I’m not going to spend time on more qualitative elements of the stock like their product catalogue, instead I want to focus purely on the accounting games that occurred in the most recent quarter. On paper the quarter was fantastic, with QoQ revenue growth of 50%, gross margins moving from 56% to 72%, and operating profitability inflecting from a $1.5m loss to $9.2m profit. However, when we look closer this profitability is all a mirage.

Curiosity Brands Transaction

The first thing we need to note here is a curious transaction with an undisclosed third party involving Curiosity University, Curiosity Audio and Catholic Stream. The buyer acquired these brands for just $300k, but at the same time entered into a 30-year licensing agreement with CURI for $10m, paid in four annual instalments starting in June 2027. Bizarrely, despite receiving none of this cash today, CURI has recognised $8.5m upfront as licensing revenue, representing the NPV of these future payments using a 7% discount rate. Because licensing out existing content has essentially no marginal cost, almost all of this flows straight through to profit.

Let's be clear on what this looks like. CURI has sold a collection of assets for $300k, while another $10m of consideration is being paid through a licensing agreement. This conveniently allows them to recognise $8.5m as licensing revenue rather than a one-off gain on sale, while also front-loading years of future payments into a single quarter. CURI even describes the payment terms as giving the buyer a “significant financing benefit”, with the 7% discount rate reflecting the estimated rate had the financing been done separately. This doesn't sound like licensing, it sounds like an asset sale being dressed up as licensing revenue.

Meanwhile, management is presenting the resulting revenue and profit at face value as evidence of CURI's value proposition and operating leverage, without mentioning any of this on the earnings call. It gets weirder. Management has provided essentially no information on the ultimate buyer, while admitting that Curiosity Brands is newly formed and has “limited operating history and independent financial resources.” There is no guarantee this company actually has, or will have, the financial resources to pay CURI $10m. For all we know, the third party could be little more than a shell set up specifically for this transaction. Yet CURI has already recognised $8.5m of its promised future payments as revenue.

Barter Revenue

This isn’t even the only funky accounting going on in Q2. CURI engages in a process known as ‘bartering’, where they provide another media company the rights to use their content in exchange for receiving the rights to use some of the other company’s content. The accounting process here is interesting, as they record the other company’s content as revenue at zero cost (as licensing out their content costs nothing), while capitalising the acquired content as a content asset. No cash changes hands so if CURI swaps $5m of content rights for $5m of someone else's rights, it can report $5m of licensing revenue despite receiving $0 cash. The asset is then amortised over future periods, spreading out the cost and inflating present day revenue. Barter has been representing an increasing proportion of licensing revenue, which overinflates earnings.

Notably, this also degrades their competitive position. CURI's central investment thesis is that it owns a uniquely valuable content library capable of being monetized through AI licensing. If this content were highly monetizable, we would expect CURI to increasingly license it for cash rather than swap it for other companies' content. What makes this even worse is that of their $5.5m additions to content assets this quarter, $5.3m of it was barter meaning that they aren’t organically replenishing their actual content library, instead engaged in this death spiral of acquiring new content assets by exchanging their existing ones. CURI argues that their edge is the quality of their content library when currently three quarters of their content assets are licensed from other people.

Earnings Impact

So what does this mean for earnings then? Firstly, if we purely look at cash flow, Q2 operating cash flow amounted to -$4m despite organic content spend going to 0 and marketing spend down from $3.2m to $1.9m. Subscription revenue continued its decline with a 5% drop yoy. More importantly, if we take out the barter revenue ($5.3m) and the one time recognition of next year’s licensing deal ($8.5m) quarterly licensing revenue goes from $14m to just $200k, for all intents and purposes non-existent. This is a huge decline from Q1, where $3.8m of barter revenue offset $6m of total licensing revenue for a slightly more respectable $2.2m of real licensing revenue. With zero new content spend, and real licensing revenue declining to basically zero it’s clear that the company is juicing the business model for all the accounting profit they can.

The last line of defence for the bulls may be guidance, which on face value looks pretty bullish. CURI is guiding for $38-41m of revenue in the second half, $18-22m of full-year adjusted EBITDA, and a year-end “cash and investments” balance of $17-22m. We’ve already seen why the revenue number itself is largely meaningless. With content swaps and years of future payments counted as current revenue, reported growth tells us very little.

The adjusted EBITDA guidance isn’t as impressive as it first looks either. After reporting $11.4m of adjusted EBITDA in Q2, CURI is guiding for just $6-10m across the entire second half. Without another Curiosity Brands-style transaction padding the numbers, profitability is going to fall sharply from Q2. More importantly, this is adjusted EBITDA, which ignores roughly $15m of trailing stock-based compensation. That is a very real cost to shareholders for a company with a $210m market cap. So even before adjusting for all the questionable licensing revenue, the $18-22m EBITDA guidance significantly overstates the actual earnings of the business.

Finally, guidance for $17-22m of cash and investments may look promising for cash generation with only $10.8m of cash and debt securities on the balance sheet. However, the company’s definition of “cash and investments” includes equity investments. These equity investments include streaming subsidiary Nebula, which did $65k of income at a $3.7m balance, and more importantly German streaming subsidiary Spiegel Venture. The company’s 32% holding of Spiegel was held at $0 until this quarter, when the other owners activated a put option to force CURI to buyout the rest of Spiegel for $2m. Due to (totally coincidental) timing reasons, the company has paid the cash in q2, but won’t recognise Spiegel on the balance sheet until q3. In q3, that $2m is going to boost the equity investment balance, along with revaluing the current 32% currently held at $0 to add $3m to equity investments and of course, “cash and investments”. Add to this that stock based comp has historically been H2 weighted and it’s easy to see the bridge to this $17-22m “cash and investments” at the end of the year even after paying out another $10m of dividends.

With all this in mind, I believe the company is a very good short at the current market cap of $210m. Any value that the company’s catalogue did hold is being degraded by these barter transactions and the company is playing accounting games to emulate profitability. The shareholder base has been duped into buying a “licensing” story that has already failed, and the recent 30% pop on nonsense earnings presents a fantastic opportunity as the quarter actually reinforced the failure of the licensing narrative. The company continues to degrade its financial position by emulating profitability with a 10% dividend yield paid out of balance sheet cash and stock based compensation. Meanwhile, insiders have sold over $2m of shares in the last year, and have continued to do so over the past month. CURI is currently one of my largest single stock s

hort positions at around .7%.

The Business

The first thing you need to understand about ICG is that there is zero patent moat here. ICG is a molecule that anybody can produce for incredibly cheap. However, this has been the case since 1976, yet in spite of the lack of patent protection the market has been run by only a few large players for the last two decades. The important thing to stress here is that Ultragreen has essentially built this market themselves. Before Ultragreen, ICG was a niche surgical chemical that was sold as a tiny part of broader pharmaceutical company offerings. Ultragreen drove the popularisation of Fluorescent Guided Surgery (FGS) through funding education and clinical studies. They were even responsible for founding and backing the International Society for Fluorescence Guided Surgery, a non-profit that aims to advance FGS adoption globally, along with collecting data and establishing guidelines. This isn’t based on nothing either, with the literature consistently being positive for the effectiveness of not just FGS generally, but specifically ICG against other forms of surgical dyes.

This has been a remarkably effective strategy that allowed the company to build a dominant global position especially in their main market of Europe, where they have 95% market share. In the US they operated as a secondary player to pharmaceutical distributor Akorn before buying their NDA ICG and business out of bankruptcy in 2023, taking them to a dominant 83% market share. Most of the remaining market share is taken up by Stryker, a medical devices company who bundles it with their medical imaging hardware and software. Notably Stryker doesn’t sell to customers who don’t use their hardware, which means they aren’t really in competition with Ultragreen. The only other notable markets are Japan and China, which are both dominated by local companies Daiichi Sankyo and Dandong respectively. While their Asian expansion is limited by their inability to penetrate these two key markets, I believe that their existence actually adds to the bull case here as it demonstrates the dominant local moats that these companies are able to build.

So where does this moat come from? ICG currently is a relatively small market globally. As stated earlier Ultragreen has 70% market share and still only made $137m in revenues last year. In contrast to this, the cost to try and penetrate one of these markets is surprisingly high. For a given market a competitor would need to invest in regulatory permissions, specialised manufacturing, along with building out a dedicated sales force to deal with the notorious inertia of hospital procurement, all over the timeframe of minimum 3-5 years. Lets say you are competing for the $100m of revenue in the US market, undercutting on price by 30% ($70m) and you are able to take 20% of market share you’re looking at $14m of annual revenues along with the impending risk that Ultragreen decide to compete on price and crush you. And this is just in the US, the fragmented regulatory markets of Europe and Asia make them even less economical. Ultragreen spent years establishing the demand, relationships, infrastructure and regulatory approvals and are now reaping the reward as the incumbent.

Growth

The potential growth is where this gets interesting, as Ultragreen has potential to win on both price and volume. For price, the company’s pricing power differs for different markets. Within Europe it’s somewhat limited due to national health system procurement processes such as with the NHS in the UK. As these systems operate with centralised price negotiation and pricing frameworks their ability to raise prices significantly above inflation is limited as there are always still other options such as Japan’s Daiichi Sankyo. In contrast the company has been aggressively flexing their pricing power in the US since the Akorn bankruptcy, raising the price of vials (which had to be fair been underpriced by Akorn prior) by 60% in 2023, 30% in 2024 and 22% in 2025, with no further price increases planned. While these price increases may seem high, it’s important to note that prices are $181 a vial, charged to the customer and often insurance, as part of procedures that can cost thousands to tens of thousand of dollars and can be the difference between a successful and unsuccessful surgery. It’s a classic low cost segment of a large cost product with a high cost of failure that investors love to see. These price increases haven’t passed through to all hospitals however with hospitals under Group Purchasing Organisations (GPOs) still being sold at historically contracted prices. This follows a similar track to Europe where organisations with negotiating power are able to limit the ICG price increases, while independent hospitals have just had to eat it. Guidance assumes flat pricing for the GPO hospitals which is probably most likely, but there is the possibility that on the next renewal Ultragreen would be able to pass some of those price increases through to the GPO hospitals.

Volumes are where I believe this story is most interesting. Ultragreen’s historic growth has been fantastic with a 10 year volume CAGR of 22% to 2025. In spite of this, FGS adoption is still surprisingly low, especially in their largest market America. Specific data here is limited, but management has put forward a target market of 10m addressable procedures in the US annually versus 670’000 vials sold there last year. While this sounds ambitious, it isn’t ridiculous when observing penetration in the more mature European market. A survey conducted in 2020 amongst 44 centres dealing with colorectal disease in Italy found 72% of surgeons were using ICG in every procedure, and penetration has likely increased since then. This dynamic is backed up by an international study of colorectal surgeons in 2024 which found that 67% of surgeons who had access to ICG would use it when available, though it was only available at 76% of institutions. The path forward is to continue to penetrate global (and particularly the US) surgical markets by increasing institutional access, along with driving the education for surgeons to use it. The effectiveness of this in the US is being shown in vial volumes, but also in the sales of Da Vinci consoles (which are the hardware used for these procedures). Where 42% of Da Vinci sales shipped with the ‘Firefly’ module (a module that requires the use of ICG for fluorescent imaging) in 2023, that number is now up to over 60% in 2025, demonstrating the increasing demand for this process.

Financials

Getting into the financials we can see that this is a fantastic business. On a market cap of $1.3B USD the company did $62m of underlying earnings last year against $138m of revenue for 45% net profit margins. Gross margins and ROIC are strong as well at 85% and 28% respectively. Forward guidance is for revenue in the range of $170-190m which would imply 30% revenue growth at the midpoint and would see earnings of $81m (assuming no margin expansion) for a forward multiple of 16. Additionally to this, the company has $176m net cash on the balance sheet, which if taken out gets them to a cash adjusted PE closer to 14. Obviously there is competition and capital allocation risk here, but if the business trajectory continues as is I believe that this is too cheap. The company has historically paid a dividend, but post IPO has cut the dividend in preference of reinvesting in the core business, acquisitions (which they have a reasonable track record in), and an opportunistic buyback (which has seen use but not in a significant way so far).

I think management here is of reasonable quality. CEO Ravinder Sajwan doesn’t have a medical background, but does have an entrepreneurial background and did a fantastic job at recognising and consolidating a fragmented market in ICG. His family is heavily invested in the company through the majority holding Renew Group, though they did take some money off the table in the IPO. I’d consider this an amber flag, especially considering they still have maintained a large holding post IPO. What is more promising is that multiple directors including Ravinder himself have been buying shares on market with this recent selloff. I management has a solid track record of acquisitions, operations and general decision making with no raging red flags. The only other concern I would highlight is the naming of the company. In the lead up to the IPO the company changed its name from Diagnostic Green to Ultragreen.ai despite the “ai” aspect of the business being tiny. I am always skeptical of overly promotional management, but I haven’t seen much else from the company to warrant concern.

Risks

The core risk here comes down to competition. As stated earlier, the company has no real defence against a generic version of the drug coming to market other than procurement inertia and the costs involved with competing. I think that they do need to be careful on how much price they take in the US, as the more they jack up prices, the more incentive there is for a competitor to come to market with a generic. Similarly, a core defence has been the small size of the ICG market, which has made competing for it uninteresting to competitors. As the company and market continues to grow, the size of the market may hit a point where it gets more interesting for competitors to explore competing. These are all completely real risks that stop me from sizing up too aggressively here. However, I do believe that the more likely scenario is a continuance of the status quo.

Another thing to note is supply chain concentration. Historically the company has only had one supplier and in 2024 they had to deal with a multiple month shortage of ICG because there was a disruption at their manufacturer. While they are currently working on diversifying their supply chain and adding more suppliers, this concentration does make them vulnerable in the near future.

Conclusion

Ultragreen is a rare example of a generic product producing monopoly-like economics. The company has a moat built upon the regulatory approvals, validated supply chain, distribution network and clinical adoption that it has accumulated over two decades. These advantages have produced dominant market shares, exceptional margins and a credible runway from the continued adoption of fluorescence-guided surgery. At roughly 14 times earnings adjusted for cash, the valuation appears attractive for a business of this quality. The central risk is that continued market growth and aggressive US pricing eventually make entry worthwhile for competitors. I would not treat Ultragreen as an untouchable monopoly, however I do believe that the likely base case is that their moat continues to hold, providing an attractive risk-reward at the current price. I hold a small 2% position at the time of writing.

