Investment Pitches

Pitch Summary:
Copart is the dominant auction service through which US auto insurance companies sell vehicles that they have deemed a total write-off. In 2023, Copart continued its long history of profitable growth by increasing its market share and providing additional valuable services to insurers.

BSD Analysis:
Aoris highlights Copart as their top performing holding in 2023 with a 60% return in AUD terms. The manager emphasizes Copart's dominant market position as the leading auction service for total loss vehicles sold by US auto insurance companies. The company demonstrated continued execution of its growth strategy in 2023 through market share gains and expansion of value-added services to insurance company clients. Copart's business model benefits from its network effects and scale advantages in the salvage vehicle auction market. The manager notes the company's "long history of profitable growth," suggesting consistent operational execution and financial performance over time. The strong 2023 performance reflects both the company's fundamental business strength and market recognition of its competitive positioning. This represents a successful long-term holding that has delivered substantial returns while maintaining its market-leading position in the specialized salvage vehicle auction industry.

Pitch Summary:
Based in Sweden and celebrating its 150th anniversary in 2023, Atlas Copco is a global provider of industrial productivity solutions. These include air compressors used in many industrial processes, vacuum pumps used to create a particle-free environment for semiconductor manufacturing, and power tools and machine vision used in industrial applications such as automotive manufacturing. Atlas Copco generally has leadership positions in profitable, growing, high-value niche parts of these broad markets. It has demonstrated the through-the-cycle growth, profitability and resilience characteristics we look for. Underlying revenue growth has been about 5% p.a., comfortably in excess of the broader economy. It is highly profitable, earning a return on invested capital of around 20%. It has a largely variable cost model, thereby cushioning the impact on earnings of downturns in the industrial economy, and a low level of debt relative to its earnings. We purchased Atlas Copco at what we consider to be a material discount to its fair value.

BSD Analysis:
Aoris initiated a position in Atlas Copco, a Swedish industrial productivity solutions provider celebrating its 150th anniversary in 2023. The manager highlights the company's leadership positions in profitable, growing niche markets including air compressors, vacuum pumps for semiconductor manufacturing, and industrial power tools. Atlas Copco demonstrates attractive financial characteristics with underlying revenue growth of approximately 5% annually, exceeding broader economic growth, and exceptional profitability with a 20% return on invested capital. The company's largely variable cost structure provides earnings resilience during industrial downturns, while maintaining conservative leverage relative to earnings. The manager emphasizes Atlas Copco's through-the-cycle growth, profitability, and resilience characteristics as key investment criteria. The purchase was made at what Aoris considers a material discount to fair value, suggesting attractive entry valuation. This represents a re-entry into a previously owned position, with the manager noting that prior ownership experience can improve investment judgment quality.

Pitch Summary:
Closer to home, Chicago-based Littelfuse is the largest circuit protection company in the world. The company is benefiting from the long-term trend towards electrification. However, its short-term results are being negatively impacted by pandemic related inventory de-stocking. We believe the company will resume growing within a year or so. In the meantime, we are happy to own it at a discount to our estimate of fair value.

BSD Analysis:
Vulcan Value Partners owns Littelfuse, the world's largest circuit protection company, as a play on the long-term electrification trend across multiple industries. The Chicago-based company is positioned to benefit from the increasing adoption of electric vehicles, renewable energy systems, and electronic devices that require sophisticated circuit protection solutions. While Littelfuse faces near-term headwinds from pandemic-related inventory destocking that is pressuring short-term financial results, Vulcan views this as a temporary cyclical issue rather than a structural problem. The fund expects the company to return to growth within approximately one year as inventory levels normalize and end-market demand recovers. The manager believes the current stock price provides an attractive discount to fair value, offering investors the opportunity to acquire shares in a market-leading company during a temporary earnings trough. The investment thesis centers on Littelfuse's dominant market position and exposure to the secular electrification theme.

Pitch Summary:
Our Small Cap companies are not likely household names. For instance, we own the two largest brickmakers in the United Kingdom, Ibstock and Forterra. Domestic brickmakers cannot produce enough bricks to meet long term demand. Moreover, there is a housing shortage in the United Kingdom. Consequently, Ibstock and Forterra have strong pricing power. However, higher interest rates and a weak British economy have caused housing starts to fall which has negatively impacted demand for bricks. We believe both companies are under earning and have strong long-term fundamentals. We are happy to own them with a margin of safety in terms of price compared to our estimate of intrinsic worth.

BSD Analysis:
Vulcan Value Partners holds Forterra as the second of the two dominant UK brickmakers, capitalizing on the same structural supply-demand dynamics that benefit Ibstock. The investment case rests on Forterra's position in a market where domestic production capacity falls short of long-term demand requirements, enhanced by the UK's persistent housing shortage that supports strong pricing power. While acknowledging current headwinds from elevated interest rates and British economic weakness that have curtailed housing starts and brick demand, Vulcan views these as temporary cyclical factors. The fund believes Forterra is currently under-earning relative to its long-term potential and offers attractive value at current prices. The manager emphasizes the company's strong long-term fundamentals and views the current market dislocation as providing an opportunity to acquire shares with a meaningful margin of safety. The thesis depends on the eventual recovery of UK construction activity and the structural need for increased housing supply.

