and the economies of scale that flow from this, we expect this attractive growth to continue for many years into the future. Given the capital light nature of the business, significant free cash flow will be generated, allowing for further organic and inorganic growth as well as continued growth in the dividend.

BSD Analysis:
Sandon Capital presents a compelling bull case for COG Financial Services, highlighting the company's impressive 45% revenue growth and 12% earnings per share growth in 1HFY24. The manager emphasizes COG's successful diversification strategy, with the strong performance of the Novated Leasing business offsetting temporary margin compression in Asset Management & Lending due to rising interest rates. The fund views COG's expansion into financial advisory services through a 19.9% stake in Centrepoint Financial as a strategic move to broaden their service offering. Sandon Capital is particularly bullish on COG's dominant market position in SME broking and aggregation, which provides significant economies of scale and competitive advantages. The manager expects this growth trajectory to continue for years, supported by the capital-light business model that generates substantial free cash flow. This cash generation capability enables both organic growth initiatives and strategic acquisitions while supporting dividend growth. The investment thesis centers on COG's ability to leverage its market leadership position and diversified revenue streams to deliver sustained long-term growth.

Pitch Summary:
Metro Bank reported a profit of £30.5m and expanded its cost-cutting plans to £80m in annualised savings. Most importantly, despite last year's anxiety around the recap deal in October, it increased deposits by 1% to £15.6bn in the second half of 2023. By February 2024, these had further increased to c.£16.5bn. However, this deposit drive has pushed back its 10% ROE target to 2027.

BSD Analysis:
Metro Bank is showing operational recovery with a return to profitability at £30.5m and aggressive cost management targeting £80m in annual savings. Despite concerns following the October recapitalization, the bank has demonstrated deposit growth resilience, increasing deposits 1% to £15.6bn in H2 2023 and further to £16.5bn by February 2024. This deposit momentum validates the franchise strength and customer confidence post-restructuring. However, the intensive deposit gathering has delayed the 10% ROE target to 2027, indicating near-term margin pressure from competitive pricing. The manager appears constructive on the turnaround story, viewing the deposit growth as evidence of operational stability. The cost reduction program should support profitability as the bank rebuilds its capital position and market confidence.

BSD Analysis:
The manager expresses concern about Mondi's proposed acquisition of DS Smith, viewing the target as a lower-quality asset that poses digestion risks and could dilute shareholder returns. They prefer Mondi to avoid this transaction, believing it would be value-destructive rather than accretive. The manager was pleased by International Paper's competing higher bid, hoping it would cause Mondi to abandon its proposal. This suggests the manager values Mondi as a standalone entity but questions management's M&A strategy and capital allocation decisions. The opposition to the deal reflects concerns about integration complexity and potential negative impact on returns. The manager appears to favor Mondi's core business but wants disciplined capital deployment.

Pitch Summary:
Our largest and highest conviction position, Hiscox, posted record profits with a return on equity of 21.8%. The company reiterated its positive outlook. The cherry on top was a new US$150m (c.£120m) share buy-back, further cementing our conviction in the trade thesis.

BSD Analysis:
Hiscox represents the manager's largest and highest conviction position, delivering exceptional financial performance with record profits and an impressive 21.8% return on equity. The company's strong fundamentals are complemented by management's positive forward guidance, indicating sustained operational momentum. The announcement of a substantial US$150m share buyback program demonstrates management's confidence in the business and commitment to shareholder returns. This capital allocation decision reinforces the manager's investment thesis and validates their high conviction stance. The combination of record profitability, strong ROE metrics, and shareholder-friendly capital deployment creates a compelling investment case. The manager views this as confirmation of their analytical framework and positioning in the specialty insurance sector.

Pitch Summary:
In the portfolio, ITV stood out this month, announcing the sale of its 50% holding in digital subscription streaming service BritBox for £255m. Pleasingly, the traditionally sleepy company will return £235m of this to shareholders via a share buy-back scheme (10% of its market capitalisation). An increasing number of UK companies are now engaging in substantial share buy-backs. This welcome step shows intelligent management teams are pursuing smart capital allocation decisions amid compelling company valuations.

BSD Analysis:
The manager views ITV favorably following its strategic divestiture of BritBox for £255m, with the company demonstrating shareholder-friendly capital allocation by returning £235m (10% of market cap) through share buybacks. This transaction highlights management's intelligent approach to capital deployment in a market where UK equities appear undervalued. The manager appreciates the shift from ITV's historically passive approach to more active capital management. The substantial buyback program signals management confidence in the business while providing immediate value to shareholders. This positions ITV as part of a broader trend of UK companies engaging in value-accretive capital allocation strategies. The manager sees this as validation of compelling UK equity valuations and smart management execution.

