• Mainstream: don’t forget to mix Al Jazeera and the BBC in with Fox News / CNN

• Energy specific: Eric Nuttall, HFI, Goehring & Rozencwajg, IEA

It’s hard for me to find the next deep value with a catalyst situation when the immediacy of the one that is engulfing the world is so large and so easy to take advantage of (I hope time is kind to this perspective!). This is the position I find myself in as I find oil producers that meet the following criteria:

1. First off: they have to be producing unhedged Brent priced barrels. The market in which these barrels are being produced tends to feed markets that are net importers of crude, so it’s much ‘tighter.’ Especially true for the subject of this article, where the premium they receive to Brent is $12-$18. Here is the rub, I have no clue what the US administration could do to try to restrain an increase in prices – adding the potential for a speculative tailwind if export restrictions are enacted. Unlike most countries, the U.S. has a lot of options at its disposal.

2. The number of barrels they are producing should be increasing into this environment – the capex/investment to get the incremental has already been spent, not to be wasted in a price / service environment that will balloon development costs.

3. They’re inexpensive: some of my favorite metrics to evaluate – EV/FCF, EV/BOEPD, EV / 2P reserves

Throughout many parts of the oil ecosystem, I am sensing dislocations to value that do not reflect the cash generation potential of many investment opportunities. If allocated properly by management, I’m confident you’ll be led into great returns. In my previous article, I’ve evaluated what I perceive to be the best investments across several of these categories (refiners, servicers, shippers and producers). The topic of this article will be my favorite producer. Within the last 45 days, two of my previous purchases have been acquired - BlueNord (a dividend machine, by Var Energi) and Pharos (by Ratio or Serica - I’m no longer too close to the drama).

To highlight what I am looking for, I’ll walk through a short case study of another producer I’m invested in at the moment, Parex Resources (TSX: PRX).

Parex is a Colombian producer of onshore barrels that recently announced a farm-in deal with Ecopetrol and bought the assets of Frontera, a mature producer. The economics of these purchases are very attractive and should be aided by the technical expertise Parex has been able to demonstrate through the development of their legacy assets.

What does this do to production? Frontera almost doubles their production. As of July they disclosed net barrels are running at 83,500.

Once they spud a well as part of the farm-in Ecopetrol contract (expected in September or October), that will bring with it entitlement to 7K net incremental barrels a day as part of that sharing mechanism – basically a CapEx commitment for barrel share arrangement. Therefore, I expect Q4 productions to be 90K+ a day, over double what they were previously.

Historically, this has been a pretty shareholder friendly company - operating net cash, buybacks, dividends, etc. Importantly, management is confident in being able to increase the ROI from the Frontera assets through water / polymer injection that had not previously been a focal point (according to the CEO, historical production was kept flat through infill drilling).

Pull this up and they’ve guided at $90 per barrel (aggressive) to the 2H ‘26 to be able to generate $475-$525M in ‘funds flow’ (roughly OCF) with $275-$295M in CapEx. On a net basis you’re looking at $215M at the midpoint before tax and interest expense. Management claims ~50% of the large CapEx number is growth with flexibility to shave the number in the future when the price comes down – that’s a big lever on a $570M annualized number (at midpoint) where half is maintenance. I’m banking a margin of safety on this, but it’s not the cleanest thing to underwrite.

What are the key metrics I’m looking at with EV at $2.5B:

• EV/FCF @ $90: 5.8x

• EV/BOEPD: $27,500

• EV/P2 Reserves: $8.2/boe

• Dividend: ~6% yield

Look, I’d look at that $90 number and puke on it too (how do you know oil is going to stay so high??? I’d yell). It’s tough to forecast because I expect CapEx dollars to come out on anything lower than $80 realizations. I think they can still make money in a $65 environment. Since 2016, they’ve generated positive FCF every year and $1.8B in total.

Good metrics, but a few things make me take pause:

• Large CapEx numbers paired with a ~20% legacy decline rate on producing assets.

• A retooled balance sheet takes away flexibility. They’ve publicly touted paying down debt until reaching a .5x EBITDA gearing which they’ll hopefully be in a position to get close to by the end of next year in a good price environment.

• Lots of heavy oil barrels and production that is mostly getting transported to the US Gulf Coast (resulting in a negative differential to Brent pricing).

• A checkered past of developing assets that has me scratching my head if this time really will be different.

How does this compare to my favorite selection in the sector? Parex has a great ceiling, but it also has a lower floor and is sized accordingly in our portfolio. The subject of this article is a unicorn of sorts… a high floor, high ceiling opportunity.

I think the first two are near term situations that could help reprice shares in the near term:

1. Potential to get acquired or receive a significant investment above the current market price.

2. Report an exceptionally strong quarter next week - potentially waking the market up to their true value. My estimate has them earning close to 25% of the market cap in operating cash flow this Q.

3. Earn their EV in less than two years (starting in April) at $80 oil

Meanwhile, they are getting a $12-18/barrel premium to Brent…

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NWF Group is a small-cap distributor of essential products that has been profitable every year for decades, has a good ROCE across divisions and pays a 6% dividend. Furthermore, I think there is reason to believe they stand a good chance of being acquired over the next year at a time when industry multiples are much higher.

On a headline basis you see a business trading at 4.5x operating profit. On the asset side, take a dive into the financials and you will find 70%+ of the business covered by cash and real estate (ex-leases).

After speaking with the CEO, I believe this business is significantly undervalued and has the potential to deliver an attractive IRR for investors who join at this price level (154p).

Let’s dive into the valuation, why I think an acquisition is likely and insights from my conversation with the CEO. Overall, my conviction in the opportunity has increased.

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Here is a snapshot of the average trailing valuations for the four oil and gas producers we own. Very inexpensive, poised for growth and paying us over 15% in dividends.

Despite these incredible valuations - they are guiding to production growth of 80% from where they ended the previous year.

I’d take these investments even if I didn’t think we were on the verge of an energy crisis.

You can read my full thoughts here.

Let’s get into the investments.

Where we’ll look:

• Oil & gas producers (four profiles, all owned)

• Oil service (three profiles, two owned)

• Refiners (two profiles, one owned)

• Shippers (three profiles, two owned)

• Bonus: An inexpensive conglomerate with oil upside (1 profile, not owned)

Here is a summary of our holdings as a percent:

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I love scarce assets. Abundance breeds competition. Any time there is a supply / demand disconnect - incremental investment steps up to fill the void and soak up excess profits. Hence, you are stuck with playing a timing game that can be temporarily won if lead times are long enough to provide a temporary shield against capacity increases. However, the long-term results are the same. A reversion to the mean where many participants play a zero sum game against one another in an attempt to earn their cost of capital - yet comically still think there is some way to ‘win.’

Human nature is such that people always push for more. We crave abundance. For example, a scarce asset like bitcoin isn’t enough. We need to add leverage. We need to add forks to make it an abundant asset (through dilution), instead of a scarce asset managed by the rational simplicity of a math equation. We end up consuming the empty calories before letting the herd mentality carry us to the next thing we desire over because of an inability to override base social instincts (our brains have evolved from resource-scarce environments) and a yearning for what we do not possess.

Hence, when you find genuinely scarce assets, they should trade at a premium to the market. Importantly, they can be intangible as well. These are the type Buffett would prefer because the incremental investment is far less - resulting in a much higher ROA / ROE.

Where are they present?

• Intangible: Patents, copyrights, trademarks

• Tangible: Precious metals, rare earths (mostly lacking concentration, as the non-Sino world is getting an education in), real estate, art, vintage cars, luxury goods

The company I’m outlining today is managed by an individual who specializes in compounding capital through direct investments and operating businesses that seek to use scarcity as a long-term advantage for shareholders.

What are investors receiving in this investment:

• Significant hard asset cushion: This company trades under TBV per share despite compounding this value by 17%+ over the last 5 years.

• Inexpensive Asset Lite Operating Business: Company trades sub-4x operating income (their cash cow). I do not believe the market appreciates how this asset pushes their flywheel forward.

• Free option: A minority stake in a company that has impressively improved their profitability over the past year.

If you are a long-term, patient investor - I think this is an investment you could be interested in.

Let’s dive in to see why I believe this opportunity trades at less than half their intrinsic value with a large margin of safety.

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The value investor who helped engineer Argent Industrial’s transformation and took control of Aimia is now the CEO of a R5.7 billion revenue JSE tech company trading at ~5x EBITDA. Working for no salary, consistently buying back stock, and predicting four to six acquisitions a year at 4-5x earnings.

If you haven’t already, check out my previous article that covers Rhy’s involvement at Aimia and Argent. Rhys, the former Citigroup Global Head of Emerging Market Equity Research who founded Milkwood Capital and whose engagement with Argent’s management helped spark one of the great compounding stories on the JSE.

I expect this playbook to be Argent 2.0 - except in a capital light industry. So what happened at Argent under Rhys involvement?

Milkwood disclosed a stake of 20.4% in Argent in October 2017, and Summerton’s active engagement with CEO Treve Hendry’s management team began in 2018. The engagement centred on two things: stop accepting low returns on capital in a depressed home market, and treat your own discounted shares as the best acquisition available.

Here’s what happened at Argent over the period of Milkwood’s involvement:

Argent repurchased more than 40% of its own shares over the period. It compounded EPS at roughly 30% a year over six years, with about three-quarters of that from operational improvement and a quarter from the shrinking share count. Anthony Clark at Smalltalkdaily ranks Argent a top performer on the entire JSE over 2015-2025 at roughly 27% per annum in total returns, ahead of darlings like Capitec on his value-growth measure. A rand invested alongside Milkwood’s engagement is up over 7x, not including dividends.

Acquisition discipline, the carryover most relevant to iOCO, was strong. Argent set a ceiling of 6x earnings on acquisitions and consistently came in under it: OSA Door Parts for £2.5 million in 2016, Fuel Proof at roughly 4x in 2018, Fluid Transfer - a leading UK aviation refuelling manufacturer now exporting to 81 countries - for a nominal £1 from a distressed seller in 2021, and Standmode/Mersey at 4.9x earnings in 2024. No debt, funded from cash flow.

That is the playbook Rhys likes: buy back your own stock relentlessly while it’s cheap, acquire niche businesses at multiples so low the deals are nearly impossible to lose money on, keep the balance sheet debt free, and let the virtuous circle do the compounding. Argent proved it works on the JSE, in an unloved sector, with a South African discount hanging over the stock the entire time.

Now transpose it to iOCO, what’s different? Argent is a manufacturer: working capital, factories, steel inputs, freight, equipment. iOCO is a technology services business. As Summerton put it in an October 2025 interview: “You have no capex in this business, so EBITDA should translate directly into cash.” The FY2025 numbers back him up - 53 cents of free cash flow per share against 40 cents of HEPS. The asset-heavy version of this playbook produced a seven-bagger. iOCO is the asset-light version, run by him as the CEO.

Of all Summerton vehicles, this is the one I consider the most attractive.

iOCO Limited (JSE: IOC) is the company formerly known as EOH Holdings: once South Africa’s largest home-grown technology services group, then the protagonist of one of the most spectacular corporate implosions in JSE history, and now - after seven years of painful repair work - a clean, debt-light, cash-generative IT services business doing roughly R5.7 billion in revenue. In May 2024, Summerton joined the board. In February 2025, he became joint interim CEO, taking no cash salary, with his compensation tied entirely to the share price. Since February 2026, he has been the sole CEO.

At Argent, Summerton was an engaged shareholder - influential, but technically outside the C-Suite. At Aimia, he is Executive Chairman of a holding company. At iOCO, he is the chief executive.

If you haven’t already, I recommend you first read my overview of Aimia. During their AGM they outlined five companies entitled ‘Sample Target Investments.’ I outline who I think these could be. Now that Aimia has cash from a recent asset sale, they could turn into an acquisition.

The core thesis: iOCO is a turnaround that has already begun to inflect. FY2025 EBITDA grew 68%, the company swung from a headline loss to 40 cents of EPS, and H1 FY2026 delivered the first organic revenue growth in years. Now the Rhys Summerton playbook begins: aggressive buybacks below intrinsic value, bolt-on acquisitions at 4-5x earnings in a fragmented market with few other consolidators, and a stated medium-term target of R500 million of free cash flow over 500 million shares. You’re paying roughly 10x trailing earnings, under 5x forward EBITDA, and about 7x guided free cash flow for it. If the serial acquirer model works, the multiple won’t stay there. If it doesn’t, you own a 15% free cash flow yield being returned to you through buybacks.

Let’s dive in and see why I’m so excited about this opportunity.

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*Numbers in CAD unless otherwise noted.

*Updates made on 7/5/26 and 7/21/26 in red below

Rhys Summerton is not a name many have heard of. He’s a South African who founded and operated Milkwood Capital (UK based) over the past decade (previously MD at Citi EM research). This has led him to take several activist stakes that have resulted in strong shareholder outcomes.

His playbook is pretty simple: identify good businesses in a fragmented market that are beat up for one reason or another, strip out all the excess costs / bloat, buy back shares on the cheap and compound through inexpensive, small acquisitions / add ons. Rinse and repeat. Mostly I’ve invested alongside him in several South African investments (more on this, shortly).

However, this walk through is about a C$250M market cap company that trades on the TSX, Aimia. Serving as the Executive Chairman, he’s using this as a permanent capital vehicle. If you’re new to the name and like to be patient with your capital, I think you’ll find the set-up interesting.

Furthermore, in their recent AGM, Aimia gave five company examples that are in their acquisition pipeline. Doing some scuttlebutt, I think I’ve been able to identify a few of these (I’m invested in two of them).

Aimia was originally Air Canada’s loyalty-program holding company. It trades at roughly 80 cents on the dollar to book value while sitting on CAD $1+ billion in tax losses it carries off balance sheet. Recently closing a transaction on May 29th, Rhys is sitting on ~CAD $150 million of cash to enable the start of his acquisition playbook. Many of these targets are serial acquirer platforms that have a long tail of acquisition potential as they mop up fragmented markets - this should result in a clear path to growth for years to come. Meanwhile, the cash they throw off will be protected because of the massive tax losses they have at their disposal.