Pitch Summary:
Our Small Cap companies are not likely household names. For instance, we own the two largest brickmakers in the United Kingdom, Ibstock and Forterra. Domestic brickmakers cannot produce enough bricks to meet long term demand. Moreover, there is a housing shortage in the United Kingdom. Consequently, Ibstock and Forterra have strong pricing power. However, higher interest rates and a weak British economy have caused housing starts to fall which has negatively impacted demand for bricks. We believe both companies are under earning and have strong long-term fundamentals. We are happy to own them with a margin of safety in terms of price compared to our estimate of intrinsic worth.

BSD Analysis:
Vulcan Value Partners owns Ibstock as one of the two largest UK brickmakers, viewing the company as benefiting from a structural supply-demand imbalance in the British construction market. The investment thesis is built on the premise that domestic brick production capacity cannot meet long-term demand, compounded by the UK's ongoing housing shortage, which provides Ibstock with significant pricing power. The fund acknowledges near-term headwinds from higher interest rates and economic weakness that have reduced housing starts and brick demand. However, Vulcan believes these cyclical pressures have created an attractive entry point, with both Ibstock and peer Forterra trading below intrinsic value while experiencing temporary earnings suppression. The manager views the current environment as providing a margin of safety for investors willing to look past short-term construction market volatility. The long-term thesis centers on the structural undersupply of housing in the UK and limited domestic brick manufacturing capacity.

Pitch Summary:
One example that we recently purchased is Diageo. Diageo is the largest spirits maker in the world. The company focuses on the premium sector of the market, which is growing faster than the market as a whole. Several of its largest brands are over one hundred years old. Its competitive advantages include its broad portfolio of brands, global reach, distribution in a highly regulated industry, and advertising scale. The company produces strong free cash flow, has ample pricing power, a strong balance sheet, and high returns on invested capital. We have owned it before and are pleased to be able to do so again as our estimate of its value has steadily compounded, while its stock price has declined during 2023. We believe that investors with shorter term time horizons than ours are overly concerned with tough comparisons against strong pandemic results when the company flexed its pricing power and grew its adjusted operating profits at unsustainably high levels, including a greater than 28% jump in fiscal 2022, and over 8% in fiscal 2023. We estimate that Diageo will have flattish growth in fiscal 2024. We believe that the company can grow at a mid-single digit rate over the long term and that the company will most likely resume its steady growth in fiscal 2025.

BSD Analysis:
Vulcan Value Partners has repurchased Diageo, viewing the world's largest spirits maker as attractively valued after its 2023 stock price decline. The fund manager emphasizes Diageo's dominant position in the premium spirits segment, which is experiencing faster growth than the broader market. The company's competitive moat is built on century-old brands, global distribution capabilities in a highly regulated industry, and significant advertising scale advantages. Vulcan believes the market is overly focused on near-term headwinds from difficult pandemic comparisons, when Diageo achieved unsustainable profit growth of 28% in fiscal 2022 and 8% in fiscal 2023. The manager expects flat growth in fiscal 2024 but anticipates a return to mid-single-digit long-term growth beginning in fiscal 2025. The investment thesis centers on Diageo's strong free cash flow generation, pricing power, solid balance sheet, and high returns on invested capital, with the current valuation providing an attractive entry point for patient investors.

