Investment Pitches

Pitch Summary:
We also remain alive to opportunities as they present themselves. One such example is alcoholic beverages where, in the past few months, we have started a holding in Heineken. Following inflated operating costs, and revenue headwinds in some of its emerging markets, the shares had de-rated to multi-year lows. Heineken is well-known to Troy, having been owned in the Troy Global Equity Strategy for over a decade. As the valuation of the shares became more attractive in 2022 and 2023, the team conducted further research on the company. This, alongside meetings with management, confirmed our enthusiasm for Heineken and its position within the attractively growing segment of premium beer. Our approach to buying shares in Heineken, ably supported by the rest of the team at Troy, provides a microcosm of how we work. Our collective knowledge of a group of exceptional companies offers valuable clarity when it comes to managing our equity exposure.

BSD Analysis:
Troy Asset Management initiated a position in Heineken after the shares de-rated to multi-year lows due to inflated operating costs and revenue headwinds in emerging markets. The fund managers view this as an attractive entry point for a company they know well, having owned it in their Global Equity Strategy for over a decade. Their thesis centers on Heineken's strong positioning within the premium beer segment, which they characterize as attractively growing. The investment decision was supported by extensive research and management meetings that reinforced their conviction. Troy's familiarity with the company provides them confidence in navigating the current challenges. The managers see this as an opportunistic purchase of a quality business at a temporarily depressed valuation. Their long-term knowledge of Heineken's fundamentals gives them conviction that current headwinds are transitory rather than structural.

Pitch Summary:
Early last year, we highlighted Centerra Gold (CGAU), a producer of gold and copper. With the recent pivot by the Federal Reserve to an easy money policy, we thought an update of this underappreciated hard asset was timely. Centerra continues to make progress in increasing production while lowering costs. During the third quarter, the Oksut mine restarted, resulting in earnings per share of $0.20 while throwing off cash flow in excess of $100 million. Centerra remains debt free with cash soaring to $492 million, or $2.28 per share. A new management team is focused on optimizing a diverse portfolio of assets, including a strategy to boost the value of its molybdenum business for eventual sale. With an admirable balance sheet, Centerra has the resources to fund an aggressive exploration program in North America, pay a 3.3% dividend, and embark on an 8.5% repurchase of shares outstanding. Trading below stated book value, approximately 60% of NAV, and less than 3X EV/EBITDA, we believe Centerra remains an outstanding small cap value.

BSD Analysis:
Heartland maintains a bullish stance on Centerra Gold, viewing it as an underappreciated hard asset play positioned to benefit from the Federal Reserve's pivot to easier monetary policy. The company has demonstrated operational improvements with the Oksut mine restart driving Q3 earnings of $0.20 per share and generating over $100 million in cash flow. Centerra's balance sheet strength is exceptional, maintaining a debt-free status with $492 million in cash ($2.28 per share), providing significant financial flexibility. New management is executing a focused strategy to optimize the asset portfolio, including plans to enhance and eventually sell the molybdenum business. The company's capital allocation is shareholder-friendly, funding aggressive North American exploration, paying a 3.3% dividend, and repurchasing 8.5% of shares outstanding. At current valuations of 60% of NAV, below book value, and less than 3X EV/EBITDA, Heartland sees compelling value in this small-cap gold producer with multiple operational and financial catalysts.

Pitch Summary:
A good example is UGI Corporation (UGI), an energy holding company that operates natural gas pipelines and regulated utilities in Pennsylvania and West Virginia while also distributing propane to residential and commercial customers through its AmeriGas and UGI International subsidiaries. The overhang on UGI's stock, which was nearly cut in half from February to October, has been the deteriorating EBITDA contributions from AmeriGas. After rolling up this business over the years, the company decided in 2021 to integrate all the acquisitions from a systems, distribution, and call center perspective. Unfortunately, they dropped the ball on execution, as customer retention was poor due to elevated driver turnover and overall poor service levels. In late August, UGI announced a strategic review to evaluate all options for the business, which includes sticking with the turnaround plan which has showed two quarters of stabilization. CEO Roger Perreault, who led the initial transformation of AmeriGas, also announced he was stepping down. We think his departure is a positive for this undervalued energy company. We initiated a position in this company in the fourth quarter as the stock was trading close to book value and just 7.5X earnings, for an earnings yield of 13.3%. By comparison, pipelines trade at over 16X forward earnings and utilities at 20X. Although UGI's pipeline and propane businesses are more volatile than a traditional regulated utility, a dividend yield of over 6%, in our view, more than compensates.

BSD Analysis:
Heartland initiated a position in UGI Corporation during Q4 2023, viewing it as an undervalued energy holding company trading at attractive metrics. The fund's thesis centers on UGI's compelling valuation at just 7.5X earnings and close to book value, offering a 13.3% earnings yield significantly higher than comparable pipeline (16X) and utility (20X) companies. The investment case is strengthened by the departure of CEO Roger Perreault, which management views as positive for the turnaround. UGI's AmeriGas subsidiary has been a key headwind, with deteriorating EBITDA due to poor execution on systems integration, leading to customer retention issues and service problems. However, the company has shown two quarters of stabilization and announced a strategic review of options for the business. The 6% dividend yield provides attractive income compensation for the higher volatility compared to traditional regulated utilities. Heartland sees this as a classic value opportunity with multiple potential catalysts for recognition.

