That’s a lot of buzzwords. In the case of $CEDER.ST (I will refer to it as Ceder from now on) all these words are true. Ceder are a Swedish operator of education facilities from Kindergarten all the way to specialist adult education campuses. This will be a short overview post and I also recommend you read the below longer form write up which gives some great insights (and give him a follow if you don’t already). Full credit, the below write up is where I came across the idea.

TheOracleOfOslo

Cedergrenska (CEDER) - A Fast-Growing, Best-in-Class Serial Acquirer Trading at a Double-Digit Earnings Yield

Share Price: SEK 42.2…

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5 months ago · 23 likes · 6 comments · TheOracleOfOslo

As always, I am an idiot on the internet, please do not take any of these writings as financial advice – you are responsible for your own financial decisions.

Background

In Sweden, there are both state schools and independent for-profit schools which get funding from the government on a per child basis to operate their schools. They then aim to eek out a decent margin from these grants which by its very nature is hard to do. It is pretty hard to operate a profitable school without either cutting corners on education quality or service quality such as school meals and facilities. It is the sort of business where scale is important. That is why Ceder is interesting. The company in short own 54 education facilities and are constantly working to acquire more with the aim to increase scale, share costs and therefore increase profits for the wider group. This is against a backdrop of many for profit schools being small operations, often of a couple schools. This means that Ceder are able to acquire schools for decent multiples of 5-8x but including cost savings, these multiples come down significantly. There is also an ongoing regulatory tailwind which we will expand on later which is depressing school multiples further which is providing a very interesting opportunity for the company to acquire schools cheaper. Investors buying into the company are buying into a non cyclical service industry with scale advantages over tiny individual operations. The question is if Ceder can stand up to this pressure themselves.

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The Numbers

As mentioned, Ceder own 54 schools and employ over 1800 staff at their schools. In 24/25, Ceder grew revenue by 35.8% to 1,232.6 million SEK and generated net profits of 20.52 million SEK, an increase from 6.7 million the previous year. EBITA was 94.19 million SEK resulting in an EBITA margin of 7.6%, up from 6.2% the previous year. The company’s stated financial goals are the following,

- Over time to have 10-15% growth via organic and inorganic growth

- EBITA Margins between 6-8%

- Net Debt/EBITDA to not exceed 2x

- To pay out profits via dividend (1/3 of goodwill)

The company’s revenue has grown 113% over the last 5 years or 21% annually which is strong growth. EBITA growth is broadly in line with this, growing 22% annually in the same period. Pretty simple when there is a strong correlation between revenue and earnings growth. Net income has grown at a rate of around 8% - a function of the goodwill and amortisation from acquisitions. As long as Ceder keeps acquiring companies, this gap will continue to exist. Old schools who amortisation curve ends or reduces will be replaced by new schools keeping this effect fairly flat over time provided they continue to acquire.

All in all, this leaves us with a ‘real’ PE multiple of around 27 at the current market cap, but an EV/EBITA of only 7x. For a company generating around 15% ROIC and with guidance and a plan for strong growth to continue, this would be probably considered cheap on an EV/EBITA basis. But, as you know, all stocks must be bought forward looking. As this is a serial acquirer, we must consider its ability to grow its earnings, buy acquisition targets at good prices and continue to execute its business as it grows. Through this lens, things get even more interesting.

Forward Looking

The good news here is that the runway is on paper very long. The company state in their annual report that they are in the top 10 largest education providers in the country, but this market is still dominated by small operations of 1 or 2 schools. There are 837 independent schools in the country, and these serve varying percentages of the population depending on the age of students. For Upper high school grades (known as gymnasium), around 36% of students in Sweden attend an independent high school. Over half a million children are in preschool, 1 million students are in compulsory schooling and over 350 thousand are in upper high schools. Ceder’s target market is basically around 20% of the current Swedish population. Of the total 837 independent schools, Ceder has a market share of 6.45%. Just on a theoretical basis, its not hard to imagine a doubling or tripling of its market share. This is the sort of thing I want to see. There is no guarantee that Ceder will grow that much, but it is reasonable and undemanding to imagine this happening.

Ceder doubled revenue in 5 years and did the same with EBITA and there are no real barriers to this happening again in my view (bar regulatory issues which we will move on to). This would place the company at around 2400 million SEK in revenue and 188 million in EBITA with 41 million SEK in net profit. At current prices, this would be an EV/EBITA multiple of 3.5. The idea of a consistently growing non-cyclical education service business trading for 3.5 x EBITA seems a bit silly and I can’t imagine this would happen. At a more fair 10x multiple, Ceder would trade at a market cap of 1.9 Billion or 221% above its current market cap. At its current 7x multiple, it would be a 125% increase. For reasons we will move onto, its current 7x multiple is almost certainly depressed by regulatory factors and therefore if things pan out well, a rerating to 10x at the least is a very conservative assumption. All these figures exclude continued synergies, increasing scale and declining multiples for acquisitions which I feel is also a potential outcome as a result of recent developments increasing upside.

The Elephant in the Classroom

It might sound fairly positive so far but I regret to inform you there is a catch. And its one that will put off many and not bother others so much. I will leave you to judge where you stand.

Independent schools in Sweden have fallen under some scrutiny in recent years from both the ruling right coalition parties and the opposition left party but for very different reasons. An election is also due to be held in the fall so it is worth understanding both views. The 2 main issues facing Ceder are the following,

The Right Wing Ruling Coalition – Concerns about the quality of education in independent run schools – As it is hard to run a profitable school with good education quality (especially at small scale), the government, currently run by SD (Sweden Democrats) have moved to stop corner cutting from bad operators who have made compromises in favour of profit. They plan to introduce regulation which limits how quickly owners of schools can take money out of the school – potentially as long as 5 years in order to deter bad operators.

The Opposition Left Party – The Left Party (Known as S - Social Democrats) are opposed to the operation of independent schools and want all schools to be state run and have made this one of their election promises. If they got their way, Ceder’s schools would no longer have a business and would be state run.

Starting with the more serious issue, if the Left Party come into power, are shareholders going to lose everything? Once again, I strongly encourage you to read the Oracle of Oslo’s article on the company. In his evaluation of this risk, he states the following,

‘Sweden is not China. Any forced wind-down would have to happen within a democratic framework that binds the government’s hands: EU property rights protections, legal challenges that well-funded operators would definitely pursue, and politicians who actually have to answer for what they do with public money….Should the Swedish government pursue a ban, operators like CEDER wouldn’t simply fold, the schools don’t disappear, and the 400k+ pupils and teachers inside them still show up to school on Monday morning. A government that lets operators wind down would be leaving hundreds of thousands of students without schools, which is its own political catastrophe. So they would be forced to seize the assets to keep schools running, at which point Article 17 kicks in and fair compensation becomes a legal obligation.’

He also makes the point that the Left Party would have to explain to voters why it is spending their money to buy schools which are already running using government funding and this would very likely be unpopular given the other issues the country is facing. In theory, the party could employ a more gradual phase-out, preventing independent schools from taking on new students going forward to get around Article 17 but you are still going to face strong legal challenges and again, the hassle does not seem worth the trouble. Investors are likely spooked as the S are leading the polls by some margin and expected to form a government. I am not an expert in Swedish politics, but it seems like a fools errand to change a system that is currently working. Despite this, there is clearly concern in the industry, evidenced by the reduced multiples by which Ceder are currently able to acquire new schools compared with before this current election cycle. Where they were buying schools at around 5-8x EBITDA, schools are now selling themselves for closer to 3-4x.

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In my opinion, the more serious risk is not a total ban and changing the status of independent schools to non profits, but rather measures which slowly erode the viability of the business such as preventing independent schools from taking on new students, profit caps or forcing them to return funds from the vouchers given per student which go unspent. These changes in theory could circumvent triggering large scale lawsuits which would be very costly for the government. As far back as 2010, the challenging S party opposed independent schools and since then there have been several attempts to ban them, the most serious of which resulted in a failed vote in 2018. This is worth mentioning in the context of the fact that the independent school model is completely unique to Sweden in the Nordics and has survived since it was first introduced in 1992. Since then, several different parties have been part of coalition governments and the system has stayed in place. Obviously the past cannot ensure the future will remain the same, but it is worth mentioning that the system has been challenged before and has outlived those challenges.

Now, if the right wing parties remain in government, Ceder’s primary issue is basically the annoyance of not being able to move money freely between schools. The company remain confident that they provide a good standard of education and that no changes to their estimates will need to be made to factor in potential extra demand to meet currently scheduled regulation changes being introduced by the current SD government. I spoke to a member of the company’s management regarding both the current regulatory changes proposed and about anything more serious that may come along.

I asked if they shared the view that more drastic changes would be unlikely due to either S (the left party) not winning the election or not following through on their promise due to the potential costs involved with a total ban on for profit schools. They were in agreement.

How you choose to take this very much depends on your mindset. You can either see it as a company who’s management are very involved in the current debate around the ban, experienced with previous situations and also the potential routes that the government could take that would affect them and have concluded that the impact on their business is minimal. Or you could take this as a management team being dismissive of a very real and serious risk to their future. I have not exactly made up my mind on what I think. But, they are not lacking confidence they are on the right side, that is for sure.

In terms of less strict regulation mainly around cash movements between owned schools, they had this to say

‘With the current proposed changes… everything points to 3 scenarios. 1)When acquiring a school, there is a 5 year restriction. 2)When starting a new school from scratch [there is a 5 year restriction on moving cash out] 3) When there is a serious breach of quality in the management of a school, likely a 3 year restriction. Don’t forget that it is still possible to borrow money from affected entities within the group, as long as it is done at market pricing. Liquidity will not be affected, only the short term allocation of the equity.’

This gives some certainty around how Ceder would cope under the current new proposals. If anything, these would be advantageous to them as a scale player without issues in school quality. In terms of the current cheap valuation, they were of the view that this is down to Swedish investors being unaware of their story due to the perceived uncertainty in the sector and the fact they are a very small company. So long as there is this perceived political risk, they will remain suppressed.

Management

The key man here is Niklas Palsson who is the former CEO and now board member holding a very significant share in the company at around 17% of shares outstanding. His voice is therefore very significant in the direction of the company. During the last election in 2022, he made the following comments.

‘The biggest challenge is the same for all education groups, which is the political risk during an election year, which is also reflected in the share price. A reduced school fee affects our growth at the same time that we need clear political frameworks to be able to make more long-term decisions, which could be with property developers, for example. Today there is a risk that these frameworks will change. On the other hand, we know that we are needed, which is also confirmed by the municipalities. Today we have a very good collaboration with the municipalities and other stakeholders in the municipalities we operate in, which gives us a stable position to continue developing Cedergrenska.’

Niklas here seems to be highlighting the fact that there is a demand for education and specifically for their independent schools. Even in the face of political risks, it would be very hard to limit the ability for schools to take on new students without backlash from parents and municipalities. There is a subtle dynamic at play here where Ceder - at least at the time of the last election - seem to display a quiet confidence that they are in a stronger position of negotiation than they might at first appear to be.

Final thoughts

Full disclosure, I currently DO NOT own any shares of Ceder. I would welcome any current shareholders reaching out to share their views on the situation. The set up to me, without the political risk, is great for a serial acquirer. I just don’t know how things are going to change over the coming months and years. I may choose to size a small position, I may choose to just avoid it entirely until there is more certainty around regulation going forward.

As always thank you for reading and your continued interest in my writings. I have quite a few research projects ongoing so please consider subscribing to keep up to date on these.

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And please remember that none of my writings should be taken as financial advice.

Intro

The current coach of the Uruguay National Team is a man named Marcelo Bielsa. If you are unfamiliar with football, you have likely never heard of him. He was born in Rosario, Argentina in 1955 to a middle class family. Argentina, being perhaps one of the most football crazed nations on the planet, means it is no surprise that it gave birth to perhaps the most obsessive figure in football history. For readers unfamiliar with Bielsa, the most important thing you need to know is that he lives and dies by the principle that genius can be taught and imitated by ‘mortals.’ The second most important thing you need to know, is that he has no time for people who do not buy into this philosophy. He earned the nickname, ‘El Loco’ or ‘The Mad One’ - partly as he gained a reputation as volatile and changeable, but also as someone who is relentless in his pursuit of perfection and instilling his tactics and ideals into his players. Pep Guardiola, considered by most as the greatest manager in modern football history, said that Bielsa is ‘the most authentic manager’ and ‘the best coach in the world.’ More than perhaps anyone else in football before him, Bielsa is a Manager’s Manager and someone who cannot be judged on the simple metric of the amount of titles or games he has won in his career. Bielsa must be understood within the context of his upbringing, personality and impact on the football world. To me, he is football’s Benjamin Graham.

In this article, I will attempt to draw a link between Bielsa’s life work and the lessons I have taken from it. It is my view, that his methods have even more use in the investing world, than the football one in which they were forged.

Early Career

Bielsa came from a family of lawyers and politicians but rejected this path early in order to pursue a career in football. As a young boy, he obsessively read the Argentine football magazine, El Grafico - a publication which became known as ‘the Bible of sport’ for it’s in-depth articles on football and tactical analysis. By his early 20s, it became clear that he was not going to make much of a career playing football and he switched to coaching, leaning on his passion for understanding the game of football on a deeper level. At the age of 25, exceptionally young for a coach, he began managing the youth side of Newell’s Old Boys, the club he played for a few years prior and who’s stadium would eventually be renamed in his honour. His switch to coaching led Bielsa to the realisation that most football coaches never work with players who possess true football genius. You will likely never be in an ideal situation of a near perfect set of players to pick from. He knew that he would be judged primarily on his ability to win with average professional footballers - players who were good enough to be professionals, maybe even some great players, but those who still did not have the talent to win without a coach who could bring the best out of a team as a collective and motivate them to maximise their individual potential.

As a youth coach, you have different responsibilities to those of a professional manager. You are expected to be involved in the recruitment of players of school age, mould them and evaluate their potential as professionals to prepare them to play for the senior team. After all, these young men are still growing physically and technically improving with age. What is not in a youth coaches job description, is to drive thousands of miles up and down Argentina in order to find youth players to recruit for your club. But this is what Bielsa did. He and his fellow coach, Jorge Griffa, divided the country into 70 zones and drove to each area in Bielsa’s little Fiat (because he disliked flying) searching for the best young players they could find and recruiting them. One such player was the current USMNT coach, Mauricio Pochettino. Mauricio, who went on to win 2 titles under Bielsa at Newell’s senior team and become a very successful coach in his own right recalled: ‘Bielsa turned up… at 2am and told my mother he was very interested in signing me up. My mother walked him to the bedroom but I was asleep. Bielsa said: 'Don't worry, I don't need to talk to him, I just need to see his legs.'" After getting visual confirmation that Mauricio was a strong young man with the legs to play his system, he was signed to the youth team.

Newell’s Old Boys profile of Bielsa reads as the following,

‘Bielsa took charge of his boyhood club in 1990 and won the Argentine Primera Division title within a year. He introduced a high-pressing, attacking style of football ahead of its time. Rivals struggled to match Newell’s intensity and rarely had answers for Newell’s domination of games. Bielsa’s footballing philosophy has influenced some of the best managers in world football, including Mauricio Pochettino and Manchester City’s Pep Guardiola.

Under Bielsa, Newell’s also won the 1992 Clausura and reached the 1992 Copa Libertadores. Unfortunately, they lost in the final to Sao Paulo in a dramatic penalty shootout, but Bielsa’s impact was already well felt among everyone connected to Newell’s. The fact that Estadio Marcelo Bielsa is named after him shows what Bielsa means to the club.’

Marcelo said of his time at the club that "It's impossible for me to love another shirt more than that of Newell's."

Physicality and hard work were from the outset a key principle of Bielsa’s philosophy and being outworked by your opponent was the greatest violation of his ideas. His time at Newell’s demonstrated a revolutionary debut in the world of professional football and someone who became a cult figure for those in the know. We are going to firstly consider what Bielsa’s tactics involve. Then we will look at Bielsa’s personality as a manager and how he instils his ideas in his players. We will conclude by looking at how both Bielsa’s personality and his football philosophy applies to the investing world and how it has made me re-evaluate my methods and outlook.

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‘El Loco’ - On the Pitch

Bielsa’s teams throughout the eras from his time at Newell’s Old Boys to his most famous Leeds side of the 2020s share one key principle. To the untrained eye, and even to the trained one, they are absolutely crazy. This however is not unorganised chaos, is is controlled aggression with a distinct purpose - to catch your opponent off balance. In football, opponents are most vulnerable during transitions in play. When players are moving quickly from defence to attack, when they lose possession of the ball, even when they gain possession of the ball - these are all moments of vulnerability as your role as a player has changed in an instant. During this brief period, you can be both exploited and exploit your opponent. Bielsa sets up his teams to pounce on this momentary uncertainty and to capitalise as quickly as possible. This tactic requires complete commitment from all its players and if a single player does not buy in, it completely falls apart. You can find a lot of good videos online which break down the basics of Bielsa’s tactics and formations but I would recommend this one. The foundation of these tactics are him spending thousands of hours studying opponents, good teams and bad teams and meticulously logging the actions of players down to the last detail. Game tape is Bielsa’s version of annual report’s and earnings calls.

If you are familiar with football, you will no doubt know that physicality and athleticism are considered elements of a players game and not conclusive of their overall ability. There are many examples of players who have been slow, unathletic or physically weak who have been able to carve out careers thanks to their superior ‘football brain,’ their technical ability or the speed of their minds to react to the situations around them. This is often most obviously demonstrated with ageing players who perhaps did posses blistering pace or overwhelming physicality in their younger years. While gradually losing their pace, in some cases, players are able to maintain their play at a high level by reading the game - anticipating the movements of an opponent before it happens allowing them to win possession from their opponent or occupy space to create chances - and leaning on their experience to continue to perform at a high level.

So this raises the question - If it is accepted that physicality and fitness alone do not make good players or win football games, why does Bielsa focus so heavily on these attributes? Bielsa was asked this question in a recent press conference - a clip of which you can watch here. His response is very interesting.

In Bielsa’s view, running statistics are a record of a players commitment to their team and show the sacrifice they are willing to make to win. A player exceeding their average running statistics in a game also evidences a high level of tactical engagement and that they have unlocked a ‘state of mind’ to allow them to play to the best of their ability, exerting maximum effort. It is not that a player who runs a lot will always play well, but it is his view that they will not play badly and will have enhanced the other aspects of their game by increasing their physical effort and in turn their commitment to win.

Bielsa is known for his intense training sessions which during his time at Leeds became known as ‘Murderball’ - a reference to how hard players worked during these sessions and how much Bielsa demanded on them in training. Here is a clip from Bielsa’s stint as Athletic Bilbao coach, putting his intensity on full display.

Regarding intensity and physicality, Bielsa said this during his time at Leeds about Brazilian player Raphinha who now plays for Barcelona,

“To be a pro player, an important contribution is to possess a high spirit of the amateur,” the manager said. “I am referring to what a player develops when they play for nothing. Without expecting any recompense except for the victory. They are the future of pro footballers, they consolidate the most important parts to then become pros.”

“Raphinha is a clear example of this. He has not lost anything you achieve when you play for fun. Of course, it’s added to this amateur spirit. He has had added a lot of things the pro game demands. The important thing is the development of those virtues in childhood because the ones that come with the pro game are complimentary. Of course, Raphinha is recognised and he will be so more and more. For his capacity to invent responses that are not expected. That’s not a virtue you obtain through professionalism. You have to conserve it, keep it, despite the professionalism.”

Bielsa’s influence in coaching has been profound. Newly appointed Liverpool coach Andoni Iraola was captain of Athletic Bilbao for 2 years during Bielsa’s time there and he credits this period of his career as directly influencing his view of football. He said of Bielsa,

“I was very lucky to play for him for two seasons as a player… I think he has another vision of football. They were two very good seasons for us, and, for me, it was a different knowledge.”

“I use a lot of exercises from Marcelo that I learned from him. I use a lot of things, especially with the ball. Offensively, his teams are very dynamic. He is willing to make all the runs to the space, he is ready to accept this kind of disorder, offensively.”

Bielsa loves football, he is completely consumed by it, that is clear. But he also seeks players and clubs who have this same love, people who in his words, would play for nothing and who’s effort is not reliant on what level of football they are playing at. His relentless passion and desire for perfection has unsurprisingly led to numerous high profile fall outs with chairmen, presidents and club ownership which also contributed to his reputation as hard to work with and uncompromising. Marcelo however has never been bothered by what these individuals have to say about him. As far as he is concerned, his duty is to his players and to the fans of the club to perform to the best of their ability. Here are a couple of my favourite incidents from his career that really illustrate how he thinks.

