Investment Pitches

Pitch Summary:
Tesco returned +35% in 2023. Principally this was a much overdue reflection of the improved quality of the business, as the turnaround is complete, and the business is back on its throne as market leader. Compounding this strength, is the continued weakness of the competition. Most notably Asda and Morrisons are struggling, having faced a double whammy of high leverage when interest rates rose and escalating price competition which squeezed their margins. Indeed, for the first time in many years Tesco has been underinflating the market, thus compounding its position as the best value for money. This reinvestment of potential profits into the proposition is exactly the type of behaviour we extoled last year – you always want a company to lean back when it is winning to stretch out that victory. Their market share, which had been falling for a decade, has since levelled out. Given the high fixed cost nature of the supermarket business this foundation of top line resilient growth quickly becomes very accretive to margins and returns on both capital and equity. Other points to note are the likely sale of Tesco Bank, which should unlock value and give flexibility to increase shareholder returns in due course, and the continued success of Tesco’s subscription model “ClubCard Plus” which along with penetration now over 80% for the standard card, allows Tesco to rapidly ween itself off the unsustainable practice of high/low promotions which makes people feel like they are constantly being ripped-off and is operationally inefficient. At 12x PE (compared to international peers such as Walmart which trade on 24x) the stock remains an undiscovered jewel in the FTSE’s crown.

BSD Analysis:
Tesco is a structurally improved UK food retailer with regained pricing power and recovering returns on capital. The company is compounding share in a rational market while peers struggle under leverage, and trading on a low-teens P/E and modest EV/EBITDA discount to global staples despite a cleaner balance sheet and improving free-cash-flow conversion. Potential sale of Tesco Bank and ongoing growth of Clubcard-driven loyalty economics should both support higher margins and growing capital returns via dividends and buybacks. With inflation easing but volumes resilient, incremental margin from operating leverage on a largely fixed-cost store base should drive mid-single-digit earnings growth. We see scope for both earnings upgrades and multiple re-rating as investors re-rate UK domestic defensives and activist pressure continues across the FTSE.

Pitch Summary:
My top pick is GungHo Entertainment (3765). This is a video game company that bought back half its shares in the last decade. It trades for $165 million enterprise value and earns $150 million per year. This setup is great because of the heavy buybacks. Buybacks could always stop but even then it's hard to lose too much so the risk vs reward is amazing.

BSD Analysis:
The manager presents a compelling value play in GungHo Entertainment, highlighting an extremely attractive valuation at just 1.1x enterprise value to earnings. The company's aggressive share buyback program, having repurchased half its shares over the past decade, demonstrates strong capital allocation and creates a favorable risk-reward profile. Even if buybacks cease, the downside appears limited given the rock-bottom valuation. The pitch benefits from the broader Japanese market transformation encouraging shareholder returns. Trading at such a discount to earnings in a cash-generative gaming business presents significant upside potential. The manager's conviction is evident in naming this his top Japanese pick. The combination of cheap valuation, shareholder-friendly management, and structural tailwinds in Japan creates an attractive investment opportunity.

Pitch Summary:
Naked Wines was bought. The company is an old acquaintance: It had been part of the portfolio since the fund was launched until April 2022. As a reminder, Naked Wines offers its customers an online wine subscription with access to unknown winemakers. Naked Wines is active in the UK, Australia and the USA in chronological order. In 2020 and 2021, the company increased its turnover by more than 60%. The share price reacted more strongly, quadrupling from our entry price of around 220 pence per share. The party was followed by a hangover: in 2022, it became apparent that the company was not getting a proper grip on operational growth, that new customer acquisition was becoming increasingly unattractive and that the customers acquired during the coronavirus period were less loyal than the previous ones. I therefore recommended selling the company at the time. Despite the fact that the share price had already fallen at the time, TGV generated a significantly above-average return. The last shares were sold in April 2022 at 532 pence. Operating performance after the sale remained poor. In November 2023, the share price was 26.5 pence, a drop of 95% compared to the last sale. The stock market valued the entire company at £20 million at that time. This did not even correspond to the company's working capital. In November, founder Rowan Gormley returned to the helm of the company as Executive Chairman and began the post-party clean-up. The first signs pointed to a recovery. I recommended reinvesting in the company due to its very favourable valuation. Since then, the signs of recovery have become even stronger.

BSD Analysis:
The manager presents a compelling turnaround opportunity in Naked Wines following a dramatic 95% share price decline from previous highs. The company's subscription-based wine model connecting customers with independent winemakers showed strong growth during 2020-2021 with 60%+ revenue increases, but faced post-pandemic normalization challenges. The manager demonstrated disciplined selling discipline, exiting at 532 pence in April 2022 when operational metrics deteriorated and customer acquisition economics became unfavorable. At the November 2023 re-entry point of 26.5 pence, the market valuation of £20 million traded below working capital, indicating extreme pessimism and potential value dislocation. The return of founder Rowan Gormley as Executive Chairman provides experienced leadership for the operational turnaround. Early recovery signs suggest the cleanup process is progressing, creating asymmetric risk-reward dynamics. This represents a classic deep value opportunity where patient capital can benefit from operational improvements and multiple expansion from distressed levels.

Pitch Summary:
Interactive Brokers was bought back after being sold in the first half of the year. Interactive Brokers is an online broker. The company's customers receive very favourable access to trading on stock exchanges at a professional level. The company is simply fantastic: the balance sheet is very solid with equity of USD 14.1bn. The competitive position is getting stronger as most competitors either have home-grown problems or are running out of money to subsidise customers. The number of customers grew by 21% in 2023, despite little marketing and a still manageable service offering. Management has been doing the right thing for decades. The biggest risk for the company is that the markets make major leaps to which the systems cannot respond. Historically, the company has been able to cope well with such fluctuations. For example, when the oil price was negative or the Swiss franc was decoupled from the euro, these events drove other brokers into insolvency. Interactive Brokers made a loss of less than 2% of equity on these events and was very profitable in both years. In the first half of 2023, I estimated this risk of major leaps to be higher than before, as there were some prominent bank failures in the USA and Europe and this could well have led to the stock exchanges closing. This risk did not materialise and the opportunity has decreased in my view. In addition, the number of customers continued to grow. Accordingly, I have again recommended Interactive Brokers as a buy. Despite the rally in the second half of the year, the company was still available at attractive prices. TGV was able to rebuild a position close to the selling prices of the first half of the year. Based on the number of customers at the end of the year, I think the company is valued at around 12 times pre-tax profits.