The Business

Focus Point runs 200 glasses stores across Malaysia, making up around 20% of the market. The Malaysian optical retail market is highly fragmented, being mostly made up of local mom and pop operators. Focus Point has been steadily taking share for the last 3 decades as the low cost franchise option, expanding by establishing new stores themselves, partnering with franchisees and converting existing optical stores into franchisees. Focus Point is well positioned to continue to grow their store count as they have a clear competitive edge on the operators that make up most of the other 80% of the market. For 2025 they opened 10 new stores, running at about 5% annual store growth. Their target for 2026 is 15 new self operated stores, plus 5 new franchises, which would be around 10% store growth.

This idea particularly attracts me due to the non-cyclicality. The core optical business is about as non-cyclical as it gets. Prescriptions expire, glasses break, 20% of their revenue comes from contacts, a recurring, non discretionary consumable. This is borne out in the 2020 numbers which saw earnings only down 25% in spite of their physical stores being forcibly closed. 21 and 22 then saw a rapid rebound as people’s deferred eyewear purchases returned. Additionally, revenue per store has been steadily increasing as they expand their corporate sales (employer optical benefits) and premiumisation of the product mix improves.

The only notable hair on the thesis here is their F&B business Komugi bakery. In 2012 the company bizarrely decided to expand into the F&B business with a Japanese bakery store. Komugi has never been a meaningful profit driver for the company despite contributing 15% of company revenue. Profitability has been inconsistent and after 3 years of small profits, contributed an MYR $3m loss in 2025. Q1 2026 was stronger with the segment breaking even due to cost cutting, but this segment is low quality, low margin and exposed to economic cyclicality in a way the core business isn’t and has the potential to be a drag on company earnings.

Management and ownership are pretty standard here for a family run business. The company was founded by current CEO Dato’ Liaw Choon Liang, and his family collectively owns 51%. Capital allocation has been almost flawless, with their move into F&B the only blemish on their record. Other than that there’s been no silly acquisitions, no empire building, no cash hoarding, just a consistent dividend along with smart, steady reinvestment in the business. Remuneration is reasonable, and I haven’t seen any red flags that would lead to me doubting their ability to continue to run the business. Instead we have a well incentivised founder with the majority of his family wealth behind the business he has built from scratch.

Founder Dato’ Liaw

The Financials

Where this idea gets really interesting is looking at the valuation. The company has been a consistent high single digits revenue grower and low double digits earnings grower as operating leverage has kicked in. Operating margins are a healthy 18%, while the company is running at a nice 20% return on capital, demonstrating that their store growth has been well executed so far. With all of this in mind, the valuation is astounding. At an MYR $332m market cap, the company has trailing 12 month earnings of around $37m putting them at a trailing PE of around 9. For a high quality, non-cyclical, low double digits earnings grower I think that this is much too cheap. On top of all of this, the company has a clear capital allocation strategy that is very shareholder friendly. At least 50% of net profit is paid out as a dividend each year (last year had a 60% payout ratio) with the rest being pushed mainly into new store openings. With the previously stated 20% ROIC, 20% margins for new stores at maturity, and a long runway for continued store openings I am very satisfied with their capital allocation, and the solid dividend means you don’t just have to rely on a rerating for a return here.

Risks and Why this Opportunity Exists

In these writeups I always love to answer the question “why does this opportunity exist”. Focus Point has my favourite answer to this question: nobody is looking. This is an illiquid, $83m USD microcap listed on the Malaysian stock exchange. There are no large substack writeups, next to no tweets about it and it’s too illiquid for any institutional money to play in. The free float is only around 25% with the majority of the shares being held by the founding family, or government and pension linked institutions.

As far as the actual risks, part of what attracts me to this situation is the lack of visible downside. The main risk would be a slowdown in growth and a decline in return from new stores. However, with only 20% penetration and a clear competitive edge I see them having a clear growth runway going forward. Obviously the company is somewhat exposed to the broader Malaysian economy, but as stated earlier the optical business is somewhat non-cyclical. The most likely risk to eventuate is continued underperformance in the F&B business, which could continue to be a drag on earnings. The most recent quarterly data suggests that this segment is going the other way, but it’s a low quality, consumer exposed business so could turn easily. Realistically though, it’s hard to see such a small segment being a significant drag on earnings long term, as opposed to just a minor speedbump.

One other risk here is the move to online Ecommerce that has hurt physical retailers globally. However, optical stores are uniquely positioned to deal with Ecommerce due to the need for eye testing that goes along with buying glasses. This inherently forces most customers into the store as they get their eyes tested and buy new glasses simultaneously. Furthermore, Malaysia’s Medical Device Authority recently enacted a ban on online contact lens sales, which is a regulatory tailwind that will force many customers who may have transitioned to online back to physical sales.

Conclusion

Focus Point is as clean a pitch as it gets in small cap emerging markets, with a dominant market position, non-cyclical demand, decade of consistent execution, founder alignment, and a clear reinvestment runway. At 9x trailing earnings with low double digit growth and a 50%+ dividend payout it’s hard to see how you lose a significant amount of money here outside of some sort of disaster. The fact is that nobody is looking at this little corner of the Malaysian exchange, resulting in what I believe to be a significant mispricing in a high quality microcap. Full disclosure I own a small position, limited by liquidity constraints.

The Business

RaySearch Laboratories is a Swedish medical technology company founded in 2000 as a spin-off from the Karolinska Institute in Stockholm by current CEO Dr Johan Löf. Put simply, RaySearch builds complex mathematical algorithms for radiation therapy. These algorithms model patients anatomy and calculate the exact angle and strength of radiation beams to treat cancer. Löf has a PHD in Medical Radiation Physics, and founded the company with the premise that the people best positioned to write these algorithms, as opposed to the hardware companies which dominated the space. These algorithms can be the difference between life and death and have huge reputational and compliance barriers to entry that limit competition to only a few companies.

Raysearch’s revenue comes entirely from software sales and support revenues. In 2025 48% of their revenue came from one off licence sales. However, these licence sales work as an installed base, with 40% of their revenue coming from recurring support agreements which include things like software version updates (which includes essential regulatory continuances), customer support and new model (hardware) support. This recurring revenue is incredibly high margin and comes in at essentially 0 variable cost. The other 12% of revenues consists of lower quality hardware and training revenues. This is a fantastic business model as RaySearch continues to build up a consistent, reliable source of recurring income that makes them more resilient against market downturns or weak years.

At this point I need to make sure to distinguish between the two core types of radiation therapy that RaySearch deals with: photon and particles. Photon therapy uses linear accelerators (LINACs) with high energy x-rays to treat the cancer. Photon therapy is less precise and has more side effects due to the photon’s lack of mass, which makes it move through the body and affect surrounding tissue. In spite of this it is the global standard for radiation therapy and accounts for around 85% of the radiation therapy market due to being significantly much cheaper (25x) historically, though this is changing. In contrast to this, particle therapy uses particles like protons (by far the most popular), carbon and helium, which due to their mass are able to perform a targeted energy release at a more precise location. While particle therapy (most notably proton therapy) is much less popular, the last decade has seen the development of smaller, cheaper compact systems that bring the price from around $150m down to $25m which has seen strong persistent growth in new proton therapy centers.

Competitive landscape

This distinction is important to note as RaySearch holds a very different competitive position in these two markets. Within the broader photon market there are two core competitors in Varian’s ‘Eclipse’ system (owned by engineering giant Siemens) and Elekta’s ‘Monaco’ system. The literature here is inconclusive as to whether RayStation is more effective than Eclipse of Monaco from a treatment perspective. Both of these companies sell the systems used in photon therapy and bundle the software in with them, making it a naturally challenging, but not impossible competitive undertaking for RaySearch to compete. In contrast, within particle therapy RaySearch holds an almost monopolistic 80% of the Proton therapy market. The core difference here is that while Varian and Elekta hold 75% of the market in photons, Varian holds a much smaller percentage of the market in Proton therapy hardware, and other competitors like IBA, Hitachi and Mevion don’t have their own software and so use RayStation almost by default. When looking at their prospects going forward we need to look at these two markets separately as they have very different opportunities. I want to note here that it is incredibly difficult to envision these markets being meaningfully disrupted. These software offerings are built off decades of mathematical optimisation with both data and expertise that would be incredibly difficult to replicate. Even if a competitor built software as effective, they would have to pass regulatory hurdles along with beating the reputational inertia and switching costs to compete for what is a fairly small and niche market. The incentives just aren’t there for meaningful competition even with the lowering barrier to entry into software with AI, because it isn’t the software layer that gives RaySearch the edge.

The photon therapy market is a genuinely competitive and difficult to breach one for RaySearch. As stated earlier, Varian and Elekta dominate the space with around 90% market share in hardware and 75% market share in software, mainly due to packaging their software with their hardware. These types of software are very sticky, and it’s rare for a clinic to change software as that would involve their operators being forced to retrain on new software and more importantly replanning every existing patient’s. So how does RaySearch win market share? Due to having no dedicated hardware offering, RaySearch has by far the best software offering for multi vendor clinics. Both Eclipse and Monaco are fantastic with their native hardware, but are notably worse when used with machines from other providers they weren’t built for. For any clinic that uses machines from different hardware providers, or wants to be flexible going forward RayStation is by far the best offering. Additionally, for the small segment of the market not using Varian or Elektra, RaySearch is almost the default choice. A current tailwind is the discontinuation of competing software Pinnacle by Philips in December 2026. There are hundreds of clinics worldwide using Philips photon therapy software that are having to move to new software, and many of them are choosing Raystation with Pinnacle conversions accounting for 23% of total licence sales in 2025. Altogether the photon therapy market is expected to grow at around 7% over the next few years which makes it a growing market. For photon therapy, RaySearch doesn’t need to take a huge amount of market share to do well, but just to continue to succeed in their existing niche.

Additionally to this, a structural growth opportunity in photons is emerging in online adaptive radiotherapy (OART). Conventional radiotherapy uses a fixed treatment plan with large safety margins to account for daily anatomical changes like tumours shifting, organs moving and patients losing weight. OART eliminates this by replanning in real time while the patient is on the table, delivering more precise dose to the tumour and less to surrounding healthy tissue. Until 2025, OART required purpose-built machines costing $8-15M, limiting it to a handful of elite centres. RayStation is now the first and only commercially validated software to enable OART on standard LINACs, meaning any of the 8,500 existing LINAC centres can access it via a software upgrade. RaySearch is 2-3 years ahead of any competitor here, with a captive upsell opportunity across their entire installed base and a natural pull-through into RayCare adoption.

The proton therapy market is where the meat of this thesis is. As stated earlier RaySearch holds 80% and growing market share within this sector, making it essentially a monopoly. The growth narrative behind this sector is real, with growth estimates between 10-12% for the next 5 years as clinics continue to take advantage of the lowering costs of proton therapy systems. What’s notable here is that while RaySearch currently has more photon customers, their proton sales are much higher value per customer. As mentioned earlier, the cost of a proton therapy system is around 5x the cost of a photon therapy system which means they can comparably scale up the price of the software, especially as they are the only serious option available. While they don’t break out specific values for proton vs photon sales, based on the number of clinics it’s fair to estimate that around 20-35% of their revenue comes from proton software sales, however this percentage will continue to grow as the growth in proton clinics continues to outpace the growth in traditional photon clinics.

One thing to note here is the optionality in broader software offerings RayCare and RayIntelligence. RayCare is an oncology information system, which you can essentially think of as an ERP like ServiceNow but hyperoptimised for workflow within the oncology clinic. Meanwhile RayIntelligence is a cloud-based analytics platform for analysing data from RayStation and RayCare. The core offering here is an ecosystem, ensuring that all of a clinic’s software works together seamlessly with specialised offerings. These offerings currently aren’t huge revenue contributors, but are very easy, high margin upsells to new RayIntelligence customers. In their most recent earnings call, management stated that in the next 2-3 years they expect to see “a good ramp-up” of RayCare and RayIntelligence sales. I’m not really factoring a big expansion of these offerings into my valuation model, but if there were that would provide meaningful upside.

Management

I don’t believe management here leaves anything to complain about. As mentioned earlier the company is founder-led by Dr Johan Löf who has done a fantastic job of building the company, up 41,000% since listing in 2003. Löf is well incentivised to perform well, owning 10% of the company and over 70x his annual compensation in stock. Management is stable, with most members having been around for a reasonable amount of time. Management and board members own a significant amount of stock with 7% of the company held by other insiders. There’s even been a recent insider purchase with a member of the board buying $280k USD worth of stock around the current price.

Valuation

While this is a very attractive business to me, I am still a value investor to my core so valuation matters. This is where things get interesting. At a 7700 mSek market cap and 244 mSek underlying earnings (adjusted for receivables currency movements and fully expensing R&D) RaySearch is currently trading at a reasonable 31x earnings. However, when we model out the numbers this gets far more interesting as this is still a company reasonably early in its development. The important thing here is that at 90% gross margins and 22% operating margins made up mostly of fixed costs the company has a huge amount of room for margin expansion. In the last 3 years as revenues have increased from 843m in 2022 to 1350m this year, operating expenses have only increased from 718m to 950 seeing operating margins expand from 4% to 24%. With limited variable costs, it’s reasonable to expect operating margins to continue to trend upwards and CEO Löf has set 25% as a floor for their operating margin for 2026, however I believe there’s a reasonable chance it’s a bit higher. The company has been putting up low double digit revenue growth for a while (19% currency adjusted last year) and I think that’s a reasonable expectation going forward with the exception of 2027 which will have the Pinnacle growth cliff. So to run some potential numbers, if we were to see 17% revenue growth (which would be low historically) next year at a 26% operating margin we’d end up with around 323m of earnings, putting us at a forward pe ratio of 24. I’m not saying that those are the numbers that they are going to put up, but that’s a reasonable estimate that puts us at a valuation that is too low for a business of this caliber. I’ve done some loose financial modelling (they don’t give a lot of granular details so it’s very loose), and the base case for my different outcomes seems to fall around 50% upside to the current valuation without super demanding assumptions.

