Investment Pitches

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, holding leadership positions across multiple premium categories. The company's portfolio of iconic brands, many over 140 years old, provides significant competitive moats and pricing power in a market benefiting from ongoing premiumization trends. With only 4.7% market share in a $950+ billion Total Beverage Alcohol market, Diageo has substantial runway for growth, targeting 6% market share by 2030. The company's 38% exposure to emerging markets positions it well for demographic-driven growth, while its proven brand-building capabilities support sustainable competitive advantages. FMI highlights Diageo's disciplined capital allocation and reduced M&A dependence over the past decade, suggesting improved operational focus. The investment opportunity is enhanced by attractive valuation following post-COVID inventory destocking, with shares trading at 10-year lows despite the company's strong market position and growth prospects.

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, standalone HVAC leader. The manager believes Carrier was held back by United Technologies' lack of investment and suboptimal cost structure, despite operating in an attractive oligopolistic industry with consistent low-single-digit growth. Under CEO Dave Gitlin's leadership, the company has spent three years optimizing operations and refocusing the portfolio through strategic divestitures and acquisitions, particularly in European heat pumps. This transformation is expected to drive higher returns on capital and accelerated organic growth as Carrier becomes a pure-play HVAC business. While the stock has faced headwinds from execution concerns and recession fears, FMI views the modest valuation and strong industry dynamics as providing downside protection. The investment case hinges on successful execution of the operational improvements, cost optimization, and portfolio transformation initiatives.

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 manager 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-based revenue model provides recurring income with high retention rates, creating a stable foundation for the business. 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 taking 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.

Pitch Summary:
U.S. Bancorp Headquartered in Minneapolis, Minnesota, and with origins dating back to 1863, U.S. Bancorp (USB) is a diversified regional bank that operates over 2,400 branches across 26 states, primarily in the Western and Midwestern U.S. As of September 30, 2023, the company had $668 billion in assets, over $518 billion in deposits and more than $375 billion in loans, making it the fifth-largest retail bank in the country. The bank offers a variety of services, including retail as well as commercial banking, credit cards, investment management and trust services. At the end of 2022, USB acquired Union Bank from Mitsubishi UFJ Financial (also a Value Equity holding) for approximately $8 billion, adding $82 billion in assets to its balance sheet. This was the bank's biggest acquisition since 2001 and provides the company with a larger presence on the West Coast, particularly in California. High-Quality Business Some of the quality characteristics we have identified for USB include: • Proven operating efficiency having generated returns above peers and its own cost of capital for the last 15 years; • Balanced loan portfolio and mix of fee-generating businesses (~40% of revenues), such as payments and corporate trusts, which often have high barriers to entry and scalability due to fixed cost structures; • Economies of scale and attractive funding profile with high deposit share (e.g., average deposit share of 8% per state, with top five positions in 17 states); and • History of increasing its dividend and shrinking shares outstanding (with an average annual decrease of 2% over the past decade). Attractive Valuation Using our estimates of normalized earnings, we believe USB's current stock price is offered at a discount to our estimate of the company's intrinsic value. We believe USB is well positioned to improve its market position while maintaining an attractive return profile. Compelling Catalysts Catalysts we have identified for USB, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include: • Enhanced revenues and cost-savings through expense synergies following the recent acquisition of Union Bank; • Continued balanced and relatively low-risk loan growth coupled with deposit share gains in most geographies in which it operates; • Improvement in return-on-assets through both efficiency gains and a more robust product offering; and • Increased returns to shareholders following a near-term period when, as a result of enhanced regulatory requirements due to higher total assets from the Union Bank acquisition, share buybacks were paused.

BSD Analysis:
Aristotle Capital presents a bullish thesis on U.S. Bancorp, positioning it as a high-quality regional bank trading at an attractive valuation following the transformative Union Bank acquisition. The manager emphasizes USB's superior operating efficiency, having generated above-peer returns for 15 consecutive years, supported by a diversified revenue mix with 40% from fee-generating businesses like payments and corporate trusts that provide stable, scalable income streams. The investment case centers on four key catalysts: realization of expense synergies from the $8 billion Union Bank deal that expanded West Coast presence, continued market share gains leveraging USB's strong deposit franchise (8% average state share with top-five positions in 17 states), improving return-on-assets through operational efficiency and enhanced product offerings, and resumption of shareholder returns as regulatory constraints from the acquisition normalize. Aristotle views the current valuation as compelling relative to normalized earnings power and believes the market underappreciates USB's ability to maintain attractive returns while growing market position. The manager highlights the bank's conservative risk profile and strong capital allocation track record.