BSD Analysis:
The manager demonstrates strong conviction in Interactive Brokers' competitive moat and operational resilience through market cycles. The company's solid balance sheet with $14.1bn in equity provides substantial financial strength, while competitors face capital constraints and operational challenges. Customer growth of 21% despite minimal marketing spend indicates strong organic demand and product-market fit. The manager's tactical approach of selling during heightened systemic risk in H1 2023 and repurchasing after risk subsided shows disciplined risk management. Interactive Brokers' historical performance during extreme market events (negative oil prices, Swiss franc depegging) demonstrates superior risk management systems compared to competitors who faced insolvency. At approximately 12x pre-tax earnings based on customer metrics, the valuation appears attractive for a high-quality financial services franchise. The manager's eight-year track record following the company provides deep fundamental understanding of the business model and competitive dynamics.

Pitch Summary:
Let's start with the company: EQS is a software company. It offers other companies products and services to fulfil the regulatory requirements for capital market communication and compliance. Both are important components of good corporate governance. EQS Group, formerly Equity Story AG, has been the undisputed market leader for investor relations software and communication in Germany since 2007. In short: EQS offers software for people who communicate with capital market participants like you and me. For example, when a board member trades in shares of their own company, this must be communicated to the market. It is very similar when quarterly reports are published. In Germany, this is done almost exclusively via the EQS Group. These mandatory disclosures are required by law. Through acquisitions and organic growth, strong positions have also been established in this segment in Switzerland and Russia. The very attractive Russian business was discontinued due to the attack on Ukraine. Since 2016, the profits from the Investor Relations business have been invested in modernising the technology and building up the compliance business. The compliance business was expanded both organically and inorganically. EQS has made three acquisitions in this area in recent years: Integrity Line from Switzerland in 2017, GotEthics from Denmark in 2020 and Business Keeper from Berlin in 2021. These acquisitions also made the company the market leader for whistleblowing systems in Europe. The whistleblowing systems are the core products in the area of compliance. For example, if an employee discovers incidents in the company that are not in order, she can report them anonymously using this software. The company can respond to this report directly in the software and communicate with the employee. Many companies are also required by law to introduce this software. The EU stipulates this for companies with 50 or more employees. EQS has acquired many DAX40 and CAC40 companies as customers in this area. Thousands more customers are expected to be acquired over the next few years. The company had been courted by various private equity firms for years. For various reasons, the company decided in 2023 to give in to the courtship and initiate a sales process. In November 2023, the well-known software private equity investor Toma Bravo submitted an offer to all investors for all shares in the company at EUR 40 per share. The investment stock corporation accepted the offer. This acceptance also applies to the TGV compound interest. The transaction was completed on 02nd February 2024.

BSD Analysis:
The manager presents a compelling bull case for EQS Group, highlighting its dominant market position in German investor relations software and expanding compliance solutions. The company has successfully transitioned from a pure IR software provider to a comprehensive RegTech platform through strategic acquisitions, establishing market leadership in European whistleblowing systems. The regulatory tailwinds are particularly attractive, with EU mandates requiring compliance software for companies with 50+ employees, creating a massive addressable market expansion. The acquisition by Toma Bravo at EUR 40 per share validates the investment thesis and delivered a 63% return in 2023. The manager's insider perspective as a Supervisory Board member since 2018 provided unique insights into the company's strategic direction and execution capabilities. The exit timing appears optimal, crystallizing substantial gains while the business still had significant growth potential under new ownership. This represents a successful long-term value creation story spanning nearly a decade of patient capital deployment.

Pitch Summary:
In addition, Adyen was among the top detractors to performance and has delivered an ~11% IRR since the inception of our position ~4 years ago. We described, in our Q3 2023 investor letter, the drivers behind the sharp decline in Adyen's share price following their H1 2023 trading update. Since then, however, the shares have rallied over 80% from their lows to close out the year, recouping the majority of the stock's headwind to portfolio performance. The stock traded up ~38% alone on the day the company published their Q3 trading update, which saw Adyen's revenue growth accelerate far beyond the pessimistic consensus outlook going into the print. Furthermore, PayPal, whose aggressive competition in the payments processing space drove the underperformance in Adyen, saw their strategic priorities change with the start of their new CEO Alex Chriss in Q4. They highlighted a renewed focus on their more profitable digital wallet business and potentially higher pricing in their payments processing business, which would help reduce the competitive intensity against Adyen. Overall, we are encouraged by the rebound in the share price, and the stock was a top contributor in Q4 2023 as we maintained our position. That said, the position remains among the smaller holdings given the attractive long-term opportunity in payments for Adyen counterbalanced against the higher degree of competition relative to other names in the portfolio.

BSD Analysis:
Stenham maintains a cautiously optimistic view on Adyen following a dramatic recovery from earlier 2023 lows. The position has generated an 11% IRR over 4 years despite significant volatility. The manager highlights the remarkable 80% rally from lows and 38% single-day gain following Q3 results that exceeded pessimistic expectations. A key positive development is reduced competitive pressure from PayPal under new CEO Alex Chriss, who is refocusing on higher-margin digital wallet business and potentially raising processing prices. This strategic shift should benefit Adyen's competitive position. However, the manager maintains a smaller position size, acknowledging the attractive long-term payments opportunity while recognizing higher competitive intensity compared to other portfolio holdings. The recovery validates the manager's decision to maintain the position through volatility.