Spygate - Leeds 2019

We have already spoken at length about Bielsa’s immense understanding of tactics and deep analysis of his opponents to prepare his players for each game. Before joining Leeds in 2018, Bielsa was required to present in front of a panel of 3 members of England’s Football Association in order to be allowed a work permit to take charge of the club - as a result of him not working enough during the prior 5 years to automatically meet the requirements. In response, Bielsa did not complain but rather did what he always did, prepared scrupulously. The Guardian reported at the time that ‘Bielsa went before the FA’s expert panellists – the Portsmouth manager, Kenny Jackett, and the former Blackburn and England winger Stuart Ripley – and it is fair to say the outcome was not in doubt.’ Bielsa at this point in his career had already managed at multiple world cups. To put this in investing terms, this would be like Bill Ackman having to explain why he should get an investment manager job to a panel made up of a few unremarkable Morgan Stanley employees.

Not too long after he took the Leeds job, Bielsa was involved in perhaps the most controversial incident of his career. Ahead of a 2-0 victory for Leeds against promotional rivals Derby County, reports emerged that Derby staff had spotted an unknown man outside their training ground in the lead up to the game. Bielsa admitted to the media that he had sent a Leeds staff member to Derby’s training ground to spy on their session. Derby manager Frank Lampard was outraged whilst Mauricio Pochettino spoke in defence of his former manager saying the practice was common in Argentina.

Leeds fans braced themselves when Bielsa called an emergency press conference the following morning, as he had done in his previous 2 jobs to publicly resign at short notice. Instead of resigning, Bielsa delivered a 70 minute press conference to the media, doing an in depth analysis of Derby’s tactics, weaknesses and how Leeds were able to beat them, essentially giving this blueprint to the rest of the league. You can see a clip of this here from a documentary done by Amazon on his season at Leeds in 2018/19.

It says a lot about the man he is that Bielsa took such offence at the media’s claim that Leeds had won as a result of this spying that he delivered what those in attendance described as a ‘coaching masterclass’ and demonstrated ‘true genius’ in his presentation. Bielsa expressed regret at having sent the spy as in his view, he knew everything that he needed to know about Derby before the game in order to beat them. He viewed it as a personal insult to him that anyone would claim he had only coached a victory due to any information he could get from this spy.

As much as fans marvelled at his unbelievable tactical understanding, Bielsa’s time with Leeds also showcased his unbelievable integrity and appreciation for the communities in and around football. In sharp contrast to allegations of cheating, Bielsa that same season was involved in a remarkable show of sportsmanship. In a high stakes game against Aston Villa who were also fighting for promotion, Leeds took the lead after a controversial incident where Villa player Jonathan Kodjia appealed for a foul following a tackle from Leeds Captain Liam Cooper. The unwritten rule in football is if a player takes a hard fall, especially in a non threatening position, you play the ball out of play and allow the player to get treatment if needed. Leeds however played on, believing that referee was right to not call the foul and created an opportunity, resulting in a go-ahead goal. Villa players, furious with the decision, protested to the referee and had a player sent off in the process for punching Leeds striker Patrick Bamford during a scuffle.

Amidst all this chaos and tens of thousands of screaming fans, Bielsa himself became furious and began screaming to his own players - calling his captain over and decisively gesturing towards his teams own goal. He continued screaming ‘Give the goal!’ ‘Give the goal!’ It eventually became clear that Bielsa was asking his players to allow Villa to score to make up for the incident - something which never happens in football despite many controversial goals scored. It was not popular with the home crowd. The incident speaks to the character of the man, being someone who desires to win fairly and on merit, not by a technicality. Shocked, but at the request of their manager, the Leeds players stood motionless as the Villa players charged towards their goals and scored the equalizer. Perhaps fittingly that game ended 1-1. In sharp contrast with the cheating allegations earlier in the season, Bielsa was lauded for his sportsmanship.

The Leeds fans may not have been happy at the time but this does not mean that Bielsa had any less appreciation for them as the clubs supporters. Bielsa famously made his first team squad pick up litter around the clubs training ground for 3 hours on one occasion as a lesson in humility. Why 3 hours? This was the average amount of time it took a Leeds fan to earn enough money to afford their ticket every weekend. Bielsa wanted to connect his players to the effort that their fans and normal people go through in order to watch them play. Football at its core is a working class game. His hope was this would ground them and prevent them from losing connection from their supporters who spend their hard earned money on supporting their club.

On the Pitch - Genius - The sum of its parts

Bielsa’s unique view of football has also led to him gaining a reputation as a manager who is able to rejuvenate players careers by looking at them in a totally different way to most managers and utilising their unique skills in unconventional ways.

When Bielsa joined Leeds United in 2018, Midfielder Kalvin Phillips was a player who had primarily played in the number 10 position (A creative player behind the striker, often scoring and assisting frequently). When Bielsa joined, he told Kalvin that he would no longer play there. Not only this, he told him he would be his holding midfielder. Phillips had endured a fairly successful spell and despite being a promising young player scoring 8 goals the previous season, Bielsa was adamant that he should play deeper in the midfield.

Just to perhaps illustrate the difference between these two positions for those unfamiliar, you might look to Sergio Busquets, former Barcelona and Spain player as an example of a prototypical number 6/holding midfielder and 2007 Ballon Do’r winner, Brazilian legend Kaka in stark contrast as the example of a dynamic and impactful number 10. It is immediately obvious when you watch these two players, the very distinct demands of these two very different positions in midfield. Sergio is 6’2 and weighed around 163 pounds during his playing days. A very lanky and slight frame, his game style did not involve power or pace. Busquet’s as a player was probably not dynamic enough to match the high intensity of the play style Bielsa favoured but he no doubt would have appreciated him for his other attributes having lost 2 finals to Busquets’s Barcelona during his spell as Bilbao manager. Busquets relied on his superior reading of the game, passing ability and footballing intelligence to occupy spaces that allowed him to dictate the game and influence play. He is perhaps one of the most positionally intelligent players ever, limiting his need to run excessively to recover or react to opponents. Despite not being physically imposing and very slow for a footballer, he always finds space and in football, space means everything. How does this compare with the demands of a number 10 like Kaka.

In his 2007 Ballon Do’r winning season, fellow Brazilian Legend Pele, dubbed Kaka the ‘complete’ player. During this season where he was crowned the best player in the world, he finished the season as the top scorer in the champions league and became the final player to win the award before the decade plus dominance of Messi and Ronaldo. Unlike Busquets, Kaka possessed tremendous pace and the foundation of his game was his extreme talent as a ball carrier. Unlike a deeper lying midfielder who’s role is to move the ball quickly, Kaka in the number 10 position would dribble past players to disrupt the opposition shape and create changes either for himself to drive into or to assist his teammates who moved into space that his runs created. To those of you less familiar with football, I would wager his talent is far more obvious to the untrained eye and his highlight clips you can find on YouTube showcase his completeness in all facets of attacking football.

Hopefully from these two players, you can see how different the positions they played are, and therefore how unusual it would be for a manager to move a player from Kaka’s position into the deep holding midfielder role of Busquets. But that is exactly what Bielsa did with Kalvin Phillips. Unlike the number 10 role which is generally more flashy, the role of a holding midfielder is likened to that of an engine. Why such a drastic change?

Bielsa, being a student of the game also understands that coaches, players and fans have the habit of putting players in a box and limiting what data says they are capable of. In a very similar culture to that of baseball that Billy Beane walked into in the late 90s, Bielsa pioneered data based decision making. Not only did this apply to tactics and signings, but this also allowed Bielsa to repurpose players to better take advantage of their superior attributes. The major issue with this in comparison to a sport like baseball, is that data is far more difficult to isolate and make decisions from. The stop start nature of baseball means that thousands of individual statistics produce actionable and reliable data points which GMs and Managers make decisions on with very high hit rates. Football is a completely different game where players are constantly in motion, have drastically different responsibilities from one another and consistency is very very hard to find. Players also can perform far better or worse depending on the tactics employed by their manager, with only Bielsa’s ‘genius players,’ having the ability to be tactically agnostic and adapt to any situation. Bielsa’s philosophy therefore hinges on an ability to not only study games, data points and players most valuable attributes. It also needs the manager to be able to marry these factors with tactics and team selections that maximise these attributes in a team that is able to replicate elements of teams that are led by these genius players.

With Kalvin Phillips, Bielsa saw a player with an incredible range of passing and with a rare ability to unlock defences, especially in transition where Bielsa teams thrive. Instead of playing him in his traditional 10 position further up the pitch, Biesla chose to play him deeper, in front of the defence. This allowed Leeds's best ball player to constantly be on the ball and to be able to start attacks on the transition where the team are set up to spring out as quickly as possible and rely on the ability of their midfielders to be able to confidently play passes through pressure and allow their forward players to run onto the ball into the opposition half. Bielsa therefore used a system which not only took advantage of Phillip’s best qualities, but it enhanced them by having him play in a system which allowed him to use his expectational passing more than he would in a traditional role. It would be a stretch to call this revolutionary but in the years since, numerous managers have made similar changes with West Ham midfielder Mateus Fernandes a prime example of bringing creative players further back to dictate play more. It is perhaps telling that since Bielsa left Leeds and Phillips got a big money move, he has never really reached the heights he did under his stewardship, despite going on to play under Pep Guardiola at Manchester City.

As much as we have discussed the relentlessness and tirelessness of Bielsa’s teams, this is very much a reflection of his own personality. His teams are in effect, reflections of his thousands of hours of study, of breaking down every single individual action on a football pitch and how they contribute to success or failure. Football at its simplest form is about 2 aims - you find ways to score and you prevent your opponents from scoring. But within those two aims, there are countless ways to achieve victory. Perhaps the most unifying thing amongst successful football teams over the decades is their ability to work as a collective unit. Regardless of style, that includes the great defensive Italian sides of the 90s or the attacking powerhouses of Barcelona and Real Madrid of the 2010s, all these teams were known for their ability to work as a unit. Even the lesser known players in these teams played an important role to allow their best players to shine.

Bielsa realised from early in his career that these great teams and great players are made up of thousands of individual choices made during a game. This does not just mean pass, shoot, dribble. This means understanding the kinds of pass they make, the pace of pass, the direction of the pass, how quickly after receiving the ball the pass was made and on and on. So he stared logging this data.

Bielsa, unlike some managers, does not rely on his players having a deep understanding of the game which he possesses - this is something you cannot expect of all average ability professionals. As a player under Bielsa, you are not asked to watch hours of footage on your opponents or to know and understand their every move. What he instead emphasises, is constant repetition of key actions and drills that force players to ‘feel’ what they are supposed to do in a game situation. Doing this means that instead of thinking, players instinctively understand their role which they have practiced for hundreds of hours in training and are able to react to in game situations. Rather than making thousands of individual choices on the fly, players are rather repeating moves, actions and patterns that they have practiced in training which are designed to emulate the genius they are trying to beat. Rather than a genius like Messi or Ronaldo beating 3 players with their dribbling ability, a Bielsa team uses the chaos of transitions to get the ball into open spaces giving its players less work to do. His teams work smarter and far far harder on average.

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What does this all have to do with investing?

So what’s the link here? I think investors can learn 3 broad lessons from Bielsa

1. You can recreate genius from studying it

2. You need to be completely obsessed with your chosen discipline to be exceptional at it. Nothing replaces knowledge.

3. Look at things unconventionally but logically and maximise your own abilities by playing a style that suits what you do best. Once you find this, be aggressive, relentless and exploit uncertainty.

‘Create In The Aggregate’

Most people reading this, maybe even all of you, are not geniuses. You are not Warren Buffett, you are not Peter Lynch, you are not Li Lu. And as we have spoken about already, many many professional football teams will never have a true footballing genius play for them. And if they do, there is a very high likelihood that if they are a smaller team, they will be sold to a larger team and you are back to where you started. Mere mortals like you and me need to learn to exist in the world where we need to move the boulder ourselves. Bielsa teaches us that by studying their habits we recreate their genius in our own lives and in ways that actually reach that goal more efficiently. There is only one way to do this - to work hard at understanding why great investors make certain decisions and how you can make similar decisions with your own investments. This does not mean you should do nothing but read books about Buffett or reread the Intelligent Investor again. Bielsa not only did more work than his fellow managers, but he made his players train harder than them too. The only way to impart knowledge into yourself is by experience and feeling what it is like to make those decisions.

The good news is, imitating genius is a lot easier in the investing world than it is in the football world, but it is still by no means easy. As a way of comparison, in football, your wins do not compound over time. Once your season ends, you start over. In Investing, if you are able to generate even marginal outperformance for a number of years, this compounds into significant outperformance at the end of your career. This makes Bielsa’s philosophy on taking advantage of chaos in transition on the pitch and being as aggressive as possible all the more important for investors. As an investor, you need to have the mental fitness to be able to cover the ground needed to take advantage when the market throws up anomalies. In addition to this, regular investors like you and me are able to focus on small companies where less people are looking and can generate superior returns by playing an easier game. There is no extra reward in investing for only buying the biggest companies.

You need to be Obsessed

On our second point - Nobody would get into football coaching if they were not completely obsessed with football. It is stressful, time consuming and one of the most emotionally draining jobs you can be in. Just watch coaches on the touchline - Bielsa especially. For you to choose this career, you cannot just like to watch a few games on the weekend. Your entire life is spent thinking about football, how to beat your opponents and how to improve your players. Bielsa’s example is perhaps the most extreme that this obsession can be. Stories of him sleeping on the training ground to save wasting precious hours watching game footage and travelling all around Argentina scouting in his Fiat make you wonder how he has been able to stay married for nearly 40 years. And even in the case of his players, we mentioned earlier about his attraction to footballers who love the game themselves and who would play football for nothing. Their interest and engagement in their sport is not based on what they could gain, but solely on their desire to compete and win.

For the investing giants like Buffett, this was the exact same. We are talking about a man who has been the richest man in the world several times, and yet he kept largely the same routine, spends hardly any of his fortune and still maintains a passion for reading about companies and learning to this day. Great investors do not fall in love with money. They fall in love with the science of making it. Wealth to these people is almost a side effect of their mentality and those who are truly great maintain their principles despite their dramatic change of circumstances. This means being honest, being hardworking and striving to be a good person.

You cannot really be a great investor if you are lazy. And that does not mean you have to run 200 different positions and constantly keep track of thousands of data points in the same way being a good football manager does not mean you need to play a particular style or philosophy. What you do need to stick to are principles, rules that cannot be crossed if you desire to make money over the long term. You may get lucky without these rules, beat a few big teams - but you will not gain long term success. You will probably come across investors in your career who do things which you find illogical such as having 3 or 4 position portfolios, or maybe hundred of stock portfolios, but what truly matters is the work they have put into those decisions. So long as they are adhering to core principles of Value Investing (all smart intelligent investing is value investing) then they will find a measure of success. Those who work exceptionally hard researching, thinking and questioning will no doubt find a lot of success.

Think Differently And Maximise Your Returns By Playing The Right Style

Our third and final point is about thinking differently about companies and your abilities and how these affect the style of investing you pursue. Unlike in Football where the coach is in charge of players, in investing, you are both manager and player. This means that you need to be even more sure you are playing the correct style as you are a team of one. You need to have an honest conversation with yourself about what you do well and what you do badly. Yes, you will get better at some things over time. But understanding what you have a talent for is crucial to helping you perform as well as possible. It also means evaluating companies and uncovering attributes they have which the market may not understand or perhaps the company themselves are not exploiting. Throughout the writing of this article, I have been thinking deeply about the sort of companies I buy and what I do well with and what tends to underperform. My main takeaway is that I do not have the skills to go bin diving and buy lower quality but optically cheap businesses. I am just not very good at it at this stage in my career. Conversely when I focus on higher quality companies, high insider ownership and deep research, my hit rate significantly improves.

What you notice speaking to very accomplished investors is they will often very quickly dismiss companies because they know what they like. This does not mean that the investment will not be successful, but they know themselves well enough to know what they are good at evaluating and what they are easily misled by. This is still a work in progress for me. As with everything in investing, these preferences, or biases, are informed by experience and these investors are only sure of their views because they have exposed themselves to these investments before in some capacity. This is their version of game tape. Thousands of hours of studying themselves and what works for them. The importance of having a framework for doing this yourself is something that I have realised more and more in my study of Bielsa’s methods.

Conclusion

Marcelo Bielsa is a remarkable man. Not only in what he has done for football and the many managers his philosophy has inspired, but also in his ability to be firmly grounded in his principles and be uncompromising in his methods. His career is a demonstration in how to make choices entirely on the basis of evidence and to act with complete commitment to those who deserve it, the fans of the clubs and countries he managed. In sharp contrast to unguided stubbornness, Bielsa lives and breathes football and improving his players, accepting nothing less than the maximum to achieve this goal. You cannot help but be taken in by his passion and charisma.

His career is far from perfect. Many of his students have already surpassed him in titles and boast superior win percentages but, in my view, these all count as part of his legacy. His greatest impact on football was to give his followers the tools to succeed regardless of their own individual tactical philosophies. This to me, is an invaluable life lesson. You can find and learn so much from those who come before you and who have walked this path. Take what you can from them, but crucially, you must play your own style of this game. And play it intensely, relentlessly, and with total commitment to your goals.

The irony of the timing of this article is that Bielsa as current coach of the Uruguay national team is in the middle of a challenge to his own authority and his principles being questioned. Many do not expect him to coach the side beyond this World Cup due to tension with players and former striker and Uruguay legend Luis Suarez has harshly criticised Bielsa in the media despite making himself available for selection at 40 years old in what would be his final world cup. Be thankful when you are next debating buying a new stock that the debate is between yourself and not the stock deciding if it even wants to be owned by you.

So this is my ask. Watch Uruguay closely this summer during this World Cup — not just on the surface, but as a study in football philosophy. Bielsa coaches pursuit. His Uruguay side press relentlessly across the whole pitch, each player chained to an opponent, the ball hunted the instant it is lost. And when you watch, pay close attention to the old man sitting on the water cooler pitchside, studying the game closely and rising sharply every few minutes to bark orders at his troops, frantically waving his arms in the air, rallying them for their endless chase of the thing he loves most - football.

"Always give the maximum, the result will follow" - Marcelo Bielsa

Holdings

My holdings remain mostly unchanged since my last portfolio run through. I still own BFIT.AS, VTY.L, LTX.MI, DSW.L, PINE.L, CHH.L, NREST.ST, SIBEK.ST, 7378.T, MLMCA.PA and BBW.SI.

All of these are full positions, Macompta and Pinewood the smallest of these, but for different reasons. I have said a few times publicly that I am not really married to the Pinewood story having held it pre spin off and was really just holding to let it play out into its US expansion. That is what made this recent drop annoying. Following speculation of a PE takeover offer at 500p a share and the breakdown of this deal (which I was pleased about given the stock traded higher than 500p during the past year) the shares have fallen to near 200p. Part of this is linked to the announcement of delays with the roll-out of Pinewood’s software with UK dealership partner, Marshalls. The market obviously thinks if this smaller deal is having issues, the Lithia deal in the US will have similar issues. For what its worth, the company’s targets remain unchanged for FY28. To be honest, this news does not concern me as much as the lack of activity from insiders following their decision to engage in talks for a low ball PE offer. I do not believe that this management team are acting in the best interests of shareholders. Now, I don’t have evidence they are working against us but I am getting more and more uneasy with how things have played out. With that being said, I think the equity is clearly undervalued and the company has a product which is sticky and protected from AI in a number of ways. I still question management’s commitment to minority shareholders and despite knowing insider ownership is not everything, the entire handling of the PE offer situation leaves a sour taste in the mouth. I may well dump it, despite it being a small position but I am undecided as of writing and do not make hasty decisions, even for small positions. I reserve the right to completely change my mind ;)

Macompta in contrast I am looking to scale up, but being disciplined on price. The company have executed well, confirmed their uplisting and I expect they will continue on the same path they have been on since listing. I don’t envision this as a cornerstone position but would like to double my holdings in it at least. It’s a nice little company. Azeus System’s has also experienced a drop since I first bought in last year in the 15s. I would like to buy some more of this now it has dropped into the 10s.

