Investment Pitches

Pitch Summary:
PD-Rx Pharmaceuticals (PDRX) – reported disappointing fiscal 2023 results late in December. We had expected results to be somewhat similar to fiscal 2022 results, but PD-Rx lost a key contract resulting in a 25% decline in revenues and earnings falling from $1.84 per share to a loss of $0.05 per share. It is frustrating that management wrote their fiscal 2022 letter halfway through the 2023 fiscal year and provided no hint that the business had changed. That is a poor way to treat shareholders. The share price has held up due to the strong balance sheet – book value of $6.84 per share and cash of $4.15 per share. Hopefully they can win back the business in the future and begin to treat shareholders with the respect they deserve as owners of the business. Either one would help the share price.

BSD Analysis:
Eriksen expresses disappointment with PD-Rx Pharmaceuticals following a significant business deterioration that management failed to communicate transparently to shareholders. The loss of a key contract drove a 25% revenue decline and swung earnings from $1.84 per share profit in fiscal 2022 to a $0.05 per share loss in 2023, representing a dramatic operational setback. Management's failure to provide guidance during their mid-fiscal year 2022 letter, despite knowing of business changes, demonstrates poor shareholder communication and governance. However, the investment thesis remains supported by a fortress balance sheet with $6.84 book value per share and $4.15 cash per share, providing substantial downside protection. The share price stability reflects this balance sheet strength despite operational challenges. Recovery potential exists if management can win back lost business or improve shareholder relations. The combination of strong financial position and potential operational turnaround creates a risk-adjusted opportunity, though execution risk remains elevated given management's track record.

Pitch Summary:
Solitron Devices (SODI) - the bid price for shares increased by 52% in the fourth quarter of 2023 from $10.00 per share to $15.25 per share. As a reminder, I am CEO and CFO of Solitron. On September 1, 2023, Solitron closed its acquisition of Micro Engineering Inc. (MEI). MEI produces electronic components primarily for the medical industry. 2022 revenue was approximately $5.9 million with operating income of $1.3 million, as compared to 2021 revenue of $5.5 million and operating income of $1.2 million. Subsequent to quarter end, Cedar Creek filed a Form 4 noting the fund purchased an additional 35,000 shares for $10.70 per share in a private transaction. Last week Solitron announced results for the fiscal third quarter ending November 30, 2023. Revenue was $4.1 million, and bookings were $4.8 million. Solitron reported earnings of $86,000 or $0.04 per share. There were a number of one-time items including a $494,000 impact to cost of goods sold due to acquisition related accounting requiring inventory to be marked at fair value on the acquisition date, $200,000 of acquisition related expenses, $21,000 of intangible amortization and $26,000 of non-cash interest expense. Reported operating income was $218,000, while "adjusted operating income" would have been over $930,000, or roughly $0.45 per share.

BSD Analysis:
Eriksen presents a bullish case for Solitron Devices, where he serves as CEO and CFO, highlighting the 52% share price appreciation in Q4 2023 and the strategic acquisition of Micro Engineering Inc. The MEI acquisition adds $5.9 million in revenue and $1.3 million in operating income, targeting the medical electronics market with consistent growth from 2021 to 2022. Despite reported Q3 earnings of only $0.04 per share, the underlying business performance is much stronger when adjusting for one-time acquisition costs totaling over $740,000. On an adjusted basis, operating income would exceed $930,000 or $0.45 per share, demonstrating the acquisition's immediate accretive impact. The fund's additional 35,000 share purchase at $10.70 post-quarter shows continued conviction despite the manager's insider position. Strong bookings of $4.8 million versus $4.1 million in revenue indicate healthy demand momentum. The medical electronics focus provides defensive characteristics with steady end-market demand.

Pitch Summary:
Propel Media (PROM) – was profiled in our Q2 letter and trades on the expert market. During the fourth quarter it declined in price from $1.10 per share to $0.89 per share. Our cost was $0.23 per share when we bought earlier in the year and we have received two dividends totaling $0.019 per share, or 8% of our basis. As you may recall we purchased shares due the potential acquisition of Propel by IQVIA (IQV) at a reported $700 to $800 million, or roughly $3 per share. The deal was held up at the FTC. We had no idea if the deal would go through or not but were very comfortable purchasing at 1/12 of the likely deal price. If the deal went through, we would make 12x. If the deal didn't go through, we were comfortable that Plan B would still be meaningfully above what we were paying. Hearings took place in December. The judge unfortunately ruled in favor of the FTC. Propel and IQVIA decided not to appeal and terminated the deal. At $0.89 per share, the current market cap is approximately $225 million. We believe the dividends showed that Propel was profitable despite the litigation-related costs. We are very comfortable holding the investment at current prices. One benefit to the deal being blocked is that we would have incurred short-term capital gains had the deal closed, whereas now we are more likely to enjoy more favorable long-term capital gains. We think if Plan B was just a fraction of the deal's value Propel would not have walked away. They would have thrown a hail mary and hoped for a win on appeal. So, we think it is very likely that Propel's management believes that they can see value realization reasonably close to the IQVIA deal over time. Hopefully, having gotten a "taste" of value realization, management will be focused on unlocking value whether it be through a sale, merger, re-registration with the SEC, uplisting, etc.