Pitch Summary:
We last discussed Netflix three years ago. At that time, five months into the COVID pandemic shutdowns in 2020, Netflix had added 26 million new subscribers to its service and went on to add 10 million more for a total of 36 million, ending the year with 204 million subscribers. Then in 2021, the company added 18 million subscribers culminating with 8 million new subscribers added in 4Q 2021, aided by the global success of the Korean produced show Squid Game. The share price hit a record high of $687 in November 2021 before commencing a steep decline in December and January, presaging a significant reversal in its fortunes. Subscriber losses of 200,000 and 1 million in Q1 and Q2 of 2022, the first such net subscriber loss in Netflix's history, caused shares to fall 75% from the November 2021 peak to its bottom six months later. As it turned out, through all of 2022, Netflix grew subscribers by 9 million or 4%, a big drop compared to the 20% average growth over the previous five years, but less than the worst fears. Inflation had taken off in 2021 causing central banks around the world to pivot their view of it being a transitory phenomenon into a more ingrained process. Russia invaded Ukraine in February 2022 further pressuring energy and food prices globally. The ensuing aggressive increase in interest rates led to a recalibration in liquidity and market multiples, with those companies that missed expectation punished even harder. From peak to trough, Netflix went from a market capitalization of $300 billion to just $75 billion. Netflix's gross subscriber adds, i.e., the number of new subscribers signing up for the service, stalled in all geographies in a manner that even the management team seemed at a loss to explain. The market narrative shifted, and with it future financial expectations, from a company with a seemingly unstoppable business model accelerated by the COVID pandemic to one that had saturated its market and succumbed to burgeoning streaming competition from legacy media companies. From our perspective having a major war break out in Europe's borders and another major global economic shock so soon after the COVID shock seemed the most likely explanation for why people abruptly paused in signing up for a new Netflix subscription en masse. We had seen regional changes in new sign-ups historically when people's attention had been drawn to certain events like the World Cup or the Olympics, only to see additions rebound in subsequent quarters, but we had not seen a globally synchronized pause before. This was the second time in Netflix's history as a public company that it had faced a crisis of confidence among investors, where management's ability to adapt was tested. It had faced a similar test when it pivoted its business model from a very profitable DVD by mail service into a money losing streaming service back in 2011, resulting in a similar fall in its share price before regaining investor trust over the next 2 years and increasing its value over 10x thereafter. This time it was the inexplicable stall in subscriber growth that led the company to pivot its business model from a pure subscription video service into one that incorporated both advertising as a new revenue source and monetizing the 100 million engaged viewers that were borrowing someone else's password by implementing tighter password security. This complimentary approach of tightening user password sharing and offering a new lower priced, economically accretive ad-supported plan (or additional add-on subscriber fee) opened up a large pool of already engaged users to reenergize revenue and profit growth rather than solely depending on new to Netflix sign-ups. This effectively multiplies the total available market (TAM) for Netflix over a subscription-only model, while also raising the ultimate pricing umbrella for the service over time. For context, US TV advertising revenue was about $67 billion in 2022 compared to Pay TV subscription revenue of $86 billion. This amounts to advertising increasing the total revenue from TV content by 80% over subscription rates alone. Furthermore, Netflix continued investment in its nascent games business, which has the potential to expand the TAM even more. Globally, gaming is a $213 billion market. The net result of all of these service extensions multiplies Netflix's monetization value for each subscriber dramatically, especially as the adjacent services revolve around the same end user and complement one another. One other pivot by management was on capital allocation in relation to content. Netflix's strategy on content spending had been to "overinvest" in content in order to grow the scale of its catalog ahead of subscribers along two vectors – category expansion and geographic expansion. This in turn drove new subscriber additions in existing and new geographic markets. With subscriber growth slowing drastically under indefinite macro-geopolitical circumstances, management rationally adapted and reprioritized the scale of that investment. The result is faster growth in free cashflow generation, now on track to surpass $6 billion this year. With Netflix letting its foot off the content pedal for the first time in a decade, we fully expected competing streaming services to see blood in the water and get more aggressive. While we did not believe that competition was a factor in the subscriber growth slowdown as the common narrative believed, we did assume that scaling competitors like Disney (whose courage and humility in copying the Netflix growth strategy we were impressed by) or Warner Bros Discovery could get more aggressive and use the content growth strategy to win a greater share of new streaming subscribers, eventually eroding some of Netflix's scale dependent competitive advantage. To our surprise, both companies announced their own cutbacks in content spending and increased prices aggressively for their own streaming services, finally finding the breathing room Netflix' reduced aggressiveness allowed to improve the profitability of their own money losing streaming services rather than trying to take share from Netflix. This was great news to us as investors as it allowed Netflix to become less aggressive on its content growth strategy, drive higher positive free cash flow, while retaining its relative moat advantage as it adapted its business model. The company has been clear that as revenue reaccelerates to its goal of double-digit growth, it will become more aggressive again in content investment to drive further subscriber gains, to the extent it's justified. In retrospect, Disney and Warner Brother Discovery's reactions made sense given their financial circumstances of high debt loads and weakening linear TV revenue, traditional media's cash cow. US Cable TV subscribers, the main source of their linear TV subscription and advertising revenue, has seen its subscriber defections accelerating to a record pace of -7% as of 3Q 2023. Despite Netflix's nickname from only a couple of years ago being "Debtflix" as it took advantage of low-cost debt to "overinvest" in scaling its own content catalog, it never put itself in a position where the debt load became a precarious noose around its strategic hands. As a result of their business and financial issues, Warner Brothers Discovery stock price has declined approximately -70% (setting aside the WBD pre-merger DISCA stock spike above $30 during the Archegos scandal) while Disney declined -60% from its peak. Benchmarking their prices back to 2019, Netflix has outperformed its notable US based media competitors getting back near its pre-Squid Game highs because it is the only one with a significantly profitable, cash generating streaming video business. So where does this leave Netflix's position today and prospects for its future as investors today? We have a number of positive data points indicating a reinvigorated business with a reacceleration in subscriber growth as consumers have adjusted to economic and geopolitical conditions globally albeit nudged along with the end of free password sharing. The company is on track to have added about 25 million new subscribers in 2023, a similar number to its pre-Covid pace, and has outpaced Disney's and Warner Brothers Discovery's streaming service subscriber growth over the past year. Netflix's advertising business has reportedly seen strong interest from advertisers looking to move more of their brand advertising spend from linear television, with its declining share of engagement, to streaming. Roughly 200 billion hours being spent on Netflix by its 250 million subscribers is premium advertising real estate that brand advertisers want access to and are willing to pay a premium to do so. While Netflix has seen huge success in content engagement, it still has work to do to build out and extend the advertising capabilities addressable by its platform and scale the number of subscribers accepting its ad-plan (most subscribers signing up still prefer to pay more for the ad-free experience). We estimate ARM (average revenue per month) for this service near or above the $15.49 standard ad-free plan in the US (comprising of a $6.99 subscription coupled with a $8-10 per month per subscriber in advertising revenue) despite only four minutes of advertising served per hour of viewing. In our view this has a lot of headroom to grow from these levels as ad targeting and customization improves. In the other 11 countries where it has launched the ad plan, advertising economics aren't quite as good but there is a clear path to improvement for the business in the dual goals of eliminating password sharing while offering a more economical service for those sharing out of necessity, creating a win-win solution for both customers and the company. As legacy media companies have begun to focus on reducing their losses from their streaming services, they've returned to licensing some of their premier content to Netflix after previously suspending deals in favor of their own buildouts. This is true for even the bigger ones like Disney/ABC and Warner Brothers Discovery/HBO, who have inked deals with Netflix for some of their most popular content. This is great news for Netflix subscribers – valuable and unique content is non-fungible, which is why we never subscribed to the competition argument, and we've seen how unique new content has driven subscriber additions for all the major services. Consumers have increased the number of streaming services they subscribe to because they want access to all this great content. However, "subscription fatigue" has more recently led them to stay more loyal to core streaming services with content scale and velocity (represented by lower churn) while shuffling through secondary services where they may want to binge on a certain more limited set of content. By having access to license unique sought-after content from other media companies, Netflix gets to satisfy members of its own service while reducing the content cash demands required of only relying on original content. We've argued since our initiation in 2016 that there are likely to be a handful of key global subscription services and most other media companies are going to find superior economics in licensing to them rather than building their own platforms – and this thesis appears to be coming to fruition. Beyond the legacy media players are the large tech giants also playing in the space with different economic business models like Apple, Amazon, and YouTube, who are also building successful global platforms. Our belief that Netflix had the right strategic approach to building this business persists and as the leader in the space it continues to be well positioned to win more than its fair share of the very large global entertainment pie.

