Giles Capital Weekly - Week 11

Lion Rock overlooking Kowloon. Lion Rock Group took its name from this Hong Kong landmark when it rebranded from 1010 Printing in 2017.

Welcome to another edition of Giles Capital Weekly. US strikes on Iran’s Kharg oil hub pushed crude above $90 last week, with a key UAE port suspending oil loadings after a drone attack. Strait of Hormuz transit remains disrupted, sending gas prices and airfares sharply higher. Private credit markets flashed a “yellow alert” as financial stocks sold off on war-related uncertainty, while Sweden’s accelerating defence build-up underscored Europe’s broader rearmament trend. Pockets of the market are pricing in prolonged disruption, which tends to create opportunities for patient capital.

Our top picks are smallvalue on Lion Rock Group, a Hong Kong book printer trading at 4.8x earnings with a 20% free cash flow yield, below book value, and a founder who owns 48% and keeps buying, and Myles Kuah on Viel & Cie, a French holding company whose 70% stake in interdealer broker Tradition alone is worth €1.6bn against a €1.1bn market cap, with the owner-operator compounding at 24% annually for 35 years.

Before diving into this week's newsletter…

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Americas

Long-term Investing on NVIDIA (🇺🇸 NVDA US - US$4.4tn)
$68.1bn quarterly revenue at 73% growth with $96bn annual free cash flow. Networking surged 267% as full-stack AI solutions deepen switching costs. This one requires patience at 37x earnings.

Waterboy Stocks on Berkshire Hathaway (🇺🇸 BRK.A US - US$1.1tn)
Greg Abel’s first move as CEO: committed his full $15.3m salary to stock purchases and restarted buybacks for the first time since mid-2024. $254bn in cash.

HatedMoats on Adobe (🇺🇸 ADBE US - US$110bn)
Earnings update. Q1 revenue $6.4bn at 12% growth with record $2.96bn operating cash flow. AI-first ARR tripled while Firefly credits grew 75% quarter over quarter.

The Pursuit of Compounding on Constellation Software (🇨🇦 CSU TSX - CAD$53bn)
The compounding engine remains intact: $1.68bn free cash flow at 14% growth, 22% returns on capital, and a moat built on thousands of small vertical software businesses. Down 50% on AI fears. Worth watching.

Best Anchor Stocks on Constellation Software (🇨🇦 CSU TSX - CAD$53bn)
A second take on CSU, focused on the new public-market minority stake strategy. $2.1bn deployed in 2025 with $802m in January-February 2026 alone. Capital allocation remains best-in-class.

Global Outperformers on FactSet (🇺🇸 FDS US - US$7.6bn)
Mission-critical financial data with 90% client retention, now at 13x P/E after a 54% drawdown. Thoma Bravo and Hellman & Friedman circling for a take-private at 25-40% premium. Baron Capital doubled its stake.

Value Don't Lie on CBIZ (🇺🇸 CBZ US - US$1.5bn)
Below book value at 7.7x forward earnings after a 60% decline. The 7th-largest US accounting firm. Management buying aggressively and targeting 15% EPS accretion via buybacks. Marcum debt is the overhang.

Tyler Moody on Unit Corporation (🇺🇸 UNT US - US$346m)
Cash covers 46% of the market cap with zero debt. Post-bankruptcy E&P paying a 16% dividend yield. Selling the drilling business could trigger a large special dividend.

Uzo on Entravision Communications (🇺🇸 EVC US - US$270m)
The market sees a declining Hispanic broadcaster. Underneath sits an adtech unit growing 104% with 12.5% margins, valued at 4x forward free cash flow. CEO’s options vest at a 5x stock price.

Wolf Of Oakville on AirIQ (🇨🇦 IQ V - CAD$16m)
94% recurring revenue growing 31% with zero debt and 41% insider ownership. Made an acquisition at 2.6x EBITDA. Quality micro-cap, though 26-32x earnings isn’t cheap.

Europe, Middle East & Africa

Rock & Turner Investment Analysis on London Stock Exchange Group (🇬🇧 LSEG LN - £43bn)
The valuation gap is stark: 18x forward earnings versus 30x+ for US peers like S&P Global. 73% recurring revenue, systemically important clearing infrastructure, and AI that helps rather than threatens the business.

Capitalist Letters on Magnum (🇳🇱 MAGN GA - €8.3bn)
Index funds don’t want an ice cream company, so the world’s largest one trades at 8.6x adjusted EBITDA fresh off the Unilever spin-off. Six executives spent €1.8m buying stock within weeks of listing.