BSD Analysis:
Eriksen maintains a bullish stance on Propel Media despite the failed IQVIA acquisition, viewing the current $0.89 share price as attractive given his $0.23 cost basis and 8% dividend yield received. The manager's thesis centers on asymmetric risk-reward, having originally purchased at 1/12th of the proposed deal price with confidence in a strong "Plan B" scenario. The fact that management chose not to appeal the FTC ruling suggests they believe internal value creation can approach the blocked deal's valuation over time. Propel's ability to pay dividends during litigation demonstrates underlying profitability despite legal costs. The company's $225 million market cap appears undervalued relative to the $700-800 million acquisition interest from IQVIA. Eriksen expects management to pursue value-unlocking initiatives including potential sales, mergers, SEC re-registration, or uplisting. The investment benefits from favorable long-term capital gains treatment versus the short-term gains that would have resulted from the blocked deal.

Pitch Summary:
Nu Holdings is a company we initiated a small position in during 2024. Known as "Nubank," it is a Brazil-based Latin American neobank operating entirely online without physical branches. Nubank has transformed banking in the region through its technology-driven, customer-centric approach. Its value proposition lies in eliminating traditional banking fees, simplifying financial services, and providing greater accessibility to underserved yet tech-savvy customers across Brazil, Mexico, and Colombia. By prioritizing transparency, low costs, and seamless user experiences, Nubank has become the largest and most profitable neobank in the world outside of China. From a capital efficiency perspective, it is hard to find a better business anywhere in the world than Nubank. It costs Nubank ~$10 to acquire a new customer, which is not only best-in-class relative to all other global neobanks, but also many multiples lower than that of their direct competitors. These ultra-low acquisition costs are achieved primarily because 80-90% of Nubank's new customers come through word-of-mouth. Furthermore, it costs only $0.90 per month to serve a customer, while the average monthly revenue per active customer (ARPAC) is $11. Re-read that sentence, because it is incredible. This efficiency has driven significant operating leverage as ARPAC has climbed while costs remained flat. Over the last two years, net income margins have increased to 19% from 4%, and ROE has risen from 5% to 30%. Despite already having nearly 110 million customers, Nubank's growth runway remains long and profitable. The company's more mature customer cohorts generate $24 of ARPAC, suggesting the average ARPAC of $11 has considerable upside potential at minimal incremental cost. Additionally, while about 50% of the Brazilian population holds a Nubank account, the penetration of services like personal loans, savings accounts, investments, insurance, and business banking remains low. Nubank is also rapidly scaling in Mexico and Colombia, two markets where it has operated for only a few years but is scaling quickly within. At approximately 20x NTM earnings, Nubank is valued below the S&P 500 yet is growing its earnings 5-6x faster, supported by exceptionally high ROIICs. While I am highly optimistic about Nubank's prospects and consider it among the best businesses in the portfolio, it remains a small position today due to certain risks. The company operates in an emerging market that is particularly vulnerable to economic slowdowns, and its interest-rate sensitivity adds an additional layer of uncertainty. Furthermore, while its expansion into Mexico holds significant potential, success is not guaranteed, especially given competition from Mercado Pago – a highly capable player that I greatly respect.

BSD Analysis:
The manager highlights Nubank's exceptional unit economics and capital efficiency as key investment drivers. Customer acquisition costs of $10 versus $11 monthly ARPAC create compelling economics, enhanced by 80-90% word-of-mouth growth reducing marketing spend. The $0.90 monthly servicing cost demonstrates remarkable operational leverage, contributing to margin expansion from 4% to 19% and ROE growth from 5% to 30%. With 110 million customers representing 50% Brazilian penetration, significant cross-selling opportunities remain in loans, investments, and business banking. Mature cohorts generating $24 ARPAC suggest substantial revenue upside as customer relationships deepen. International expansion in Mexico and Colombia provides additional growth vectors. At 20x NTM earnings, valuation appears reasonable for 5-6x faster earnings growth than the S&P 500. However, the manager maintains a small position due to emerging market risks, interest rate sensitivity, and competitive threats from Mercado Pago in Mexico expansion.