Looking at the other financial statements, the company continues to be spotless. RaySearch has no debt, and 400 mSek net cash. Their cash conversion is reasonable and while they do capitalise their R&D expenses, the D&A has caught up and tracks their capex closely with only around a $15m difference last year. Regarding capital allocation the company has a dividend policy of 50% of profit after tax annually. They have not historically engaged in significant m&a so aren’t likely to blow their profits on a stupid acquisition, but also I am interested to see if they have any more detailed capital allocation plans going forward now that they are consistently profitable as they are beginning to build up cash on the balance sheet.

Risks

The core question I like to ask when doing these writeups is “why does this opportunity exist?” I think in this case this question is pretty straightforward to answer. RaySearch is down almost 50%, caught in the middle of two huge struggling sectors in Swedish medtech (which has been significantly underperforming the broader Swedish stock market) and of course the large software selloff we’ve seen globally due to AI fears. The Swedish medtech selloff is a purely valuation based one, meanwhile I believe that RaySearch should be immune to long term disruption from AI due to many of the reasons mentioned earlier, so I see them as a diamond that has been unfairly dragged down to unreasonable levels due to sector wide indiscriminate selling.

There are two other factors impacting the stock that I see as inconsequential long term. The first of these is currency impacts. While organic revenue growth was 19% in 2025, when accounted for currency movements it came in at 12% due to the appreciation of the SEK against the USD, plus a $30m currency related decline in receivables. This has resulted in earnings and revenue growth being understated relative to the underlying business performance, but isn’t hugely consequential for international investors. The other factor is revenue lumpiness. As a large proportion of their revenue is licence revenue tied to large projects their quarterly and even annual revenue has been and will continue to be lumpy. The main thing to focus on here is the long term performance of the business.

As far as the actual risks there are a few. The most pressing is in photon therapy. While they have consolidated market share well, their market position as the multi-vendor software of choice could be under threat with Elekta specifically targeting that area of the market with their Elekta ONE planning software released in 2024. While RaySearch has held them off well, this is probably where they’re most vulnerable. Another notable risk is that growth in proton therapy clinics isn’t as fast as expected. This could be due to some sort of broader global growth slowdown, or maybe just estimates are too aggressive. In this scenario, services revenue should provide some cushion but returns would still likely disappoint. While any of these downside scenarios would hurt the stock, the combination of growing market, recurring revenue, and undemanding valuation I believe limits the downside and likelihood of permanent capital impairment.

Conclusion

To be frank, I believe that RaySearch may be the most interesting idea I’ve ever written about on here. In RaySearch you have a genuine software monopoly in the growing proton therapy market combined with a high quality, competitive offering in photon therapy succeeding within a niche. I think our downside is reasonably protected by switching costs, regulatory and reputational moats, recurring revenue and a reasonable valuation. The current selloff in software and Swedish medtech has provided us with an opportunity to buy a low double digits organic grower at 24x forward earnings, a price I believe to be too cheap considering the many factors discussed above. For full disclosure, I have made RaySearch one of my largest positions with an average price around 220 mSek.

Modiv is an internally managed REIT focused on triple net industrial manufacturing properties. Put simply, they own factories where things are made and lease them out on long term triple net leases, meaning that the tenants pay expenses like property taxes, insurance and maintenance. Modiv has had a rough time as a publicly listed entity. After going public in February 2022 with a direct listing at NAV ($25) the stock immediately plummeted to around $17 as private investors flocked to the exit and the stock got caught up in the rate rise based selling in the broader market. Since then, the stock has gone basically nowhere, currently trading at $15 (having paid around $5 of dividends in the time since). This poor performance has come in spite of steadily improving underlying fundamentals which have left the company far more attractive now than when they first listed.

When Modiv first listed they owned a variety of different assets including offices and retail assets. However, the last few years has been spent focusing on monetising their lower quality assets and focusing on becoming a pure play manufacturing REIT. Additionally, the quality of the leases has significantly improved. When Modiv first listed their portfolio the weighted average lease term (WALT) was around 6 years, which has grown to a whopping 14 years currently. The tenant quality has improved as well, with the EBITDAR

Rent coverage for the portfolio rising from around 3x to currently sitting at 10x. Some other highlights of the current portfolio include a 2.5% average annual rent escalation across the portfolio, getting 100% of their debt to fixed rates, and cutting expenses from $17m in 2022 to $12m this year. While the stock price may not reflect it, the company is in a far better place than when they started.

With all of this in mind I want to take a look at the valuation. Against a market cap of $156m, last quarters AFFO (adjusted funds from operations) was $3.2m when adjusted for stock based comp, or $12.8m annualised for an attractive 8% yield. Looking through the adjustments I don’t see any egregious adjustments that would make us disregard their AFFO number. Modiv is currently paying this all out in $12m annualised dividends for an 8% yield at current price. Moving to the balance sheet, management states their NAV per share at $22.2 vs a share price of $15.13 for a 46% premium. They do hold a fair amount of debt at $260m vs $470m of assets, however they have no maturities until 2028, and at a 4.15% cost of debt aren’t looking at any crazy increases in financing costs when the debt matures. I don’t like to put out target prices, but it’s very easy to see why the company is attractive with a growing (due to contractual rent escalators) 8% yield and at a 32% discount to NAV.

Modiv has been led by CEO Aaron Halfacre since 2019 and he is a very interesting character. Unlike many REIT’s, Modiv is internally managed and Halfacre takes a base salary of only $250k a year, with another $130k of cash bonuses. Meanwhile Halfacre owns $2m of stock in the company, with many other members of management owning large chunks of stock too. In a recent press release Halfacre described the stock price as being “too fucking low”, and he has put his money where his mouth is, buying stock on market personally and instituting a share buyback program for the company. Halfacre talks incredibly frankly about the stock, but also clearly articulates his vision for the company and their strategy to get there. I would highly recommend reading their recent strategic update for anybody who wants more information, but for those who can’t be bothered, I’ll summarise and provide my thoughts.

As I said prior, Halfacre believes the Modiv share price to be “Way too fucking low”. Halfacre has spent the last 5 years doing everything in his power to make the company more investible, and basically believes that within the next 2 years they will have pulled every lever available to them. They plan to continue selling non-core assets and assets that they can get good prices on to improve the balance sheet and reinvest in attractive properties. They also plan on retiring their expensive (7.3% yield) preferred stock, and have gotten permission from their lenders to do that. He talks candidly about their refusal to issue new stock for acquisitions while their share price is so low, which removes one of the largest fears for any REIT investor. The most interesting development however is the potential for a sale. In the most recent 4th quarter update Halfacre stated that Modiv had “received multiple inquiries of interest, including two unsolicited offers”. While those offers were turned down, Halfacre has stated that they are open to offers that they deem attractive, quote: “if you want to lay us, you better pay us”. More importantly he has stated unequivocally that if their share price is still languishing in the next year or two as they complete their initiatives that he will initiate a formal sale process.

The question I always like to ask in my writeups is ‘why is it so cheap?’ The main reason why I believe this mispricing exists is due to the lack of liquidity and attention to the stock. The average volume is only around $750k per day, which would lock out a lot of potential institutional buyers. There isn’t a huge amount of discussion about it on twitter and I’ve only seen one writeup of it on substack by a small account. Furthermore, the broader REIT sector is incredibly out of favour currently so we have an unfollowed microcap in an unloved sector. As far as the actual risks go, the biggest one is that the company doesn’t rerate, and nobody comes biting on the sale. The company would continue plodding along and this idea would have mediocre returns, though it isn’t the worst scenario as you would still receive an 8% dividend, but it wouldn’t be ideal.

Tenant concentration could be seen as a risk with 25% of their rent coming from two tenants in Fujifilm and Northrop Grumman, however both of these companies are large, publicly listed blue chips on long leases with a long track record of profitability so I don’t see this as a huge risk. Another risk is that the Iran war leads to a sustained spike in inflation and corresponding rate hikes. This would hurt both in the eventual refinancing of their debt and also likely driving their valuation down. Altogether, I see these risks as reasonable considering the potential upside here in a takeover or rerating.

At the end of the day, Modiv is exactly the kind of setup that gets me excited. You have an improved business with better tenants, longer leases, fixed rate debt and lower costs being run by a good, well aligned CEO. You’re getting paid an 8% dividend to wait with a catalyst in the form of a formal sale process if nothing moves in the next year or two. While there are always going to be risks, the risk/return here seems heavily skewed to the upside. I have been steadily building a position and at the time of writing have a 5% position.

VIL is a holding company with stakes in a few large, European financial institutions. The bulk of their value comes in a 70% majority holding in publicly listed Swiss broker Compagnie Financière Tradition ($CFT). Tradition deals in high barrier OTC markets like money markets, interest rate derivatives, currencies and commodities. We’ll break down the valuation later, but this holding alone is worth more than the current market cap. Additionally to this they have an 81% holding in French online broker Bourse Direct $BSD.PA, along with a 40% interest in SwissLife Banque Privée, a private investment bank that does wealth management and advisory services for high net worth individuals.

I want to focus on their holding in Tradition, as that’s where most of the value will come from. As an interdealer broker, Tradition essentially acts as a middleman between large financial institutions for illiquid, over the counter products such as interest rate derivatives, currencies, money markets and commodities. While these products may be liquid for a retail investor such as you or I, large financial institutions can’t trade size in these markets without moving the markets themselves. Tradition takes these large, complex orders and finds a buyer for them. Tradition doesn’t take a directional bet, instead just taking commission on all orders. This means that Tradition revenue is purely a product of market volumes, and as a result Tradition benefits from periods of high volatility and intense market activity.

I see exposure to Tradition as attractive as it has a strong competitive position and is countercyclical. Tradition operates as the smallest in a big 3 oligopoly in the sector including TP ICAP and BGC group. Tradition has been performing well within this group, being the strongest performing in the last few years as far as growth goes, while currently sporting a very good 30% ROE. Additionally, Tradition should be an AI winner. Their core interdealer brokerage work shouldn’t be at risk to AI automation. Meanwhile their data services division becomes more valuable in a world where AI requires high quality data to build effective models. On the flipside, Tradition is a clear beneficiary of AI driven efficiency gains in areas such as software, support, reporting and compliance. The most attractive aspect of Tradition however is their countercyclicality. In an increasingly volatile market and world, they are a clear beneficiary. As a recent example, while the Iran War saw global markets melting down over a few days, Tradition would have benefited as global institutions rushed to hedge currency positions or buy oil and gas derivatives in the face of the changing environment. This type of countercyclicality is fantastic for portfolio diversification.

The valuation is where this is most interesting, and I think this looks good from a sum-of-the-parts valuations or from a classic cash flow analysis. From a SOTP perspective, VIL’s holding of CFT is worth €1650m alone, vs a €1120m market cap. With a net cash position at the company level this alone makes it very attractive. The 81% holding in $BSD is worth another €209m. Meanwhile Swiss Life is carried at a fair value of €72m and has been consistently profitable, though their recent results weren’t fantastic. Swisslife is currently earning roughly €9m annually making that €72m valuation reasonable. Put this altogether and it’s clear to see why I find the company attractive at a SOTP valuation of €1930m vs €1120m market cap.

That SOTP valuation is nice, but realistically the company isn’t going to be doing anything to realise that value. However, I think the company is still attractive from an earnings and capital return perspective as well. The company is trading at around 9x trailing earnings, which feels far too cheap for a decent quality business. Some comparisons here include $TCAP.L at 12x earnings, $BGC at 30x and $CFT itself at 17x earnings. $TCAP trades so cheap because it’s the legacy player and has been struggling to grow over the past few years, however it is still more expensive than $VIL in spite of that underperformance. There are no capital return worries either. VIL has been a consistent, growing dividend payer, returning €322m in dividends since 2006 while additionally buying back around 18% of shares over the past decade.

As far as management alignment goes, this is a classic, tightly held conglomerate with CEO and Chairman Patrick Combes owning 70% of the company, The company performance has been pretty strong under his watch since taking over in 1979 at the age of 27. According to yahoo finance the company has had a total return CAGR of 24% over the past 35 years. Even going back the last 10 years the CAGR has been 23%, demonstrating outperformance relative to the market over every timeframe. Investors are well aligned with a smart operator in Combes, at an attractive valuation.

A core question I like to ask in all of these writeups is “why is the stock so cheap”. The core reasons here are some of my favourites. The company is an unknown, illiquid conglomerate. The average daily volume over the last 90 days is €220,000, so it would be almost impossible for a large, institutional investor to build a meaningful position here. Meanwhile, there have been very few writeups of VIL that would drive retail investors to own it, along with very little activity around the name on Twitter. As far as the actual risks facing the stock, at this valuation the main concern would be around future market activity. VIL benefits from volatile markets, so a period of consistent market stability would hurt the business and see earnings drop. Additionally, there is competitive risk here with BGC Group building out the FMX Futures Exchange, a standardised, central electronic exchange for US Treasuries and interest rate futures. Currently BGC is gaining market share in these markets, however it’s important to note that the majority (70%) of VIL’s revenue in these segments comes internationally. VIL has deliberately focused on more niche, complex markets that are harder to centralise onto an exchange. BGC is currently focused on stealing market share from much larger competitor CME group in the US treasury market, it’s very easy to see VIL continuing to slide by within their own niches that they dominate. This is evident in last year’s performance where they grew revenue 10% in spite of BGC growing their own market share from 28% to 40%.

With all this in consideration, I find VIL to be one of the most attractive stocks on the market currently. Not only is it at an attractive valuation, but it works as a natural hedge for any portfolio that should outperform during periods of high volatility. With a smart operator at the helm, and clear reasons for the cheap valuation I think this is a classic opportunity for smaller investors to benefit from a liquidity based mispricing. I see a few different ways of playing it. The obvious way is to just own the stock outright, but I could also see the benefit of going long the stock while shorting either $CFT or $TCAP. Shorting CFT would isolate the huge conglomerate discount and hedge out the broader business volatility. Meanwhile shorting TCAP would focus on the valuation difference as it is more expensive in spite of significantly better business performance from VIL. VIL is currently my largest position at 10% of the portfolio, with a 2% short position in CFT and a 1% short position in TCAP to offset it.