Litix SpA reported earnings at the end of March, sadly reporting a loss. This is not exactly unexpected for a small niche manufacturing business but the positive is that the Robotor unit has already surpassed its units sold for 2025 this year thanks to demand recovery following a year of tariffs and uncertainty. Torart also increased its revenue from €2 Million to €2.6 Million, showcasing the resilience of the artistic sculpture outsourcing business. The company said in their previous earnings report that they were expecting a quick recovery and that is somewhat true from what we have seen this year but the second half of 25’ obviously did not improve much. The company are saying it has been a transition year with a strong push to enter new markets, with their first hardware sale in India last year, and a push into new sectors of maritime and aerospace applications for their products. The stock has not really moved which I am fine with. I will keep tracking their socials for news about new sales and developments and attempt to make contact with customers as I have in the past. I want to see more on the software side this year as well, with the pilot for their OR-OS CNC software ending and hopefully new customers being gained outside of just those using Robotor products. News on these developments will be what really moves the stock in my view. This year is an important one for me as it will really start to show if the Robotor hardware business has any legs or if it is just futile investment in a segment which is cyclical and inconsistent. If we once again see delays in software rollouts and little adoption, it will be time to admit serious upside is probably not to be had.

Bright Spots

It has been a tough year for a lot of stocks with the Sp500 negative on the year and microcaps in some areas having an even tougher time. My portfolio is very split in terms of reactions. Some stuff has barely moved (BasicFit) while the real gut punch for my portfolio has been Vistry PLC which is down nearly 50% YTD. To be honestly, I can’t say I’m particularly worried as I outlined in my updating post below. I thought the company was cheap and I think it is still cheap but the macro backdrop and housing downturn means its not exactly a fun prospect to be averaging down something in this sector. The bright side is I don’t think a company could be any more hated and leadership changes are often the catalyst for better things on the horizon. Holding, not buying more… yet.

Vistry PLC Updating Post Q1 26'

Sweden has once again been the ray of sunshine in my portfolio. Both Nordrest (+25%) and Sibek (+18% since purchase) have stared the year strongly, the latter particularly impressive as we are coming off its winter ‘off season.’ My best performer so far however is my lone Japan holding, Asiro. They are up 40% YTD and have bounced back nicely from their wobble last year. Wish I had bought a bit more.

Looking Forward

Looking ahead to the next few years of these companies, I feel comfortable holding them all, except maybe Pinewood as mentioned. Despite a rocky macro outlook, these are businesses that all make money and are profitable with a history of being able to navigate hard economic periods. Churchill China are an example of this. They are a company trading at around 5-6x trough earnings for a business that has survived since 1795. Churchill and Vistry are perhaps the two names most in need of consideration for averaging down with both nearing 50% down positions for me (UK businesses eh).

I am still waiting for the right moment on SaaS names. I still maintain my fascination with OMDA AS which I have wrote about and have been waiting for the right entry for. I may well buy a starter position and see how I feel. I think from my research it is one of the most protected names from AI disruption I have come across, simply due to it’s industry speciality within healthcare and what this comes with. Management mentioned in their last call, which I highly recommended watching, that they are seeing private SaaS valuations fall so they are perhaps seeing more opportunities at attractive valuations. The serial acquirer playbook is just harder to execute in my view than many would have you believe so I want to be sure the company are on the right track before diving in.

I am currently doing the groundwork on buying my first US stock in a long time. As I am still researching it, the name will remain for subs only for now as it is a company under $50 Million MC, but expect a full free article in the next month or so. Keep an eye out for that.

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Hello again. No, this is not an article from 2024. We are once again discussing Vistry following yet another massive share drop off. And I once again feel like the lone cheerleader for this troubled UK builder (Even the yanks have left me now). Rock bottom sentiment and dozens of wounded American investors dumping their shares at 14 year lows. But I am once again asking myself the question, what else can realistically go wrong? Yes, I asked myself this question when I first bought Vistry over a year ago now and have since found out a few more things I was not expecting. But its getting to the point now where Vistry have nearly exhausted every possible blunder and even marginal performance increases could lead to an aggressive rerate. We also have a year ahead of potential catalysts that could break the cycle. In this article we will discuss the immediate outcome of their recent results and how things are likely to play out going forward.

‘I thought you guys hated me?’

I’m going to start with Greg. Especially amongst the UK crowd, Greg Fitzgerald has always been a bit of a divisive figure and his hybrid CEO-Chairman role made a lot of UK folks turn their nose up at him. But the news of his departure, first as CEO, then as chairman in a years time obviously hasn’t helped a business that is in the middle of uncertain times. To be clear, Greg said on the earnings call that this has been planned for a long time and this is simply a case of him wanting to enjoy his time with his wife and not worry about running a business anymore. I understand why some are concerned. If nothing else, Greg is a figure who very much sets the tone for the company and has made them embrace the partnership model that got everyone excited in the first place - the promise of capital light, recession proof returns. But in reality the road has been a lot more bumpy.

But, the year ahead should be a very important one for the partnership model with bidding from partners for funding for affordable home projects scheduled to begin at some point midway through 2026. This is why I am not entirely surprised Greg is staying on for another year to help guide the company through these important developments. Of course, CEO changes bring uncertainty and the worst case scenario for investors is obviously a walking back of the partnership model and a return to traditional building. All the communication from the company has been that they are committed to partnerships and to be honest, even under a new CEO, I can’t see how this would change, especially given the source of this drop was the news that Vistry have cut prices on their prebuilt homes to increase volumes on sales. Builders broadly are struggling to shift homes, so I can’t see how a new CEO would be able to sell this strategy, especially during this downturn for builders. Speaking of, lets talk about those price cuts and forward guidance.

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Volume Up, Margins Down

Here are a few quotes from the earnings release

‘Alongside building momentum into the Spring selling season, the Group’s enhanced focus on driving Open Market sales, will support a reduction in the levels of inventory and improved cash generation in 2026.’

‘The Group has started the year well with its overall year-to-date sales rate at 1.42 sales per site per week (25 March 2025: 0.59). This includes Open Market sales rates over 40% ahead of the same period last year, primarily reflecting the success of the targeted pricing initiatives’

‘The Group expects to deliver good year-on-year revenue and volume growth, and an improvement in adjusted profit before tax in 2026, albeit with a lower overall margin reflecting the incentives offered during the current sales initiative.’

The building sector is obviously in a tough spot with the industry as a whole struggling. Vistry have made the choice to sell on the open market at a discount, to increase sales on lower volume, and they have started this initiative BEFORE the spring selling cycle which is very interesting. The main attraction to the business is obviously the partnership model but this does not eliminate the need to sell on the open market. Greg said in the earnings call that he has been personally calling area managers to discuss this strategy and any reluctance leads to uncomfortable follow up meetings. He also clarified that in areas where selling rates are as expected, discounts have not been enforced. These discounts are also not consistent area to area with some offering more discounts than others. Vistry management repeatedly mentioned in their call that they are building cheaper than any other UK builders which is what is allowing them to push this sales initiative. If the macro situation does have a nasty sting in the tail, then at least this early initiative will get ahead of this.

Perhaps just to clarify for those who are unclear, Vistry building on land they do not own in partnership with organisations like Local Authorities and Councils means that they significantly reduce their costs and increase their ROIC (I can hear to boos). But, they still have to sell homes on these development in the open market. They are essentially building on behalf of the partner in need of homes and in exchange get free use of their land to build homes they can sell for profit. The story is not as simple as, partnership building is the silver bullet. If the market is weak, Vistry is still going to suffer as demands for their homes will drop. But crucially, they will not suffer as much as the more traditional capital intensive builders. Vistry is also placing more focus on pre-sold developments so that they do not have to sell on the open market. This strategy is not without its risks but also carries significant benefits when coupled with the other strengths of the business. For example, for hired workers such as bricklayers, Vistry being able to give them the visibility of a project needing to be completed rather than stop start building is a significant advantage as it helps with day rates as builders are willing to trade cost for regular work.

Affordable Homes, Affordable Growth

The big drive that is supporting Vistry’s ambitions is the shortage of homes in the UK, specifically affordable ones, and the Government’s commitment to address this shortage. Vistry back in September secured a further £50 Million of funding to add to the £200 Million they have already received to support this. Why is this happening?

As a brief refresher, building homes in the UK is annoying. You can’t just buy land and build. You need to go through painful planning processes and in some cases. completely in vain. Addressing the housing shortage through traditional builders will be extremely challenging in most people’s minds and in mine, impossible. The attraction of partnership building to the government is it eliminates many of the barriers that they would otherwise face. Land where council owned homes already exist can be redeveloped into housing and flats that effectively utilise the land and increase the homes in the area.

Vistry are well positioned due to their extensive relationships with various partners to effectively build homes without putting financial strain on these organisations. Local authorities and councils simply do not have the money to develop the land they own through traditional means and are therefore reliant on Vistry to deliver new homes. If the government wants to build homes at a faster pace, the partnership model will be crucial to that drive. This speed also feeds into Vistry having its own timber frame building segment which allows it to build homes significantly faster, but more expensive than traditional means. Timber frame homes are not favoured by competition who have to deal with stop start building and therefore where these increased costs are useless as speed is not a priority. Vistry however, who are selling themselves as the best fit to quickly solve the housing crisis across the country and aiming to pre sell homes, clearly will see a lot more advantages in being able to build developments quickly. This example again illustrates the unique positioning of the business.

I would advise those interested in the company to watch the earnings call for the FY results which has a lot of very helpful information to help understand the model and how they drive growth in the industry through the partnerships they have. Lets quickly go over some things that were mentioned in the call that help contextualise the results.

Earnings Call Learnings

Government Funding - There were a few things mentioned in the call which I found very interesting. The most important to me was the clarification around further grant funding. As mentioned earlier, Vistry have now confirmed they will have received over £250 Million from the government in funding for affordable homes, the maximum allowed as a strategic partner. But management clarified that they are bidding in secure ‘Strategic Plus Partner’ status which would raise the ceiling to £700 million over the course of the next agreement (2026-36). Vistry currently have a market cap of around £1.3 Billion meaning they would receive over half of their market cap in a grant for the government over the next 10 years.

Do you remember the ECIP bank stocks from a few years ago? For those of you not familiar, you can read about the background here. Long story short, the US government basically gave small community banks serving black communities free money which they could then basically use how they pleased. Now, Vistry are not getting their entire market cap in cash here like some of those banks were, but in a similar way to how the ECIP banks could leverage this investment into more returns, a similar dynamic is in play for Vistry. In the same way that ECIP recipients could acquire other ECIP banks, Vistry is also able to benefit from its partners also bidding for funding from the government. This means that there will be projects where Vistry are the recipients of funding and others where it’s partners received this funding. Vistry securing Strategic Partner Plus status would be massive for the business but even this significant increase would understate their actual grant access, due to the partnership model. In terms of the likelihood of this happening, I think Vistry are very well positioned to receive this, once again, due to their model and their ability to build quickly. Management have also mentioned capitalising Linden First so they can begin applying for grant funding unlocking another route for Vistry to obtain partner funding.

ROCE Target

Management are still maintaining their 40% ROCE target but we are currently only at 13.9%. Yes, the market is subdued, but this is not simply a gap made up in volume or a booming house market. They are clear that they need to make significant progress on their WIP and Capital Employed numbers to get to this stage. Yes, grant funding will be a big help. They discussed that under the current proposals, direct grants could provide 40% of site acquisition costs and 35% at the start on site. This is obviously a huge lever to pull on and once again significantly drops the capital requirements of the business for the affordable homes segment. But WIP is something that they need to address. It was mentioned on the call that their high WIP number is quite significantly influenced by London building where developments are mostly blocks of flats (apartment buildings). As you cannot build some of the development and sell them, like you can with homes, apartment buildings need to be fully completed before sales can commence. This means that in London, capital is more tied up than Vistry would like. This stickiness is something they are hoping to address and broadly speaking, the company are focussed on decreasing their capital employed.

I am hoping that we get more clarity on the steps being made to address this in future but it was explicitly mentioned as a focus. Management crucially have not lowered their guidance on their targets for returns on capital.

Conclusion

I think I have dragged this on long enough. But I will just repeat that I would advise you to listen to the call as there is a lot of information packed in. My feeling is that Vistry has fallen flat on its face enough times. The company are not blameless over the last few years and have clearly made mistakes, but at the current valuation, bears are running out of runway before it comes too cheap to not take off. If you compare Vistry to other builders, nobody else is exactly flying high.

The company is trading at around 6.5x 2025 EPS. They provided 1 in 7 affordable homes built in the UK last year with around a 15% market share. Over the current 5 year programme, Vistry got about £50 million a year. This would increase to £70 million a year if they are able to secure upgraded partner status. But, you must remember that Vistry also can take advantage of funding from partners. London alone is due to receive 11.7 Billion of this grant over the next 10 years. If Vistry takes its 15% market share of this grant, it would mean £1,755,000,000 over the course of the next 10 years, or over £175 million a year. Add this to their £70 Million and Vistry gets £245 Million to support its business each year. Now this is by no means perfect maths as Vistry will no doubt use their own funding in many London sites, but it goes to illustrate how even the £700 million grant is understated due to the partnership model. I will say that I do have concerns with regards to how prepared the system is around Vistry to scale up building on this scale. But, if anyone is going to take advantage out of the house builders, its Vistry.

The current homebuilder market is not in a great place, but there are clear catalysts for affordable homes and Vistry is helping to deliver on these targets. Last year, there was the most activity in affordable homes delivery from local authorities for 40 years. With £36 Billion in the pipeline over the next 10 years, I can only see this growing. Still, remain cautious. With macro uncertainty, things can still go wrong and push back the date when all the wheels really start turning. But frankly I think the market reaction is unjustified and has completely ignored the coming catalysts. At 400p, risk reward looks very compelling.

Thank you for reading. If you have any thoughts or questions, feel free to reach out in the comments or on twitter which is in my Bio.

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Macompta are an interesting small French accounting software company. I had an interest in it back when it IPO’d but it got away from me so I lost interest. Now, with the sell off in software, the share price has fallen back to more reasonable levels so I am putting the time in to understand the situation. As always, none of this is financial advice – don’t make financial decisions on the basis of idiots like me on the internet.

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Background

Macompta sell an accounting solution which targets small and medium sized businesses. They sell both monthly and annual subscriptions to users for various uses – Accounting, Invoicing, Fixed Assets, Tax, Payroll and now from 2026 E-Invoicing. I would advise you to read these write ups for some background on the company and to get a baseline understanding of the business.

1. https://www.valueinvestorsclub.com/idea/MACOMPTA.FR/6925546472

2. Below from Yassine (In French)

Yassine'Z

Macompta.fr

Son Histoire…

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2 years ago · 14 likes · Yassine

This write up will be short and focus on events since then. You don’t need much to understand this story in my view.

Developments

Something that has developed nicely since I last looked at the company is pricing. The software prices are the following* (excluding VAT),

Accounting – €17.50 a month

Accounting Simplified – €8 a month

Fixed Assets – €3 a month

Tax Returns – €9.94 a month

Billing – €8.80 a month

Payroll – €24.92 a month

*Prices from https://www.macompta.fr/tarifs

The company have been able to raise prices successfully (you can see this from the prices quoted in the write ups I linked) which is obviously a good sign. But the biggest growth driver is obviously member growth. The backdrop of mandatory use of e invoicing software for French businesses is still very much what makes this situation attractive. As the penetration for accounting software in France increases, even a stable market share would present a long runway for growth.

Results

The above factors resulted in a reported 28.6% growth in revenue last year to just over €4 Million and an operating margin of 19.2% resulting in an operating profit of €744k. Growth has continued in their latest report with the company reporting a sales increase of 29.5% YoY for Q2 (Oct-Dec 25).

In the full year report they disclosed their capitalised development costs of €382k in 24/25, up from €296k in 23/24. Given the pending e invoicing demands, this increase makes sense. As a percentage of revenue, this is 9.399% vs 9.42% in 23/24, making it basically in line with recent years which is good. The company use a fairly standard 5 year depreciation cycle for software development costs.

Looking forward

The company have been growing revenue around 30% a year since 2017. Given this was under ‘normal’ circumstances, the upcoming regulation change means it is likely that at worst, similar growth will continue. In reality, it should accelerate.

Competition is obviously present but my attraction to Macompta is that they are the low cost provider in the space, despite having great margins and high ROIC. Their business is reliant on being the most simple, accessible solution for average people, even without accounting knowledge. If you are familiar with my work on BasicFit, you will know I like these kinds of businesses where consumers get more for less. During a shift in regulation where software is becoming mandated in some sectors, this kind of business stands to benefit hugely from consumers who are forced to use their products even if they do not want to. Having a simple and easy to use solution, in theory, would command loyalty from these reluctant consumers which could become powerful with a mature user base and future price rises. But that is long term thinking. What matters most is Macompta’s solutions work and are popular and well reviewed. Large multinational competitors have also left the market, namely Quickbooks in 2023, showing there is some nuance to this business.

Obviously in theory, this kind of software business is less embedded than say VMS companies but my feeling is that given many in the French market have been hesitant to adopt software for their accounting needs for whatever reason, once they do, they are unlikely to be moving from provider to provider, especially with more complicated functions like e invoicing being onboarded. Yes, there will be churn, but having a simple, cheap and effective platform for consumers is about as good as you are going to get in this area. Competitors are going to struggle to undercut them, as many are already priced higher while offering less features.

Just as another small note, the company are planning an uplisiting at some point during H2 2026 to the Euronext Growth exchange which should see improved liquidity and interest from investors. Buying today presents investors with the opportunity to frontrun this move.

Valuation

Macompta trade at a market cap of around 15.5 million as of writing, with last years earnings putting it at a PE just shy of 20. Yes, not ‘cheap’ on paper, but remember, this is a company that is growing revenue 30% a year, with positive regulation change and that has nearly €1 million on its balance sheet in cash. This means that it trades today at around 18.5x when we subtract cash. So even forgoing traditional SaaS valuation metrics, its not richly valued and growing well.

Along with other SaaS names recently, the valuation has seen a steep decline in recent weeks, going from a share price of €7.20 in December to €5.15 today, presenting an attractive entry point, not far higher than the IPO price a few years ago.

Conclusion

Apologies that this write up is not very in depth, but as I said earlier, I think a lot of what needs to be said about the opportunity already has been. This year, things have got better with the approval from the government for e invoicing and this further secures Macompta’s ability to take advantage of a growing consumer base going forward. The risks here do not seem very high. My primary aim with any investment is to not lose money and given the long history of stable growth, I feel it would be very hard to lose any money holding this for a few years.

Just as a final word of warning, this thing is probably the most illiquid thing I own, or maybe more accurately am trying to own. I currently only own a few shares and it is not a meaningful position, partly due to the amount of time it takes to get shares - I got assigned 2 today from my order. But i’m fine writing it up as there has not been a lack of coverage and clearly most people can’t buy it anyway. All going to plan, I plan to size this meaningfully. I think Macompta perfectly illustrate the sort of opportunity that microcap investors can profit from.

Thank you for your time reading and continued support of the blog :)

Background

Sibek AB are a company who I have been looking at on off for around 8 months. I can’t remember for certain but I think I came across a news article about infrastructure and railway development in Sweden which led me to go looking for related companies. Separately I looked over every recent Swedish IPO and came across Sibek, marrying up my two research enquiries. Below is the submitted write up. For this submission, I received some feedback from members who read it and I will post my responses to this feedback at the end. As always, none of the following should be taken as financial advice and I really am just an idiot on the internet. Enjoy.

Sibek AB

Ticker: SIBEK.ST

Price: 38 SEK

Fully-diluted Shares Outstanding: 10.15 Million

Market Cap: 391 Million SEK

Cash: 40 Million SEK

Summary

Sibek AB’s core business is to provide technical consultancy services for railway signal systems in Sweden. The company were founded in 2007 by 4 railway signal commissioning experts, 2 of which are on the board and the other 2 on the executive committee. In total they make up a large part of their 88% insider ownership. The business is well run, generates mid to high 30s % ROIC, has grown revenue at a CAGR of 19% over the last 3 years and earnings over 15% a year in the same period. The Swedish government is rolling out ERTMS (European Rail Traffic Management System) over the coming decades and they have recently announced a new budget of 45 billion over the next 10 years, significantly increasing government investment in the railway sector. Sibek stands to benefit significantly from this increased investment.

This opportunity exists because Sibek are a tiny Swedish company that is not followed by professional investors and most of the shares outstanding are owned by insiders. This prevents institutional investors, even in Sweden, from owning a significant amount of the company.

Business Segments

Sibek have 3 business units. The largest division is their core Signalling Commissioning business. Sweden has a wide range of signalling technology presently in use, ranging from old 1950s relay signals to modern electronic signalling systems. Each of these signalling systems require different authorisations to be able to work on any changes to these systems - Sibek possess all these authorisations.