Pitch Summary:
We initiated a new investment in Vistry Group in December and have since increased our position in early January, with a current cost basis below £6.00. Vistry is a UK-based homebuilder that is nearing the completion of a transformation from a traditional – buy, build, sell – homebuilding model to a capital-light partnerships model. By partnering with local housing authorities, housing associations, and institutional investors, Vistry is eliminating the need for costly land acquisition and speculative development, focusing instead on building pre-sold, affordable homes. This structure is inherently capital efficient and dramatically accelerates the cash conversion cycles compared to traditional housebuilders. With up to 50% of homes pre-sold and additional units targeted at institutional buyers, Vistry achieves rapid turnover on its deployed capital. As the transition progresses, the company projects ROIC to exceed 40%, compared to the 15-20% that is typical of traditional homebuilders. Moreover, Vistry's partnerships model benefits from strong structural tailwinds. The UK faces an estimated shortfall of over four million homes, with demand concentrated in affordable housing – a market segment that is less sensitive to economic cycles and interest rates. Vistry is uniquely positioned to meet this demand, leveraging its scale, relationships with over 60 local housing authorities, and modular construction capabilities. These factors not only enhance its ability to execute efficiently but also create durable competitive advantages, giving Vistry higher win rates for incremental new projects. Importantly, Vistry's margins are built into the contracts of its agreements, ensuring that Vistry can meet its ROIC target. Finally, by repurposing resources from its legacy homebuilding business into partnerships, the company is in the process of freeing up over £1 billion which it plans to return to shareholders via share buybacks by the end of 2026, an incredible sum considering that Vistry's current market capitalization is only £2 billion. Vistry is led by Greg Fitzgerald, a seasoned leader in UK homebuilding who has successfully orchestrated turnarounds and acquisitions at Galliford Try and Bovis Homes. Fitzgerald is largely responsible for the deal-making that occurred to create Vistry and he now owns 10% of the company. He is known for his hands-on approach and intense work ethic and has made it clear that Vistry is committed to excellence. Additionally, I find that he has been highly transparent in his communications with shareholders to-date. I consider us very fortunate to have been able to acquire shares at our current cost basis. Vistry's shares are down 57% from its 52-week high in September after the company reported multiple profit warnings during the second-half of 2024. These profit warnings were primarily due to an understatement of build costs in Vistry's South Division, totaling £105 million for 2024 and then reducing to £50 million in 2025 and to be fully resolved by 2026. Additionally, there were delays in expected year-end transactions and completions which have further impacted profits. Instead of the anticipated £430 million in profits, Vistry is now expected to produce only £250 million in 2024. While delays in project completions are an ongoing risk to this business model, the understated build costs are a product of the traditional home-building model which is soon to be extinct. Furthermore, while the management team's credibility has certainly been damaged, I consider this to be further evidence for why the partnerships model is attractive. Vistry still expects to achieve £800 million of operating profits in the "medium term" – presumably 3-5 years – and despite the profit warnings, I believe that they can achieve this. Project delays that hurt Vistry in 2024 could likely be a boon for profits in 2025, but regardless of that, normalized earnings power are appreciating considerably. Trading at less than tangible book value today, Vistry is objectively cheap. Moreover, if operating profits achieve anywhere in the ballpark of £800 million and trade between the 12-20x range of profits that I believe to be reasonable, Vistry's market capitalization could reach between £10-16 billion or £30-48 per share before accounting for the ongoing £1 billion in share repurchases. All of this to say; shares reflect deep pessimism in Vistry's prospects and trade with significant margin of safety. Vistry is just the sort of asymmetric return profile that we look for.

BSD Analysis:
The manager presents Vistry as a compelling turnaround story trading at distressed valuations following profit warnings. The transformation from traditional homebuilding to a capital-light partnerships model promises superior returns, with projected ROIC exceeding 40% versus industry norms of 15-20%. The partnerships approach eliminates speculative development risk through pre-sold homes and institutional buyers, while benefiting from UK's structural housing shortage of four million units. Management's £1 billion share buyback program represents 50% of current market cap, providing significant capital return catalyst. The 57% share price decline creates an asymmetric opportunity, with shares trading below tangible book value despite medium-term operating profit targets of £800 million. At 12-20x normalized earnings, this implies £30-48 per share upside from current £6 cost basis. While profit warnings damaged credibility, the manager views these as legacy issues from the traditional model being phased out. CEO Greg Fitzgerald's 10% ownership and track record provide confidence in execution.

Pitch Summary:
We've owned InPost shares for two years, with an initial cost basis of €9.50. Shares are up ~70% over our ownership period, supported by 53% revenue growth, 81% EBITDA growth, and 130% EPS growth. ROIC has risen from near-zero in 2022 to nearly 20% in 2024, driven by exceptional ROIIC. InPost is likely to generate PLN 850 million in free cash flow this year, up from negative PLN 11 million two years ago, reflecting a 37% ROIIC on PLN 2.3 billion in growth capex. But even this fails to paint the picture accurately. The Polish segment, which dominates its industry with 50% market share, is the cash cow of this business. In 2024, free cash flow from Poland is expected to reach PLN ~1.4 billion, with ROIIC of ~73% and ROIC of ~35%. Meanwhile, the international segment is rapidly scaling, with APMs in the UK, France, Spain, and Italy achieving 14-month payback periods on assets with 15-year useful lives. Over the past 12 months, international EBITDA margins improved from -19% to 11%, a 30pp swing, reflecting a high likelihood of sustained profitability as incremental earnings continue to outpace capital deployment. InPost benefits from significant economies of scale and network effects. Competing with InPost requires significant capital – around $1.5 billion deployed over a decade – and a large number of merchant integration agreements, of which InPost has more than 52,000. Moreover, competitors must overcome entrenched customer preference – 80% of Poles choose InPost when shopping online, and its popularity is rapidly growing in other markets. Competitors, even when directly adjacent to InPost APMs, struggle to match even one-tenth of InPost's throughput, meaning that payback rates are non-existent, and for these reasons multiple competitors have chosen to leave the market entirely in recent years. At a PLN 40 billion enterprise value, InPost trades at ~9x NTM EV/EBITDA and ~34x NTM FCF. While the FCF multiple may appear high, it reflects InPost being in the early years of an earnings inflection curve. I expect a 15% revenue CAGR over the next five years, with EBITDA margins reaching 40% and a 50% EBITDA-to-FCF conversion rate. This would result in PLN 22 billion in revenue, PLN 9 billion in EBITDA, and PLN 4.5 billion in FCF – a 5x increase at a 38% CAGR, with significant room for further growth at high ROIICs.

BSD Analysis:
The manager presents a compelling bull case for InPost based on exceptional capital efficiency metrics and dominant market positioning. The company has transformed from negative free cash flow to PLN 850 million in just two years, demonstrating remarkable operational leverage with 37% ROIIC on growth capex. The Polish segment generates extraordinary returns with 73% ROIIC and 35% ROIC, while international expansion shows strong momentum with EBITDA margins improving 30 percentage points. InPost's competitive moat appears formidable, requiring $1.5 billion and a decade to replicate, with 52,000 merchant integrations and 80% customer preference in Poland. The network effects create a virtuous cycle where competitors struggle to achieve even 10% of InPost's throughput. At 9x NTM EV/EBITDA, the valuation appears reasonable for a business projecting 15% revenue CAGR and expanding margins. The manager's five-year projection of 5x FCF growth at 38% CAGR reflects confidence in the scalability of the automated parcel machine model across European markets.