Pitch Summary:
I have been exploring companies involved in metals and mining, hoping to find an opportunity. I believe I found a company that fits with the strategy and looks to be a perfect fit for the fund in Vox Royalty Corp (VOXR). Vox Royalty Corp operates in the alternative financing space of mining royalties. Mining royalties are flexible agreements where a company like Vox will provide a one-time payment for a share of future revenue produced. These are normally long-term projects and royalty contracts can change hands before the contract begins producing revenue. This is attractive as an asymmetric risk/reward tied to commodity prices since Vox has a fixed cost and initial investment but will profit more as prices rise or operations become increasingly efficient with many of the contracts. Vox has a proprietary database of information on 8500+ existing royalties. This asset has already shown to be valuable with an IP licensing agreement recently announced. This provides an additional source of revenue and upside with no capital requirement. This database should allow Vox to cherry pick opportunities. I also expect Vox to grow relationships within the space and assist companies with structure/creation of royalty contracts for financing and be in a position to take action and efficiently allocate capital long term. I have initiated a position and like this business model. I believe mining royalty contracts offer an opportunity to capture upside in commodity prices with less risk than attempting to identify or pick a specific mining company. These contracts and the mining industry/commodity prices in general should benefit from the push towards electric vehicles in addition to inflation or economic expansion. Investing in Vox may also provide some recession protection with its exposure to gold prices. With the company currently paying a 2.65% dividend, I am happy to start building a position as new mines come online.

BSD Analysis:
The manager presents VOXR as an asymmetric play on commodity prices through mining royalties, offering upside exposure with limited downside risk compared to direct mining investments. The investment thesis centers on Vox's proprietary database of 8,500+ royalties, which provides competitive advantages in deal sourcing and valuation. The company recently monetized this database through an IP licensing agreement, demonstrating additional revenue streams beyond traditional royalty income. The business model offers exposure to multiple commodity price catalysts including electric vehicle adoption, inflation, and economic expansion, while providing recession protection through gold exposure. The manager appreciates the fixed-cost structure that allows Vox to benefit disproportionately from rising commodity prices and operational improvements. The 2.65% dividend provides income while waiting for new mines to come online. This represents a strategic entry into the mining sector without the operational risks of direct mining company ownership.

Pitch Summary:
The fund's top position is RCI Hospitality (RICK). RICK is the only publicly traded owner of adult nightclubs in the US. Currently they own 56 clubs across 13 states and an additional 13 sports-bar restaurants with the "Bombshells" concept that has recently begun franchising. With few municipalities issuing new adult entertainment licenses these businesses function as local monopolies with excellent unit economics. With the construction of two Colorado casinos underway, the long runway of adult night club acquisition targets, the growth potential and spin off value of the Bombshells concept and finally the potential upside of the "admireMe" OnlyFans type website, I expect this to remain my top position for the foreseeable future.

BSD Analysis:
The manager views RICK as a unique monopolistic business model with strong unit economics due to limited licensing for adult entertainment venues. The investment thesis centers on multiple growth drivers including casino construction, acquisition opportunities, and the franchising potential of the Bombshells restaurant concept. The company operates 56 adult nightclubs across 13 states plus 13 sports-bar restaurants, creating a diversified entertainment portfolio. The manager highlights the scarcity value created by municipal licensing restrictions that effectively create local monopolies. Additional upside potential comes from the admireMe digital platform, which could capitalize on the OnlyFans market trend. The concentrated position reflects high conviction in the company's ability to expand through acquisitions and franchise growth. This represents a contrarian investment in a niche sector with significant barriers to entry.

Pitch Summary:
Roche Holding (Switzerland) is a health care company focused on pharmaceuticals and diagnostics. Roche is an above-average innovator in pharma with a solid track record of new drug development underpinned by a market-leading budget both in absolute terms and relative to its sales base. Its shares are trading at a discount to the net present value of the company's on-market portfolio after a handful of unlucky misses in late-stage development, meaning that this innovation engine is free. Moreover, the on-market portfolio provides a solid mid-term growth and cash generation outlook, which should give the company's pipeline time to deliver and should provide the financial capacity for the company to pursue selective, accretive bolt-on acquisitions.

BSD Analysis:
Oakmark identifies Roche as an undervalued pharmaceutical innovator trading below the net present value of its existing on-market portfolio. The company maintains above-average innovation capabilities with market-leading R&D spending both in absolute terms and relative to sales, creating a competitive advantage in drug development. Recent late-stage development setbacks have created a valuation disconnect, essentially providing the innovation engine at no cost to investors. The existing on-market portfolio offers solid mid-term growth and cash generation prospects, providing financial flexibility for pipeline development and strategic acquisitions. Roche's dual focus on pharmaceuticals and diagnostics creates diversification benefits within healthcare. The fund views this as an opportunity to acquire a quality pharmaceutical franchise with strong innovation capabilities at an attractive valuation following temporary pipeline disappointments. The company's financial strength enables selective bolt-on acquisitions to enhance growth prospects while maintaining investment in core R&D capabilities.