Pitch Summary:
Teledyne Technologies, Inc. Headquartered in Thousand Oaks, California, Teledyne Technologies is an industrial technology company which manufactures sensors, cameras, instruments and systems that enable its customers to monitor, analyze and distribute information. Teledyne focuses on end markets that demand advanced technology and high reliability, such as aerospace and defense, environmental monitoring, electronics design and development, medical imaging, oceanographic research, and deepwater activities. Teledyne's offerings are supported by decades of research and development enabling customers at all wavelengths and all applications, from deep sea to deep space. Teledyne's roots go back to 1960 and Founder/CEO Henry Singleton; however, the current version of Teledyne was spun out of Allegheny in 1999. At the time, Teledyne was a low-margin aerospace and defense company with the U.S. government accounting for ~50% of sales, non-U.S. markets accounting for ~15% and digital imaging 0%. Today, Teledyne earns a ~25% EBITDA margin, digital imaging accounts for >50% of sales, the U.S. government is ~25% and non-U.S. markets are ~50% of sales. The company has transformed itself over the years via dozens of mergers and acquisitions, most meaningfully through the 2021 purchase of FLIR Systems, a key catalyst discussed below. High-Quality Business Some of the quality characteristics we have identified for Teledyne include: • Highly engineered, premium priced, critical technologies sold across a diverse range of end markets; • Simple concepts rigorously applied: A decentralized management structure, along with an innovative yet cost-conscious culture, has resulted in steady margin expansion; and • History of successful acquisitions (>50 in past 15 years), as evidenced by compounding of FREE cash flow and value creation. Attractive Valuation Using our estimates of normalized cash earnings power, we believe Teledyne's current stock price is offered at a discount to our estimate of the company's intrinsic value. We believe the improvements in the company's business mix and FREE cash flow generation power following the FLIR Systems acquisition are not fully appreciated by the market. Compelling Catalysts Catalysts we have identified for Teledyne, which we believe will propel the business forward over our three- to five-year investment horizon include: • Continued integration of FLIR Systems leading to improved profitability and further penetration of attractive end markets (e.g., thermal imaging, with particular potential in autonomous driving); • Further market share gains, as Teledyne is uniquely positioned to benefit from increased demand for surveillance and unmanned systems in both commercial and non-commercial end markets (e.g., carbon and air quality monitoring, industrial automation, social services, defense); and • Improving balance sheet, as FREE cash flow has been dedicated to lowering acquisition-related debt (<2.0x net debt to EBITDA) and can now, once again, be utilized for value-enhancing acquisitions.

BSD Analysis:
Aristotle Capital presents a compelling bull case for Teledyne Technologies, emphasizing the company's successful transformation from a low-margin aerospace contractor to a diversified industrial technology leader with 25% EBITDA margins. The manager highlights Teledyne's strategic evolution through over 50 acquisitions in 15 years, particularly the transformative 2021 FLIR Systems acquisition that shifted the business mix toward higher-margin digital imaging (now >50% of sales) and reduced government dependence. The investment thesis centers on three key catalysts: continued FLIR integration driving profitability improvements and market penetration in thermal imaging applications like autonomous driving, market share gains in surveillance and unmanned systems across commercial and defense end markets, and improved capital allocation flexibility as debt levels normalize below 2.0x EBITDA. Aristotle views the current valuation as attractive relative to the company's enhanced free cash flow generation capabilities and believes the market underappreciates the business quality improvements from recent acquisitions. The manager emphasizes Teledyne's exposure to secular growth trends in environmental monitoring, defense modernization, and industrial automation.

Pitch Summary:
Boston Beer Company, Inc. (SAM), a leading provider of alcohol beverages, was one of the bottom performers in the Small Cap strategy. The company reported slight net revenue growth for the third quarter of 2023, led by strong growth in the Twisted Tea brand, offset by declines in the Truly brand. SAM continues to extend existing brands (e.g. the continued national rollout of Twisted Tea Light), replace struggling flavors (e.g. increasing the shelf and marketing presence of Truly's more popular, lighter flavors) and launch new brands that we believe will produce good, though uneven, results over the long term. For the second quarter in a row, margins expanded, as the company benefited from operational margin improvement initiatives, as well as deflation in freight costs. Management is steering a multi-year effort to enhance the efficiency of its operations that we believe is likely to produce sustainable margin improvement. SAM has a strong balance sheet, with net cash, and management is directing excess cash flow toward share repurchases. Overall, we remain confident management's efforts to grow the brands, improve the efficiency of operations, and allocate the company's capital will reward investors over time.

