Investment Pitches

Pitch Summary:
It is the #1 HVAC distributor with 15% market share. It is two and a half times larger than the next largest player. It has high returns on invested capital and is relatively asset light. Is extending and widening its already formidable competitive advantage due to a) its scale and b) its investments in its technology infrastructure. This leads to our differentiated view that Watsco will have higher EPS growth than consensus due to higher revenue growth and better operating margins. It benefits from a long growth runway arising from its predictable end market demand as well as its consolidator role in the HVAC market: The US has ~115 million installed A/Cs and furnaces, 92 million of which are over 10 years old. Systems last 10-20 years suggesting a solid replacement runway. The installed base of HVAC units has grown at a 3.6% CAGR since 1980. Founder-led management team with focus firmly planted on long-term value creation: Founder/CEO, Al Nahmad, and the President, his son AJ (in charge of the technology investments), own 12% of the company, however, they control 54% of the voting shares. Focused on generating long-term value creation by growing market share organically and consolidating the industry. They are not managing short-term earnings results. "We care about the next quarter century not the next quarter." Stability, growth and duration of the revenue stream from HVAC replacement cycle and accelerated market share gains as a result of new technology investments which is leaving many smaller privately held HVAC distribution businesses behind. Operating and capital efficiency improvements from technology investments which we expect will improve operating and FCF margins, as free cash conversion improves from higher inventory turns and quicker collections. Acceleration of independent distributors willing to sell their businesses to Watsco so they can access and benefit from Watsco's technology platform.

BSD Analysis:
Qualivian presents a compelling bull case for Watsco as the dominant HVAC distributor with significant competitive advantages. The firm's thesis centers on Watsco's market-leading 15% share, which is 2.5x larger than its nearest competitor, combined with high returns on invested capital and asset-light operations. The investment rationale emphasizes technology investments that are widening Watsco's competitive moat and driving market share gains from smaller competitors who cannot match these capabilities. The replacement cycle dynamics provide a predictable revenue foundation, with 92 million of 115 million installed HVAC units being over 10 years old and systems typically lasting 10-20 years. Qualivian expects the technology platform to drive operating leverage through improved inventory turns and collections, leading to margin expansion. The founder-led management team's long-term focus and significant ownership stake (12% economic, 54% voting control) aligns with shareholder interests. The firm anticipates accelerated consolidation as independent distributors seek access to Watsco's technology platform, creating additional growth opportunities.

Pitch Summary:
With a rich history of over 185 years, Schneider Electric (Schneider) has become a leading provider of electrical grid management and infrastructure solutions that address complex electrical challenges. Power and utility companies count on Schneider to provide critical electrical equipment and components to modernize the electrical grid, extend distribution capacity and efficiently manage operations, while renewable power producers count on Schneider to add renewable energy capacities. Schneider does not only provide a full spectrum of specialized engineering solutions, but also offers a broad range of complementary smart grid software solutions that helps improve grid efficiency and prevent power disruptions. Complementing its electrical grid business, Schneider offers microgrid technology, which are independent electrical networks that generate electricity through renewable sources that do not need to be connected to the electrical grid. As the largest U.S. provider of microgrids, Schneider gives businesses and government facilities the option to reduce their reliance on the grid and generate their own electricity during peak pricing or power outages. As the economy becomes more digital and data-centric, companies have to navigate their growing electrical power challenges. Schneider serves the electrification requirements of leading companies across a wide range of industries, such as life sciences, consumer packaged goods, food & beverage, industrial automation, semiconductors, metals & mining, retail, energy & chemical, technology and transportation. Schneider will design, develop and operate the energy solutions that power its customer's every day operations. In tandem, it will incorporate building management solutions that increase energy efficiency, reduce operating costs and optimize energy consumption. Data centers are considered to be the backbone of digitization infrastructure. Each day, consumers and businesses are creating exponentially vast amounts of data. Companies are leveraging data analytics and business intelligence tools to mine, model and monetize their repository of data. More data centers will need to be developed or upgraded in order to manage their ever-expanding data. In addition, businesses are increasingly leveraging Artificial Intelligence (AI) to improve productivity, efficiency and customer service. This rise in demand for AI will further exacerbate the need for more data centers as existing data centers cannot accommodate current AI large language model workloads. Schneider provides the expertise and physical infrastructure solutions to design, build and manage data centers across its entire lifecycle. It offers a wide breadth of data center and network solutions from construction, power security, cooling and software. It creates new or retrofitted data centers that are customized and configured to its customers' IT infrastructure. Schneider is not only positioned to benefit from major global macro trends, but it has also created a valuable ecosystem of interconnected systems and solutions that further grows and strengthens its business franchise. Since 2010, the company has dedicated significant investments in software, machine learning and data analytics across its portfolio of solutions. Schneider has centered its business around its cloud-based platform, EcoStruxure, which has been deployed across 500,000 sites. EcoStruxure operates an open ecosystem that receives support from a large network of over 45,000 integrators/developers, over 650,000 service providers/partners and over 20,000 production and direct procurement suppliers. It connects over 7.4M assets that allows company operators to monitor and control specific processes. This creates a flywheel effect in which the greater the number of connected devices results in a greater demand for software and digital services, which helps drive the company's financial performance. Over the past two and half years, Schneider has generated double digit organic revenue and over 15% operating margins. From a valuation perspective, Schneider is valued at a reasonable 3.5%-4% free cash flow yield. As part of our active management approach, we replaced our Honeywell position with Schneider during the 4th quarter of 2023 and expect to add to our Schneider position throughout 2024. In light of Schneider's strong leadership position across a number of major growth trends, we believe that Schneider offers more attractive growth opportunities than Honeywell for many years to come!

BSD Analysis:
Rocklinc positions Schneider Electric as a compelling infrastructure play benefiting from multiple secular growth drivers including grid modernization, renewable energy transition, and AI-driven data center expansion. The manager highlights Schneider's comprehensive ecosystem spanning electrical grid management, microgrid technology, and data center solutions, with the company holding the largest U.S. microgrid market position. The investment thesis centers on the massive infrastructure spending required to modernize aging electrical grids, with over $700 billion needed in the U.S. alone and similar requirements globally. Schneider's EcoStruxure platform creates a powerful network effect with 500,000 deployed sites and 7.4 million connected assets, driving recurring software revenues and customer stickiness. The company has demonstrated strong execution with double-digit organic growth and 15%+ operating margins while trading at a reasonable 3.5-4% free cash flow yield. The manager views this as superior to Honeywell given Schneider's direct exposure to electrification and digitalization megatrends.