BSD Analysis:
Ensemble Capital presents a compelling bull case for Netflix following its successful business model transformation and recovery from 2022's subscriber losses. The fund highlights Netflix's strategic pivot from pure subscription to a dual-revenue model incorporating advertising and password-sharing monetization, effectively expanding its total addressable market by 80% through advertising alone. Management's disciplined approach to content spending has accelerated free cash flow generation to over $6 billion annually while competitors like Disney and Warner Bros Discovery have retreated from aggressive streaming investments due to financial constraints. Netflix's competitive moat has strengthened as legacy media companies return to licensing premium content to the platform, reducing Netflix's content investment burden while enhancing subscriber value. The fund emphasizes Netflix's superior financial position with manageable debt levels compared to heavily leveraged competitors, enabling strategic flexibility. With 25 million new subscribers expected in 2023 and strong advertiser interest in its 200 billion hours of premium viewing inventory, Netflix appears well-positioned to capture disproportionate value in the global entertainment market. The investment thesis centers on Netflix's proven ability to adapt and emerge stronger from industry disruptions.

Pitch Summary:
After carefully scouring the landscape for almost two years, we initiated a new position in Energy company Chord Energy (CHRD). Chord is an exploration and production company and the product of a recent merger between Oasis and Whiting Petroleum. We have history as shareholders in the past in Whiting Petroleum and new management has already demonstrated its commitment to a shareholder return business model. We think the return to a single basin operating model plays to CHRD's strength, as it enables the company to fully take advantage of its scale and size in the Bakken. The company is in a strong position to capitalize on upcoming value-enhancing opportunities in terms of basin consolidation, and so we expect CHRD to generate significant free cash flow over the next three years to fund an attractive 3% plus dividend yield. As we discussed earlier, Energy underperformed meaningfully in 2023 and so we exploited this opportunity to make our first energy investment in several years. We believe CHRD can generate positive economic returns with oil above $55, giving us a significant downside cushion to the commodity. From a portfolio perspective, we like the hedge Chord provides in a volatile geopolitical climate. Finally, Chord's strong position in the Bakken makes it an attractive takeover target for larger integrated energy companies.

BSD Analysis:
Madison's investment in Chord Energy represents their first energy sector position in several years, initiated after extensive research and sector underperformance created attractive valuations. The company emerged from a merger between Oasis and Whiting Petroleum, with management demonstrating commitment to shareholder returns through their business model. The fund's thesis centers on CHRD's focused single-basin strategy in the Bakken, which leverages operational scale and efficiency advantages. Management expects the company to generate substantial free cash flow over the next three years, supporting an attractive dividend yield exceeding 3%. The investment provides portfolio diversification and geopolitical hedging benefits during uncertain times. CHRD's breakeven economics at $55 oil provides significant downside protection given current commodity prices. Additionally, the company's dominant Bakken position makes it an attractive acquisition target for larger integrated energy companies, providing potential upside through consolidation. This represents a contrarian value play in an out-of-favor sector with strong fundamentals.