Pitch Summary:
Thermo Fisher Scientific was the top detractor to performance over 2023 and has delivered ~5% since our initial investment in Q3 2022. The runoff in Covid-related sales was anticipated, and unfolded largely in line with our expectations during the period. Nevertheless, the sector encountered several unanticipated headwinds over the course of the year. Firstly, a significant portion of the consumables and instruments used in producing Covid vaccines and therapeutics were repurposed into other types of bioproduction, leading to a significant inventory build-up and subsequent destocking within bioprocessing. Secondly, biotech funding declined sharply in the higher-rate environment, prompting much more cautious spending from biopharma customers, particularly in China, and for life sciences instruments. However, recent developments indicate early signs of improvement, marked by incrementally positive management commentary and a pick-up in biotech funding. Though the next few quarters may see temporary headwinds persist, we expect improvements over 2024 as these headwinds subside and comparables ease. The structural growth drivers behind Thermo Fisher remain robust, as demonstrated by the number of biologic drugs in development still at all-time highs, and 2023 being a record year for biologics FDA approvals. Overall, we maintain our conviction in the long-term investment thesis and have used the relative underperformance to add to our position.

BSD Analysis:
Stenham maintains strong conviction in Thermo Fisher despite near-term headwinds, using weakness to add to the position. The manager acknowledges anticipated COVID-related sales decline but identifies two unexpected challenges: inventory destocking in bioprocessing and reduced biotech funding due to higher interest rates. The company has delivered modest 5% returns since Q3 2022 investment, significantly underperforming. However, the manager sees early signs of improvement through positive management commentary and recovering biotech funding. The structural growth thesis remains intact with biologic drugs in development at all-time highs and record FDA approvals in 2023. The manager expects improvement in 2024 as headwinds subside and comparables ease, demonstrating confidence by adding to the position during underperformance.

Pitch Summary:
In addition, ASML was among the top contributors to performance for 2023 and has also delivered a ~26% IRR since the inception of our position ~6 years ago. ASML benefitted from the outperformance of semiconductors over the course of the year, buoyed by their critical importance in the secular demand for AI. Capital equipment companies like ASML, supplying chipmaking machinery, also benefitted as China drastically accelerated their efforts to develop their own domestic semiconductor manufacturing capabilities in light of growing trade tensions. While the long-term outlook for the business remains positive in our view, the sustainability of the China demand story is somewhat uncertain and combined with current valuation levels, has led us to reduce our position size, reallocating the proceeds to our other holding in the semis space, Applied Materials, which benefits from lower China exposure and a more attractive valuation.

BSD Analysis:
Stenham expresses a positive long-term view on ASML while tactically reducing exposure due to valuation and China risk concerns. The manager recognizes ASML's critical role in the AI semiconductor supply chain and benefits from China's accelerated domestic chip manufacturing efforts amid trade tensions. The company has delivered strong returns with a 26% IRR over 6 years, benefiting from the semiconductor sector's outperformance in 2023. However, the manager identifies two key risks: uncertainty around the sustainability of China demand and current elevated valuation levels. This has prompted a strategic reallocation to Applied Materials, which offers lower China exposure and more attractive valuation while maintaining semiconductor equipment exposure.

Pitch Summary:
Microsoft was the top contributor to performance over 2023, and has delivered a ~26% IRR since our initial investment ~5 years ago. Microsoft was led higher by the outperformance of the technology sector, but also outperformed the sector given the above-mentioned tailwinds for large-cap companies and AI winners. As mentioned in our Q2 2023 investor letter, there is still a high degree of uncertainty around which companies are poised to be AI winners & losers at the application layer. However, at the infrastructure level, the "picks and shovels" companies should benefit from this secular trend regardless, and Microsoft's cloud computing (Azure) and enterprise software stack firmly positions the company in this category. Even among the Big 3 cloud players (Amazon, Microsoft & Alphabet), Microsoft's cloud business continues to be the leader in incremental market share gains. Microsoft Azure is expected to have gained over 200bps of market share in cloud revenues over 2023, accelerated by AI leadership and over 500bps over the past 4 years. The number of organisations using Microsoft Azure's OpenAI services grew from ~250 entering the year to ~18,000 by Q3 2023. Microsoft also launched their AI assistant for Office & Windows called Copilot, priced at a $30/month subscription, and announced that ~70% of Fortune 500 firms are trialling the service already. While the long-term outlook for Microsoft remains positive in our view, the significant outperformance has led to valuation expansion and, as such, a compression in our prospective IRR for the stock. Therefore, we have used the opportunity to reduce our position, but remain ready to capitalise on opportunities should valuation levels become attractive.

BSD Analysis:
Stenham maintains a bullish stance on Microsoft despite reducing position size due to valuation concerns. The manager highlights Microsoft's dominant position in the AI infrastructure layer through Azure cloud services and enterprise software stack. Key performance metrics include 26% IRR over 5 years and significant market share gains in cloud computing, with Azure gaining over 200bps in 2023 alone. The rapid adoption of Microsoft's AI services is particularly compelling, with OpenAI service users growing from 250 to 18,000 organizations in 2023. The launch of Copilot at $30/month with 70% of Fortune 500 companies trialing demonstrates strong enterprise demand. However, the manager acknowledges valuation expansion has compressed prospective returns, leading to position trimming while maintaining readiness to add on weakness.

Pitch Summary:
Naked Wines was bought. The company is an old acquaintance: It had been part of the portfolio since the fund was launched until April 2022. As a reminder, Naked Wines offers its customers an online wine subscription with access to unknown winemakers. Naked Wines is active in the UK, Australia and the USA in chronological order. In 2020 and 2021, the company increased its turnover by more than 60%. The share price reacted more strongly, quadrupling from our entry price of around 220 pence per share. The party was followed by a hangover: in 2022, it became apparent that the company was not getting a proper grip on operational growth, that new customer acquisition was becoming increasingly unattractive and that the customers acquired during the coronavirus period were less loyal than the previous ones. I therefore recommended selling the company at the time. Despite the fact that the share price had already fallen at the time, TGV generated a significantly above-average return. The last shares were sold in April 2022 at 532 pence. Operating performance after the sale remained poor. In November 2023, the share price was 26.5 pence, a drop of 95% compared to the last sale. The stock market valued the entire company at £20 million at that time. This did not even correspond to the company's working capital. In November, founder Rowan Gormley returned to the helm of the company as Executive Chairman and began the post-party clean-up. The first signs pointed to a recovery. I recommended reinvesting in the company due to its very favourable valuation. Since then, the signs of recovery have become even stronger.