Pitch Summary:
Franco-Nevada (Franco) has been one of our favourite precious metals royalty businesses for a long time. Back in 1998, Jonathan Wellum, who was the former CEO of AIC Mutual Funds and a portfolio manager, accumulated the largest institutional position in Franco. Jonathan had the privilege of spending many hours with the co-founder of Franco, Seymour Schulich, one of Canada's most successful investors. Jonathan, along with a handful of other investors, travelled with Mr. Schulich to the famous Goldstrike mine in Nevada in the Fall of 1997. Franco was the pioneer of the precious metal royalty industry, which later spawned the streaming business of which Franco-Nevada is apart of today. Needless to say, when Rocklinc commenced operations in January 2010, we started building positions in the company. During this period, Franco has provided our clients with excellent returns and has proved to be one of the very best ways to gain exposure to precious metals. As Franco grew in size, they did not shy away from moving outside the traditional sphere of precious metals. In recent years, the Company has gained exposure to several base metals along with oil and gas. While we prefer that Franco and other royalty firms (Wheaton Precious Metals, Osisko Royalties, Royal Gold, and Sandstorm Gold) focus primarily on precious metals, we appreciate the power of diversification and the profitability of striking royalty and streaming deals for non-precious metals. Assuming that the Company is underwriting these deals with internal rate of returns that are similar or better vis-à-vis similar deals struck in the traditional precious metals space, they can be a wonderful place to invest their capital. In that vein, Franco's deal with First Quantum on Cobre Panama and its extensive copper-gold-silver mine in Panama was an opportunity to deploy capital at size ($1.2 billion+) in a high-quality asset with underlying exposure to gold/silver and copper – three metals that we are bullish on over a long-term time horizon. If governments want to get anywhere close to their aggressive climate goals (net zero by 2050), the amount of copper that will be needed to electrify and reinforce a weak and vulnerable power grid, manufacture batteries for the plethora of electric vehicles, and other general industrial uses will far outstrip supply over the coming decade, as new mine supply remains constrained. These factors made the Cobre Panama investment on the part of Franco an excellent opportunity to diversify their revenue stream and grow the value of their company for the next three to four decades. Unfortunately, a small but very vocal group of climate activists started to target the Cobre Panama mine and demanded that it be shut down immediately. A weak Panamanian government coupled with a less-than-just legal system surprised the investment community when they sided with the activists and the mine was closed in the fourth quarter of 2023. At the time of closure, the value of the royalty to Franco was worth approximately 18% of their Net Asset Value. While all this was unfolding, Franco's stock price dropped from $200.00 to $150.00 or 25%. Their mining partner First Quantum's stock dropped 60% given the mine represented about 50% of the value of their firm at the time! This is one of the reasons we prefer to own royalty companies over a mining business given the greater diversity of revenue streams, which acts as a natural hedge against political risk. As a side note, it's interesting and very hypocritical of the climate activists to go after an extremely well-run copper mine. Given the massive deficiency in copper that is emerging due to the demand for copper to rebuild the electrical grid and for batteries in electic cars, how do these activists think we can reduce fossile fuel consumption without massive investments in copper mines? We are very skeptical of the grounds for protest undertaken by the protesters within the Panamanian populace and not to mention a few Hollywood actors who know even less about reality and live in their own false bubbles. We see the opposition to the mine as ill-conceived and certainly not grounded in reality. The value of minerals in the ground, in addition to the billions of investment dollars sunk into the project (over $10 billion USD), make it too large to ignore and it is far too important to the Panamanian economy and ultimately, its people. Cobre-Panama represents approximately 5% of Panama's GDP, 1.5% of the world's supply of copper, 75% of the country's goods exports and directly and indirectly employs nearly 1 in 10 Panamanians. Additionally, GDP growth in Panama, post closure of the mine is projected to be slashed from 5% to a paltry 1-2% in 2024 and could go lower. There will be an extreme amount of pressure on the government by businesses, the general public and also capital markets to grant the license to the mine to operate, particularly as the country is projected to lose its investment grade credit rating this year if things don't turn around. According to Reuters, some experts estimate that Panama could be ordered to pay up to $50 billion USD if it loses the international arbitration case that First Quantum has brought against the country. Let's put that amount in context. $50 billion USD is approximately 70% of the country's total GDP. This is an astounding amount of money for the country of Panama. The bottomline: it is hard to see how the government can afford to economically, politically and socially keep the mine shut. As 2024 progresses some of the protesters will realize the devastation wrought on the country by these Marxist policies of expropriation. The standard of living and the wellbeing of the citizens will be negatively impacted as capital flees the country and Panama's cost of borrowing increases. What makes this even more ludicrous is that according to First Quantum's 2022 ESG report, "[i]n recognition of the site's high biodiversity and biological sensitivity, Cobre Panama has implemented a Biodiversity Action Plan that meets ESIA commitments and follows both national regulations and international best practices, such as the International Finance Corporation's Performance Standard 6 (PS6), the Business and Biodiversity Offset Program's (BBOP) Standard on Biodiversity Offsets, and the International Council on Mining and Metals (ICMM) Good Practice for Mining and Biodiversity". This was an extremely well managed mine with very close attention paid to protecting the environment. Regardless of one's own opinions as to the opposition of the mine (good people will have different opionions), we believe that a potential opportunity has emerged. While we are of the opinion that the mine will be operational at some point in the future, for valuation purposes we are assuming the mine will never reopen. Going into this dispute, Cobre Panama represented approximately 18% of Franco's NAV (Net Asset Value). We look at NAV rather than revenues since NAV more accurately reflects the mine's value to the company (discounting future cash flows). FNV has sold off around 25% since the news broke and is off more than 33% from its 2023 high set back in May. The stock is now discounting the loss of the mine and more! This represents an interesting opportunity for investors. We now have a call option that an investor can pick up 'for free' if Cobre Panama comes back online. Should the mine reopen, Franco's valuation would increase substantially and all of the recent drop in the stock price could be regained quickly. The current valuation looks attractive for some dollar-cost averaging. We will be nibbling away at the stock and adding to our client portfolios. Another important event will be taking place this spring when a new government will be elected. It is quite possible that the existing government will be voted out of office and a more rational and business friendly government will be elected. We are watching these developments closely. In the interim, Franco continues to deploy capital, grow its royalty revenue streams and pay a nice little dividend to patient investors.