Pitch Summary:
Legal services is an under-digitized market in the early days of becoming an online opportunity and LegalZoom is the market share leader. The legal and regulatory aspects of running a business are still mostly managed through offline law practices, which are costly and inefficient for simple tasks. Much like Intuit did with TurboTax in the tax preparation market, LegalZoom aims to enable small businesses to complete certain legal transactions themselves through software that guides them through the process. Further, the company provides access to attorneys and accountants through monthly subscription plans that enable small business owners to get their legal and tax questions answered in an efficient and cost-effective manner. The company has a strong, cash rich balance sheet with zero debt. Our assessment of PMV is $17.

BSD Analysis:
Madison's investment in LegalZoom represents a digital transformation play in the traditionally offline legal services market. The fund draws a compelling analogy to Intuit's disruption of tax preparation, positioning LegalZoom as the potential market leader in legal services digitization. Management emphasizes the significant market opportunity, noting that business legal and regulatory tasks remain largely managed through costly and inefficient offline law practices. LegalZoom's platform enables small businesses to handle routine legal transactions independently through guided software, while also providing subscription-based access to professional attorneys and accountants. This dual approach creates multiple revenue streams and addresses varying customer needs across the legal services spectrum. The company's financial strength supports the investment thesis, featuring a debt-free balance sheet with substantial cash reserves. Madison assigns a private market value of $17 per share, suggesting meaningful upside potential from current levels.

Pitch Summary:
We have been following Moelis & Company (MC) and LegalZoom.com (LZ) for a few years now and bought both stocks in the fourth quarter. MC is an independent investment advisor with an approximately 75%/25% split between M&A and Restructuring. MC's 2023 comp ratio of 80% is well above peers due to a recent hiring spree to capitalize on a recovery in M&A activity. Although this has depressed earnings, we believe MC is poised to capture outsized share as markets and rates have stabilized, portending a return to M&A activity.

BSD Analysis:
Madison initiated a position in Moelis & Company after years of monitoring, timing their entry during a cyclical trough in investment banking activity. The fund's thesis revolves around MC's strategic positioning for an M&A recovery, with management having invested heavily in talent acquisition during the downturn. The firm's business model splits approximately 75% M&A advisory and 25% restructuring, providing some diversification within investment banking services. Madison notes that MC's 2023 compensation ratio of 80% significantly exceeds peer levels due to recent hiring initiatives, which has temporarily depressed profitability. However, this elevated cost structure is viewed as a strategic investment to capture market share during the anticipated M&A recovery. The fund believes stabilizing markets and interest rates will drive increased deal activity, positioning MC to benefit disproportionately from their expanded capabilities. This represents a contrarian bet on cyclical recovery in capital markets activity.

Pitch Summary:
We decided to sell the position prior to the deal closing to fund the purchase of a new software investment in Confluent (CFLT). Confluent's software provides the plumbing that connects a company's various cloud infrastructure architectures to its proprietary data, making the dream of real-time data transfer and decision making a reality. Confluent has no competition and boasts a cash rich, debt free balance sheet, is profitable, and generates free cash flow. We believe CFLT is a strategic asset and has the potential to be a materially larger company. we conservatively assess its private market value (PMV) at $28.

BSD Analysis:
Madison initiated a position in Confluent after selling New Relic, viewing CFLT as a superior software investment opportunity. The fund's thesis centers on Confluent's monopolistic position in data streaming infrastructure, providing critical connectivity between cloud architectures and proprietary data systems. Management emphasizes the company's competitive moat, noting 'no competition' in their specific niche of real-time data transfer solutions. The investment case is strengthened by Confluent's strong financial profile, featuring a debt-free balance sheet, profitability, and positive free cash flow generation. Madison views CFLT as a strategic asset with significant scale potential, assigning a conservative private market value of $28 per share. The timing appears opportunistic, as the fund leveraged proceeds from a corporate acquisition to fund this new position. This represents a classic growth-at-a-reasonable-price play in the expanding data infrastructure market.

Pitch Summary:
Diageo is the #1 player in the large and attractive global spirits industry, with #1 positions in Scotch, Tequila, Gin, Vodka, and Rum. Total Beverage Alcohol (TBA) is a $950+ billion market, with Diageo at 4.7% of TBA, and aspiring to 6% by 2030. Premiumization in spirits is value creating, and Diageo owns 9 of the top 30 global brands, including Johnnie Walker, Tanqueray, Smirnoff, and Guinness. 12 of Diageo's top brands are over 140 years old. The company has strong exposure to growth in emerging markets (38% of sales) and has proven to be a superior brand builder. The Diageo portfolio has been optimized, with limited reliance on M&A over the last decade. Capital allocation has been shareholder friendly. Following a period of post-COVID inventory destocking, Diageo trades at its lowest valuation in 10 years.