Buy an attractive platform → Generate cash → Reduce share count → Buy small, inexpensive add-ons

A Brief History:

Aimia began life as Aeroplan, Air Canada’s frequent-flyer program. It was spun out and listed in 2005 as the Aeroplan Income Fund, became Groupe Aeroplan, and rebranded to Aimia in 2011. For most of the next decade it was a loyalty-and-analytics business.

The defining event came in 2019, when Aimia sold the Aeroplan loyalty business back to Air Canada. The headline cash consideration was approximately CAD $450 million, with total transaction value reported closer to CAD $516 million. That sale turned Aimia into a cash-rich shell with no core operating business, resulting in a pivot to become an investment holding company.

The reinvention did not go smoothly. Under the leadership of brothers Phil and Chris Mittleman, Aimia made a series of investments. A specialty chemicals business (Bozzetto), a synthetic-rope manufacturer (Cortland), stakes in Clear Media, Kognitiv, TRADE X and others. I found this to be a lol slide from the AGM:

That discount attracted an activist. Mithaq Capital, a Saudi based family office (one of the richest non-royal families), accumulated a large stake and, at the April 2023 annual meeting, ran a “vote no” campaign that toppled the chair with no director clearing support needed to retain a seat. Mithaq followed with a hostile all-cash bid at CAD $3.66 per share in October 2023. Aimia’s board resisted, including initiating a defensive private placement that drew a challenge before the Ontario Capital Markets Tribunal. After more than a year of litigation and acrimony, the two sides settled in late 2024: Mithaq took board representation, the lawsuits ended, and the company’s direction shifted decisively toward disciplined, value-oriented capital allocation.

The Aimia that emerges is a holding company with a cleaned-up board, a large and capable controlling shareholder, a portfolio being actively rationalized, and an enormous pool of tax assets accumulated through years of losses and write-downs.

Rhys Summerton:

Aimia’s most important asset does not appear on its balance sheet. It is the person now running it.

Rhys Summerton spent the start of his career at Citigroup, where he was a Managing Director and ultimately Global Head of Emerging Market Equity Research. In 2013 he left to found the Milkwood Fund (the vehicle of Milkwood Capital) a UK-based, globally mandated, highly concentrated value fund that is not shy about activism in smaller companies. Here is a good article about Rhys and Milkwood.

An example of Rhys’s work is embodied by Argent Industrial (JSE: ART), a company I own. Milkwood’s engagement with management is credited with helping spark one of the most impressive value-creation stories in South African small-caps. Argent transformed itself from a low-return domestic steel trader into a globally diversified, cash-generative, debt-free industrial group, retired roughly 43% of its share count, and compounded earnings per share at around 30% a year. Summerton helped drive the capital allocation while the CEO (Treve Hendry) ran point on operations.

Summerton joined Aimia’s board on January 28, 2025, and was subsequently appointed Executive Chairman. Per the 2026 AGM materials, insiders and the board control roughly 42.6% of the shares (~12% for Milkwood and ~30% for Mithaq). You are betting alongside a concentrated value investor with a great track record, a board that owns nearly half the company, and a controlling shareholder in Mithaq. This alignment is what I look for.

The Balance Sheet: NAV, the Bozzetto Sale, and the discount

On February 9, 2026, Aimia announced the sale of Giovanni Bozzetto S.p.A., the Italian specialty chemicals business in which it held a 94% interest. The terms:

Post transaction, I think the balance sheet will end up looking like this:

Now the valuation. Aimia’s 2026 AGM presentation reports net book value per common share of CAD $3.66.

Aimia (TSX: AIM) Share price: CAD $2.79 x 89.4M shares = $250M

Pro-forma Net book value / share (Mar 31, 2026): CAD $3.66 (ironically, this is what Mithaq tried to buy them for back in 2023)

Discount to pro-forma book: ~23%

A discount is not unusual for a holding company. Considering the capital allocator at the helm and off balance sheet tax losses, I think the gap is excessive.

The CAD $1.09 Billion Asset That Isn’t on the Balance Sheet

This is the most under-appreciated element of the Aimia story.

As at March 31, 2026, Aimia carried CAD $1,087.8 million of tax-loss carryforwards:

Aimia has recognized none of this on its balance sheet. Under IFRS, a company may only book a deferred tax asset for losses when it is “probable” that future taxable profit will exist to absorb them. This is the same situation for my last write-up (that also trades sub 2x EV/EBITDA). Aimia’s auditors have not been willing to call that probable, so the entire CAD $1.09 billion sits off balance sheet.

The company’s own AGM materials put an illustrative value of roughly CAD $214.4 million on these unrecognized losses - composed of Canadian and US operating-loss benefits and Canadian and Indian capital-loss benefits. On ~89.4 million shares, CAD $214 million is about CAD $2.40 per share of value that does not appear in the CAD $3.66 book value.

The distinction between “on” and “off” balance sheet is the whole game here:

• On balance sheet: none. The CAD $3.66 book value you are buying at a discount excludes the tax assets entirely.

• Off balance sheet: the full CAD $1.09 billion. As Aimia acquires profitable operating companies and as it realizes capital gains, those losses convert into cash-tax savings. The Bozzetto sale is an example where Aimia expects to apply roughly CAD $40 million of capital losses against the Bozzetto gain and pay no tax on the disposal.

Cortland - The Remaining Operating Business (and potential write-down)

Cortland International is Aimia’s 100%-owned synthetic-rope and netting business, a roll-up of two acquisitions made in 2023: Tufropes, an Indian synthetic-fiber rope and netting manufacturer serving aquaculture, maritime and industrial customers (bought March 2023 for CAD $249.6 million), and Cortland Industrial, a US-based designer and manufacturer of high-performance synthetic ropes, slings and tethers for aerospace, defense, marine, renewables and other heavy industrial end markets (bought July 2023 from Enerpac Tool Group for USD $26.6 million). Combined, Aimia paid approximately CAD $285 million for what it now reports as a single Cortland International segment. Operationally, the business is a niche industrial concentrated in marine/shipping rope, aquaculture netting (a quietly attractive structural-growth market), and specialty defense / aerospace tethers, which is the higher-multiple corner of the portfolio.

The operating reality has been tough. Q1 2026 revenue was CAD $32.7 million, down 19.7% year-over-year, with the decline traced to lower marine and shipping volumes, sales-order timing, and selling-price increases catalyzed by Middle East-driven raw-material cost rises. Q1 2026 adjusted EBITDA was CAD $4.5 million, a 13.8% margin. Annualizing the Q1 run-rate gives roughly CAD $18 million of EBITDA; the full-year 2025 figure was CAD $19.9 million.

As at December 31, 2025, Aimia’s goodwill related to the Cortland group of cash-generating units stood at CAD $42.5 million, after a CAD $14.0 million goodwill impairment. That impairment was the principal reason the consolidated business reported a CAD $9.9 million net loss for the period, and it was struck on a fair-value-less-costs-of-disposal calculation blending discounted future cash flow with a market-multiple approach. If the trajectory of revenue and EBITDA continues, it will be marked down again.

So what is Cortland actually worth on a private-market basis today? At a realistic specialty-industrial multiple of 6 to 8 times EBITDA on a run-rate of CAD $18–22 million, the implied enterprise value is roughly CAD $110 to $175 million. Even a generous strategic-buyer multiple of 9x on the high end of the run-rate gets you to ~CAD $200 million. Against the CAD $285 million Aimia paid, this is a permanent capital impairment of roughly CAD $85 to $175 million versus the original deal, which is a material chunk of the “wreckage of the old Aimia” narrative the new management has been quietly cleaning up. Critically, this gap is not yet fully reflected in book value. The CAD $42.5 million remaining goodwill plus tangible and other intangible Cortland assets - working capital, plant, customer relationships - sit on Aimia’s balance sheet materially north of a current private-market value. The CAD $3.66 reported book value per share carry Cortland at book, not at fair value to a strategic acquirer.

On the Q1 2026 call, management was explicit that there is “no rush“ to sell Cortland but that monetization would be considered “if an opportunity emerged that helped unlock value across the group.” Call it a high estimate, with maybe CAD $1.00–$1.50 of per-share air between book and a realized exit on Cortland. The thesis still works, because of the tax-loss optionality and the ability for Rhys to identify, then extract operational value, but it’s a reason why my stake in Aimia remains small relative to other investments.

Capital Returns: Shrinking the Share Count

A management team’s treatment of its own shares tells you what it actually believes about value. Aimia’s recent record is consistent with a board that thinks the stock is cheap.

Note: I’ve used 89.4M shares outstanding in my valuation calculations since that was the number at the end of Q1.

The share count tells the story cleanly: roughly 99.7 million common shares outstanding in May 2024, ~91.1 million by July 2025, and now sits at ~88.6 million. That is over a 10% reduction in two years, executed at prices ($2.50–$2.90 range) that sit far below the CAD $3.66 book value.

The Investment Checklist:

Management has been explicit about its criteria for investing their cash. Distilled from the Q1 2026 results, the Q1 2026 investor deck and the 2026 AGM presentation, Aimia’s checklist for a target investment is:

1. Undervalued versus intrinsic value: Management frames the universe as “more than 5,000 companies globally that trade below their NAV” and is fishing in that pond.

2. Cash on the balance sheet: This is stated as critical - targets should hold cash that Aimia can redeploy. The deck explicitly criticizes prior investments (Kognitiv, TRADE X) for having neither cash generation nor healthy cash balances. That mistake will not be repeated.

3. Genuine cash generation and profitability: The business must actually make money. No more story stocks.

4. Healthy balance sheets: Low leverage; financial resilience.

5. Controlling interests, not minority stakes: Aimia wants control to have the ability to direct capital allocation and route profits through the tax-loss structure.

6. Effective use of the tax-loss carryforwards: The ability to absorb Aimia’s losses in addition to their own.

7. Measured against NAV per share: Success is defined as growth in net asset value per share.

Management has also said the approach will be incremental, with capital deployed deal by deal, not in a single splashy transaction - and that it has already identified a short list of targets.

At its annual meeting, Aimia showed a slide titled “Sample target investments” - a table of five companies, identified only as Company 1 through Company 5, with their industry, market cap, net cash, forward EV/EBIT, forward FCF yield, and whether their tax losses are usable. The figures are in Canadian dollars. I have reverse-engineered each row from its financial fingerprint. Confidence ratings are mine alone and could be incorrect - especially considering the valuation assumptions are forward looking.

[Added on 7/5/26]

The pieces are now in place for Aimia's first deal under Summerton. The Bozzetto sale closed May 29 for net proceeds of C$268.4 million, fully sheltered by capital loss carry-forwards. On July 3 Aimia retired $131.4 million (roughly 92%) of its 9.75% senior notes at par, leaving only an $8.2 million stub and a clean balance sheet with roughly C$150 million of net deployable cash. Meanwhile the buyback grinds on: 165,400 shares repurchased in June at a weighted average of $2.79, bringing shares outstanding to 88,400,485 at June 30 (over 10 million shares cancelled since June 2024), with the NCIB renewed June 4 for up to another 5,012,419 shares through June 2027.

Who could Aimia buy? I own shares in two of these five companies

Reverse-Engineering Aimia’s Target Slide From the AGM. Recently, Aimia tipped its hand as to who one of the acquisitions could be [7/21/26 update]:

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This investment trades at ~1.75x EV/EBITDA for a hidden minority interest, which grew organically 20%+ last year and is set up for more growth.

In a market full of gambling, constant all-time highs and a powder keg of uncertainty, downside matters. That is why the first question I ask myself is: how far can this investment drop? It’s damn hard to predict and I’ve had to walk away from several names because the forecasting is just too difficult.

So what am I looking for: earnings predictability, an inflection point I perceive tips earnings toward an upward trajectory and hard assets.

I believe this investment carries these characteristics with it in ways that bring asymmetric upside.

Why does it exist? First, it’s too small for anyone to care. Based on the exchange, you would expect this not to be the case, but sometimes value hides in plain sight… or so I hope.

The real benefit of the mispricing lies in the fact that a lot of the value is masked by accounting. Not in a misleading way, but through rule based applications that can create inefficiencies for investors willing to go the extra mile. One of these is obscured completely, while the other doesn’t show in most lines on the reported financials.

Paired with good execution, I expect this to be a multi-bagger in the coming years.

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Recently I’ve gone off the beaten path, searching for and finding what I perceive to be great investment opportunities that are off the radar of investors. There is both freedom and loneliness going down a trail less followed. From an investor standpoint, it takes knowing what you are looking for, going deep into the details and the conviction to follow through and make it a core part of your investment portfolio.

The result? Three companies I will share over the coming months I believe have asymmetric upside versus downside potential.

While these are three very different companies, they share the following qualities:

1/ Small in size: The largest is sub ~$200M USD market cap.

2/ Growing: Each is at a unique inflection point that is not appreciated by investors.

3/ Inexpensive: Ranging from a 1.5 - 7x future P/E with various degrees of manageable debt.

4/ International: None are in the United States.

5/ Unloved: I can’t find coverage of these companies, anywhere.

Most importantly, two of the three are managed by what I perceive to be excellent management teams. The other? It has three plus distinct paths to be worth its enterprise value.

When I did Sunday’s Idea Brunch, I mentioned: I have little doubt I’m the only investor thinking about 2-3 companies when I wake up in the morning. I try to focus my attention there, even though it takes time to build a position because they’re so tiny.

I’m excited to share these with you. Expect the first profile next week.

As we enter the core of Q1 earnings season, here are opportunities I’ll be keeping a close eye on. I own positions in all of them and several were previous write-ups (linked where this is the case):

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What are some characteristics of a perfect business?

• Early stages of industry disruption

• Great pricing power (I hope they use it!)

• IP Protected

• Demonstrated unit economics

• Visible backlog

• Scaling production that is leading to huge increases in royalty income

• Optionality for expansion into adjacent markets with the same product

Unsurprisingly, these characteristics rarely come cheap. However, they can still present mis-pricings when the growth potential is so strong, the market is not fully valuing what the long-term picture is likely to look like.