BSD Analysis:
Rocklinc presents Franco-Nevada as a compelling contrarian opportunity following the forced closure of the Cobre Panama mine, which represented 18% of the company's NAV. The manager argues that the stock has oversold, declining 25% from $200 to $150, and now trades at a discount that more than reflects the mine's permanent loss. The thesis centers on Franco's diversified royalty model providing superior risk-adjusted returns compared to traditional mining operations, with natural hedges against political risk through multiple revenue streams. The manager expects the Panamanian government will eventually reverse course due to economic pressure, as the mine represents 5% of GDP and potential $50 billion arbitration costs. Franco's long-term copper exposure aligns with electrification trends and net-zero goals requiring substantial copper supply. The investment offers asymmetric upside if the mine reopens while providing downside protection through the company's diversified precious metals royalty portfolio and dividend yield.

Pitch Summary:
Lanxess (Germany) is a specialty chemical company. We believe current short-term headwinds facing the entire chemical industry are masking the underlying strength and improved quality of Lanxess's business. As these short-term headwinds abate, we expect earnings and free cash flow generation to increase. Following significant perimeter changes, we believe Lanxess is well-positioned with strong market positions in growing markets, which should result in above-average profitability and resiliency during difficult macro environments. We appreciate the company's transformation, led by CEO Matthias Zachert, which has improved its margin profile, free cash flow conversion, and capital efficiency. At around 5.5x trough EBITDA, we purchased shares at what we believe was an attractive valuation for a company of this quality.

BSD Analysis:
The manager presents a contrarian bull case for Lanxess, arguing that cyclical headwinds are obscuring fundamental business improvements. The investment thesis relies on the company's transformation under CEO Matthias Zachert, which has enhanced operational metrics including margin profile, free cash flow conversion, and capital efficiency. The manager believes Lanxess has repositioned itself in growing specialty chemical markets with strong competitive positions, providing both growth potential and defensive characteristics. The valuation at 5.5x trough EBITDA suggests the market is pricing in pessimistic scenarios, creating an attractive entry point. The manager expects earnings and cash flow recovery as industry headwinds subside. The combination of business quality improvements, favorable market positioning, and attractive cyclical valuation supports the bullish investment case. This represents a classic value play on operational turnaround during temporary industry weakness.

Pitch Summary:
Valmet (Finland) is the number-one provider of paper and pulp machinery, service, automation systems, and valves. We believe Valmet's equipment business has a strong and improving position in a market with healthy barriers to entry as its key offerings of packaging and pulp machinery are both duopolies. Moreover, while the equipment business dominates revenue, the company's earnings are primarily driven by its stable businesses of service, automation and flow control. There is a long growth runway for these units as attachment rates on new machine sales are high, cyclicality is lower, and economics are superior. We believe this positions Valmet well to protect its earnings amid a near-term drawdown in equipment orders as the paper and pulp markets digest destocking and macro softness. Finally, cost control and project execution have improved considerably across the organization over the past decade since Valmet's spin-off from Metso. We appreciate the management at Valmet and believe the business is trading at an attractive discount to its intrinsic value.

BSD Analysis:
The manager presents a compelling bull case for Valmet based on its dominant market position and diversified revenue streams. The investment thesis centers on Valmet's duopoly position in packaging and pulp machinery, which creates strong barriers to entry and pricing power. The manager emphasizes the stability of the service, automation, and flow control segments, which drive earnings despite equipment revenue dominance. This business model provides defensive characteristics during cyclical downturns while offering growth potential through high attachment rates on new equipment sales. The operational improvements since the Metso spin-off demonstrate management's execution capabilities. The manager views current market conditions as creating an attractive entry point at a discount to intrinsic value. The combination of market leadership, stable recurring revenue streams, and improved operational efficiency supports the bullish stance.

Pitch Summary:
Despite us having written extensively about Schibsted last month, a further update is warranted. In early December Schibsted positively surprised both us and the market with the announcement that that the Tinius Trust, the controlling shareholder, intends to acquire Schibsted's legacy News Media division for 5.4bn NOK and Schibsted's stake in Polaris Media for 0.8bn NOK. As well as this, the company intends to collapse the dual A-B share class structure. This is a significant positive development that should help reduce the conglomerate discount at which Schibsted trades and force investors to pay attention to the attractive qualities of Schibsted's Nordic Marketplace assets – which have hitherto been overlooked. Using the price of the B shares which we own, Schibsted has a market cap of 62bn NOK. Pro-forma of the completion of the two transactions, deducting the value of the retained stake in Adevinta (16bn NOK), News Media (6.2bn NOK) and net cash and other adjustments (18bn NOK) implies the Nordic stub assets are trading at an implied value of 22bn NOK, or approximately 9.5x 2024 EBITDA. Whilst this has increased from the low of ~6x (inclusive of News Media) earlier in 2023 we believe there is ample room for the shares to re-rate higher and the valuation gap to global classified ads peers to narrow under the simplified structure, with peers on average trading at 18x 2024 EBITDA. The combination of the potential multiple re-rating and strong earnings growth prospects provide for attractive upside. In the near term we believe that the returning of excess capital to shareholders is a key catalyst to drive the shares higher, with proceeds from the Adevinta and News Media sales just shy of 30bn NOK (48% market cap).

BSD Analysis:
AVI presents a compelling bull case for Schibsted following significant corporate restructuring announcements. The Tinius Trust's acquisition of the News Media division for 5.4bn NOK and Polaris Media stake for 0.8bn NOK, combined with the collapse of the dual share class structure, represents a major catalyst to unlock value. The manager's detailed valuation analysis shows the Nordic Marketplace assets trading at 9.5x 2024 EBITDA, significantly below the 18x average for global classified ads peers. This valuation gap provides substantial re-rating potential as the simplified structure forces investor attention on the attractive Nordic assets. The transaction generates nearly 30bn NOK in proceeds (48% of market cap), creating a powerful capital return catalyst. AVI's thesis centers on multiple expansion from current discounted levels as conglomerate complexity is removed and the high-quality marketplace business becomes more transparent to investors. The combination of structural improvements and strong earnings growth prospects supports the bullish outlook.