BSD Analysis:
FMI presents a compelling bull case for Diageo based on the company's dominant market position and attractive industry dynamics. The fund highlights Diageo's leadership across multiple spirits categories within a large $950+ billion total beverage alcohol market, with significant runway for market share expansion from 4.7% to their 6% target by 2030. The premiumization trend in spirits creates value, and Diageo's portfolio of heritage brands provides pricing power and consumer loyalty. Strong emerging markets exposure (38% of sales) positions the company for long-term growth as these markets develop. FMI values Diageo's proven brand-building capabilities and disciplined capital allocation approach, with limited M&A dependence over the past decade. The current valuation opportunity stems from post-COVID inventory destocking, creating the most attractive entry point in a decade. The investment thesis combines defensive brand moats with growth potential in emerging markets and premiumization trends.

Pitch Summary:
As part of United Technologies, we believe Carrier suffered from undermanagement. Despite that, the business still grew consistently in the low single digits and was nicely profitable due to an oligopolistic industry and Carrier's strong competitive position. However, the cost structure was not optimized and they were not investing in long term growth. Now that Carrier has over three years as a standalone company, we believe the company's operations are increasingly on its front foot. CEO Dave Gitlin, who came from United Technologies' crown jewel aerospace business, has been instrumental in these efforts. On top of that, through a series of ongoing divestitures and the acquisition of a European heat pump manufacturer, Carrier is well on its way to becoming a pureplay heating, ventilation, and air conditioning business with higher returns on capital and faster organic growth. After rerating significantly coming out of COVID, Carrier's shares lost momentum due to perceptions of choppy execution, COVID normalization, and future recessionary fears. Although these risks may come to pass, a modest starting valuation and good industry structure gave us confidence that our downside was relatively protected. If Carrier can execute on growth, costs, and the portfolio transformation, we believe there is significant upside.

BSD Analysis:
FMI's bull thesis on Carrier Global centers on the company's transformation from an undermanaged conglomerate division to a focused HVAC pure-play. The fund believes Carrier's oligopolistic industry position and consistent profitability provide a strong foundation, while new leadership under CEO Dave Gitlin is driving operational improvements. The ongoing portfolio transformation through strategic divestitures and the European heat pump acquisition should enhance returns on capital and accelerate organic growth. FMI views the current valuation as attractive following the stock's post-COVID momentum loss, driven by execution concerns and recession fears. The investment case relies on management's ability to optimize costs, execute the portfolio transformation, and capitalize on the favorable industry structure. FMI sees significant upside potential if Carrier successfully transitions to a higher-quality, faster-growing HVAC business while maintaining downside protection through modest valuation and strong competitive positioning.

Pitch Summary:
BJ's is the third largest warehouse club operator in the U.S., with locations primarily along the East Coast. The warehouse club business model has many attractive characteristics, offering a limited number of items in each product category (sold in large pack sizes) which allows them to drive down purchasing costs. These companies have low operating costs, efficient distribution networks, and are typically located in low-cost areas. Their no-frills stores, simple operations, and large real estate footprints create labor efficiencies. This allows for merchandise to be offered at very sharp prices. Customers gain access to these low prices by purchasing annual memberships to the clubs, which have high retention rates and generate steady, recurring revenue. The business earns high returns on capital despite low prices and operating margins. BJ's has a checkered history but has made significant improvements to the business over the past decade. The market remains skeptical as to how sustainable these improvements are and how well they can compete against strong peers in the warehouse club industry. We believe this misses the mark, as the club industry commands a small share of a vast retail market. We believe all of the warehouse club operators can grow and take share from indirect competitors that can't match their pricing. If this proves out, we believe BJ's valuation multiple should re-rate higher to better reflect the underlying strength of its business model.

BSD Analysis:
FMI presents a compelling bull case for BJ's Wholesale Club, emphasizing the structural advantages of the warehouse club business model. The fund highlights BJ's ability to drive down purchasing costs through limited SKUs and bulk packaging, while maintaining operational efficiency through low-cost locations and streamlined operations. The membership model provides recurring revenue with high retention rates, creating a stable cash flow foundation. Despite BJ's historical challenges, FMI believes the company has meaningfully improved operations over the past decade. The investment thesis centers on market share expansion opportunities, as warehouse clubs represent a small portion of the broader retail market. FMI sees significant valuation upside potential if BJ's can demonstrate sustainable competitive positioning against industry leaders. The fund views current market skepticism as creating an attractive entry point for a business model with inherently high returns on capital.

Pitch Summary:
Diageo is the #1 player in the large and attractive global spirits industry, with #1 positions in Scotch, Tequila, Gin, Vodka, and Rum. Total Beverage Alcohol (TBA) is a $950+ billion market, with Diageo at 4.7% of TBA, and aspiring to 6% by 2030. Premiumization in spirits is value creating, and Diageo owns 9 of the top 30 global brands, including Johnnie Walker, Tanqueray, Smirnoff, and Guinness. 12 of Diageo's top brands are over 140 years old. The company has strong exposure to growth in emerging markets (38% of sales) and has proven to be a superior brand builder. The Diageo portfolio has been optimized, with limited reliance on M&A over the last decade. Capital allocation has been shareholder friendly. Following a period of post-COVID inventory destocking, Diageo trades at its lowest valuation in 10 years.