BSD Analysis:
The manager presents a compelling turnaround opportunity in Naked Wines, demonstrating disciplined value investing through a complete cycle. After successfully exiting at 532 pence in April 2022 following operational deterioration, the manager re-entered at 26.5 pence in November 2023, representing a 95% decline and extreme valuation dislocation. The £20 million market capitalization trading below working capital created a classic deep value opportunity with limited downside risk. The catalyst for re-investment centers on founder Rowan Gormley's return as Executive Chairman, bringing proven leadership back to execute a turnaround strategy. The manager's intimate knowledge of the business model, having held the position since fund inception, provides confidence in assessing the recovery potential. The online wine subscription model connecting customers with independent winemakers remains fundamentally sound, with the COVID-era customer acquisition issues representing temporary operational challenges rather than structural problems. Early signs of operational improvement following Gormley's return validate the investment thesis and suggest the worst may be behind the company.

Pitch Summary:
Interactive Brokers was bought back after being sold in the first half of the year. Interactive Brokers is an online broker. The company's customers receive very favourable access to trading on stock exchanges at a professional level. The company is simply fantastic: the balance sheet is very solid with equity of USD 14.1bn. The competitive position is getting stronger as most competitors either have home-grown problems or are running out of money to subsidise customers. The number of customers grew by 21% in 2023, despite little marketing and a still manageable service offering. Management has been doing the right thing for decades. The biggest risk for the company is that the markets make major leaps to which the systems cannot respond. Historically, the company has been able to cope well with such fluctuations. For example, when the oil price was negative or the Swiss franc was decoupled from the euro, these events drove other brokers into insolvency. Interactive Brokers made a loss of less than 2% of equity on these events and was very profitable in both years. In the first half of 2023, I estimated this risk of major leaps to be higher than before, as there were some prominent bank failures in the USA and Europe and this could well have led to the stock exchanges closing. This risk did not materialise and the opportunity has decreased in my view. In addition, the number of customers continued to grow. Accordingly, I have again recommended Interactive Brokers as a buy. Despite the rally in the second half of the year, the company was still available at attractive prices. TGV was able to rebuild a position close to the selling prices of the first half of the year. Based on the number of customers at the end of the year, I think the company is valued at around 12 times pre-tax profits.

BSD Analysis:
The manager presents a strong bull thesis for Interactive Brokers, emphasizing the company's exceptional operational resilience and competitive positioning. With USD 14.1 billion in equity, IBKR maintains a fortress balance sheet that has historically weathered extreme market volatility better than competitors. The 21% customer growth in 2023 demonstrates the platform's appeal despite minimal marketing spend, highlighting organic demand and customer satisfaction. The manager's confidence stems from IBKR's proven ability to navigate black swan events, citing specific examples where competitors failed while IBKR suffered minimal losses during the negative oil prices and Swiss franc depegging incidents. The competitive moat is strengthening as rivals face capital constraints and operational challenges, unable to subsidize customer acquisition. At approximately 12x pre-tax earnings based on customer metrics, the valuation appears attractive for a high-quality financial services franchise. The manager's long-term tracking since 2015 and tactical re-entry after temporary risk concerns demonstrates disciplined capital allocation and deep conviction in the business model.

Pitch Summary:
Let's start with the company: EQS is a software company. It offers other companies products and services to fulfil the regulatory requirements for capital market communication and compliance. Both are important components of good corporate governance. EQS Group, formerly Equity Story AG, has been the undisputed market leader for investor relations software and communication in Germany since 2007. In short: EQS offers software for people who communicate with capital market participants like you and me. For example, when a board member trades in shares of their own company, this must be communicated to the market. It is very similar when quarterly reports are published. In Germany, this is done almost exclusively via the EQS Group. These mandatory disclosures are required by law. Through acquisitions and organic growth, strong positions have also been established in this segment in Switzerland and Russia. The very attractive Russian business was discontinued due to the attack on Ukraine. Since 2016, the profits from the Investor Relations business have been invested in modernising the technology and building up the compliance business. The compliance business was expanded both organically and inorganically. EQS has made three acquisitions in this area in recent years: Integrity Line from Switzerland in 2017, GotEthics from Denmark in 2020 and Business Keeper from Berlin in 2021. These acquisitions also made the company the market leader for whistleblowing systems in Europe. The whistleblowing systems are the core products in the area of compliance. For example, if an employee discovers incidents in the company that are not in order, she can report them anonymously using this software. The company can respond to this report directly in the software and communicate with the employee. Many companies are also required by law to introduce this software. The EU stipulates this for companies with 50 or more employees. EQS has acquired many DAX40 and CAC40 companies as customers in this area. Thousands more customers are expected to be acquired over the next few years. The company had been courted by various private equity firms for years. For various reasons, the company decided in 2023 to give in to the courtship and initiate a sales process. In November 2023, the well-known software private equity investor Toma Bravo submitted an offer to all investors for all shares in the company at EUR 40 per share. The investment stock corporation accepted the offer. This acceptance also applies to the TGV compound interest. The transaction was completed on 02nd February 2024.

BSD Analysis:
The manager presents a compelling bull case for EQS Group, highlighting the company's dominant market position in regulatory compliance software across Germany and Europe. EQS has established itself as the undisputed leader in investor relations software since 2007, with near-monopolistic market share for mandatory regulatory disclosures in Germany. The company's strategic expansion into compliance through three strategic acquisitions has created a market-leading whistleblowing platform serving DAX40 and CAC40 companies. The regulatory tailwinds are significant, with EU mandates requiring companies with 50+ employees to implement whistleblowing systems, creating a massive addressable market expansion. The Toma Bravo acquisition at EUR 40 per share validates the company's strategic value and delivered a 63% return for the fund in 2023. The manager's insider perspective as a Supervisory Board member since 2018 provides unique insight into the company's operational excellence and growth trajectory. The combination of regulatory moats, market leadership, and mandatory compliance requirements creates a highly defensible business model with predictable revenue streams.