Etruscan Capital on Vistry (🇬🇧 VTY LN - £1.3bn)
The UK’s largest affordable housing builder at 6.5x earnings with £250m in government grants and a £36bn pipeline. Capital-light partnership model. Potential grant upgrade to £700m is the catalyst.

Myles Kuah on Viel & Cie (🇫🇷 VIL PA - €1.1bn) TOP PICK
The 70% stake in Compagnie Financiere Tradition alone is worth €1.6bn, more than Viel’s entire market cap. Owner-operator Patrick Combes has compounded at 24% annually for 35 years. Zero analyst coverage.

Miroslav Štěpánek on Trufin (🇬🇧 TRU LN - £119m)
Profits surged 720% driven by Playstack’s indie game publishing arm, which averages 500% ROI. Net cash, £70m in tax losses, and aggressive buybacks reducing the share count by 8%.

Asia-Pacific

WinterGems: Industry Research on Sony (🇯🇵 SNE US - US$130bn)
12.5x EV/EBIT versus a 16x historical average, with Games and Music divisions now outearning Nintendo and Universal Music. Record Q3 and GTA6 launching November 2026 provide catalysts.

Variant Perception Capital on Nintendo (🇯🇵 7974 JP - US$67bn)
¥2.3tn cash, zero debt, 35% off August highs. Switch 2 runs native AAA third-party titles for the first time, unlocking 7x more software volume and 30% eShop platform fees on each sale.

FirstHill's Investments on RS Technologies (🇯🇵 3445 JP - US$700m)
31% global share in reclaimed silicon wafers with a subsidiary stake worth more than the entire market cap. 44% founder ownership, net cash at 70% of market value. China risk is real.

smallvalue on Lion Rock Group (🇭🇰 1127 HK - US$131m) TOP PICK
4.8x P/E with 20% free cash flow yield, an 8% dividend, and net cash. Founder CK Lau owns 48% and keeps buying. Trades below book value with zero analyst coverage.

BlackBull Research - Skin in the Game
Draws a parallel between prediction market accuracy and founder-led company outperformance. Both work because participants bear the consequences of being wrong, aligning incentives in ways traditional structures don’t. (4 min read)

Waterboy Stocks - Modifying Mr. Market
Updates Graham’s Mr. Market framework for modern conditions. Passive flows and algorithmic trading have changed how manic-depressive pricing works, creating different types of value opportunities than Graham envisioned. (4 min read)

The Intellectual Investor - On AI Eating The World
Rather than chasing AI winners, argues the better opportunity is in quality businesses temporarily mispriced because the market assumes AI will destroy them. A value investor’s contrarian take on disruption narratives. (8 min read)

Crack The Market - The $7tn Oil & Gas Primer
Maps the entire oil and gas value chain from upstream exploration through midstream to downstream refining. Especially relevant as Iran strikes and Hormuz disruptions reshape energy markets this week. (45 min read)

FT Alphaville - Oil markets are not prediction markets
Explains why crude prices don’t reflect geopolitical probabilities the way traders assume. Oil futures price supply and demand, not event risk, which is why prices can spike on Hormuz fears while signalling no long-term shortage. (8 min read)

TacticzHazel - Why Chip and AI-stocks are falling due to higher oil prices
Higher oil prices trigger cascading energy costs across Asia’s semiconductor fabs and data centres. TSMC, SK Hynix, and Samsung face 3-6% revenue headwinds from elevated electricity, with helium and bromine supply constraints as secondary risks. (5 min read)

Asia Decoded - Is India’s Rise Inevitable?
Podcast that explores whether demographics, governance, and capital markets can sustain India’s optimistic consensus or if the hype outpaces fundamentals. Examines structural headwinds China faced at a similar stage. (53 min listen)

Several of these letters share a common frustration: 2025 rewarded speculation over fundamentals. Funds focused on quality and defensiveness had brutal years while deep value managers posted career-best returns. Copper, energy, and owner-operators are recurring themes.

Alluvial Capital Management: Returned 41.2% net in 2025, the fund’s best year in nine years of operation, versus 23% for the Russell MicroCap. Gains came from “laundry soap, canned corn, mid-tier shopping malls, and useful rocks” rather than AI.

• Sylvamo (🇺🇸 SLVM US - US$1.5bn) - New Position: uncoated freesheet paper maker facing short-term headwinds from expiring supply agreement and weak European demand

• Garrett Motion (🇺🇸 GTX US - US$3bn) - Existing Position: shares doubled after 9% buyback, dividend initiation, and commitment to return 75% of free cash flow

• Net Lease Office Properties (🇺🇸 NLOP US - US$200m) - Existing Position: liquidation play with capital returns expected as property sales accelerate through 2026

Long Cast Advisers: Flat for 2025 after returning 1% in Q4, trailing indexes for the year but compounding at 14% annually since inception in November 2015.