I believe this is one such case.

It is a company that I plan on holding for at least the next five years as they pivot from development to production to scale (current stage) to cash printing machine (my hope).

While the share price is likely to stay volatile in the near-term as they are beta to certain end industries they serve, I think there are a couple things the market is missing: 1) long-term growth potential 2) the true earnings potential of their current install base as utilization scales 3) ability to re-price at a level more consistent with the amount of value they’re bringing to the ecosystem 4) using the system to assay other minerals outside of gold longer-term. By the end of this article, it is my intent to make my perspective on these key aspects clear.

Bring along your coffee can. I’m going to recommend you don’t touch these shares for a long time.

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Note: I’ve tried to update some of the material numbers to be current as of 8/5/26 (the date I made this free). Please double check all information.

Chrysos (ASX: C79): Changing Assay

Management check: I’ve only shared emails with CEO, Dirk Treasure. I’ve talked to a couple analysts and investors about Paragon Advanced Labs (PALS.V).

First, thank you to Ian Cassel for writing a article on MicroCap Club on Paragon Advanced Labs (PALS.V) that uses Chrysos’ technology in their service. If you aren’t already, definitely become a member (note: no referral, it’s just a great service).

Chrysos is one of the most compelling technology-driven growth stories I’ve come across . A company with a technological monopoly, a rapidly scaling annuity revenue model, limited competition, partnerships with the four largest assay laboratories, engagement with 70% of the top 20 gold miners, and a product that is superior to the 100-year-old fire assay method it replaces. Currently at ~5% market penetration, they have a long runway ahead.

Chrysos has built PhotonAssay - a technology spun out of Australia’s national science agency (CSIRO) - that analyzes gold, silver, and copper content in drill core and mining samples using high-energy X-rays. It does in two minutes what fire assay does in four hours, on a sample 20x larger, without destroying the sample, without chemicals, and with 97%+ correlation to fire assay results. The company doesn’t sell the machines, it leases them under long-term contracts with minimum monthly payments, retaining ownership. Think of it as “assaying-as-a-service.” As utilization rises above the contracted minimums, incremental revenue flows at near-100% margins through Additional Assay Charges (AAC). In H1 FY2026, AAC represented 27% of total revenue, up from 11% just twelve months prior.

What Does Chrysos Do?

Every gold miner and exploration company needs to assay to test the gold content of their drill core, reverse circulation chips, and process samples. This is how they know what’s in the ground and whether it’s worth extracting. For over a century, the standard method has been fire assay: a labor-intensive, chemical-heavy, destructive process that takes a 30-50 gram sub-sample, dissolves it in molten lead and flux, and returns results in 4-24 hours. It works. It’s also slow, wasteful, environmentally problematic, and statistically limited by its tiny sample size.

Meanwhile, PhotonAssay uses high-energy X-rays from a linear accelerator to activate gold atoms within a 500-1,000 gram sample, causing them to emit a unique energy signature that is measured. The result: a non-destructive, chemical-free analysis in approximately two minutes, on a sample 20-30x larger than fire assay. The larger sample size alone is differentiated in that it dramatically reduces the “nugget effect” that plagues traditional assaying, where a tiny sub-sample can wildly misrepresent the true grade of the ore body.

Here’s what matters to customers:

• Better product at equivalent price: PhotonAssay delivers faster, safer, more accurate results and Chrysos prices it to be competitive with fire assay. This brings with it far better unit economics to labs and miners alike. CEO Dirk Treasure has been explicit about this: the labs need to make at least the same profit margin as they do on fire assay, otherwise they have no incentive to convert. Chrysos is deliberately not maximizing short-term profitability, it is building for market share in the gold assaying market.

• Non-discretionary spend: Miners don’t choose whether to assay. They have to. This is embedded in the mining workflow between drilling and processing. Therefore, with end market commodity prices up 2-3x over the past five years, they in the midst of an incredibly strong cycle.

• Annuity model with upside: Each PhotonAssay unit is leased under a long-term contract with Minimum Monthly Assay Payments (MMAP) of approximately A$1.55 million per year - paid regardless of usage. When sample volumes exceed the contracted minimum, Additional Assay Charges (AAC) kick in at roughly A$6-7 per incremental sample. The MMAP is the floor. The AAC is where the economics get exciting. Expect this to be especially relevant for lab installed devices, since their operators are naturally incentivized to utilize the machines as much as possible to flatter their bottom lines.

What are the Assumptions

These form the basis of the following calculations. There are a lot of variables to get right and any investor should form their own perspective on these before making an investment decision.

H1 FY2026 Results: The Inflection Point

Chrysos released its H1 FY2026 results on February 18, 2026, covering the six months to December 31, 2025. The numbers tell a clear story of accelerating operational leverage:

Additional Assay Charges grew 255% in a single half, from A$3.3 million to A$11.7 million, and now represent over a quarter of all revenue. This is the most important line item in the Chrysos P&L. It tells you that sample volumes are surging above contracted minimums across the fleet, and every incremental AAC dollar drops at gross margins approaching 100% because the equipment is already deployed and the fixed costs are already covered.

In January 2026, Chrysos processed approximately 950,000 samples in a single month (~55% utilization at nameplate), approaching the 1 million per month milestone. For context, the company processed 6.7 million samples in all of FY2025. The run-rate has effectively doubled.

CEO Dirk Treasure described it as a “very strong half” with “continued global conversion of miners to PhotonAssay, record sample volumes, accelerating utilization across our fleet, and meaningful operating leverage emerging in the business.”

FY2026 Full-Year Guidance: Revenue of A$80-90 million and EBITDA of A$20-27 million. Given that H1 already delivered A$43.3M in revenue and A$14.4M in EBITDA, the company appears to be sandbagging. Management has been deliberately conservative on guidance due to FX volatility (a 7.5% swing in AUD/USD meaningfully impacts reported revenue), which I view as a positive signal on the underlying business trajectory. (next report is Aug. 11th, so we’ll know more shortly)

The Revenue Model: Deployment x Utilization = Compounding

The Chrysos investment thesis rests on two engines of growth running simultaneously: (1) deploying more PhotonAssay units into the field, and (2) increasing utilization of the existing fleet. Both are working. Let me walk through how the economics compound.

Unit Economics

Each PhotonAssay unit costs sub-A$4 million to build, plus approximately 10% additional in spares, call it A$4.4 million all-in. Annual maintenance and servicing costs approximately A$440,000. Against that, each unit generates a minimum of ~A$1.55 million per year in MMAP revenue.

At MMAP alone, the payback period is roughly three years. But the economics improve dramatically with utilization, because AAC revenue flows at near-100% incremental margins.

The nameplate capacity of each current-generation unit is 40,000 samples per month. Labs can and do exceed this, Chrysos has noted that hub laboratories can operate above nameplate capacity during upturns. The new XN generation unit, just deployed to SGS in Perth, has a nameplate capacity of approximately 50,000 samples per month (25% higher), achieved through improved robotic automation that increases throughput to 83-84 jars per hour versus 72 for the current generation (note, if you do the math on 72 samples an hour, you get 1,728 a day x 30 = 51,840 per 30 day month… hence, the ability to run over nameplate). XN rollout will be measured - one unit now, a second in approximately 12 months, then moving to full commercial production 12 months after that. However, it represents a meaningful step-up in unit productivity over the medium term.

Utilization: The Key Differentiator Between Mine Sites and Laboratories

Not all units are created equal from a utilization standpoint:

Mine-deployed units operate at the mercy of the mine’s production schedule. During active drilling campaigns, volumes surge. Between campaigns, they can idle. I model mine units reaching 40-50% steady-state utilization over time. This is enough to generate some AAC, but never run flat out. Dirk has communicated: miners are “more stable in their volumes” but won’t reach lab-level utilization.

Laboratory-deployed units (units placed at central assay labs like SGS, PALS, Bureau Veritas, ALS, and Intertek) are different animals. These labs aggregate samples from dozens of mining clients. They run multiple shifts. They have an economic incentive to maximize throughput. I model lab units reaching 75-90% utilization over time, and they should generate significantly more AAC income per unit. This is where there is significant torque: a lab unit at 85% utilization generates nearly A$3.0 million per year, almost double the MMAP floor (using my assumptions).

Getting the lab utilization mix right is the key to accuracy in this model. The four largest lab companies (SGS, Bureau Veritas, ALS, and Intertek) collectively represent over US$50 billion in enterprise value! They are actively partnering with Chrysos to deploy PhotonAssay across their global networks. The incentive alignment is clear: PhotonAssay offers them a better product at equivalent economics to fire assay, with less labor, fewer chemicals, and a superior environmental profile.

My Base Case Revenue Model

Here is my five-year projection based on the following assumptions:

Deployment: 16 units per year (conservative within the 14-18 range that manufacturing capacity supports, and representing a meaningful step-up from the 9-11 units deployed historically). Manufacturing capacity is currently 18 units per year and should be increased over time if management is able to successfully execute. The big risk here is if the backlog dries up.

Here is an exert from my back and forth with the CEO: “Current capacity of 18/year. Reasonably easy to increase that over time when warranted”

Utilization ramp: New units start at 25% (mine) / 50% (lab) in year one and ramp to 50% (mine) / 88% (lab) by year three to four. I do not assume full utilization immediately to reflect a ramp as customers integrate PhotonAssay into their workflows.

Fleet mix: Current mix of 43 deployed units is 75% lab / 25% mine site. Moving forward, I estimate this to be 50% mine / 50% lab (closer to the TAM of 410 mine sites vs. 200 lab sites).

FY26 cross-check: My model outputs A$97.4M in FY26 revenue against management guidance of A$80-90M, which I think they are being overly conservative with.

AAC is the profitability driver: Notice how AAC revenue grows from A$34.6M to A$101.7M over five years, a 3x increase. Because AAC drops at near-100% incremental margin, this is what drives the EBITDA margin expansion from 25% to 42%. This is the operating leverage story, and is a key piece for any prospective investor to pressure test on their own. The big questions? How many machines will be bought and how quickly can they be manufactured? What is the actual useful life of these machines? Is there additional pricing power? Note: When modeling, I did not have machines dropping out.

The utilization ramp: I’m modeling blended utilization reaching 62% by FY31. The current fleet is already approaching 55% utilization (1 million samples/month across 43 units at 40,000 nameplate = 58%). As units continue to mature and lab deployments increase, there is upside to these numbers.

The Scale Path: Debt, Not Dilution

One of my key concerns in any high-growth, capital-intensive business is dilution. Chrysos has addressed this head-on in the last earnings release.

In H1 FY2026, the company had A$21.5 million in cash and access to a A$200 million syndicated debt facility. Total available funding capacity stands at approximately A$177 million. At sub-A$4.4 million per unit all-in, that’s enough to fund roughly 40 additional unit deployments, or 2.5 years of deployment at 16 units per year without accounting for operational cash flow.

116.5 million shares issued, 118.1 million diluted. For a company that has been investing heavily in fleet build-out, the discipline on dilution has been notable.

The critical question is whether operating cash flows will scale fast enough to self-fund deployments beyond the current debt capacity. I believe they will. Here’s why:

Operating cash flow in H1 FY2026 was A$8.8 million versus A$3.6 million in the prior corresponding period. As the fleet matures and utilization rises, EBITDA should track toward A$50M+ by FY28 in my base case. By that point, annual growth capex of A$70M for 16 new units can be substantially funded from a combination of operating cash flow and the remaining debt facility. And as the credit profile improves with rising profitability, the ability to refinance and expand debt facilities grows.

The path to free cash flow positivity will take longer, Chrysos is in the investment phase of its lifecycle and every dollar of EBITDA is being plowed back into fleet expansion. This is the right trade-off. When you have a product with zero credible competition, 5% market penetration, and 76% gross margins on a 20-year asset life, you deploy capital as fast as you responsibly can.

For now, the TTM EBITDA of A$16.1M (FY25) growing toward management’s A$20-27M guidance for FY26, combined with A$177M in available funding, should provide the runway needed to scale the fleet without meaningful dilution.

Market Penetration: The Long Runway from 5% to 50%

Chrysos estimates its total addressable market at 610 sites globally - 410 mine-site laboratories and 200 centralized (off-site) commercial laboratories. With 43 units deployed, the company states it has achieved approximately 5% market penetration (note: some sites have multiple units, so deployed units do not map 1:1 to sites penetrated). The runway is enormous.

At 50% penetration, you’re looking at roughly 305 units, which at 16 per year would be reached around FY42, roughly 16 years from today. As mentioned, current manufacturing capacity is currently 18 units per year and, per the CEO, is “reasonably easy to increase over time when warranted.” Additional upside if they are able to prove this out.

The flywheel is also working in Chrysos’s favor. The company now has engagement with 70% of the top 20 gold miners and partnerships with the four largest commercial laboratories. In May 2025, Newmont (the world’s largest gold miner) signed a master services agreement and ordered its first unit. Bureau Veritas is bringing PhotonAssay into South America. Every major deployment is a reference customer that de-risks the next one.

Optionality: New Elements and the XN Generation

The core thesis does not depend on this, but it’s worth noting two sources of additional optionality:

New element capability. PhotonAssay currently analyzes gold, silver, and copper. The logical expansion path - elements that co-present geologically with gold - include antimony, lead, and zinc. Each additional element increases the value proposition of an installed unit without requiring incremental capital. Chrysos has been clear that it remains “relentlessly focused on the gold market” for now, and I model this accordingly, zero contribution from new elements in my base case. But the technology platform has the latent capability to detect over half of all naturally occurring elements, and future expansion into base metals assaying could meaningfully enlarge the TAM. I find this to be key to maximizing company value, but am not going to spend time muddying the waters because I believe the business is worth more than market price for the gold portion alone.

