Giles Capital Weekly - Week 18
Welcome to another edition of Giles Capital Weekly. Last week's GDP shocker showed a 0.3% contraction in Q1, sending stocks into a brief tailspin before a remarkable recovery. It seems this contraction stems primarily from import surges rather than fundamental economic weakness. Meta and Microsoft both delivered strong earnings, showcasing AI's tangible business impact, with Meta reporting that AI recommendations are driving increased time spent on its platforms. In other news, the Oracle of Omaha surprised investors last weekend by announcing his retirement as CEO at year-end, passing the torch to Greg Abel while keeping his chairman role. In classic Buffett style, he expressed full confidence in his successor, noting he has "zero" intention of selling a single Berkshire share as he believes the company's prospects will be "better under Greg's management than mine" - a characteristic display of his signature modesty.
My top picks showcase two exceptional market leaders with extraordinary potential and lasting competitive advantages. From Canopy Research, Nextracker stands out amid the recent solar sell-off, trading at just 10x EBITDA despite its asset-light model delivering 23.3% EBITDA margins and a 21% FCF margin. From The Outsiders' Corner, Topicus demonstrates exceptional cash conversion where €469M in earnings before amortization produced €494M in free cash flow over two years, while evolving toward a holding company structure with minority stakes following the successful Constellation Software playbook.
Americas
Value Don't Lie on Markel (🇺🇸MKL US - $23 billion) Specialty insurer touted as "baby Berkshire" trading at 5.1x operating income with $1,025 per share in net cash and investments (57% of market cap) while an activist pushes for separation of insurance and operating businesses.
TSOH Investment Research on Ally Financial (🇺🇸ALLY US - $10.28 billion) Auto lender positioned for earnings growth through improving deposit repricing (20bp improvement on funding costs) and reduced exposure to problematic 2022 vintage loans, with CFO buying $1 million of shares in recent months.
The Outsiders' Corner on Topicus (🇨🇦TOI CA - CA$13.50 billion) Deep dive into software consolidator Topicus (controlled by Constellation Software) highlighting its exceptional cash conversion where €469M in earnings before amortization produced €494M in free cash flow over two years, while evolving toward a holding company structure with minority stakes.
Canopy Research on Nextracker (🇺🇸NXT US - $9.0 billion) The recent solar sell-off has created a mispricing opportunity with Nextracker trading at just 10x EBITDA despite its asset-light model delivering 23.3% EBITDA margins and a 21% FCF margin.
Value Degen’s Substack on Atlas Energy Solutions, Smart Sand, and Alpine Silica (🇺🇸AESI US - $1.74 billion | 🇺🇸SND US - $91 million | 🇺🇸ACDC US - $735 million) Analysis of three frac sand providers highlighting Atlas Energy's innovative 42-mile conveyor belt and 7% dividend yield at 1.67x sales, Smart Sand's undervalued Northern White sand business at 0.3x sales, and Alpine Silica's 35% EBITDA margins within ProFrac Holdings.
Value Degen’s Substack on Forum Energy Technologies and Oil States International (🇺🇸FET US - $176.89 million | 🇺🇸OIS US - $266.67 million) Comparison of two oil service consumables manufacturers with Forum Energy ($816M revenue) showing better insider behavior, fatter margins, and growing revenues at just 0.23x sales versus Oil States' 0.32x sales multiple.
Wolf of Oakville on Kraken Robotics (🇨🇦PNG CA - CA$650 million) Undersea technology company reported record $91.3M revenue in 2024 (31% YoY growth) with 2025 guidance of $120-135M including contribution from newly acquired 3D at Depth, though cash flow challenges persist with $11.6M operational cash burn in 2024.
Just A Value Investor on Goodheart-Wilcox (🇺🇸GWOX US - $181 million) This 100-year-old educational products company focusing on Career, Technical, and Health Education fields trades at just 13x earnings with a 6.5% dividend yield while its digital revenue segment is growing at an impressive 33% CAGR.
AlmostMongolian on Sintana Energy (🇨🇦SEI CA - $138 million) Recent positive developments for this African oil exploration company include promising drill results at the Mopane 3X well showing "significant columns of light oil and gas-condensate" in the "oilier" Southeast region, yet the stock trades at just 51 cents CAD, down 29% since February.
Wolf of Oakville on Simply Better Brands (🇨🇦SBBC CA - CA$98.36 million) TruBar maker achieved 69% revenue growth to $45.3M in 2024 with gross margins improving 130 basis points to 29.3%, though Q4 reported revenue was impacted by $8M in vendor discounts that masked actual sales growth.