• Cross Country Healthcare (🇺🇸 CCRN US - US$260m) - New Position: nurse staffing company with 40% of market cap in cash after failed $615m acquisition by AYA; founder Kevin Clark returned as CEO

• NRC Health (🇺🇸 NRC US - US$430m) - New Position: hospital consulting business at 13x trough EBITDA with improving customer engagement metrics

• Euronet Worldwide (🇺🇸 EEFT US - US$4bn) - New Position: rolled gains from acquired CCRD into legacy payments company trading at single-digit multiples

Third Avenue Small-Cap Value Fund: Returned 14.04% for full year 2025 versus 10.80% for the MSCI USA Small Cap Value index.

• Kaiser Aluminum (🇺🇸 KALU US - US$1.3bn) - Existing Position: strong quarterly results and progress on multi-year capacity expansion in aerospace and packaging

• Collegium Pharmaceutical (🇺🇸 COLL US - US$2bn) - Existing Position: record quarterly revenue with improved operating income guidance and new buyback authorization

Third Avenue Value Fund: Returned 35.46% for full year 2025 versus 21.09% for the MSCI World index. Over 70% of the portfolio is denominated in foreign currencies.

• Warrior Met Coal (🇺🇸 HCC US - US$4bn) - Existing Position: Blue Creek mine began commercial production eight months ahead of schedule

• Lundin Mining (🇨🇦 LUN TSX - US$9bn) - Existing Position: copper thesis playing out as supply constraints meet growing AI data centre and electrification demand

• Deutsche Bank (🇩🇪 DBK GR - €30bn) - Trimmed Position: shares traded above book value for the first time since the global financial crisis

Pzena Global Small Cap Focused Value: Returned 13.8% gross for full year 2025 versus 19.9% for the MSCI World Small Cap index.

• Winnebago Industries (🇺🇸 WGO US - US$1.5bn) - New Position: recreational vehicle maker under pressure from cyclical lows in a highly consolidated industry

• Advance Auto Parts (🇺🇸 AAP US - US$2bn) - Existing Position: traded down on consumer sentiment concerns despite ongoing turnaround

• Teleperformance (🇫🇷 TEP PA - €7bn) - New Position: outsourced customer experience provider with 20%+ free cash flow yield as market overprices AI disruption

Signia Small Cap Value: Returned 44.13% gross (36.53% net) for full year 2025 versus 12.59% for the Russell 2000 Value index.

• Liberty Energy (🇺🇸 LBRT US - US$2bn) - New Position: completion services provider at 3x EV/EBITDA with power innovations segment assigned near-zero value

• Alaska Air Group (🇺🇸 ALK US - US$5bn) - New Position: transitory Q4 headwinds; management targets $10+ EPS by 2027 versus $5 in 2025

• Patterson-UTI (🇺🇸 PTEN US - US$3bn) - Existing Position: energy services positioned for activity recovery

Madison Small Cap Fund: Down 0.4% in Q4 2025, underperforming the Russell 2000’s 12.8% for the full year. Quality bias punished in a speculative market.

• Western Alliance (🇺🇸 WAL US - US$8bn) - Existing Position: regional bank with improving deposit trends

• Mirion Technologies (🇺🇸 MIR US - US$3bn) - Existing Position: nuclear measurement technology benefiting from nuclear revival tailwinds

BBH Select Mid Cap ETF: Down 5.6% for full year 2025 versus the Russell Midcap’s 10.6% gain. Unprofitable companies in the index surged 42.9%.

• Darling Ingredients (🇺🇸 DAR US - US$5bn) - Existing Position: animal byproduct rendering leader with Q3 sales up 10%

• Keysight Technologies (🇺🇸 KEYS US - US$30bn) - Existing Position: test and measurement leader; AI-related revenue at 10% and growing

• Shift4 Payments (🇺🇸 FOUR US - US$8bn) - Existing Position: payments processor declined 18.6% in Q4 despite strong fundamentals

Thanks to Insider Monkey for compiling the investment letters which are featured here.

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Disclaimer: This newsletter is for informational purposes only and not investment advice. The intro reflects my views, while investment summaries are my interpretations of original authors' analyses. Information may not be fully verified and is subject to correction. Original authors' complete views may differ. Always do your own research before making investing decisions.