Pitch Summary:
Solvay is a diversified chemicals group with 160 years of history since its founder invented a synthetic soda ash production process. Prior to the spin-off in December 2023, Solvay was among the world's top ten largest chemical players. The split was orchestrated by its CEO Ms. Kadri, who was appointed in March 2019. She has led a successful turnaround of the business by focusing on efficiencies, free cash flow and balance sheet repair. Under her leadership, Solvay delivered double-digit EBITDA growth and 18 consecutive quarters of positive cash flow. Once the company was in better shape, the board, led by the founding family through their holding company Solvac, decided to realize the sum-of-the-parts value, which was heavily discounted, by splitting into two businesses. The separation of the commoditized from the special chemicals business bundles together units with similar characteristics and strategic priorities allowing for reduced complexity and more focused capital allocation. The new Solvay will be focused on the essential chemical arena and will be comprised of five business units. Soda ash is the largest unit, accounting for 42% of sales and the majority of earnings. Solvay is considered a global leader in soda ash, a widely used industrial ingredient, used mainly in glass production as well as detergents, electric vehicle batteries and solar panels. Soda ash is considered an attractive cash generator, and the company is present in both naturally occurring soda ash as well as the leading synthetic producer using the Solvay process. The other units of the new Solvay include peroxides, silica, Coatis and Special Chemicals. The peroxides business is considered stable in a relatively consolidated end-industry with Solvay being the largest player. Silica and Coatis businesses are influenced by the supply-demand dynamics in auto tires and phenolic chemicals, respectively. Solvay is a global leader in Silica and a Latin America leader in Coatis. All businesses are considered decent cash generators given strong market shares and well-depreciated asset bases, which require limited capital expenditures. End-market exposure to cyclical industries add some volatility, as do globally traded commodity prices. The new Solvay intends to use its cash to maintain its asset base and reward shareholders primarily through a stable-to-growing dividend. The newly formed growth-focused specialty chemical company, Syensqo, is divided into two businesses with materials representing 52% of sales and Consumer & Resources 48%. Syensqo produces high-performance polymers, carbon-fiber composite materials and surfactants for a range of stable and growing end-markets such aerospace, autos and electronics with 90% of sales generated from markets where the company holds a top-three position. They are also leaders in Battery Materials, Green Hydrogen, Renewable Materials and Thermoplastic composites. Syensqo is the growth story of the spin-off, hence cash generation will be primarily used to fund growth projects and bolt-on M&A. Prior to the spin-off, Solvay was trading at a significant discount to the sum-of-parts value and a high free cash flow yield, given its growth outlook. We agreed with the board's assessment that there was a substantial discount to the sum-of-parts value. In fact, Solvay was trading below our assessment of Syensqo alone, hence we were getting legacy Solvay for free. Our initial involvement was targeting that value realization. Post spin-off, the separation into value and growth units has created two different investment profiles and we believe both to still be undervalued, despite substantial value already having been released. At quarter-end, we remained holders of both companies, since we believe they continue to offer an interesting upside, both trading at mid-cycle free cashflow yields of over 10%.

BSD Analysis:
Palm Harbour Capital's thesis on Solvay centers on a successful value realization strategy through corporate restructuring. The fund manager highlights CEO Ms. Kadri's impressive turnaround since 2019, delivering double-digit EBITDA growth and 18 consecutive quarters of positive cash flow. The December 2023 spin-off of Syensqo separated the commoditized chemicals business from specialty chemicals, reducing complexity and enabling focused capital allocation. The legacy Solvay retains dominant market positions in soda ash (42% of sales), peroxides, and silica with strong cash generation characteristics and well-depreciated asset bases requiring minimal capex. The manager emphasizes that Solvay was trading below the value of Syensqo alone pre-spin, essentially getting the legacy business for free. Post-separation, both entities trade at attractive mid-cycle free cash flow yields exceeding 10%, suggesting continued undervaluation despite substantial value realization. The investment thesis combines value unlocking through corporate action with strong fundamental cash generation from market-leading positions.

Pitch Summary:
The letter presents Samsung as the portfolio’s key technology holding, with its most valuable franchise in memory chips rather than smartphones or displays. Management emphasises that the memory industry has consolidated around a few scale players as capex and R&D costs have surged, leaving Samsung in a leading position. The company is poised to benefit from the launch of next-generation high-bandwidth memory aimed at AI processors, and it also holds the number-two position in contract manufacturing of logic chips, providing an additional long-term profit driver. 2023 marked a cyclical trough for the memory market, pressuring reported earnings and the share price, which allowed Citadel to add to its position at what it sees as a very attractive valuation. With a net cash position of roughly €100bn and an entry valuation of about 4x through-the-cycle operating earnings for a business that has historically generated returns on capital above 20%, the managers argue that the ingredients for a highly profitable long-term investment are in place.

BSD Analysis:
Samsung’s most valuable franchise is its memory semiconductor business, not its consumer hardware, and that distinction is crucial to understanding its long-term economics. The memory industry has consolidated into a tight oligopoly as capex and R&D requirements have surged, leaving only a handful of scale players capable of competing — and Samsung sits at the top of that hierarchy. The company is poised to be a major beneficiary of next-generation high-bandwidth memory, which is now essential for AI processors and represents one of the fastest-growing categories in semiconductors. Beyond memory, Samsung holds the number-two position in contract chip manufacturing, giving it an additional secular growth engine as demand for leading-edge logic production expands. The firm moved through a deep cyclical trough in 2023, which depressed earnings and sentiment but also created an attractive entry point as memory fundamentals began to turn upward. With a net cash balance of roughly €100 billion, Samsung has the financial strength to invest aggressively through cycles without diluting shareholders. At roughly four times through-the-cycle operating earnings for a business that has historically delivered returns on capital north of twenty percent, Samsung’s risk-reward profile is exceptionally compelling for long-term investors.