XN generation. The first next-generation XN unit has been deployed to SGS in Perth, delivering 83-84 samples per hour versus 72 for the current generation. Nameplate capacity moves from 40,000 to approximately 50,000 samples per month. The XN rollout will be gradual (first unit now, second in ~12 months, then full commercial production ~12 months after that), at which point all future units would be XN. Over time, this raises the revenue ceiling per unit and accelerates the AAC opportunity. More importantly, this is a pivot to go vertical. Chrysos is looking to bring manufacturing in house, outside of China.

Neither of these is in my base case. Both represent upside that could be material over the medium term.

Moat: Why PhotonAssay Is Defensible

The IP protection around PhotonAssay has multiple layers, some legally driven, others reinforced by the market acceptance they are receiving. Here is how I perceive them:

1. Patent estate: PhotonAssay is based on high-energy photon (gamma) activation analysis, a method that CSIRO’s Dr. James Tickner and Dr. Nick Cutmore began researching almost 20 years ago, initially using a Sydney hospital’s radiotherapy linear accelerator during off-hours to test whether X-rays could activate gold in rock samples. That work produced a foundational body of patents covering the underlying analytical method, the sample handling geometry, the detector array configuration, the calibration algorithms, and the automation systems that make the technology commercially viable. Dr. Tickner, now Chrysos’s co-founder and Chief Technology Officer, holds over 90 patents personally.

   Standard patent terms in Australia, the United States, and under the PCT system are 20 years from the priority filing date. The earliest foundational CSIRO filings date to approximately 2007-2010, which means some of the core method patents begin expiring in the 2027-2030 window. However, Chrysos has been continuously filing new patent applications covering subsequent innovations: improved detector configurations, the XN-generation automation system, moisture content correction methods during activation analysis (US patent 12,228,530, filed 2019 and granted February 2025), and novel sample preparation techniques for activation analysis (US publication 20260016427, filed 2023). These later filings extend hard patent protection on key system components through approximately 2039-2043. The result is not a single patent cliff but a layered portfolio. Critically, in 2016 Chrysos acquired the underlying IP from CSIRO outright, this was not a license arrangement. Chrysos owns the patent estate, and CSIRO cannot re-license the technology to a third party.

2. Operationalizing the Tech: Each PhotonAssay unit is a complex piece of equipment built around a linear accelerator (manufactured in partnership with Nutech), a proprietary robotic sample handling system (developed with partners SAGE and Automation Innovation), shielded activation and detection chambers, and software that transforms raw gamma-ray spectra into assay-grade gold, silver, and copper concentrations with 97%+ correlation to fire assay results. Calibrating these systems for the large variety of ore types encountered across global mining jurisdictions - each with different matrix effects, moisture content, and mineralogy - represents tens of thousands of operating hours of institutional learning spread across 43 deployed units on three continents. A competitor could read every patent in the portfolio and still spend five to ten years getting the output to a point where a Tier 1 miner would trust the numbers for JORC or NI 43-101 resource reporting.

   Chrysos’s 2023 Annual Report discloses that the company has a “robust IP Roadmap” with a dedicated development team deliberately siloed from operations to focus exclusively on “expediting new IP” - a structure that ensures the know-how moat continues to widen even as the patent estate matures. The development team has split into two groups: one focused on continuous improvement of production units, the other exploring “step-change possibilities” and “adjacent markets.”

3. Global service and regulatory moat: When Dirk Treasure was asked directly about competitive threats - including from Chinese replication - he made two points. First, patents protect against direct copying. But second: Chrysos’s global footprint of 40+ units operating across Australia, Canada, the United States, Tanzania, the DRC, Ghana, Mali, Cote d’Ivoire, and soon South America provides “demonstrated capability for supporting complex equipment around the world, which is a moat in of itself.” Every deployed PhotonAssay unit requires country-specific radiation safety licensing for its linear accelerator, customs clearances, trained on-site technical support, and ongoing calibration by specialists who understand the local ore bodies. Chrysos has built this regulatory and logistics infrastructure in every major gold mining jurisdiction on Earth. A potential competitor would need to replicate it from scratch and they would need to do so without the reference installations, the customer validation data, and the operational track record that Chrysos has accumulated since the first commercial deployment.

4. Embedded workflow: PhotonAssay data feeds directly into JORC- and NI 43-101-compliant resource models that mining companies file with securities regulators and publish to investors. Once a miner has validated PhotonAssay against fire assay for a given ore body, a process that typically runs over many months across thousands of paired samples, switching to an unproven alternative means re-doing that validation work and accepting reporting risk during the transition. The labs face an analogous switching cost: they have invested in integrating PhotonAssay into their sample management systems, laboratory workflows, and client reporting. That integration cost has already been paid. Doing it again for a competing technology has no business case unless that technology offers dramatically superior economics and Chrysos, as the incumbent, has the pricing flexibility to respond.

Dirk has been explicit that Chrysos keeps “a fairly close eye on anything that we think would have potential to overlap with us in the future” and retains “optionality around whether we would acquire something like that.” As of today, there is nothing specifically on the radar (as I understand it). The practical result is a durable monopoly backed by a layered patent portfolio extending through the early 2040s, deep institutional know-how, a global regulatory footprint, and embedded customer workflows - a strong combination.

Valuation

On a backward looking basis, this company seems incredibly expensive:

• MC: A$708M, EV: A$736M

• Revenue: A$80.4M, EBITDA: A$23.9M

• EV/Sales: 9.1x, EV/EBITDA: 30.7x

What are the different scenarios I’ve modeled out to 2031? Note: This is sure to be laughably wrong, so be sure to come up with your own perspective.

Note: Table is based on the originally published price. IRR on current (8/5/26) range at 15x is now 12-27% because of the drop in price from original publication.

In all three scenarios, Chrysos is trading at a reasonable to cheap forward EBITDA multiple on FY31 estimates for a company with monopolistic market position, 76% gross margins, a massive deployment runway, and zero credible competition. The current enterprise value of approximately A$736 million reflects, in my view, a meaningful discount to the long-term earnings power of this business.

Pricing

For any investment, arguably the most important factor is understanding the pricing power it holds. While I am not underwriting improved economics in my model, it is this variable I think will be the difference between a good vs great investment outcome.

Luckily, we have a lot more information about what the unit economics are for the labs that are using their technology. Specifically, Paragon Advanced Labs (PALS.V) recently went public and their primary business model is renting and operating Chrysos machines (around this they provide some value add services like crushing).

Here are the unit economics being forecasted for the lab by machine, the numbers are incredible. Almost $6.0M in EBITDA on $9.6M in revenue per machine.

40,000 nameplate x 80% utilization = 32K assays per month

Avg assay price is $25 x 32,000 x 12 = ~$9.6M in annual revenue

Monthly costs: $8 per assay x 32,000 and $40K in monthly overhead = $296K x 12 = $3.6M per year

Profit per machine: $9.6M - $3.6M = $6M

Each incremental assay is contributing ~$25 in revenue versus $8 in royalty. That’s great leverage. A couple points:

1. The Clarus report notes C$7-$8 in PALS royalty per assay, which is above the A$6.5 we have modeled (they also note annual capacity to produce 21 machines a year vs 18 reported by the company and 16 per year modeled).

2. Once adoption of photon assay continues, Chrysos could decide to increase pricing on renewal. The royalty could be increased 25% and the modeled lab EBITDA margins would still be north of 50%.

Risks

With a high valuation and tons of assumptions comes a ton of risk:

1. Execution Risk on Deployments: Chrysos has historically deployed 9-11 units per year. My base case assumes 16 per year. Manufacturing capacity supports 18, and the company has said this is “reasonably easy to increase,” but there is a difference between capacity and execution. Supply chain disruptions, installation delays, or customer deferrals could slow the rollout. The 34 units currently on order (with 5-10 in the warehouse ready to deploy) provide some visibility, but the manufacturing lead time of about two years is long.

2. Utilization May Not Ramp as Modeled: My thesis depends on utilization rising above contracted minimums. If gold exploration activity slows, if mining companies reduce drilling programs, or if labs don’t achieve the throughput rates I’m modeling, AAC revenue - the profit supercharger - will underperform. The risk is that blended utilization stalls in the 35-40% range, in which case Chrysos remains primarily a MMAP business with more modest growth and profitability. The good thing? Labs are incentivized to surpass minimum requirements. The incremental cost of a sale is far higher than throttling assays to avoid paying additional fees.

3. Capital Intensity: At A$4.4 million per unit, deploying 16 units per year costs A$70 million annually. The A$177 million in available funding covers approximately 2.5 years of deployment. I believe operating cash flows will bridge much of this gap by FY28-29, but there is a scenario where growth capex outpaces cash generation and dilution occurs.

4. Manufacturing: Current manufacturing is in China, which makes it vulnerable to stealing, duplicating and mass producing.

5. Customer Concentration and Contract Renewals: Chrysos’s revenue is concentrated among a relatively small number of mining and laboratory customers. While the long-term contract structure (5+5 years) provides visibility, the rolling lease renewals create periodic risk. If a major customer declines to renew, or if pricing comes under pressure at renewal, it could impact the revenue trajectory. Note: It is expected 40% of initial CapEx is needed after 10 years. Useful life is noted to be 20 years, at which point some components can be carried over.

6. Technology Risk: Chrysos benefits from a substantial patent portfolio and deep know-how derived from its CSIRO heritage. However, over a 10-20 year investment horizon, the possibility of a competing technology emerging cannot be dismissed. The company maintains that patents protect against direct copying, and the global installed base of units creates a servicing moat that would be difficult to replicate. There are no credible competitive threats I’ve identified today, but “no competition” has a way of changing in technology markets.

7. FX Exposure: A meaningful portion of Chrysos’s revenue is earned in non-AUD currencies (primarily USD and CAD as international deployments grow). A strengthening Australian dollar directly reduces reported revenue and profitability. Management has flagged this explicitly, noting that a 7.5% AUD/USD swing meaningfully impacts revenue, which is why FY26 guidance was set conservatively.

8. Valuation: At approximately 9x trailing revenue and a market cap around A$708 million, Chrysos is not cheap on traditional metrics. The market is pricing in significant future growth. If deployment slows or utilization disappoints, the multiple will compress meaningfully. This is a high-expectations stock and needs to keep executing.

Conclusion

Chrysos is, in my view, one of those rare businesses where the technology advantage is deep, the market opportunity is massive, and the serviced end markets are humming. It is a utilization play as much as it is a deployment play and the H1 FY2026 results show both engines firing. AAC revenue grew 261%. EBITDA more than doubled (the stock is actually down since). Monthly sample volumes are approaching one million. The company posted its first statutory net profit.

The path forward is straightforward: keep the business development momentum going, deploy 14-18 units per year, let utilization ramp across the fleet, watch AAC revenue inflect, diversify manufacturing out of China and let operating leverage do the rest. The A$177 million in available debt funding should minimize dilution during the critical scaling phase, and the long-term contract structure provides exceptional revenue visibility.

At 5% market penetration, with 72 units contracted and the world’s largest gold miners lining up to adopt PhotonAssay, this remains early innings. The company’s own guidance for FY26: A$80-90M in revenue, A$20-27M in EBITDA represents a stepping stone toward a business that I believe can generate A$250M+ in revenue and A$100M+ in EBITDA within five years. Fire assay has been the standard for a century. PhotonAssay is better, and the market is coming around to it.

I own C79 with the intention to keep it as a long-term holding unless something materially changes.

Disclosure: I hold a position in C79.AX. This is not investment advice. Do your own due diligence.

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Appendix

Here are the first two paragraphs from a Clarus note covering PALS.

Paragon is deploying what is expected to be the largest commercially

available fleet of PhotonAssay machines globally. PhotonAssay is a proven

technology set to disrupt the mining assay industry with vastly superior

technology, while reducing the bottlenecks currently experienced by

mining companies.

DISRUPTING A US$5 BN MARKET: The global mining testing market is

estimated at US$5.3 BN, with exploration assays making up the largest portion,

followed by production and recycling. With a total of only 60 PhotonAssay

machines expected to be in operation globally over the next 12 to fourteen

months, it is estimated that the technology has the capacity to replace only

10% of the current industry and would need approximately 600 units to fully

displace the entire fire assay industry. With Chrysos Corp’s capacity to

manufacture a maximum of 21 units per year, there will only be a maximum of

150 units by 2030, which would account for 25% of the current market. With

limited production capacity, we believe demand will remain strong for the

units in place.

Latest Chrysos Investor Deck

From their partner, Paragon Advanced Labs - PALS.V

*Numbers are in USD (reporting currency) unless otherwise denoted.

MC: $150M EV: $110M // TTM: Revenue: $114M FCF: $30.5M // EV / FCF = 3.6x

Pharos is one of those names that slides past most screens. It’s a ~£116M market cap oil producer listed on the London Stock Exchange, operating in Vietnam and Egypt - two jurisdictions that don’t inspire a lot of “institutional comfort.” Furthermore, the P&L covers up the cash generating strength of the underlying business.

Here’s the setup: Pharos ended 2025 with $40.2 million in net cash on a debt-free balance sheet. 2026 production guidance is 5,200-6,400 boepd, up +7% at the mid-point from approximately 5,400 in 2025. Vietnam is expected to carry the growth through a six-well drilling program targeting a ~20% production uplift weighted toward the second half of the year. The Vietnamese crude (~80% of production) sells at a $5-6 per barrel premium to Brent into the domestic market. Egypt was expanded to a 20-year concession with improved fiscal terms. And then there are Blocks 125 and 126 - two frontier exploration blocks in Vietnam’s Phu Khanh Basin where a 2023 Competent Person’s Report identified a mean unrisked prospective resource of 13.3 billion stock tank barrels.

The enterprise value is approximately $110 million. The company has no debt. It’s run by CEO Katherine Roe and CFO Sue Rivett - who together bring decades of E&P and capital markets experience. It pays a dividend and hedges only 24% of production in ‘26, so is positioned to capture great upside tied to spot.

Let me walk through why I think the market is wrong on this one.

The Business: Two Countries, One Cash Engine

Pharos Energy is a London-listed independent oil and gas company with producing assets in Vietnam and Egypt, plus frontier exploration acreage in the Phu Khanh Basin offshore Vietnam.