Pitch Summary:
As contrarian, valuation-based investors we are now finding extremely compelling opportunities outside of Energy. Many of these opportunities are in high margin, long-term growth companies. One such opportunity is Zoom. Zoom's video meeting application is a product we all know well and has resulted in Zoom generating free cash flow since its IPO in 2019. Zoom coped admirably with the explosive demand during the pandemic, scaling up its operations and generating meaningful free cash flow in the process. While its stock price has fallen back to pre-pandemic levels, Zoom has been able to retain much of the business it won over this period and has continued to show growth in overall revenues every year since despite a normalisation in the Online (retail) side of its business. Zoom's stock price collapse since October 2020 clearly reflects the fact that investors were too optimistic in extrapolating the performance of the business at the time. Another factor has been the rise of Microsoft Teams, which in a few short years has managed to capture a large portion of this large market by bundling Teams with its Microsoft 365 subscription. While Zoom's growth may have slowed, enterprise customer retention remains very strong. In fact, the strength of its Enterprise division is masked by the mix shift within the business. Zoom is increasingly focusing on enterprise customers (where it currently supports more than 200,000—and growing—enterprise customers globally). Enterprise revenues now comprise about 58% of total revenues and we would expect top-line growth to accelerate over the next few years as the decline in Online users moderates and churn rates for these customers continue to improve. The company has a strong, founder-led, customer-focused culture that is keeping customers satisfied by delivering innovations and improvements at a healthy rate. While Zoom is synonymous with its user-friendly cloud-based meeting tool, it has developed a far broader unified communications platform supporting a variety of other capabilities including: chat, whiteboard, phone, large-format events and webinars, conference room systems, contact centre and virtual contact centre. Its growing portfolio of ad-on features broadens its capabilities and solutions making it easier for businesses to manage their overall communication needs and provides them with a more comprehensive solution. Zoom's approach to these new products is to offer them (in many cases to existing customers) at disruptive pricing relative to their competition. Zoom can do so because of its strong cash generation from its established video meetings business. This "Land-and-Expand" approach is likely to drive long-term customer retention and revenue growth. Two of their more recent offerings include Zoom Phone and Zoom Contact Centre. Zoom Phone, launched in 2019, already reaches over 7m paid seats and in a short space of time already accounts for about 10% of revenues. Following its success, they launched Zoom Contact Centre in 2022, which already has over 700 enterprise customers. It provides omnichannel customer support handling customer interactions via phone, chat, email, and social media and also includes features such as call routing, recording, and analytics. It is believed that over half of the contact centre market is yet to fully move to the cloud. Zoom's modern architecture and seamless integration with its existing platform presents an attractive opportunity for growth. We think these and other add-on features are likely to generate new revenue streams and defend existing ones as customers gain more value from a deeper ecosystem of functionality. Zoom is also leveraging the advent of generative AI and large language models and has taken the unusual approach of bundling its Zoom AI Companion into its paid plans at no additional cost. This is in stark contrast to Microsoft who charge $30 per user per month for a similar product. In less than 3 months over 220,000 accounts had enabled the AI Companion and 2.8m meeting summaries had been created. Zoom has ambitious plans to integrate AI across its platform offerings. Imbedding scalable AI into workflows is likely to provide its customers with richer, more actionable insights to improve productivity and efficiency. While Zoom's current earnings and free cash flows reflect little from these new tools—while reflecting the investments associated with their development—we expect these products to contribute to meaningful growth over time. Management has been disciplined and has right-sized the company for the current demand environment by making cuts in the right places. Zoom's net cash of over $6.4bn provides a defensive balance sheet while also allowing it to consider appropriate bolt-on acquisitions. Having previously over-extrapolated to the upside, we think the market is now significantly under appreciating Zoom's long-term growth prospects. Zoom has a current market capitalisation of about $22bn and considering it's $6.4bn of net cash, has an enterprise value of less than $16bn. Despite a challenging macro environment, Zoom is expected to generate in excess of $1.3bn in free cash flow this year. Adjusted for its cash, Zoom trades on about 12x this year's expected free cash flow. On the face of it, Zoom's multiple is not too dissimilar from Exxon. However, while we would regard Exxon's current free cash flow to be high, this is not the case for Zoom. We believe Zoom to be a high margin software business with a long runway of growth in revenues and free cash flow ahead it.

BSD Analysis:
Contrarius presents a compelling contrarian thesis on Zoom, arguing the market has overcorrected following the pandemic bubble burst. The manager highlights Zoom's successful transition from pandemic beneficiary to sustainable enterprise-focused business, with enterprise revenues now comprising 58% of total revenue and over 200,000 enterprise customers globally. The fund emphasizes Zoom's expanding unified communications platform beyond video conferencing, including Zoom Phone (7M paid seats, 10% of revenue) and Contact Centre (700+ enterprise customers), positioning the company for a "Land-and-Expand" strategy. Management's strategic AI integration through the free Zoom AI Companion (220,000 accounts enabled in 3 months) contrasts favorably with Microsoft's $30/month pricing model. With $6.4B net cash providing defensive positioning and acquisition optionality, Zoom trades at 12x expected free cash flow on a $16B enterprise value. The manager views this valuation as attractive for a high-margin software business with significant growth runway, particularly as the contact center market cloud migration remains only half complete.