Pitch Summary:
Kroger (U.S.) is the second-largest grocery retailer in America, behind only Walmart. Although the grocery industry is highly competitive, Kroger's scale advantages allow it to offer a more compelling value proposition than smaller peers and earn higher returns on capital. In recent years, the market has assigned Kroger a lower multiple due to concerns that e-commerce would disrupt traditional brick-and-mortar grocery businesses. However, we believe Kroger's performance through the pandemic highlighted that its store footprint, distribution infrastructure, technology investments and strong brand all position the company well for a world with higher online grocery adoption. The stock trades for just 10x our estimate of next year's EPS, which we believe is attractive given Kroger's competitive positioning and earnings growth outlook. The pending merger with Albertsons could accelerate the company's earnings growth and produce additional scale advantages. If the merger is not approved, the company will have the capacity to return over 25% of its market cap to shareholders.

BSD Analysis:
Oakmark views Kroger as an undervalued grocery leader trading at just 10x forward earnings despite strong competitive positioning. The fund believes the market has unfairly penalized the stock due to e-commerce disruption fears, while Kroger's pandemic performance demonstrated its omnichannel capabilities and infrastructure advantages. Scale benefits versus smaller competitors enable superior value propositions and higher returns on capital in the highly competitive grocery sector. The company's store footprint, distribution network, technology investments, and brand strength position it well for increased online grocery adoption. The pending Albertsons merger represents a potential catalyst for accelerated earnings growth and additional scale advantages. Even without merger approval, Kroger's strong cash generation provides significant shareholder return capacity, with over 25% of market cap available for buybacks and dividends. This represents a defensive consumer staples play with multiple value creation pathways at an attractive valuation.

Pitch Summary:
Agilent Technologies (U.S.) sells analytical instruments primarily used by research scientists and quality control labs. Agilent's portfolio has transformed dramatically since the company was spun off from Hewlett Packard in 1999. Since then, the company has pared back cyclical business lines in semiconductors, electronic measurement and communications. Agilent is now a pure-play focused on life science and diagnostics. Most of its current sales are derived from recurring sources, such as consumables, services and software, which are more profitable and less volatile than capital equipment orders. Since slimming the company down, Agilent's management has delivered consistent market share gains, robust organic growth and solid margin expansion. We also like that the company competes in large, consolidated end markets that possess attractive growth rates, robust profitability and resiliency. Company executives are talented operators, driven by a long-term mindset and a commitment to build shareholder value through balanced capital allocation, which adds to our confidence in our investment. We believe the market is overlooking the company's transformation and still sees Agilent as a cyclical business. The share price has been hurt by short-term concerns about soft capital equipment orders following a robust post-pandemic selling period. This has allowed us to purchase shares of this high-quality business at a discount to its life science peers and to relevant private market transactions.

BSD Analysis:
Oakmark identifies Agilent as a transformed business model that the market continues to misunderstand as cyclical. The company's strategic evolution since the 1999 Hewlett Packard spinoff has created a pure-play life sciences and diagnostics franchise with recurring revenue streams from consumables, services, and software. This recurring revenue base provides higher profitability and lower volatility compared to traditional capital equipment sales. Management has consistently delivered market share gains, organic growth, and margin expansion while operating in large, consolidated end markets with attractive fundamentals. The fund appreciates management's long-term orientation and balanced capital allocation approach. Current valuation reflects temporary concerns about capital equipment softness post-pandemic, creating an opportunity to acquire shares at a discount to life science peers and private market valuations. The investment thesis centers on the market's failure to recognize Agilent's business model transformation and defensive characteristics.

Pitch Summary:
Bayer (Germany), a life science company with pharmaceuticals, consumer health and crop science divisions, was the quarter's top detractor. During the quarter, the company announced its decision to stop its OCEANIC-AF trial for asudenxian early due to lack of efficacy. The company was ordered to pay $1.5 billion to three plaintiffs in a recent RoundUp case. While both events were disappointments, the asundexian news is more relevant to us because we expected both wins and losses in the RoundUp legal saga and anticipate this recent verdict will likely be reduced significantly on appeal. Asundexian was Bayer's largest late-stage pharma pipeline opportunity and had potential to be a next-generation Xarelto, but the trial was riskier than usual due to its data profile in earlier stages. We have modestly reduced our estimate of Bayer's intrinsic value, but we still believe the stock is attractively priced, trading at around 6 times 2024 earnings. We continue to monitor the situation and will adjust our analysis, if necessary. We met with new CEO Bill Anderson after the news, and we are impressed by his thoughtfulness, strong background in pharma, and urgent desire to improve the areas of the company that have held it back from its full earning potential.