Pitch Summary:
Merchant acquirer Global Payments is a well-entrenched, highly profitable payments business trading at a low valuation. The payments landscape continues to shift, fueling ongoing concerns about incumbent profit pools. We don't take competitive threats in merchant acquiring or issuer processing lightly. Still, our team's diligence suggests that this cash flowing business is far more durable than investors fear. If our view proves correct, the stock should do well.

BSD Analysis:
The manager presents a contrarian bullish view on Global Payments, emphasizing the disconnect between market concerns and business fundamentals. The investment thesis rests on the company's entrenched market position and high profitability trading at attractive valuations due to sector-wide competitive fears. The manager acknowledges legitimate concerns about disruption in the payments landscape but believes their due diligence reveals greater business durability than market perception suggests. The emphasis on cash flow generation highlights the quality of the underlying business model. This represents a classic value opportunity where temporary market pessimism creates attractive entry points for patient investors. The conditional language 'if our view proves correct' demonstrates appropriate humility while maintaining conviction. The investment appears to be a bet on business quality and competitive moats being undervalued by the market.

Pitch Summary:
Veralto is the latest spin-off from long-time holding Danaher. The company enjoys strong market positions and enviable economics in its water quality and product identification businesses. We see a clear path to modest organic growth, operating margin expansion, and value-creating capital deployment. While the stock doesn't scream cheap on the surface, we think Veralto could evolve into a real gem.

BSD Analysis:
The manager presents a bullish thesis on Veralto, a recent Danaher spin-off, based on the company's strong competitive positioning in water quality and product identification markets. The investment case centers on the company's 'enviable economics' and multiple value creation levers including organic growth, margin expansion, and strategic capital allocation. While acknowledging the stock doesn't appear optically cheap, the manager believes in the underlying business quality and sees potential for significant value creation over time. The spin-off nature provides a classic value investing setup where market inefficiencies may create opportunity. The manager's confidence stems from familiarity with Danaher's track record of creating value through spin-offs. This represents a quality-focused value play rather than a deep discount purchase. The 'real gem' characterization suggests high conviction in the long-term prospects despite current valuation levels.

Pitch Summary:
During the quarter ending December 31st, 2023, the Fund initiated a position in Bolsa Mexicana de Valores, S.A.B. de C.V. ("Bolsa Mexicana"). Bolsa Mexicana is an exchange operator, most notably of the Mexican Stock Exchange and Mexican Derivatives Exchange, while also providing related custody, clearing, settlement, and data services. Many of Bolsa Mexicana's fee-generating activities have stagnated in sympathy with Mexican capital market activity, creating a low bar for improved operating performance. Very few equity listings have taken place in Mexico over the past several years and the ratio of domestic market cap to GDP, as well as trading activity, lags that of many peer countries. However, a variety of federal legislative efforts are currently advancing to enhance the attractiveness of Mexican capital markets to issuers and investors, and support initial public offerings, debt issuance, and trading activity. While its trading and clearing businesses may be front-of-mind when someone thinks of Bolsa Mexicana, two other areas also have significant influence on the company's top and bottom lines. In fact, the single largest portion of company revenue derives from its operation of the central security depository ("CSD"). Through this line of business, Bolsa Mexicana is by far the largest provider of securities custody services in Mexico, a highly profitable business with operating margins greater than 70% over the past several years and assets under custody continuing to march higher over the past decade. In addition to the CSD, Bolsa Mexicana also has a fast-growing information services unit which produces indices through an alliance with Standard & Poor's, as well as other market data and risk management products. The company maintains a very strong net cash balance sheet and the nature of the business entails relatively low capital expenditure and regulatory capital requirements. Bolsa Mexicana's strong financial position has enabled the company to return a high percentage of its operating cash flow to shareholders in the form of dividends and, in recent years, share repurchases. Bolsa Mexicana also appears inexpensive in an absolute sense as well as undervalued relative to publicly-traded peers and historical merger and acquisition transactions in the industry.

BSD Analysis:
Third Avenue initiated a new position in Bolsa Mexicana, viewing it as an undervalued exchange operator with multiple revenue streams and significant operating leverage to Mexican capital market recovery. The company operates Mexico's primary stock and derivatives exchanges while generating its largest revenue portion from central securities depository services, which enjoy 70%+ operating margins and growing assets under custody. The investment thesis centers on a low bar for improvement, as Mexican capital market activity has stagnated with minimal IPO activity and below-peer trading volumes relative to GDP. Federal legislative initiatives aimed at enhancing market attractiveness provide potential catalysts for increased issuance and trading activity. Beyond exchange operations, the company benefits from a fast-growing information services division partnered with S&P for index production and market data. The business model features attractive characteristics including low capital requirements, strong cash generation, and minimal regulatory capital needs. Management returns substantial cash flow to shareholders through dividends and buybacks, supported by a net cash balance sheet. Valuation appears attractive both absolutely and relative to exchange peers and historical M&A transactions, creating asymmetric upside potential as Mexican capital markets normalize.