AVTB is a Swedish software company that specialises in digital air traffic management. Their various software services help improve fuel efficiency, lower emissions and improve safety through flight path optimisation and weather monitoring. Their core software offering is ClearPath, which has been shown to reduce fuel consumption by 2-3%, a huge boost for a business whose largest expense is fuel. The first advantage that AVTB has is an exclusive partnership with the UK Met (Meteorological) Office, one of only two World Area Forecast Centres in the world, giving them higher quality data than any of their competitors. For context, most airlines use 100km resolution weather data, vs 10km for AVTB. This data has allowed them to build the best meteorological and flight planning models available, which would provide them an advantage even if competitors were to get access to comparable data and start building their own. Finally, AVTB’s software requires no hardware (unlike many competitors), and is built to utilise existing aircraft hardware.

AVTB is still in the growth phase of its business, but has built relationships with a variety of prominent carriers such as Scandinavian Airlines, Wizz Air and LATAM Airlines. However, their most notable partnership is their long term relationship with their first customer Southwest Airlines. Southwest has been at the core of AVTB’s business, both acting as a reliable customer and source of revenue, along with a testing ground to build credibility and proof of concepts. This relationship is at the core of the recent selloff, with Southwest representing around 30% of revenues, and their contract set to expire in June 2026. Despite continuing to kick goals and trading at a very reasonable valuation (we’ll touch on later), the stock is down 30% from its highs due to contract fears, presenting us with this opportunity. While losing the Southwest contract would be brutal, all of the evidence suggests that they will renew. This is not the first time the contract has expired, with a three year extension being negotiated in 2023. Additionally back in 2020 the two companies negotiated to move to a per-flight model, allowing both companies to continue operating reasonably. In the past Southwest representatives have praised AVTECH as “extremely valuable” and having an “excellent technical operational fit”, along with citing their “enhancements to flight planning software” as a key lever in their long term sustainability plans. While losing this contract is a potential risk, I see no reason to believe that it won’t be renewed.

Looking at the numbers this screens as a very attractive opportunity. Revenue has more than tripled since 2021 and grew 38% y/y just last quarter. Gross margins are a very healthy 67% while operating margins have been a steadily improving 33%. At a 468m kr market cap the company did 4.5m kr of underlying earnings last quarter or 18m annualised putting them at a run rate PE of 26. Their balance sheet is rock solid with 33m of net cash and no debt, and the company even paid a small dividend last year. Put simply, assuming they maintain the Southwest contract I believe this valuation to be far too cheap for a high margin, fast growing software company with a proven good product.

I don’t have any strong opinions on management, but they seem reasonable. I think they’ve done a good job of building the business so far, both developing and improving their software, proving it with existing airline relationships while steadily building new relationships. The CEO David Rytter has been with the company since 2012 and first served as the CTO before transitioning to CEO during 2020. He owns around $1.5m USD of stock and bought a large chunk in March 2025. The company has built out an employee ownership program, with several employees participating in share buyins. The company has been good on costs, steadily improving margins over the last few years and focusing on profitable growth.

So why is the company so cheap? The first obvious reason for this is the contract negotiations. I’ve already touched on my thoughts there, but how does the company look if it breaks. While it would be a brutal hit to revenue and profits, assuming around a 30% contribution to revenue the company would likely remain profitable. It should be noted that there is also currency risk in the contract as the company gets paid in USD, so continued weakness in the USD would be a modest headwind. More broadly however this is a niche, $50m USD Swedish microcap. I’ve seen very little commentary about it on twitter, and no free Substack articles about it.

In AVTECH I think we are presented with an opportunity to buy a high margin, high growth stock at an incredible reasonable price due to temporary concerns. In a world where the contract is renewed, it’s very easy to see the company continue to grow earnings at mid double digits while potentially rerating as the story catches on. In this scenario we would likely have a multibagger on our hands. While the risk of losing the contract is concerning, I don’t see the incentives for Southwest to not renew considering the history between the two companies, and the potential upside makes the reward far outweigh the risk. I have made AVTB one of my largest positions at around 5% at the time of writing.

INPP is a holder of a diverse portfolio of public and social infrastructure assets, with 73% of their assets in the UK and the rest in various developed countries. What attracts me to INPP is the low risk nature of their revenue. INPP invests almost entirely in regulated revenue streams backed by long term, inflation linked government contracts. INPP gets paid a set amount by the government to maintain these assets, making their cash flows extremely safe and reliable with governments as a counterparty. Examples of the sorts of assets INPP runs are transport links, electricity transmission, waste treatment and schools. While I’m not a legal expert, my understanding is that these contracts are tight, and there is limited possibility of governments modifying them in negative ways.

While the selloff in infrastructure assets has been more focused in riskier assets, INPP hasn’t been immune. The company has done £290m of writedowns in the last two years mostly due to changes in discount rates, while their price to book ratio has gone from a consistent premium of 1.1x down to .85x. The important thing to note here is that unlike a lot of other project infrastructure assets which may have questionable forecasts and asset quality muddying their valuations, INPP’s assets should in theory be very simple to value. Their asset valuations should essentially come down to the contractual revenue, inflation and the discount rate. I think their inflation estimates are conservative (will discuss this in a bit) but more importantly the weighted average discount rate is at a historical high of 9% (admittedly with higher rates). That means that our base case here is buying an incredibly safe, uncorrelated 9% IRR basket of assets at a 15% discount, which I believe is a fantastic deal to anchor a portfolio. Even with no rerating I believe the return here would be attractive.

Where this looks extra attractive is in a potential rerating scenario. On face value there is obvious potential for the stock to return to book value where it has historically traded. However, what will actually drive this rerating? In my opinion, it is hard to envision a world where UK inflation remains elevated and rates remain elevated. Either inflation drops, and we see long term rates drop with it or long term inflation remains elevated (say 3-3.5%) and rates remain higher. Both situations should drive a rerating in the stock as long term inflation estimates used in valuations are only 2.5%, while the discount rate is at all time highs due to an elevated risk free rate. This offers up not only a rerating to book, but I believe there’s even capacity for a small expansion of book value. Another potential driver of a rerating would be their largest project by asset value ‘Tideway’ becoming operational and revenue generating over the next few months. While this is all included in their projections and valuations, the material uplift in earnings and dividend yield may drive investors to pay more attention as many of these infrastructure stocks seem to trade heavily based on their dividend.

INPP’s ‘Tideway’ project

What I think makes this idea so attractive is the lack of downside, however I do want to look at what the risks are here. There is limited construction risk, with responsibility for cost overruns and delays usually being passed down to the construction contractor. There is an element of operational risk, as many of their contracts are availability based, however as experienced operators, I’m not too worried about this. The biggest risk surrounds some sort of long term inflation shock that drives rates higher. While structurally higher inflation would benefit the stock long term, if that inflation were high enough to require a rate rise, the dynamic we’ve seen play out over the last few years of rising discount rates crushing valuations would likely continue. I’m pretty comfortable with this risk as I find it hard to see an environment with inflation high enough to warrant a rate rise above the already high 4.5%. To be frank, at current valuation, rates and inflation levels I find it hard to envision an environment where the stock is significantly impaired.

With all this in mind I believe the current market selloff has given us a gift. The thesis is simple: INPP holds essential, low-risk public infrastructure backed by long-term, inflation-linked government contracts. Right now, the stock is trading at a 15% discount to its book value, with a high average discount rate of 9% baked into that valuation. We are getting a safe, uncorrelated 9% yield just to wait. The upside is clear, as either a return to normal interest rates or structurally higher long term inflation should both benefit the stock in different ways. The downside is limited because the cash flows are so secure. I have made this one of my larger positions.

The Business

Fragua is the parent company of Farmacia Guadalajara, a discount pharmacist who came up with the concept of the “Superpharmacy”, which merges the concepts of supermarkets and pharmacies. While many supermarkets sell pharmaceuticals, the core specialisation here is that Farmacia maintains a deeply specialised range of pharmaceuticals. Meanwhile, Fragua focuses on stocking an optimised selection of core supermarket items like essentials, snacks, drinks, personal care, alcohol and tobacco, along with selling fresh coffee and their renowned fresh bakery section. They aren’t covering your full grocery shop, but instead aim to have all the essentials at a reasonable price point. Additionally, stores are open 24/7 catering for both urgent pharmaceutical needs and last minute or impulsive grocery shoppers. Overall this creates a time saving one stop shop advantage over their supermarket and pharmacy competitors. These stores often turn into somewhat of a community hub, providing access to various other services like photo printing, financial services (bill payments, remittance, ATMs) along with community noticeboards.

This model has seen remarkable success, expanding to over 2900 locations in all 32 states across the country. This success has been driven by the company’s majority owners, the Arroyo Chavez family, who have a tremendous track record. The core to their success has been an Amazon-esque focus on the consumer, and giving them the optimum customer experience. An example of this is their heavy investment in logistics on the back end for both in person stores and their 24 hour delivery online services to give them full control over their supply chain. They’ve opened private label brands for many products to lower prices for consumers and increase their margins. They’ve also been willing to weather short term margin costs in order to aggressively expand with new stores. One of the thing that makes me most interested in this idea is the idea of investing under a management team with a long track record of excellent results both operationally, and with regards to capital allocation.

The Financials

I think the valuation here is very attractive. At face value, Fragua trades at a very reasonable 10x trailing earnings despite consistent, low double digits revenue growth. The first question is why are they so optically cheap for a company with such a good track record? While some of it just comes down to exposure (an obscure company in an unloved market like Mexico), Fragua is facing some short term headwinds that are weighing down the stock. The last year has seen operating margins compress by 70 bps, which is significant for a low margin retailer. However, while some of this is from inflationary pressures, management puts most of this onto their aggressive store expansion in the last few years, with newer store costs hitting the income statement immediately while taking time to ramp up revenue. Post 2021 the company has significantly ramped up expansion as can be seen by both new store openings and capital expenditures increasingly rapidly. In the last 12 months the company has done $4.7b of capex vs $1.2b of depreciation, up from $2.2b of capex in 2021. With the company historically seeing above 20% return on capital for new stores, I feel fairly comfortable about this heavy investment currently weighing down margins. Additionally, if underlying earnings power is being masked by expansion, then we have essentially a trough multiple (with a P/E ratio at the lowest in over a decade as shown below) being applied on trough earnings. With a few good results we could see a killer combination of earnings growth and multiple expansion work in tandem.

There are plenty of risks to be wary of. The first and most obvious is the location, with Mexico not being the nicest place for a business to be domiciled. The Mexican Peso has almost halved since 2005, and that devaluation has been a drag on returns. Additionally, while the economy has been strong and President Sheinbaum has been more pro-business than many feared, there remains a general fear of political instability due to well known issues with cartels, along with a generally weak rule of law and high levels of corruption.

More specifically to the business there are still plenty of concerns. There’s no guarantee that current and future new stores will be able to gain the same traction that their stores have historically. There are plenty of competitors such as FEMSA Health and Farmacias del Ahorro on the pharmaceutical side and Walmex and Oxxo (owned by FEMSA) on the convenience and grocery side. FEMSA and Walmex are publicly listed companies that have outlined their plans to continue to grow aggressively. Most notably Walmex provides an array of pharmaceuticals alongside their broader grocery options. While the superpharmacy model still separates it from these competitors and provides them their own little niche, it’s hard to say when they will hit saturation. I think the main mitigating factor here is management’s track record, as the thesis is anchored on the continued strong execution from the Arroyo Chavez family.

While inflation is down from its 2022 peaks, it is still on the high side at around 3.5% and may continue to weigh on margins. While management claims that the majority of margin erosion is from investment, it wouldn’t surprise me if some of it is inflation based. Similarly, while the increased capex spend is mostly due to investment in new stores, I wouldn’t be surprised if depreciation understates maintenance capex after the significant cost inflation over the past few years.

While there are some risks to this idea, I think the upside far outweighs them. With the quality of the company, alignment of the management team I think that we have a nice margin of safety here without too much downside over the medium term. Meanwhile, in a bull case we could see the one two punch of multiple expansion on top of earnings growth. Currently Fragua is one of the largest positions in my portfolio.

Fragua is a quality retailer in a unique niche trading at 10x trailing P/E. This discount is temporary and driven by the margin compression inherent in the company’s current, aggressive capex cycle. The investment thesis is simple: aggressive expansion is temporarily weighing down margins. As new stores mature, margins will normalize. This will hopefully create a one-two punch of multiple expansion and earnings growth. The primary risk is poor execution in new stores. However, management’s long track record and the current low multiple provide a sufficient margin of safety. I currently hold a large position.

The Singapore Thesis

Before getting into specifics about the company I want to give a bit of backstory on Singapore markets, which are going through a very interesting transition. For the last decade, the Singapore Stock Exchange has been plagued by a combination of illiquidity, cheap valuations and unimpressive economic growth. However, the Singaporean government has recently implemented a variety of initiatives that I believe will continue to serve as tailwinds across the whole market. Firstly, to counter slow growth in the years following Covid the government has enacted a variety of stimulus targeted at both corporations and individuals such as broad based infrastructure investment, Corporate tax rebates and Community Development Vouchers handed out to individuals. With inflation dropping quickly the Singaporean government has been able to invest aggressively, and they seem to be back on a path of strong economic growth after seeing GDP rise 4.4% last year. With good growth, a stable currency and strong rule of law I believe that Singapore is an attractive market to be investing in currently.

More interestingly, the Singapore Government has made improving the state of the SGX a top priority. The most notable policy is the ‘Equity Market Development Program’ (EMDP), which will see $5b allocated to asset managers with the explicit purpose of investing in Singaporean stocks to improve liquidity and valuations. Other policy changes include tax breaks for new IPOs, expanding the ‘Grant for Equity Market Singapore’ to expand research coverage for small and mid caps, and streamlining the listing process to make it simpler, faster and easier for new companies to list on the exchange. While these changes may seem minor, I think that coupled with the improving economic growth of Singapore (which is seeing many of its market constituents growing with it) I believe that there is a clear path to improved valuations and liquidity. The important thing to note is that while $5b may be small relative to some of the largest companies on the market, the EMDP will allocate investment towards small and mid cap companies, where even getting a small slice of the pie will hopefully improve liquidity.