Vietnam (~80% of production): Pharos holds interests in two producing blocks in the Cuu Long Basin - one of Southeast Asia’s most prolific hydrocarbon provinces. Block 16-1 contains the TGT (Te Giac Trang) field, where Pharos holds a 30.5% working interest, and Block 9-2 contains the CNV (Ca Ngu Vang) field, where Pharos holds a 25% working interest. These are shallow-water, low-cost, well-established assets tied to existing infrastructure. Combined Vietnam production ran at approximately 4,095 net in 2025.

The critical feature of the Vietnamese crude: it sells at a premium to Brent. This is not a typical discount crude. TGT oil has historically commanded a $5-6/bbl premium to Brent in the domestic Vietnamese market, driven by local refining demand, crude quality, and Southeast Asian supply-demand dynamics. When most E&P investors are accustomed to discounts - WCS to WTI, Oman to Brent - a premium is a differentiator that feeds directly into realized revenue per barrel. This production is sold into Vietnam for domestic use (VN is a net oil importer) and they’ve not had any significant payment issues/disputes over their operating partnership.

Egypt (~20% of production): Pharos holds a 45% non-operating working interest in the El Fayum concession in Egypt’s Western Desert. The operator is IPR Lake Qarun Petroleum (55%), an Egyptian-American firm (HQ’d in Irving, TX) that took over operatorship following Pharos’s farm-out in 2022. Egypt contributed 1,303 bopd in ‘25. These are low-cost, shallow, onshore wells - operationally simple but requiring a steady diet of new wells to maintain/grow production. Management is bullish on Egypt: the goal is to double production volumes over time, and the recently approved consolidated concession agreement comes with meaningfully improved fiscal terms that revert back to October ‘25 (approval is expected later in ‘26).

Blocks 125 & 126 (Exploration): Pharos holds a 70% operated interest in two frontier exploration blocks in the Phu Khanh Basin, a relatively unexplored deep-water basin northeast of the producing Cuu Long Basin. The exploration period has been extended through November 2027. I’ll come back to these in the growth section, because the resource potential is extraordinary relative to the company’s current market cap.

The Numbers: What You’re Buying

MC: $150M EV: $110M // TTM: Revenue: $114M FCF: $30.5M // EV / FCF = 3.6x

Let me highlight a few things.

Cash build: Pharos went from $16.5M at year-end 2024 to $40.2M at year-end 2025. That’s a $23.7M swing, driven primarily by the $20M payment from Egypt. The company has zero debt, you’re getting about a quarter of your price in cash.

Revenue declined, but that’s context-dependent: The drop from $136.1M to $114.6M reflects lower commodity prices and the natural decline of the producing base before the 2025/2026 drilling program kicks in. The six-well campaign in Vietnam - four wells in TGT and two in CNV - is the bridge between the current decline and the production uplift that management is targeting.

The EV/boe gap: At an enterprise value of ~$110M and post-consolidation 2P reserves of approximately 17-19 MMboe, the market is pricing Pharos at ~$6-7 per barrel of oil equivalent. The book value - the carrying amount tested against a value-in-use DCF of the 2P reserve profile equaling ~$270M using what I perceive to be conservative assumptions. That is a wide gap. Either the market is right that recoverable reserves are overstated, or the stock is materially undervalued on a reserve basis.

Growth: The Vietnam Drilling Program and What Comes After

The near-term growth story is straightforward: Pharos is in the middle of a six-well drilling program across the producing TGT and CNV that is expected to complete by H2 2026. The program targets a ~20% production uplift from current Vietnam levels. This would take net Vietnam production from approximately 4,000 boepd to potentially 4,950 boepd at the upper end of 2026 guidance.

2026 guidance increased from 2025 levels:

The capex to fund this is $50 million - up sharply from $27.6M in 2025. That’s a significant year-over-year ramp. Of the $50M, $39M is allocated to Vietnam (the tail end of the six-well campaign plus facility work) and $11M to Egypt.

But the real growth optionality that could make this an asymmetric position sits in the Phu Khanh Basin.

Blocks 125 and 126: The Frontier Exploration Upside

Pharos holds a 70% operated interest in Blocks 125 and 126, located in the Phu Khanh Basin offshore central Vietnam. The basin sits northeast of the proven Cuu Long Basin and remains relatively unexplored - a frontier play in a country with an established offshore hydrocarbon industry.

In July 2023, Pharos released a Competent Person’s Report on Block 125. The numbers are staggering:

Thirteen billion barrels at the mean estimate. Even at the low end, 1.2 billion barrels. These are unrisked, prospective resources - meaning they are geologically estimated volumes that have not been confirmed by drilling and are subject to exploration risk, geological chance of success, and commercial viability. They are emphatically not reserves. But the scale of the resource potential relative to Pharos’s $100M enterprise value is worth sitting with for a moment.

The technical profile is encouraging. 3D seismic processing is complete and interpretation has revealed greater opportunity in the deeper water sections of Block 125. Multiple world-class prospects have been identified. The company is actively seeking farm-in partners to share the cost and risk of a commitment well - which would be the first real test of the basin’s hydrocarbon potential in this area. The cost and technical nature of this basin exceeds their currently producing assets in the country. With well costs that could exceed $50M, it’s likely any partner would be an oil major. To be clear, this will take a long time to develop and get to first oil.

The exploration period was extended by two years in 2023 and now runs through November 8, 2027. Management indicated at investor presentations that an update on the exploration program - including farm-in partner discussions and rig contracting - was expected in the coming months. This could be the catalyst for a big value unlock.

Here’s how I think about it: Blocks 125 and 126 are worth zero in my base case valuation. They are pre-drill, frontier exploration with no guaranteed outcome. But the optionality is enormous. If a farm-in partner takes a meaningful stake and funds a commitment well, the market will be forced to assign some probability-weighted value to the resource. Even a 1-2% geological chance of success applied to 13.3 billion barrels of mean resource, at any reasonable risked barrel value, starts to move the needle on a $100M EV company.

This is the kind of embedded option that the market systematically undervalues in small-cap E&Ps and it’s a core reason why I think Pharos is more interesting than it looks on the surface.

Egypt: Improved Economics and a 20-Year Runway

The Egypt story is about longevity and improving terms, not about near-term production growth.

Pharos farmed out 55% of its Egyptian assets and operatorship to IPR Lake Qarun in March 2022. The deal structure was well-designed: $5M cash at completion, $38.4M in carried costs (IPR funding Pharos’s share of future development). Pharos received a significant working capital boost in Egypt over 2025 - with their AR dropping from $29.5M to $7.4M over the course of the year. In my call, they mentioned an expectation to receive the outstanding $6M Egyptian receivable balance by the end of Q2 ‘26.

The more important development is the consolidated concession agreement approved by EGPC’s Executive Board. This combines the El Fayum and North Beni Suef concessions under a single framework with improved fiscal terms. Higher cost oil recovery and an increased profit oil will result in more cash per barrel produced, even at the same production levels.

The 20-year development lease and up to 30-year exploration terms on three new areas (West Silah, Beba, South Wadi El Rayan) give Egypt a long runway. The consolidation also enables the upgrade of approximately 3.1 MMboe from 2C contingent resources to 2P reserves - a 25% uplift net to Pharos’s interest - pending Parliamentary ratification expected in 2026.

Egypt is not the growth driver. It’s the ballast: a long-life, low-cost producing asset with improving economics that provides base-level cash flow and reserve support.

Management:

Katherine Roe became CEO in 2024 after successfully running Wentworth Resources as CEO from 2019, ultimately negotiating its sale to Maurel et Prom (another company I own) in December 2023. Before that, she spent 11 years heading the Natural Resources team at Panmure Gordon. She knows how to run a small-cap E&P, she knows how to talk to the market, and she has experience across emerging and developing market jurisdictions - exactly the skill set required for a company operating in Vietnam and Egypt.

Sue Rivett serves as CFO and has been with Pharos for over five years. Her background spans senior finance roles at Conoco, ARCO British, JKX Oil & Gas, and Seven Energy. She has deep experience with JV structures, M&A, and the full range of FTSE finance functions.

Both have recently increased their personal shareholdings, but do not own a meaningful amount of the company.

The capital allocation framework is ok. I’d like to see more shares purchased: a dividend floor of no less than 10% of operating cash flow (increased 10% year-over-year), a completed share buyback program that repurchased 30.7 million shares at an average of 23.65p, and a willingness to keep $40M+ in net cash on the balance sheet as a buffer. Management maintains a limited hedging position with only 24% of 2026 volumes hedged, providing a path to capture spot upside/downside. With no debt and no reserve-based lending facility requiring minimum hedge ratios, they can afford to make that choice.

Risks

The risk profile is what keeps this stock cheap, and investors need to understand what they’re underwriting.

1. Vietnamese Working Interest Depreciation and License Expiry — The Central Risk

Pharos’s Vietnamese assets operate under Production Sharing Contracts with the Vietnamese government. These contracts have fixed terms, and critically, the working interests step down at defined dates before the licenses ultimately expire.

Block 16-1 (TGT field):

• Current working interest: 30.5%

• Effective December 8, 2026: Working interest steps down to 25.33%

• License runs through approximately 2031/2032

Block 9-2 (CNV field):

• Current working interest: 25%

• Effective December 16, 2027: Working interest steps down to 20%

• License runs through approximately 2032

On December 8, 2026, Pharos’s TGT working interest drops by 5.17 percentage points overnight. That is a ~17% reduction in the company’s entitlement to production from its largest field, effective roughly nine months from now. The CNV step-down follows 12 months later.

If TGT is producing 3,500 boepd net to Pharos at a 30.5% working interest, a reduction to 25.33% means net production drops to approximately 2,903 boepd - a loss of ~597 boepd. At $80 Brent, that’s roughly $19.6M in annual revenue that evaporates from the contractual step-down.

The license expiry dates of 2031/2032 are further out, but they define the ultimate life of the producing assets. After expiry, the fields revert to the Vietnamese government. There is no guarantee of further extension. Vietnam has historically renewed PSCs on a rolling basis, which explains the pattern of year-to-year extensions that can look uncertain from the outside. But the government’s willingness to extend is driven by its own domestic energy needs, the quality of the operating partnerships, and the commercial viability of continued production. It is not automatic.

The combination of near-term working interest erosion and medium-term license expiry is why the market prices Pharos’s Vietnamese reserves at a steep discount. It is also why management is investing $39M in Vietnam capex for 2026 - to maximise production and cash flow extraction from these assets while the working interests are highest.

Furthermore, the recently extended Blocks 125 and 126 is only for a two year term.

2. M&A

Pharos is well aware they are a small fish in a big pond. Being a sub-scale producer that holds working interests in regions with significant jurisdictional risk has not been the road to riches for many. However, I think if they focus on operating, organic growth and buybacks, it is the best path to unlock shareholder value.

3. Egyptian Execution Risk

Egypt is operated by IPR Lake Qarun, not Pharos. Pharos is a 45% non-operator — meaning it has limited control over the pace and quality of development drilling. If IPR underperforms operationally, Pharos bears the consequences pro rata. The goal of doubling Egyptian production is ambitious for a set of shallow Western Desert wells that require continuous drilling to offset decline rates.

4. Natural Decline Rates

Oil fields decline naturally. Neither Pharos nor its operator has published explicit decline rate assumptions for TGT, CNV, or El Fayum in a way that allows outside investors to model the production trajectory with precision. The need for a six-well drilling program just to grow production by ~20% implies that underlying decline rates are meaningful. Potentially 15-25% per annum for mature fields of this type. Without continuous investment, these assets bleed production.

Why is this company so inexpensive? It has been a melting ice cube. Here is the production profile over the past decade.

5. Exploration Risk on Blocks 125 and 126

The 13.3 billion barrel mean prospective resource is geologically estimated and completely undrilled. Frontier deep-water exploration in a relatively untested basin carries significant geological risk. The probability of commercial success on any single exploration well is typically 10-25% in frontier basins. Pharos needs a farm-in partner to fund the commitment well. If no partner materializes before the November 2027 deadline, the blocks may be relinquished.

6. Jurisdiction Risk

Vietnam and Egypt both carry country risk. Vietnam’s regulatory framework for foreign oil companies has been stable but is ultimately subject to government discretion. Egypt has a history of delayed payments (the EGPC receivable that took years to resolve) and regulatory unpredictability. Furthermore, the tax policies in both regions is extremely punitive, with close to 50% tax rates. An easy (and popular) mechanism would be to continue to push this north as barrel prices increase.

Valuation: What the Market Is Missing

This is my favorite chart from a straight to the point investor deck Pharos released with prelim earnings. While speaking with management, they called this the ‘sweat the asset case.’ Yes, investment will be higher in 2026. After that, you can see a step change improvement in the slope of the line. The net? If able to execute and Brent stays at $90, you get your EV out in 21 months (by the end of ‘27). What happens if it goes back down to $70, which futures remain well above? We have to wait until 2029 with a few more years of contracted Vietnamese supply still to go.

That’s a situation where I feel pretty good on getting full EV value within the next 2-4 years while holding a lottery ticket for the unexplored blocks that hold great potential.

If not achieved, I will expect it to be due to accretive growth opportunities that have a strong ROI.

The valuation case rests on the gap between what the market is pricing (~$6-7/boe on 2P reserves) and what the IFRS-tested book value implies is recoverable (~$15/boe). That’s a roughly 60% discount to carrying value.

What to Watch

1. The Vietnam drilling program results. The final infill well on the H4 fault block reached total depth in March 2026 and is expected online in April. Production outcomes from this well and the remaining appraisal wells will determine whether the ~20% uplift target is achievable.

2. Blocks 125/126 farm-in update. Management guided for an update on farm-in partner discussions and rig contracting by the midpoint of the year. This is the single highest-asymmetry catalyst in the thesis.

3. TGT working interest step-down (December 8, 2026). This is a known event — but the market’s reaction to the actual production impact will be informative. Watch Q1 2027 production figures closely.