Pitch Summary:
During the five years through year end 2023, BMW AG common stock produced an annualized total shareholder return of 12.8% in U.S. dollar terms (13.6% in EUR terms). While it doesn't rival the return of Magnificent Seven constituent Tesla, it does rival the return of the MSCI World Index during a very good run of index returns. Meanwhile, over the last 30 years, BMW AG shares have produced a total shareholder return of 10.6% in USD terms, substantially higher than the MSCI World Index return. In other words, it has been a pretty good business, producing pretty attractive returns over a long period of time. In more recent periods, returns have been generated by both stock price appreciation and significant dividend payments. At present, the stock offers a dividend yield of approximately 8.4% per year, based on the 2023 dividend distribution. However, what is particularly interesting about the last five years is that the attractive annualized returns have been accomplished in spite of the headwind of the previously mentioned valuation multiple decline. At year end 2018, BMW was trading at 6.5x analysts' estimates of forward earnings, (according to CapIQ), but by the end of 2023, that very low valuation multiple had fallen even lower to 6.1x forward earnings. Both multiples are substantially below the valuation multiples assigned to the company in earlier periods. BMW common stock is currently trading at roughly 73% of book value while having generated a 12.7% return on equity over the trailing twelve months. As for the financial position, BMW is almost indisputably extremely well-financed with well more than EUR 20 billion of excess cash, amounting to about one-third of its market cap. In 2022, BMW approved a EUR 2 billion buyback, which was followed up with another EUR 2 billion buyback one year later. And, as a result of the very impressive levels of operational cash flow, the company's cash balances have only continued to grow, even while investing for an electric vehicle transition, making multi-billion-euro dividend payments, and executing multi-billion-euro buybacks. Finally, what about the secular decline risk as a result of the electric vehicle revolution? After all, we were told that Tesla is going to eat the world, a mantra which now seems in need of revision to include BYD. We have believed for some time that BMW, as an extremely well-financed engineering powerhouse, wielding one of the world's most valuable brands, was likely to remain highly competitive, independent of the pace of electric vehicle adoption. However, we have also believed that the pace and ultimate level of adoption remain highly uncertain. Recent data on electric vehicle sales volumes in both the U.S. and Europe, as well as growing dealer inventory levels, suggest slowing sales growth and high dependency upon large purchase subsidies. All of that said, it remains quite surprising to us how little attention is given to the fact that BMW, as well as Mercedes-Benz for that matter, have both been growing battery electric vehicle volumes materially faster than Tesla in recent quarters. With all of that taken into consideration, it becomes very hard to understand a valuation multiple of 6.1x earnings.

BSD Analysis:
Third Avenue presents BMW as a compelling value opportunity trading at historically low multiples despite strong operational performance and financial strength. The company has delivered attractive long-term returns of 10.6% annually over 30 years, substantially outperforming global indices, while currently offering an 8.4% dividend yield. BMW trades at just 6.1x forward earnings and 73% of book value despite generating 12.7% ROE, representing a significant valuation disconnect. The company maintains exceptional financial flexibility with over EUR 20 billion in excess cash (one-third of market cap) while simultaneously funding EV transition investments, multi-billion euro dividends, and share buybacks. Management challenges the Tesla disruption narrative, noting that BMW and Mercedes are actually growing EV volumes faster than Tesla in recent quarters, while EV adoption faces headwinds from slowing sales growth and subsidy dependence. The investment thesis centers on BMW's engineering capabilities, premium brand strength, and financial resources positioning it to remain competitive regardless of EV adoption pace. The valuation appears disconnected from fundamentals, creating an attractive risk-adjusted opportunity in a quality franchise with strong capital allocation.

Pitch Summary:
Comerica, a long-time Fund holding, is an unusual super-regional bank due to the extent of corporate exposure in its loan book, as compared to many other U.S. regional banks with much larger exposures to residential mortgages. Because much of this corporate lending is done on a floating-rate basis, Comerica's asset yields respond unusually rapidly to interest rate movements. As interest rates rose over the last few years, Comerica's asset yields did indeed rise sharply as well, a very positive development. In this way, Comerica, along with many U.S. regional banks, were rightly perceived as beneficiaries of U.S. interest rates rising from historically low levels. However, higher rates were helpful for most U.S. regional banks, until they weren't. By early 2023, rates had risen high enough, and rapidly enough, to expose a lot of duration risk present within the huge fixed-income portfolios comprising large portions of many regional bank balance sheets. In the heat of the Spring 2023 panic, we disclosed that we had added to our holdings of Comerica and discussed our thinking related to regional banks more generally. Since that time, deposit flight has broadly come under control and the stocks of many U.S. regional banks, Comerica included, have staged strong recoveries, albeit only partially so. For the record, despite a deeply challenging twelve-month period, Comerica ended 2023 having made a positive contribution to Fund performance, primarily due to our Spring purchases and subsequent second-half gains.

BSD Analysis:
Third Avenue maintains a constructive view on Comerica, highlighting its differentiated business model with heavy corporate lending exposure versus residential mortgages typical of regional peers. The bank's floating-rate loan portfolio provides unusual sensitivity to interest rate movements, creating both opportunities and risks. Management demonstrated conviction by adding to positions during the Spring 2023 regional banking crisis, when deposit flight and duration risk concerns created widespread panic. The fund's contrarian buying during the crisis proved successful, with Comerica contributing positively to performance despite sector headwinds. The manager acknowledges the complex relationship between interest rates and bank performance, noting that rising rates initially benefited asset yields before creating balance sheet stress. Comerica's corporate-focused lending model distinguishes it from mortgage-heavy peers, potentially providing more stable funding dynamics. The investment reflects Third Avenue's willingness to add to quality franchises during periods of sector distress. Recovery remains partial, suggesting continued upside potential as banking sector concerns normalize.