The Company

While you may not have heard of Haw Par Corp, there’s a decent chance that you’ve seen their products. Haw Par’s staple product “Tiger Balm” is a muscular pain relief cream that traces its origins all the way back to the 1870’s. They have an iconic, well renowned brand that holds shelf space all over the world. I don’t really have any insightful qualitative analysis to add here. The reviews for Tiger balm are very good, the longevity and brand strength speaks for itself. I think that there is a very clear brand moat here with a very good product underlying it. I don’t expect explosive growth from Tiger Balm, but having grown from $25m operating profit in 2000 to $70m of run rate profit this year it’s reasonable to expect low to mid single digit growth to continue.

Interestingly, the majority of the value in Haw Par stock doesn’t come from Tiger Balm, but instead their $2.7b holding in United Overseas Bank ($U11.si) stemming from a complicated history involving the Wee family corporate empire. While this isn’t going to be a writeup of UOB, the thesis for Haw Par is clearly tied to its stock performance. UOB is one of the largest banks in the world, with a focus on Asian countries like Malaysia, Thailand, Vietnam and Indonesia. Long term returns are reasonable, with a 9% total return CAGR from 2000 and 12% over the past decade. The company has low double digit ROE (12%) at a PE ratio of 10 and a dividend yield of 5%. I see UOB as a large, safe bank at a fair valuation, I don’t see a huge amount of downside outside of a large macro event, but I also don’t see a lot of excess upside. I would guess that UOB will likely deliver high single digit, possible low double digit returns going forward over the long term. Through Haw Par, we are essentially getting to own a safe stable asset in UOB at a significant discount.

Haw Par has an eclectic collection of other assets such as shares in UOL, investment properties (which are low quality) and bizarrely an aquarium called Underwater World Pattaya. However, these are not a significant part of the company’s underlying value so I’m not going to be going into them in too much detail. Instead I want to look at the overall valuation. At a $3.4b market cap the company holds $3.2b in shares and $750m in cash and equivalents. Additionally, I will value the aquarium and property at 5x pre-tax earnings for a conservative $50m. Finally, I believe that Tiger Balm deserves a reasonable valuation for what is a steadily growing consumer staple. After doing $35m pre-tax earnings over the last 6 months ($70m annualised) I believe a 15x multiple is reasonable for a $1b valuation. Altogether, that puts my estimate of intrinsic value at $5b. While there are a lot of potential issues here that I am about to discuss, on face value that is a hefty 35% discount for what is a stable and transparent collection of assets.

Risks and Catalysts

On paper this looks like a fantastic, low risk opportunity, however there are a few risks to point out. The Wee family corporate empire is large and complex. With a web of complicated cross shareholdings intended to maintain control there is no clear path to minority shareholders realising value. Many sum-of-the-parts theses such as this tout a significant discount to assets, yet never see that discount close,disappointing expectations. This is especially a concern with a company such as this which has a history of holding excess, unproductive cash, with cash and treasury bills making up 15% of my intrinsic value estimate. Additionally, the large holding in UOB is unlikely to be liquidated anytime soon, so how do we realise value here? I believe there are a few things working in shareholder’s favour here. Firstly, without any specific changes I would be comfortable holding the shares with a long time horizon. The company pays a small 2.5% annual dividend, but has consistently grown it over time, while also opportunistically paying out special dividends when in comfortable cash positions. While I don’t expect the company to be run for aggressive shareholder value creation, it’s hard to see it significantly underperforming over the long term at the current valuation.

Additionally, last year saw the passing of the company’s long term Chairman Wee Cho Yaw at 95, the man who built the empire. With his companies now passing on to his 5 children it wouldn’t surprise me if they looked to begin simplifying the network of cross shareholdings, or even just running the companies a bit more efficiently. Management has also stated that they have specific plans to utilise the cash on acquisitions. While obviously this presents a risk in itself, that is better than letting it build up for too long on the balance sheet. While management has been stating this for a few years now with no moves, I am willing to give them a bit of breathing room due to first Covid (which significantly impacted sales) and then the death of the Chairman.

Finally, I see Haw Par as a clear potential beneficiary of the earlier discussed developments in Singapore. With 44% of the float free at a $3b market cap the company is at a perfect size for managers looking to deploy the EMDP funds. Large enough to have ample liquidity to build out positions, while not being too large. Additionally, the company is clearly much safer and higher quality than those at a similar size, with Singaporean mid caps being full on construction, property management and retailers. And even if the company doesn’t receive direct investment from the program, the general boost in liquidity that the Singaporean market is currently seeing will likely lift all boats with it. Momentum tends to work very well in undercovered markets like Singapore, as price increases breed liquidity and attention, which attracts more eyes.

Altogether, the main thing that I really like here is the margin of safety. With high quality assets making up the company, I’m not too worried about significant impairments. At the current valuation we don’t need a lot to go right to make a good return. In a world where the valuation gap doesn’t close, I would be totally comfortable holding the company over the long term collecting a steadily growing dividend along with the occasional special dividend. This is one of those lovely situations where Haw Par combines strong fundamentals with a fantastic technical setup, along with some clear short term catalysts. At the time of writing I have made it a modest 5% position, but I might look at increasing that if new developments emerge.

Sources of Underperformance

I want to start off by distinguishing between the two separate reasons why these products underperform their underlying. The first, more commonly known reason is “volatility decay”. To explain volatility decay I want you to imagine a 2x etf Apple stock, noting that the ETF rebalances daily to expose you to 2x the daily return. Apple drops 20% in one day, before going up 25% the next day. If you owned $100 of Apple stock, after the two days your shares would still be worth $100. Meanwhile, if you owned $100 of the 2x Apple ETF, you would only own $90 of the 2x ETF after the 2 days. The amount of volatility decay is dictated by a combination of the leverage of the ETF, the magnitude of the volatility of the underlying, and the correlation of the volatility (autocorrelation). To summarise, volatility decay kicks in with highly levered daily tracking ETFs where the underlying is experiencing large daily moves, however not consistently in the same direction. Correlated daily movements actually result in the opposite, where the leverage actually amplifies the impact (eg. a consistent run up will result in outsized gains for the levered ETF). However, due to short term stock returns being mostly random, this effect is usually muted over a reasonable time frame.

The other key way that these ETFs underperform is due to tracking error. While their target is to provide leveraged daily exposure to the underlying security, this is generally done using complex financial tools such as swaps. There are many sources of tracking error here, some that are consistent like the interest cost and expense ratio, but some that are more interesting. The following is a portfolio following the daily difference between 200% exposure to AAPL and -100% exposure to AAPU going back to the ETF’s inception. We can see that the ETF is underperforming the daily performance of its underlying by 11% annually, which is much higher than can be accounted for by market interest rates and the 1% annual expense ratio.

My understanding is that this excess tracking error comes from the excess cost of the swaps used to create the 2x exposure. For ETFs such as TQQQ and YINN implied interest rates on these swaps are usually pretty reasonable at around 50 bps above market. However, the implied interest rates for these single stock ETFs are much higher. Looking at AAPX, the T-Rex 2x Apple ETF we can observe that it is underperforming its underlying daily exposure by 11% annually. It’s really important to distinguish this sort of tracking error underperformance from the volatility decay I mentioned earlier. Volatility decay, while being an attractive source of returns, has an element of risk that is necessary to produce good returns. You need enough volatility to produce the decay, but you also need that volatility not to be autocorrelated. There are environments (we will discuss soon) where betting on this will underperform or even blow up. Meanwhile, tracking error (if structured smartly) is essentially a free lunch. While how you bet on it may carry risk, tracking error is structurally built into these products and will consistently produce underperformance relative to the underlying.

Potential Strategies

There are three different ways of taking advantage of this underperformance that I’ve identified which have varied risk and return profiles but all involve shorting the levered ETFs. The first and most obvious strategy is outright shorting them. If we know these products are going to underperform, and we want to make a directional bet on the underlying, then it makes sense to bet on it using these ETF’s. As an example, if I wanted to short $100 of MSTR I could short that outright, or I could instead short $50 of MSTU for the same amount of exposure. Below shows the daily returns of a 50% MSTR short vs a 25% MSTU short rebalanced weekly (I have factored in the 20% borrow cost here as well). We can see a clear divergence between the two, with MSTU underperforming a significant amount.

I want to point out here that these directional shorts don’t necessarily have to be betting on the underlying to drop. For retail investors with restrictions on their ability to access margin and lever up, shorting leveraged inverse products (that bet on the underlying to go down) can be an efficient way to do that. In my case as an example, Australian regulations make it very difficult to access cheap margin for long short investing, with a maximum $50k margin loan available. I have been able to increase my leverage by shorting products like SPXS (3x inverse SPY), SQQQ (3x inverse QQQ) and GLL (2x inverse gold) to gain exposure to those products. As can be seen below, a monthly rebalanced short position of these sorts of products does a reasonable job at tracking an equivalent leveraged position (especially once factoring in the fact that margin rates for retail are usually a few % above the cash rate which is being used here). I want to make a note here that using leverage is risky at the best of times, and these 3x products are incredibly complicated and risky to be short. However, I think with careful risk management and good portfolio construction this can be a useful tool in a retail investors toolbox.

The next way one can take advantage of these products are through shorting both sides of a leveraged ETF. Having done a lot of backtesting, this sort of strategy doesn’t work with most of these products, however there are specific ones that it works well with. There is a sweet spot with an underlying security that is volatile enough to consistently cause underperformance through volatility decay, but not so volatile that there is a risk of blowup. For example, levered oil, gas and gold ETFs don’t work here as they are prone to large runs of momentum in either direction without seeing the reversals and choppiness in the share price we need for volatility decay to kick in. There are two ETF pairs that I have found add meaningful returns when utilising this strategy. The first is the 3x Chinese ETFs YINN and YANG (Y/Y), and the second is the 3x semiconductor ETFs SOXL and SOXS (S/S).

As we can see in the chart above, these two pairs have performed exceptionally well over the past decade, and have actually provided very effective hedges during large crashes like Covid and Liberation day. The strategies both perform reasonably well up to 2020, comfortably outperforming cash at 6% cagr each. However, the higher volatility, dip buying regime of post 2020 has seen the strategies soar, with Y/Y doing a 15% cagr at .2 beta, while S/S has done a whopping 30% cagr at a .4 beta. Personally, I believe our current volatile market structure is here to stay, but even in a return to market conditions of the 2010’s both strategies are still very attractive. These strategies can very easily be layered on top of a core equity strategy to provide a diversified source of returns. Now I want to note, these strategies do not come without risk, and I will discuss the risks and market conditions they underperform in at the end.

The final and in my opinion most interesting strategy here is going long the underlying security, while shorting the leveraged ETF. For this strategy you’re less taking advantage of the volatility decay, and more focused on the tracking error. Additionally, the risk profile of this strategy is significantly lower than the other two as the long acts as an effective hedge for the short. The index ETFs like Yinn and TQQQ don’t work well for this as their tracking error is quite low, however I’ve found that some of the individual stock ETFs provide incredible opportunities here. This trade can be broken down into two key variables, borrow cost and tracking error. As an example, while the QBTS levered ETF QBTX has a 27% annualised tracking error, its borrow cost is 25% which makes it unnattractive for this strategy. Meanwhile, for whatever reason the AVGO 2x ETF AVL has only a .6% borrow cost, so is much more attractive vs a 12.5% tracking error.

I want to note a few limitations. Firstly, transaction costs will eat away at returns. I’ve found that weekly rebalances seem to work the best with regard to limiting risk, but transaction and spread costs will cost around 1% annually, though you will also have a small amount of volatility decay working in your favour. Additionally, for people like myself with margin limitations, this strategy is less attractive as instead of going 200% AVL/-100% AVGO and pocketing the 12% spread (before transaction cost), I have to go -50% AVL/100% AVGO/50% cash, while also dealing with poor cash rates. However, that is still a 6% return before volatility decay (which will usually add a couple of percentage annually) with very low risk. Some securities that I’ve found this works well with are GMEU, MSTU, XXRP, BULU, BITX and ETHU.

Risks

The core risk that all of these strategies are exposed to is the inverse of the volatility decay that they seek to exploit. If returns are autocorrelated (repeated moves in one direction), the leveraged ETF will underperform its underlying. Imagine a stock that goes up 5% for 5 days and its 2x leveraged ETF. The underlying will be up 55%, while the 2x ETF will be up 61% as the daily leverage compounds. This works in both directions as well, underperforming with downside momentum too. Luckily, short term returns are mostly random and exhibit mean reversion, however stocks (especially some of the more volatile meme stocks) can go on aggressive short term runs that will cause these strategies to underperform. A good example of this is the recent move in IONQ, with 22% in a week resulting in a 47% gain for its 2x ETF.

Another key risk for these strategies is borrow cost. Frustratingly, it is very hard to find good data for borrow cost for these stocks, so I have run my strategies with estimates based on their recent costs. However, it should be noted that borrow costs often spike when stocks peak, or during aggressive moves. This means that borrow costs may force you to close a strategy right at the worst time.

The core finding of this exploration is that the structural flaws in leveraged ETFs—namely volatility decay and significant financing costs—create clear opportunities for investors (especially retail, who are able to apply these strategies in less liquid ETFs with minimal transaction costs). While volatility decay is dependent on market conditions (high volatility, low autocorrelation), the excess tracking error observed in many single-stock leveraged ETFs presents a compelling, more consistent source of alpha. Finally I want to reiterate to the reader to maintain caution, as these are complicated, illiquid and volatile products.

360 Capital REIT is an office reit owned and run by Tony Pitt and 360 Capital group ($TGP), who are both a 45% shareholder and the manager. The REIT has performed terribly as many office reits have with a total return of -30% after 10 years. These are clearly not fantastic operators, so obviously proceed here with caution. They’ve performed especially poorly over the past 5 years, with their commercial properties getting smashed during and after Covid, and investor sentiment is at an all time low.

