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Thesis:
Academy Sports & Outdoors is experiencing a rebound in share prices due to its value-oriented strategy, despite pressures from tariffs and a challenging economy for its core middle and lower-income customers.
Source: https://drive.google.com/file/d/1yjZS2vewL62F14JXvehFsUdHIYg8MjXT/view?usp=drivesdk
Analysis:
Academy Sports & Outdoors (Nasdaq: ASO) is the second largest sporting goods retailer in the U.S. As a value leader, it skews more closely to middle and lower income buyers. Unsurprisingly, then, its core business has been under pressure for the last few years, largely due to the pressure on its core customers. The decline in its shares during the first half of 2025 was largely related to tariff announcements, their potential impact on Academy's customers, and the consequent effect on the company's fundamentals. Academy sources some product from China, while most of its suppliers source from China, Vietnam, and other countries in Southeast Asia. However, as a value-oriented retailer, management believes its business is also benefiting from trade downs into its stores from higher end consumers. Academy also has a host of self-help levers it is pulling to improve same store sales, including the recent launch of the popular Jordan brand across many locations, with more to come in the future. Its shares have been rebounding more or less steadily off the market's early April lows.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Advanced Drainage Systems (WMS) is a leading manufacturer of high-performance drainage solutions with substantial advantages in scale, distribution, and cost, positioned to benefit from increasing storm intensity and related water management challenges.
Source: https://drive.google.com/file/d/1-0AcAgyOPcAVf4hRRUveKmoTUx6cU6DV/view?usp=drivesdk
Analysis:
Advanced Drainage Systems (WMS) is the leading manufacturer of high-performance thermoplastic corrugated pipe. The company provides a comprehensive suite of water management products and drainage solutions for use in the underground construction and infrastructure markets. WMS has established a dominant position in the highly fragmented stormwater management subsector and is 10x the size of its nearest competitor. Their products are utilized across various end markets, including non-residential, residential, agricultural, and infrastructure applications. As storms increase in frequency and intensity, WMS’s solutions help prevent floods, recharge aquifers, improve food security, and mitigate water scarcity. We believe WMS is a durable, high-quality franchise with substantial moats, including: unparalleled scale, national distribution footprint, and it is North America’s largest materials recycling facility, providing them with overwhelming cost advantages over traditional concrete pipe.
WMS has a well-regarded management team with a solid track record in mergers and acquisitions. Depressed end markets have provided an attractive entry point. We believe the intrinsic value of the stock is $180.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Advanced Micro Devices Inc. is positioned to significantly increase its market share in AI GPUs by 2027, potentially rivaling industry leader NVIDIA and driving larger revenue gains than currently anticipated.
Source: https://drive.google.com/file/d/18ufIKIJr7q4s5TD_FWRvcGjcAAq_F1cn/view?usp=drivesdk
Analysis:
Advanced Micro Devices Inc. (AMD) designs and manufactures semiconductors, including central processing units (CPUs), graphics processing units (GPUs), and other high-performance computing solutions for various markets like gaming, data centers, and AI. The company currently maintains a small market share for GPUs used for AI applications though by 2027, we believe the company will have product on par with the market leader, NVIDIA. Hyperscale customers with deep programming expertise may increasingly decide to dual-source high-end chips leading to much larger revenue and profit gains in coming years for AMD than investors currently expect.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Airbnb is a leading player in the alternative accommodation market with strong growth potential, an excellent balance sheet, and an attractive investment opportunity due to recent share price declines.
Source: https://drive.google.com/file/d/1BC7vrM-zM7i_KcQ0OxHQRmA9QhgsSdR3/view?usp=drivesdk
Analysis:
Airbnb is a leader in the alternative accommodation lodging market with approximately 8 million active listings on its platform. The company has a dominant market position due to the network effect between guests and hosts where more supply (hosts) inherently attracts more demand (guests) which in turn attracts more supply. While the company is certainly more mature than it was a decade ago, we believe it can still grow at an attractive rate as it continues to gain share within the large travel accommodations market and through launching additional products and services to better monetize the bookings that occur on its platform. Its balance sheet and cash flow characteristics are also excellent. The uncertainty surrounding the tariff announcements and the potential for a deterioration in the macroeconomic environment caused the shares to meaningfully decline, which presented the opportunity to invest in Airbnb at an attractive price.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Applied Materials is a strong investment poised to benefit from the rising demand for advanced semiconductor manufacturing due to AI and high-performance computing, supported by its robust cash flow and strategic positioning.
Source: https://drive.google.com/file/d/17yJYpD7RBUr-J_SSjwqXbEBe_M_DK-6D/view?usp=drivesdk
Analysis:
We started a new position in Applied Materials (AMAT), a global supplier of equipment used in the fabrication of semiconductors. Surging demand for advanced chips that fuel Artificial Intelligence (AI), and high-performance computing is driving a significant investment in semiconductor manufacturing equipment. AMAT is well positioned to capitalize on this trend. The company has a track record of strong performance, consistently generating significant cash flow from operations, allowing it to invest in R&D and return value to shareholders through buybacks and dividends. This is an example of a company that we had previously done the work on hoping for an opportunity to add it to the LCV portfolio on price weakness. We started our position after the April 2nd reciprocal tariff announcements caused a sharp, short-lived market pullback.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Canal+ is a significantly undervalued turnaround story with strong market positions and growth potential, particularly in Africa, that will be better recognized post-MultiChoice deal completion.
Source: https://drive.google.com/file/d/1TuFgJ12JQeUh8lDzd1vHtL_ZKpRviB8Q/view?usp=drivesdk
Analysis:
The problems were multifaceted, stemming from the timing of the spin (December 16th), the listing location (London, for a French company) and the governance structure (with the Bollore Group owning over 30% of the shares). Those factors notwithstanding, the value the market ascribed to Canal+ became, and in our view remains, farcical. It is true that the timing of the launch caused additional problems for Canal+, as they were going through a major tender offer process for the largest African pay-TV operator MultiChoice Group. Because the offer was awaiting South African competition commission clearance there has been an informational vacuum in which company executives have been heavily limited in what they can say about the financials of the business, including the synergy potential and longer-term financial objectives. Instead, the market has had to focus on the historic financial data available for the group, which we believe is very misleading in terms of the business potential. Canal+ is a turnaround story in its legacy geography of France. This business was loss-making but has since undergone a dramatic restructuring of both content and service. It now boasts a growing subscriber base, having successfully integrated the streamers onto its platform to become a super-aggregator. Canal+ France has reached breakeven, and with a significant ongoing cost-saving plan, including the rationalization of its sport-rights payments, it is on a path to solid profitability. However, the consolidated financials hide this potential, implicitly leading the market to capitalize on the historic losses in France and therefore ascribing a negative enterprise value to the French pay-TV business as a whole.
It is a similar story for the growth-engine, Africa. There is significant volatility in this division given the nature of the economies involved and particularly the foreign exchange impact. But the opportunity here is significant. Canal+ dominates the French-speaking geographies in Africa, with the English-speaking geographies covered by MultiChoice. The combination of the two will release significant synergies in both operating costs and content as, uniquely, Canal+ will be able to negotiate content on a continent-wide basis. Yet until the deal is approved and closed the management team cannot discuss the synergies, or growth and margin potential for the combined business. Having received a positive judgement in the first stage of the competition commission process, the shares have responded positively, and final confirmation should follow shortly. After that we expect the company to host an investor day to present the ‘new’ Canal+ in greater detail. That needs to include a more detailed divisional breakdown that allows investors to more accurately value the sum of the parts. For instance, the company has an African fiber business, GVA, which is loss-making, but a key component to driving pay-TV adoption in Africa. We believe GVA will soon achieve break-even and has significant potential that is hidden within the current reporting structure.