Pitch Summary:
However, the other side of the ledger, where the poor performers reside, was dominated by our investment in S4 Capital, a digital advertising and media company. Our investment in S4 began in 2022 as a contrarian opportunity in a company with several self-inflicted, but resolvable, wounds. It has since evolved into an investment in a company facing the first significant digital advertising downturn since the company's founding in 2018. The company, which remains in the process of restoring the fullness of its reputation with investors, while now simultaneously facing industry headwinds, has reached valuations we view as confusingly low. We do not view the company to be permanently impaired and, frankly speaking, the severity of cyclical headwinds facing the digital advertising industry today are actually quite mild, in comparison to many other cyclical industries in which we have experience. We are also generally pleased with management's seriousness of purpose in remedying previous operational shortcomings. Our reaction has been to continue to add to our holdings of S4. We would also note that, as contrarian value investors, we are accustomed to investing in companies, industries, and countries with dark clouds hovering above them at the time of investment, only to see those clouds darken further before finally dissipating. In fact, that pattern describes a number of our most successful long-term investments. We remain optimistic that S4 may one day be described in such a way.

BSD Analysis:
Third Avenue maintains a contrarian bull stance on S4 Capital despite significant underperformance, viewing current valuations as "confusingly low" for a digital advertising company facing temporary headwinds. The manager initiated the position in 2022 as a turnaround opportunity, recognizing self-inflicted operational issues that they believed were resolvable. While the company now faces its first major industry downturn since 2018, management characterizes these cyclical pressures as relatively mild compared to other industries in their experience. The fund has responded to weakness by adding to their position, demonstrating conviction in their contrarian approach. Management expresses satisfaction with the company's efforts to restore operational excellence and investor confidence. The investment thesis relies on the temporary nature of current challenges and the manager's track record of successful contrarian investments that initially faced deteriorating conditions before recovering. This represents a classic value play on a fundamentally sound business trading at distressed valuations due to cyclical and company-specific factors.

Pitch Summary:
Carrier is a leading global provider of Heating, Ventilation and Air Conditioning (HVAC) and refrigeration solutions. We believe the business is positioned to deliver attractive dividend growth supported by solid underlying fundamentals. HVAC is an attractive industry, historically growing at two times the rate of industrial production, fueled by long-term sustainability megatrends and a growing global middle class. The industry enjoys the benefits of a significant portion of its revenues coming from repair and replacement activities, buffering sales relative to other industrial segments during periods of economic weakness. Lastly, Carrier is trading at a meaningful discount to its HVAC peers, a valuation gap we expect to close as it becomes more of a pure play HVAC company, exiting certain non-HVAC businesses and integrating its acquisition of Viessmann Climate Solutions, a European heat pump business. In this regard, management recently announced agreements to sell its global commercial refrigeration business to Haier for an enterprise value of approximately $800 million and its security business to Honeywell for an enterprise value of approximately $5 billion. The sales prices represented transaction multiples of 16.5x and approximately 17x 2023 expected EBITDA, respectively and were comfortably above our expectations, indicating the value in Carrier's portfolio. The proceeds from the disposition will help the company pay down debt from their Viessmann deal and reach their committed leverage target quicker, allowing them to resume share buybacks.

BSD Analysis:
Bristol Gate initiated a position in Carrier Global Corporation, viewing it as an attractive dividend growth opportunity in the HVAC sector. The manager's thesis centers on HVAC being a structurally attractive industry that historically grows at twice the rate of industrial production, driven by sustainability megatrends and global middle-class expansion. The business benefits from significant recurring revenues through repair and replacement activities, providing defensive characteristics during economic downturns. Bristol Gate sees a compelling valuation opportunity as Carrier trades at a discount to HVAC peers, expecting this gap to close as the company becomes a pure-play HVAC business. Recent asset sales to Haier ($800M) and Honeywell ($5B) at attractive multiples of 16.5x and 17x EBITDA validate management's portfolio optimization strategy. The proceeds will accelerate debt reduction from the Viessmann acquisition and enable resumed share buybacks, supporting the dividend growth thesis.

Pitch Summary:
Other strong performers this year were Park Hotels, up 32.93% (more when you factor in their large year end dividend), and Macerich, up 38.01%. As it relates to our portfolio in particular, Macerich has continued to have a very good year. They have had 5% NOI growth YTD, and look set for continued strong growth in 2024 and 2025. Mac's signed not opened (SNO) & under negotiation leasing pipeline has grown to a whopping $75 million in incremental rent growth. That is nearly a 10% increase on current NOI. Now – MAC will also lose some tenants which will ojset a bit of this growth, but it shows just how much near term income MAC is likely to see. This also doesn't even count the typical ~3% rental escalations the existing tenants have. As Mac's CAM structure has Zxed escalations inbation chewed up a good portion of their in place rate escalations in the last few years, but as inbation has fallen these rental rate increases should begin to power further NOI growth in 2024. Net net - it wouldn't surprise me if MAC can do 5% NOI growth in 2024 and 2025 if we can avoid a recession.

BSD Analysis:
The manager presents a compelling bull case for Macerich based on strong operational momentum and significant embedded rent growth. MAC delivered 38.01% stock returns alongside 5% NOI growth year-to-date, demonstrating both market recognition and fundamental improvement. The $75 million signed-not-opened and under-negotiation leasing pipeline represents nearly 10% incremental NOI growth, providing substantial near-term earnings visibility. Beyond this pipeline, MAC benefits from typical 3% annual rental escalations that should regain effectiveness as inflation moderates. The manager projects continued 5% NOI growth in both 2024 and 2025, assuming no recession scenario. MAC's strong leasing momentum occurs against a backdrop of minimal new retail supply, creating favorable market dynamics. The combination of embedded rent growth, rental escalations, and improving inflation dynamics positions MAC for sustained earnings growth. This represents one of the fund's three largest positions and exemplifies the manager's thesis on retail real estate recovery.