While sentiment is terrible, I think that people are missing the quality of these office assets as the return to office continues. While I am not super experienced at analysing real estate, after doing some deep research with Gemini it considers these properties “modern A-grade”, with young (4 year average) buildings and decent locations. The properties are 93% leased with 83% of their tenants either Government or profitable public companies. Their leases are 90% fixed at 3% rent reviews (with CPI for the others), and most importantly 7 year weighted average lease expiry.Their portfolio is stable, their income is growing and they are trading at a solid discount to book value.

510 Church St Cremorne, VIC

What makes this idea so attractive is the valuation. The company is trading at a 30% discount to book value on these solid, high quality assets. The valuations for these offices are reasonable, with a 6.15% average cap rate across the portfolio which is standard for offices currently. From a cash flow perspective the last 6 months underlying earnings were around $3m with the company trading at around a 14 PE ratio, however the forward numbers look even stronger. With a $100k decrease in management fee, a 3% annual rent increase and a .5% reduction in interest rates the company should be doing around $6.5m next year, with continued 3% rental increases. This leaves them at a 13 forward yield, which isn’t even taking into account another $750k boost potentially if they can lease their vacant properties. This is far too cheap for solid real estate assets on long term leases, we could very easily be looking at potentially 10x earnings in 3 years while paying out a growing 7.5% dividend in the meantime.

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The key question is always why does this discount exist? The obvious reason in this case is the management 360 Capital Group. Firstly, their performance over the past decade is nothing to get too excited about and doesn’t paint a great picture of competent management. More concerningly, management has openly talked about their issues being subscale, and it’s scary to consider what the path forward to try and grow is. They are already reasonably levered, which makes levering up to acquire more properties a scary prospect, while their stock trades at a large discount, making any sort of merger very unnattractive. Whereas I think the ideal here would be to either do a wind-up, or to just continue at current scale paying out dividends, 360 capital is clearly incentivised to grow in order to increase their management fee.

While this is concerning I don’t think it’s as big a concern as seems. The important thing to note is that while 360 capital earns $650k a year in management fees, they own $39m worth of stock, which means that the stock performance is worth far more to them than the potential fees. While Tony Pitt has made some mistakes, he’s not an idiot and I don’t see him making a terrible transaction purely for the sake of building scale. In a webinar he mentioned merging with unlisted single asset unlisted funds as a way to grow by targeting other subscale funds at similar or deeper discounts that want liquidity, which I think makes reasonable sense. Additionally, I could also see 360’s large holding working in shareholders favour as they may just decide that the return of a wind-up or sale is worth more to them than the small amount of management fees they earn. Interestingly Tony has been aggressively buying $TGP stock over the past year, while $TGP themselves have been increasing their ownership of $TOT, going from 41% to 45% in a year. Tony clearly has conviction with what he’s doing and is putting his money where his mouth is.

Despite past long term underperformance and valid concerns about management's growth ambitions, 360 Capital REIT presents an attractive opportunity. Bombed out sentiment appears to be overlooking the quality of its office assets, which boast high occupancy rates, strong tenancy, and long-term fixed leases. Trading at a significant discount to NAV with strong forward earnings growth potential, the REIT offers attractive yield and revaluation upside with good insider alignment. I currently hold a modest 3% position.

Fossil Group, Inc. is a global watch seller selling under both their own brands like Fossil and Skagen, and licensed brands such as Michael Kors and Emporio Armani. They distribute products worldwide through wholesale, retail stores, and e-commerce. Fossil has been steadily declining since its peak in the early 2010’s and, with the exception of the 2021 retail boom, have had 5 straight years of unprofitability. The watch market has been very weak since 2021 and the company sits at an awkward, mid range ”affordable luxury” price point for most of their brands, lacking the pricing power of their luxury counterparts. The company is now in an aggressive restructuring, closing underperforming stores and focusing on their core brands (after a disastrous foray into smartwatches and wearables). The company and their brands have terrible ratings on websites like Trustpilot and Productreview, with a detailed review describing their watches as “more than disappointing”.

The turnaround does seem to be somewhat working, bringing operating margins from -6.5% in 2023 to -.5% in the last 12 months while revenue has fallen 20%. Unfortunately, while the company is borderline break even on EBIT, they have $18m of interest payments a year (against -$6m operating income) due to $185m of debt and income tax payable. The debt is particularly concerning as it’s due in November 2026. With only $80m of cash available it’s hard to see how they pay off the debt without a dilutive capital raise or a refinancing (which would be tricky as they continue to lose money and are probably paying below market interest on their current bonds).

A notable thing here is the involvement of Maxim Group, a small, B-Riley-esque investment bank that put out a target price for the stock recently. I make the B-Riley comparison because Maxim similarly has a focus on small cap shitcos and similarly has put out some frankly ridiculous recommendations and price targets. At the time of writing Fossil Group is up 27% in a week after Maxim put out a $5 price target on the company (currently $1.6). Having read through the report I see nothing that justifies that target, and with analyst Tom Forte holding similarly high targets for scams and shitcos like $BOXD, $RUM, $RZLV and $BIRD it doesn’t worry me. However I do think that it has provided us with a great short setup, with the company up alot on a nonsense price target with low liquidity. Additionally, Maxim has a history of putting out inflated price targets for companies it later does capital raises for, which as we look at later would be a positive for the thesis.

I believe that this situation provides us with a fantastic, low risk long short opportunity. Currently the bonds trade at a 30% discount to par and a 10% yield, while the common continues to be unprofitable. As far as the potential returns, there are a variety of different outcomes here I want to look at.

The first outcome is that the turnaround doesn’t work, results fall off the equity is zeroed. In this scenario the trade likely performs decently as the short pays out 100% (with .3% cost to borrow) and any recovery on the debt is just profit. With $480m of current assets ($182m of inventory) against $270m of liabilities (ex the 26 notes) there should be plenty available even in a worst case scenario.

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The second outcome is an impairment of the equity with the debt being fully paid out. Unless we see a miraculous recovery in sales growth over the next year I think this is the most likely outcome, as the company continues around breakeven but is forced to raise capital to pay off the debt. This would likely result in poor performance for the stock (-20% to -50%) while seeing the debt paid out in full (+60%) and would be pretty much the ideal outcome here. What’s interesting is that even in the silly bull case from Maxim, they still assumed a very weak FY25 and a capital raising to pay off the debt.

The last outcome is that the turnaround is successful, with the debt being paid off and the company recovering to profitability. I crunch some very rough numbers to see what that could look like. When the company was profitable historically it sat around low single digit margins so let's imagine a world where they return to profitability and they manage 4% operating margins. In this world we are probably looking at around $40m unlevered fcf against a current enterprise value of $320m or an 8x multiple. I’m using EV and unlevered FCF here as I think a capital raise is likely here, so I think this is probably the simplest way to look at things. My point here is that even in a potential recovery the company isn’t screamingly cheap, and more importantly we have a 60% buffer through the debt, which would be paid out in full. Obviously post recapitalisation the multiple may be higher or their post recovery operating margins might be higher, but I think the likelihood of this strong of a turnaround is low and we have a nice margin of safety through the upside in the debt.

I think most of the risks here are pretty straightforward. Risks to the downside are limited, as any zeroing of the debt would also see a zeroing of the equity. The only issue would be in some sort of transaction that forced the debt further down the capital structure, but I don’t see how that would happen. To the upside there’s short term price risk as markets are irrational and this is a low volume small cap shitco that could do anything. However, with the 2026 bonds I do believe Fossil has an overhang that will limit irrational upward price movements, aided by the lack of “memeability”. Finally, the biggest risk to the stock is a genuinely successful turnaround. With regards to this, management’s own estimates have them unprofitable with sales declining for FY25. Any signs of improvement will come in 2026, and to be honest after a decade of failed turning around I simply don’t see enough changing to make a significant positive improvement.

With my newfound Survivor money I’ve been thinking a lot about finding good, uncorrelated bets to diversify my portfolio. The Fossil Group long short idea is a trade that likely outperforms in a down market. However, unlike most generic shorts, Fossil doesn’t move with the frauds and scams and more importantly has a margin of safety through the positive performance of the bond, along with very good performance if the stock remains flat. I believe this idea offers a nice return over a year and a half for fairly low risk and I currently hold a 3% position.

Life Plan

What’s incredible about this win is the double whammy effect of the opportunities that gaining this notoriety/fame open up, along with the financial security to pursue potential passion projects. I love finance, I enjoyed my job as a financial analyst but obviously like any 9-5 it’s a slog. I found myself frustrated by a lack of time and energy to pursue my many hobbies (music, sports, investing, writing, etc.). I’ve now been unemployed for 6 months and can comfortably say I have not gotten bored and I am loving it. Now I don’t plan to be unemployed forever, but I now have a lot more flexibility around my path forward, and am focusing on prioritising time and happiness over money.

So what’s my actual plan then? In the short term I’m hoping to focus on potential media opportunities. Whether it be another Survivor returnee season, or another TV show (or some other opportunity) I am hoping that I showed enough on my season as an entertaining character to potentially generate those sorts of opportunities. Any opportunities in this area would likely be highly income generative relative to time, but obviously very inconsistent. The second aspect of this plan is being able to focus a lot more time and energy on investing. With around $550k in savings, if I can generate a 10% annual return off that (a fairly conservative target that I would like to do much better than ideally) I can essentially work off a base of $55k pre tax. While obviously I want to be letting that money compound as opposed to using it to get by, as a base against annual spending of around $35k I would be very comfortable. My hope is to in the short term treat investing as my main focus, and supplement investment income with other fun potential opportunities.

As far as the medium to long term, it’s entirely dependent on how the first part of this plan goes. Maybe I’m able to get some sort of consistent media work and that becomes my long term career. Maybe I’m able to generate good (15-20%) returns on my money and I’m left in a position where I can live off it comfortably further down the line as a full time investor. I’m not banking on either of these two possibilities, but it’s fun to speculate. In reality I’ll probably go back to some sort of full time further down the line, but with reduced pressure to make a lot of money I will be able to focus on finding a job that maximises happiness.

Financial Plan

So what’s my financial plan from here? There has been a key shift in my mindset from wealth creation to wealth preservation. As much as in theory I should keep the aggressive investing style that has been proven to work for me, in reality I have life changing amounts of money and I think that demands a change in mindset. Firstly, for those wondering, I am looking to potentially purchase property, however I’m waiting for the Australian government ‘Help to Buy’ shared equity scheme to come in, as it significantly improves the returns for a potential first home buyer by essentially providing a 30% discount to the purchase price. Secondly, any property purchase I do make will have to make financial sense. I’ll be looking for properties with a base yield above the cost of capital (not including price increases, as you can’t eat unrealised capital gains) so I don’t need a lot of aggressive assumptions to make a reasonable return. This might seem tricky in a frothy Australian property market, but with the help to buy scheme I believe I can make it work assuming the property market doesn’t rise significantly in the next few months before the policy begins. The main question here is around financing, as I’m not currently working and don’t plan to, so obtaining financing will be tricky in spite of having enough assets to buy outright (buying outright isn’t an option as I don’t see IRR’s as strong enough relative to stocks. I’m only interested in property using debt).

As far as my portfolio I’ve put a lot of thought into portfolio construction. My main focus needs to be avoiding permanent loss of capital. However I need to balance that with not straying too far from my core style, and being able to make big swings with conviction when I find incredible opportunities. The balance I’ve found is a 10% cap on position sizing, with that position sizing based on downside risk. I will probably only look to have 1 or 2 stocks around that size if any, and most other stocks will sit under 5%. I also plan to have the majority of my portfolio pretty diversified, currently holding around 60 ideas in a broad range of geographies, sectors and styles, and actively looking for more. The important thing to note is that I’m not targeting aggressively high returns, a safe 10% would be totally satisfactory (though obviously my hurdle rate is much higher, more like 15% for most ideas).

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While I’ve only deployed around half of my capital so far, to get an idea of my mindset I’ll share some of my positions. My largest positions are Volvereand Singapore Shipping Co at 10% holdings. I’ve detailed why I like these positions on Substack and Twitter, but I see both as incredibly cheap, with limited downside and in Volvere’s case a fantastic management team. I have multiple companies at a 3- 5% position size including Halyk Bank, an unnamed Singaporean Microcap I’m currently writing up, BGEO and CGEO (which I consider 1 position), and CCLDO (Cloudcare Preferreds). CCLDO is a great example of the type of ideas I want to hold, as a fairly safe 10% yield combined with a reasonable chance of being taken out 25% above cost. Some other ideas include my Japanese SAAS and deep value baskets at 5% each, a shipping basket at 3%, long/short Fossil Group notes and common stock at 3%, UK blinds company Colefax at 3%, and 1-2% positions in Taiwan Semi, Seritage Growth Preferreds and Net Lease Office Properties. These are all parts of a portfolio that I do believe offers attractive, above market returns in the long term with broad diversification. If you have any attractive ideas please reach out because I’m all ears at the moment.

Investing is one of my core passions, and one of the things I’m most excited about with winning Survivor is the increased time and money I can put towards pursuing this passion. I hope to be able to churn out more ideas over the next year so keep an eye out in your inbox, while I am excited to be able to spend more time enjoying my hobbies. Please reach out to me if you have any thoughts, advice or new investing ideas. I’m still only 24, and in a whole new world I never could have imagined, but I’m so glad I’m here.a

Backstory

Volvere is a UK based company started by two brothers Nicholas and Jonathan Lander in 2002, both with long track records in a variety of financial and operational business roles. The company is an investment holding company with a focus on turning around distressed businesses and has a strong track record, sporting a 1700% return since inception and a 500% return over the past decade. Jonathan and Nicholas have a fantastic track record of taking over and turning around failing businesses from a broad variety of industries such as marketing, auto and food services. Unfortunately, Jonathan passed away from illness in 2023, leaving Nicholas to assume full control, as opposed to the classic CEO and CFO/COO relationship that they had previously, with Jonathan handling the strategic direction while Nicholas handled the operational turnarounds.