BSD Analysis:
SouthernSun maintains a constructive view on Boston Beer despite recent underperformance, emphasizing the company's brand portfolio optimization and operational improvement initiatives. The manager highlights mixed brand performance with Twisted Tea showing strong growth while Truly faces headwinds, but views management's strategic adjustments including flavor optimization and national rollouts as positive long-term drivers. Key investment merits include two consecutive quarters of margin expansion driven by operational efficiency initiatives and freight cost deflation, suggesting sustainable margin improvement potential. The company's strong financial position with net cash enables opportunistic capital allocation through share repurchases while funding brand development. Management's multi-year operational efficiency program is viewed as a catalyst for sustainable margin enhancement. Despite near-term brand performance volatility, the manager expresses confidence in management's ability to drive long-term value through brand growth, operational improvements, and disciplined capital allocation in the competitive alcoholic beverage market.

Pitch Summary:
Belden Inc. (BDC), a global supplier of specialty networking solutions, was the bottom performer in the Small Cap strategy in the fourth quarter. In our opinion, Belden has consistently delivered solid financial results; in fact, prior to the third quarter of 2023, the company had met or exceeded guidance for thirteen quarters in a row. However, in October, management warned investors that they would miss their third quarter revenue guidance primarily because of de-stocking at some of their larger customers. We have seen this de-stocking behavior with several other companies this year. As supply chains have improved in the post-pandemic environment, distributors and end customers no longer feel compelled to hold as much safety stock. Nevertheless, Belden was able to deliver profits at the bottom end of their guidance range. In November, Phillip and Mike traveled to Germany to meet with Belden at the Smart Production System show in Nuremberg and then to see Belden's Customer Innovation Center (CIC) in Stuttgart. We were very impressed with the Belden personnel and the meaningful interest in Belden products from global partners and customers (including Amazon Web Services and global automobile automobile manufacturers). We believe that Belden will continue to benefit from growth in industrial automation, the deployment of 5G, and other applications and environments that have become increasingly dependent on high quality, reliable networks.

BSD Analysis:
Despite near-term headwinds, SouthernSun maintains conviction in Belden's long-term prospects as a specialty networking solutions provider. The manager acknowledges temporary challenges from customer destocking that disrupted the company's impressive thirteen-quarter streak of meeting or exceeding guidance, but frames this as a post-pandemic normalization rather than fundamental weakness. The investment thesis is reinforced by management's direct engagement at industry events in Germany, where they observed strong customer interest from major partners including Amazon Web Services and global automotive manufacturers. Key growth drivers include industrial automation trends, 5G deployment, and increasing demand for high-quality, reliable networking infrastructure. The manager views the current weakness as temporary, with Belden well-positioned to benefit from structural technology trends requiring sophisticated networking solutions. The company's track record of consistent execution and strong customer relationships support the bullish long-term outlook despite short-term inventory adjustments.

Pitch Summary:
Dycom Industries, Inc. (DY), a leading provider of engineering and construction services to the telecommunications and utility industries, was one of the top performers in the Small Cap strategy. Revenues were up 9% as broad-based strength across DY's customers offset the lighter (as expected) spending from AT&T and Frontier. The demand outlook for 2024 looks favorable as management indicated they are seeing signs these two customers are increasing their pace of fiber deployment going into next year and expect government funding from the roughly $40 billion BEAD program to start to be deployed. Profit margins have risen over the last several quarters to Dycom's historical average, and management is aspiring to expand margins even further as the customer base widens. In our view, Steve Nielsen, CEO, continues to manage the company well and allocate capital effectively while maintaining financial flexibility (ND/EBITDA of 1.9x). As we have stated in past commentary, with only 43% of the homes in the U.S. passed with fiber, we continue to believe there is a long runway for fiber penetration, and Dycom is well-positioned to engineer, construct and maintain these fiber networks.

BSD Analysis:
SouthernSun maintains a bullish stance on Dycom Industries, highlighting the company's strong positioning in the fiber infrastructure buildout cycle. The manager emphasizes improving fundamentals including 9% revenue growth and margin expansion to historical averages, with management targeting further margin improvement as the customer base diversifies. Key catalysts include accelerating fiber deployment from major customers AT&T and Frontier, plus the anticipated deployment of $40 billion in government BEAD program funding in 2024. The pitch underscores the long-term structural opportunity, noting only 43% of U.S. homes are currently passed with fiber, providing a substantial runway for growth. Management quality under CEO Steve Nielsen is highlighted, with effective capital allocation and conservative leverage at 1.9x net debt-to-EBITDA. The combination of improving operational metrics, government funding tailwinds, and structural fiber penetration trends supports the bullish investment thesis.