The second division is Signal Design. This unit involves Sibek being part of a group of companies that work jointly to win procurements. Sibek uses it’s expertise in signalling to produce what are called ‘Signalling Documents’ which are used as part of a wider construction project. The company has recently announced the establishment of its first team in the railway track field and mention in their IPO document a desire to expand into more services. This would increase their revenue per procurement.

The final and smallest business unit is Project and Construction Management. This unit involves Sibek employees being hired by another company to ensure the compliance of their projects with signalling regulations or provide technical expertise. This is the smallest division.

Advantages and Market Position

Sibek have a number of competitive advantages. The most obvious is that they have the most capable professionals within the Signal Commissioning niche, as this has been the entire company’s focus. In their IPO prospectus, the CEO describes their consultants as the most sought after in the industry. Speaking to IR, they explained that Sibek prefers winning signal commissioning projects that are characterised by complexity rather than scale. This means that their projects are often more short term (as opposed to multiyear projects) but require a very intense period of work and have a higher barrier to entry at they require very advanced signal knowledge. This protects them from competition from smaller companies as they do not have the capability to win these signalling contracts but simultaneously protects them from bigger players who have expanded into other areas of design and engineering in order to win large scale, multi-discipline procurements.

Management have stated to me that Sibek have an equal market share in the signal commissioning segment, with Sweco, a listed competitor, having an equal market share. Sweco are not signalling specialists like Sibek and are a much larger company. They are involved in other elements of projects including architecture and engineering consulting all across Europe. This means that despite their equal market share in signal commissioning, Sweco have an advantage in large scale projects which involve many elements of design outside of railway signals. This different focus between the two companies highlights their respective advantages and what has allowed them to coexist and maintain this niche duopoly.

Catalysts

The Swedish Transport Administration announced in September that they has approved a ‘historically large investment’ of €45 billion over the next 10 years, as a result of the ERTMS roll out. This investment will significantly benefit those in the railway industry, and my research suggests that this will be a massive tailwind for Sibek. The company have been clear that there is more than enough business available as a result of this development and there is in fact a shortage of professionals in the space. This supply-demand dynamic should prove to significantly increase Sibek’s earnings which have already been growing at a rate of 15% a year over the last 3 years. The company have also communicated a willingness to acquire a company to expand their services beyond signalling, which they have already done organically in their track services expansion.

Competition

Sibek and Sweco enjoy a kind of micro duopoly in the tiny niche of signal commissioning, followed by a number of smaller competitors. I must reiterate that this is extremely unusual given Sweco have a market cap some 130x larger than Sibek. Despite their massive size and knowledge across areas, clearly this has not eroded Sibek’s market share in the 11 years that Sweco have been competing with them. My view is that this is due to a number of factors including Sibek’s superior knowledge in this niche and also a superior company culture. Part of my reasoning for this is that Sweco acquired their signal commissioning division from the Swedish Government back in 2013 as opposed to Sibek which was started by founders who are still involved in the business. One member of management phrased it this way – ‘Sibek was founded by highly competent people working with commissioning and naturally this attracts other competent people in the same field.’ It is logical to think Sibek’s founders operate the company with their learnings from their time involved with the Swedish government when commissioning was handled internally.

Valuation

Sibek has experienced a sell off from its highs of 54 SEK in September as is currently trading in the 36-39 SEK range. At this price, the stock trades at a PE of around 16.5 and an EV/EBITDA of around 12.5 – thanks to its healthy cash pile of around 40 Million SEK and no debt. Given their high returns on capital and the tailwinds of increasing investment from the STA, I don’t see this valuation as expensive when considering future growth and the additional certainty provided by the approved railway budget over the coming years.

Risks

Customer concentration is by far the biggest risk. Sibek are heavily reliant on the Swedish Transport Commission who own and operate Sweden’s railway planning and development. Over 50% of their revenue comes from them, with a further 12% being from the ‘Stockholm Region’ who manage the railways in and around the capital. The STC’s huge commitment to investment and ERTMS development in the coming years provides a large amount of visibility for demand of their services. In addition to this, management have communicated to me that there is a surplus of work which will likely mean all providers in the space are operating at high capacity over the long term. Customers concentration is therefore a valid concern, but one that is partially offset by a strong commitment from the government.

An additional risk would be bad execution of M&A. As mentioned, Sibek are a company who have grown entirely organically and therefore do not have extensive expertise in M&A. The positive spin would be that management have a very high hurdle rate and this has not been met by potential acquisitions thus far.

Conclusion

Sibek’s present valuation does not reflect the growth runway ahead of the company and does not consider the excellent management track record and business quality. The previous railway maintenance and expansion budget was 11.5 Billion from 2018-2029. The new budget is nearly 4x as large. It seems virtually impossible that a well managed company like Sibek, operating in a sector with a shortage of qualified staff and a surplus of demand, will not significantly increase their earnings in the coming years.

Full Write Up

This write up is a summary of a full research report I did on Sibek which remains behind a paywall which goes more in depth into the business.

Feedback points

I received the following points of feedback on the write up. Some of these are spoken about in my full article and a lot of this is simply me trying to edit down the thesis and removing things that might have been useful to people who know nothing about the company.

"I’d appreciate a bit more on the underlying business economics, as the model appears very people-/capacity-driven. In particular, what would actually drive margin expansion here? Putting numbers around the key drivers (headcount, utilization, billing rates, wage inflation vs. pricing power) would make the earnings power easier to assess.

One point I will touch on here is that Sibek have inflation linked contracts. This means that contracts are adjusted once yearly to reflect increases in costs for the company, an extremely attractive trait. The company have increased headcount with their new track division and margin expansion would be directly linked to an increase in how much value they could capture with new commissioning projects. Historically they have only focussed on signal commissioning.

”It would also be great to include a brief free cash flow view. For an asset-light consulting model, I’d typically expect strong cash conversion.”

Net income for the last 3 years was 12.01M SEK in 2022, 16.54M SEK in 2023 and 20.75M SEK in 2024. This compares with FCF figures of 6.84M SEK, 12.90M SEK and 23.23M SEK. Please be aware that due to seasonal cyclicality, TTM numbers are not accurate.

”One more angle: capital allocation. With limited reinvestment needs, do they expect to return most excess cash (dividends/buybacks), or is M&A a potential lever (e.g., consolidating to expand capabilities or attract/retain scarce talent)?"

From the company website - ‘We see opportunities to acquire other companies such as other technical consultants in our industry and have had discussions with various parties without coming to a deal. We continue to look for potential acquisitions going forward, but do not see this as our primary strategy for growth.’ If you scan over Linkedin, you will notice that Sibek retain talent while many competitors have much higher turnover.

Buybacks at this market cap and this liquidity are not reasonable. Dividend’s have consistently been paid to shareholders

Conclusion

I hope you enjoyed this write up. I am really enjoying writing this series and feel it is helping me improve my writing and thought process. Sibek is a significant but not outsized position for me. Due to us waiting for the results of a winter quarter, I am holding off buying more but if the stock drops following this, I would happily buy more heading into spring when things ramp up. If you have any questions, feel free to reach out in the comments or via twitter. Many thanks for the continued support on this series.

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2025 has been an interesting year for me. I consider this my 3rd full year of serious investing and I feel I have learned more this year than in any prior. In this article I will review the successes and failures of the past year and how I am thinking going into 2026. Enjoy!

I have already done a post on Twitter reviewing my performance (+20.24% YTD) and touching on Nordrest, (expanded below) Churchill China PLC, my biggest percentage loss and BasicFit, my current biggest position following a big end of year rally.

My First Double in 1 Year

Those of you who have followed me since last year will know from last years performance disclosure that I got pretty lucky with Sofi rising a 144% during the year. This short term trade was a big boost to my gains last year but I really don’t take much credit for it as it was, in my mind, a trade that over performed rather than a long term investment I did a lot of work on. This is highlighted by the fact I sold Sofi last year around the $14 dollar mark and they have traded as high as $32 this year. I won’t dwell on this omission as frankly I have not looked back at the company since selling and could not tell you what I think they should be worth today.

This year, I achieved what I would classify as my first real 1 year double, with my investment into Nordrest AB resulting in a gain of over 100%. I wrote up Nordrest early this year on another blog. The thesis was pretty straightforward. Management are good and the CEO bought the stake of a retiring executive shortly after the IPO despite already having a very large ownership in the business. The company generate high ROIC and have a business model in the foodservice sector that cannot be easily replicated by the global giants in the space, which has resulted in excellent customer feedback and far higher than average retention rates. And lastly the MRE business was being treated by the market as a temporary boost which would fizzle out once the Russia-Ukraine crisis settled down. My research resulted in my concluding that Nordrest’s MRE business had a very high likelihood of having grown its underlying market share and therefore any reduction in short term demand would be at least partially offset by increased demand.

Surely enough, this year Nordrest’s MRE subsidiary, OutMeals, moved into a new facility to meet demand and the company acquired a large stake in Orifo, a Danish company who sell food products with a long shelf life such as energy bars or powder drinks which are found not only in OutMeals’s MRE offerings but also in that of many competitors. They paid 4x OP for their 40% stake and have the options to purchase the entire company at a later date for set multiples. Alongside these developments, the company reported continued good results and are growing well across the business which has led to more discovery of the business.

Unfortunately my only regret here is position sizing. I wish I had bought 3x what I did. Holding the company has been a great lesson in understanding that you buy companies for the future and not for the past. You basically could have bought Nordrest at any point this year and made money.

Biggest Mistake (But I’m not worried)

This year I bought into a small Italian company named Litix SpA which I have written about extensively. Thanks to both other big positions rising, and the bad year for the company, it no longer holds this title. I am down around 36% on the position this year. I do not regret buying into Litix but I do regret my position sizing. I took an unnecessary risk by trying to play their earnings and sized the position assuming the market would be surprised by increased hardware sales and I could make a quick buck before reducing my position to a more reasonable percentage of my portfolio. What transpired instead was a reduction in earnings with continued headwinds as a result of a more cautious customer environment. Trump Tariffs also were not helpful.

Despite these issues, I still am happy holding the company in the portfolio and am excited about the coming year. Litix announced their first Robot sale into India which was announced shortly after the Marmomac conference in Italy which was attended by many industry representatives globally. Despite the disappointing year performance of the stock, I have grown more and more comfortable with the business and gained an increased appreciation for the resilience of the Torart division of the business. Despite Trump Tarrifs and a rocky economic environment which clearly affected the Robotor division, Torart remained very resilient, down slightly on the previous year’s trading (€1.25m Revenue vs €1.4 Million in 2024). Something I spoke about in my original write up - that Italy is still very much the centre of the stonework industry - is proving to be true in practice. Despite this resilience, It is worth remembering that this is a business that works with expensive and imperfect materials, involves delivery across continents and projects are expensive and can be subject to delays. This does mean that you must account for projects being pushed back which can skew results. The positive side of things is that Litix do have some degree of leverage here to renegotiate terms on projects if there are delays and since I have been invested, there is precedent for this being done.

I would say there have been 2 big takeaways from my investment into Litix so far.

1) The obvious, don’t try to guess short term earnings moves, especially not in companies with a total market cap under €10 Million. The market WILL kick you in the balls. I will not be trying a move like this again anytime soon. I think I would still buy Litix again, but I would not buy such a large position. Under these circumstances, I would have the option to average down without creating and uncomfortably large position.

2) When you are buying companies this tiny, you have to get comfortable with business volatility. Note, I am not talking about price volatility here, even stable businesses can experience short term and sudden changes in how the market perceives them. What I am talking about here is when a business is so small that even seemingly small changes have a massive impact on their performance. I was very aware of this during my original write up. As I explained, Litix had sold single digit units of their Robotor robots last year. Even a small reduction in this amount would have a big impact on trading. Couple this with investments being made into other areas of the business, and the earnings profile of the business can change drastically in a very short period of time. I am comfortable with this fact, partly as it works both ways. But it’s something you must be prepared for when investing in businesses, especially those trying to grow. The path is not linear and you will probably have a bumpy ride, even if things work out eventually.

I will continue to hold Litix and look forward to their full year results. These will probably release some time at the end of March/April. Management communicated an expectation of a quick recovery in the business in their last earnings release so we will see if that plays out. We are also expecting further developments for the OR-OS software rollout which will be sold on a yearly subscription basis, another big positive. The pilot has been completed and testing has been done on third party CNC machines in preparation for a broader rollout. Traction from third parties would be tremendously accretive to earnings. Litix has been building out its international network and is working with partners to train them on their products and handle sales and installation. I am pleased a capital light approach is being taken but obviously we won’t know how successful this sales and after sales service network will be until we see results. This year seems pivotal in knowing if the company are able to deliver on their promise.

Young Investors Should be Fully Invested

For large parts of this year, as in years prior, I was basically fully invested. It will forever be a debate between investors if you should hold cash or not and if so how much. I am not here to change your mind or convince you which path to take. What I have learned however, particularly for younger investors, is that being fully invested can be a massive protection to making bad decisions as it significantly raises the bar for buying new positions.

Over the past year, I have dodged many bullets, simply as a result of not having the cash on hand to make those mistakes. Situations like Intellego which many less experienced investors like myself piled in on, were pretty quick avoids for me, mainly because I would have to sell something I already liked to buy it, reducing my interest in researching the company deeply in the first place. In addition to this, I am someone who is terrified of hype. If a ticker gets a lot of mentions, I will nearly always avoid it. This is not a skill or an attribute, but simply a reflection of one of my limitations as an investor. I prefer to own something that is never mentioned rather than something that is frequently mentioned.

This along with my preference for larger positions and being fully invested has helped me with avoiding mistakes of buying hyped stocks. I will certainly miss good opportunities as a result of this bias, but I am willing to bet it will be a net positive, especially early in my investing career.

Other Portfolio Names

My Portfolio currently sits at 10 names. In no particular order

Nordrest AB, Litix SpA, Churchill China PLC, BasicFit, Pinewood Technologies, DSW Capital, Asiro Inc, Vistry PLC, Azeus Systems Holdings and one undisclosed Swedish name that I have written about previously but due to the size of the company, remains behind a paywall.

Just to briefly touch on the names I have not already spoken about, starting with Pinewood Technologies, a dealership management SaaS company . Unfortunately this one did a round trip this year and is basically flat on the year. I owned this before it spun off from Pendragon so am allowing the story to play out and will evaluate it in 2-3 years. It does not take up much of my brain power. If you would like to understand the company, I would advise watching their CMDs which you can find on YouTube. The short story is that DMS is crap and old and Pinewood offer something young and fresh which gives dealers useable and actionable data. Since splitting off from Pendragon, they have announced a steady flow of previously rival dealership groups who have adopted their software and have had VW Group Japan onboarded as a new major OEM client. Pinewood also purchased their entire JV agreement with Lithia Motors this year, removing conflicts with potential rival US dealership clients. The company now trades OTC in the states and simply listing officially in the States will cause a partial rerating in my view. The main risk is a delayed or unsuccessful US rollout with Lithia.

DSW Capital I have owned for some time. There were some green shoots this year and I am hopeful the business is finally moving in the right direction. They acquired a specialist legal firm, DR Solicitors, this year, which has contributed significantly to results. I will continue to hold. Azeus and Vistry I won’t comment on too much as you can find plenty online on both companies. I will say that I bough into Azeus on the uptrend earlier this year and will probably average down at some point. I bought a small position in the knowledge it was running a little hot. It does not seem expensive and the company has executed well. Plus, people a lot smarter than me own it.

Speaking of, this is part of the reason I bought a position in Asiro. Asiro is my first Japanese stock and likely won’t be joined by another. I had first heard of Asiro via Tristan Waine. I added it to my watchlist but did not do much with it. Then, a couple things changed. Firstly, the stock is in a sharp downturn following its last earnings release, on news that most holders I spoke to, saw as temporary headwinds affecting the company. Secondly, I was reminded of an interview I watched a few months back where Jason Hirschman of Hudson215 Capital was asked his thoughts on Japan and some of the opportunities there. He made mention of tracking divorce statistics in Japan - which historically have been very low - as part of research into a legal website business. I did not think much of it at the time but on seeing Asiro mentioned on Twitter recently, it reminded me of the company. Much like identifying Litix SpA from a small vague mention by Dave Waters back in 2024, I suddenly realised that the legal platform Jason had been referring to was indeed Asiro’s Ben Navi platform of legal sites. This prompted me to do some reading and take a (currently) small position in the business. Both Tristan and Jason are investors which I have a tremendous amount of respect for and therefore the crossover in their portfolio’s compelled me to dig deeper.

Conclusion

Once again I would like to thank those of you who have subbed both paid and free over the course of this year. My articles will continue to be free where possible. I personally do not pay for paid articles so do not expect my audience to either (no hate to paid newsletters). Rest assured that anything that is paid will most likely eventually be discussed at some point down the road.

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For 2026 I expect that I will continue to do a lot of work in the Nordics. I have recently been reading up on several niche/unique construction sector businesses which have interesting set ups for the year ahead. The Swedish government in particular are spending a lot of money on infrastructure and energy developments so I would be taking a look at companies exposed to this trend. If you have names you like in this area, I would like to hear from you.

Finally, I would like to confirm that I still remain just an idiot on the internet, even if I have had a good year in the markets. It’s important to not believe your own hype and not get complacent. I have much to learn and much to work on.

P.S Pls Nvidia don’t blow up in 2026, I would like another positive year pls

Over the last few months I have been focussing on the Nordics and more often than not, Swedish names. During my research, I came across a illiquid microcap company with a market cap of around $50 Million with interesting set of circumstances. Firstly, they went public recently but had no need to raise capital, with a long history of growth that is entirely organic. Secondly, the Swedish government has recently announced a 45 Billion Euro investment commitment into their industry over the next 15 years. And lastly but most interestingly to me, they list their largest competitor as one of Sweden’s top 40 biggest companies who are over 130x their size. Despite this difference in size, they have equal market share to them in the niche they operate in. Very curious indeed. Last year they posted gross margins of 78% and operating margins of over 16% and their ROIC has consistently been above 34%, getting above 40% in 2024. What follows is a slightly more raw write up style of 4000 words which includes my own line of questioning as I read through the company reports and spoke to management. Hopefully you find it useful. Unfortunately due to it’s small size and illiquidity, this will be a paid write up. I may well write this up in future for free subscribers but not anytime soon. As always, none of this is financial advice.

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Once again, I sincerely apologise for these puns. I really cannot stop. Getting back on track, Omda AS are a Norwegian software company who follow a well explored playbook with similar aims to Constellation Software. Omda acquire small software companies with the aim of integrating them into their existing business of low churn, high quality healthcare clients. These software companies generally are barely profitable or in some cases unprofitable and Omda acquire them with the aim of stripping back costs and embedding themselves in their customers operations to increase their EBITDA margins in line with the groups aim of 25-30%. This builds on the long-term relationships that these software companies cultivate with healthcare organisations, which results in high switching costs for their clients, both economic and operational. Service critical software means a desire to avoid any disruption to their operations which could result in needless deaths. This makes Omda’s strategy on paper very interesting. The issue however has been that Omda have struggled to acquire businesses over the last few years and due to their high interest payments, have had their earnings wiped out for another financial year.

So is it worth investing in or just a nice sounding story with little substance? The following write up will discuss the company’s operations, management and its competitive advantages based on my initial work done over the last few months. As usual, I am an idiot on the internet. Please do not read on if you are in search of financial advice as you will find none of that here.

Company History

Omda AS were founded in 1999 as CSAM (Clinical Systems All Managed) following the move of Oslo’s leading specialist hospital into a brand new building. As part of this move CSAM were founded to create a software solution which could integrate many of the functions of hospital management into one solution. This software was called Clinical Portal. The company spun out as a separate entity in 2005, initially being owned by the hospital’s research wing. Due to a lack of resources, CSAM struggled to grow. Over the following years the company attracted outside investment but nearly folded in 2008 following the financial crisis which resulted in the loss of a major contract. Quite remarkably however, the company who they lost the contract to went under before they did and CSAM were able to regain the contract, keeping them afloat. This event seems to have significantly influenced the operation of the company in the years since.

The company rebranded to Omda following their listing and began to embrace a more decentralised strategy to boost efficiency in a CSU fashion. The company we see today is the result of years of acquisitions and relationships built up in the healthcare industry. It is important to note that despite their negative operating profits, this is not a new company. Omda have 25 years of scars to show for their efforts, and very nearly died for its struggles.