Pitch Summary:
North American Construction (NAC) is a construction services firm that provides heavy civil and bulk earthmoving and project and mine site operations services in supply-constrained markets. NAC is typically the first contractor in and the last contractor out of project and mine sites. NAC has over 3,500 employees and over 900 pieces of equipment in its fleet operating at 30 sites. The fleet has a replacement value of over $2 billion. NAC was founded in 1953 as a civil construction firm. NAC has provided earthmoving services in Canada since the 1950s, in the oil sands since the 1970s, and for resources firms since the 1980s. NAC was sold to a private equity firm in 2003 and went public in Canada in 2006. A new CEO, Martin Ferron, was appointed in 2012. His goal was to increase geographic and service offering diversification and to increase return on invested capital (RoIC). In 2012, NAC sold its lower-returning and more cyclical divisions providing pipeline construction and piling-related construction, while retaining its oil sands earthworks business. Later in the 2010s, via acquisitions and partnerships with First Nations and other aboriginal groups, NAC expanded its service offerings and its geographic footprint to other geographies such as the US and Australia. Most of NAC's invested capital is in large dump trucks and other earthmoving equipment. If NAC could maximize fixed asset utilization, then ROIC would increase. An economies of scale in purchasing and maintenance moat was created by having a highly utilized large fixed asset fleet in remote geographic locations with harsh conditions. Since 2015, equipment utilization has increased from an average of 40%, to 61% in 2023. NAC has a target goal of 75% to 85% by 2024. Since 2012, NAC's RoIC has increased from -12% to 12%, with a current goal of 15%; and its return on equity has increased from -10% to 22%. Beginning in 2018, management acquired businesses to expand NAC's geographic reach, scale, and functional capability (including equipment repair services). From 2018 to 2022, NAC acquired five firms that increased the firm's equipment utilization from 46% to 61% by 2023. The return on equity also increased to the 20%s from single-digits before 2018, and free cash flow conversion increased from breakeven to almost 40% in 2022. The business acquisitions were financed primarily by debt, which was paid down from cash flow generated from the acquired firms. Over the past five years, management has acquired six firms—three in mining services and three in equipment maintenance. The resulting unlevered RoIIC (see calculation below) has been around 19%, which includes returns from both organic growth initiatives and acquisitions. NAC has four levers for cash flow growth: 1) buying a firm in their core or adjacent market; 2) expanding within existing markets; 3) paying down debt; and 4) distributing excess cash as dividends or buying back shares. The acquired firms generate cash flows in excess of what is needed to modestly grow the firm, which are used to purchase firms in its target or adjacent markets. If no firms can be found that meet management's operational and valuation criteria, then management will buy back shares, as the shares have typically traded at modest valuations reflecting modest organic growth. NAC currently spends about 60% of operational cash flow on capital expenditures, leaving 40% for buy-backs and mergers and acquisitions. As NAC continues to grow, free cash flow conversion should increase. The business sector in which NAC competes is subject to economies of scale from purchasing, maintaining, and selling of equipment and have route density characteristics in the provision of earthmoving and other mining services. NAC's recent acquisition of an Australian firm should expand these economies of scale to Australia.

BSD Analysis:
Bonhoeffer presents a compelling case for North American Construction Group as a specialized earthmoving contractor with significant operational improvements and growth potential. The manager highlights NAC's transformation under CEO Martin Ferron since 2012, focusing on increasing equipment utilization from 40% to 61% and targeting 75-85% by 2024. The company's return on invested capital has improved dramatically from -12% to 12%, with a goal of 15%, while return on equity increased from -10% to 22%. NAC operates in supply-constrained markets with high barriers to entry, including the scale of its $2 billion equipment fleet, indigenous partnerships required for Canadian projects, and harsh operating environments that limit competition. The recent MacKellar acquisition in Australia for 2.75x EBITDA adds geographic diversification and is expected to contribute 40% to operating income. With a $3 billion project backlog representing over three years of revenue and organic growth prospects of 7% annually, the manager sees significant upside potential. The current valuation of 5x earnings appears attractive compared to construction peers trading at 18x, with a target price of $95 representing 75% upside.