Pitch Summary:
Live Oak Bancshares, Inc. (LOB), a technology-enabled, small business lender and the largest originator of loans guaranteed by the Small Business Administration, was the top performer in the Small Cap strategy in the fourth quarter. Live Oak reported strong third quarter results with quarterly loan production of more than $1 billion. Net interest margin of 3.37% was up slightly from second quarter and in-line with management expectations as upward pressure on deposit costs moderated while rates on recent loan originations continued to increase. Credit metrics remain consistent with historical trends and the Unguaranteed Allowance for Credit Losses at the end of the third quarter was 2.32% of Unguaranteed Loans and Leases as compared to the 1.25% median for the industry. Tier 1 Capital to Unguaranteed Loans and Leases ratio was 17.5% at the end of the third quarter. Live Oak's business model has continued to prove resilient through recent turmoil in the banking sector. During the fourth quarter, as the Federal Reserve indicated that it was likely done raising its benchmark interest rate and may even start cutting rates in 2024, Live Oak's stock price increased on expectations of easier financing conditions for small businesses. While we would expect Live Oak to perform well if credit conditions continue to ease, we are confident in management's ability to grow the balance sheet in a prudent manner regardless of the macro environment. Live Oak has a unique cost structure with no physical bank branches (other than its corporate headquarters), and with the recent investment in back office and technology support already baked into the expense base, we believe the bank is poised to grow earnings as it continues to grow the loan book. We also believe competitors may have shied away from small business lending recently as they face both challenges growing deposits and increasing costs of deposits. Live Oak is in an enviable position to leverage its unique model while pursuing its three tenets of soundness, profitability and growth to create long-term value for shareholders.

BSD Analysis:
SouthernSun presents a compelling bull case for Live Oak Bancshares, emphasizing the bank's technology-enabled small business lending model and market-leading position in SBA-guaranteed loans. The manager highlights strong operational metrics including $1+ billion quarterly loan production, stable net interest margins at 3.37%, and robust capital ratios with Tier 1 Capital at 17.5% of unguaranteed loans. The pitch emphasizes Live Oak's competitive advantages including its branchless model, recent technology investments, and unique positioning during a period when competitors are retreating from small business lending due to deposit challenges. Management's confidence in the bank's ability to grow prudently regardless of macro conditions, combined with expectations of easier credit conditions in 2024, supports the bullish thesis. The manager views Live Oak as well-positioned to capitalize on its operational leverage and market share gains while maintaining its focus on soundness, profitability, and growth.

Pitch Summary:
We will end with a long on which we are happy to disclose considerable detail. Hibbett is a retailer of street wear (especially sneakers) and a small volume of sporting goods (shoes with cleats for instance). It is an unusual position for Bronte, and we hold approximately 5 percent of the company. Our share of the company has been increasing as management bought back the stock. It is not our intention to buy stakes in companies large enough to influence management – and we prefer keeping the ability to sell without an undue impact on the stock. This makes it unlikely we will buy more of the stock. Hibbett is a small cap company. Our position is large in them – but it is relatively small for us. But because it is an unusual (and fun) position we are discussing it more detail than usual. Attached to this note is a stock-note of sorts. It explains how we wound up owning the stock (and why we like it). It also details the risks (some of which are difficult to manage).

BSD Analysis:
Bronte Capital holds an unusually large 5% position in Hibbett, a specialty retailer focused on streetwear and sneakers, representing their most concentrated single-name exposure. The investment thesis centers on Hibbett's strategic acquisition of City Gear, which provides access to the crucial African American demographic that drives sneaker culture and trends. The fund believes Nike's strategy of reducing wholesale partnerships from 30,000 to 1,800 retailers actually benefits Hibbett by eliminating competition while preserving their access to coveted product drops through City Gear's urban market positioning. Management's transformation of traditional Hibbett sporting goods stores into street fashion destinations, led by former City Gear executives, has driven margin expansion and strengthened Nike partnership status. The company trades at attractive valuations around 9x earnings with sustainable margins near 9%, supported by Nike's explicit recognition of Hibbett as a key North American partner alongside much larger retailers like Dick's Sporting Goods. Key risks include potential peak sneaker culture, margin compression from supplier power, and management succession challenges given the demographic disconnect between senior leadership and core customer base.