Business Units

Omda split their business into the following areas,

Emergency: Omda Emergency optimizes workflows and resource allocation for emergency response teams, ensuring efficient and safe operations. It supports seamless information sharing among emergency call centre operators, dispatchers, first responders, and emergency room doctors.

Connected Imaging: Omda Connected Imaging provides secure systems for capturing, storing, sharing, and archiving medical images, supporting both legacy formats and the latest digital innovations. It facilitates mobile image management and secure, high-volume transfers for medical organisations of all sizes.

Laboratory Information Management Systems (LIMS): Omda’s LIMS offers comprehensive traceability for blood, cell, and tissue management, used by various laboratories and blood centres. Trusted by over 180 blood centres in five countries, it ensures full ISBT 128 support.

Medication Management: Omda’s oncology solution ensures safe and effective medication management for cancer patients, integrating support for all cancer types and medications. It enables seamless information flow between prescribers, pharmacies, and nurses.

Health Analytics: Omda’s secure software allows clinical researchers and professionals to gather and analyse medical data efficiently. This facilitates breakthrough innovations in medical practice and scientific research.

Woman & Child: Omda’s maternity solutions enable secure sharing of key medical information during pregnancy, childbirth, and infancy, improving risk assessment and management. They also engage expectant mothers in their health and include a complete system for modern fertility clinics.

Business

Omda’s business in short, is designing software solutions for the medical field and acquiring smaller solutions, supporting them to scale with access to Omda’s network of existing relationships and removing the burdens of operating as a separate entity.

It would be good to consider some examples of Omda’s offerings more deeply to get an idea of the specifics of the software they offer and the advantages of their model. Lets consider their Emergency Services segment in more depth.

The company’s solutions in this area cover everything from planning and resource allocation to dispatch and in-vehicle navigation. This means that instead of being a small part of the process for emergency services, they are basically an end to end solution. Logically, this creates a barrier to disruption, as to replace Omda’s services, a competing company must not only offer resource allocation solutions, but also everything else that Omda does. It also creates a barrier to entry as paramedics and other emergency services staff become familiar with these programs and learn to use them efficiently, making moving off them potentially very disruptive to key services. It is far easier to sell a fully featured software program to a hospital compared with a single use software application which would require several other software solutions to be integrated together. Given hospitals limited resources, the idea of Omda’s solution would be appealing and once they are embedded, it would be hard to leave unless there were serious issues with their software. If a large client expressed a desire for a new feature to be added to the software, it would be easier for them if Omda developed this or acquired another software company to add this to their existing software, lessening disruption. Given Omda’s group churn being around 2%, the numbers suggest that the company don’t have issues with the quality of their software and are deeply embedded within customers operations.

Within the ‘Emergency’ segment Omda provide the following solutions,

Omda Readiness – A simulation software which allows emergency response teams to model operational decisions in order to assess outcomes and impacts before rolling these out in real world situations. This allows teams to better plan for high pressure situations and supports these services to avoid costly mistakes. The software enables ‘data-driven decision-making, helps organisations justify their strategies, make convincing, evidence-based arguments for improved funding arrangements, and test changes to employee shift policies, enabling ways of working that benefit staff well-being.’ These are benefits that would be very hard for an emergency services team to go without, especially once their key decision making becomes more reliant on data. In the past, these teams would have no ways of testing new ways of working but now they have the benefit of in-depth modelling and the ability to learn from historical data to improve their performance.

Omda Incident – ‘Enables emergency medical service providers to handle emergency calls effectively and coordinate all aspects of the response.’ The software combines call management and allows the call handler to have access to information needed to make appropriate decisions. I would argue this is perhaps the least specialised element of the emergency services segment, but it is logical to assume that Omda’s Incident offering feeds data into its other platforms, further aiding in decision making, highlighting the benefits of adopting all their services rather than one aspect.

Omda Response – This is the actual in-vehicle element of their software. It includes a navigation component, an Electronic Medical Record component with workflow and documentation support, and a response management component. Once again, leaning on their low churn statistics, this software is clearly doing what it needs to.

https://omda.com/solutions/emergency/ - The company’s website provides in depth breakdowns of each of these segments including individual software features.

As you can see, the hallmark of Omda’s solutions is their completeness and the trust they build with the professionals that use them. The company also provides case studies on their website from emergency service teams around the world including in New Zealand and NHS Wales, breaking down the benefits of adopting Omda’s Emergency offerings. Naturally, the good reputation gained from working with one element of medical services supports in winning new business in other teams of the hospital. Lets consider a second area.

Omda’s Connected Imaging segment is the densest segment with 7 separate software offerings advertised on their website. These are MediaLab, Dermicus, Radiology, ECG, Health Connect, Archive and Wellme. The company state the following on their website, ‘Omda Connected Imaging offers a secure end-to-end system for all types of medical images – capturing, storing, sharing and archiving – with capabilities for legacy formats as well as the latest digital image innovations. These software solutions are trusted by medical organisations of all sizes – from small clinics to large regional and national imaging networks. Their innovative feature set reflects the modern workflows of health professionals, including mobile image management and secure, high-volume transfers. Additionally, Omda offers a range of solutions for patient data to be securely shared by healthcare professionals collaborating across different departments and organisations, as well as with patients. Omda’s application infrastructure and security components empower clients to implement complex, customised intra- and inter-hospital workflows.’

When Omda acquire a company, they look to renegotiate the company’s contract with the client to bring it in line with their target margins. Omda do NOT however, raise prices for their existing customers, as in most markets, this triggers a tendering process. What they instead do is grow through cross selling their other software offerings to existing customers. There is obviously a argument to be had here with regards to churn vs increased pricing and the benefits and drawbacks of both. Omda clearly value the stability they have and the long term customer relationships that their approach promotes.

Numbers and Valuation

I wont spend too much time going over the numbers here and will leave you to make your own judgments. Over the last 5 years, Omda have posted EBITDA of 57M, 40M, 14M, 61M and finally last year 62M Kr. This puts them at around 15x EBITDA. Their EV/EBITDA is obviously higher as a result of their leverage and with interest payments being so high due to this leverage, EBITDA is not the best judge for profitability. Interest expenses alone last year wiped out all their EBITDA. This is something you have to be aware of when trying to value the company. They key here is that they are getting close to positive net income on a FY basis. 2 of the last 4 quarters resulted in positive net income, with a total of +17.85M, balanced against the other 2 quarters where they posted negative net income of just under 36M. Below is a quote from the Q1 Earnings release.

‘The organic business trajectory points towards revenue of NOK 0.5 billion by the end of 2025, coupled with a 25-35% EBITDA-margin in the second half of the year. With profitability in place, it is time to focus on growth. Since the IPO, the company has more than doubled its revenue. The next step is simply to double income once more. Achieving NOK 1 billion in revenue while maintaining less than 2% churn requires smart, highly specialised acquisitions and strong loyalty to Omda’s organic growth model.’

They make it sound so easy.

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Closing Thoughts

I have made contact with one of the managers at the company who is based here in the UK. I would like to find out a bit more about how a company like Omda are negotiating the current healthcare environment. Here in the UK, the NHS are under increasing pressure to boost productivity while simultaneously reducing their headcount. The only logical way to do this is through increased utilisation of software to increase their ability to prioritise and make data based decisions, as well as save valuable time.

On my initial reading and research, Omda seems to be getting very close to a tipping point where net income turns positive and stays there. They also want to resume their acquisitions which have slowed over the last few years and management are clear that this is a key part of them reaching 1B NOK in revenue. The low churn and high reoccurring revenue (79%) nature of the business means that leverage is a logical way to boost returns for the company. The key is understanding how they plan to continue to grow with their existing customers and how successful their future acquisitions will be. I will continue following this one closely over the coming months and hopefully touch base with some people at the company to get a bit more clarity on how they think about the future. I do not see it as an obvious buy by any means but it is certainly an interesting proposition to invest in service critical software used across Europe’s healthcare industries. This name will require a lot of effort over an extended period of time to understand their growth drivers. I am satisfied through my research that they certainly do have a competitive advantages due to both high barriers to entry and network effects as a result of their extensive software offerings and cross selling. This is further suggested by the fact they have never had a drop in revenue since 2017, in fact having grown from 99M to 424M last year. I will be following this one closely over the coming months. If you have any insights and questions on the company, I would like to hear from you.

As always, none of this should be taken as financial advice. I am an idiot on the internet.

Lyckegard Group have come across my radar as quite a strange little company with a market cap of around £10 Million, trading in Sweden, The company is undergoing a kind of transition after divesting from one of their larger business units and focussing on its irrigation business which covers both agricultural and recreational uses such as golf course irrigation solutions. Due to increasing temperatures in Europe over recent years, there is a possibility for demand for Lyckegard’s solutions to increase. The company say that around 3% of Swedish agriculture uses irrigation solutions at present which is highly likely to need to increase in the coming years. In addition to this, the company highlight that many of Sweden’s golf courses were built in the late 80s – 90s and many of their irrigation solutions need updating.

The company have significant market share in their native Sweden with 30% in Agricultural Irrigation, 60% in Golf Irrigation, 40% in Green Spaces Irrigation and 50% in Golf Course Equipment. These are all areas I expect to grow over the coming years, so having strong market presence in each of these areas alone makes the company interesting. Their aim is to become the largest player in the entire Nordics. Obviously they will face more barriers while expanding so it will be important to understand what these are. Here are some quotes from the company’s website regarding their market and future opportunities,

Irrigation – a key to profitable agriculture

With climate change and increased risk of drought, irrigation is becoming crucial for the future of agriculture. There are approximately 64,000 farms in Sweden, but only 3% of the agricultural area uses irrigation today – which creates enormous growth potential.

• For many years, the irrigation market has been stagnant, but recently it has expanded significantly.

• The Swedish irrigation market in agriculture is currently estimated at approximately SEK 150 million per year, with demand increasing rapidly.

• The Nordic market for agricultural irrigation is estimated to amount to SEK 500 million with an estimated growth rate of 14.5%.

Growing need for green spaces and sustainable solutions

The demand for sustainable, green spaces is increasing, which places demands on energy-efficient and water-smart irrigation systems.

• Green spaces in cities absorb carbon dioxide, produce oxygen and lower the average temperature, making them important for sustainable urban development.

• The Swedish irrigation market for green spaces is estimated at approximately SEK 150 million per year, and the need continues to grow.

• The global market for automatic irrigation is SEK 61 billion with an expected growth rate of 17% by 2036.

• The Nordic market is estimated at SEK 300 million with a double-digit annual growth rate.

Major maintenance needs in golf

Sweden has 660 golf courses, which corresponds to 48% of all golf courses in the Nordic region and approximately 7% of golf courses in Europe. Many of these facilities are over 30 years old and have a large backlog of maintenance and modernization needs.

• Many golf courses need new, efficient pumping stations and control systems to optimize water consumption.

• The Swedish irrigation market in golf is estimated at approximately SEK 75 million per year, with increasing investment needs.

• The Nordic market for golf course irrigation is worth approximately SEK 150 million and is expected to grow by 10% annually.

This is an excerpt from a study I found during my research done by Hal Science on Sweden’s possible changing climate and the impact agriculture,

‘The results in the present study showed that the overall need for irrigation was highest in the beginning of the season and that irrigation seemed to influence yield most in the driest years. However, the number and intensity of summer drought episodes in Sweden have been increasing in the past decade, and this is expected to continue over the next century. Unless part of this problem can somehow be avoided by a shift in sowing date, there is a strong probability of yield losses. Sweden is currently less than 50% self-sufficient in crop production and a discussion on food strategies is ongoing. Irrigation could reduce Sweden’s dependence on the international market for crop supplies during particularly dry years.’

The Russia-Ukraine Crisis has highlighted to many European nations the need for agricultural security due to many having a reliance on Ukraine for grain production. This, combined with global warming concerns could significantly increase the market for irrigation in the Nordics.

Management

Ok, so I think there is a strong basis here. We have an industry leader in a small niche that is growing. The next steps are to evaluate the management and see if they are in a position to capture this opportunity. The divestment of the Seed and Soil unit is a positive sign, as it shows that the company understand they need to invest in their best chance of making good returns. What else do we know about them?

Well, there has been a lot of insider buying this year. Insiders were buying as recently as a price of 1.91 Kr. The share price has been extremely volatile over the last year, not exactly surprising for a small float, micro cap company – but even within these expectations, massive upswings and drawdowns do raise concerns with regards to the shareholder base. Regardless of this however, the business itself is what I am more interested in and I will happily buy a volatile stock if I like the business’ long term prospects.

The company’s current CEO is Kent Stenberg who was appointed in early 2024. Prior to this, the groups CFO was their acting CEO, a position he has now returned to. Kent was previously the Business Manager for the Water and Outdoor segment, so it made sense following the divestment from the Soil segment, to appoint him. Kent obviously has extensive knowledge of the irrigation and agricultural markets, having focussed completely on this area in his previous role, during which Lyckegard had a dominant market share. The obvious concern is that he is a first time CEO of a public company, so is relatively unproven. I made contact with the CFO recently and asked him a few questions and get more of an understanding of the business. Here are my questions and his answers.

1. The company announced in the last earnings release that they are planning to expand into Norway. What was the thought process behind this being the next logical step in the Nordics and how does the competitive environment compare?

Response – The board has made the statement that Lyckegard should be the leading irrigation company in the Nordics. We are already market leaders in Sweden by far and when studying the other Nordic countries, we found that the Norwegian market has limited competition both in the golf market and also the agricultural market. We already have Norwegian partners we cooperate with and we think going to the Norwegian market will be a smaller step to take the Danish or Finish market.

2. With regards to demand cycles, what factors affects demand for the company's products? Is there seasonal demand etc? Is demand stable?

Response - The biggest factor that drives the demand for our products and services are the weather. The farmers need to water their crop, buying our products will ensure that they can do this no matter the weather. There is a lot of focus right now of a country’s degree of self-sufficiency and to increase that degree the area that is irrigated will need to increase substantially (aligns with what I found in my own research). We also manufacture pumping stations and those are needed to pump water from ponds etc into the pipes and then pushed out in the irrigation system, these pumps can also be used as emergency pumps in the case of a crises etc. Looking at the golf courses in Sweden most of them was established between 1985 and 1992 and the irrigation system on these courses needs to be upgraded and we experience a lot of requests from courses across the country. To finish this topic; yes, there are seasonal demand – the period from March-June we experience a peek in our turnover.

3. The company have issued shares in recent years which is something I am generally weary of. Can you speak about if you expect continued issuance and the factors you consider when making these decisions?

Looking back, we have issued shares when acquiring other companies (Östorps Bevattning and KSAB (including Sydsvensk Bevattning)). In March 2024 we sold our unprofitable business area Soil & Seed and after this we needed to strengthen our balance sheet and issued shares in the summer of 2024. Early this year we issued 10 million shares to a Swedish investment firm who sees the potential in our business segment. The group now consists of three historically profitable companies, all with a positive cashflow and I see no reason why this should not continue in the future.

4. Can you explain a bit more about the dynamics of the licensing agreements and why international players do not sell directly in your markets? Is this likely to continue and what advantages do you have?

We have the exclusive right to sell a handful of our supplier’s products in the Swedish market and some cases the Nordic market. If our competitors want to sell the product in the Swedish market, they need to source the products through us. I am talking about international brands like Rainbird, Hunter, Bauer, Fasterholt etc. In many cases building a sales organization by themselves is costly and they rather cooperate with companies like us, who knows the local market. We are by far the largest company in Sweden doing irrigation and in some cases the only one who can carry out bigger jobs, for example renovate an 18-hole golf course.

5. Do Lyckegard do any after sales services such as maintenance for the solutions they install? How important is the advisory stage speaking to clients with regards to what is best for them?

Yes, we do after sale services, for example private persons who buys irrigation system. We start it up every spring and close the system every autumn. We also offer maintenance programs for gardens, football fields, parks etc, and of course service to our golf courses. The advisory stage is an important step where we have the possibility to affect the customer in a way that will serve both them and us in a sustainable way. We cooperate with a wide variety of companies in the Swedish market in order to be able to offer the best and smartest equipment for the customer, for example Naturvårdsingenjörerna (https://www.naturvard.nu/) which is a company that works with water and environmental issues which our customer uses when they are prospecting a pond in order to “harvest” water. NI meets the customers in an early stage and together with them we can customize a solution for the customer using our equipment.

My Comments - These responses from the CFO were useful in me better understanding the business. The business is obviously partly cyclical as it is reliant on the weather, but trends are pointing to hotter and hotter Scandinavian summers, making the underlying demand for irrigation increase which offsets this risk for me. The rest is pretty self explanatory. The company seem nicely positioned, face limited competition in their current markets and have the additional advantage of marketing the products of international players in Sweden with a seemingly assured path for continued growth if summer temperatures continue to be at elevated levels.

On the negative side, despite management viewing Norwegian expansion as an easier move, it is worth remembering that the further north you go, the less likely irrigation solutions are to experience this demand increase, so things become more uncertain. They are also entering a new market for the first time officially and despite their experience selling in Norway previously, expansion is not guaranteed to work out so caution is advised.

Closing Thoughts

Due to the aforementioned business transition, previous years reports are not as useful as they would normally be. Their last report for H1 2025 gives some updates and insights on the performance of the business since its reorganisation. Revenue increased to 120,000,000 SEK from 114k the previous period last year. Most importantly EBITDA has increased from nearly negative 1,000,000 SEK to positive 15,700,000 SEK.

The company HAVE been issuing shares, something that I am generally not a fan of and I questioned the CFO on. A reported subscription of 6,666,666 shares @ 1.50 SEK was completed in H1 by Dahlgren Capital in two separate offerings. This was the third (and reportedly final) share issuance. The company do not seem keen to issue shares any time soon but its still a possibility, especially for another acquisition. The company highlighted that margins have improved across the group by an average of 3%, certainly a very positive sign of the business refocussing. Costs have also decreased by 14%, further aiding profitability. I am at least intrigued by Lyckegard and the refocussing of the business we have seen over the last year as well as the improvement in profitability and margins means this one at least warrants some closer following over the coming months. If they can demonstrate stable profitability, especially through the winter down period, I may well take a position. At present, it is just a watch for me as I can’t be sure the business has really turned a corner yet, or will not continue to dilute shareholders.

A bit of background for you before the write up, I came across Pinewood when it traded as Pendragon, a UK car dealership group. News came out that the company would be bought by Lithia Motors in the US and this was completed on the 1st Feb 2024. The reason this deal was so interesting is the existing listing would be converted into Pinewood shares, the software division of the company and shareholders would additionally be paid a dividend for their Pendragon shares. I was somewhat late to this party and missed out on a lot of the upside but still made a decent amount through the conversion. Over the following months, I held on to my new Pinewood shares, continually researching the company and evaluating the risk reward of continuing to hold them. The stock dropped sharply in response to the Trump Tariff panic earlier this year, dipping below 300p in early April. The stock now trades at nearly 500p in early July (hence why this write up is no longer submission worthy).

This year in particular has seen a lot of extremely positive developments for the company. I added some at the 300p mark but am content holding my shares at current prices. I feel new investors should certainly pay attention to the company, especially given they have started trading OTC in the States. I hope you enjoy this write up and as usual, please don’t take any of it as financial advice. I am an idiot on the internet and not your financial advisor.

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*Please note, any figures quoted in this article for share price and Market Cap have been kept the same as when the write up was being written. Information within the write up has been updated continually beyond the dates where these metrics were accurate*

Pinewood Technologies

Ticker: PINWF/PINE.L

Price: $4.18/350p

Fully-diluted Shares Outstanding: 72.5M

Market Cap: £360 Million

Cash: £9 Million

Summary

Pinewood Technologies are an ‘enhanced’ Dealer Management Software (DMS) company. In 2023 they were split from their parent company, UK car dealership group, Pendragon, which was bought by Lithia Motors. This was done to eliminate any conflicts of interest that were preventing competing dealerships in the UK from adopting their SaaS offering. Since the spin off and becoming a pure play SaaS company, Pinewood have been able to grow their consumer base with formerly competing dealerships in the UK now adopting the software for their stores including Global Auto Holdings and Marshall’s Motor Group. In addition to this, Lithia Motors invested in the company following its spin off (they have since divested, more on this later) and have entered into an agreement to begin the roll out of Pinewood’s DMS software in their US dealerships through a Joint Venture. Pinewood are therefore growing both in their native UK, internationally through dealership and OEM partnerships (they recently announced deal with VW Japan) and now have a route into the US to rapidly grow market share in an industry where software is desperately in need of modernisation.