BSD Analysis:
Despite recent setbacks, Oakmark maintains conviction in Bayer's value proposition at approximately 6x 2024 earnings. The fund views the failed asundexian trial as the more significant disappointment versus the RoundUp litigation, which they anticipated would have mixed outcomes with likely appeal reductions. While asundexian represented Bayer's largest late-stage pipeline opportunity with potential as a next-generation Xarelto, the trial carried higher risk due to earlier-stage data profiles. The fund has modestly reduced intrinsic value estimates but believes the market overreaction creates attractive entry valuation. New CEO Bill Anderson's pharmaceutical background and urgency to unlock value provides optimism for operational improvements. The diversified life sciences platform across pharmaceuticals, consumer health, and crop science offers multiple value drivers. Oakmark sees this as a contrarian value opportunity in a quality pharmaceutical franchise trading at distressed multiples.

Pitch Summary:
Capital One Financial (U.S.), which specializes in consumer finance, was the top contributor for the quarter due to strong third-quarter results. The company's earnings per share of $4.45 was about 37% above consensus estimates, and its loan growth, net interest margin, non-interest income, operating expenses and charge-offs were all better than consensus estimates. In regard to credit quality, management noted that while portfolio-wide monthly delinquency and charge-off rates slightly exceeded 2019 levels, those trends were stabilizing. In addition, Capital One maintains sizeable capital and liquidity buffers. Overall, we appreciate the company's value-focused management team, consistent reinvestment in technology development and stable deposit base.

BSD Analysis:
Oakmark highlights Capital One's exceptional Q3 performance with EPS of $4.45 beating consensus by 37%, demonstrating strong operational execution across key metrics. The fund appreciates management's disciplined approach to credit quality, noting that while delinquency rates slightly exceed 2019 levels, trends are stabilizing and the company maintains robust capital buffers. The investment thesis centers on Capital One's value-focused management team and consistent technology investments that differentiate it in consumer finance. The stable deposit base provides funding advantages in a competitive banking environment. Strong performance across loan growth, net interest margin, and expense management indicates effective business model execution. The fund views the company as well-positioned despite credit normalization trends. This represents a quality financial services play with disciplined risk management and technological competitive advantages.

Pitch Summary:
We purchased shares in BlackRock, the largest asset manager in the investment industry, when its stock sold off on fears that higher interest rates would hurt global economic activity. BlackRock's ETF business, iShares, outgrows competitors due to its strong brand and breadth of product offerings. BlackRock's active management business also outgrows most other managers due to its dominance in fixed income and leadership in multi-asset, sustainable investing and alternative assets. We expect BlackRock's total revenue to grow in the high-single digits and earnings per share to grow faster than revenue. We were pleased to add this above-market grower at a below-market multiple of earnings.

BSD Analysis:
Oakmark initiated a position in BlackRock during a market selloff driven by interest rate concerns, viewing this as an opportunistic entry point. The managers highlight BlackRock's competitive advantages across multiple business segments, particularly the iShares ETF platform's market-leading position and brand strength. They emphasize the company's diversified growth drivers including dominance in fixed income management and leadership positions in emerging areas like sustainable investing and alternatives. The investment thesis centers on BlackRock's ability to generate above-market revenue growth in the high-single digits while achieving even faster earnings growth through operational leverage. The managers view the valuation as attractive, describing it as an 'above-market grower at a below-market multiple.' This represents a classic value opportunity where temporary market concerns created a disconnect between price and intrinsic value. The pitch reflects confidence in BlackRock's durable competitive moats and long-term growth trajectory in the asset management industry.

Pitch Summary:
Phillips 66 is an integrated downstream energy company that operates refineries, pipelines, chemical manufacturing plants and retail gas stations. Like most U.S.-based oil refiners, Phillips 66 is currently earning abnormally high profit margins thanks to a tight market for refined products, like gasoline, diesel and jet fuel. Many investors worry that these elevated margins are unsustainable and, therefore, they assign low P/E multiples to the refiners. Indeed, Phillips 66 and its peers Valero and Marathon Petroleum all trade for around 9x next year's earnings. Unlike the other refiners, however, the majority of value at Phillips 66 comes from its non-refining segments, which provide a more stable base of cash flow. We believe this business mix and management's cost-cutting and capital-return priorities will bolster earnings per share, even if refining margins return to historical levels. As a result, we believe we are paying a single-digit multiple of normalized earnings for Phillips 66 today. We see this as an attractive price for a solid business.

BSD Analysis:
The manager presents Phillips 66 as a differentiated play within the refining sector, trading at an attractive 9x forward earnings multiple alongside peers Valero and Marathon Petroleum. The key differentiator is Phillips 66's diversified business mix, where non-refining segments provide more stable cash flows compared to pure-play refiners. This diversification includes pipelines, chemicals, and retail operations that generate consistent returns through commodity cycles. While current refining margins are elevated due to tight refined product markets, the investment thesis doesn't rely on sustaining these peak levels. Management's focus on cost reduction and capital returns should support earnings per share growth even as margins normalize. The fund believes they're acquiring the company at a single-digit multiple of normalized earnings, providing downside protection. The combination of diversified cash flows, disciplined capital allocation, and attractive valuation creates a compelling risk-adjusted opportunity in the energy sector.