Pitch Summary:
Other strong performers this year were Park Hotels, up 32.93% (more when you factor in their large year end dividend), and Macerich, up 38.01%. Park's valuation has obviously moved in the right direction, but its operational results have also been quite strong. Park's Q3 earnings showed continued recovery in their urban markets (which were holding the portfolio back), and this if anything appears to have accelerated in October and November. Park recently released an operating update showing the recent strong pickup in YoY RevPar growth. This growth has been powered by Park's urban portfolio and also strong performance at their Hawaii assets. This is broadly as I expected – Park's urban assets should see a nice growth tailwind from increased group & business travel & their Hawaiian assets should see tailwinds from the re-emergence of the Japanese traveler who were ~20% of demand pre-covid but were only at ~5% recently. I am hopeful this growth can continue into 2024. Park has many large assets that are oriented towards group travel, and 2024 group bookings are trending well above 2023 which should provide a strong boost towards revenue and earnings growth.

BSD Analysis:
The manager highlights Park Hotels as a major holding delivering strong operational and stock performance, with 32.93% gains plus additional dividend returns. The investment thesis centers on urban market recovery and international travel normalization, particularly Japanese tourism to Hawaii properties. Park's Q3 results demonstrated accelerating RevPar growth driven by both urban portfolio recovery and Hawaiian asset strength. The manager's bullish outlook is supported by strong 2024 group booking trends, which should drive revenue growth given Park's exposure to group travel-oriented assets. The recovery in Japanese travel represents a significant catalyst, as these travelers historically comprised 20% of demand but had fallen to only 5% recently. Urban market recovery provides additional upside as business and group travel continues normalizing post-COVID. The manager expects continued growth momentum into 2024 based on forward booking indicators and operational trends.

Pitch Summary:
For the year, our strongest performer was VNO. VNO was up 34.33% on the year, which is very good, but I doubled down on the stock when it traded down into the mid teens, and those investments are up ~100%. This is an excellent example of the value good active management can add, and was enabled by my strong conviction in the value of the underlying portfolio.

BSD Analysis:
The manager demonstrates strong conviction in VNO through opportunistic buying during weakness, doubling down when shares traded in the mid-teens and achieving approximately 100% returns on those incremental purchases. The 34.33% annual return significantly outperformed broader REIT indices, validating the manager's thesis on the underlying real estate portfolio value. VNO represents the manager's largest position and exemplifies their active management approach of adding to high-conviction names during periods of market distress. The manager's confidence stems from their assessment of the underlying portfolio's intrinsic value, particularly in Manhattan commercial real estate. This position demonstrates the fund's ability to generate alpha through tactical allocation adjustments rather than passive buy-and-hold strategies. The significant outperformance suggests the market was overly pessimistic about VNO's prospects during the downturn. The manager views this as validation of their fundamental analysis and active management capabilities in the REIT space.

Pitch Summary:
Nam Tai had an eventful year. One year ago, I thought our investment was at risk of a total loss. Since then, the board of directors has been able to get control of the company and its "chops" from the previous management. Shares have risen 257%, and I have renewed optimism that the company will ultimately sell itself at a price measurably higher than today's stock price. Nam Tai has won several court and arbitration cases in the past year against its former management. This includes an arbitration case that is worth $2 to $3 per share with a significant amount of that award in an escrow account, making collectability a non-issue. Shares ended the year at $4.75. Skin in the game for Nam Tai comes from its controlling shareholder, activist fund Oasis Capital. Oasis recently made additional open market purchases near today's share price and owns approximately 20% of the company. I continue to believe that the end game for Nam Tai is a sale of the company at a share price above $10.

BSD Analysis:
The manager presents a dramatic turnaround story for Nam Tai, transforming from a potential total loss to a 257% gain following successful corporate governance battles. The investment thesis centers on value realization through an eventual company sale above $10 per share, representing over 100% upside from the $4.75 year-end price. Key catalysts include successful litigation against former management yielding $2-3 per share in collectible awards held in escrow, providing tangible asset value support. The board's successful recapture of corporate control and 'chops' from previous management eliminates the primary risk factor that previously threatened total loss. Strong alignment exists through activist fund Oasis Capital's 20% ownership stake and recent open market purchases at current price levels, demonstrating continued conviction. The combination of litigation recoveries, improved governance, and activist oversight creates multiple paths to value realization. This represents a classic special situation where corporate governance improvements and asset monetization should drive substantial returns through an eventual strategic sale process.

Pitch Summary:
I have written about ENDI ad nauseum through the years. To save you from additional boredom on the subject, I will simply reiterate that I believe shares are exceptionally undervalued at this price. It is a small and underfollowed company, but I continue to be impressed with their operational performance. The stock price will follow at some point.

BSD Analysis:
The manager maintains a long-term bullish stance on ENDI based on exceptional undervaluation relative to operational performance, though provides limited specific details in this update. The investment appears to be a classic value play in a small, underfollowed specialty pharmaceutical company where the manager believes market inefficiencies have created a significant discount to intrinsic value. The brief commentary suggests this is a high-conviction, long-term holding where the manager has extensively analyzed the company over multiple years. The emphasis on operational performance improvements indicates strong fundamental execution despite poor stock price performance. As a small-cap, underfollowed name, ENDI likely benefits from limited institutional coverage and potential for multiple expansion once operational improvements gain market recognition. The manager's confidence in eventual price appreciation reflects belief in mean reversion and market efficiency over longer time horizons. This represents a patient value investment where operational excellence should ultimately drive stock price convergence to fair value.