Pitch Summary:
Bioventix, one of our long standing portfolio positions, is one such company, delivering organic revenue growth annually of 17% over the last decade. It is an AIM listed company that develops and markets Sheep Monoclonal Antibodies, otherwise known as SMAs. These antibodies which can take several years to develop and gain regulatory approval, are used in diagnostic blood testing procedures. The investment case centres on persistency of revenues and exposure to a global diagnostics market which is growing at around 5-10% each year. A small operation based in Farnham, Surrey, growth comes from the adoption of new antibodies for blood tests, as the diagnostics market develops. The vast majority of Bioventix's revenues come from the 2% royalty they receive from the Blood Testing companies (Roche, Siemens, Abbott Diagnostics & Beckman Coulter) every time someone's blood is tested for diagnostic purposes. Such tests include ones for Vitamin D deficiency as well as a test for Troponin—the protein found in the blood stream after a myocardial infarction, more commonly known as a heart attack. There are 60,000 things that can go wrong with the human body and we currently only have around 6,000 drugs to treat these ailments. In many ways, Bioventix is selling the spades in the 'gold-rush' of drug development in the pharmaceutical industry. As new drugs are developed the demand for diagnostic blood testing is likely to increase. Yet, whilst the time to develop and approve new antibodies can take several years—helping to develop a moat to protect their revenues, the cost and therefore the risk of development compared to manufacturing drugs is very low. The business also has good cost flexibility and no debt with a rising net cash posi­tion. They can afford to be patient as new antibodies are developed and given regulatory approval to deliver long term value creation for patients and investors alike. Bioventix has never seen one of its antibodies taken out of the testing system once it has been deployed. In other words, once their antibodies are judged to have worked, the switching costs increase and therefore so do the barriers to entry. We like businesses where the product or service is a small but vital part of the supply chain cost. This aspect helps maintain persistency of revenues and feeds into our analysis of Bioventix's position in its business life cycle—which given its high returns profile and new product development we would classify as still in the first stage of 'High innovation.'

BSD Analysis:
Castlebay presents a compelling bull case for Bioventix, emphasizing the company's exceptional 17% annual organic revenue growth over the past decade. The investment thesis centers on the company's unique position in the diagnostic testing ecosystem, where it earns 2% royalties from major diagnostic companies like Roche, Siemens, Abbott, and Beckman Coulter every time their sheep monoclonal antibodies are used in blood tests. The manager highlights the defensive nature of the business model, noting that once deployed, Bioventix's antibodies have never been removed from testing systems, creating high switching costs and barriers to entry. The company benefits from exposure to a growing global diagnostics market (5-10% annually) while maintaining low development costs compared to drug manufacturing. Castlebay particularly values the company's debt-free balance sheet with rising net cash, providing financial flexibility during the multi-year antibody development process. The fund views Bioventix as still in the 'high innovation' phase of its business lifecycle, suggesting continued growth potential. The 'selling spades in a gold rush' analogy effectively captures how Bioventix benefits from pharmaceutical industry growth without bearing the high risks of drug development.