Canal+ is one of the most discounted stocks in the portfolio today, currently trading at half of what we believe it to be worth. Yet it has one of the most unique sets of assets, dominant market positions, a very strong operational management team with significant equity ownership and a significant shareholder with a proven track record of value creation in the Bollore Group. Once the MultiChoice deal completes (likely in Q3) we believe the investment case will be transformed, allowing a far better understanding of these unique qualities, and also opening the door to more accretive capital uses, including buybacks.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
CDW Corporation is a resilient value-added reseller of IT products poised for continued market share growth despite potential tariff impacts on hardware prices.
Source: https://drive.google.com/file/d/1BC7vrM-zM7i_KcQ0OxHQRmA9QhgsSdR3/view?usp=drivesdk
Analysis:
CDW Corporation is a value-added reseller of IT hardware and software products to a broad array of small- and medium-sized customers. It partners with over 1,000 vendors to provide more than 100,000 products to its 250,000+ customers. With a dizzying breadth of products and services, CDW benefits from overall technology industry growth, without being heavily exposed to any individual product or technology trend. The company has an excellent track record of gaining share within its highly fragmented markets, which we expect will continue. Early in the second quarter, CDW’s shares fell in response to the proposed tariffs, which if implemented, could lead to higher IT hardware prices and have an impact on near-term demand trends. However, as a value-added reseller without direct manufacturing exposure, we expect CDW’s margins to be relatively insulated from the effects of higher costs. We also believe many of CDW’s customers have maintained some of their IT hardware assets beyond their useful lives, and expect that there will be a bump in replacement demand in the near future.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
CRISPR THERAPEUTICS AG is a strong investment opportunity, trading at a discount with a robust cash balance and a leading position in the gene therapy space following FDA approval of its innovative treatment, Casgevv.
Source: https://drive.google.com/file/d/1pcFThedcO5noBPFecDlihcPG96qYpjY4/view?usp=drivesdk
Analysis:
CRISPR THERAPEUTICS AG (NASDAQ: CRSP) After commercial approval of Casgevv, CRSP shares traded over $90. At their worst in the April crash, shares changed hands at $30, a 2/3rd discount to their post-approval peak. The trade war would ultimately have a negligible impact on CRSP, but shares dropped nearly 30% in the Spring collapse. This made little sense to us, especially given the substantial cash balance the company has built with prudent financings along the way. When we bought shares of CRSP, the company’s Enterprise Value was below $800m, boasting over $1.8 billion in net cash. As the name would suggest, CRSP is a first-mover and leader in the Cell and Gene Therapy (CGT) space and the first to bring a life-changing gene editing therapy to FDA approval and commercial availability. For reference, CRISPR is a gene-editing technology that enables scientists to precisely alter DNA within living organisms by using a guide RNA and an enzyme (like Cas9) to cut and modify specific genetic sequences. We know the company well from following a basket of cell and gene therapy companies. CRSP’s management has excelled at balancing capital discipline with R&D ambition. Now, with a commercial product and arguably the strongest balance sheet in its space, CRSP is in an enviable position, affording the opportunity to lean into its pipeline, while competitors retrench to conserve cash. We believe the company will retain over $900 million in cash by the time it turns cash flow positive. In essence, we’re buying Casgevv at a steep discount and getting the pipeline and cash for free. This is one of the more asymmetric setups we’ve encountered.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Croda International is a reputable UK specialty chemicals company known for its innovative and sustainable high-performance ingredients across various industries, demonstrating pricing power and resilience.
Source: https://drive.google.com/file/d/1bxd3FVOwaTvsFymzHw431KJ9qx8HhxMT/view?usp=drivesdk
Analysis:
We also initiated a new position in Croda International, a UK-based specialty chemicals company. Founded exactly 100 years ago, Croda develops high-performance ingredients and technologies used across a range of industries, including personal care, pharmaceuticals, and industrial applications. The company has earned a strong reputation for innovation and sustainability, and it exhibits the pricing power, resilience, and capital discipline we look for in long-term holdings.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Deckers Outdoor Corp (DECK) is a reasonably priced footwear company facing tariff uncertainties but poised for potential growth, especially with its Hoka brand.
Source: https://drive.google.com/file/d/1fF9h0qLW_1zsEobTX1MEcOz5Rnx6ebT8/view?usp=drivesdk
Analysis:
Deckers Outdoor Corp (DECK) has faced challenges from tariffs impacting the higher-priced fashion and apparel sector. The company, known for its Uggs, Hoka, and Teva brands, has seen volatility in sales with 51% from Uggs and 45% from Hoka. Despite an overall decline in shares by over 50% this year due to tariff uncertainties, Deckers remains reasonably valued with a competitive EV/EBITDA ratio. The Hoka brand presents significant growth potential, evidenced by strong sales growth rates compared to its competitors. Moving forward, the outlook on how economic conditions will influence performance remains uncertain, but signs suggest a rebound may be on the horizon.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Diageo is well-positioned for growth despite recent volume declines, potentially reflecting lower inventory rather than diminished demand, making it a compelling investment opportunity.
Source: https://drive.google.com/file/d/1XUoe_INNgWLNMWwriGXXdIqhY8K5O41Q/view?usp=drivesdk
Analysis:
Volume growth which averaged 2.2% per year pre-pandemic has averaged 1.5% per year since, with a cumulative “lag to trend” of 3.3% of growth over five years. It’s worth noting revenues rose 22% over the same period when including price increases across the products. This weaker trend in volume has been attributed by the market to two primary drivers:
1. The young / Gen Z's drinking habits
2. Those on weight loss drugs are drinking less alcohol
The former is quite easy to refute as a cause for this fall in volumes. While they may, or may not, drink less than previous generations, across all the major spirits companies which we can find data or estimates for (including Diageo, Remy, Pernot, Campari and others), Gen Z (those born after 1996) only account for around 2-3% of sales. This could be a longer-term issue should they decide to drink less as they mature, but this cannot account for the drop in volumes today. At Diageo specifically we note 75% of sales are generated by consumers born before 1981. Consumers take longer to mature than the scotch they drink. Moreover, there is strong evidence that younger consumers are drawn to spirits earlier through cocktails, and there is also recent evidence that their drinking habits are, in fact, coming back in line with previous generations already.
So, what could it be? A far more benign potential answer strikes us as the most probable. The average working capital cycle for spirits in the retail and wholesale channels is around 100 days. A 3.3% cumulative fall in volumes (from trend as shown above), could be a sign of lower inventory as opposed to lower-end demand. If this were the case, this would imply a 12% reduction in volume held in inventory through the supply chain. Given the rapid increase in prices over the past five years, might those in the supply chain simply have targeted their working capital efficiency? This is supported by data shown by Remy in their latest investor update which discusses the shape of the inventory cycle.
Time will tell but the potential for Diageo from here, in our opinion, warrants holding the shares with the potential to add to a highly undervalued business if the operating performance improves. Spirits are a long-lived category, where the value of their assets actually rise in value the longer they are held in barrel inventory. Diageo has around 6% market share in the US, their most important market. It seems highly plausible to us that this figure will rise over time, with this current low ebb creating opportunities for bargain acquisitions of challenger brands as venture capital financing dries up. The new CFO has addressed some of the elevated costs which crept in during the boom years of 2021 and 2022, which should be straightforward to fix.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Disney is transforming its video and film distribution to streaming, growing its subscriber base and profitability while launching a direct-to-consumer ESPN product for live sports.