Pitch Summary:
We did not add any new positions this quarter, but we did sell the last tranche of our position in Vizio. We had been trimming our position in Vizio for several quarters, and after the position rebounded 64% from its October 2023 lows, we sold the remaining shares. We have been thinking about the types of mistakes we have made in the portfolio as we reflect on what we have done well and where we need to improve. We categorize our 'mistakes' in three buckets. 1. Mistakes in Risk Management - Not selling stocks when they reached absurd valuations or sizing positions too large. 2. Mistakes in Business Quality – When we expect a greater growth rate or margin expansion than what does occur. 3. Mistakes in Management – When management does not make the right capital allocation decisions or makes unethical decisions. Most failed investments tend to fall into one of the three of the above, and are often a combination of a few. In the case of Vizio, the error was due to points 2) and 3) above. As a reminder, Vizio is one of the leading TV Brands in the US (either #2 or #3 depending on what survey/segment you look at). What caught our interest was the fact that Vizio had its own operating system (OS) installed on its TVs unlike its competitors that typically used an Android or Roku OS. When we first invested in 2021, Vizio had started to monetize this OS through ads ("Platform Business"). We are big believers on the shift from offline to online advertising and felt that connected TV was one of the key frontiers for the shift. We also felt that while Vizio's overall revenues would stay flat as they deprioritized revenue in the hardware business to push the Platform Business, that overall gross profit would increase considering the Platform Business has 65%+ margins. This, to its credit, came true, and Platform gross profit increased 3x during our investment period (to around $230MM expected in 2023). However, it was not enough to offset the decrease in hardware gross profitability which declined from ~$115M for the full year 2021 to zero in 2023. This occurred because to sell more TVs Vizio dropped its hardware margins to break-even levels. The strategy itself was sound, drop your hardware margins, make TVs cheaper, get more TVs in the hands of consumers. Then make the money back through the far more profitable business once consumers start to use those TVs. However, it was the magnitude of the drop in hardware margins that we didn't see coming. While we expected some drop from the initial 10% margin, we didn't expect them to go to zero (or in some quarters to negative territory). What this told us was that the industry was far more competitive than we expected, and that Vizio's position in the industry was far more tenuous. We also saw that Vizio was tepid in its marketing efforts to grow the brand, and instead decided to compete on price and shelf share, which seemed short-term in nature. Still, we gave the company a wide berth as we knew that they were shifting their business model, and such transformations take time. Further, we trusted that the CEO, William Wang who has been in the TV business for nearly twenty years, knew how best to toggle margins of the business up and down to reach their long-term goal of leveraging the platform to serve ads, online purchases, collect data, and even license the OS. However, the one area that we disagreed with management was in their capital allocation. Through this entire business transformation, Vizio was cash-flow neutral, had no debt, and yet sat on nearly $400MM in cash. At one point 40% of the market value of the company was in cash. It made no sense to us why they didn't return that cash to shareholders in the form of a buyback. We spoke to IR, wrote letters to the board, and pleaded our case to the CFO on two occasions. We even walked William through our thinking over zoom. Yet, it seemed the company was too conservative or knew something we didn't. William told us he was saving the cash for a rainy day, but to us, as investors, it had been storming for quite some time. Thus, given this disagreement, we made the decision to sell our stock.

BSD Analysis:
Farrer Wealth exited their Vizio position after a disappointing investment that exemplified both business quality and management execution mistakes. The original thesis centered on Vizio's proprietary TV operating system and the monetization potential of their Platform Business through connected TV advertising. While the Platform Business did deliver, growing gross profit 3x to $230MM, this success was completely offset by hardware margins collapsing from 10% to zero as competitive pressures intensified. The fund recognized that Vizio's market position was more tenuous than anticipated, with management choosing to compete primarily on price rather than investing in brand building. Most frustratingly, despite sitting on $400MM in cash (representing 40% of market cap at one point), management refused to return capital to shareholders through buybacks, citing conservative cash management for uncertain times. The fund's extensive engagement efforts with IR, the board, and CEO William Wang proved fruitless, ultimately leading to their decision to exit the position after a 64% rebound from October 2023 lows.

Pitch Summary:
The integration of digital and physical realms is revolutionizing security needs. Cybersecurity continues to be crucial due to expanding digital connectivity, cloud adoption, and hybrid operations, which have increased cyber risks and complexities for both businesses and governments. Security must be a priority in real-time business decisions, not just an afterthought, yet it typically represents only 5-7% of IT budgets. Rising compliance and regulatory demands, including stricter cyber-insurance, data privacy rules, and new laws for security incident disclosure, are driving increased spending and awareness. The merging of information technology (IT) and operational technology (OT) blurs the lines between these areas, especially with over 35 billion connected devices today, expected to rise to over 49 billion by 2026. This convergence is leading industries like manufacturing, health care, and financial services to focus more on modernizing OT security. -OT security is crucial, as defined by the Cybersecurity and Infrastructure Security Agency (CISA), covering 16 key sectors essential to U.S. security and the economy. The convergence of IT and OT in these sectors introduces new cyber-risks and attack avenues, especially with current geopolitical tensions and the threat of state-sponsored hacking. The Biden Administration is focusing on enhancing cyber defenses of critical infrastructure and supporting cybersecurity upgrades. Over the past year, over 80% of critical infrastructure organizations faced a ransomware attack, with data breach costs in these sectors being over 20% higher than in non-critical sectors. Palo Alto Networks Inc. has developed an advanced, next-generation firewall that combines the capabilities of monitoring applications, users, and content directly within the firewall. This integration is achieved through a unique combination of hardware and software design. The platform caters to a wide array of network security needs and is versatile enough to incorporate Internet of things (IoT) and OT security features, which are vital for safeguarding critical infrastructure

BSD Analysis:
Tall Oak presents a compelling bull case for Palo Alto Networks centered on the expanding cybersecurity threat landscape and structural market tailwinds. The fund highlights that cybersecurity spending remains underallocated at only 5-7% of IT budgets despite rising digital connectivity, cloud adoption, and hybrid operations creating increased attack surfaces. The convergence of IT and operational technology (OT) environments, with connected devices expected to grow from 35 billion to 49 billion by 2026, creates new security vulnerabilities that require comprehensive solutions. Regulatory pressures including stricter cyber-insurance requirements and disclosure mandates are driving increased enterprise spending. The manager emphasizes that over 80% of critical infrastructure organizations faced ransomware attacks in the past year, with breach costs 20% higher in critical sectors, underscoring the urgent need for robust security platforms. Palo Alto's next-generation firewall technology differentiates through its integrated approach to monitoring applications, users, and content within a single platform, while its versatility in addressing both IoT and OT security positions it well for the IT/OT convergence trend. The Biden Administration's focus on critical infrastructure cyber defense provides additional policy support for increased cybersecurity investments.

Pitch Summary:
We continue to question our beliefs and assumptions, particularly when new evidence comes to light. For example, for many years we didn't own a discretionary retailer like Next plc. We were concerned about the variability of demand in this sector and also the discretionary nature of demand. However, their capital efficient, anti-fragile business model trumps such considerations. They have revised up their financial expectations five times over the last nine months! It is difficult over this shorter time period to disaggregate the difference between cyclical trends—an improving consumer backdrop with rising real wages and disinflation; against the structural advantages derived from its business model. Over a longer time frame, however, the latter aspect will likely drive the greater part of Next's future value creation.