Pitch Summary:
Paycom is an Oklahoma City-based payroll and human capital management software company led by founder and CEO Chad Richison. For years, Paycom has traded at a premium multiple thanks to its rare combination of fast growth and high profit margins. Under Mr. Richison's leadership, Paycom has grown revenue at more than 30% per year for the last decade and currently produces high-20s operating profit margins. Recently, though, an operational misstep related to the rollout of a new product caused revenue growth to slow and sent the stock down 40%. Paycom now trades near its all-time low revenue multiple and at a discount to the broader software industry. We believe the recent operational issue will prove temporary and that Paycom's superior profitability and favorable long-term growth prospects justify a premium valuation relative to industry peers. We view today's discount as an opportunity to invest in a great company at a reasonable price.

BSD Analysis:
The manager identifies Paycom as a temporary value opportunity following a 40% stock decline due to operational missteps during a new product rollout. The company's historical track record is impressive, with 30%+ annual revenue growth over the past decade and high-20s operating margins that significantly exceed industry norms. Founder-led management under Chad Richison provides continuity and strategic vision for the human capital management platform. The current valuation represents an all-time low revenue multiple and trades at a discount to broader software peers, creating an attractive entry point. The investment thesis assumes the recent operational issues are transitory rather than structural problems. The fund believes Paycom's superior profitability profile and long-term growth trajectory warrant a premium valuation once execution improves. This represents a classic value play on a high-quality software company experiencing temporary headwinds.

Pitch Summary:
American Express is one of the largest credit card issuers and payment networks in the world. We believe the company's closed-loop network, brand equity and scale represent durable competitive advantages. Unlike most card issuers that process credit card transactions over third-party networks, American Express processes transactions over its own network. This allows American Express to earn greater economics than peers on each card transaction. The company retains part of this advantage in the form of higher profitability and reinvests the rest in enhanced customer rewards and service. Over time, these investments have helped American Express build its brand and attract more lucrative, high-spending card customers. We expect this business model and customer-centric approach will continue to drive industry-leading growth for years to come. Concerns over the near-term economic outlook allowed us to purchase shares of American Express at a 13x P/E on next year's consensus earnings estimate. We think that is an attractive valuation for a company with this combination of business quality and growth.

BSD Analysis:
The manager presents a compelling bull case for American Express based on its unique closed-loop network model that generates superior economics versus traditional card issuers. The competitive moat stems from processing transactions on its proprietary network rather than third-party systems, enabling higher profitability per transaction. Management's strategy of reinvesting excess returns into customer rewards and service creates a virtuous cycle that attracts high-spending, premium customers. The fund capitalized on market concerns about economic headwinds to acquire shares at an attractive 13x forward P/E multiple. This valuation appears reasonable for a company with durable competitive advantages and industry-leading growth prospects. The closed-loop model provides pricing power and customer stickiness that should support long-term outperformance. The investment thesis centers on the sustainability of American Express's premium positioning and ability to maintain market share among affluent consumers.

Pitch Summary:
Worldline (France), a European merchant acquirer and payment processor, was the top detractor for the quarter. The company's third-quarter earnings missed consensus and our own expectations, and management cut its full-year 2023 and 2024 guidance. The implied 2024 adjusted earnings guidance is around 16% below consensus expectations. This resulted in a 60% sell-off in the stock, an amount that we do not think is proportional to the impact to the company's fair value. In our view, the negative guidance revision derives from two causes. First, due to evolving regulatory requirements around cybercrime in Europe, Worldline cut ties with certain online merchants that would have required excessive investment to be fully compliant with regulatory standards. Second, Worldline highlighted weak macroeconomic trends in Germany, where it is the market leader, and these are driving spending shifts toward non-discretionary categories that produce less revenue and profit from merchants for Worldline. Collectively, Worldline's actions impact EUR 210 million in annualized revenue (sub-6% consolidated revenues), reset margins down by 250 basis points, and will burden near-term cash generation due to restructuring charges. The negative impact should start to ease by the second half of 2024. We've spoken to management, former Worldline employees, and payment industry competitors. In our view, Worldline's negative share price reaction is disproportional to the likely impact on its long-term prospects. The fundamentals of the business are still intact. The European payment market is cash heavy and still largely operated by legacy banks that are ceding share to pure acquirers like Worldline. The company's scaled pan-European footprint, capital light and cash-generative operating profile, strong medium-term growth potential, and washed-out valuation make it an attractive holding. Owning just under 10% of the equity at year end, we continue to view Worldline as a good investment opportunity.

BSD Analysis:
The manager maintains a contrarian bull stance on Worldline despite significant near-term headwinds and a 60% stock decline. The thesis centers on the market's overreaction to temporary challenges that impact less than 6% of consolidated revenues. The manager identifies two specific issues: regulatory compliance costs for certain online merchants and German macroeconomic weakness affecting discretionary spending. While these factors will pressure margins by 250 basis points and burden near-term cash flow, the impact should ease by H2 2024. The long-term investment case remains compelling given Europe's cash-heavy payment market and ongoing share gains from legacy banks to pure acquirers like Worldline. The company's pan-European scale, capital-light model, and cash-generative profile provide competitive advantages in a consolidating market. With a 10% equity position and extensive due diligence including management, former employees, and competitors, the manager views the current valuation as attractive for patient investors.