Source: https://drive.google.com/file/d/1kzVhJnMefd_2fkufL40vvkRtng2uy8ug/view?usp=drivesdk
Analysis:
Disney, like Nintendo, is transforming the distribution of its video and film content from linear broadcasting and cable channels to streaming. Whilst the company secured a critical mass of customers for its platforms in record time after the transition began in 2021, only now is it beginning to reap the profitability and cashflows from the investment. Covid and subsequent lockdowns accelerated the increase in streaming subscribers, but it also temporarily decimated the cash flows from its theme park business, which increased the strain on the company’s balance sheet and led to the abandonment of the dividend for three years. Netflix, Disney’s main competitor in streaming, secured first mover advantage with a bigger and faster growing subscriber base. Netflix also leads the way in terms of profitability, with an impressive 28% operating profit margin despite not having Disney’s heritage, its storied content, breadth of offering and brands. With that said, we think Disney’s streaming business has the potential to reach similar levels of profitability over time as well as scope to grow its global subscriber base from 181 million today to nearer Netflix’s, which stands at c.300 million. It’s that expectation that is driving better performance from the shares, which were up 26% over the last quarter. There is also increasing optimism around the next chapter in Disney’s distribution transformation – streaming live sports content on ESPN. This autumn Disney will launch a new ESPN direct-to-consumer product offering. Given ESPN is considered the home of sports on linear TV in the USA, one imagines Disney has ambitions to capture the same preeminence in live sports streaming as it has in the linear space.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Dollar Tree is poised for significant growth after selling Family Dollar, leading to a stronger balance sheet and capital return to shareholders, making it an attractive investment opportunity at a price of $70.
Source: https://drive.google.com/file/d/1XUoe_INNgWLNMWwriGXXdIqhY8K5O41Q/view?usp=drivesdk
Analysis:
There is a saying in markets that “price drives narrative” and consequently the reflexivity and momentum within financial markets means prices can trend (both positively and negatively) until something fundamentally changes. Bad news likes company, and over the remainder of 2024 investors became increasingly concerned by the muted same store comparable sales, the overhang of the strategic review, whether Walmart and Temu were taking share from discount stores, why the softer consumer backdrop wasn’t driving higher footfall from bargain seeking consumers, competitor profit warnings (notably Five Below which also skews towards discretionary items) and finally by Rick Dreiling’s surprise departure (ostensibly for health reasons) in November 2024. The combination of all these factors was enough to see Dollar Tree’s multiple compress to 10x earnings.
In our annual report we identified that our principal concern with Dollar Tree was the acquisition of Family Dollar in 2015 – which approximately doubled the size of the business. Family Dollar has a store format skewed more towards low-income consumers and consumables, rather than discretionary general merchandise (approx. 80/20).
Last year, Dollar Tree announced the ‘strategic review’ of Family Dollar, which we supported. At that point we ran several scenarios on what we felt could be done with the business and the potential impact on the financial and competitive positioning. At the same time, we remained content with Dollar Tree’s standalone performance: even with consumers under significant pressure, 2024 same store sales averaged c. 2%, never turning negative.
As we remarked in the annual report, our principal concern was with the outcome of the Family Dollar strategic review. We felt that Dollar Tree was inexpensive (certainly based on the strength of Dollar Tree’s same store sales) and that the reason for the lack of uptick in footfall was the lack of employment. We noted:
“A small silver lining is our practice of never averaging down into positions without concrete evidence of operational improvement in the numbers, which means that today Dollar Tree represents a 2% holding.”
To add to our position, we were looking for a positive resolution to the Family Dollar strategic review and confidence that trading was improving. At the end of March 2025, Dollar Tree announced the sale of Family Dollar for $1bn, at the upper end of our scenario analysis from last year. In the preceding quarters we had also witnessed the improving same store sales trends between consumables and discretionary items which had improved for three consecutive quarters. As such we incorporated ‘the facts’ and were able to double our position in Dollar Tree on the day of the sale announcement at an average price of $70.
The sale achieved two things:
1. All of Dollar Tree’s profit and cash generation would be available for reinvestment in Dollar Tree’s growth at high returns on capital.
2. The $1bn proceeds from Family Dollar would materially delever the balance sheet which had historically been solely carried by the Dollar Tree banner.
The combination of these factors meant that at $70, Dollar Tree traded on c. 12x earnings, with a high single-digit prospective free cash flow yield and an under leveraged balance sheet positioned to repurchase over $1bn of stock (>7% of shares outstanding) per annum.
We do not factor multiple expansion into our investment decisions. With Dollar Tree primed to return capital to shareholders we see mid-teens intrinsic value growth without a re-rating and, without the distraction of Family Dollar, a greater probability of execution success.
That said, a couple of years post-completion, we see potential for >$9 of earnings which on its historic multiple of 22x means the shares could approximately treble to $200.
We believe waiting for tangible evidence of improvement before adding to underperforming positions is the optimal, value maximising approach for investors. It is not guaranteed that you will always get the opportunity to, as positive clearing events often result in a material repricing of the equity; however, this instance illustrates that this is not always so, great opportunities do present themselves to patient and prepared investors.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Despite regulatory headwinds, FICO’s dominant market position, pricing power, and adaptable growth strategy—bolstered by strong distribution partnerships and aggressive buybacks—highlight a resilient business model primed to withstand competitive threats.
Source: https://drive.google.com/file/d/1kzVhJnMefd_2fkufL40vvkRtng2uy8ug/view?usp=drivesdk
Analysis:
FICO similarly posted an impressive set of figures, with Scores revenues up a phenomenal 34%, driven by an acceleration across all three origination revenue streams: Mortgage; Auto; and Card, Personal Loan & Other. Clearly, however, this was not enough to offset the latest set of regulatory concerns, and the valuation multiple remains under ongoing pressure. This was the first set of results since the Federal Housing Finance Agency (FHFA) started publicly advocating for greater competition in the mortgage scoring space a few months ago (please see our May factsheet for a reminder), and management used the call to assure investors that the company’s current pricing-driven growth strategy remains unchanged. As ever, the company emphasised that its moat is based on merit; namely, that the FICO score is simply the most predictive option out there, and that this is what truly underpins and justifies FICO’s dominant market share, and pricing actions. A key indicator is that even for non-government sponsored enterprise (GSE) mortgage use cases (i.e. where the use of a FICO score isn’t legally mandated), FICO’s market share is still nonetheless in the mid-90s%. We wouldn’t expect the Bureaus to price their competing VantageScore irrationally, given that as FICO’s distribution partners they’re also significant beneficiaries of the current price increases. However, were they to go down this path, FICO has a number of options to maintain the exceptional economics of this segment, including: lowering scores prices upfront but regaining the lost value at a later point in the origination process; implementing volume-based and tiered pricing; and leaning more heavily on other verticals such as Auto, amongst others. In the interim, much like LSEG, the company has been redoubling its allocation to buybacks to take advantage of the current share price weakness.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Gartner is an attractive investment due to its strong business model, competitive advantage, excellent long-term growth outlook, and currently depressed valuation despite recent underperformance.
Source: https://drive.google.com/file/d/1BC7vrM-zM7i_KcQ0OxHQRmA9QhgsSdR3/view?usp=drivesdk
Analysis:
The final new investment during the second quarter was in Gartner, a global leader in technology research. The company has an attractive business model characterized by recurring revenues, strong pricing power, negative working capital and high return on invested capital. The firm maintains a strong competitive advantage from its renowned brand as well as its unmatched scale and resulting ‘information network.’ We believe the company’s long-term growth outlook is excellent due to the increasing need for sophisticated technology research, coupled with Gartner’s small share of its addressable market. The stock has underperformed recently on concerns over slowing subscription growth, which we believe will prove to be short-lived. The currently depressed valuation was too attractive to pass up.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Glanbia is expected to reach a turning point in H1 with improving margins in Performance Nutrition, potential resolution of underperforming brands, and the strategic sale of its Dairy Nutrition business, leading to a reassessment of its undervalued core divisions.