BSD Analysis:
Castlebay's investment in Next plc represents a significant shift in their investment philosophy, overcoming previous concerns about discretionary retail volatility. The fund manager highlights Next's capital-efficient and anti-fragile business model as the key differentiator that justifies the investment despite sector headwinds. The company has demonstrated exceptional operational performance by raising financial guidance five times in nine months, indicating strong execution and conservative initial forecasting. While near-term performance benefits from cyclical tailwinds including rising real wages and disinflation, the manager emphasizes that structural business model advantages will drive long-term value creation. The investment thesis centers on Next's ability to generate superior returns through operational efficiency rather than relying on favorable market conditions. This position exemplifies the fund's quality-focused approach, prioritizing business model strength over traditional valuation metrics. The manager's acknowledgment of their previous skepticism demonstrates intellectual honesty and adaptability in investment decision-making.

Pitch Summary:
LDC has all the characteristics we look for in our investments. A family-owned company with a strong competitive position (market share of over 40% in France and European leader) and a positive net cash position. The poultry meat market is a growth market favoured by the increased penetration of this type of product compared to other types of meat (beef and pork). The company's strong balance sheet has enabled it to take advantage of this situation and LDC has experienced significant growth in recent years (around 8% per year) through a combination of organic investments in its plants and a plan to acquire companies in France and other European countries. And despite the goodness of the business and the quality of the company, the share is trading at very low levels (3.1x Enterprise Value/EBITDA or 3.7x if we normalize the EBITDA margin of the last year, which has been extraordinarily high). This is just one example of the strong disparity in the valuations of our companies.

BSD Analysis:
LDC is currently executing a high-growth strategy in the European poultry market, reporting a 16 percent increase in revenue to nearly 1.74 billion euros for the first three quarters of fiscal 2026. The company is benefiting from the successful integration of recent acquisitions, such as the UK-based Green Label Group, which has expanded its reach into specialty poultry and premium branding. Management has raised its full-year revenue guidance to over 7 billion euros, supported by resilient demand for affordable protein and strong performances across its French, international, and catering divisions. While the broader agriculture sector faces fluctuating commodity costs, LDC’s scale and integrated production model—spanning over 100 sites—provide significant operational leverage. The firm’s focus on automation and technological integration is expected to drive EBITDA beyond the 560 million euro mark by year-end. For investors, LDC offers a unique play on the consolidation of the fragmented European food landscape with a clear path toward sustained volume growth.

Pitch Summary:
Taiwan Semiconductor Manufacturing Company, TSM US (Market cap: US$530bln) Company’s background: The company is the world’s largest semiconductors’ manufacturer/foundry, with factories predominantly located in Taiwan. Sustainable competitive advantages: Due to its constant emphasis on R&D over many years, the company has built a considerable technological advantage over its peers. It is now constantly ahead of its peers for the most sophisticated chips in the world, and because of its manufacturing abilities, it is also able to build a massive amount of these chips at a cheaper price than competitors. These two competitive advantages (Best in class product and price competitiveness) have allowed it to win valuable customers relationships with some of the world’s largest technological companies such as Apple, Nvidia, Qualcomm etc. These close relationships are strategic in nature too, it allows the company to be in the forefront of technological trends and concentrate its R&D efforts on the areas that most make commercial sense in the future. This creates a virtuous cycle of offering great products at a low price hence maintaining strong relationships with key customers. This results in a deepening of its economic moat. Our thoughts and investment thesis: Returns on capital have averaged >25% for the past 15 years period and it has steadily been able to deploy its surplus earnings to reinvest in the business for further growth. This has resulted in its revenue and net profits increasing 14.1% p.a. and 16.1% p.a respectively for the same period. We think it has the potential to be a long term earnings compounder and has purchased it at around 17x price to earnings ratio, a level we deemed reasonable for its current dominant position in this attractive industry. Risks: 1) The company operates in a highly capital intensive and cyclical industry. Due to the increasing usage of semiconductor chips across many industries (Healthcare, Industry automation, Automotive, consumer electronics etc.), we think the future cyclicality of the industry may be less pronounced than before. 2) Due to insufficient diversification of its production facilities, armed conflicts between China and Taiwan will trigger a mass loss of production.

BSD Analysis:
TSMC is the single most important manufacturing company in the global economy, whether markets want to admit it or not. It doesn’t design chips — it enables everyone else’s ambition, from Apple to NVIDIA. Leading-edge nodes are brutally complex and capital-intensive, and TSMC executes better than anyone. Customers are concentrated, but switching is practically impossible at the frontier. AI demand has structurally lifted utilization and pricing power. Cyclicality still exists, but the floor rises with every new node. Geopolitical risk is real and permanently embedded in the discount. This is not just a semiconductor stock. It’s the foundry backbone of modern computing with scale no rival can replicate.

Pitch Summary:
JFE Systems is in the systems integration business. JFE reported EPS growth of 21% for FY22 and EPS is up another 16% by 3QFY23. While the stock rose 58% in 2023, it still trades at 11x TTM EPS and increased dividend per share by 22%.

BSD Analysis:
JFE Systems enters 2026 as a key beneficiary of the Japanese steel industry’s digital transformation, leveraging its deep ties to JFE Steel to drive high-margin enterprise solutions. The company’s Q3 2026 results demonstrated its resilience, with a net profit margin edging up to 8.1% as it shifts toward a more consulting-heavy, value-added service mix. While current earnings growth of 5.6% marks a consolidation phase compared to its five-year double-digit average, the firm maintains a robust return on equity and a stable dividend yield near 2.9%. Management is increasingly focusing on green manufacturing software and carbon-neutral tracking systems, aligning with the broader industrial shift toward ESG compliance. Technical indicators show the stock resting in a strong rising trend, supported by both short and long-term moving averages. For investors, the stock offers a defensive and cash-generative entry into Japan's mission-critical IT infrastructure space.

Pitch Summary:
Finally, we’ve held Alphabet since inception, and it had another strong year. The company continues to dominate global internet search, monetising intent-driven queries through highly profitable advertising formats. YouTube and Google Cloud are now meaningful contributors, with Cloud having reached profitability and still growing revenues well above the group average. Despite regulatory scrutiny and periodic fines, Alphabet retains enormous strategic advantages from data, distribution and infrastructure, which are hard for competitors to replicate. Management has begun to show more cost discipline, trimming headcount and focusing investment on the highest-return AI and cloud opportunities. We note that the shares still trade at a reasonable multiple relative to other large-cap technology names given Alphabet’s balance of growth, profitability and cash generation. In our view Alphabet remains one of the most compelling long-term compounders in global equities.