Pitch Summary:
Ryanair Holdings (Ireland), a European ultra-low-cost airline, was the top contributor to the Fund's performance this quarter. Ryanair released strong results for the first half of fiscal-year 2024 and was accompanied by an even stronger outlook, in our view. The company's revenue grew 30% year over year, and average fares increased by 24% to EUR 58, driven by record demand and constrained capacity at European peers. Total passengers flown expanded 11% year over year to 105.4 million, and management is on track to maintain its target of 183.5 million passengers for 2024, depending on Boeing's ability to meet its delivery commitments. Management is expecting full-year 2024 net income to be between EUR 1.85-2.05 billion ahead of the EUR 1.82 billion consensus estimate. The company's strong free cash flow levels and balance sheet allowed Ryanair to reinstate a EUR 400 million dividend (35 cents per share). We spoke with CEO Michael O'Leary about additional uses for its excess capital and were happy to hear about an incremental EUR 1.5 billion return to shareholders starting in 2025. We continue to be optimistic about Ryanair's future.

BSD Analysis:
The manager presents a compelling bull case for Ryanair based on exceptional operational and financial performance. The company delivered impressive 30% revenue growth and 24% fare increases, demonstrating strong pricing power amid constrained European airline capacity. With 105.4 million passengers flown and a target of 183.5 million for 2024, Ryanair is capitalizing on record demand in the European travel market. Management's guidance of EUR 1.85-2.05 billion in net income exceeds consensus estimates, indicating conservative forecasting and potential upside. The reinstatement of a EUR 400 million dividend and planned EUR 1.5 billion additional shareholder returns starting in 2025 highlight the company's robust cash generation and disciplined capital allocation. The manager's direct engagement with CEO Michael O'Leary provides additional confidence in the investment thesis. Ryanair's ultra-low-cost model and market-leading position in Europe position it well for continued growth as travel demand normalizes.

Pitch Summary:
Goodheart-Willcox is the previously unnamed position I discussed in my mid-year letter. Goodheart-Willcox is an educational products provider that specializes in Career & Technical, Health, and Physical Education, notably outside of the more competitive mass market textbook subjects (Math, Language Arts, Science, etc.). They have strong customer relationships and market share across a number of CTE subjects and most recently have had success winning new customers for both their Health Education and Financial Literacy products. It has historically been a pretty good business with operating margins around 10-15% and a growing but lumpy top line. In recent years though, the business has undergone a significant transformation that I believe is greatly underappreciated. The company's digital revenues started to gain significant traction in 2018 and have only accelerated further post-pandemic, now making up almost 40% of revenues and still growing 35%+ per year. Operating Margins are now 30% and climbing and cash is quickly piling up, despite paying a large special dividend at the end of 2021 (33% of the market cap at the time) and paying out a majority of net income as a dividend. The underlying reason for the excellent performance of the business is very simple. The pandemic and distance learning accelerated technology usage in and out of the classroom and now nearly every middle and high school student has a school provided laptop. This creates a strong and obvious incentive to purchase digital content in and out of the classroom. The educational content providers that have adapted quickly providing high quality, relevant digital content have been big beneficiaries of this demand wave. Interestingly, this hasn't turned into much cannibalization at all on the legacy print textbook sales either, most buyers prefer to bundle and get the print textbook and digital content together. Importantly, this digital revenue is sold through all their pre-existing customer relationships and sales staff, so given digital gross margins are so high (I estimate 90%+), the incremental margins on these digital sales is extremely high and drops straight to the bottom line. It's also important to note that there is a large divergence between reported Net Income and FCF. This is because most of their digital revenue is LT, typically 6-7 year licenses, and they receive all the cash up front with relatively minimal ongoing costs over the remainder of the contract. Because of the LT nature of the license, GAAP only recognizes revenue ratably over the 6-7 year contract term. So, the big takeaways are true economic earnings are much better than presented by GAAP, and true economic liabilities are a far cry from what is presented on the balance sheet. I estimate they have around $85M of cash right now, well over half the market cap, and nearly all of that is excess cash given the ongoing profitability and growth of the business and their limited capital needs. This also means billings related to the digital licenses are growing even faster, albeit much lumpier, and much larger than reported revenues. Despite this transformation, shares trade at only 3x EV/FCF and yield 6-7%, far below comps of 12x FCF or higher (most notable comp is HMHC which sold to Veritas for 12x FCF in 2021, which many holders understandably thought was criminally low), which would value the business at over $760/sh. One of the primary reasons HMHC holders were against selling at 12x FCF was HMHC's incredible opportunity to create significant shareholder value by capitalizing on the accelerated shift towards digital learning. Goodheart-Willcox has fully taken advantage of this ongoing secular shift yet trades at a fraction of its true value.

BSD Analysis:
The manager presents Goodheart-Willcox as a dramatically undervalued educational publisher that has successfully transformed from traditional textbooks to high-margin digital content. The company specializes in niche subjects like Career & Technical Education, avoiding competitive mass-market areas, and has built strong customer relationships. Digital revenues now comprise 40% of sales, growing 35%+ annually with estimated 90%+ gross margins, driving operating margins from 10-15% historically to 30% currently. The pandemic accelerated digital adoption as schools provided laptops to students, creating sustained demand for bundled print and digital content. A key insight is the GAAP accounting distortion: 6-7 year digital licenses are paid upfront but recognized ratably, meaning true economic earnings significantly exceed reported figures. With $85M cash (over half the market cap) and minimal capital needs, the company trades at only 3x EV/FCF versus comparable HMHC's 12x FCF acquisition multiple, implying $760+ per share value.