Source: https://drive.google.com/file/d/1TuFgJ12JQeUh8lDzd1vHtL_ZKpRviB8Q/view?usp=drivesdk
Analysis:
We firmly believe that from a fundamental perspective H1 will be the trough for both earnings and market perception for Glanbia. Margins in the Performance Nutrition division will start to improve as the whey price falls, benefitting from strong demand for protein products. The headwind on sales from the underperforming SlimFast and Body&Fit brands will also eventually abate as those businesses are going through a disposal/closure process. We are also expecting further progress on strategic rationalization in H2. Beginning July 1st, the Dairy Nutrition business began operating as a standalone unit, a precondition to launching a sale process for this division for which Glanbia is no longer the best owner. Our valuation of this division accounts for almost 50% of Glanbia’s current market cap, for a business the market largely ignores. That will force the market to reassess the implicit undervaluation of the core Performance Nutrition and Nutritional Health divisions. In the meantime, Glanbia has plenty of balance sheet capacity for further buybacks to create value from an undervalued share price.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
GlobalData is a leading provider of business-critical research and analytics with a strong subscription-based revenue model and deep intellectual property assets, now supported by Liontrust UK Growth Fund amid recent takeover interests.
Source: https://drive.google.com/file/d/1Mkv9FpaoPD9zQw_SOUJen04Dp60RgpZ7/view?usp=drivesdk
Analysis:
GlobalData had been the subject of potential takeover interest from two separate private equity firms earlier in the year. One (KKR) had already walked away, but GlobalData announced in June that it had terminated discussions with the second (ICG). Having held the shares in other EA funds for many years, the Liontrust UK Growth Fund took the opportunity of the negative share price move on the news to initiate a starting position. While the initial position is small, cognisant of uncertainty in the backdrop and potential pressure on client budgets in the short term, longer term we feel this is a business rich in the intellectual capital assets our investment process seeks out.
GlobalData is a provider of business-critical research, data and analytics to over 4800 clients across 20 sectors globally. It has significant depth of intellectual property, claiming ownership of hundreds of unique proprietary datasets, augmented by in-depth proprietary research and analysis, delivered from a single software platform. Meanwhile, its output and data become deeply embedded in client workflows, and the business model is largely recurring, with subscription income close to 80% of total revenue. It also has a strong owner-manager culture; founder Mike Danson – who previously founded, floated and ultimately sold Datamonitor – still holds well over 50% of the shares.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
GMS Inc. is the leading specialty distributor of building products with over $5.5 billion in TTM revenues and a significant market share, positioned for growth through strategic acquisitions and capital deployment.
Source: https://drive.google.com/file/d/1-0AcAgyOPcAVf4hRRUveKmoTUx6cU6DV/view?usp=drivesdk
Analysis:
GMS Inc. is the leading specialty distributor of gypsum wallboard, suspended ceiling systems, steel framing, and complementary interior building products, with trailing 12-month (TTM) revenues exceeding $5.5 billion. GMS is a scale specialty distributor with over 20% share in two very large end markets. GMS’s scale and reach are significant compared to smaller regional distributors, enabling both consistent share gains and effective capital deployment through accretive mergers and acquisitions and buybacks. We assess its Intrinsic Value at $117.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Ingersoll Rand is a key player in enhancing resource efficiency by providing energy-efficient compressors essential for manufacturing processes, offering significant potential for reducing electricity expenses.
Source: https://drive.google.com/file/d/1eZ8N94apLq3SvJ3DgZLW7GNbX-BROmII/view?usp=drivesdk
Analysis:
Over the quarter, we added Ingersoll Rand under our Improving the resource efficiency of industrial and agricultural processes theme. The company sells energy-efficient industrial equipment that are crucial for a wide range of end markets. Compressors are ubiquitous to manufacturing, and uptime of equipment is crucial for efficient industrial processes. Compressors also account for 10% or more of electricity expense in the manufacturing sector, with the opportunity to reduce over 40% of that by identifying inefficiencies in equipment and wider air systems.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Integrafin is a leading UK investment platform that differentiates itself through high client service levels, proprietary technology, and strong recurring fee income, boasting a 16.6% cash flow return on invested capital.
Source: https://drive.google.com/file/d/1Mkv9FpaoPD9zQw_SOUJen04Dp60RgpZ7/view?usp=drivesdk
Analysis:
Integrafin owns the Transact B2B investment wrap platform, one of the largest in the UK. It has consistently aimed to differentiate itself via high levels of client service, engendering deep and loyal relationships with its independent financial advisory clients, as well as the ownership of its own proprietary technology. The decision to invest in proprietary technology is in contrast to almost all of Transact’s competitors, which mainly utilise third party offerings, but it is one which Integrafin believes is key to being able to shape the development of the platform to best suit customer needs. With high levels of recurring fee income, the business model is robust, while the company has a current cash flow return on invested capital of 16.6% - very comfortably ahead of both its own cost of capital and the wider market average.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Kratos is a leading pure-play defense company specializing in hypersonic technologies and unmanned aircraft, known for its cost-effective and rapid product development, which positions it favorably in the growing defense market.
Source: https://drive.google.com/file/d/15OK4YqZcNOYiM-U1lQMh4KiFHZKIsjpB/view?usp=drivesdk
Analysis:
For the first time since inception, I bought a pure-play defense company. Kratos (“KTOS”) develops and produces a range of systems for national security with a focus on hypersonic technologies and unmanned aircraft. While they trade at a significant premium to traditional defense primes, this premium is warranted given their market positioning. Predominately, the company’s core business principles are unique in emphasizing the development of products quicker and at a lower cost than their peers. A read through their materials is littered with statements like “affordability is a technology” and “better is the enemy of good enough.” These are not just empty words. In 2024 KTOS was able to develop the Erinyes Hypersonic Test Vehicle in 3 years at a cost of less than $15mm. At a unit cost of just $5 million, Erinyes can provide test runs at a fraction of the cost of alternative prototypes. Their success in this arena is a large reason why they were able to win their first ever prime contract award with the $1.45bn Multi-Service Advanced Capability Hypersonic Test Bed (MACH-TB) 2.0 program. Under MACH-TB 2.0, KTOS is aiming to achieve 1 test per week, a vast improvement from the monthly cadence under Mach-TB 1.0. Given the rapidly evolving military environment and the need to reduce government spend, speed and cost efficiencies are critical. KTOS is able to achieve these efficiencies due to their operational focus (i.e. “fail fast, learn faster”), close integration with development partners, and drawing on resources from alternative sources such as university research departments.
KTOS has direct exposure to key areas of growth in defense spend: hypersonic and drones. Both of these markets are forecast to grow at a double-digit rate globally as militaries aim to maintain air superiority and increase autonomy. After relative muted hypersonic spend compared to investments made by China, the US military has emphasized our need to catch up. The aforementioned MACH-TB 2.0 program is indicative of this as it was procured via an Other Transaction Authority, which bypasses the traditional contract process and allows the DoD to engage with non-traditional contractors, offer greater flexibility in terms, and sidestep bureaucratic hurdles. Development of the Golden Dome should provide a further tailwind, especially as it relates to KTOS’ exposure to command, control, and communications systems.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Kyndryl Holdings is the world's largest IT infrastructure services provider, recently transitioning from an IBM-focused cost center to a more diversified technology partner, experiencing a temporary revenue decline but expecting recovery.
Source: https://drive.google.com/file/d/1yjZS2vewL62F14JXvehFsUdHIYg8MjXT/view?usp=drivesdk
Analysis:
Kyndryl Holdings (NYSE: KD) is the world's largest IT infrastructure services provider, keeping the mission-critical IT systems, data centers, and IT networks of large enterprises such as banks, airlines, and retailers, up and running in a secure manner on a 24x7 basis. Throughout most of its history, Kyndryl was operated as a cost center that existed to sell IBM hardware and/or software. Since being spun off from IBM in November 2021, however, Kyndryl has adroitly balanced its legacy IBM business while offering customers more advanced, non-IBM technology through partnerships with Google, Amazon Web Services, and Microsoft. Its shares fell roughly 20% in August when Kyndryl reported an unexpected decline in revenue for the fiscal first quarter of 2025, after reporting positive constant currency revenue growth in the fiscal fourth quarter of 2024 (announced in May). This revenue decline was the result of an extended review process by eight customers rather than macro/geopolitical uncertainty, heightened competition, or customer churn. Based on its strong pipeline, management expects to make up the lost ground over the next three quarters and reaffirmed its fiscal year 2026 guidance. We saw the decline as an overreaction to a temporary setback and added to our position at what we deemed were advantageous prices.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Lyft is a ride-hailing company with significant revenue growth and a new management team, making it a potentially promising investment despite past losses and competition from Uber.