Pitch Summary:
December gave us a natural test of our shorting process. We have been short Karuna Therapeutics for most of 2023. Karuna are developing a drug (which they have coined "KarXT") for the treatment of schizophrenia. KarXT is a combination of a molecule abandoned by Eli Lilly because of severe side-effects (xanomeline) and a generic used to treat urinary incontinence (trospium). The bull case – simply stated – is that drugs which are effective in mental illnesses such as schizophrenia are hard to find. Moreover, they can't be tested/explored in animals as there is no realistic mouse-model of schizophrenia. The Lilly drug (xanomeline) was thought to work but with intolerable side-effects. What Karuna sought was a drug that did not cross the blood-brain barrier and would neutralize the effect of xanomeline in the body but not in the brain. They chose trospium. Karuna claim the drug has "compelling efficacy and a differentiated safety profile" compared to existing antipsychotics. When the company announced "positive" phase 3 results in August 2022, the company's market cap rose to USD 9 billion. There are millions of people with schizophrenia in the US alone, so the opportunity for a better drug is massive. We were not convinced by the phase 3 result. We thought that the trial design might have sharply understated the risk-profile of the combination (and/or overstated the performance of the drug), and that the FDA would identify these design issues in its review. Alas important people with a lot of money think we are wrong. Bristol-Myers Squibb, a major global pharmaceutical company, has just bid 14 billion dollars in cash (substantially all borrowed) to buy Karuna prior to KarXT being approved. They believe the transaction brings "great science", is a "clear strategic fit" and that KarXT will deliver "multibillion" dollars in sales at peak. We think this is unlikely and Bristol Myers management will wind up regretting it badly. But hey – we have lost money on the short – so for the moment we look like idiots. The FDA is currently reviewing the company's New Drug Application, with a decision expected in the second half of 2024. We will find out whether the "smart money" at Bristol Myers has torched 14 billion dollars or (more likely) we have fooled ourselves into believing we understand what an inadequate drug trial looks like. When it happens, we will follow up and report the lessons from this experience. If we are right though – and the drug is rejected – we won't recover the money we lost. As we have said before (about Wirecard) intellectual satisfaction is nice, but we would prefer a refund.

BSD Analysis:
Bronte Capital maintains a bearish view on Karuna Therapeutics despite Bristol-Myers Squibb's $14 billion acquisition bid, viewing it as a natural test case for their shorting methodology. The fund questions the efficacy and safety profile of KarXT, Karuna's lead schizophrenia treatment combining xanomeline (previously abandoned by Eli Lilly due to severe side effects) with trospium. They believe the Phase 3 trial design may have understated risks and overstated performance, expecting FDA rejection during the review process. Despite the massive market opportunity for effective schizophrenia treatments and Bristol-Myers' confidence in "multibillion" peak sales potential, Bronte suspects flawed trial methodology will lead to regulatory rejection. The manager acknowledges the painful irony of losing money while potentially being fundamentally correct, referencing their Wirecard experience where intellectual vindication provided no financial recovery. With FDA decision expected in H2 2024, this position represents a high-conviction bet against both the drug's approval prospects and Bristol-Myers' due diligence capabilities.

Pitch Summary:
The stock that has annoyed us most this year is Carvana. This is an old short – and was at one stage a 50bp short. We added to the short much of the way down. This was profitable. When the stock got to about $10 (on the way down from above $200) we started covering. We left ourselves with a single basis point short – that is one one-hundredth of a percent of the fund short at $3. The stock recently traded over $60 – a twenty bagger from the bottom. Ouch. We still think that bankruptcy is the most likely outcome. But we were unequivocally wrong to leave ourselves short any Carvana at the bottom. The leverage involved in an equity stub is way too high. Also, if money really is freely available for the next five plus years Carvana will survive and may even prosper. We have covered some at prices above $50 and we could easily be convinced to cover the lot. We did not play that well.

BSD Analysis:
Bronte Capital maintains a bearish stance on Carvana despite significant losses on their short position. The fund originally established a 50 basis point short position and added to it as the stock declined from over $200 to around $10, generating profits during the decline. However, they maintained a minimal 1 basis point short position when the stock hit $3, which proved costly as shares subsequently rallied to over $60 - a twenty-fold increase. The manager acknowledges tactical errors in position sizing and timing, particularly maintaining any short exposure at such low levels given the high leverage inherent in distressed equity situations. Despite the painful experience, they continue to view bankruptcy as the most likely outcome for Carvana, though they recognize that sustained access to cheap capital could enable survival and potential prosperity. The fund has partially covered their position above $50 and remains open to full closure, demonstrating pragmatic risk management despite their fundamental bearish thesis.