BSD Analysis:
The long-term bull case on Alphabet is that it is a dominant, cash-rich AI and internet infrastructure platform. Core Search remains a mid-teens ROIC engine, while YouTube and Cloud provide additional high-growth, high-margin legs to the story. Recent results show double-digit revenue growth with expanding operating margins, and the stock trades around the mid-20s P/E range, a modest premium to the market but reasonable given its growth, balance sheet and competitive moat. Alphabet is also increasingly returning capital via sizeable buybacks while still investing heavily in AI, custom chips and data centres. Key risks remain regulatory actions and AI-related disruption to the search model, but so far Alphabet appears to be adapting well and leveraging its distribution advantage. We view pullbacks driven by macro or regulatory headlines as attractive entry points into a structurally advantaged business.

Pitch Summary:
Air Liquide has been a quiet but powerful contributor to the Fund, compounding steadily over time. The business sits at the heart of industrial gases, providing oxygen, nitrogen, hydrogen and other gases under long-term contracts to customers across chemicals, steel, healthcare and electronics. Its contracts are typically 10–20 years in length, with take-or-pay structures and inflation-linked pricing, underpinning highly visible cash flows and high returns on capital. Over the last decade management has steadily improved margins and capital efficiency through operational excellence and portfolio optimisation. Looking ahead, we see significant opportunity from the global energy transition, particularly in low-carbon hydrogen, carbon capture and storage and the decarbonisation of heavy industry. Air Liquide’s engineering expertise and global asset base position it as a key partner for customers and governments looking to build out hydrogen and CO₂ infrastructure. Despite these structural growth drivers, the shares trade on a high-20s earnings multiple, which we think is reasonable given the combination of defensive cash flows and secular growth.

BSD Analysis:
Air Liquide is considered one of the highest-quality industrials in Europe, combining infrastructure-like contracts with attractive long-term growth optionality. The company typically earns mid-teens returns on capital and has delivered steady dividend growth alongside disciplined capex into hydrogen, electronics and healthcare gases. Its industrial gas contracts often feature pass-through mechanisms that protect margins against energy and input price volatility, making earnings more resilient across cycles. At roughly high-20s P/E and a mid- to high-teens EV/EBITDA multiple, valuation is not cheap but justified by visibility, balance-sheet strength and structural growth from decarbonisation projects. We expect Air Liquide to continue compounding at mid-single-digit sales growth and high-single-digit EPS growth, with further upside if hydrogen and clean-energy investments accelerate.

Pitch Summary:
AutoZone continued to deliver strong performance for the Fund in 2023. The company benefits from a resilient do-it-yourself and professional auto parts market, where ageing vehicle fleets and high replacement costs support steady demand. Management has executed well on pricing, inventory management and growth in the commercial (professional) channel, which now represents a growing share of sales. The business generates high returns on capital and significant free cash flow, much of which is returned to shareholders via large, consistent share repurchases. We contrast this with a poorly run competitor, Advance Auto Parts, which has struggled operationally and financially and has been a significant detractor for other investors. The divergence in execution and capital allocation between AutoZone and weaker peers highlights the importance of quality in what might seem like a commoditised retail category. We expect AutoZone to continue compounding shareholder value through disciplined store expansion, share gains and ongoing buybacks.

BSD Analysis:
AutoZone is one of the best-in-class aftermarket auto parts retailer with a long record of high-teens ROIC, disciplined capital allocation and consistent share repurchases. The company trades on a mid-20s trailing P/E and a premium to weaker peers, which we believe is justified by superior execution, scale and cash-flow visibility. Structural tailwinds from an ageing car parc, higher new-car prices and more complex vehicles should keep demand for parts and maintenance resilient even in slower macro environments. Management has sensibly pivoted to expand its commercial business and international footprint, supporting additional growth avenues. While near-term comps can be volatile and competitive intensity remains high, we see AutoZone as a durable compounder with attractive risk-adjusted returns.

Pitch Summary:
McKesson has been a very strong performer for us and delivered another great year, appreciating c.40% in share price. The company now trades on a high-teens earnings multiple despite mid-teens earnings growth. The core distribution business operates on thin margins but extremely high volumes, which gives McKesson significant scale advantages over smaller competitors. Over time, management has shifted the portfolio toward higher-margin specialty distribution and oncology-related services, which should support further margin expansion. Execution on cost control and working capital has translated into strong free cash flow, much of which is being returned to shareholders via buybacks. We continue to view McKesson as a high-quality compounder in U.S. healthcare with a long runway to grow earnings ahead of the broader market.

BSD Analysis:
McKesson is a scale winner in U.S. drug distribution with durable moats from logistics expertise, technology integration and purchasing power. Despite operating on low stated margins, the company converts a high proportion of earnings to free cash flow and has consistently reduced share count through aggressive buybacks, supporting double-digit EPS growth. Current valuation in the high-teens forward P/E range and mid-teens EV/EBITDA looks fair for a business expected to grow earnings at low- to mid-teens, with upside from continued shift into oncology, specialty and biosimilars. Litigation overhang around opioids has largely been addressed with provisions and settlements, reducing headline risk. We see McKesson as a resilient, cash-generative healthcare infrastructure asset well placed to benefit from rising prescription volumes and ageing demographics.

Pitch Summary:
Last year was a tale of two halves for Sony, particularly for its entertainment business where management had lowered expectations heading into the second half. By the end of its fiscal year in late March, it had sold over 50 million PlayStation 5s, yet we think they can easily sell five times this number of units if it is anywhere near as popular as the PS4. Next year Rockstar will release the latest instalment of Grand Theft Auto, one of the most valuable media assets on planet Earth. The last iteration of this franchise has sold over 180 million copies since its release in 2013. The boon for Sony is the razor blade model of growing an installed base of hardware and then selling users multiple games and services over time. The company is guided toward “gradually increasing the ratio of digital sales of full games and add-on content” which should support margins. As the console cycle matures, gamers tend to buy more content, subscribe to online services and generate higher profitability for the platform owner. In Sony’s case the upside is further enhanced by its ownership of valuable IP in both gaming and film/TV, which can be leveraged across platforms. When you account for the value of Sony’s semiconductor business, particularly in image sensors, alongside the entertainment and hardware segments, we think the sum of the parts still looks attractively priced. Overall, we see Sony as a unique hybrid of content, hardware and components with multiple self-reinforcing growth drivers and significant optionality.