Source: https://drive.google.com/file/d/1fF9h0qLW_1zsEobTX1MEcOz5Rnx6ebT8/view?usp=drivesdk
Analysis:
Lyft is a ride-hailing company, though it also provides bikes and scooters and other transportation. It has been a loss-maker and a bad investment since coming public. It priced its initial public offering at $72/share. We bought shares 6 years later at $14.5, 80% lower. Its operating losses in 2022 and 2023 were nearly $2B, vs. a market capitalization of $6.1B at where we bought it. Uber is the dominant player, competing at a much different level than Lyft.
Of course, I'm omitting a few things from that picture as well. For one, Lyft has a new management team, as of April 2023. Lyft is still growing very fast – 31% revenue growth last year, 13.5% to start 2025. It has a very strong balance sheet, with over $1B in net cash available (again, against a $6.1B market cap). Its operating loss has narrowed to the point where the interest it earns on its cash holdings makes it profitable, both for 2024 and the first quarter of 2025.
And, we bought it for less than 10x free cash flow when adjusting for its net cash and taking out share-based compensation from its free cash flow. That’s a little bit of cherry-picking – Lyft’s cash flow last year benefited from an insurance reserve release. I don’t understand the complete dynamics of Lyft’s insurance exposure and policy. But car insurance should be in a getting cheaper cycle, unless used car inflation strikes due to tariffs.
All of that is to say the financials are decent and on the cusp of getting really good. Lyft as a business has seemed to settle into a clear #2 in a U.S./Canada duopoly with Uber. There are other global players, but Lyft has plenty of room to grow both at home and abroad. It just announced a purchase of FreeNow, the taxi-hailing app we use in Spain that is available in 9 European companies. It successfully managed an activist campaign pushing it to buy back more shares – Lyft fended it off by announcing, yes, it would buy back more shares – and seems focused on the right things: growing profitably, most of all.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Medley’s dominant platform, strong network effects, and asset-light model position it for long-term growth in Japan’s healthcare HR space—especially as temporary wage inflation headwinds create a rare buying opportunity at attractive valuations.
Source: https://drive.google.com/file/d/1TuFgJ12JQeUh8lDzd1vHtL_ZKpRviB8Q/view?usp=drivesdk
Analysis:
Medley – Japan’s leading online HR platform for medical staff with around 8–10% market share. Medley benefits from strong network effects where more job hunters using the platform inherently attracts more employers to post job listings on its platform, which attracts more job hunters to its platform. As a result of its technology-focused online solution, Medley is able to charge a much lower take-rate of 2–13% compared to traditional head-hunters (offline, labor-intensive) at 20–35% of employee’s annual salary. This strong value proposition for employers has resulted in them garnering a large customer base of 419,000 medical institutions (or ~36% penetration rate) and over 2.5 million healthcare workers. Medley is an asset light, high growth business with its Return on Invested Capital (ROIC) per new user improving as less marketing expenditure is required thanks to its strong network effect.
For over a decade, nominal wage growth in Japan has been relatively flat, with the Japanese healthcare sector being no exception. However, this situation started to change over the past year, with inflation picking up and the Japanese government establishing a 4.5% wage increase target over two years (2024–25). This wage inflation negatively impacted healthcare workers’ motivation to switch jobs, pressuring Medley’s placement volumes and giving us an opportunity to invest in this high-quality franchise at an attractive valuation. We believe this situation is temporary and its peers in other job verticals are already seeing job seekers’ motivation recover in recent months. More importantly, we expect incremental wage inflation for healthcare workers to be limited in the medium term because more than 60% of Japanese hospitals (the employers) are already operating at a loss. Further wage increases will pressure their profitability even more.
At Medley, we are partnering with Founder CEO Kohei Takiguchi who owns around 20% of the company and is a smart capital allocator. The management is focused on “Maximizing Long-term Free Cash Flow” and is consolidating the market at accretive multiples.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Medpace Holdings is a rapidly growing contract research organization focused on clinical trial services for small biotech companies, led by a committed founder and with significant growth potential despite current market challenges.
Source: https://drive.google.com/file/d/18JCrpV9ZTNYMW4oBhyZeaNhDIIlKRFqV/view?usp=drivesdk
Analysis:
We added one new investment in the quarter, Medpace Holdings. Medpace is a fast-growing contract research organization (CRO), focused on providing clinical trial services to small biotech companies. The company is run by founder Dr. August Troendle, a true owner-operator who still owns 18% of the company. Over time, its concentration on small biotech customers has led to a differentiated and advanced set of expertise in the market, especially within the therapeutic areas of oncology and metabolic disorders. With only a ~5% share of the addressable market, the company has a long growth runway ahead. A weak biotech funding environment has caused growth to decelerate, causing valuation to compress to attractive levels.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Meliá Hotels International is undervalued, and we advocate for separating its business segments and potentially divesting assets to repurchase shares, which could significantly enhance shareholder value.
Source: https://drive.google.com/file/d/1vM8Mv09tjAlJLj_x5ROSdUGxaDHapPCy/view?usp=drivesdk
Analysis:
We have increased our position in the hotel chain Meliá Hotels International ("Meliá"), given the persistent and significant discount at which it is trading relative to its underlying value. We believe that separating its business segments by spinning off its owned hotel assets from its management operations would allow the market to better assess each segment, uncovering substantial hidden value in its market capitalization. Additionally, divesting some of its hotel assets to repurchase shares could enable the company to purchase its hotels at a significant discount to market value, potentially yielding better returns than new project investments. This strategy resembles approaches taken by companies like AerCap, showing that disciplined capital allocation plays a critical role in closing the valuation gap.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Millenium Hospitality RE is a REIT that invests in prime real estate in Spain and Portugal, focusing on transforming properties into luxury hotels and presenting a strong investment opportunity due to its attractive valuation and recent management changes.
Source: https://drive.google.com/file/d/1vM8Mv09tjAlJLj_x5ROSdUGxaDHapPCy/view?usp=drivesdk
Analysis:
One of the most notable investments this period has undoubtedly been our entry into the REIT Millenium Hospitality RE (“Millenium”). This entity specializes in acquiring real estate assets located in prime areas of major cities and tourist destinations across Spain and Portugal. Its strategy focuses on creating value through the transformation and repositioning of these properties into luxury hotels, either for lease to hotel chains or for direct management.
At the time of our investment, the REIT owned 10 hotel assets valued, according to the latest 2024 appraisal, at approximately €685 million (around €545 million net of debt and other adjustments). On a per-share basis, this represented an estimated NAV of roughly €4.70. This figure stood in stark contrast to the market price of €2.26 per share at the time we initiated our position, implying a 50% discount.
A key aspect of this investment thesis is the recent change in the company’s leadership. Following the departure of the founding team, the main shareholder—asset manager Castlelake, which holds approximately 50% of the shares—appointed Borja Escalada as the new Chief Executive Officer. His appointment came with a highly attractive compensation package, clearly aligned with shareholders’ interests, tied to value creation and including a potential liquidity event (partial or full sale of the company).
As we have emphasized throughout this letter, the combination of a well-designed incentive system and a clearly attractive valuation often translates into a significant source of returns for shareholders. And Millenium has wasted no time proving it: shortly after we initiated our stake, the company announced the sale of its Fairmont La Hacienda hotel for €170 million, as well as the distribution of a dividend for a similar amount, equivalent to €1.44 per share. Naturally, the market responded quickly, and the share price rose to the current level of €3.40. This transaction undoubtedly strengthens the investment thesis—not only by validating the asset valuation but also by confirming the new management team’s clear commitment.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Nestlé is a resilient global food and beverage leader with a diverse portfolio that includes strong coffee and pet care brands, supported by a valuable stake in L’Oréal and a focus on innovation and efficiency to adapt to changing consumer preferences.