Pitch Summary:
Hammond Manufacturing ("HMM") is a wildly mispriced and misunderstood (or perhaps not understood at all) company that trades at an extreme discount to larger peers, despite delivering top-line and bottom-line growth on par with or better than those same peers over the last 6-7 years. Hammond Manufacturing makes electrical enclosures, racks and cabinets, power distribution products, transformers, and many related accessories for a variety of industries. These may sound like boring products but due to secular trends in cloud computing, infrastructure investment, and electrification of everything, Hammond has experienced steady, profitable growth for many years. Despite growing Revenue and Gross Profit at a healthy double-digit CAGR (11.2% and 15% respectively) for the last 7 years, Hammond Manufacturing trades at a measly 5x earnings. This valuation seems quite cheap in an absolute sense but is even more glaring when compared to its sister company, Hammond Power Solutions, which was spun out in 2001. Hammond Power has also delivered exceptional results over the past 7 years, growing revenue and gross profit at 14% and 18% respectively. Understandably, Hammond Power's results have been rewarded by investors with a respectable 18x P/E. Hammond Manufacturing on the other hand trades at an astonishing 70% discount to Hammond Power. This is before even considering the value of their real estate: over 500,000 sq ft of manufacturing facilities located only 1-1.5hrs from the Toronto metro area. Since the company was founded over 100 years ago and most of this is carried at cost, the value of their manufacturing facilities alone likely come close to, if not exceed the current market cap of roughly $100M CAD. I'm not betting on them doing anything in the near-term to unlock this value, but it's a great asset to have for downside protection and only adds to the large margin of safety at current prices. While Hammond Power has stronger market share in its core dry-type transformer markets, they both serve similar end markets and are exposed to similar secular tailwinds, both of which have delivered strong results from. I think the primary reason is how each communicates their story and results to investors. HPS is very active on this front with in-depth disclosures and discussions around secular tailwinds, quarterly conference calls, and even a couple analysts covering the company. HMM, on the other hand, barely discusses end-user markets and never mentions data centers, cloud computing, or increasing infrastructure investments in its annual report or other public filings. I think this has contributed to the perception that HMM is a company that simply sells electrical boxes. The reality couldn't be further from the truth, as HMM sells nearly 15,000 different products used in a wide variety of industries, with an entire product category, racks and cabinets, directly benefiting from the continuous growth in data center investments and cloud computing demand. Because of this misconception, I believe a number of investors are concerned that HMM is cyclical and could be "over-earning". While they are no doubt exposed to cyclical demand, like commercial and industrial construction, they also sell a wide array of supplies and accessories that are likely much less cyclical (screws, casters, filters, small transformers, various replacement parts, etc.) and many products exposed to the secular tailwinds discussed before. I think this viewpoint is supported by the fact that they've reported an operating profit every year going back to 2002. Another important peer of Hammond Manufacturing, and industry leader, is nVent Electric. nVent management, like Hammond Power, is very clear in their view of LT growth for the industry, especially related to data solutions. nVent's largest and best performing segment is their enclosure segment, which is probably the most comparable part of their business to Hammond Manufacturing's overall business. nVent has also disclosed organic growth figures for their enclosure segment going back to 2016. From 2016 to 2022, nVent's annualized organic growth for its enclosure segment was 5.78% Hammond Manufacturing's total (not even just enclosures separately) annualized sales growth over that same period was over double that, at 11.79%. nVent trades at 15x EV/EBITDA and a 21x P/E. nVent is much larger than Hammond Manufacturing, has best-in-class operating margins, and is probably a better business in other aspects but it makes no sense to me why it should be worth 4x the valuation of a smaller, and even better historically performing competitor. I don't think nVent is overvalued, simply that Hammond Manufacturing is extremely undervalued. Taking a step back, HMM has delivered financial performance near or better than highly-valued peers for nearly a decade, has real estate worth the entire market cap, yet still trades at 5x earnings. If Hammond traded at a still massive 50% discount to HPS, upside for the stock is 80% (but still only 9x earnings), while a 30% discount would yield upside of over 130% at 12x earnings. One can debate about what the discount should be but I don't see a world where the current price disparity makes any sense, nor do I think the valuation is close to warranted in an absolute sense either.

BSD Analysis:
The manager identifies Hammond Manufacturing as a severely undervalued electrical equipment manufacturer trading at only 5x earnings despite superior growth metrics. The company has delivered 11.2% revenue and 15% gross profit CAGR over seven years, outperforming peers while trading at a 70% discount to sister company Hammond Power Solutions (18x P/E). The investment thesis centers on secular tailwinds from cloud computing, data center growth, and electrification trends benefiting their 15,000-product portfolio including racks and cabinets. The manager attributes the valuation disconnect to poor investor communication compared to peers like nVent Electric, which trades at 21x P/E despite slower growth. Hammond's 500,000 sq ft of real estate near Toronto, carried at cost, provides significant asset value approaching the entire $100M CAD market cap. With consistent profitability since 2002 and exposure to both cyclical and secular growth drivers, the manager sees 80-130% upside potential even at discounted peer multiples.