Pitch Summary:
North American Construction (NAC) is a construction services firm that provides heavy civil and bulk earthmoving and project and mine site operations services in supply-constrained markets. NAC is typically the first contractor in and the last contractor out of project and mine sites. NAC has over 3,500 employees and over 900 pieces of equipment in its fleet operating at 30 sites. The fleet has a replacement value of over $2 billion. NAC was founded in 1953 as a civil construction firm. NAC has provided earthmoving services in Canada since the 1950s, in the oil sands since the 1970s, and for resources firms since the 1980s. NAC was sold to a private equity firm in 2003 and went public in Canada in 2006. A new CEO, Martin Ferron, was appointed in 2012. His goal was to increase geographic and service offering diversification and to increase return on invested capital (RoIC). In 2012, NAC sold its lower-returning and more cyclical divisions providing pipeline construction and piling-related construction, while retaining its oil sands earthworks business. Later in the 2010s, via acquisitions and partnerships with First Nations and other aboriginal groups, NAC expanded its service offerings and its geographic footprint to other geographies such as the US and Australia. Most of NAC's invested capital is in large dump trucks and other earthmoving equipment. If NAC could maximize fixed asset utilization, then ROIC would increase. An economies of scale in purchasing and maintenance moat was created by having a highly utilized large fixed asset fleet in remote geographic locations with harsh conditions. Since 2015, equipment utilization has increased from an average of 40%, to 61% in 2023. NAC has a target goal of 75% to 85% by 2024. Since 2012, NAC's RoIC has increased from -12% to 12%, with a current goal of 15%; and its return on equity has increased from -10% to 22%. Beginning in 2018, management acquired businesses to expand NAC's geographic reach, scale, and functional capability (including equipment repair services). From 2018 to 2022, NAC acquired five firms that increased the firm's equipment utilization from 46% to 61% by 2023. The return on equity also increased to the 20%s from single-digits before 2018, and free cash flow conversion increased from breakeven to almost 40% in 2022. The business acquisitions were financed primarily by debt, which was paid down from cash flow generated from the acquired firms. Over the past five years, management has acquired six firms—three in mining services and three in equipment maintenance. The resulting unlevered RoIIC (see calculation below) has been around 19%, which includes returns from both organic growth initiatives and acquisitions. NAC has four levers for cash flow growth: 1) buying a firm in their core or adjacent market; 2) expanding within existing markets; 3) paying down debt; and 4) distributing excess cash as dividends or buying back shares. The acquired firms generate cash flows in excess of what is needed to modestly grow the firm, which are used to purchase firms in its target or adjacent markets. If no firms can be found that meet management's operational and valuation criteria, then management will buy back shares, as the shares have typically traded at modest valuations reflecting modest organic growth. NAC currently spends about 60% of operational cash flow on capital expenditures, leaving 40% for buy-backs and mergers and acquisitions. As NAC continues to grow, free cash flow conversion should increase. The business sector in which NAC competes is subject to economies of scale from purchasing, maintaining, and selling of equipment and have route density characteristics in the provision of earthmoving and other mining services. NAC's recent acquisition of an Australian firm should expand these economies of scale to Australia. NAC competes in the earthmoving and mining services markets in Canada, the United States, and Australia. NAC's services are provided to four markets. First, NAC provides earthmoving services in the oil sands region to five large investment-grade clients which generated 50% of NAC's 2022 operating income. In the oil sands region, as the largest third-party services provides, NAC moves about 7% of the total volume, so the earthmoving TAM is still quite large in the oil sands. The majority of the remaining earthmoving is provided by in-house operations. Oil sands operations are expected to have a remaining life of 50 years. Second, NAC provides services to other mining and construction operations in Canada which generated 30% of NAC's 2022 operating income. Canada currently has 200 operating mines, with an average remaining mine life of about 20 years. About 125 mines are expected to open in Canada over the next 10 years. Third, NAC provides civil construction services and US mining services which generated 20% of NAC's 2022 operating income. This includes the Fargo-Moorehead river flood diversion project. NAC is a joint venture partner with D&B, an international construction firm. NAC is planning on bidding with its venture partner on future projects in Australia. Finally, with the purchase of MacKellar, NAC provides earthmoving and mining services in Australia. MacKellar will add an additional 40% to NAC's operating income. MacKellar provides additional geographic and mining end-market diversification, adding to coal mining exposure, as well as new end markets such as gold mining. MacKellar was purchased for C$395m and was financed by internal cash and new debt, as well as vendor financing. The purchase price was about 2.75x expected EBITDA. Mining and civil construction demand is driven by mega-projects, which have become more numerous due to increased commodity and energy demand and US, Canadian, and Australian government infrastructure spending. Oil sands production has increased over the past 10 years and is expected to continue to grow as new pipelines are completed in British Columbia. Electric vehicles and the electrification infrastructure is expected to boost metals and mineral demand over the next decade. NAC is expected to have a project backlog of $3.0 billion by year-end 2023. This is over three years of projected run-rate revenues. NAC has three competitive advantages. First, NAC is the low-cost operator of earthmoving equipment. 90% of equipment maintenance is performed in-house and NAC provides maintenance services to third parties. NAC also rebuilds equipment components and has access to low-cost components. NAC has 14 equipment bays, providing over 170,000 square feet of maintenance and rebuild capacity. Over 50% of NAC's equipment has telematics capabilities, which increase fleet efficiency. Second, NAC has indigenous partnerships, which generate over 90% of the projects in NAC's pipeline. Finally, NAC has a large contracted backlog of $3.0 billion. NAC also has many barriers to entry including: • the scale/cost of NAC's equipment fleet, the largest in North America, provides purchasing and maintenance cost advantages; • one of the largest equipment maintenance capabilities in North America, which provides cost advantages and third-party equipment maintenance opportunities; • indigenous partnership opportunities, which are limited in number (NAC has two) and are required to be competitive on many Canadian large earthmoving/mining projects; • harsh operating environments where NAC's services are provided reduces the number of profitable scaled competitors for available projects; and • in the medium term, long lead times and scarcity of new equipment. As described above, organic growth in these segments is expected to be 7% annual growth rate with any other growth coming from identified growth projects, acquisitions, or share repurchases. NAC operations have become better over time, as Martin Ferron and then Joe Lambert implemented a value-added acquisition strategy utilizing economies of scope and operations density and increased the efficiency of the core earthmoving operations. The return on equity has increased from about breakeven in 2014 to 2017, to 22% in 2022 and is expected to increase to 30% by 2024 with the purchase of MacKellar. Free cash flow conversion also increased from break-even in 2014-2017, to about 40% in 2022. The drivers included increases in net income margins from 5.2% in 2017, to 9.4% in 2022, and increases in asset turnover from 0.76x in 2017, to 0.86x in 2022. Leverage also declined from 2.2x to 1.8x EBITDA. The incremental return on invested capital over the past five years is close to 20%, which has increased NAC's RoIC over the past five years. The key to the valuation of NAC is the expected growth rate. The current valuation implies an earnings/FCF increase of -1.6% in perpetuity using the Graham formula ((8.5 + 2g)). The historical five-year earnings growth has been 68% per year including acquisitions and the current return on equity of 26%. A bottom-up analysis (based upon market growth rates of NAC's markets' (i.e., earthmoving in the oil sands and mining) results) was used to estimate an organic growth rate of 7% for NAC. This is based upon analysts' estimates of 7% and five-year historical organic revenue growth of 16%. This does not include any future acquisitions. If we include 8% growth for acquisitions, then the base EPS growth rate is 15%. Historically, NAC's EPS growth rate was 65% per year, driven by six acquisitions over five years. If we assume half of the number of acquisitions over the next seven years and a forward return on equity of low-20s declining from the current rate of 26%, retaining 85% of earnings, then the incremental 8% growth per year is conservative. Using a 15% expected growth rate, the resulting current multiple is 39x of earnings, while NAC trades at an earnings multiple of about 5x. If we look at construction comparables, which are larger but have slower growth prospects, they have an average earnings multiple of 18x. If we apply 18x (see details below) earnings to NAC's estimated normalized 2023 earnings of $5.27, then we arrive at a value of $95 per share, which is a reasonable short-term target. If we use a 15% seven-year growth rate, then we arrive at a value of $202.90 per share. This results in a five-year IRR of 49%. The short-term target is $95 per share, which is almost 75% above today's stock price. If the continued acquisition/consolidation thesis plays out over the next five years (with a resulting 15% earnings per year growth rate), then a value of $188 (midpoint of the two methods described above) could be realized. This is a 46% IRR over the next five years.