Business Summary

Pinewood’s software, unlike many existing solutions, is cloud based and more comprehensive than standard DMS software. Most DMS are essentially just basic accounting software. Pinewood’s offering fully integrates every element of dealership management, payments, chatbot support and after sales services into one software stack. The reason this is important is that historically, dealerships have used different software solutions for all these different needs. In addition to using outdated systems, these individual programs do not talk to each other, making it hard for dealerships to do very simple tasks such as search their sales data. The result of this is they lose time and money. Much of the legacy software solutions used worldwide also have been continually built on over many decades making the current experience clunky and cumbersome to use as they are based on systems first created in the 80s and 90s that have had additional features bolted on over time. This makes Pinewood’s software attractive both to dealerships and OEMs as it fully integrates all their needs in one program which is developed in-house. This appeal is clearly demonstrated with Pinewood’s churn being at 1.1% last year, an all time low for the company, evidencing a sticky business model which when switched to, stays in place.

Advantages and Market Position

As already explained, Pinewood’s main advantage is their technology being superior to their large legacy competitors. These competitors are not a serious threat in the long term as once they lose contracts, they do not have an ability to improve their offerings as they do not have a sufficiently featured cloud offering. The development and investment needed to get to Pinewood’s level makes these competitors a non-factor in the long run. In the short term however, they are likely to stick around for a while longer as getting dealerships to move off of these platforms clearly has been historically difficult despite their glaring issues.

The stiffest competition in the long term will come from other rival cloud DMS software companies. At present however, Pinewood are clearly the most fully featured software available allowing for total integration of all dealership needs. Given how resilient bad, clunky and old software systems have been, and pinewood’s low churn rate, it is reasonable to assume that once embedded within a company, it will be hard for dealerships to switch to another software offering. Part of this is clearly down to the lack of competitive SaaS alternatives but in future it may be that switching costs and time are reduced. The cost and time involved in switching from a legacy provider to a cloud solution is quite significant however the cost in switching between cloud solutions will no doubt be far less due to the nature of cloud software compared with on server systems. Getting data between cloud solutions is far easier so this will need to be taken into account by investors. Despite this, I personally think having been in an industry where switching software is not done often, if ever, there will be a lingering effect of this despite switching being more practical in the future. This forced brand loyalty should benefit Pinewood once clients have switched to their offerings. One of their competitors, CDK Global who have around a 2-3% global market share, much of which is US based, recently suffered a major hack and data loss which has called into question their offering and damaged brand relationships.

I also think it is significant to mention that CDK global and another competitor Reynolds and Reynolds in the past have both been hit with antitrust lawsuits over anticompetitive practices. There is an extremely long history of these legal issues, with the most recent of which resulting in CDK paying out $630 Million to clients who accused CDK of forcing them to overpay for their services. Let me ask you a simple question - Should a company that has just won the total support of the largest dealership group in the US be worth less than a single legal settlement that one of the legacy competitors has just paid out for unfair practices? I don’t think so.

Catalysts

The major catalyst for Pinewood is their upcoming expansion into Lithia motors dealerships in the US. This will significantly change the profile of the business with Lithia operating 291 dealerships in the US. Pinewood at present provide software for 155 dealerships, meaning this US opportunity will be almost double of their current size. It must be stressed that this roll out will not be rushed and Pinewood are not providing any guidance for US revenue, but with the end goal in sight, it is clear to see why this is an exciting opportunity. In addition to this, OEM support for Pinewood’s software is a significant catalyst as this both reaffirms the software’s value not only to dealerships but also to car manufacturers. Recently it was announced that VW Japan will be rolling out Pinewood’s DMS as part of a 5 year agreement. VM Group Japan own 350 dealerships in the country, meaning this is a huge milestone for the company. The market reaction was positive, but once again, in my opinion, does not reflect the fact Pinewood are going from 155 customers in 2025 to nearly 800 within 5 years.

Competition

Competition in the cloud based DMS sector is at present, not particularly strong, in terms of feature set . Pinewood’s main competition for the foreseeable future will continue to be stubborn legacy DMS which may include some cloud features, but are not well integrated due to the way they have been developed over time. Regardless, these legacy players have proved to be very resilient despite their obvious shortcomings with global market share estimates for legacy competitors such as Reynolds and CDK global still being high. Dealerships generally seem to be extremely conservative when it comes to software switching and are also very price conscious, but as we have already mentioned, are also at the mercy of unfair practices from these large legacy players. This is why OEM and Dealership contracts are so valuable as the likelihood of individual dealerships choosing to switch from legacy software is very low. The other major factor is switching costs, with not only money but significant time often associated with changing dealership software, training staff and getting used to the new system. Pinewood emphasise very low switching time to get the dealership back up and running which has been a key point in driving adoption.

Valuation

Pinewood are currently guiding for a FY27 underlying EBITDA in the mid to high £30 millions. At a Market Cap of £392 Million, this would put them at a worst case scenario 2027 EV/EBITDA of 13. As mentioned earlier, this excludes any US revenues. Given this market opportunity, this makes for an extremely compelling valuation for a SaaS company with high reoccurring revenues, great growth opportunities and a clear path to a strong foothold in the US.

Risks

The main risks associated with this investment would be a unsuccessful US roll out. The company is not guiding for revenue in the US so investors cannot accurately assess when this opportunity will begin to contribute significantly to earnings. In addition to this, the company could fail to adapt their offering to the US market resulting in unhappy customers. I would assess the risk of a slow or delayed rollout as moderate as the company have been clear they will not rush the software being implemented in Lithia dealerships. I would assess the risk of a failed rollout as low as Lithia motors had been buying shares of Pinewood in the market and are clearly invested in its success. In the longer term, the risk of Pinewood suffering the same issues as it did being part of the Pendragon group is high. Dealerships in the US in competition with Lithia will not want to adopt this software with their involvement. This is something that the management team spoke about in their capital markets day and there seems to have been an understanding that future Lithia divestment will happen. As of the 6th June, Lithia divested from their joint venture with Pinewood, so the company now have full control of their US growth. Lithia are still in partnership with the company, but this removes barriers to acquiring rival dealership groups in the states.

Conclusion

Pinewood at these prices represents an excellent SaaS opportunity in a very underinvested market. The company, through strong partnerships both in the UK, US and worldwide, have demonstrated their value to the motor industry. They are now dual listed meaning they are more likely to be noticed by US investors looking for undervalued SaaS businesses. When only taking into account their guided EBITDA for 2027, they trade at a significant discount to other SaaS businesses while being in a traditionally ultra sticky business which is very resilient to change. Pinewood have demonstrated industry leading software functionality, integration and crucially much lower switching times and learning curve than competitors, evidenced by their very low churn rate of 1.1%. I feel the risk reward profile is extremely attractive. If you enjoyed this write up, please consider subscribing below.

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I would like to first thank everyone who has supported me this year both paid and free. I am very pleased to have now crossed the 300 sub mark and would like to thank everyone for reading. I won’t be doing any portfolio performance updates (because I cannot be bothered to calculate it across my different accounts for another 6 months) but I will briefly speak about some highlights and lowlights from the year so far. One of my companies has also been acquired so I have a significant chunk of cash that will be free to be invested in the coming weeks and months. As always, please do not take any of my writing as financial advice, I am an idiot on the internet.

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Japan Visit

Last week I returned from a 2 week visit to Japan. The trip was incredibly enjoyable but no doubt a culture shock for a westerner like me. I did not conduct much on the ground research, but the trip did impress on me the common mentality of the average Japanese person, the hardworking nature of people and the unavoidable problem of their ageing population. I feel it is very important to have at least some knowledge of the culture and corporate culture of the countries that you choose to invest in. As someone from the UK, I am frequently surprised by the way non Brits evaluate UK listed businesses, perhaps because the differences are not as blatantly obvious as those between the US and Japan. I have an interest in Japanese stocks, but I think that for the foreseeable future, I will stick to capital light businesses if I do choose to venture into this market. SaaS and healthcare software have been areas I have researched so far this year. If you have any favourites in Japan you think would interest me, please reach out.

Alphawave Semi Acquired by QCOM

While I was away, the news that Qualcomm had agreed to purchase Alphawave Semi dropped, raising the share price to £1.86 before lowering to around the £1.80 level for the last few days. I have decided to sell my shares as the potential for counter offers from other companies seems low and the opportunity cost of holding does not make the wait till next year worthwhile. I first bought Alphawave shares in 2022 and did a bit of trading here and there, buying on big dips under 100p and selling during the more euphoric rises. I have held most of my current shares since December of last year. On this position I made around 65% over the last 6 months, and I would conservatively estimate I made around 30% of this position size in profit, trading in the previous 2 years, totalling around a 95% return in 3 years. Not a bad CAGR. The thesis for Alphawave was always a pretty simple one. This was a company burdened by a reputation it did not deserve with technology that was extremely valuable to its industry partners. It is really no surprise that they were bought out. The real lesson here should be that buying IPOs is normally a bad idea.

Free Cash

The Alphawave deal now means I have just over 14% of my portfolio in cash which needs to be rerouted into other stocks. As you all know, I prefer big positions so this will very likely go into 2 stocks at the most, leaving my total holdings at 9 if these were to be 2 new positions. I am in the process of reviewing my watchlist and starting some more in-depth research. Azeus Systems Holdings is currently a front runner to be one of these positions.

Bad H1 For My Biggest Position

I disclosed a few months ago that I had made a tiny Italian company my largest position, Litix SpA. My thought process was twofold. 1) Litix are a tiny profitable company in a niche which is defendable and hard to disrupt, whilst expanding into less capital intensive ventures such as software licensing. 2) – The reason for making this my largest position – I thought that they would post better than expected earnings for FY24, given their frequent announcements of contracts and disclosure of agreements being worked on in the US, China and the Middle East.

I think its safe to say that point 2, which was short term thinking, did not work out. Litix did not beat earnings, in part due to the delay of contracts (albeit renegotiated at higher prices) to next year. Another lesson in not trying to predict things you can’t know for sure. My cost basis in Litix is around 1.3 EUR and current price is floating around 1 EUR, a 23% decrease. Not ideal. But I do not regret buying the stock. Litix are still one of the most unique public companies in the world and its worth highlighting that volatility works both ways. In the same way contracts being moved can cause a 23% drop in stock price, positive news will cause an equally as volatile upswing and as we have learned from my, slight overeagerness to play earnings, you cannot time when this news will come. Aside from this, I have been very impressed with the growth of Litix’s subsidiary, Aivox, who have gone from generating basically no revenue, to generating nearly 1 million in revenue in 2024. This once again shows what I mentioned in my original write up, that Litix are lower risk due to their ability to have success in a variety of ways. Aivox, frankly, I wrote off as a non-factor in my initial analysis.

A Great H1 for Nordrest

The highlight of my year so far has clearly been Nordrest AB who have experienced a 56% rise YTD. I wish I had bought more and am waiting for a pullback to add as I think the company still has an exceptionally long runway for growth. If you are interested in reading my full Nordrest breakdown, I posted my writeup as a guest post for the Emerging Value Substack.

Emerging Value

Nordrest Holdings AB – ‘MM..FOOD’

Hello all, here is a second and last guest post from a writer with a small number of subscribers and followers, Javen from the UK. As for me, I will prepare my annual review, as I had few time for it this week…

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2 years ago · 18 likes · 1 comment · Javen Turner

Once again, thank you for all your support this year. I am focussed on getting back into research and writing over the next few weeks so stay tuned.

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This is a short summary of my current portfolio in no particular order. At present I have no US holdings. I have A LOT of names on my watch list including a lot of Japanese names I am considering. Most of these holdings have been written up on my Substack.

Churchill China PLC

Churchill China PLC are a British manufacturer of crockery. They are focussed on hospitality clients and position themselves as a so called ‘value add’ provider with creative designs, fast delivery and durable products, which has greatly increased their ROIC over the last decade. Their key differentiation over other providers is their full control of production end to end with ownership of a raw clay producer, factory production fully based in the UK, a unique manufacturing process and marketing done internally. There is a possibility that rivals will be affected more severely by tariffs due to their outsourcing of manufacturing outside the UK, meaning Churchill could take market share as a result. Regardless of this short-term factor, Churchill trade at a significant discount to their historical averages with net cash, high quality management and a very shareholder friendly culture. Pre Covid, this was considered one of the most high-quality companies listed on the AIM.

BasicFit

The largest gym chain in Europe. BasicFit have a track record of outcompeting gym chains large and small over the last decade in various European countries and have significant advantages over their competition as a result of their scale. Regardless of how large they can grow and the company’s long term ambitions, they are valued too cheaply based on the cash flow the business can generate. Expansion costs hiding profitability and high debt have made the market uneasy. Over the long term, gym penetration in Europe still lags behind America and Scandinavia and new markets without established gym chains are ripe for expansion. At present, all BasicFit’s gyms are company owned and operated however they are opening up a franchise program which will reduce the burden on the company to self-finance growth. As cash generation improves, I expect a re-rate.

Vistry PLC

One of the most contentious stocks on FinTwit, Vistry PLC attracts some very toxic arguments from investors big and small. Some argue Vistry and their partnership business model will lead to NVR like returns over the coming decade. Others argue that Vistry’s Chairman CEO hybrid is a double headed monster destined to bring your portfolio nothing but pain. I don’t care about either of these opinions. Vistry are very cheap on basically every metric you can find. The business is transitioning from a traditional builder to a pure partnership business which uses land others own to build homes, often replacing outdated government housing with modern flats and houses. With less capital tied up in land, this business is far more attractive than traditional builders but does have its own issues which some may overlook such as rising material costs possibly having a bigger impact to Vistry than they would to a traditional builder as they have to absorb these costs. Despite this, I feel any of these concerns are priced in and the government’s current push to build more homes only supports Vistry’s transition to partnership building. Any negative headlines over the last year have been due the traditional building division, which bodes well for the business in the long term once this division is wound down.

DSW Capital

DSW Capital are a professional services licence network based in the UK. They offer professionals the ability to join their network under the DSW banner in exchange for a licensing agreement which takes a share of their profits. The business is capital light but does offer to pay for start-up fees to make it easier for professionals to start their own practice within the group. This has mostly attracted financial professionals (the founders are all ex Big 4) but last year the company announced their first foray into the legal services space with the acquisition of DR Solicitors, a leading GP and Dentist law firm. Financial services have struggled in the years following Covid, so this acquisition is extremely interesting as on paper it significantly increases earnings with stable repeat business which is uncorrelated from the rest of the business. DSW have also been trying to further diversify their financial services fee earners into segments which are less cyclical with mixed results. I feel that over the course of the next decade, DSW will prove to be worth significantly more than they are currently valued.

Pinewood Technologies Group

I owned Pinewood before they split from their parent company, Pendragon, who were bought by US Car Dealership giant, Lithia Motors. Pinewood Technologies are a SaaS company who sell Dealership Management Software, or DMS. DMS that is in use in most car dealerships in the UK is outdated and based on systems first designed in the 80s and 90s. As a result of this, dealerships struggle to collate data and performing basic tasks often requires cumbersome solutions such as exporting datafiles to Excel and then reformatting this data. Pinewood split off from Pendragon, who own and run car dealerships in the UK, in order to avoid a conflict of interest for UK car dealership groups, who did not want to adopt a direct competitor’s software. Now that they are a separate company, Pinewood have announced a number of contracts with former competitors to adopt their software for their dealerships. The software is far more complex than tradition DMS and integrates every aspect of dealer management from stock management, payments and customer data. Lithia motors have also invested into the company and as part of a joint venture, will be rolling out their software in their US car dealerships over the coming years. Excluding US growth which the company is not guiding for, the company expect to do EBITDA in the Mid to high £30 Millions by 2027. With a current market cap of Just over £311 Million, this puts them at an EV/EBITDA of under 9. For a sticky SaaS business, this is far too cheap. They have also just listed OTC in the US as of February.

Alphawave Semi

Alphawave Semi are a UK listed semiconductor design company who specialise in SerDes (Serialise and Deserialise) solutions which are in increasing demand with the growth of data centres and AI. Despite operational issues and concerns over their China business, Alphawave’s team are without a doubt world class and punching far above their weight with consistent design wins and interest from large competitors in acquiring the business. US listed comps trade far above their valuation, and I think it is likely they will eventually list in the US which would immediately close this valuation gap. Despite this, the business will continue to experience growth and has strong relationships with various semiconductor companies and foundries.

Litix SpA

Litix are a tiny Italian company with are split into 3 main divisions. Their largest division is Robotor, a robotic design and software company which adapts 6 axis robotic arms for the purpose of stone carving and sculpture with minimal intervention from the user. These robots are used in their oldest division, Torart, a sculpture lab which artists and organisations commission to create works of sculpture, often made from famous Carrara Marble, sourced locally where the company are based. The newest division is Aivox, a 60% owned subsidiary who are a design, software and manufacturing lab who bring together subtractive and additive processes for complex client needs. This division while being the smallest has been the biggest surprise since my ownership, showing great growth in the year since its founding. The Litix thesis is quite simple, stonework manufacturing can be done cheap and efficiently by robots and Litix both use these robots for their commissions business and sell these robots to those in the industry who cannot afford to develop these solutions themselves. Both of these markets have high barriers to entry. This positions Litix well for continued growth and reoccurring business thanks to their excellent reputation. I am particularly interested in the development of the company’s in-house software which they market not only at those in the stonework sector but also those in other complex CNC industries. At present they have not made a push to sell this software standalone and it is mostly sold bundled with Robotor units. The company is valued as a niche manufacturer with no value attributed to their software. As a very early stage company, I expect bumps, but this is a very interesting opportunity to invest in a company which makes money before its major growth push.

Nordrest AB

Nordrest AB are a Swedish foodservice business who operate restaurants and catering services across Sweden. The company focus on areas where there is high natural footfall such as factory plant cafeterias, airports, roadside restaurants and also the armed services. The company differentiate themselves from other foodservice companies by giving freedom to the unit operators to create and design menus in collaboration with the client needs. This allows them to consistently get better approval ratings and renew contracts with traditionally difficult customers. In addition to this business, Nordrest also own a MRE company, OutMeals AB. The MRE business is a lucrative one in which significant mark-up is placed on products within meal kits. Nordrest have a NATO contract in place and have seen increased demand for their products since the Russia-Ukraine conflict. Regardless of the outcome of this war, it seems highly likely that MRE sales will remain elevated above pre 2022 levels going forward, with the company opening a new dedicated site for MRE storage illustrating this confidence. High insider ownership and a very reasonable valuation for a very good business with many growth opportunities.

This is a short post on Alphawave Semi following the news this week that 2 semiconductor giants have considered bid for the UK listed firm. Full disclosure, this is a holding on mine and has been for some time. As usual, none of this is financial advice, I am an idiot on the internet.

Who are Alphawave?

I said I would keep this post short so I will not go into the full details of what Alphawave was when is listed and the ways in which it has changed as a company. All you need to know for the benefit of this post is that Alphawave are a semiconductor design company who specialise in connectivity solutions designed to quickly transport large amounts of data (SerDes). The most common application of such solutions are datacentres where billions of terabytes of data are stored, accessed and moved daily. Alphawave license their designs to a semiconductor company who implement these solutions in their chipsets. The trend of chiplets (modular chipsets where individual functions are specially designed and brought together in a larger chip) has meant that companies like Alphawave have seen increased interest. Amazon are on record as having been a de facto broker in Alphawave’s acquisition of Banias Labs for $240 Million in October of 2022, a significant investment of the proceeds raised from their IPO. Amazon also entered into an agreement following this acquisition to become a customer of Alphawave.

Strong support from leading hyperscalers is a very good sign with Microsoft listed as their second cloud partner on their website. They also work with a number of foundry partners including TSMC (Who they have won multiple awards from), Samsung and Intel, as well as IP Partners which also includes TSMC, Arm and Synopsys. This kind of cross company appeal is very attractive and shows the technology works and is in demand. Nobody I have spoken to about Alphawave has ever expressed any concerns over their technical abilities, understanding or products – something that cannot always be said of all semiconductor companies. Issues have been almost exclusively in relation to the running of the business and board decisions. This is clearly important, but as we will come on to later, the underlying technology having such great value to others within the industry puts a very high floor on the company’s valuation.