Pitch Summary:
R1 is a top player in outsourced Revenue Cycle Management for large hospitals and physician groups. Outsourced revenue cycle management is still in the early innings with only about 30% penetration, and we believe R1 has the most complete and scalable independent (i.e., not affiliated with an insurance company) solution in the marketplace, in what could prove to be a "winner take most" industry. With hospital profitability under pressure and coding and regulatory complexity ever increasing, R1 offers substantial savings via regional labor arbitrage and automation technology to customers through more efficient revenue collection. The current management team came from Cloudmed, which R1 acquired very recently in June of 2022, and has undertaken the challenging task of cultural and technological integration while being relative public market newcomers under immense scrutiny. Cloudmed offers modular or single-point RCM solutions as opposed to a full end-to-end offering, and it counts 95 out of the top 100 hospitals in the US as customers. Cloudmed is a solid business with upwards of 40% EBITDA margins and 117% net revenue retention, and we think they can achieve a mid-teens revenue CAGR over the next few years while opening the door to upselling R1's more robust service offering across the broader customer base. We believe with Cloudmed's technological focus and vast access to data (they touch over $900 billion of Net Patient Revenue across all hospital EMRs), a bit of a network effect is likely to take hold, as R1's army of engineers (most of their $100 million+ in capex is directed towards software development) are utilizing Machine Learning and, yes, AI, to automate processes to drive further efficiency of economics to be shared with customers. The company recently announced a collaboration with Microsoft to improve billing coding productivity. We believe there is a significant opportunity to both expand margins and expand their technological leadership. The CEO has a technology-oriented background and has been very consistent and outspoken since becoming CEO about the long-term margin enhancing opportunities that Machine Learning and AI could generate for the company. R1 currently has terrible negative sentiment as evidenced by a massive multiple de-rating and 18% short interest. It is getting hit by both stylistic (floating debt, healthcare IT, SMID) and idiosyncratic factors (accounting concerns, customer loss/bankruptcy, negative estimate revisions). While we cannot dismiss all these negatives as "nothing," it is our variant view that under the covers things at the company are much better than they appear at first glance and most of the bearish arguments miss the forest for the trees. The level of risk of an investment is in part a function of the valuation paid relative to many outcomes. Waiting for perfect near-term clarity on a situation like RCM would be costly and could negate any chance at outsized alpha. Where we have had big winners is not where we prioritize near-term clarity, but rather precise downside valuation protection under a variety of normal economic outcomes. R1 certainly fits the bill here, with investors overly focused on guidance for the next three months while we are focused on getting comfortable with the cash flow dynamics three years out. We believe there is limited downside over the next few years as there is still latent profitability building that will show up from maturing customers and ongoing Modular (Cloudmed) growth. Twelve months from now, we think the investment narrative will have transformed significantly as management signs new customers without "paying to play", earnings quality improves substantially, deleveraging begins in earnest, and hospitals become incrementally healthier, leading to what will be viewed as a scarce, high quality healthcare IT asset that could be trading closer to fair value which we peg at 15x 2026 FCF, ~100% higher over the next two years. Although this is certainly an execution story, these numbers do not require much new business to be won as most of the FCF in our Base Case comes from ramping up already signed customers, along with some margin expansion from their AI/Machine learning initiatives. If the "network effect" we are predicting takes hold, we believe the Bull Case below is achievable.

BSD Analysis:
Voss Capital identifies R1 RCM as a contrarian opportunity in the early-stage revenue cycle management outsourcing market with only 30% penetration. The investment thesis centers on R1's competitive moat through the Cloudmed acquisition, which provides access to 95 of the top 100 US hospitals and $900 billion in patient revenue data. Management's focus on AI and machine learning automation, including a Microsoft partnership, positions the company for margin expansion and technological leadership. Despite current negative sentiment reflected in 18% short interest and multiple compression, Voss sees significant downside protection at current valuations. The manager projects 100% upside potential based on 15x 2026 FCF, driven by maturing customer relationships, operational leverage, and potential network effects from their data advantage.

Pitch Summary:
We recently sold just over half of our outsized position in Griffon Corp. for portfolio risk management purposes. In conjunction with stepping off the Board, the company bought 1.5 million shares from Voss, which we believe is a win/win for our investors and GFF shareholders. During our holding period and time engaging with the company, one non-core segment was sold at a high multiple, a thorough strategic review for the rest of the business was conducted, corporate governance improved at the margin, management bonus metrics were changed to incentivize ROI, and the company bought back over 14% of the shares outstanding while also paying $4 of special dividends. The total shareholder return has exceeded 200% since we first wrote a public letter in November 2021 while the Russell 2000 has had a negative return over that time. The market is waking up to the unmatched quality of GFF's garage door segment as it has become one of the highest EBITDA margin building products companies in the public market. We believe there remains substantial upside in the stock as any of the following play out: 1) the HBP segment garners an EBITDA multiple that is simply in line with much lower margin building product peers, in the 11.5-12.0x range 2) the CPP initiative to move to a more flexible contract manufacturing base bears fruit in 2025 and beyond, and 3) ongoing aggressive returns of capital to shareholders. As stated above, we remain as optimistic as ever on repair and remodeling spending, which includes garage doors.

BSD Analysis:
Voss Capital presents a compelling bull case for Griffon Corp based on successful activist engagement and operational improvements. The fund achieved over 200% returns during their holding period while implementing strategic changes including asset sales, governance improvements, and capital allocation optimization. The manager highlights GFF's garage door segment as achieving best-in-class EBITDA margins among building products companies, yet trading at a discount to lower-margin peers. Key catalysts include potential multiple expansion to 11.5-12x EBITDA for the HBP segment, operational improvements in the CPP division through flexible manufacturing, and continued aggressive capital returns. The investment thesis is supported by structural tailwinds in repair and remodeling spending driven by housing market dynamics.