Pitch Summary:
We added Floor & Décor Holdings (FND) late in the third quarter. FND is a specialty retailer of hard surface flooring operating 207 warehouse format stores across the U.S. The stores are large (avg. ~78k sq ft) and offer a variety of in-stock hard-surface flooring, including tile, wood, laminate, vinyl, and natural stone along with decorative accessories and wall tile, installation materials, and adjacent product categories. Customers include professional flooring installers (40% of sales) and homeowners (60%) primarily doing residential repair and remodel projects. FND directly sources its products from over 240 vendors in over 24 countries, enabling it to eliminate middlemen such as agent/brokers, importers, and distributors. We believe this direct sourcing model gives the company a cost advantage over its competitors and allows it to offer customers the lowest prices in the industry. FND is also able to offer the largest selection of in-stock flooring in the industry because its stores are significantly larger than its competitors. This differentiated value proposition has enabled FND to consistently take market share from both home improvement centers (~30% of the market) and independent specialty retailers (~60% of the market). The management team, led by Tom Taylor, CEO, has a strong track record of successfully opening more than 170 new stores over the last decade, with plans to eventually reach 500. Stores typically generate 50% cash on cash returns by year 3, meaning each new store should create significant value for shareholders. The balance sheet is strong with Net Debt/EBITDA at 0.3x (2.7x including lease liabilities), and management has the flexibility to generate additional free cash flow if needed by slowing the pace of store count growth. In summary, we believe FND will execute its new store strategy over the next decade, resulting in ~5x increase in earnings per share, significant free cash flow available to be distributed to shareholders, and a total shareholder return in the teens.

BSD Analysis:
SouthernSun initiated a new position in Floor & Décor Holdings with high conviction based on the company's differentiated business model and compelling growth prospects. The fund values FND's direct sourcing strategy from over 240 vendors across 24 countries, which eliminates middlemen and provides significant cost advantages, enabling the lowest industry pricing. The company's large warehouse format stores (averaging 78,000 square feet) offer the industry's largest in-stock selection, creating a differentiated value proposition that consistently captures market share from both home improvement centers and independent retailers. SouthernSun appreciates the balanced customer mix of professional installers (40%) and homeowners (60%), providing stability across market cycles. CEO Tom Taylor's proven track record of opening 170+ stores over the past decade with plans to reach 500 stores demonstrates scalable execution capabilities. The attractive unit economics of 50% cash-on-cash returns by year three support the aggressive expansion strategy. With a conservative balance sheet (0.3x net debt-to-EBITDA) and flexible capital allocation, SouthernSun projects a five-fold increase in earnings per share over the next decade, targeting total shareholder returns in the teens.

Pitch Summary:
Boston Beer Company, Inc. (SAM), a leading provider of alcohol beverages, was one of the bottom performers in the SMID Cap strategy. The company reported slight net revenue growth for the third quarter of 2023, led by strong growth in the Twisted Tea brand, offset by declines in the Truly brand. SAM continues to extend existing brands (e.g. the continued national rollout of Twisted Tea Light), replace struggling flavors (e.g. increasing the shelf and marketing presence of Truly's more popular, lighter flavors) and launch new brands that we believe will produce good, though uneven, results over the long term. For the second quarter in a row, margins expanded, as the company benefited from operational margin improvement initiatives, as well as deflation in freight costs. Management is steering a multi-year effort to enhance the efficiency of its operations that we believe is likely to produce sustainable margin improvement. SAM has a strong balance sheet, with net cash, and management is directing excess cash flow toward share repurchases. Overall, we remain confident management's efforts to grow the brands, improve the efficiency of operations, and allocate the company's capital will reward investors over time.

BSD Analysis:
SouthernSun maintains a bullish long-term outlook on Boston Beer despite recent underperformance, emphasizing the company's brand portfolio optimization and operational improvements. The fund highlights SAM's mixed brand performance, with strong growth in Twisted Tea offsetting Truly brand declines, demonstrating management's ability to adapt product offerings to consumer preferences. The company's strategic initiatives include extending successful brands like Twisted Tea Light's national rollout and optimizing Truly's flavor portfolio by emphasizing popular lighter varieties. SouthernSun values the consecutive quarters of margin expansion driven by operational efficiency initiatives and freight cost deflation. Management's multi-year operational enhancement program is expected to deliver sustainable margin improvements over time. The company's strong balance sheet with net cash provides financial flexibility, while management's commitment to share repurchases demonstrates disciplined capital allocation. SouthernSun's confidence stems from management's comprehensive approach to brand development, operational efficiency, and capital allocation, which they believe will generate long-term shareholder value despite near-term brand performance volatility.