4. Egyptian concession ratification. Parliamentary approval of the consolidated concession would formalize the improved fiscal terms and upgrade 3.1 MMboe from 2C to 2P reserves.

5. Oil prices. With 76% of production unhedged in ‘26, Pharos is a leveraged bet on Brent. The $5-6 premium in Vietnam amplifies the upside but doesn’t protect the downside.

6. Capital allocation decisions. Whether management maintains the dividend growth trajectory, initiates a new buyback, or deploys cash toward a new asset acquisition will signal their confidence in the forward outlook.

Conclusion

Pharos Energy is priced for run-off. The market sees a small-cap E&P with declining Vietnamese working interests, limited analyst coverage, and jurisdiction risk. It assigns a valuation that implies the assets are worth significantly less than book value. I think that’s wrong.

What I see is a debt-free company with $40M in net cash, producing assets that sell crude at a premium to Brent, improved 20-year concession terms in Egypt, a drilling program targeting 20% near-term production growth in Vietnam, and 13.3 billion barrels of mean unrisked prospective resources in a pair of frontier exploration blocks that the market isn’t valuing.

The risks are real. The Vietnamese working interest step-downs - 30.5% to 25.33% in December 2026 on TGT, 25% to 20% in December 2027 on CNV - are contractual certainties that will erode the production entitlement even as gross field production holds steady. The licenses expire in 2031/2032, giving the producing assets roughly six years of remaining life. These are not forever assets. But at $6-7/boe, I don’t think the market is correctly pricing the cash flow these assets will generate over their remaining lives, let alone the exploration optionality or the improving Egyptian economics.

The management team is aligned, conservative on the balance sheet, and making sensible capital allocation decisions. The 24% hedge ratio is a conscious bet on oil prices that allows them to take advantage of the current situation in the Middle East. Unless there is a geopolitical shock to the system (heavy taxation, expropriation, war where assets are located, etc), I think there is a good probability one of two scenarios occur in the next 2-4 years:

1. Generate cash equal or above EV.

2. A clear path to sustainable growth with much of the CapEx burden shouldered by an operating partner.

Katherine and Sue have a history of being conservative and focused on ROI. They have not chased growth, a trap many oil companies their size fall into. As long as that focus does not change, I am excited about the future prospects for Pharos.

Disclosure: I hold a position in Pharos Energy plc (LSE: PHAR). This is not investment advice. Do your own due diligence.

Special shoutout goes to Zack Wortman for reviewing and providing some input on my draft. He’s not investing full-time yet, but will be one to follow once he does.

While the Emergency Capital Investment Program (ECIP) has been a well covered investment angle, the current timing presents a very attractive entry point due to a catalyst expected to arrive in the coming months for certain recipients. This funding was used to prop up specific Minority Deposit Institutions (MDIs) in 2022 during a period of rising rates and struggling low-income consumers.

However, beware, not all the banks that received this capital are created equal. There are vast differences in the quality of these institutions and the timeline in which they have a path to turn the funds into equity.

This article is meant to do the work for you. After reading, you’ll have a better understanding:

• How the ECIP redemption works

• Who the highest quality (publicly traded) recipients were

• When they have a chance to repurchase the funds to equity

• How banks can use these funds to grow earnings once they don’t need to meet specific lending thresholds

The end result? Two banks I’ve added to my portfolio. They trade at a fraction of their ECIP-adjusted book value, generate reasonable returns on equity, and return capital to shareholders - with a path to unlock their ECIP funds in the next six months. Just as importantly, they are far overcapitalized and should be able to put their funds to work to grow earnings meaningfully. Speaking with their CEO and CFOs over the past week has furthered my conviction.

The Emergency Capital Investment Program (ECIP) presents an asymmetric setup. A government-engineered capital infusion where the economics overwhelmingly favor shareholders of a small handful of community banks. Of the 175 institutions that received ECIP funds, I’ll provide a breakdown of the public companies according to the important questions to ask:

1) Materiality: For which banks will this have a material impact?

2) Quality: Which of these institutions are the highest quality?

3) Timeline: How quickly are they likely to buy back their preferreds?

4) Earnings: How overcapitalized are they? What could it mean for earnings growth?

The confluence of those four factors led me to the investments I made.

1. Materiality: For which banks will this be a material impact?

For the public recipients, there is a wide variance how accretive buying their preferreds from the treasury are likely to be. As measured based on their market cap, the amount of ECIP funding received ranges from .2x - 4.2x (!). If that were the only factor, we’d be taking a trip to Baltimore.

Sorted from highest to lowest ECIP funds / MC

2. Quality: Which of these institutions are the highest quality?

Now that we are almost five years into the funds being granted, it gives us a body of work from which to assess how well management teams have put their ECIP windfalls to work. The variances are drastic.

This program gave funds to banks indiscriminately, regardless to if they had any demonstrated ability how to lend. Those that didn’t know what they were doing before certainly weren’t going to figure it out with these windfall funds. The government would have been better off flushing some of these dollars down a drain than giving these institutions the incentive to line their pockets or throw them away in their respective communities.

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A 67-year-old West Palm Beach manufacturer of military spec power semiconductors, locked into AMRAAM and HIMARS production for the life of those programs, recently saw its backlog explode 124% year-over-year to $28+ million.

Solitron is a sole-source defense supplier. A company several tiers down the supply chain from the Primes that make military spec certified components that cannot be replaced mid-program without tearing up the qualification paperwork, re-running acceptance testing, and potentially delaying weapons production for a foreign ally in the middle of a war.

Solitron manufactures custom solid-state power semiconductors (transistors, MOSFETs, hybrids) for military and aerospace customers, headquartered in West Palm Beach, Florida. Its products are embedded in the AMRAAM air-to-air missile (Raytheon/RTX’s flagship), the HIMARS rocket artillery system (Lockheed/L3Harris), and a handful of other defense programs. It generates $14M in annual revenue on a trailing basis, has zero debt, and trades on the OTC Pink Markets with minimal coverage.

Here’s what has changed: 1) they announced a strategic review process 2) backlog exploded even before Operation Fury began.

1. Tim Eriksen, (head of Cedar Creek) went activist at Solitron about a decade ago. He is a great fiduciary of shareholder value and holds over 14% of shares outstanding through his fund and family investments. On February 3rd, he announced the commencement of a strategic review that could include a sale of the company. We should know more when they hold a delayed AGM next month.

2. At the end of the fiscal third quarter of 2026 (November 30, 2025), Solitron’s backlog stood at $27.48 million (up 124% from $12.28 million a year earlier). Bookings for that same quarter were $13.91 million versus sales of $5.02 million. The company now has 2x their TTM topline in backlog.

The Business:

Solitron was incorporated in 1959 and has spent six decades manufacturing high-reliability, custom-designed solid-state semiconductor components for applications where failure is not an option. The product lineup includes bipolar power transistors, power MOSFETs, power and control hybrids, and related devices. These are all produced to military specifications (MIL-PRF, MIL-SPEC) and certified to the Defense Logistics Agency (DLA) Land and Maritime standards.

These are not commodity semiconductors. You cannot substitute a commercial off-the-shelf part. Each component is custom-designed to a customer’s bill of materials, qualified through a formal DLA certification process that can take months or years, and then embedded into a weapon system for the life of that program. For major platforms, this often runs 20 to 40 years.

The products show up as critical power management and signal control components in:

• Guided air-to-air missiles (AMRAAM / AIM-120)

• Multiple Launch Rocket Systems (HIMARS)

• Ground and airborne radar systems

• Satellite and space applications

• Power distribution systems for defense platforms

• Missile control systems

The end customers purchasing Solitron’s components are the Tier 1 defense primes - RTX (Raytheon), L3Harris, and Lockheed Martin - who sell their weapons systems to the U.S. government and allied nations under Foreign Military Sales (FMS) contracts. Solitron’s products are effectively two steps removed from the Pentagon’s budget line, embedded in the bill of materials of some of the most in-demand weapons in the world.

The Moat:

When a defense prime like RTX designs the AMRAAM missile, they identify the components needed for the power management subsystem and work with a qualified supplier (in this case, Solitron) to develop and certify a custom semiconductor to their exact specifications. That certification is registered with the DLA. The part gets a specific NSN (National Stock Number). The weapon system’s qualification documentation references that specific component from that specific manufacturer.

Once a part is “engineered in,” replacing it requires:

1. Identifying an alternative supplier willing to reverse-engineer or redesign to spec

2. Running the new part through full DLA qualification (expensive, time-consuming)

3. Updating the weapon system’s technical data package

4. Potentially re-qualifying the weapon system itself if the change is deemed significant

5. Getting DoD and customer approval

For a component that might cost $50-$200 and represents a fraction of a percent of total weapon cost, no prime contractor is doing that in the middle of a production ramp. Once Solitron is in a program, they are likely in it for the life of that program.

This is also why Solitron’s revenue is sticky and its customer relationships span decades. The company has been a qualified supplier on AMRAAM for years. It was there before HIMARS became famous in Ukraine.

The Programs:

AMRAAM (AIM-120) — RTX / Raytheon

The Advanced Medium-Range Air-to-Air Missile is the backbone of Western air-to-air capability. Operated by the U.S. Air Force, U.S. Navy, and 40+ allied nations, AMRAAM is the primary beyond-visual-range air-to-air missile used by F-16s, F-15s, F/A-18s, and F-35s. The missile saw significant use in Ukraine in 2023-2024 through the NASAMS ground-launched variant, and demand from NATO allies and Indo-Pacific customers has been structurally elevated since Russia’s invasion.

The data points that matter for Solitron:

• Raytheon CEO Phil Jasper, said: "Last year we doubled AMRAAM production; we're doubling production again this year, and we're going to continue to increase that production."

• Solitron received the AMRAAM Lot 39 order during Q3 FY2026. Management noted the “order quantities were greater than the prior year’s order” and that pricing was also higher due to the “expiration of a multi-year pricing agreement.” This has yet to be reflected in margins (there is about a six month lag between receipt of an order and shipments).

• Q3 FY2026 gross margin expanded to 34.3% from 29.7% a year earlier.

HIMARS (High Mobility Artillery Rocket System) — L3Harris / Lockheed

HIMARS became arguably the most famous conventional weapons system of the 2020s following its performance in Ukraine. Demand from European allies, Indo-Pacific customers, and U.S. Army replenishment has kept the production line busy. Lockheed Martin received follow-on HIMARS contracts multiple times within compressed timeframes in 2024, a sign of urgency in the procurement pipeline.

L3Harris is Solitron’s second largest defense customer. The large HIMARS-related order in Q3 FY2025 (ending November 30, 2024) was part of what triggered the initial surge in bookings. Lockheed’s follow-on HIMARS contract awards only a few months after the previous award. Supplemental orders to Solitron could continue to layer in throughout the production cycle.

SM-2, SM-6, and New Product Prototypes

The SM-6 (Standard Missile-6) is the U.S. Navy’s primary ship-based air defense and anti-surface interceptor, reportedly used or intended to be used to shoot down hypersonic missiles. Per Eriksen’s investor letters, Solitron’s Q4 FY2025 AMRAAM order from RTX is “believed to include parts for two or three years of SM-6 missile production as well” - meaning SM-6 components are already embedded in existing RTX production contracts, not merely a future prototype program.

As for SM-2, there is reason to believe this RTX program is ramping up as well. (example here)

Separately, management noted in the Q3 FY2026 results that it has “developed various prototypes for testing by potential customers” and remains “optimistic about creating additional revenue sources.” This language refers to new programs and customers entirely beyond the existing AMRAAM/HIMARS/SM-6 base. A successful qualification win on a new program would represent an entirely incremental revenue layer not in any current model.

// Here are some of the Investor Letters where you can start to put the pieces together:

• Q4 2024 Annual Letter: Deepest SODI dive: HIMARS two-year order, AMRAAM at 1,200/yr, NDAA stockpile math, SM-6 embedded

• Q1 2025 Letter: confirms $5M+ RTX/AMRAAM order, SM-6 embedded in that order, backlog $18.1M

• Q2 2025 Letter: AMRAAM doubling is an “unfunded priorities list,” revenue timing trough analysis

• Q3 2024 Letter: explains the Q2 FY2025 earnings miss (supplier scrapped 2,000 parts)

• Q4 2023 Annual Letter: SODI +52% in Q4 2023, post-MEI adjusted operating income discussion

Management:

This is a company run by its largest shareholder, and that shareholder is a professional investor.

Tim Eriksen has been CEO of Solitron Devices since July 2016. He is also the founder and President of Eriksen Capital Management LLC and the fund manager of Cedar Creek Partners, a concentrated micro-cap value fund founded in 2006. Cedar Creek Partners holds approximately 11.6% of Solitron’s outstanding shares; Eriksen personally owns an additional ~2.5%. Combined, his economic interest in Solitron through his fund and personal holdings is ~14% of the company.

Eriksen’s background is atypical for a public company CEO. Before founding Eriksen Capital, he was an engineer at Kiewit, spent time in shareholder services at Franklin Templeton, and worked as an analyst at Walker’s Manual - a specialist in under-researched OTC companies. He has an MBA from Texas A&M. He brought capital allocation discipline and a long-term shareholder orientation that had been lacking.

Mark Matson serves as President and COO and runs the day-to-day operations. His background is deeply operational: COO and VP of Operations at YSI (instrumentation), VP of Operations and Engineering at Rockford Corporation, GM of the Seattle Division for Benchmark Electronics, and senior roles at ADIC and Interpoint - all precision electronics manufacturers. He knows how to run a facility that makes custom, low-volume, high-reliability components at MIL-spec standards.

Cedar Creek Partners has consistently featured Solitron in its quarterly investor letters as a high-conviction holding. His analysis of the business is more detailed than any external analyst could produce. He lives inside this company.

Valuation:

This is not a cheap company. At a $51.5M market cap, which is close to its EV, you’re not going to jump out of your seat to buy looking in the rearview mirror.