Current Situation

Currently, Volvere only has one operating business, along with a very significant cash pile. At a current market cap of £42m the company has £23m net cash. While I would usually discount the value of significant excess cash in these sorts of situations, I think that this situation is unique. Not only has the company been very active at buying back shares, but they are actively looking to make acquisitions and with their strong track record of capital allocation I would be very confident that the cash gets utilised effectively. In fact the only reason for the balance sheet being overcapitalised for so long is how selective they are with acquisitions. If the business environment is as rough in the UK as forecasts suggest it might be then Volvere may actually benefit from a more target rich environment.

More interesting is Volvere’s only remaining operating business, an 80% position in the UK’s leading pie manufacturer Shire Foods. Shire Foods is a profitable, growing business, having grown from £.8m PBT off £12m revenue in 2015 to around £3.6m (my estimate based on the trading update) PBT off £26m revenue in the most recent half. There are certainly short term headwinds affecting the company, with the increase in minimum wage and employers insurance being flagged in the company’s most recent trading update. However longer term the company is investing in increasing capacity, anticipating growth over the next few years. While this isn’t some fast growing software business, Shire foods seems to be a consistently profitable, dominant player with a strong competitive position in a classic British pastime that isn’t going to go away: pies.

So what we’ve got here is a large (half the market cap) cash pile in the hands of gifted capital allocators, along with a decent operating business that is currently spitting out cash. What makes this so interesting here is the valuation. Backing the cash out gives a valuation of £19m for Volvere’s 80% stake in Shire foods. Based on my estimated £3.6m PBT for the most recent trading update, assuming a 25% tax rate that would be around £2.2m NPAT, leaving us at an implied valuation of around 4x earnings. This valuation feels frankly ridiculous, and it’s hard to imagine this being reasonable without a major misstep from management. While I couldn’t find any pure play comparables, other UK food manufacturing companies such as Nomad Foods, Bakkavor Group, Cranswick PLC and Associated British Foods all trade at valuations between 10-20x earnings with significantly weaker growth. If we were to apply a reasonable 10x earnings multiple to Shire Foods, adding the £23m of cash we are looking at a £67m valuation, 60% above the current valuation. This value doesn’t even factor in outperformance from management through smart capital allocation, which would obviously provide further potential upside.

I think the core of this idea that makes it so compelling is management. I see ideas like this that screen stupid cheap all the time, but management either mismanages the business, lets cash build up on the balance sheet or blows it all on a poor acquisition. What makes this a potential fat pitch for me is that you are investing alongside an exceptional management team led by a proven operator in Nicholas Lander, who has a reasonably sized holding with 6% of the company (along with 11% with family in Jonathan’s estate). Not only does the company have a significant margin of safety with half the market cap in cash, but that cash has the potential to be invested at significantly above market returns, which would just further drive outperformance. Additionally, the company has a long track record of consistent buybacks and I expect this to continue, with £1.5m of share repurchases retiring over 5% of the shares outstanding this year. At this level share repurchases are very accretive, and only limited by the low level of liquidity in the stock.

A question I always like to ask myself is why does this opportunity exist, which adds to the larger question of what the risks are. The risks are fairly simple, the UK economy has been struggling along and short term headwinds discussed earlier will likely affect profit margins in the short term. Additionally, with such a large cash position the company will underperform if it isn’t deployed effectively. I think these are both mitigated by the quality of management, who I have faith in to deal with these issues effectively. As far as why this opportunity exists I think this is simple. The company is an illiquid, $40m market cap UK stock. The UK is a barren wasteland at the moment and the small cap space is experiencing the worst of it. Additionally, even if investors were interested, like many UK microcaps Volvere isn’t available to be traded on Interactive Brokers, locking many international investors out who would potentially be interested. For me, I’ll be buying it using CMC Markets in Australia. Looking around on social media and online, I found limited discussion of Volvere. A few old substack articles, a couple of tweets and moderately active stock forums. I just don’t think anyone is really looking that closely.

I think Volvere at this valuation is an amazing opportunity. You can pick up a good business run by an exceptional management team at an absolute bargain bin valuation. One look at the stock chart tells the story, with a long track record of phenomenal performance. This is a stock to potentially buy and hold in perpetuity. Additionally, with the large cash pile the company has uniquely protected downside, creating a limited risk, very high reward setup for potential investors. The more time I spend on this idea the more I’m tempted to make it my largest position. It’s already above a 5% position for me and I’m likely to continue steadily sizing it up as my Survivor money comes in so I would love to hear people’s thoughts. Anyway, I hope you’ve enjoyed my first stock pitch in a while. I hope that I am able to get back into writing more regularly as my life settles back to normal.

This post is going to be a bit different to my others. I still don’t really have the time for a new full on stock pitch but I figured it would be fun to look at the game of Survivor, and compare some of the many similarities with the game of investing that we all love. Both are very strategic, but also require strong emotional control and resilience and I think it could be fun to look at what I learnt in Samoa and how it translates to the world of investing.

Take it Slow

Early on in the game I found myself on the bottom of the tribe, predominantly due to “overplaying”. While I knew a lot about Survivor in theory, I didn’t actually understand how to play Survivor. I immediately started attempting to make moves like I did know and I ended up getting outplayed by the people that started a bit slower and more cautiously. I luckily managed to scrape through, and as the game went on I was able to get a feel for the game, how to build connections and make moves properly. I feel like this is very similar to what happened when I first started investing. My first year and a half of investing was very poor. Instead of building a safe, diversified portfolio as I developed my skills, I jumped into concentrated investing in risky companies with high debt, complicated businesses and cyclical earnings. Naturally, I didn’t have the expertise to be in these sorts of investments with the limited experience that I had, and no amount of reading or researching could get over that. For activities as complex as Survivor and investing, experience is a very real asset and we should always be looking to walk before we run.

Keep it Simple

This is possibly the most important point I’ll touch on for my personal investing style. For me, there is nothing more satisfying in Survivor than seeing a complex strategic plan play out and outmanoeuvre less strategic players. While I enjoy this, the fact is that with complexity comes risk, as the more moving parts there are the more likely one is going to get jammed. Now this doesn’t mean that one should avoid complexity altogether, but if you’re finding yourself constantly coming up with convoluted ideas, eventually one is probably going to fail. Instead I believe you should be trying to keep it simple most of the time, while also picking your moments to seize with the right plan at the right time. Similarly, I believe that the majority of good stock pitches should be simple, and if you find yourself with a 20 page writeup for each stock you own you are probably overcomplicating things. That’s not to say avoid complexity, but instead keep things simple across the board and keep a high bar for more complex theses. This is an important thing to remember for me, as someone who tends to gravitate towards interesting, complex investment ideas.

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Managing your Emotions

This is genuinely an area that I think investing greatly prepared me for. As mentioned, my initial experience didn’t go the way I had hoped and I spent a lot of time on the bottom of the tribe with seemingly nothing going my way. However, opportunities only come up if you stay focused, keep your head in the game and keep a positive mindset and that’s what I did. In fact, similarly to investing, it’s often at the bottom that the biggest opportunities come up. For me I cleared my head by going for swims, staring at the stars and digging into the fun challenges. Likewise, I think it’s an important skill for investors to be able to take a step back when the markets are down or their portfolio is underperforming as that’s when your decision making is most important. Figure out what works for you to clear your head, and try to keep a positive mindset.

Use the People Around you

Survivor and investing are both at their core individual games but with key social elements. A key element of Survivor is figuring out who you can trust and using them to bounce ideas off, gather information and navigate through the game together. On the investment side, whether it be management teams or other analysts, finding people you can trust is essential. In this case, trust isn’t just ‘are they lying to me?”, “can i take their words at face value?” but instead more importantly who has a proven track record of smart investment ideas or capital allocation. Find the analysts who are consistently churning out great ideas and outsource some of your idea generation to them. Find management teams with good incentives and a good track record and trust them with your money. While not a necessity, if you can find these people your investing experience will be much simpler.

Expect the Unexpected

It’s very tempting in Survivor to map out a path in the game and stick to it. Unfortunately, both the game and other players often have surprises up their sleeves. With only one winner allowed, people are constantly manoeuvring for position in ways you may not see coming and many of the weakest players are those who pick a route and stick to it. Similarly it’s easy for us as investors to make a model, listen to management guidance or look at historical numbers and assume a simple path forward. The last 5 years have shown how silly that can be, with a pandemic, multiple wars and now Trump being Trump in office, and that’s just on the big macro scale. There are always ways for things to go wrong and I think it’s very easy for us as investors to get complacent with our holdings or lazy with our analysis. While you may not be expecting the worst case scenario, you should always be aware and at least somewhat prepared for it.

Do it for the Right Reasons

Survivor is a brutal game. You are starving, exhausted, all while playing an intense mindgame of manipulation and lying. One thing that became very apparent early on is that the people that were struggling the least were the fans (such as myself). The fans were out there living their dream, and so when things got tough they had their love of the game to hold onto. Meanwhile there were many others who were on the show for purposes such as publicity, money and adventure. While all valid purposes, I noticed that many of them struggled with the conditions more due to not having that underlying drive and love of the experience to hold onto. Similarly, I believe that my love of finance and investing gives me (and I’m sure many of you readers) a genuine edge. Finance is a field filled with people in it for the money, who joined the industry because it would be the quickest way to a payday. For the most part, these people aren’t going to be doing the rock turning and deep analysis of people who are in it for a love of the game. Genuinely, if you don’t enjoy financial analysis, I would be putting all my money in some decent ETF’s and going to the beach because the incremental return on time and effort from active investing is surely not going to be worth it. Invest for the right reasons, and you’ll have those reasons to draw on when a position is going against you, or the market’s going crazy and you have to make a hard decision.

I hope you’ve enjoyed this, and apologies for my absence. I’m hoping to get back into the investing stuff once survivor wraps up and hopefully I can pump out some more interesting ideas. If you are still reading, thank you for your time.

JPEL is a private equity firm focusing on investments in mainly buyout funds, along with other private assets. JPEL currently trades for .56x NAV, an attractive valuation. However, many private equity funds in the UK trade at huge discounts to NAV for good reason. Private equity has a reputation for not marking their own homework very well, and skimming huge amounts off the top in fees. However, JPEL offers a unique opportunity. Firstly, JPEL is currently in the process of winding down, with a targeted timeline of 2.5-3 years. So far they have been returning capital through tax efficient share redemptions at NAV. This provides a clear catalyst for value realisation (if there actually is value there). Additionally JPEL’s holding of a tax advisor AlliantGroup accounts for $12.8m or 43% of their NAV, with another $4.5m of net cash. While a large holding like this would usually increase risk, JPEL announced that they have entered into a put option agreement for the company, giving them the right but not obligation to sell the company for $12.8m between October 2025 and 2026.

This essentially means that between the cash and the option the company has $17.3m of hard asset backing, equal to their market cap at time of writing, while they are winding down. The fact that it’s a put option is even better, as they hold onto the upside. If the company isn’t performing they sell in a year and return the capital, otherwise they hold and potentially sell for a higher valuation. On its own this would be an attractive setup, but then you add in the $13.8m in value from the other holdings of the fund and it becomes a free lunch. You get the market cap backed by hard assets, and the private equity portfolio for free. While I wouldn’t necessarily trust the valuations, even in a world where intrinsic value is significantly impaired downside is protected and the IRR still looks attractive.

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So what are the risks here? The biggest issue is that we have very little information about the put option contract. We don’t know who the counterparty is, or what the terms are. Maybe there’s terms in the contract based on the performance of Alliant, and if the business performance is poor the contract would void? This is especially concerning as Alliant was raided by the IRS back in 2022. While nothing has come from that so far, the culture within the company is reportedly quite toxic.

Another thing to note is that the company had $1.5m of recurring expenses last year. There is a chance that their previous trend continues and fees will continue to drop as NAV continues to shrink. This would provide notable upside, however we should probably be conservative and assume that these expenses just remain stable. As far as the remaining portfolio, it is composed of various private funds covering a diverse range of geographies and sectors with very little public information available. The concerning thing is that these funds are held at NAV, but with no visibility of what they actually contain. It’s impossible to say what the true value of these funds are and with the poor behaviour of private equity and credit firms in recent times they could be due a significant markdown.

I want to delve into some scenarios here. I am assuming that the remaining portfolio is half realised in year 2 and half in year 3, and that Alliant is sold at the end of year 1 with no upside. I think a fair downside case involves the remaining portfolio intrinsic value being .25x carrying value . In this extreme case, the total return over 3 years is -4.5%, not fantastic but not awful. I believe that .5x book would be a reasonable base case for the portfolio. In this scenario we end up with a solid but unspectacular 12% IRR. Finally, just to demonstrate the potential upside I took a 30% premium to Alliant sold in year 2, expenses dropping to $1m a year and the remaining portfolio realised at .75x book and we get a very nice 30% irr over 3 years.

To be clear, I am not saying that this upside scenario is going to happen. I have no visibility remotely of the intrinsic value of these assets, future expenses or the timeline for value realisation. However, to me this seems to be a classic heads I win big, tails I don’t lose much situation. It’s very clear why the company trades at the valuation that it does, and I believe that investors that are willing to own things with a bit of hair could be rewarded. Downside is protected, with significant upside with very reasonable intrinsic value assumptions, while the setup has a clear catalyst and timeline due to the winddown.

Disclosure: at the time of writing I have a 2% position in JPEL.

Let's start off with what Grindr actually does. Grindr markets itself as a gay dating app, though in reality it functions as a gay hookup app. The app is designed very differently from other dating apps, allowing users to message anybody within a certain range instead of relying on matches like apps like Tinder or Bumble. Users can filter for traits such as age, body type, “position” (top, bottom, etc). Additionally, users can pay for access to wider search ranges, no ads (they bombard users with ads with the free version), boosts and various other features.The dynamic on Grindr is very different to other dating apps due to the standards of gay men. Put simply, gay men will screw pretty much anyone, meaning that even less attractive Grindr users get value out of the platform in a way that many of the other dating apps can’t offer.