BSD Analysis:
FMI presents a compelling case for Diageo as the dominant player in the attractive global spirits market, emphasizing the company's portfolio of premium brands and market leadership positions across key categories. The firm highlights Diageo's significant runway for growth, targeting expansion from 4.7% to 6% market share in a $950+ billion total beverage alcohol market. FMI values the premiumization trend in spirits and Diageo's collection of heritage brands, many over 140 years old, which provide pricing power and consumer loyalty. The emerging markets exposure (38% of sales) positions Diageo to benefit from rising disposable income in developing economies. FMI sees the current valuation as attractive following post-COVID inventory destocking, representing the lowest multiple in a decade. The investment thesis relies on Diageo's proven brand-building capabilities, disciplined capital allocation, and the structural growth drivers in premium spirits. FMI views this as an opportunity to own a quality compounder at a reasonable valuation.

Pitch Summary:
As part of United Technologies, we believe Carrier suffered from undermanagement. Despite that, the business still grew consistently in the low single digits and was nicely profitable due to an oligopolistic industry and Carrier's strong competitive position. However, the cost structure was not optimized and they were not investing in long term growth. Now that Carrier has over three years as a standalone company, we believe the company's operations are increasingly on its front foot. CEO Dave Gitlin, who came from United Technologies' crown jewel aerospace business, has been instrumental in these efforts. On top of that, through a series of ongoing divestitures and the acquisition of a European heat pump manufacturer, Carrier is well on its way to becoming a pureplay heating, ventilation, and air conditioning business with higher returns on capital and faster organic growth. After rerating significantly coming out of COVID, Carrier's shares lost momentum due to perceptions of choppy execution, COVID normalization, and future recessionary fears. Although these risks may come to pass, a modest starting valuation and good industry structure gave us confidence that our downside was relatively protected. If Carrier can execute on growth, costs, and the portfolio transformation, we believe there is significant upside.

BSD Analysis:
FMI's bull thesis on Carrier Global centers on the company's transformation from an undermanaged conglomerate division to a focused HVAC pure-play under strong leadership. The firm believes CEO Dave Gitlin's aerospace background brings operational discipline that was previously lacking, while strategic divestitures and the European heat pump acquisition position Carrier for higher returns and faster growth. FMI sees value in the oligopolistic industry structure and Carrier's competitive positioning, which historically generated consistent profitability despite suboptimal management. The investment case relies on successful execution of the portfolio transformation and cost optimization initiatives. Current valuation provides downside protection while offering significant upside if management delivers on operational improvements. FMI views recent share price weakness as creating an attractive entry point, with market concerns about execution and recession risks potentially overdone. The firm's confidence stems from the defensive industry characteristics and Carrier's market position in essential building infrastructure.

Pitch Summary:
BJ's is the third largest warehouse club operator in the U.S., with locations primarily along the East Coast. The warehouse club business model has many attractive characteristics, offering a limited number of items in each product category (sold in large pack sizes) which allows them to drive down purchasing costs. These companies have low operating costs, efficient distribution networks, and are typically located in low-cost areas. Their no-frills stores, simple operations, and large real estate footprints create labor efficiencies. This allows for merchandise to be offered at very sharp prices. Customers gain access to these low prices by purchasing annual memberships to the clubs, which have high retention rates and generate steady, recurring revenue. The business earns high returns on capital despite low prices and operating margins. BJ's has a checkered history but has made significant improvements to the business over the past decade. The market remains skeptical as to how sustainable these improvements are and how well they can compete against strong peers in the warehouse club industry. We believe this misses the mark, as the club industry commands a small share of a vast retail market. We believe all of the warehouse club operators can grow and take share from indirect competitors that can't match their pricing. If this proves out, we believe BJ's valuation multiple should re-rate higher to better reflect the underlying strength of its business model.

BSD Analysis:
FMI presents a compelling bull case for BJ's Wholesale Club, emphasizing the structural advantages of the warehouse club model including cost efficiencies, membership-driven recurring revenue, and pricing power. The firm believes the market undervalues BJ's transformation over the past decade and its competitive positioning against traditional retailers. FMI's thesis centers on market share expansion opportunities within the broader retail landscape, where warehouse clubs maintain only a small penetration despite superior cost structures. The investment appears to hinge on multiple expansion as the market recognizes BJ's improved operational execution and sustainable competitive advantages. The firm sees significant upside potential if BJ's can continue demonstrating consistent execution and market share gains. This represents a classic value play where operational improvements and competitive positioning are not fully reflected in current valuations. FMI's confidence stems from the defensive nature of the membership model and the company's ability to compete effectively on price.