Despite being listed in the UK, Alphawave are a mostly North American outfit, headed up by Tony Pialis, an ex Intel employee and prolific Semiconductor entrepreneur. It was suspected that Alphawave listed in the UK due to their significant portfolio of Chinese business which would have made a US listing problematic given both the Trump and Biden administrations keenness to support Pro-American semiconductor initiatives and limit China’s progress in the sector. Following their listing, a Financial Times article came out which destroyed their share price and much of their reputation, a dark cloud which has lingered over them for the last few years. The article tried to draw the dots between a number of related party transactions and the Chinese revenue the company was generating, more or less suggesting they were not what they said they were. Their frothy valuation combined with this article led to a massive crash post IPO. I personally thought the article was very harsh but it was a perfect storm.

As someone who could not care less about American Anti-China hysteria, I found this to be an interesting opportunity. The now late co-founder of Marvell, Sehat Sutardja invested a significant amount of his family’s fortune in Alphawave following this drop and joined the board. His wife, also a Marvell co-founder, has now replaced him on the board since his death. Both Sehat and his wife’s significant industry experience made me take a closer look at the company.

If you want a deeper understanding of the company, I would direct you towards the following 4 resources.

Alphawave Semi Write up from VIC in 2022 which gives an excellent overview of the business https://www.valueinvestorsclub.com/idea/Alphawave_IP/0737743673#description

Alphawave Semi Write up from Fabricated Knowledge (Paid post but free post claim eligible)

Fabricated Knowledge

Ride the Wave: Alphawave

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3 years ago · 20 likes · 17 comments · Doug O'Laughlin

Alphawave Semi Write up from Edward Xiao

Xiao Capital

Alphawave Semi (AWE.LN) – The Beginnings of a Semiconductor Powerhouse

I’ve spent some time recently trying to wrap my head around the semiconductor space. If there was one industry that doesn’t follow traditional investing norms, this is probably the best example. Investors are quite forward-looking and the businesses trade on much more leading supply demand indicators than traditional industries. It doesn’t take anything…

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2 years ago · 7 likes · 2 comments · Edward Xiao

Podcast – This Week in Intelligent Investing – Daniel Prather Unveils His Favourite Bargains in the UK Stock Market – Alphawave is discussed.

How have Alphawave Changed Over the Last Year?

In the last year, the company have tried to increase the pace of the winddown of their China business in an effort to shed some of the bad reputation they had gained. This has had a negative impact on their earnings in the short term. These Chinese contracts were not very high margin in comparison to their recent semiconductor licensing contracts but were established deals bringing regular cashflow into the business. The choice to move away from this business has made the last few quarters harder than I initially anticipated and led to a capital raise, but in theory should mean a better long term future with the business solely focussed on future development rather that legacy contracts for legacy connectivity solutions. My personal feeling as to why management made the choice to accelerate this transition is due to the increased demand we have seen from AI. The growth of AI and every company in tech jumping on this bandwagon has meant that we have seen greatly increased investment in these areas. In my view, the management team saw this as an opportunity to cut their China business sooner than expected as this could be replaced with increased revenue due to AI demand.

Alarm bells might be ringing for you at the mere mention of AI as a catalyst but the positive here is that Alphawaves’s SerDes solutions are hugely needed regardless of if AI demand turns out to just be a short term trend. This is due to the ever increasing demands of datacentres, a trend that predates recent AI growth. AI is simply acting as a stop gap that is filling the hole of reduced datacentre spending. Due to the arms race that is currently going on in the space, the cyclicality that Alphawave might have expected to see has been somewhat reduced as companies are currently very willing to invest in AI related improvements. Making the choice to focus on the development of solutions for the latest chips and expand into AI specific solutions means that Alphawave will avoid falling behind their peers, especially given they are competing with larger companies with access to more resources. What this means is Alphawave is now free of the fears of its Chinese business and is now solely focussed on high margin, new business which brings it into closer partnership with its semiconductor partners and puts it on the radar of potential new hyperscaler customers. Last week, the company announced new Optoelectronics Silicon Products specifically designed for hyperscalers with increased AI demands. These new products will enable the transmission of AI driven high speed compute data.

Arm and Qualcomm Bids

Alphawave has been going crazy over the last few days off the back of two bits of news. Firstly, it was reported by Reuters that Arm has explored buying the company in recent months but not made any further progress beyond these initial conversations. This is not exactly surprising as back in October, both companies reported a beginning of a partnership to collaborate on next generation chiplets that will be used in a variety of connectivity applications.

https://newsroom.arm.com/blog/arm-and-alphawave-semi-unite-on-6g-chiplets

Arm being a partner and considering buying the company is a very good sign as it shows an appreciation of their technology. Not long after the Arm news came out, it was revealed that Qualcomm had expressed official interest in acquiring Alphawave. The news does not mean anything is certain to happen but the company basically have 28 days to submit an official proposal from their filing of interest. I personally do not expect an offer to be made. And if one is made, I do not expect it to be accepted by Alphawave. One of the main reasons for this is that the company’s purpose for being created was to become a major company in its own right and they have been making significant process in gaining new customers and repairing their publicly dented image following their IPO. The second reason I do not think the offer will be accepted is I cannot see Qualcomm paying the kind of valuation that Alphawave would be looking for in the first place. If a company is intent on growing on its own, it is safe to assume that there would need to be a premium paid on its valuation in order to tempt its largest shareholders into selling a business they think its very attractive and can grow significantly. What does a premium look like for Alphawave?

Well, one of the major issues here is that Alphawave trades at a significant discount to US listed peers. Now as already mentioned, this might partly be some overhang from the mess that followed their IPO, but logically speaking, these two expressions of interests from 2 of the largest semiconductor companies in the world highlights the industry’s view that they are a valuable company with valuable technology. In a negotiation scenario then, it would not be reasonable to offer a price that was discounted to US peers, especially as once taken private, the place where a company listed is completely irrelevant. What does the closest US comp trade for? Credo Technologies is probably the closest thing to Alphawave. They both produce critical connectivity solutions that are key for high speed data transfer. Credo, trades at a valuation of $5.7 billion. Alphawave? $1.2 Billion. They do roughly the same amount in revenue, with Alphawave yet to report FY numbers, but guiding for $50 in Adjusted EBITDA in their last trading update for 2024. Going forward, this will only rise with new bookings already secured.

So what we are talking about here is a $3.5 Billion dollar disparity in valuation which logically is not warranted, especially not to a larger semiconductor company who are looking to acquire their technology. To a company like Arm or Intel, the boardroom struggles of Alphawave are less of a concern than they would be to an investor like you or me. Another factor to remember here is that Alphawave IPO’d at a valuation of $4 Billion. As we have already discussed, that valuation was not warranted then, but now, if the company was open to a sale, you would have to assume they would be looking for a premium of the money they were able to raise on their own when the company’s revenue base was mostly made up of Chinese and Related Party transactions. All these factors point to a reasonable offer for Alphawave exceeding $4 billion, over 3 times their current valuation.

Risks?

I am quite clear that I personally feel that downside is quite well protected here by the possibility of a takeover valuation greatly exceeding the current valuation of the company. However, if the company are not sold as I expect, there are still issues to be aware of. Firstly, as we have touched on already, AI and in general the current semiconductor space is a very volatile industry. We are dealing with trade bans, tariffs and complex geopolitical issues at every corner. It is a possibility that ongoing industry trends, turn sour and the growth of this sector has been massively overpredicted. If this was the case, Alphawave’s most specialised solutions will be far less in demand and their TAM greatly reduced. In any case, I do not expect a nice clear rise to the top. This will be a rocky road.

In addition to this, the company’s inconsistent financials and audit isses cannot be dismissed. Yes, the industry is a volatile and competitive one and Alphawave did grow very strongly following their IPO, making 3 acquisitions and significantly growing their headcount. But the choices made by Tony and his former CFOs have to be questioned. What is positive is the CFO appointed around 18 months ago, Rahul Mathur, is formerly of Rambus, another semiconductor IP company, which grew its value quite significantly during his 5 year tenue from 2016 to 2021 and has since gone on to be a 3 bagger in the last 5 years. I cannot really speak to his abilities but I am at least happy to see someone in the CFO position with specific semiconductor company experience (and hopefully will not have audit issues like his predecessor).

Conclusion

There is some baggage here, I’m not going to deny that. But I think the last weeks developments and clear interest in Alphawave’s technology should be taken by investors as a stamp of approval for their hard technical work over the last few years. Given the design wins and partnerships they have announced in recent months, I think the tide is starting to turn in their favour. I think it is likely that once Qualcomm walks away, the share price will crash back down. But I think it is more than a good idea to consider the facts and what you would be paying for Alphawave had it listed on the Nasdaq. It cannot be ruled out that once Alphawave feel ready, they will make the switch to a US exchange (They are listed OTC) and at that point, the valuation gap is very likely to close.

While reviewing a list of recent spin offs, I came across an interesting set of circumstances which might make for compelling investment opportunity. Those of you who have read Joel Greenblatt’s ‘You Can Be a Stock Market Genius’ will no doubt be familiar with some of the reasons why spin offs can make for interesting investments. In many cases, spin offs are designed to unlock shareholder value by allowing the market to value 2 businesses separately. However, due to the nature of these transactions, they will often cause institutional selling of the spun off entity in the months following the spin off which can lead to mispricing. This is particularly true when the spin off is a smaller significantly smaller company. This is what has happened to Perlen, originally trading up to 26 CHF per share before falling down to 17.75 CHF a share. The current market cap is just over 100 Million CHF. Part of this selling might also be due to the fact Perlen listed OTC in Switzerland, on an exchange that I didn’t know existed until reading about the spin off. Known as the OTC-X, it is owned by Berner Kantonalbank, a Swiss Bank. As you would expect, this means this is a low liquidity idea.

In short, Perlan are a paper production company who provide paper for the newspaper and magazine industry. I can already hear you running away. But don’t click off so fast. Perlan unlike some spin offs have 0 debt, 70 Million CHF in cash and significant real estate holdings including agricultural land surrounding their factory site. The factory site itself is also viewed by management as underutilised given its strategic location in Europe and they aim to find a way to unlock value, possibly by renting the unused factory space to another business which has comparative logistical demands. In addition to this, Perlen also has 10% ownership of energy generation facilities providing electricity and heat used for production and drying the paper produced by the plant, which is a large part of the reason they are one of the only paper production companies in Europe who operate close to net 0 for Co2 emissions. In 2023, they did 37 Million CHF in EBITDA. With their current market cap of 106 Million, this puts them at an EV/EBITDA of less than 1 and MC/EBITDA of less than 3. Seems cheap right?

Paper Industry Dynamics

Perlen Papier are now one of the only producers of newsprint and magazine paper left in Switzerland. There are no producers of magazine paper in bordering Italy either and in their core market of Western Europe, Perlen have gone from a market share of 2% to 10% as a result of the declining demand forcing less efficient competitors to close mills. Perlen are the number one producer in Switzerland with a market share of 50%. It is also Switzerland’s largest remaining paper recycler which it incorporates into its own production, a key part of their ability to reach a near net zero production footprint (we will come back to this later). This growth in market share is a key illustration that by just sticking around, you can pick up market share in these declining industries. What I need to understand though, is if this market share gain outpaces demand decline, and if this demand becomes more stable in nature, rather than the cyclical swings we have been seeing over the last decade. If the industry in Western Europe becomes more consolidated, in theory this should lead to less players and more stable prices. In turn, this would increase pricing visibility and allow better cost control for the remaining players, possibly including stable price raises which offset lost revenue from decreased sales. In this scenario, Perlen would be an excellent investment. But there is looming regulatory change which may prove to lead to a massive rise in profits for Perlen a lot sooner than you would expect.

EUDR – ‘I Love Dem…Bureaucracy.’

The EUDR stands for the EU Regulation on Deforestation-free Products. They are a set of regulations that were due to come into effect this in 2024 but were delayed to this year. EUDR basically strictly regulates where EU states are permitted to source paper and paper products and imposes strict rules on paper producers to evidence that their supply of paper is ‘deforestation free’ and sustainable. This, as you can imagine, caused complete chaos over the past year, with the majority of suppliers being unable to make the needed changes in time, leading to delays in the deadline for the changes to be implemented. The regulations will mean that companies within the EU will have to make a choice between sourcing EUDR compliant paper or recycled paper products. It is highly likely that at least in the short term, there will be a very limited supply of compliant paper products. Speaking to those within the industry, they seem to think that recycled paper products will see a massive spike in demand as a result of these regulations. Given Perlen’s products are all made with recycled paper, this is likely to be a huge catalyst for them in 2025/26. At least temporarily, we are likely to see companies look to recycled paper while they wait for supplies of compliant products to become more abundant, leading to a temporary supply shock.

Paper in a Paperless World

I have actually become strangely obsessed with paper production over the last few months while diving into this business. Much of my research was just trying to understand the general dynamics of paper production in 2024. What became clear is that at least stateside, there has been some Private Equity appetite for acquiring paper production facilities. But compared with European operators, these are run pretty horribly post-acquisition. What has been happening in the US is PE firms are acquiring these paper mills are then refusing to invest in upgrades or in some cases basic maintenance for these facilities, trying to squeeze as much cashflow as they can out of them before they go bankrupt, leading to production issues and eventually the mills shutting down. One stark example of this was the Androscoggin paper mill owned by Pixelle. The mill had its own paper pulp production facilities (known as an integrated mill) but the owners refused to invest in this machinery’s upkeep, resulting in a catastrophic explosion that ruined these capabilities, making the mill reliant on purchasing pulp at market prices. When these pulp prices subsequently shot up, their business was decimated, and they were forced to close. There is therefore a growing issue of a lack of investment being made in the paper industry forcing mills into somewhat avoidable early closures. With that being said, in many cases, these mills are costly to operate and upgrades to facilities do not offer attractive ROI given paper demand is falling year over year.

So how on earth can a company survive in this environment? Well as mentioned, Europe is a more stable (stable is probably a touch misleading) operating environment despite the fact the same paper industry decline is going on. Mill closures are still going on Europe though. In 2024 a number of high profile closures were reported. Traditional paper mills are making the decision to either close their doors when under pressure or switch production to packaging paper products which have seen increased demand as people become more conscious of plastic packaging. German company UPM announced last year that their paper mill in Hurth would close, reducing the supply of newsprint paper by 330,000 TPY. What is interesting however is that the number of closures in Q2 2024 is 55% below that of last year (during a very successful year for most paper companies including Perlen). This trend also marks the lowest amount of mill closures in last 10 years, extremely noteworthy given the amount that paper demand has fallen over the last decade. So what is really going on here? Well, the truth is nobody really knows for sure. During my research I spoke to 2 industry experts who have a much better idea than me. The first expert is a paper production specialist who specifically covers the European paper products market and is perhaps the most knowledgeable man in the entire industry. He said he was familiar with Perlen and their strategy which was music to my ears. The second expert is a print trade magazine editor with decades of experience in print media.

Discussion with Industry Experts

Expert 1 was kind enough to answer a few questions, one of which was asking how significant this decline in mill closures is and if this suggests industry consolidation is happening. He explained that despite the fact mill closures have gone down, it is only a matter of time before these begin accelerating again, especially in the coated magazine paper segments. There are subcategories of paper which have reached a degree of consolidation, for example supercalendered paper, where over 70% of the supply is produced by just 2 players. But declines broadly in the paper industry are still likely. In 2022, prices for paper went up a lot and despite them coming back down in 2023, they stabilised at higher levels than before the spike in 2022. This did not benefit every paper producer but those with the best cost control were able to benefit. According to the expert, this likely explains why mill closures were unusually low in 2024.

My next question was related to how significant Perlen’s low carbon production is, including their significant use of recycled paper in production. He described this as a big competitive advantage, especially as Europe trends towards carbon neutrality. But more significant than this is their access to renewable energy, as this source makes them less reliant on energy markets for production, which is an issue that many non-integrated/recycle based paper producers in Europe face. This led on to a question about the new EUDR regulations which the EU has delayed but still intends to implement. These regulations govern the sources of virgin pulp and require manufacturers to ensure that their supplies of wood products are deforestation free. These regulations caused quite a stir in the industry as they are a lot more complicated to comply with than you would think.

My question to the expert was how he thought the EUDR regulations specifically impact newsprint and magazine paper production for Perlen, given their high use of recycled paper in production. He explained how logically the EUDR regulations will lead to an increase in demand for recycled graphic paper. This demand is likely to see an increase from 2026 onwards when the regulations take full effect, as paper consumers try to avoid having to comply with the regulations if possible. However, EUDR will also have an effect on production costs for recycle based products as demand for recovered paper will also likely increase in the coming years. One very likely possibility is for fewer newsprint paper imports coming from North America starting from 2026 due to having to comply with EUDR. He thought that Canadian mills will likely find a way to comply with the regulations eventually but they will probably seek to sell in alternative markets in the shorter term. This is very positive news in the short term for Perlen’s profits. They will be selling into a market with a slowly decreasing demand, but greatly decreased supply thanks to the new regulations.

I then asked about what he personally would be paying attention to with regards to the management team, especially given this is a shrinking industry. He said that one of the most important things is understanding the customer requirements. As the graphic paper industry becomes smaller and smaller, the industry becomes more niche, making personalisation of products and listening to customer demands more important than ever before. Paper companies need to be reactive to changes in consumer trends. From an operational perspective, good cost control is one of the most Important factors, and this would link heavily into strengthening the recycling side of the business.

My last question was regarding the company forecasting negative earnings to end 2024 due to the difficult operating environment. I asked if he could provide any insight into why paper companies have struggled this year. He explained that challenges are coming from continued oversupply of paper in the market. Paper is currently very abundant in supply and this means that paper producers have little leverage to negotiate prices. Other issues include lower margins due to a trend of lower paper prices while production costs stay flat (at best). Fiber costs may continue to trend down for some months but other production costs such as energy, labour, chemicals and transport are still trending upwards. And the overall trend for print media is obviously moving towards digital. This will continue.

So how does the industry actually look for Newsprint and Magazine paper producers? As part of my research I had a very productive call with a second industry expert here in the UK who is the editor of an print technology magazine. He mentioned some very interesting points regarding the paper and print industry, giving a slightly different perspective coming from the printing side of things. He agreed that over the last few years there has been an elevated supply of paper products due to the insane spike in demand caused by the covid pandemic for paper packaging. This year, the prices of corrugated paper have crashed as a result of excess supply and normalising demand. E-commerce giants such as Amazon are also far better at optimising packaging sizes now, than they were a few years ago when the pandemic first started (although still not great) meaning that less paper is needed per package, reducing demand. Why am I talking about packaging products when Perlen only sell print media paper? Well, the editor explained to me that paper products still follow the same broad trends. Perlen’s products were described to me as ‘less peaky’ in demand – as print media requires a stable supply of paper to meet the demands of publishers, compared with e-commerce demand which can rapidly turn based on macro factors. But despite the fact that Perlen are not directly linked to factors such as online shopping, a newsprint/magazine paper mill is still very much affected by the increases in cost for raw materials such as pulp and also energy prices – which expert number 1 also explained in depth earlier.

How do Perlen offset these challenges? Well, their demand being more stable than other paper products is an advantage in itself, but not one that makes them any more attractive than other paper mills, which as explained have been very vulnerable businesses due to the overall decline trend. What is significant is their high percentage of recycled paper production and their energy efficient, low Co2 producing factory. Being such a large recycler of paper means that they have access to a stable supply of paper to recycle into new products and are not reliant on virgin pulp which can fluctuate wildly in price – and as a result of EUDR, is highly likely to become very expensive and low in supply.

How Well Positioned Are Perlen?

Perlen, I think, are in a fairly decent position for a number of reasons. Firstly, there is a big catalyst on the horizon which directly affects demand for recycled paper. Secondly, they are not a massive producer in Europe producing millions of tons of paper being shipped globally. They are a more localised producer who are slightly closer to their end consumer than some of the German giants. Obviously scale is significant in any business but in this case, not being a big fish might mean that cost control is easier to achieve as they are operating from a single plant. If management are able to cultivate strong relationships with their customers in Switzerland and bordering nations, they could be in for a good few years. However, the biggest risk in my opinion is continued oversupply. As mentioned by expert 1, we are still in a state of high supply and reduced demand. My main worry is that to offset the impact of regulations in 2026, customers will ‘stock up’ in preparation for issues getting paper while producers adapt to the new regulations. I think it is likely that there will be a rise in demand for recycled paper products before this happens, but it is still something I am aware of.

The main thing offsetting this risk is the significant margin of safety that is baked in with their cash, real estate and factory utilisation initiatives (Perlen also own a few other assets such as a Hotel). If Perlen are able to sell or develop unwanted land, bring in cashflow from factory space rental and distribute this cash to shareholders, the stock becomes a lot easier to buy. Will this happen?