However, looking forward, the picture is very bright. Pick up their most recent quarterly and you can see the inflection is starting to reflect in the fundamentals:

Three months ending November:

• $5M in revenue (+49%)

• $653K in NI (+143%)

I think explosive growth will stay elevated. Backlog has grown exponentially. Pricing on some contracts has reset. Management is strong and squarely focused on driving shareholder value… which should result in strong operating leverage.

The future is bright…

Risks:

Here is my assessment of the material ones for Solitron.

1. Customer and Program Concentration: This is explanatory and known. AMRAAM and HIMARS represent the majority of Solitron’s defense revenue, and RTX appears to be the dominant customer. If either program experiences a production cut due to a quick resolution to the many ongoing conflicts - Solitron’s bookings and backlog would decline sharply once the replenishment drive ends. I do not forecast this would kick in for a long time.

2. MEI Customer Concentration (acquisition made in 2023): MEI’s dependence on a single medical customer for ~90% of its revenue is a vulnerability that Solitron inherited with the acquisition. Loss of that customer would remove a material chunk of company revenue. Solitron has not publicly addressed the status of this relationship in recent filings in a way that provides comfort around renewal risk.

3. Scale Limitations: Solitron has a limited number of employees and a single facility. Scaling production to meet a sustained AMRAAM doubling or new program wins requires capital investment in people, equipment, and potentially capacity. if you look at their LinkedIn, number of employees has not grown much and there are a lot of open jobs on their career page.

4. M&A: Mentioned as a potential avenue in the strategic announcement, I would be most concerned if they decided to buy another company. In this market, I’d like to be the beneficiary of the frothy defense valuations, not caught in buying and integrating an acquired entity. If that were the case, it’s likely either dilution would occur or the balance sheet would be burdened with debt. I find it highly unlikely Tim would fund a purchase with shares since he has clearly signaled they are undervalued.

Conclusion:

Solitron Devices is not a complicated story. It is a 67-year-old company with sole-source status in two of the most prominent weapons programs - AMRAAM and HIMARS. With a backlog that has exploded to nearly twice annual revenue at a time when the prime contractors supplying those weapons are publicly committed to production increases.

Most importantly, they are undergoing a strategic assessment by a strong capital allocator who is actively working to unlock the true value of this asset.

To quote what was stated on February 3rd:

“The process demonstrated to the Board that there is strong demand in the market place for defense related companies and that there could be numerous parties interested in acquiring the Company at a premium to the current share price or being acquired by the Company.”

This is a setup worth following closely.

Disclosure: I hold a position in Solitron Devices, Inc. (OTC Pink: SODI). This is not investment advice. Do your own due diligence.

Other notes:

• Solitron will not pay income taxes until NOLs are used up. So cash earnings are higher. Any acquirer will be a tax payer unless it has NOLs.

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Don’t tell me what you ‘like,’ tell me what you’re invested in…

Before any investment moves from a starter position (sub 1%) to a larger allocation, I make myself go through a checklist of sorts. This includes forming answers to the following questions:

• Management: Are they strong operators? Allocators? Do I trust them?

• Business: How well do I understand this business? What are the prospects for the industry? Is this a long-term investment or short-term trade? Do I have confidence in being able to predict performance? Over what time period?

• Downside: How low is the floor?

• Valuation: Is this an inexpensive valuation? How is that relative to global peers? Organic growth above/below the market and why? Who eats before me on the cap table and how does that impact downside?

• Timing: What needs to go right for me to win? Mark this according to key milestones and check in periodically on the original thesis to make sure you’re not deluding yourself.

• Why am I the lucky one?

Rarely do I feel strongly vindicated across the investment spectrum, 8/10 investments I’ll make have some known hair on them I get comfortable with (over time) for one reason or another.

To check these off in order, this is a:

• Shareholder friendly management with demonstrated operational success.

• A long-term investment that has significant tailwinds I think will continue for a long time. If this were a private opportunity, I would lock-up my investment over the next decade at current prices.

• Net cash, capital light company that should be able to fund itself through internal cash generation.

• A reasonable valuation much lower than larger (lower margin) peers. Organic growth that should see a double of the top/bottom line over the next 3-5 years.

• Nothing spectacular needs to happen from the status quo despite a positive industry inflection. Book and execute 2-3 projects a year with at least one dropping down to a longer-term recurring operating stream.

• Illiquid. Under-followed. Significant float is held by management. Sales cycle tends to lag the demonstrated forward momentum of the industry.

TLDR?

The company I am profiling today is one of my largest holdings. They have a world class service with limited competition, trade at an earnings yield over 10%, are net cash and have a management team I trust with significant skin in the game.

This is a high conviction, long-term position for me.

Management Check: I’ve spoken with the CEO and Chairman (2x).

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Update: February 19, 2026

Maurel et Prom is up 40%+ since I profiled them 45 days ago. Today they received the catalyst that should allow shares to re-rate much higher once investors fully understand the implications.

What happened? M&P received a license from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). Under the terms of the license, M&P is:

• Allowed to resume and conduct oil and gas operations in Venezuela, including transactions involving the Government of Venezuela and Petróleos de Venezuela S.A. (“PdVSA”) entities;

• Required to amend its agreements with PdVSA to be governed by U.S. law and dispute resolution within the U.S.;

• Required to make payments (including taxes and royalties) to the Government of Venezuela or PdVSA to be made in accordance with the mechanisms specified by U.S. authorities.

As previously mentioned, Maurel et Prom has over 20% of their production and 50% of their reserves in Venezuela - reserves were revised upwards by 85% weeks ago to 148 mmbbls. The rescission of their last OFAC license precluded them from realizing any financial benefit from its production in the country.

Here is the beautiful thing: Even after running 40%, Maurel et Prom trades at ~11x TTM EV/FCF without recognizing any benefit from Venezuela.

Now I will go through (a) the math on how much this deal can generate for M&P (b) three investment scenarios (c) four other publicly traded small and mid-caps that are potential beneficiaries.

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5/23/26 Update: Go to the end to see an update to my thesis.

4/17/26 Update:

Here is a link to an interview Hugo (Undervalued and Uncovered) and I did with the CFO of Eqva:

This stock remains one of my highest conviction investments. A couple things I walked away from the interview believing:

• Share price performance has been dislocated from underlying performance due to management turnover and messy financials that don’t reflect true earnings power.

• Eqva purchases strong businesses at a reasonable multiple. These are founder led organizations that have grown organically for a long time, have strong customer relationships and actually do something. They actually build things in a developed world that has become obsessed with services.

• Over 40% of revenue is generated from longer-term maintenance / support contracts (Framework agreements). When things are working, it serves as a virtuous cycle where they do project based work, then look to sign longer term contracts for go-forward support.

• There is significant dry powder left from the 500M NOK raise for future acquisitions.

Catching up after, confirmed two more things that are important:

• This is a very capital light business. Daniel expects no more than 1% of revenues to be invested into CapEx.

• They have industrial real estate that he values at 120M NOK.

In Summary: This is a business that is trading at sub 5x EV/EBITDA. To get to more of a true cash impact, they have 500M NOK in debt at ~12% and expect to spend 1% of revenue on CapEx. At these levels, the market is valuing it as a melting ice cube. I do not believe that is the case and expect to see organic growth this year in addition to acquisitions that continue to round out their service and geographic reach.

[START ORIGINAL POST]

I am excited to profile an obscure, under-followed company I have tracked for almost a decade. It has undergone quite the transformation in the past three years. Furthermore, the company is near 52-week lows, offering an especially attractive entry point. I’ve continued to add shares, making this investment a top 5 holding.

From a valuation perspective, shares trade at ~2x my expected 2026 MC/EBIT (~4.5x EV/EBIT). It is a capital-light business and trades at a 60-80% discount to regional peers, of which there are several.

To hit the main point first: This is a unique opportunity that is available because of explainable leadership changes, increased float from a known seller, and earnings power that is not yet fully reflected in the financials. If execution performs to my expectations, I think a valuation of 9x EV/EBITDA is reasonable - implying 200%+ upside.

If you sign up for a subscription and don’t like what you read, let me know and I’ll give you a full refund. Let’s dive in.

Management discussions: Current CEO and CFO (+ departed CFO)

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Date: February 2, 2026 // Current Price: $16.62

As I disclosed to my paid subscribers on Friday, I’ve added to my position in InMode (INMD). Recently, there has been a flurry of take-private activity I think provides the catalyst to make this an attractive entry point.

Why this situation matters now

Last week, InMode became the center of two overlapping “in-play” storylines: (1) a reported ~$1.1 billion take-private discussion attributed to Israeli outlet Calcalist and (2) a public proposal from Steel Partners to buy 51% of the company at $18.00 per share.

This became more interesting over the weekend, with a seemingly desperate plea by Moshe Mizrahy (founder / CEO) to ‘keep InMode in Israel.’ You have to give him credit. He is always ready with a flurry of excuses for why InMode’s recent operating performance has been so poor. His quotes are quite meandering and should serve as a great advertisement for PE funds to join the bidding.

Here is the article punch line: There are three bidders for InMode. Two bidders in the official process led by Bank of America for selling the company outright are private equity firm Centroid of South Korea, and a group of Israeli and US investors that includes Mizrahy himself.

These two are offering $1-1.1 billion for the company ($16-17 per share). The deadline for final bids is in mid-February.

My wager is there could be additional bidders. I’ll outline why below.

Company overview: what InMode sells and how it makes money

InMode primarily designs, develops, manufactures, and sells non-invasive and minimally invasive aesthetic medical devices. Its primary product is a radio frequency powered skin tightening device called Morpheus8.

Commercially, InMode’s economics are driven by a “platform + handpiece + disposable” model:

• Systems are sold as platforms with handpieces/applicators.

• Many handpieces or tips are single-use consumables that must be replaced per treatment, creating recurring revenue.

• InMode derives most revenue from selling platforms and non-consumable handpieces, with an additional recurring component from consumables (e.g. single-use tip heads) and extended warranties.

• Installed base matters because more systems in the field typically expand consumables/service pull-through; InMode reported ~27,090 platforms installed globally as of Dec. 31, 2024.

In short: InMode is not a pure “one-and-done capital equipment” story. It has an annuity-like attachment layer, but its growth still depends heavily on new system placements into med spas and physician practices which is tied more to discretionary spend cycles.

Bad Execution: the Sofwave problem

The macro backdrop: aesthetics demand is resilient, but a competitor has taken share

Sofwave is selling into the same customer wallet (aesthetic practices / med spas), but with a different modality. Sofwave markets SUPERB™ (“Synchronous Ultrasound Parallel Beam”) as non-invasive ultrasound technology that is FDA-cleared for facial lines/wrinkles and multiple lifting/laxity indications. Sofwave was savvy in their requirement for customers to buy each pulse used in the treatment of their clients. This creates the ability to better control their IP by boxing out cheap consumables and provides incremental 100% margins.

On procedure demand, global aesthetic volumes remain large. The reported “close to 38 million” aesthetic procedures in 2024, with total surgical and non-surgical procedures up sharply versus 2020. This reality is in stark contrast to the constant fumbles and excuses being made by InMode leadership.

More concerning is the variance in service and consumable revenue generated by the two companies. This reflects a better business model as it pertains to Sofwave in addition to the high usage/utilization of their products.

In Summary: InMode still has a deep catalog and a large installed base. But in a market where “needle-free” and low-downtime value proposition is winning, Sofwave’s modality and growth profile show the importance of refreshed product appeal.

Financial profile: why Private Equity should love this opportunity

Impeccable balance sheet, incredible margins and bloated SG&A

The uncomfortable truth for Moshe: InMode is unusually “LBO-shaped.”

(1) It has a large cash position.

(2) It has historically generated substantial profitability even after the revenue decline.

(3) It has clear cost-lever opportunities in sales & marketing.

Say the current offer is $1.1B, which would imply a stock price of $17.40 (based on 63.2M shares outstanding).

Let’s break it down:

(1) InMode has net cash of $532M at the end of Q3 and probably made ~$30M since. Back that out and the price is $538M. So the question becomes - how you will fund this?

(2) Trailing twelve-month EBITDA is $88.1M. If you funded the whole ex-cash purchase price with debt, that’s 6.1x turns. Each additional turn adds $1.39 to the share price.

(3) Here is where things get interesting: there is probably a lot of fat in SG&A. Any discerning buyer is coming in and giving this a good, hard look. Since 2021, SG&A has gone from 35% to 51% of sales, totaling $187M per year. If they get back to 35%, that would be $60M in annual savings. If that is the case, they’ll be modeling in $148.1M in EBITDA, placing EV/EBITDA closer to 3.6x.

Any way you cut it, a buyer can come in and buy a mismanaged asset for a very low valuation ex-cash.

The amount of equity needed to fund a purchase is not exorbitant and can likely be repaid to shareholders in a very reasonable timeframe.

In Summary

It is time for new ownership and leadership at InMode. For years, it has been an unending stream of excuses that not only show a lack of execution, but a lack of ownership and responsibility. This has eroded confidence in business and provides a great opportunity for a new vision to assume the reins.

My perspective and hope is that a savvy PE buyer will step up and seize the opportunity by offering a premium to the $1-$1.1B low-ball offer that has been rumored from management.

What’s the Downside? My expectation is that $1B is the floor. This is ~5% lower than current prices and would imply ~$15.80 a share. If a deal were not consummated, it is likely the price would retreat under $14. However, the net cash value of the business being ~50% of market cap provides very solid support.

Do your own due diligence. Any investment has the potential to fall to $0. I own shares in several of the companies discussed. Therefore, I am biased toward their success. All information should be double-checked, as it could be wrong. I could change my positions at any time. See my full disclaimer here.

Periodically, I plan on making free-form posts that will collect my thoughts, watchlist ideas, and recent investment actions.

To be a good investor, you need to have a rational understanding of how the world works. Not how you want it to work. How it actually works.

Therefore, I disagree with investing pundits who advocate ignoring the macro picture. Don’t miss the forest for the trees. Is there a higher likelihood you will be wrong? Absolutely, there are so many complex variables at play. However, successful institutional investors don’t sit down and start hammering away at which investments to make - they start with the big picture, first.