Pitch Summary:
2023 was a year of significant change for FitLife, they completed their uplisting to the Nasdaq and they were able to capitalize on two very attractive acquisitions; one distressed and near bankruptcy and the other just emerging from it. Their $20M purchase of Mimi's Rock closed in February 2023, and considerable progress has already been made with annualized EBITDA of that business already approaching $6-8M. Legacy FitLife experienced some headwinds in Q3 as there was some weakness in the GNC retail channel, which was also compounded by the usual lumpiness of wholesale orders. Legacy FitLife online sales growth also slowed some in 2023 but has since shown signs of growth improvement in recent months. While some weakness in legacy FitLife is not ideal, I think it's important to remember the relative importance of legacy FitLife vs. both new acquisitions going forward. I expect Mimi's and MusclePharm to contribute a majority of earnings in the future and there is simply more to improve upon and grow related to their businesses vs. legacy FitLife, where much of the heavy lifting and improvements are now complete. Speaking of potential improvements and growth, Musclepharm is ripe with plenty. FitLife paid $18.5M for MusclePharm out of bankruptcy and based on my own estimates from MusclePharm's bankruptcy filings, it was likely generating around $16-18M in annual revenue and $3-4M in annualized operating income when adjusting for legal fees. That would put the initial acquisition multiple around 5x EBIT and perhaps a little closer to 6 when you consider additional working capital needed. This is already a relatively attractive multiple, especially given the past reach of the brand and prior success at least on a total revenue basis. But the next steps to improve these figures are clear and have been discussed openly by FitLife: sell products directly on Amazon rather than through resellers (thereby significantly increasing gross margins on those sales), relaunch historically successful MusclePharm products and introduce new products, e.g., Combat Crunch Protein Bar, multivitamins and other pills, etc., and restore wholesale distribution. FitLife has mostly completed the first step, letting resellers deplete inventory in the 4th quarter of 2023 and is now the primary seller on most products on Amazon. They've also announced they're in the process of relaunching products and engaging several previous customers to restore distribution. Importantly, I've noticed MusclePharm products have recently been relisted on the website of one of their largest prior customers so progress has already been made on that front as well. As we proceed through 2024 I believe the increased normalized earnings power of FitLife, primarily from the two acquisitions, will become evident and investors will begin to appreciate the continued execution and phenomenal capital allocation. I believe adjusted EBITDA of $16M is very achievable on the low end with a reasonable chance for up to $18-20M. Given the track record since 2018 and all the other favorable characteristics I've discussed, a valuation of 5-6x EBITDA is simply too cheap, especially when considering the possibility of continued accretive acquisitions with low-hanging fruit and management's laser focus on building shareholder value.

BSD Analysis:
The manager presents a compelling turnaround story centered on FitLife's strategic acquisitions of distressed assets Mimi's Rock and MusclePharm. The $20M Mimi's Rock acquisition is already generating $6-8M in annualized EBITDA, representing strong value creation. The $18.5M MusclePharm bankruptcy acquisition appears particularly attractive at 5-6x EBIT, especially given the clear operational improvement roadmap. Key catalysts include transitioning from Amazon resellers to direct sales (improving gross margins), relaunching successful product lines like Combat Crunch Protein Bar, and restoring wholesale distribution relationships. The manager expects the two acquisitions to drive majority earnings going forward, with legacy FitLife's operational improvements largely complete. With projected adjusted EBITDA of $16-20M and current valuation at 5-6x EBITDA, the manager sees significant upside potential. The investment thesis relies on management's proven capital allocation track record and ability to execute operational improvements on acquired distressed assets.

Pitch Summary:
Thermo Fisher, a life science tools provider, returned -3.4% and contributed -1.3% to the Fund's relative return. Life science tools companies had a difficult year, as their pharma and biotech customers worked through stockpiled inventory from the pandemic and rationalized Research and Development (R&D) spending given higher interest rates; Chinese customer demand also declined given the macroeconomic environment. We believe these headwinds are temporary and secular tailwinds around increasing drug discovery, technology and innovation in the life science sector should support Thermo Fisher's long-term growth.

BSD Analysis:
Despite a -3.4% return and -1.3% impact on relative performance, the managers maintain conviction in Thermo Fisher's long-term prospects. The company faced multiple temporary headwinds including customer inventory destocking from pandemic stockpiling, reduced R&D spending due to higher interest rates, and weakened Chinese demand. However, the fund views these as cyclical rather than structural challenges. The secular growth drivers in life sciences remain intact, including increasing drug discovery activity, technological advancement, and innovation in the sector. Thermo Fisher's leading position in life sciences tools and services should benefit from these long-term trends once the current headwinds subside. The managers' willingness to hold through temporary weakness demonstrates conviction in the company's fundamental competitive advantages and market position.