Interesting Developments

In recent weeks there has been some interesting news with regards to the CEO planning to leave his role as head of both Perlen and the parent company they span out from. One of my main reservations in investing in a spin off is if the company is still run by the same management team as the parent company. Not having a clean break means the likelihood of value creation is greatly decreased. Well, at the end of March we finally got the news of the new CEO of the group. The board appointed Florian Geiger who moves over after over a decade at Swiss Steel. There are clear parallels with the steel industry and paper industry, given they are both commodities and very cyclical. Florian made the following comment in the press release following his appointment,

“I am delighted to take on the responsibility as CEO of Perlen Industrieholding AG and Perlen Papier AG, and I am convinced that press and magazine paper will continue to enjoy solid demand despite digitalization. With its cost leadership strategy, the company is well positioned to continue operating successfully in relevant markets in the future. Furthermore, the industrial site in Perlen offers attractive long-term utilization potential for the company, which we now need to carefully exploit and further develop. I am excited about leading Perlen Industrieholding AG into the future together with the Board of Directors, management, and all employees."

Final Thoughts

I think the set up here is at least interesting. I will wait for the release of their full year earnings before making a final judgement on the company but will probably try to get in contact with Florian to get a feel for his ideas and leadership. As always, none of this is to be taken as financial advice. Its 2025 and you have just read a paper producer pitch. If you listen to me, its your own problem.

Litix SpA

Ticker: LTX.MI

Price: 1.25 EUR

Fully-diluted Shares Outstanding: 6.69 Million

Market Cap: 8.4 Million EUR

Cash: 0.6 Million EUR

Summary

Litix, valued under €9 million, went public in 2024. The company specializes in producing statues and sculptures using advanced robotics and proprietary software for the art, museum, and architectural industries. Additionally, they sell the same robotic solutions with proprietary CNC software to artists and stonework labs. Litix has a competitive edge in scale, production times, and versatility, operating in an industry with high barriers to entry and excellent customer feedback. Customers report that Litix's technology significantly improves their operations.

Business Segments

Torart focuses on creating sculptures and contemporary art using robotics and advanced technology. This division serves customers who cannot afford to build their robotic labs, allowing the group to profit from both internal production and external sales through outsourcing. Torart is the oldest business segment.

The Robotor division designs anamorphic robots and software for multi-axis milling. Robotor modifies Kuka robotic arms for specialized stone milling, offering solutions to external stonework labs that risk obsolescence without such modernization. Robotor developed proprietary software named OR-OS which significantly reduces the barriers to use these advanced robotics. This is possibly Robotor’s biggest advantage as it allows non-technical employees (i.e. artists) to take advantage of technology that previously needed to use clunky generalised solutions developed by the likes of Autodesk which would require hours of training to use and significantly impact your business during its adoption.

Aivox is a new 60% owned subsidiary that integrates additive manufacturing (3D printing) with Robotor’s subtractive capabilities, targeting complex manufacturing needs. This division is positioned to expand into challenging design sectors by combining innovative approaches.

Advantages and Market Position

Litix benefits from being based in Carrara, Italy, a hub for high-quality marble and a strategic location due to the history attached to the area. Prominent artists like Jeff Koons, Zaha Hadid and BarryXBall have utilized Litix for their projects, highlighting the company’s reputation and versatility. Litix’s ability to operate robots 24/7 gives it a significant advantage over traditional workshops, enabling scalability and efficiency unmatched by competitors. The company dominates its niche, compelling competitors to purchase its Robotor solutions, further solidifying its market position. Litix benefit from both their own art production growth and from the growth of competitors who are forced to purchase their Robotor solutions due to their inability to invest in designing their own robots and software. If these labs need to invest in a robotic solution, my research has shown that it makes little sense to invest in products from another company with one artist going as far as to say you would ‘be stupid to buy from anyone else’ and that they have begun to ‘dominate’ this niche.

Catalysts

OR-OS Software Increased sales:

Litix’s proprietary OR-OS software simplifies CNC machine operation for otherwise complex 6 axis robots, making it accessible to artists without technical expertise. The automation of tool-path mapping enhances ease of use, lowering barriers to entry. This software could enable Litix to expand beyond stonework into general CNC manufacturing, significantly increasing its total addressable market (TAM). For instance, 6-axis machines, while currently costlier than 5-axis machines, offer up to 75% faster production for advanced shapes. Lowering software complexity and costs could make 6-axis solutions viable for broader markets. I spoke to a customer in the architectural stonework segment who said that Robotor have completely transformed their sculpture capabilities due to their ability to program quickly and reduce their processing times, showcasing OR-OS’s value.

Software Licensing:

Licensing OR-OS software separately from Robotor machines could open new revenue streams. With licenses priced at €5,000-€20,000 annually, software licensing could generate significant margins and cash flow. For example, selling 50 licenses annually could yield €500,000, representing 6.5% of the current market cap. Furthermore, licensing software to non-Robotor users could facilitate expansion into untapped geographic and industrial markets. In theory, this is possible as Robotor units using OR-OS are based on Kuka or ABB robot arms which are the 2 leading manufacturers for robotic arms. In the long term, a shift to a SaaS model could be a possibility. Given their customers reliance on their software and services, this would create a very strong and stable subscription base given their advantages over competition making switching to another software unlikely.

Major Deals:

Recent contracts underscore the potential for growth. For example, Litix secured a €550,000 deal for its largest sculpture to date for an organisation in India, representing 7% of its market cap. The company is also announced they are exploring ‘major’ agreements in China, Saudi Arabia and the US, which could further boost revenues. In H1 of 2024, Robotor sold as many units as they did in the whole of 2023. None of this news has caused any reaction in the stock, due to how unfollowed it is. The global nature of these agreements highlights their competitive advantages.

Competition

Torart offers unmatched end-to-end support for artists, compelling competitors to adopt Robotor solutions. Several labs and architectural firms already own Robotor units, reflecting the industry’s reliance on Litix for modernization. They have also had success selling into non artistic areas with Henraux, an Italian architectural stone firm purchasing 3 Robotor units for their production and providing great feedback. An American company, Monumental Labs, also in the architectural space, also use a Robotor unit, with plans to expand their operation with more in future. Competition for Litix mainly comes from unadapted CNC robotics which are not a viable threat to their machines given the costs and inferior software. While other manufacturers produce 6-axis machines, Litix’s combination of hardware, software, and post-purchase support creates a competitive advantage. For example, partnerships with Kuka ensure access to parts and engineering support, addressing a major pain point for customers in the art sector.

Valuation

Despite its impressive operational metrics—29% ROIC, 66% gross margins, 22% operating margins, and 16% net margins - Litix trades below its IPO price with a P/E ratio of around 10 and an EV/EBITDA of 8. The market undervalues its potential, viewing Litix as a niche manufacturing company without growth prospects. However, successful expansion into general CNC sales and potentially a SaaS shift could dramatically improve margins and valuation. With annual software subscription costs up to €20,000, increased software adoption could transform Litix’s earnings quality. A move to subscriptions would make this even more transformative.

Risks

Dependence on Kuka and ABB:

Robotor machines heavily rely on hardware from Kuka with around 80% of Robotor units being from Kuka and 20% from ABB. While Kuka’s support network mitigates risks, Litix remains dependent on these manufacturers for parts and service. This reliance could pose challenges if these partnerships face disruptions. However, Litix offsets this risk by customizing robots and offering unique software and support, which smaller labs cannot replicate cost-effectively. There is also no incentive for Kuka to encourage direct to consumer sales of generalised robotics to Litix’s customers.

Expanding Beyond Expertise:

Plans to enter industries like boat hull production, woodwork, and concrete pose risks. Unlike stonework, where Litix has deep expertise, these industries may lack the same competitive advantages. However, the company plans to mitigate this by partnering with experts in these niches, replicating its Torart knowledge for other sectors. The CEO is confident that starting in the complex stonework sector positions Litix well for ‘less demanding’ applications of their technology.

Conclusion

Litix offers a compelling investment case due to its diversified growth potential across three avenues:

1. Continued expansion of the Torart division, undercutting traditional workshops.

2. Increasing Robotor sales and also expansion into a broader CNC offering, significantly expanding the TAM.

3. Expanded Licensing the OR-OS software, unlocking high-margin SaaS revenue.

Each of these growth paths is independent, reducing reliance on any single initiative for success. With impressive operational metrics and significant room for growth, Litix is undervalued and positioned for long-term success in an industry where it is very hard to disrupt.

If you have a further interest in learning about Litix, I have over 10,000 words of deep dive research and industry expert interviews available to paid subs. Thanks for reading!!!

I’m currently researching a few different ideas of varying levels of coverage. I may not end up buying all of these, if any, but they are at least peaking my interest. Below are some things I am working on and what I like about them. As usual, none of this is financial advice, I am an idiot on the internet and you should not invest on the basis of my own investments.

Unidata – Illiquid Small Cap Italian Idea

Unidata is an Italian company that has been frequently mentioned by Dave Waters of Alluvial Capital in his quarterly letters. This isn’t much of a write up but more of a disclosure of my interest and possible addition to my holdings.

The company are a fibre internet provider. The thesis here is very simple. Unidata is cheaply valued and has experienced a drop in share price over the last few months simply as a result of nothing really going on. This is a good sign if you are a microcap investor. Good companies that trend downwards on no news gift you free returns if they eventually announce good news. The company are providing fibre infrastructure in a country that lags behind much of Europe. On all metrics they are cheap for a company providing core infrastructure with shares 60% owned by the management team. Illiquidity is clearly holding the company back in the short term and a 10/1 split seems to have done little to alleviate this. Not an issue for me.

Italy is a country that falls behind with its fibre internet infrastructure. Of all OECD (Organisation for Economic Cooperation and Development) nations, it ranks it as one of the worst in terms of fibre coverage with only 44% coverage and household connections at 12.5% (2022). This is compared with 64% or urban areas and 46% of rural households in the UK. This shockingly means that the UK, a country not thought of as particularly well connected, has better rates of fibre connectivity in its rural communities that the entirety of Italy did in 2022. Common wisdom suggests that this will not continue to be the case. Unidata will be a beneficiary of this improvement.

Bredband2 – More Fibre in Your Diet

Another Fibre internet provider I am looking at is Bredband2 in Sweden which has a current market cap of around $170 Million. Unlike Unidata, they do not own the fibre infrastructure but rather sell broadband services to consumers in Sweden. Funnily enough Dave also owned (or owns, not seen him talk about it for a few years) this company as well. The business is a good one and has invested in buying competitors, in theory helping with pricing power by reducing competition for customers. It trades at a PE of around 20 but only around 10x FCF due to having float. This is an advantage and allows BredBand2 to put their money to work to help drive superior returns on capital. If future FCF truly is the way to value companies, then it probably deserves some more recognition for the amount of cash this business generates each year. I will probably sit on my hands for this one until its drops a bit or I run out of better Ideas. It seems like a nice business that prints cash but not something that is going to shoot up overnight. I will continue learning more about the business and its long-term growth prospects.

Profoto AB

Profoto are a Swedish professional photography lighting company. They were founded in 1968 and have, for many years, had a reputation as being the leading brand in terms of quality, professional popularity and desirability from consumers. In recent years, there has been stiff competition at the lower end of the price spectrum, with Chinese brand Godox, offering compelling lighting solutions that more price conscious consumers have flocked to. Despite this, I was interested to see that Profoto, despite price rises and some online negativity, seem to have maintained their very strong market share. This is what got my interest. At a market cap of around £130 million, they are also a fairly small company. Excluding 2020, the company have posted average gross margins of 73.5% and operating margins around 25%, coupled with ROIC in excess of 40%. So what’s the problem? Well, the largest factor for their mediocre stock performance has been their lack of growth since it peaked in 2019 and inconsistent revenue adding to uncertainty.

During my research process, I came across a research report done by EY which went in depth into the professional and consumer lighting markets. This report showed that Profoto and another brand, Broncolor, have respective market shares of 20% and 10%. Much of this is a result of their very strong presence in the rental market which is extremely hard to disrupt. This sentiment is also backed up by my own scuttlebutt showing that in most cities around the world, most rental houses stock Profoto and some Broncolor. Despite the negative sentiment from consumers online over the cost of Profoto’s products, this rental market acts as a huge advantage for them over a disruptor like Godox. Godox have been able to disrupt the consumer market where smaller photographers use their own equipment. However, for professional jobs that pay thousands a day, lighting is often too heavy to carry on your own and a photographer would have to go through the hassle of renting a van to carry all of their lighting and other peripherals. This means that they almost always rent, where Profoto have a huge advantage.

Speaking to a photographer, he explained that in the rental market, Profoto will often be cheaper to rent that Broncolor or (if you could even find them as they do not really have a presence in the rental market) Godox gear. I would theorise that this is due to Profoto’s lighting being rented more frequently, therefore having a higher utilisation rate that alternatives. The result of this is that photography assistants have become very used to Profoto gear as most of the shoots they work on will use Profoto lighting. The hassle of teaching assistants – who are complete strangers to the photographer - how to use other lighting outside of Profoto or possibly Broncolor is simply not worth it given the time constraints you have on a project. This explains their dominant market position. The robust build quality, ease of use, and reputation of superior reliability and servicing means that Profoto have created a brand with excellent customer loyalty which has obviously trickled down to more higher end consumers too.

So what is my concern? Well Profoto have felt the need to diversify into video lighting solutions, an area that they have no experience and already has a market share structure not dissimilar to the photography lighting one they dominate at the high end. This makes it hard to see how they will be able to gain market share in this area. Their new video lighting solutions have not yet launched, so reviews and judgments have not yet been published. But despite this it is a bit of a red flag to see them feel the need to enter a new market. I will say that valuations are attractive and a return to more normalised photography demand could justify the stock at its current price. They are currently trading at around 13x Earnings. EBIT is 35% lower on a TTM basis compared with in 2022, blamed on a reduction in product launches from the company and the general macro environment. Another thing to be aware of is that their CapEx has been rising over the last few years. Management are guiding for this to remain stable at its current level, but again, its something to be aware of. If the company’s issues are indeed temporary, then this could be an attractive investment, especially given its very strong brand identity. If you have done any in depth research on Profoto, I would be very interested to hear from you.

Madara Cosmetics

Madara Cosmetics are a small Latvian Company who produce organic cosmetic products for the Latvian and European markets. They came across my radar while reviewing listings in some of the smaller European markets and really seem to be the only thing of interest on the Latvian market. On paper they do not seem to stand out much, trading at a rather expensive PE of 28 on their FY23 results, but a far more attractive 8x on a TTM basis. Further inspection of their results from the last few years reveals that their earnings have been significantly dented in recent years. Back in 2022, their only analyst coverage (who have not reported on them since) predicted that in 2023 they would do €5.42 Million in Operating Profit. In reality they did just €1.6 Million. So where did it all go wrong?

Well, Madara had actually coped with Covid fairly well doing €3.4 Million in OP in 20’ and a small increase to €3.6 Million in 21.’ That is double the OP that they posted in their last FY. In 2022 however, the group had a sharp fall in profits to €1.2 Million. The following comments were made in their 22’ AR to explain the 69% (nice) fall (not nice) in profits in 1 year,

‘This result is mainly explained by the global political and economic circumstances, i.e. costs driven up by the global slowdown and the energy crisis affected both B2B and B2C customer behaviour and purchasing power and, consequently, the Company’s growth rate and profitability in 2022. Despite political and economic upsets, in 2022, we elected not to take a passive and cautious approach, but opt for an active strategy focused on long-term development instead. This means that we were prepared to tolerate lower profitability in the short term to prevent any dramatic cost adjustment due to the current market situation that could slow down our sales momentum when the markets start to rebound.’

‘Notwithstanding the soaring energy costs which have tangibly affected the Company’s costs structure both directly and indirectly through increasing raw material prices, we made a strategic decision to keep the product procurement as well as the final prices unchanged in 2022 to avoid limiting the availability of our products to the customers who have already been hurt by inflation. Because of these factors, our profitability was lower than the year before. Our gross margin went down by 2 percentage points and the operating margin and net margin dropped by 12 and 13 percentage points respectively’

I need to have some conversations with management about this period and why it is taking so long to recover from these issues that began in 2022. The underlying business seems like a steady grower in a niche which will continue to experience growth over the long term as women across Europe become more conscious of the use of harsh chemicals in skincare and makeup products. Madara have been awarded the title of the greenest company in the Baltics which is no small feat and this has clear appeal to this target market. The company’s main source of growth is advertising campaigns and in particular brand partnerships to boost their profile. This seems to be the main barrier to the company as they cannot realistically compete with industry giants on sponsorships and brand deals. How they continue growth despite this will be what makes this investment either a yes or a hard pass. You cant deny the economics are not attractive though.

Thanks for reading. If you feel like you have any additional insights, particularly for Profoto and Madara, I would like to hear from you.

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A key part of managing your own money is the continued research you do following your decision to purchase a stock. There is no shame in discovering something you do not like and selling out for a small loss or gain. Alternatively, there is a lot of benefit of finding out something that you really like that strengthens your thesis. The story when you buy will not stay the same throughout your hold period.

Over the last few weeks I have been doing some fairly intense primary research into Croma. If you are interested in the thesis for this company, I would advise you so go back and read my write up that I did earlier in the year which gives an overview of the business and the opportunity here. This update will discuss some of the interesting things I have found out since and some of the concerns I still hold which I will continue to monitor.

Previous Post on CSSG.L

Continued Business Development

Croma has continued the strategy is started last year in 2024 with its acquisitions of locksmiths. This strategy although seemingly very economically viable given the reasons outlined in my write up, is not without its risks. Since that original write up, I have gained some more insight into some of the possible risks and challenges this strategy is likely to face.

1.      Loss of management teams

One risk to this strategy of acquisition is part of the reason the locksmiths were acquired so cheaply in the first place. The owners selling to Croma are often looking to sell their business and retire. This means that Croma have to deal with the challenge of how to navigate this transition from an owner operator to perhaps having to promote or hire a new store manager. This is not an insurmountable task, especially given the extra support Croma are able to put in place compared with the ways stores were run under individual operators but still presents a challenge.

2.      Regional Speciality

One thing that I have become more aware of is the regional speciality of locksmith services in different areas of the country. This adds another layer of complexity to the acquisitions as there needs to be an awareness of what in particular an acquired locksmith needs from Croma and how this fits in with their current central purchasing habits. To give you an example, lets say a particular acquired locksmith does a large amount of sales of safes (perhaps they operate in a wealthy area where people need to store valuables safely). The impact of cost savings for the purchasing of safes and related products may be limited if these products are not purchased in notable quantities by the remainder of the groups security centres, limiting the benefit Croma would get from acquiring this store.

What I would say is this is information Croma will have no issue getting hold of. The company have already been clear in their reporting and earnings calls that a significant amount of DD is going into the purchases they make. This will no doubt involve getting access to the makeup of a local locksmith’s sales and what their business is made up of. Nevertheless, I still feel it important to better understand the management teams understanding of this regional speciality, especially in combination with the possible impact the loss of store managers could have on stores. Replacement managers without the understanding of the local industry will be more likely to mismanage stores. This is especially noteworthy when you consider some of the owners of these stores founded them back in the 80s and 90s. They have an incredible knowledge of their local markets which is very hard to replace. On the flip side, the underlying data is sure to be something the business sellers pass on to Croma during their investigation stage with a breakdown of their sales and their experience in the sector being shared. My view at present is that the execution risk here is quite low or at least in line with most retail management demands. My perspective at present is that the key factor is great customer service. If this is maintained, I really don’t care much about who is running the business on a store level. I may begin tracking google reviews for the stores acquired and see if I can see any notable changes post-acquisition. I think it is crucial that Croma have a robust reporting system in order to ensure middle management involvement in their stores as they grow their stores under management, particularly if this regional speciality is indeed an important factor.

3.      Acquisition Pace

Speaking to some industry experts, the p

ace of Croma’s acquisitions is something to watch. On the last earnings call they mentioned that they were confident about streamlining the process of making acquisitions having done a number within a fairly short period of time. Although acquisitions being done at a fast pace may seem like a good idea, it may be prudent to slow down at some point and review the operational performance improvements they have made. Given what Croma is trying to achieve on a nationwide basis, they need to ensure that they run a tight ship in the regions they have already expanded into. Sloppy execution at their current scale will only get worse with more stores under management. Better understanding management KPIs for stores and how they ensure great customer satisfaction is maintained is important.

These are my main focus areas going into this report and beyond. I look forward to seeing how the strategy has developed over the last few months.