Pitch Summary:
R1 is a top player in outsourced Revenue Cycle Management for large hospitals and physician groups. Outsourced revenue cycle management is still in the early innings with only about 30% penetration, and we believe R1 has the most complete and scalable independent (i.e., not affiliated with an insurance company) solution in the marketplace, in what could prove to be a "winner take most" industry. With hospital profitability under pressure and coding and regulatory complexity ever increasing, R1 offers substantial savings via regional labor arbitrage and automation technology to customers through more efficient revenue collection. The current management team came from Cloudmed, which R1 acquired very recently in June of 2022, and has undertaken the challenging task of cultural and technological integration while being relative public market newcomers under immense scrutiny. Cloudmed offers modular or single-point RCM solutions as opposed to a full end-to-end offering, and it counts 95 out of the top 100 hospitals in the US as customers. Cloudmed is a solid business with upwards of 40% EBITDA margins and 117% net revenue retention, and we think they can achieve a mid-teens revenue CAGR over the next few years while opening the door to upselling R1's more robust service offering across the broader customer base. We believe with Cloudmed's technological focus and vast access to data (they touch over $900 billion of Net Patient Revenue across all hospital EMRs), a bit of a network effect is likely to take hold, as R1's army of engineers (most of their $100 million+ in capex is directed towards software development) are utilizing Machine Learning and, yes, AI, to automate processes to drive further efficiency of economics to be shared with customers. The company recently announced a collaboration with Microsoft to improve billing coding productivity. We believe there is a significant opportunity to both expand margins and expand their technological leadership. The CEO has a technology-oriented background and has been very consistent and outspoken since becoming CEO about the long-term margin enhancing opportunities that Machine Learning and AI could generate for the company. R1 currently has terrible negative sentiment as evidenced by a massive multiple de-rating and 18% short interest. It is getting hit by both stylistic (floating debt, healthcare IT, SMID) and idiosyncratic factors (accounting concerns, customer loss/bankruptcy, negative estimate revisions). While we cannot dismiss all these negatives as "nothing," it is our variant view that under the covers things at the company are much better than they appear at first glance and most of the bearish arguments miss the forest for the trees. The level of risk of an investment is in part a function of the valuation paid relative to many outcomes. Waiting for perfect near-term clarity on a situation like RCM would be costly and could negate any chance at outsized alpha. Where we have had big winners is not where we prioritize near-term clarity, but rather precise downside valuation protection under a variety of normal economic outcomes. R1 certainly fits the bill here, with investors overly focused on guidance for the next three months while we are focused on getting comfortable with the cash flow dynamics three years out. We believe there is limited downside over the next few years as there is still latent profitability building that will show up from maturing customers and ongoing Modular (Cloudmed) growth. Twelve months from now, we think the investment narrative will have transformed significantly as management signs new customers without "paying to play", earnings quality improves substantially, deleveraging begins in earnest, and hospitals become incrementally healthier, leading to what will be viewed as a scarce, high quality healthcare IT asset that could be trading closer to fair value which we peg at 15x 2026 FCF, ~100% higher over the next two years. Although this is certainly an execution story, these numbers do not require much new business to be won as most of the FCF in our Base Case comes from ramping up already signed customers, along with some margin expansion from their AI/Machine learning initiatives. If the "network effect" we are predicting takes hold, we believe the Bull Case below is achievable.

BSD Analysis:
Voss Capital presents a contrarian bullish case for R1 RCM, viewing current negative sentiment as a compelling entry opportunity. The fund emphasizes the early-stage penetration of outsourced revenue cycle management at only 30%, positioning R1 as the leading independent solution in a potential "winner take most" market. The recent Cloudmed acquisition provides access to 95 of the top 100 US hospitals and $900 billion in net patient revenue data, creating network effects and cross-selling opportunities. Management's focus on AI and machine learning automation, supported by $100+ million annual capex in software development, should drive margin expansion and competitive advantages. Despite near-term headwinds including 18% short interest and multiple compression, Voss sees limited downside protection with significant upside potential as the company matures existing customers and improves earnings quality. Their base case targets 15x 2026 FCF, implying ~100% upside over two years.