Pitch Summary:
Belden Inc. (BDC), a global supplier of specialty networking solutions, was the bottom performer in the SMID Cap strategy in the fourth quarter. In our opinion, Belden has consistently delivered solid financial results; in fact, prior to the third quarter of 2023, the company had met or exceeded guidance for thirteen quarters in a row. However, in October, management warned investors that they would miss their third quarter revenue guidance primarily because of de-stocking at some of their larger customers. We have seen this de-stocking behavior with several other companies this year. As supply chains have improved in the post-pandemic environment, distributors and end customers no longer feel compelled to hold as much safety stock. Nevertheless, Belden was able to deliver profits at the bottom end of their guidance range. In November, Phillip and Mike traveled to Germany to meet with Belden at the Smart Production System show in Nuremberg and then to see Belden's Customer Innovation Center (CIC) in Stuttgart. We were very impressed with the Belden personnel and the meaningful interest in Belden products from global partners and customers (including Amazon Web Services and global automobile automobile manufacturers). We believe that Belden will continue to benefit from growth in industrial automation, the deployment of 5G, and other applications and environments that have become increasingly dependent on high quality, reliable networks.

BSD Analysis:
Despite Belden's fourth quarter underperformance, SouthernSun maintains a bullish long-term view based on the company's strong execution track record and growth prospects. The fund emphasizes BDC's impressive consistency, having met or exceeded guidance for thirteen consecutive quarters prior to Q3 2023. Management attributes the revenue miss to customer destocking, a temporary phenomenon SouthernSun has observed across multiple portfolio companies as supply chains normalize post-pandemic. The fund's conviction was reinforced by their direct engagement with Belden management and customers at industry events in Germany. Their visit to the Customer Innovation Center in Stuttgart and interactions with major customers like Amazon Web Services and global automotive manufacturers demonstrated strong demand for Belden's specialized networking solutions. SouthernSun sees multiple growth drivers including industrial automation expansion, 5G deployment, and increasing dependence on high-quality, reliable networks across various applications. The company's ability to maintain profitability despite revenue headwinds demonstrates operational resilience and positions BDC well for recovery as destocking cycles complete.

Pitch Summary:
Armstrong World Industries, Inc. (AWI), the leading commercial ceiling tile and grid business in the U.S., was one of the top performers in the SMID Cap strategy. The company has a relatively diverse end market revenue mix, approximately equal weighted across repair and remodel, major renovation, and new construction markets, and also diversified by industry vertical including office, education, healthcare, et al. Year-to-date through the third quarter of 2023, Armstrong has delivered solid results, with mid-single digit revenue growth and margin expansion made possible by strong pricing, partially offset by generally lower volumes. We expect the company to continue to perform well in a lower volume environment, and to perform strongly in the event that demand rises. To learn more about our investment in Armstrong, check out the most recent episode of our Scout podcast.

BSD Analysis:
SouthernSun expresses confidence in Armstrong World Industries as the leading U.S. commercial ceiling systems provider. The fund values AWI's diversified revenue streams, with balanced exposure across repair/remodel, major renovation, and new construction markets, providing stability across economic cycles. The company's diversification extends to industry verticals including office, education, and healthcare, reducing concentration risk. Despite lower volumes in 2023, Armstrong demonstrated pricing power and operational efficiency, achieving mid-single digit revenue growth and margin expansion. SouthernSun appreciates management's ability to navigate challenging market conditions while maintaining profitability. The fund's bullish outlook is based on AWI's market leadership position and operational resilience. The company's performance in a lower volume environment demonstrates defensive characteristics, while its market position suggests strong leverage to any demand recovery. SouthernSun's decision to feature Armstrong on their Scout podcast indicates high conviction in the investment thesis.

Pitch Summary:
Dycom Industries, Inc. (DY), a leading provider of engineering and construction services to the telecommunications and utility industries, was the top performer in the SMID Cap strategy. Revenues were up 9% as broad-based strength across DY's customers offset the lighter (as expected) spending from AT&T and Frontier. The demand outlook for 2024 looks favorable as management indicated they are seeing signs these two customers are increasing their pace of fiber deployment going into next year and expect government funding from the roughly $40 billion BEAD program to start to be deployed. Profit margins have risen over the last several quarters to Dycom's historical average, and management is aspiring to expand margins even further as the customer base widens. In our view, Steve Nielsen, CEO, continues to manage the company well and allocate capital effectively while maintaining financial flexibility (ND/EBITDA of 1.9x). As we have stated in past commentary, with only 43% of the homes in the U.S. passed with fiber, we continue to believe there is a long runway for fiber penetration, and Dycom is well-positioned to engineer, construct and maintain these fiber networks.