BSD Analysis:
Sony is a diversified entertainment and technology platform benefiting from scale in gaming, music, pictures and image sensors. The PlayStation ecosystem continues to grow a large installed base, and recurring digital content and subscription revenue should support margin expansion and more stable cash flows. At roughly low-20s P/E and a mid-teens EV/EBITDA multiple for businesses growing earnings high single-digit, valuation is reasonable given the quality of Sony’s IP and the secular growth in gaming and image sensors. The balance sheet is strong, enabling steady buybacks and selective M&A to deepen the content and semiconductor franchises. Catalysts include the next GTA release, continued shift to digital sales, and monetisation of under-appreciated assets such as the music catalog and sensor business.

Pitch Summary:
The only new US holding for the Fund in the last 12 months has been WEC Energy Group, a US Midwestern regulated utility. Their main markets include Wisconsin, where they can trace their predecessor roots back 200 years. WEC is an excellent example of a well-run utility company which is being slightly underappreciated due to a broader view that the utility sector is not an exciting place to invest. While we agree that the overall sector can be unexciting, there are some wonderful businesses here. We assess whether regulated utilities offer inflation-protection & provide defensive, bond-like characteristics, whilst private valuations add to the case. Private equity have been hungry for regulated critical infrastructure assets in the past few years, because of their reliable, long-term, and inflation protected cash flows. WEC’s regulatory regime allows it to earn a fair return on its rate base (which is the amount of capital invested in its infrastructure) as long as it is making efficient investments and providing reliable service to its customers. Further, the global objective of achieving net-zero carbon emissions, creates a significant opportunity for a company like WEC. The policy and regulatory aspects of making a clean energy transition will favour companies that can navigate the complexities of the energy and regulatory landscape efficiently. Utilities can come in many different flavours, some have nuclear assets, some own gas networks. Their returns are a function of the structure of the particular regulation regime in each geography. The backdrop for utilities is that regulators are looking for investing partners with strong balance sheets, and the cheap access to capital to finance the future energy grid in their respective territories. This will require enormous investment, in many countries. We like companies, like WEC, that are positioned to support this during a period where utilities are increasingly being recognized as a critical infrastructure growth sector. For example, renewables, especially wind generated are intermittent and transmission is becoming more important: there is no point building solar farms when the grid connections aren’t ready. WEC has a more advanced and constructive relationship with regulators than many other utility companies. As such, we believe that they will be granted a higher regulated return on capital than their peers, which will allow them to invest more in their infrastructure and grow their rate base faster. For shareholders we expect market-beating compounded equity returns (~10%) through a combination of long-term 6-7% earnings growth and an attractive 4% dividend.

BSD Analysis:
WEC is a high-quality regulated utility geared to the long-duration investment cycle in U.S. grid modernization and decarbonization. The company operates under supportive regulatory regimes, targets a 65–70% payout ratio and currently offers a dividend yield around the low-to mid-3% range with a multi-decade record of annual dividend growth. Its allowed returns on equity and expanding rate base imply high-single-digit EPS growth, and ongoing capital programmes in transmission and renewables provide clear visibility on invested capital. On valuation, WEC trades roughly in line with quality regulated peers on P/E and EV/EBITDA despite superior execution and balance-sheet strength, leaving room for modest multiple expansion. We see it as an attractive “bond-proxy” compounder offering a low-risk path to around 10% annual total returns via growth plus dividend.

Pitch Summary:
One position however that had a disappointing year was Diageo. As a reminder Diageo has always been viewed as a high quality oligopolistic business that provides exposure to a wide range of leading spirits brands. The economics of the industry are very favourable, given pricing power and the aspirational status of the products. People always love to feel they’re getting a deal on life’s necessities – rice and beans, toothpaste, healthcare etc. However, when it comes to the nice things in life – their treats – they love to feel that they’ve bought the best they can possibly afford. Spirits most definitely fall into that second category. The problem with the core business however, and why we have long hung back from owning this, is that volume growth has been consistently slightly disappointing and the capital employed a bit too intensive for our liking. So why did we invest? The opportunity was that the industry had enjoyed one of the best depletions cycles in its history in the recession-busting period after COVID, especially for super premium products. The industry and especially Diageo, was blindsided by the combination of the very level of that growth and a dramatic slowdown in depletions, with US distributors unwinding inventory to historical levels. The result was Diageo’s worst share price performance in a generation, down nearly 25%. For UK names this is a wonderful opportunity – yet another case of overseas earnings, priced in a cheaper than cheap market; it is wonderful to be part of the very small cohort of investors not obsessing about the FTSE’s lack of sex appeal and just quietly picking up these bargains. The UK stock market remains extremely cheap, unfairly beaten down. One contributing factor to this is that the UK is the home market for oil and mining, both of which have had a tough time relative to the index given people’s concerns about emissions, ESG and long term investing. There is also a persistent lack of self-belief in the UK, as its best companies often focus on global though mainly US and Asian, expansion opportunities. As an aside, we always remind people that when they see the headlines constantly deriding the UK stock market, that the FTSE All Share, in total return terms, has not been that bad and has grown your money at 7-8% per annum. For Diageo specifically this seems a near term instantiation of our basic cycle of good companies; the short term news and fundamentals are worse than their long-term potential. By definition you do not get the best value when the sun is shining relentlessly, we think this likely to be a stock that grows earnings high single digit for many years, yet is currently trading at a mid-teens multiple. That is a recipe for high teens potential returns from here.

BSD Analysis:
Diageo is a high-quality global spirits franchise temporarily oversold on de-stocking and Latin American weakness. The company retains strong pricing power, high margins and cash generation, and trades around a mid-teens forward P/E and low- to mid-teens EV/EBITDA, a discount to its own history and premium beverages peers. As U.S. distributor inventories normalize and mix headwinds from super-premium moderate, we expect a return to mid-single-digit volume growth and high-single-digit EPS growth. Capital allocation remains shareholder-friendly, with a progressive dividend and ongoing buybacks supported by robust free cash flow. We regard current fears about category stagnation as overdone given long-term premiumization, emerging-market demand and strong brand equity, setting up attractive risk-reward.