So why do I think Grindr is such a good business. In my April 2023 post covering the dating app space I wrote “I’m of the opinion Grindr’s competitive position is essentially untouchable, with the combination of brand recognition and network effects allowing them to dominate their niche.” The fact is that people fish where the fish are, and there’s no other apps that come close to Grindr in scale or brand recognition. Grindr has essentially become synonymous with gay sex. Additionally, the gay community is a fantastic demographic to service. Around 11% of Gen Z men identify as LGBT versus just 5% of millennials and 3% of Gen X giving Grindr a rapidly expanding TAM. Additionally queer men have higher median incomes and less children, giving them a huge amount of disposable income relative to the general population.

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Some readers would point to other dating apps and their performance as something to be wary of with Grindr, however I don’t believe them to be comparable for a few reasons. The first and most important is that Grindr’s product is actually good. A common criticism of dating app stocks is that if the app and user experience is good, the users leave due to ending up in relationships. In contrast to this, Grindr mainly facilitates casual hookups, and boy are they good at it. Grindr is optimised to get people laid, and the base free app is very effective which actually adds to the case for paid features. Accessing the paid features adds real value here due to the fluidity of gay attraction. Whereas in traditional, heterosexual dynamics people are hesitant to “date down” gay attraction is extremely fluid with regards to things like age, body type, economic status or general attractiveness. This means that having access to these extra tools can be the difference to get the attention of the type of person that someone wants. These dynamics spread out over the many interactions someone will have on Grindr results in a real value add here especially for people of middling or below attractiveness (a value add that is questionable on the other dating apps).

Looking at the financials, Grindr is an obviously brilliant business. Grindr has been consistently growing revenue at around 35% annually for the past few years while keeping operating margins around 20%. Return on invested capital for the last quarter was near 40% as the company needs limited capital to grow. The company does have $300m of debt (against $100m of run rate EBIT), however recently completed a refinancing which significantly reduced interest from above $10m down to $6.5m a quarter. With limited capital requirements it’s fair to assume that they will continue to pay down debt in the short term.

Valuation is a bit complicated due to outstanding warrants, which do inflate the share count higher than face value. The company has 37m warrants with a strike price of $11.5 (currently in the money) along with 176m common shares bringing the company to a true market cap of around $2.85b vs $50m of run rate earnings based on the last quarter. This puts Grindr at a PE of almost 60! While I’m not much of a growth investor, I don’t think this valuation is crazy. The company grew revenues by 10% just in the last quarter, and I believe has a fair amount of operating leverage due to reasonable cost controls and stable interest expenses. It’s not unreasonable to forecast aggressive revenue growth alongside significant margin expansion, which would make the company look a lot more reasonably priced in a year or two. Additionally, I genuinely believe the company has a rock solid moat along with a clear runway to continue growing.

It is very easy to see worlds where the stock does very well from here as they continue to grow at double digit rates for a very long time. Additionally, it’s clear why the opportunity exists, with it being a SPAC, a kind of “sin stock”, and a product that the largely straight finance community has had limited exposure to directly. On the other hand, the company is priced to perfection currently, and has a long way to fall if growth rates were to just decline, let alone stagnate altogether. Additionally, I still have my reservations around management. I found their promotional behaviour around their listing left a sour taste in my mouth, meanwhile CEO George Arison previously founded a company called Shift which, after coming public via SPAC at a valuation of $400m dropped rapidly and eventually filed for bankruptcy in 2023. I currently have a very small holding, mainly as a tracking position. However I do find the valuation to be a bit high for my liking and the margin of safety just isn’t there. If the stock were to fall to a more reasonable valuation if the market sold off or they suffered short term issues I would be very interested in building out a reasonably sized position as I believe it is a very high quality and robust business.

The company I’m focusing on is China based, ASX listed Merchant House International ($MHI.AX), a textile manufacturer operating out of both the US and China. The company has a long track record of profitable dividend paying going back to 1995, however has come onto hard times with China's weakening manufacturing dominance and the US’ inability to compete with developing markets, before the killing blow of covid sealed their fate. The company has been selling off assets to survive, however seems to have finally thrown in the towel and recently announced that they would liquidate. I’m not going to go into too much detail of the history of the company, other than to note that unlike most ASX listed China shitco’s Loretta Lee (founder and chairperson) seems to have a reasonable track record. The company thrived during the 2000’s and early 2010’s, resulting in a reasonable 5% annual total return since 1994 in spite of the recent struggles. Additionally, as the majority shareholder, Lee is strongly incentivised to extract as much value as possible in this liquidation. My point here is not to portray Lee as some magical value creator, but just to illustrate that I believe she will likely work aligned with investors' best interests.

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Over the past few years the company has been selling off assets to try and streamline operations and cover operating losses. While they have been unprofitable, MHI owns all of their manufacturing facilities, which they’ve been able to monetise so far with the $28m sale of Carsan in 2021, the recent $8.3m sale of Tianjin leather and other smaller sales. The stock price for MHI recently jumped 180% as they announced that they would sell their last factory (a Virginia based towel manufacturer) and liquidate the company, confirming that the remaining value in the business would be monetised and returned to shareholders . In March the company had $2.2m cash and net receivables and since sold their stake in Tianjin for $8.3m. In the June cash flow summary (Australian companies don’t report full financial statements quarterly) the company had around $2.5m expenses on $1.7m revenue, which we can extend out a further quarter for $1.5m of further cash burn to put us at around $9m of current cash and receivables.

The quarterly report details their expenses by segment. Assuming AMI expenses drop to <$100k total cash burn will stay at <700k a quarter even if corporate overheads don’t drop. The big question here is around the remaining property, plant and equipment. MHI owns a towel manufacturing plant at 750 Old Abington Highway, Bristol, Virginia which is marked at $8.6m for the building and $16.4m for the equipment. At a 16c share price the company has a market cap of $15m. Assuming a reasonably timed wind up and assets being sold for remotely close to their carrying value it’s very easy to see a very attractive potential irr here.

I want to go through my base case for the liquidation. I have no special insight here into the value of their property and equipment so will be using some pretty conservative assumptions. My base case involves selling the property at book value (which may be an underestimation due to the company not revaluing the property). Meanwhile I think it’s fair to mark down the equipment by 50% as I have no idea how valuable it will be upon resale. These assumptions, and a conservative 1.5 year liquidation period gets us to a nice 39% total return and a 26% irr. In reality I believe that there is potential for upside in every assumption, with the cash burn, timeframe and PP&E valuations all being on the lower end. It’s important to note that the company has a history of getting reasonable prices on their previous disposals. As a loose base case I believe that this is very attractive.

A question I like to ask myself about attractive investment ideas is “why does this opportunity exist”. In this situation the answer is fairly straightforward. MHI is a loss making, Chinese nanocap. Most investors would never take a second look if it popped up on their screens. In reality, the cash and property on the books provides stable downside protection, while leaving a lot of upside if the liquidation goes well. At time of writing I currently have a 5% position with a cost basis of 14c and may look to add more.

First let’s start off with some context on the fascinating state of the car carrier shipping sector. Similarly to the rest of shipping, car carrier rates peaked in the late 2000’s before entering a decade of weakness. Unlike the rest of shipping however, car carriers didn’t see a recovery during covid as chip shortages resulted in an undersupply of vehicles. Rates crashed to their lowest in over a decade in 2021 and the global fleet of car carriers saw no growth between the period of 2016 and 2022. Finally, in 2022 the world started to open up, cars started being shipped, rates started climbing again, and they did not stop. Charter rates have essentially tripled since January 2022 as supply has not kept up with demand while Chinese EV makers have been aggressively exporting, becoming the largest vehicle exporter in the world. Naturally the order book for car carriers has picked up, however rates are likely to stay elevated for a few reasons.

First, we are currently coming off an incredibly strong containership and tanker market that has seen shipyards filled with orders for those types of ships. Additionally, even shipyards with space are facing delays and slow build times due to lack of expertise in such a niche type of vessel, especially in China which has historically not been a large exporter of vehicles. More importantly, China has made it a strategic priority to dominate the global EV market. Demand growth for car spaces is expected to keep pace with new builds at least for the next 2 years as Chinese EV exports grow, fueled by government subsidies lowering the cost of production and making prices more attractive. The pushback I’ve heard to this is “what about the tariffs on Chinese vehicles both Trump and Biden have promised to enact, won’t that hurt demand? Currently according to Gram Car Carriers there are “no significant Chinese exports to the US market” which means that the tariffs, while possibly limiting demand growth, aren’t going to hurt total demand. Vehicle shipments to the US can only grow from here regardless of tariffs. All this in mind, this is where we get to Singapore Shipping, which stands to benefit hugely if rates remain remotely close to where they currently stand.

Singapore Shipping owns a fleet of 5 car carriers which it leases out on long term (>10 year) charters. These long term leases sacrifice short term exposure to spot rates for consistent, reliable profitability. The companies last lease renewal was in 2015, with all of their ships having renewed their leases between 2010 and 2015 (when rates were very poor) and as a result they haven’t benefited from the huge climb in PCTC rates at all. However, the company has 2 ships coming up for lease renewal in the next few years which could potentially have a huge impact on earnings if rates are still elevated.

It gets a little hazy here as the company doesn’t provide detail on its lease specifications however some of the older annual reports have more detail, and other information can be pieced together using the financials. The first ship to be renewed is the Boheme, their oldest but largest ship currently being leased at a day rate of around $21,000. To put this in perspective, 1 year rates for 6500 ceu (car equivalent unit) ships currently stand at $115,000, with 5000 ceu at $95,000. The Boheme will be renewed around mid to late 2025 and will be 26 years old at that point, making a 5 year extension reasonable. Gram Car Carrier’s 17 year old, 7000 ceu “Viking Queen” was renewed for 5 years in the last quarter for a day rate of $62,300. While I don’t have a specific prediction, analysts expect rates to remain strong through 2025 due to the reasons listed prior, meaning that they will likely be renewing at significant increase to their current rates.

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Their next ship to come off is the Sirius Leader, a 24 year old, 5000 ceu ship coming off lease in late 2026. Admittedly, this one is more speculative, as significantly more supply will likely have come online by then. However, as shown in the earlier chart from Gram Car Carriers, excess vessels are not expected until 2027. As the Sirius leader is currently on a $10,000 day rate (essentially trough rates), any continued strength in the PCTC market will result in a significant improvement in profitability for this renewal.

The other three vessels likely don’t come off contract until 2030 (assuming 15 year contracts, I couldn’t find their lease length’s anywhere). They consist of two 20 year old, 6500 ceu carriers and the crown jewel Taurus Leader, a 9 year old, 7000 ceu carrier. I assume the 20 year old carriers will likely be renewed for an extra 5 years in 2030 similarly, while I‘m unsure what they’ll do with the Taurus leader. At an average day rate of $17,000 between the three of them they are still at essentially trough rates, with lower rates for equivalent sized ships only being seen during Covid in the past two decades.

While obviously I don’t know what rates they’ll renew these leases, I want to run some quick maths with some conservative assumptions. I think that $50,000 for 5 years would be fair base assumptions for the Boheme, as I do believe rates will remain strong through 2025. I believe $17,000 would be a reasonable expectation for the Sirius Leader, which would represent roughly normal rates over the past decade. Additionally, I’m assuming their ship services segment plus all expenses grow at 4% over that time for inflation. Obviously, these numbers are extremely rough, but I just wanted to demonstrate the kind of operating leverage in play here.

After doing $13m of FCF in 2025, that jumps up to $25m in 2026 (at a current market cap of $72m) after the Boheme is renewed. Assuming the Sirius Leader is also renewed at a reasonable rate, the company should basically do $25m a year in cash flow until 2030. At this point they will still have two ships with around 5 years left and a huge 7000 ceu with another 15 years left in it. There’s too much variability for me to do a specific valuation, but this is an attractive setup for me.

Additionally, looking at the balance sheet there’s a huge margin of safety. The company has taken advanced payment for many of the lease contracts as reflected by cash offsetting unearned revenue. The company currently has $74m of cash, receivables and securities offsetting $65m of total liabilities comprising mainly unearned revenue and bank borrowings. The company essentially has no debt and due to the positive working capital cycle is able to earn interest on that cash that hasn’t been booked as revenue yet.

A key question here is around capital allocation, an especially pressing question for an emerging market, insider run, microcap shitco shipping stock. It’s quite possibly the worst combination of traits you could find in the investing universe. Management has a surprisingly decent track record of capital allocation. The company sold 10 ships at peak prices back in 2007-2008, distributing large dividends to shareholders before purchasing new ships at attractive prices through the early 2010’s with rates in a trough. It’s not unreasonable to expect they may do the same here with the two ships on expiring leases. At the very least they have a history of returning capital to shareholders and well timed purchases.

Finally, I want to discuss management a bit further. This company first popped onto my radar due to a combination of share repurchases and constant insider purchases, always an attractive sign. However, Chairman C K Ow doesn’t have a fantastic track record with minority shareholders. At Stamford Land Corp, insiders were granted priority allocation to excess rights in a rights offering, resulting in a $2m fine from the SGX. Additionally, following a dividend cut and questions around executive remuneration and competency, Stamford Land Corp sued a minority shareholder for defamation. These aren’t the actions of someone who has the interests of minority shareholders in mind and is a key risk in this situation.

In spite of this I do view Singapore Shipping to be extremely attractive. A core question I like to ask in all my ideas is “why is it so cheap?” This one is extremely easy to answer. Not only is it on the underfollowed and out of favour Singapore exchange, but it also screens extremely poorly. Only with a reasonable amount of effort would one be able to understand the major catalysts the company has in the near future. Depending on how strong rates stay the company has significant upside, while I feel like the risk of significant capital impairment is extremely low. This feels like a situation with asymmetric upside and I have made it my second largest position at the time of writing.

Before I finish up I just want to thank everyone who’s been reading my writings and especially anyone who provides me with feedback of any kind. In the past year I’ve managed to really cultivate a little investing community following me that has been an incredible source of knowledge and ideas. I feel as though I have come so far in the past few years of doing this and anybody who has ever interacted with me has contributed to that growth and improvement. I haven’t had a lot of time for investing in the past few months due to a secret personal project (all positive don’t worry), and I will likely be going dark for a couple of months as it wraps up, but later this year I will be back with new ideas and great investing discussions. I appreciate you all.