Source: https://drive.google.com/file/d/1bxd3FVOwaTvsFymzHw431KJ9qx8HhxMT/view?usp=drivesdk
Analysis:
Nestlé’s origins trace back to 1867, when German-Swiss pharmacist Henri Nestlé developed an infant cereal that helped save a premature baby’s life. More than 150 years later, Nestlé has evolved into the world’s largest food and beverage company, with a portfolio of over 2,000 brands, from KitKat and Nescafé to Purina pet food and San Pellegrino water. With operations in nearly 190 countries, chances are something in your pantry carries its name.
Few categories showcase Nestlé’s strength better than coffee. The company pioneered instant coffee with Nescafé in the 1930s, introduced the single-serve capsule with Nespresso in the 1980s, and bolstered its position in 2018 through a multi-billion-dollar licensing deal with Starbucks. Together, these brands give Nestlé unmatched scale and pricing power in a secular growth category. In 2024, coffee once again proved resilient, delivering mid-single digit organic growth and helping to offset weaker areas of the portfolio.
Pet care has quietly become Nestlé’s second major growth engine. Built through decades of acquisitions, the Purina portfolio now leads globally in pet nutrition. The long-term trend of treating pets like family has driven steady growth, and premium brands like Pro Plan and Purina ONE continue to gain share. Pet care now accounts for just over 20% of group sales and is expected to expand further as pet ownership grows, especially in emerging markets, and as premiumisation continues to shape the industry.
Nestlé’s Nutrition and Health Science divisions reflect its origins as a health-focused food company. Its infant formula brands, including NAN and Gerber, remain category leaders, though they’ve faced headwinds in recent years. Meanwhile, Nestlé Health Science has grown through bolt-on acquisitions, targeting long-term themes like healthy aging and wellness through products such as vitamins, supplements, and medical nutrition.
One of Nestlé’s lesser-known but highly valuable assets is its stake in L’Oréal. The company first invested in 1974 at the invitation of the Bettencourt family, who sought to shield L’Oréal from nationalisation. Today, Nestlé still owns around 20% of the cosmetics giant — a stake worth approximately $47 billion, or about one-fifth of Nestlé’s market capitalisation.
While not central to its food and beverage strategy, the holding has compounded at over 12% annually over the past 30 years, proving to be exceptionally lucrative.
Financially, Nestlé remains a durable compounder. In 2024, organic sales growth slowed to 2.2%, its lowest in over two decades, following years of high cost inflation and corresponding price increases across the consumer sector. While these price hikes dampened volume growth, pricing is now normalising, setting the stage for a return to volume-led growth. Return on invested capital remains robust at approximately 17%, underscoring the company’s enduring brand power and world-class distribution.
Looking ahead, Nestlé faces both enduring and emerging challenges. Evolving consumer preferences, favouring fresher, healthier, and less processed foods, have weighed on some legacy lines, but they’ve also spurred innovation. Nestlé is responding by pruning slower-growth units, investing in higher-growth categories like coffee and pet care, and reshaping its portfolio through targeted acquisitions and divestitures.
Leadership is also evolving: long-serving executive Laurent Freixe took over as CEO in September 2024. Under his leadership, Nestlé will follow peers like Unilever by focusing investments on its biggest, fastest-growing global brands, including KitKat, Nescafé, and Maggi. This shift will be supported by increased brand and marketing spending, funded by a CHF 2.5 billion efficiency programme to be completed by 2027. In parallel, Nestlé is preparing to separate its slower-growing water division, potentially selling a majority stake to private equity while retaining a minority interest.
For all its size, Nestlé’s fundamental appeal is straightforward: people and pets eat and drink daily, regardless of economic conditions. This provides steady demand, pricing power, and the reliable conversion of profits into cash. Coupled with unmatched global distribution and a portfolio of trusted brands, Nestlé is well positioned to continue delivering consistent returns just as it has for over 150 years.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Orthofix Medical is viewed as a compelling investment opportunity due to its strong financial position, recent insider purchases, and potential for growth in key markets despite a temporary revenue setback.
Source: https://drive.google.com/file/d/1ot8--mPJCkdnYt2dou5tI_WBYiHdD5MT/view?usp=drivesdk
Analysis:
In 2Q25, we increased our position in Orthofix Medical, Inc. (OFIX) following a 45.6% decline from its February high and a 36.1% drop from its 2024 close. We view this as a compelling valuation opportunity, supported by recent insider purchases by its CEO and also by its top shareholder, a 13D filer.
We believe Orthofix’s strong financial position should continue to improve throughout 2025, as it is largely complete with the integration of its Seaspine merger. In November 2024, OFIX extended its credit agreement through 2029, with net debt to adjusted EBITDA at 1.2x and $115 million in undrawn capacity. On its 1Q25 call, management reaffirmed guidance for positive free cash flow in 2025, with further improvement expected in 2026 and 2027.
We believe part of OFIX’s 2Q25 share weakness stemmed from a $10 million reduction in annual revenue guidance given on its 1Q25 call, driven by one-time factors rather than a slowdown in long-term growth. This included a $5 million impact from a canceled U.S. AID contract and transitional effects from a new distributor and a merger between two customers. We view this as a temporary setback that has led to an overreaction by momentum and quant investors.
We think OFIX should continue to gain share in its key markets, supported by its prolific new product introduction schedule across all three segments, Spine, Bone Growth Therapy (BGT), and Orthopedics. Over the past three years, it has launched 50+ new or refreshed products, fueling above-market growth in Spine, where it holds just a 4% share. Its innovative 7D FLASH navigation system, which reduces radiation by 97% and offers faster setup, is expanding into new applications, including cranial surgeries. Its Biologics portfolio further complements its spinal offerings.
Orthofix’s BGT segment promotes healing in spinal and fracture markets. We think the market overlooked the 1Q25 announcement that OFIX’s AccelStim 2.0 offering was approved earlier than projected and thus is likely to drive revenue growth throughout 2025. Additionally, the Orthopedic segment should continue strong growth, driven by existing products and the recent FDA 510(k) clearance of Truelock Elevate, a first-of-its-kind device targeting the $1.2 billion diabetic amputation prevention market.
We expect management to improve EBITDA margins to the mid-teens by 2027, up approximately 700 basis points from 2024. Since early 2024, the new leadership team (CEO appointed January, CFO February) has established strong operational momentum. Notably, they made the difficult but disciplined decision to discontinue the M6C cervical spine product due to low demand. Despite the 2025 exit charge, this should accelerate revenue and earnings growth by eliminating a loss-making product, which in our view demonstrates management’s commitment to margin improvement.
We think the 2025 sell-off in the shares has created a compelling valuation opportunity. Despite modestly lowering its 2025 expected revenue guidance, management affirmed its EBITDA and positive free cash flow targets for 2025, offsetting the revenue impact with accelerated cost reduction efforts. The street now projects adjusted 2025 EBITDA at $82.6 million, at the low end of its guided $82-$86 million range, but still up 22.5% over 2024. Using this street consensus EBITDA estimate, OFIX is trading at only 6.4x EBITDA, at the low-end of its 6x-20x EBITDA range for the last three years. Our AFV price target is $18.50, based on 10x 2025 EBITDA, representing a 65.9% upside from quarter-end levels. This target may be conservative if OFIX meets its 2027 margin goals.
While our AFV price targets exclude external catalysts, several noteworthy developments merit consideration. On June 3, Hologic (HOLX), a fellow RAM Smid portfolio holding, reportedly received a $16 billion bid from Blackstone and TPG at 12x EBITDA, an offer it declined as too low. This offer underscores the broader neglect and undervaluation in the SMID-cap Medtech sector, which in our view faces less political risk than pharmaceutical, insurance and distribution healthcare sectors. Notably, the 12x EBITDA offer highlights the attractive valuation opportunity we see in OFIX.