As we sit here at the end of January, it has been a fascinating few months. Valuations look increasingly untethered from fundamentals. Geopolitical tensions continue to simmer. And the metals trade has been strong enough to bring a smile to the dour gold-bug cohort. The thing I appreciate about age is it gives you perspective. Perspective to process, but not get too caught up in the day-to-day happenings.

I don’t try to predict where interest rates will be by year-end; I try to map out what I think has a high probability of happening over a long horizon. Let me see how wrong I can be.

Here are a couple of observations:

1. Global Fiscal Policy: Governments have been spending like lunatics for some time now. This became a big issue in the wake of COVID and has never returned to sane levels. Currently, I do not foresee a world in which spending is reined in to be in line with tax revenue or even GDP growth. We’ve come to expect a lot of money printing from Central Banks. Expect a lot more moving forward. The last page in the Economist brings this home for me every time. I wish corporate or personal balance sheets were better. (This IMF report does a pretty good job summarizing)

The new Red Sea, government budgets

Is this BlackRock BDC losing 19% of its net asset value a canary in the coal mine?

2. Monetary Policy: For this, I will speak from the perspective of a U.S.-based investor. Our administration seems determined to low rates regardless of the second-order consequences. Through fear, intimidation and an upcoming opportunity to name the Fed successor, it seems to be a matter of ‘how much’ rates will decrease. Here is a good interview with the current prediction market favorite to be the next Chair, Rick Rieder.

3. Trade Policy: Tariffs were not on my radar two years ago. Now we are in a situation where the trade-weighted average effective tariff rate is ~15-20%. Unfortunately, they are constantly changing. This unsettles capital and makes it very difficult to make large capital outlays when the economics underpinning them (e.g. to build out domestic manufacturing) are constantly altered.

4. Foreign Policy: To layer on top of the tariff situation, U.S. foreign policy has been unpredictable, bellicose and arrogant. This has alienated adversaries and long-term allies alike. The United States is now squarely on an island. On the flip side, it should pull the rest of the world closer together. Canada getting closer to China. Europe reaching a free trade agreement with India. These agreements will become a weekly thing.

“Trust is the easiest thing in the world to lose, and the hardest thing in the world to get back.” — R. M. Williams

As it pertains to the United States of America, we are now in a situation where the world distrusts us. With that, it becomes less likely the international community continues funding the largesse we have been living off of for the last 40 years via huge current account and fiscal deficits. See, when you are the reserve currency, you are given certain privileges. You have more borrowing power, larger credit leeway and create currency demand serving as the preferred payment method for certain assets and inter-country transfers. What happens now that trust is gone? We are only beginning to understand the repercussions, but I do not think we’ll be seeing a stronger dollar anytime soon. Bond yields are not particularly promising, either. Over the past year, the 10-year is down only ~30 basis points (bps) vs a 75 bps decline in the Fed rate. I believe this is the beginning of foreign governments taking their net import surplus and hoarding the likes of gold, shunning Treasuries.

Where does this all point? Inflation. Buckle up.

Financial Valuations: While I do not know what inning we are in, I’m pretty certain we’ve turned it over to the bullpen. Valuations are high and expectations are higher.

I like this website where you can filter by a country’s P/E and standard deviation to historical prices. It is concerning that only one country is below its 200-day average trading price (India) and the vast majority are multiple standard deviations above average 20-year valuations.

Forget buy low and sell high. This is the buy high and try to sell higher.

Thanks for the uplifting news! What can I do? First off, I’m not calling this a ‘top.’ I have no idea what is going to happen in the near future. However, I do think it behooves one to be proactive and figure out how to protect yourself. Beta trades are fantastic in an up market. Even better if they are combined with margin. Be careful where you’re positioned on the risk spectrum for when the tide turns.

Everyone needs to play their own game. The one I’m playing is focused primarily outside the United States. Investing in small/mid-sized companies with strong balance sheets, decent growth prospects that trade at low valuations.

On a Positive Note

There has never been a better time to follow incredible up-and-coming investors. Between X, Substack and niche communities like MicroCapClub, the global talent pool is staggering. It is an incredible time to be young, hungry and AI native. Here are a couple of my favorites:

• Kreuzmann’s Ideas: Strong hit rate. I think his thesis of going A-Z through markets to unearth gems is the right approach.

• Simeon Capital: Strikes me as being a very strong networker who gets after it.

• Value Hunt: He’s taken over a lot of the content responsibilities at MicroCapClub and is killing it with his investor and company interviews.

It’s also just necessary to include a16z because I learn something from every article they publish.

Q1 2026 Watchlist

• Gravity (GRVY): South Korean gaming company. Trades close to cash, MC/E of ~7x, great margins, expect strong near-term growth on recent game releases. The catalyst: Majority investor GungHo (publicly traded in JPN) has been under pressure from a local activist (Strategic Capital), this has resulted in their CEO getting replaced. Fun fact: The founder of GungHo is Masayoshi Son’s little brother.

• I-Tech (ITECH.ST): Great (company-funded) write-up can be found here. Interesting entry point with them down over 50% from previous highs. There are multiple value propositions. The main one: It allows large boats to minimize drag and conserve fuel. The problem? The incentives are all messed up. Ship owners pay for the vessels and their upkeep, but then pass them to operators. Therefore, why would they incur a higher price without accruing the rewards? Now that copper has rallied and copper-based paints are their primary competitor, it may be a good entry point.

• Matrix Composites (MCE.AX): Supplier of subsea buoyancy products for O&G companies (may have long-term offshore wind tower application as well). If you’ve read any value investor blogs over the last 18 months, they probably have some offshore rig post in there. If production is to increase, offshore is the place where supply can be increased at a reasonable marginal cost. Matrix owns a great manufacturing plant in Western Australia and should be a key beneficiary. I’d be surprised if I do not own shares at some point in 2026.

• Zicom (ZGL.AX): Singaporean heavy industry company that thinks about things in the right way. I loved the note from the Chairman. Company is cheap at 5-6x earnings. “Our greatest glory is not in never falling, but in rising every time we fall.” - Confucius (551-479 BC)

• Sofwave (SOFW.TA): Aesthetic skin tightening and rejuvenation device manufacturer that is less invasive than their competition. It’s a razor blade model where they earn a royalty per pulse. Now with a strong install base, they’ve inflected to profitability and should continue their strong growth and margin expansion. I made the mistake of selling them far too early and buying their deep value (trap) peer, InMode, who is a rumored takeout target.

• Marpai (MRAI): Insurance TPA recently announced the departure of their President, Dallas Scrip. This comes on the previous departure of their top salesman, John Powers. When I talked to Damien Lamendola (CEO) in April 2025, he was pounding the table about the opportunity Marpai had in front of it. I view the departures as negative indicators, but will take a close look at the next two quarterly reports. 70%+ of health plan renewals happen January 1, so Q1 earnings should be sticky throughout the year.

• General Enterprise (CITR): Company has an eco-friendly fire protection solution. Three ways to commercialize: home based sprinkler systems, treated wood and fire prevention. At $130M valuation, the market thinks they have something. 2026 will be a telling year - it’s time to sell.

As things develop, I will be adding color to the subscriber chat.

Investment Actions – Buys and Sells

Does not include the three illiquid companies that will be upcoming write-ups. They are domiciled in Australia, South Africa and Norway - falling squarely in the deep value category:

What I’m buying: Including a gold miner I’ve been adding to at 2x my expected 2026 earnings.

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*All numbers are in AUD unless otherwise expressed.

This is one of the least expensive companies I’ve ever invested in. While it trades at valuations that lead you to believe it’s headed for insolvency, I think there is reason for optimism.

• .03x MC/Sales

• <1x Price/Earnings (normalized)

• Net cash 1.5x its market cap

As you’d expect with these valuations, this opportunity has some hair on it. If you have at least two years to allow this opportunity to play out, you could be handsomely rewarded.

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Thank you for being here. Substack is crowded, and I appreciate you taking the time to visit my corner of the platform. This introduction is meant to give you more information about what you can expect from my blog, Underlying Value.

What is Underlying Value?

This blog documents my global search for the most undervalued public investments.

This search tends to lead me to small, obscure, and illiquid investments with catalysts I don’t believe the market has accurately priced in.

I do not care about likes or clicks. I care about compounding the relatively small amount of family capital we have in a sustainable, long-term, process-oriented way.

Here is a rough sequence of events that brought me here:

• Q1 ‘25: Exited the business my wife and I bought through a search fund and operated for five years.

• April: Sought to answer the question: Are there mispriced investments in the public markets? With all the froth, I was skeptical. However, I walked away encouraged, especially after attending the Planet MicroCap Conference in Vegas.

• May to November: Spent six months finding and investing in the best companies I could identify.

• November to Present: Began writing the investment theses for our holdings, which turned into this blog.

What You Can Expect

In 2026, I’m going to write about the best public investments I’ve found. These are the opportunities my family and I are currently invested in. I’ve put in work by speaking with management, connecting with fellow investors, and poring over all the information I can gather to inform my decision-making.

Founding Members will receive access at least two business days before each post is released to other paid subscribers. All paid members will have access to a chat forum where I’ll share interesting investment thoughts and findings. I’m a big fan of borrowing from others and will share accordingly.

These are ideas I’m currently writing about. They are deep-value opportunities. They’re also all small-caps (sub-$50M market cap), domiciled outside the United States, and illiquid.

As you’d expect for opportunities this inexpensive, I’ve seen zero coverage on companies #1-3 and limited coverage on #4.

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My Investment Process (Investment Identification)

The goal of Underlying Value is to deliver actionable research and analysis to my subscribers. Success or failure of this objective will be clear based on the returns of the high-conviction write-ups I make (not all posts are created equal). Several of these have already been posted here, here, and here.

The internet has changed how public-market investing works. Access to information is no longer gated by large institutions or centralized research departments. Corporate disclosures, earnings calls, and industry data are widely available in real time. At the same time, many of the world’s most respected investors openly share their thinking through quarterly letters, conference talks, Substack posts, and platforms like X.

The advantage today does not come from access to information, but from judgment. Investors who can consistently identify what matters, ignore what does not, and act decisively when opportunities arise are the ones most likely to outperform.

This process can be meaningfully improved through the disciplined use of artificial intelligence. AI is a tool for leverage - not a substitute for thinking. It is only as effective as the questions asked and the rigor applied in validating its output. Used carelessly, it adds noise. Used thoughtfully, it accelerates research, broadens perspective, and improves efficiency.

For an investor operating without a large team of research analysts, AI can function as a force multiplier. When paired with skepticism, domain knowledge, and independent verification, it becomes a practical way to move faster without sacrificing quality.

What are the steps in my process? Each of these serves as a sequential filter before investing in an opportunity:

1. Idea Sourcing

   I source ideas through two primary channels:

   • Ongoing review of work published by proven investors globally

   • Independent, bottom-up analysis using financial screens and primary research

   This ensures exposure to both differentiated thinking and under-followed opportunities.

At the top of the funnel, I like to load in diversity. Diversity of geography, culture, company size, industry, risk, and investment types (growth, value, special situations).

2. Fundamental and Industry Analysis

   For ideas that pass the initial screen, I conduct a detailed review of company fundamentals, competitive dynamics, industry structure, and current market positioning. This step is focused on understanding how the business actually makes money, what drives returns, and where the market may be mispricing risk or opportunity.

3. Management Engagement

   When feasible, I speak with management armed with the right questions to gain a clearer perspective on the opportunity. This is a key aspect of where I add value after my years of operating, by distilling a potentially attractive investment into its core value drivers and diving deep to accumulate richer context.

4. Decision and Documentation

   I decide whether to invest, with a thesis written to articulate my expectations. If not investment-caliber, it gets discarded or slotted for follow-up / monitoring.

The best opportunities are those that have a specific, un(der)appreciated catalyst. This could be in the form of new management, divestiture of a money-losing division, new business, etc. Especially when you are researching small-cap investments, the market tends to be less efficient, and you can find gaps between perceived and intrinsic value. There are also opportunities I find during my process that I catalog as being potential investments if something specific happens. For example, if certain regulations change or the geopolitical environment shifts. This can serve as the catalyst needed to unlock value for certain companies and can be rewarding for those prepared and willing to invest before the broader market catches on.

Investing is a hard game. There is good reason for the proliferation of passive investment strategies. However, for those who are industrious and willing to do the work, I believe there continues to be an opportunity to sustainably and consistently outperform broader indices.

I wish you a happy and healthy 2026, and hope we have the opportunity to partner on some exciting investments.

Onward and upward,

Andrew Pogue

Andrew.R.Pogue@gmail.com

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Summary of Profiles so far:

About me

This is not investment advice. Do your own due diligence. Any investment has the potential to fall to $0. All information should be double-checked, as it could be wrong. I could sell my position at any time.

Update: February 19, 2026

Maurel et Prom is up 40%+ since I profiled them 45 days ago. Today they received the catalyst that should allow shares to re-rate much higher once investors fully understand the implications.

What happened? M&P received a license from the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). Under the terms of the license, M&P is:

• Allowed to resume and conduct oil and gas operations in Venezuela, including transactions involving the Government of Venezuela and Petróleos de Venezuela S.A. (“PdVSA”) entities;

• Required to amend its agreements with PdVSA to be governed by U.S. law and dispute resolution within the U.S.;

• Required to make payments (including taxes and royalties) to the Government of Venezuela or PdVSA to be made in accordance with the mechanisms specified by U.S. authorities.

As previously mentioned, Maurel et Prom has over 20% of their production and 50% of their reserves in Venezuela - reserves were revised upwards by 85% weeks ago to 148 mmbbls. The rescission of their last OFAC license precluded them from realizing any financial benefit from its production in the country.

Here is the beautiful thing: Even after running 40%, Maurel et Prom trades at ~11x TTM EV/FCF without recognizing any benefit from Venezuela.

Now I will go through (a) the math on how much this deal can generate for M&P (b) three investment scenarios (c) four other publicly traded small and mid-caps that are potential beneficiaries.

Read more