Pitch Summary:
Diageo is the #1 player in the large and attractive global spirits industry, with #1 positions in Scotch, Tequila, Gin, Vodka, and Rum. Total Beverage Alcohol (TBA) is a $950+ billion market, with Diageo at 4.7% of TBA, and aspiring to 6% by 2030. Premiumization in spirits is value creating, and Diageo owns 9 of the top 30 global brands, including Johnnie Walker, Tanqueray, Smirnoff, and Guinness. 12 of Diageo's top brands are over 140 years old. The company has strong exposure to growth in emerging markets (38% of sales) and has proven to be a superior brand builder. The Diageo portfolio has been optimized, with limited reliance on M&A over the last decade. Capital allocation has been shareholder friendly. Following a period of post-COVID inventory destocking, Diageo trades at its lowest valuation in 10 years.

BSD Analysis:
FMI presents a compelling case for Diageo as the dominant global spirits leader with significant market share expansion potential. The company holds #1 positions across multiple spirit categories within the massive $950+ billion Total Beverage Alcohol market, currently capturing 4.7% share with aspirations to reach 6% by 2030. The investment thesis is anchored on premiumization trends that favor Diageo's portfolio of 9 top-30 global brands, many with over 140 years of heritage, including iconic names like Johnnie Walker and Tanqueray. The company's 38% emerging markets exposure provides attractive growth tailwinds, while management has demonstrated superior brand-building capabilities and disciplined capital allocation. Following a decade of portfolio optimization with minimal M&A reliance, Diageo has emerged as a focused, cash-generative business. The current valuation opportunity stems from post-COVID inventory destocking pressures, creating the most attractive entry point in a decade for this high-quality spirits franchise.

Pitch Summary:
As part of United Technologies, we believe Carrier suffered from undermanagement. Despite that, the business still grew consistently in the low single digits and was nicely profitable due to an oligopolistic industry and Carrier's strong competitive position. However, the cost structure was not optimized and they were not investing in long term growth. Now that Carrier has over three years as a standalone company, we believe the company's operations are increasingly on its front foot. CEO Dave Gitlin, who came from United Technologies' crown jewel aerospace business, has been instrumental in these efforts. On top of that, through a series of ongoing divestitures and the acquisition of a European heat pump manufacturer, Carrier is well on its way to becoming a pureplay heating, ventilation, and air conditioning business with higher returns on capital and faster organic growth. After rerating significantly coming out of COVID, Carrier's shares lost momentum due to perceptions of choppy execution, COVID normalization, and future recessionary fears. Although these risks may come to pass, a modest starting valuation and good industry structure gave us confidence that our downside was relatively protected. If Carrier can execute on growth, costs, and the portfolio transformation, we believe there is significant upside.

BSD Analysis:
FMI's investment thesis for Carrier Global centers on the company's transformation from an undermanaged conglomerate division to a focused, standalone HVAC leader. The fund believes Carrier was historically held back by United Technologies' lack of attention, despite operating in an oligopolistic industry with strong competitive positioning that generated consistent low-single-digit growth and solid profitability. Under CEO Dave Gitlin's leadership, who brings aerospace industry expertise, the company has spent three years optimizing operations and strategic focus. The ongoing portfolio transformation through divestitures and strategic acquisitions, particularly the European heat pump manufacturer, is positioning Carrier as a pure-play HVAC business with improved capital efficiency and growth prospects. While the stock has faced headwinds from execution concerns and recession fears, FMI views the modest valuation and favorable industry structure as providing downside protection. The investment case hinges on successful execution of operational improvements, cost optimization, and the strategic portfolio transformation.

Pitch Summary:
BJ's is the third largest warehouse club operator in the U.S., with locations primarily along the East Coast. The warehouse club business model has many attractive characteristics, offering a limited number of items in each product category (sold in large pack sizes) which allows them to drive down purchasing costs. These companies have low operating costs, efficient distribution networks, and are typically located in low-cost areas. Their no-frills stores, simple operations, and large real estate footprints create labor efficiencies. This allows for merchandise to be offered at very sharp prices. Customers gain access to these low prices by purchasing annual memberships to the clubs, which have high retention rates and generate steady, recurring revenue. The business earns high returns on capital despite low prices and operating margins. BJ's has a checkered history but has made significant improvements to the business over the past decade. The market remains skeptical as to how sustainable these improvements are and how well they can compete against strong peers in the warehouse club industry. We believe this misses the mark, as the club industry commands a small share of a vast retail market. We believe all of the warehouse club operators can grow and take share from indirect competitors that can't match their pricing. If this proves out, we believe BJ's valuation multiple should re-rate higher to better reflect the underlying strength of its business model.

BSD Analysis:
FMI presents a compelling bull case for BJ's Wholesale Club, emphasizing the structural advantages of the warehouse club business model. The fund highlights BJ's ability to drive down purchasing costs through limited SKUs and bulk packaging, while maintaining operational efficiency through low-cost locations and streamlined operations. The membership model provides recurring revenue with high retention rates, creating a stable cash flow foundation. Despite BJ's historical challenges, FMI believes the company has meaningfully improved operations over the past decade, though the market remains skeptical about sustainability and competitive positioning. The investment thesis centers on the warehouse club industry's small market share within the broader retail landscape, suggesting significant runway for growth by capturing share from traditional retailers who cannot match the pricing power. FMI expects valuation multiple expansion as the market recognizes the durability of BJ's improved business model and competitive moat.