We do not appear to be alone in our conviction. In May, the CEO purchased $125,400 of stock, while board member Alan Bazaar acquired nearly $75,000 in May and June. Additionally, Engine Capital Management, the largest shareholder and a 13D filer, reported increasing its stake by over 500,000 shares in May, raising ownership to 10.85%.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Peloton Interactive Inc is transforming into a profitable, cash-generating business with significant growth potential by leveraging its strong brand, expanding into strength and nutrition, and effectively managing costs, positioning itself well for future valuation increases.
Source: https://drive.google.com/file/d/1pcFThedcO5noBPFecDlihcPG96qYpjY4/view?usp=drivesdk
Analysis:
PELOTON INTERACTIVE INC (NASDAQ: PTON)
Everyone thinks of Peloton as the pandemic darling stock whose fancy bikes turned into expensive clothing racks once the world went back to the office. Although there is some truth to this, at its core, PTON has become a cash-generative, $1.6 billion recurring revenue business. Churn is higher today than it was during the pandemic, though it is at levels that most consumer companies would envy. Most importantly, the balance sheet is finally cleaned up thanks to the hard work of former CEO Barry McCarthy. This allows new CEO Peter Stern (from Apple via a brief stop at Ford), to focus the company on re-igniting growth rather than putting out fires.
There is an incredibly resilient, unique, and lucrative core brand and offering at the heart of the business. Peloton has earned both the right and the opportunity to win in the drive towards digital ubiquity within the fitness arena. In fact, many of the factors that made Peloton a pandemic darling remain intact today, centered around an extremely high satisfaction score (NPS), devoted customers with a cult-like following, and instructors who become role models (and in some cases celebrities) to their everyday users and fans.
The bike was uniquely well-suited for this style of digital content, given how closely the classes mimic the real-life experience of a Soul Cycle or new-age spin class. This success has not immediately translated to the treadmill or rowing verticals, but there are emerging signs that strength could be a massive opportunity for the company. This point cannot be understated given the clear trend, independent of age, towards hybrid style training (cardio & strength) over the last five years. The company boasts over two million unique members participating in the strength vertical. Both Lululemon (with their Mirror) and Google/Fitbit have abandoned their efforts to develop strength content and handed that responsibility to Peloton. Recently, Peloton started offering personalized training plans powered by AI that takes your fitness goals and preferred activities across cardio and strength to build users a customized training plan. Others have tried to create this as a standalone product - but none have the right to win like Peloton does given the seamless ubiquity they have created across their platform of products and offerings.
More than a fitness platform, Peloton instructors have earned users’ trust as a go-to resource for both exercise and nutritional advice. This has been evidenced by the independent success prominent Peloton instructors have had in offering recipes, cookbooks, meal plans and general life coaching on their personal social media platforms. This position of trust and leadership is undoubtedly one Peloton itself can leverage in order to expand their offering beyond the core fitness class offering.
More tangible and relevant today, many companies cannot cut their way to success, while Peloton can. Riding high on the wave of COVID-era demand, management significantly increased the fixed cost base (a decision that has taken years to unwind). This not only created structural overhangs but also introduced perverse incentives. With the balance sheet under pressure, the company was driven to spend aggressively on marketing its equipment to move inventory and generate much-needed cash. With inventory right-sized, the company chopped marketing spend by nearly half with little negative effect on its ability to acquire customers. This has returned the company to a 2:1 LTV:CAC ratio, meaning Peloton is acquiring customers at better returns on investment than before. From this stronger base, the company can rationally and prudently rebuild this budget with disciplined investment. Over the coming years, this should translate directly to better ROICs and lower churn.
By highlighting strength and nutrition, we’re contemplating a broader opportunity for Peloton: growth need not rely solely on adding new members. There is a chance to deepen the relationship with existing members by expanding the core value proposition. In that same vein, Peloton hasn’t taken price since 2022, though there is room to do so as there is a widening gap between the value of Peloton for passionate users and the price they pay today. Management feared price hikes might inspire churn, but since 2022 considerable value has been added to the membership, by the aforementioned broadening of the strength vertical, adding yoga, barre and pilates classes, mindfulness and more. Management has been clear any membership price action would come alongside further advances in the value proposition and we respect this mindset of earning the right to raise price by enhancing the offering. A modest pricing action alone would be pure gravy to the bottom line and return the company to growth. We estimate a $5 monthly price increase on the all-access membership would translate
to an additional $130M+ in EBITDA. This takes into consideration an increase in marketing spend to offset some of the anticipated churn, which results in a historically low valuation on a proforma EBITDA number (sub 6x).
Peloton expects to do $330-350 million of EBITDA and $250 million of free cash flow this year. This year’s free cash flow includes benefits from the final stages of inventory burn down and stock-based comp, so some might quibble about the quality; however, that translates to a 7%+ free cash flow yield, an 11x EV/EBITDA multiple and a 2.25x EV/sales multiple on consensus. Next year, we expect the quality of cash flow to improve materially with a full year of savings that don’t exist (showroom costs that continue to happen as leases expire and a lower headcount) and paring down expenses debt as cash flow rolls in. Over the next three years, the company can harvest 9 figures of annualized interest saving, that would see free cash flow rise to nearly $500M, even absent any growth in the business. If either strength or nutrition manifest as true business opportunities, Peloton may indeed be on its way back to a more favorable valuation, well above what we have baked into our current model.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Koninklijke Philips is a leading Dutch medical equipment manufacturer trading at a discount due to past challenges, but shows potential for recovery and growth under new leadership.
Source: https://drive.google.com/file/d/1TuFgJ12JQeUh8lDzd1vHtL_ZKpRviB8Q/view?usp=drivesdk
Analysis:
Koninklijke Philips - We initiated a position in Dutch medical equipment manufacturer Philips during the quarter. Philips is one of the world’s leading manufacturers of large medical equipment, such as MRI/CT scanners, Ultrasound and Image-Guided Therapy (IGT), as well as the devices and software to accompany them. The servicing of the installed base is also a significant aspect of the business model. Along with GE Healthcare and Siemens Healthineers, these three companies account for the majority of market share amongst the international manufacturers, competing with a number of smaller specialists and local players, particularly in China. Philips reached the point where it traded at a significant discount to its international peers, despite having no clear disadvantage in terms of their equipment quality or exposures. The discount, as is often the case, relied on a backwards looking analysis of this business. Philips has indeed endured a challenging post-Covid history. They suffered far more severe supply chain disruptions than peers, leaving them with a shortage of product and lost market share. This came on the back of the issues with their CPAP machines in the US, which resulted in a class action lawsuit (now settled) and a consent decree with the DOJ and FDA investigation. The final share price capitulation came from weak China sales through H2’24 from weak Chinese consumers (Philips is a leading manufacturer of electric toothbrushes and razors) and a Chinese anti-corruption drive within hospitals which delayed new orders whilst the audits were ongoing.
New CEO Roy Jakobs has taken decisive action, simplifying the product platforms, focusing on their key strengths in cardio and IGT, restructuring the R&D function towards a more commercial output and building a more robust supply chain. From the second half of 2025, China should return to growth, removing a key drag on reported organic growth (the US and Europe have continued to perform well). The China drag has hidden the underlying progress being made on both growth and margins across the group. We believe Philips is past the trough in terms of underlying performance, but this is not yet evident in the reported numbers, giving us the opportunity to invest ahead of the operational improvement.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Roku Inc. is positioned for growth with a solid installed base, improved advertising strategies, and a commitment to generating GAAP operating profit by 2026, despite market fears related to competition and external factors.