BSD Analysis:
SouthernSun maintains a bullish stance on Dycom Industries, highlighting the company's strong positioning in the telecommunications infrastructure buildout. The fund emphasizes DY's 9% revenue growth despite headwinds from key customers AT&T and Frontier, demonstrating the company's diversified customer base resilience. Management's indication of accelerating fiber deployment from these major customers, combined with the anticipated deployment of $40 billion in BEAD program funding, creates a favorable demand backdrop for 2024. The fund appreciates CEO Steve Nielsen's capital allocation discipline, evidenced by the conservative 1.9x net debt-to-EBITDA ratio. With only 43% of U.S. homes currently passed by fiber infrastructure, SouthernSun sees a substantial long-term growth runway. The company's margin expansion to historical averages, with management targeting further improvements as the customer base widens, supports the investment thesis. DY's comprehensive service offering across engineering, construction, and maintenance positions it well to capitalize on the multi-year fiber infrastructure investment cycle.

Pitch Summary:
Aurizon: As the leading rail operator in Australia, Aurizon has over 5,000km's of network rail assets and the largest haulage operations in Australia across coal, bulk commodities and containerised freight. We see three key drivers underpinning the earnings outlook for the company (i) step up in its regulatory network earnings as it cycles into a new regulatory period, (ii) growth in volumes from contract wins and less weather-related impacts, and (iii) an ongoing focus on operational efficiencies. This earnings growth, together with a reduction in capital expenditure and an improvement in the payout ratio should drive a steady increase in dividends to shareholders over the medium term (refer Figure 14).

BSD Analysis:
L1 Capital views Aurizon as Australia's dominant rail infrastructure operator with multiple earnings growth drivers. The company's 5,000km network and leading haulage operations provide significant scale advantages and market positioning. Three key catalysts support the earnings outlook: regulatory network earnings step-up, volume growth from contract wins and reduced weather impacts, and operational efficiency improvements. The regulatory framework provides earnings visibility while operational leverage drives margin expansion. Reduced capital expenditure and improved payout ratios create a pathway for steady dividend growth over the medium term. This represents a classic infrastructure play with regulated earnings, operational leverage, and growing shareholder returns. Aurizon's market leadership and diversified commodity exposure provide defensive characteristics with growth potential.

Pitch Summary:
Chorus: Owns and operates the majority of NZ's high-speed broadband infrastructure. The company has recently completed the decade-long roll-out of its fibre network at a significant capital cost. While the current consensus FY24E dividend yield of ~6% is attractive, what excites us the most is the potential for these dividends to accelerate in FY25 and FY26 (refer Figure 13).

BSD Analysis:
L1 Capital's Chorus thesis centers on the completion of New Zealand's fiber infrastructure buildout and the resulting dividend acceleration potential. The company owns and operates the majority of New Zealand's high-speed broadband infrastructure, providing monopolistic characteristics and regulatory protection. After a decade-long, capital-intensive fiber network rollout, Chorus is transitioning from investment phase to cash generation mode. The current 6% dividend yield provides attractive income, but L1 expects significant dividend growth in FY25-26 as capital expenditure normalizes. This represents a classic infrastructure investment with predictable cash flows and growing dividend potential. The regulatory framework provides revenue visibility while the completed network offers operational leverage. Chorus exemplifies the attractive risk-return profile of essential infrastructure assets with growing income streams.

Pitch Summary:
Imdex: With the recent acquisition of Devico, we believe Imdex has extended its global leadership position in mining exploration drilling technology. While the sector is perceived as highly cyclical and somewhat unsophisticated, Imdex has demonstrated how its superior technology can drive enhanced drilling efficiency and underpinned their exciting growth trajectory. The company has grown EBITDA at 24% CAGR over the last 5 years (refer Figure 12). With the best portfolio of products in the market, we think Imdex is very well placed to continue to grow earnings strongly for many years to come.

BSD Analysis:
L1 Capital views Imdex as a technology leader in mining exploration drilling, defying sector perceptions of cyclicality and commoditization. The Devico acquisition strengthens the company's global leadership position and expands its technology portfolio. Imdex has demonstrated superior technology can drive drilling efficiency improvements, creating sustainable competitive advantages. The impressive 24% EBITDA CAGR over five years validates the company's technology-driven growth strategy. Management has built what L1 considers the best product portfolio in the market, providing multiple avenues for continued growth. The investment thesis centers on Imdex's ability to leverage proprietary technology to capture disproportionate value in the mining services sector. The combination of market leadership, technology differentiation, and proven execution creates a compelling long-term growth story.