BSD Analysis:
The manager presents a compelling bull case for North American Construction Group, a specialized heavy construction and earthmoving services company operating in supply-constrained markets across Canada, the US, and Australia. The investment thesis centers on NAC's transformation under CEO Martin Ferron since 2012, which has dramatically improved operational metrics including equipment utilization rising from 40% to 61% and return on equity increasing from -10% to 22%. The company operates with significant competitive advantages including the largest equipment fleet in North America, extensive in-house maintenance capabilities, and crucial indigenous partnerships that generate over 90% of their project pipeline. NAC's acquisition strategy has been highly accretive, with six acquisitions over five years generating an unlevered return on incremental invested capital of approximately 19%. The company benefits from secular tailwinds including oil sands expansion, mining growth driven by electrification demand, and government infrastructure spending. With a $3 billion project backlog representing over three years of revenue and trading at only 5x earnings despite 15% expected growth, the manager sees significant valuation upside with a short-term target of $95 per share (75% upside) and potential five-year IRR of 46%.

Pitch Summary:
Unexplainable revenue surprise; uncollectible accounts receivable is hidden using 'accounts receivable insurance'; one of the directors has had +90% decline in share price for 15 companies; $0.5m value subsidiary is having 5x revenue growth to $60mil; zero R&D expense; effectively a broke company;

BSD Analysis:
Direct Digital runs programmatic ad platforms targeting multicultural and underserved audiences. The short thesis stresses scale disadvantages, customer concentration, and margin compression. Larger DSPs/SSPs benefit from network effects that DRCT cannot match. Much revenue is low-margin reselling rather than proprietary tech. Ad spend is cyclical, with small players hit hardest in downturns. Skeptics flag working capital swings and reliance on credit facilities to fund receivables.

Pitch Summary:
Share price pump due to WSJ's rare earth story; the mine would be unprofitable to operate; high processing cost; insiders and investors are cashing out; failed venture; Update 1/9 - Tweeted that METC's CEO is pumping the stock on media.

BSD Analysis:
Ramaco produces metallurgical coal used in steelmaking. The bear case focuses on cyclical exposure, limited diversification, and environmental overhangs. Earnings are highly sensitive to met coal pricing, which can swing sharply based on Chinese imports, Indian steel demand, and global supply disruptions. Smaller scale compared to peers means higher cost volatility. Long-term offtake contracts provide some visibility, but global decarbonization trends and investor aversion weigh. Expansion into carbon-based products (e.g., advanced materials) is speculative and unlikely to offset core commodity risks.

Pitch Summary:
Paywalled (The site mentioned: The Bear Cave believes Flywire is a commoditized product trading for a nosebleed multiple, with growing competition slowly eating away at the company’s client base.)

BSD Analysis:
Flywire provides cross-border payment and receivables solutions, especially in education, healthcare, and travel. The short case highlights valuation risk, reliance on tuition flows, and margin sensitivity to FX and take-rates. Education is the largest vertical, tied to international student enrollment, which is policy-driven and cyclical. Competition from fintechs and banks threatens take-rates. Travel adds seasonality and macro risk. Healthcare is early and carries integration risk. With a premium multiple, skeptics argue Flywire is more transaction-driven and cyclical than credited.

Pitch Summary:
We've owned Padini in Malaysia for many years, which caters to those not wishing to spend a lot on their clothing. During Covid, the company, which buys largely from China, basically had to do all it could to secure stock in the face of lockdowns and trade disruptions. Managing this excess inventory has been a challenge for Padini but they're sort of back to normal now. Fashions change quickly and much of last year's clothes have had to be marked down in order to shift them. At their AGM, shareholders were asked to vote on the reappointment of two long-standing independent directors. This is standard after nine years. As corporate governance slowly improves in the region, we're seeing more companies implementing two-tier voting, which meant that the major shareholders couldn't vote on this issue. Those that didn't vote were assumed to be in favour. The good news is that the larger institutions in Malaysia are now taking this kind of thing seriously. A few years ago, I'd be lobbying them to vote against all kinds of things, but they weren't interested. Things are changing for the better and both KWAP (civil service pensions fund) and Tabung Haji (Haj savings fund) voted to remove these directors. As did we. Last year, the institutional shareholders also blocked the implementation of a share options scheme which would have included the major shareholder. You can understand why these are popular with managements, but experience has taught that they are ineffective as a staff-retention tool. Those that propose them are not HR consultants, but bankers after a fee. As businesses mature and evolve, retaining staff comes down to much more than salary. Kudos too to Padini for allowing this to be a two-tier vote. They could have stated a Departure from the Governance Code and allowed the major shareholder to vote on the issue. This is not uncommon in Malaysia, with companies picking and choosing which bits of the code they wish to adhere to. This Malaysian company is ahead of many in terms of its governance and treatment of minorities.

BSD Analysis:
The manager presents a nuanced view of Padini, a Malaysian budget fashion retailer they've held for many years. The company faced significant inventory management challenges during COVID-19 due to supply chain disruptions from China, requiring aggressive markdowns to clear excess stock as fashion cycles accelerated. The investment thesis appears centered on the company's positioning in the value segment of Malaysian retail, serving price-conscious consumers. However, the manager's stance seems neutral to cautious, focusing heavily on corporate governance improvements rather than fundamental business performance. The detailed discussion of shareholder voting on director reappointments and share option schemes suggests the manager values Padini's progressive governance practices, particularly its implementation of two-tier voting that excludes major shareholders from certain decisions. While acknowledging ongoing inventory normalization challenges and margin pressures from wage inflation, the manager appears to view Padini as a governance leader in the Malaysian market. The lack of financial metrics or growth catalysts in the discussion suggests this may be a legacy holding maintained more for governance quality than compelling fundamentals.