Source: https://drive.google.com/file/d/1pcFThedcO5noBPFecDlihcPG96qYpjY4/view?usp=drivesdk
Analysis:
Roku has been a wild ride for us. We first bought shares in late 2018, sold a few times along the way, but held onto a sizable position throughout the rollercoaster. We certainly learned some lessons about ourselves and our willingness to hold high valuations in order to spread a sizable tax hit over years (note: we will never tax derange ourselves into holdings through a valuation grind down again, as the market has a wicked way of reducing tax obligations as you wait). During the tariff crash, we meaningfully increased our position yet again.
Throughout the stock’s ascent, bears argued that Roku would rapidly lose market share to competition from Amazon and Google—well capitalized, formidable competitors. These bears were right, but for the wrong reasons. Roku has actually increased its device and household share now covering over half of all households in the US; however, the company stalled in pushing ARPU due to a confluence of forces, many of which stemmed from a strategic, but reversible decision. Roku was trying to build a walled garden, leveraging their unique and proprietary customer data to pull advertisers into their own Demand-Side Platform (or DSP). Unfortunately for Roku, advertisers had paths to reach Roku’s audience while working around the walled garden. For example, an advertiser could buy ads on Hulu, through a DSP like The Trade Desk and in doing so, avoid sharing a dime with Roku. This happened alongside a pullback in content companies chasing new audiences. During the pandemic, Roku’s largest advertising pool—Media and Entertainment (M&E). These were dollars streaming companies spent to acquire customers and drive engagement. As content companies rationalized their own costs, this pool of ad dollars collapsed. Although Roku’s overall ad revenue kept growing, it was far slower than before and came against a growing cost base.
Today, all these problems are largely gone and the company is once again on an accelerating growth trajectory. M&E revenue is a much smaller piece of the overall pie at Roku and has stabilized at lower levels. Management has been determined to monetize the platform in better ways, pulling more content into the highly valuable Roku Channel and building out more robust content recommendation engines. Meanwhile, the company abandoned its walled garden aspirations and opened up to programmatic advertising from the Trade Desk, FreeWheel and then Amazon (collectively, the vast vast majority of ex-Google advertising on TV). Moreover, Roku started sharing data in these relationships, which is a way to capture more of the economics from each ad sold through a DSP in exchange for offering far better returns to advertisers. Ultimately, this is a win/win. We remain convinced that US-based ARPUs upwards of $100 will happen over time, as Roku improves their fill rates and viewing time continues to move from linear to CTV.
This was evidenced in a strong Q4 report in mid-February; however, the stock sold off daily as people feared what an escalating trade war could do to the stock. While markets viewed Roku as particularly vulnerable due to its reliance on China for TV manufacturing, we found reassurance in the strength of its installed base. A price shock that curtails new TV purchases also raises the barrier for competitors seeking entry into Roku households, an overlooked secular long. This dynamic, while a double-edged sword, tilted more positively than markets appreciated. At the time we added to our position, nearly 25% of Roku’s market cap was held in net cash, and yet the stock was trading at a high-teens multiple of 2026 EBITDA, with platform revenue poised to accelerate into the high teens. Importantly, the company has made a commitment to generating GAAP operating profit in 2026, which both shows an appreciation for the need to generate value for shareholders, as well as a pronounced acceleration in incremental profit margins from here.
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Thesis:
The Hanover Insurance Group is a high-quality, underfollowed P&C insurance company with a diversified business mix and an assessed intrinsic value of $210.
Source: https://drive.google.com/file/d/1-0AcAgyOPcAVf4hRRUveKmoTUx6cU6DV/view?usp=drivesdk
Analysis:
The Hanover Insurance Group, a regionally focused property & casualty (P&C) insurance company, is relatively underfollowed and we believe misunderstood. We believe this is a high-quality P&C company in the small cap space for several reasons. The company sold its international business in 2018 and refocused its efforts on domestic diversification, moving away from its legacy states, Michigan and Massachusetts. Its current business mix is well diversified between commercial (37%), personal (50%), and specialty (23%). We believe the company isn’t receiving full credit for the growth of its specialty business and the strengthening of its personal lines in recent years. We assess its Intrinsic Value at $210.
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Thesis:
Treasury Wine is an undervalued global leader in luxury wine brands, poised for growth as it re-establishes its presence in China following the removal of tariffs.
Source: https://drive.google.com/file/d/1TuFgJ12JQeUh8lDzd1vHtL_ZKpRviB8Q/view?usp=drivesdk
Analysis:
Treasury Wine - We initiated an investment in Australia-listed Treasury Wine Estates (TWE) during the quarter. TWE is a global wine leader with best-in-class portfolio of luxury and premium wine brands including Penfolds, Daou Vineyards, Frank Family Vineyards, Stags’ Leap, Beaulieu Vineyard, Beringer, Wynns and Matua generating sales in over 70 countries. Penfolds is TWE’s crown jewel generating 36% of group sales and 58% of group EBIT. Penfolds is the leading luxury wine brand in China with 29% market share. Daou is the top selling and fastest growing Cabernet priced above $20 in the US (the biggest luxury wine market globally).
While overall wine (and broader alcohol) consumption has been weak in recent years, luxury wine category continues to grow as consumers are “drinking less but better.” In line with this consumption trend, TWE has been premiumizing its portfolio with premium and luxury driving ~90% of sales vs. 47% in 2015.
China had implemented an over 180% tariff on Australian wines in late 2020 which effectively decimated TWE’s (Penfolds) business in China. With China market closed, TWE reallocated Penfolds wines to other regions in Asia but these sales came at lower margins as TWE had to invest in brand marketing to develop these new markets. China tariffs were removed in mid-2024 and TWE has since been re-establishing its presence there. We expect Penfolds can continue to deliver solid growth in China as it is starting from zero due to tariff disruption and the market remains supply constrained in the higher priced Bin and Icon categories.
We were able to invest in TWE below its net liquidation value. Key reasons for undervaluation include weak consumption trends in key markets (US and China), distribution channel disruption fears in the US, surprise change in key management and technical selling due to removal from MSCI World Index. The company announced its intention to launch a 5% share buyback as the current stock price is well below their own estimate of intrinsic value. We initiated a half position in TWE as we await our new CEO Sam Fischer who will start later this year.
Check here for the latest results, quarterly call and analysts' estimates.
Thesis:
Workday Inc is a mission-critical software provider for HR and finance functions, exhibiting double-digit revenue growth and potential for increased earnings under new CEO Carl Eschenbach, despite recent market challenges.
Source: https://drive.google.com/file/d/1pcFThedcO5noBPFecDlihcPG96qYpjY4/view?usp=drivesdk
Analysis:
Workday is a company we followed closely for some time. The company offers mission critical software for human capital management— in essence, Workday powers the HR department of the majority of Fortune 500 companies and a growing cadre of small business. The company has been broadening its offering from the HR department to finance functions and is slowly but surely gaining traction. Although growth has slowed in recent years, revenues continue to compound in the double digits, powered by a combination of new logo wins and land-and-expand successes with existing customers.
Our foremost points of hesitation on Workday in the past had been a combination of valuation and questions about the company's willingness to drive margin. In early 2024, the company named Carl Eschenbach full CEO after having shared the job with one of the co-founders. Eschenbach seems far more keen on streamlining operations and driving margin progress, as evidenced by the early 2025 restructuring and continued progress on the margin front. This should allow double-digit revenue growth to translate into considerably more earnings growth.
SaaS companies have fallen out of favor since the emergence of AI and this has led to continual multiple compression across the board. Workday is no exception. At the time of our purchase, shares were changing hands at 25x this year’s expected EPS and 18x EBITDA and 17x free cash flow, with all slated to grow in the vicinity of 20%. At these valuations, our base case is that returns should follow the growth in free cash flow (i.e. a 20% CAGR), with the potential for the multiple to rerate more favorably as Workday proves its resilience to AI. Even more upside is possible if Workday reaccelerates growth, something we believe is more likely than not, though it need not happen in our base case for strong returns.
Check here for the latest results, quarterly call and analysts' estimates.
Everything you read here is for information purposes only and is not an investment recommendation.
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