Pitch Summary:
Lifecore is currently going through a process to sell itself. The question is whether they will be able to do it at an attractive price. The complicating factors are Lifecore's history and their ability to get current on their financials and past year's audit. Today, Lifecore is a pure-play Contract Development and Manufacturing Organization (CDMO). They are the leading manufacturer of hyaluronic acid and pre-fill injectables. There is not enough fill capacity in the overall markets relative to demand, and it takes several years to get regulatory approval to increase supply. Lifecore is in a unique position in that they have dramatically increased their manufacturing capabilities. The demand is there. They have significantly expanded their relationship with an existing long-term customer. This customer also provided financing to Lifecore earlier last year, saving them from a potential bankruptcy situation. Since then, Lifecore has put itself up for sale. That process has been difficult so far for several reasons. First, until about a year ago, the company also had an unrelated subsidiary in the food business. They sold that subsidiary but have had difficulties to this day completing the audit and previous years financial reports. These restatements do not involve the CDMO business, but this messiness is certainly impacting the overall sales process of the company. About a month ago, the company announced that they expected to be able to file their delinquent financial reports soon. While I would have expected this to be complete by now, to date these filings have not been made. Clearly there are issues with management, which I believe is why the company is so cheap. The CDMO business itself, though, is a jewel. I hesitate to publicly share a projected buyout price because this process has taken a few twists and turns over the past year. However, with shares under $7, I believe we could see substantial gains in a buyout with the potential for a lottery ticket-type offer. A potential near term catalyst is the ownership by an activist hedge fund. The activist joined Lifecore's board in January 2023 and has been the driver in the company's restructuring. The fund will be allowed to increase their ownership stake beyond 9.9% of the company beginning on February 22, 2024. It remains to be seen what this means, but it may be a clue regarding Lifecore's eventual sale.

BSD Analysis:
The manager presents a compelling special situation opportunity in Lifecore, a leading CDMO specializing in hyaluronic acid and pre-fill injectables operating in a supply-constrained market. The investment thesis centers on an active sale process for an undervalued asset trading below $7 per share, with potential for 'lottery ticket-type' returns in a buyout scenario. Lifecore's competitive position is strengthened by significant capacity expansion in markets with multi-year regulatory approval timelines, creating substantial barriers to new supply. Strong customer relationships are evidenced by expanded partnerships and customer-provided financing that prevented bankruptcy. However, legacy issues from a divested food subsidiary have created audit complications and management credibility concerns, likely contributing to the depressed valuation. An activist hedge fund's board presence since January 2023 and upcoming ability to increase ownership beyond 9.9% on February 22, 2024, provides a potential near-term catalyst. The core CDMO business represents a 'jewel' asset masked by administrative challenges, creating an asymmetric risk-reward opportunity for patient investors willing to navigate the complexity.

Pitch Summary:
There are periods of planting and harvesting for positions in a portfolio. For Vistry, the planting phase took longer than expected. We have finally entered the harvesting period. Last quarter I discussed our history with Vistry and Countryside, the company we originally owned until it was bought out by Vistry. When that acquisition was announced in November 2022, Vistry said that if the combined company did not get a proper valuation, they would focus entirely on their partnerships model and transition out of the traditional homebuilding model. They announced that they would begin doing this last September. This transition opened the door to significant buybacks due to the asset light nature of the partnerships model. Vistry committed to £1 billion in share buybacks over the next three years. They began buying in December and have been in the market nearly every day. Even with that, they will need to pick up the pace to hit their buyback goal. This is a good problem for us, as shareholders, to have. We have full alignment from the board, management, and all major investors on the strategy shift. The CEO is best in class and owns more than £10 million of shares, including a £5 million purchase after the Vistry/Countryside combination. The bottom line is that shares are extremely cheap now. This is a good thing as they buy back shares. If they can come anywhere close to their medium-term goals, which includes an operating profit of £800 million, shares will be dramatically higher than today. Even at today's operating profit, shares trade at 7x EBIT, which is way too low given the business model shift. Comps are nearly double that and do not take into account Vistry's size, scale, and operational excellence. It seems absurd, but I reiterate that if the company hits their medium-term goals, shares can trade up to £50 per share from £9.38 today. Vistry (and Liquidia) are two of the best risk/reward stocks in the market. We are in the harvesting phase for both. Vistry shares gained 47% in 2023 and have continued to climb so far in 2024.

BSD Analysis:
The manager presents a strong bull case for Vistry based on a strategic transformation from traditional homebuilding to an asset-light partnerships model. This business model shift enables significant capital returns, with management committing to £1 billion in buybacks over three years while maintaining aggressive daily repurchase activity. The investment thesis hinges on extreme undervaluation at 7x EBIT compared to peers trading at nearly double that multiple, despite Vistry's superior scale and operational capabilities. Strong management alignment is evident through the CEO's £10+ million ownership stake, including a £5 million post-acquisition purchase. The company's medium-term target of £800 million operating profit provides a clear catalyst for substantial share price appreciation. With shares trading at £9.38 and a £50 target price representing over 400% upside, this represents one of the manager's highest conviction positions. The 47% gain in 2023 demonstrates early validation of the thesis, with continued momentum into 2024 supporting the 'harvesting phase' narrative.