Europe, Middle East & Africa
Memyselfandi007's Substack on Robertet, DCC Healthcare, and Eurokai (🇫🇷RBT FR - €1.76 billion | 🇬🇧DCC GB - £4.88 billion | 🇩🇪EUK DE - €459.23 million) Updates on three European companies: French flavor company Robertet reporting €90M net income (€43 EPS), DCC selling its healthcare division for 12x operating profit, and German port operator Eurokai achieving normalized EPS of €3.19 despite one-time effects.
Hidden Market Gems on SDIPTECH (🇸🇪SDIP SE - €55 million) This Swedish provider of technical services for urban infrastructure has grown revenue by 12.7% YoY with strong 23.3% EBITDA margins and a decentralized acquisition model that preserves the expertise of acquired companies.
Asia-Pacific
Coughlin Capital on Alibaba (ðŸ‡ðŸ‡°BABA US - HK$2.30 trillion) Alibaba is strategically positioning itself in the AI race with its Qwen3 model, trained on 36 trillion tokens across 119 languages, showing performance metrics that rival leading Western models while benefiting from $53 billion in cloud and AI investments.
Researching Global Stocks on Donge Ejiao (🇨🇳000423 CN - CN¥35.04 billion) Write-up in Spanish but worth translating: Chinese traditional medicine company reported Q1 revenue up 18.24% and net profit up 26.69%, with stock falling 11% post-earnings due to increase in accounts receivable despite management explaining receivables are 93% current.
Exploring with Alluvial Capital - 20 MORE OTC Markets Oddities A fascinating tour through 20 quirky OTC-listed companies, from Federal Screw Works to Mike Lindell Media Corp. Dave Waters' deft analysis of these market curiosities highlights overlooked value opportunities while entertaining with corporate oddities you won't find in mainstream financial media. (9 min read)
Increasing Odds - Exploring AIM: A-Z Part 2 A methodical exploration of 20 companies listed on London's AIM exchange, covering everything from commodities to retail. The author's disciplined approach to finding overlooked value opportunities on this junior market provides a fascinating template for small-cap research that both beginning and seasoned investors will appreciate. (10 min read)
Jimmy's Journal - Chinese Equities: Value Play or Value Trap? A balanced examination of whether Chinese stocks represent value or value traps, highlighting structural challenges including deteriorating capital allocation efficiency, property market issues, and elevated policy risks, while acknowledging select opportunities in quality names like Alibaba, Tencent, and BYD. (7 min read)
Schwar Capital - The Market Has Got Evolution Gaming All Wrong Contrarian take on why Evolution Gaming's 20% share price drop after missing consensus estimates presents an opportunity, with the company's strategic shift to regulated markets and growing free cash flow yield of 10% providing significant value. (7 min read)
The Pragmatic Investor - The New Buffett Portfolio (And How I'm Copying It) Insightful breakdown of how Buffett is repositioning for a 1970s-style environment (high inflation, rising oil prices, weakening dollar) by increasing energy exposure, reducing tech holdings, and focusing on international diversification. (8 min read)
The Pareto Investor - Periods When to Make Money Skeptical examination of a popular "market timing" chart that claims to identify optimal buying and selling periods, with historical backtesting showing buy-and-hold vastly outperforms supposed market timing strategies. (7 min read)
Rock & Turner Investment Analysis - Industry Choices Matter | Choose Wisely Fascinating analysis of how sector selection dramatically impacts investment returns, revealing only 29% of global firms generate returns above their cost of capital. The data shows striking performance gaps between industries, with tobacco consistently generating the highest returns while airlines systematically destroy investor capital despite technological improvements and enhanced efficiencies. (12 min read)
Value in Vietnam - The Insider Buying Report | April 2025 Detailed examination of insider buying activity in Vietnamese small caps before tariff conflicts intensified, highlighting three compelling opportunities with significant management purchases: CleverGroup (trading at 7x earnings and 0.5x book value), Hydraulic Engineering Consultant (8x earnings with 7.14% yield), and Sóc Trăng Public Works (under 5x earnings with a 10%+ dividend yield). (6 min read)
The first quarter of 2025 saw significant market volatility driven by geopolitical concerns and shifting economic sentiments. Fund managers highlighted concerns around tariffs, trade policy, and valuation pressures, particularly among the "Magnificent Seven" tech stocks. Most funds positioned defensively yet remained optimistic about specific sectors offering value opportunities.
ClearBridge Dividend Strategy: Delivered positive returns while outperforming the S&P 500's 4.3% decline in Q1. The strategy demonstrated resilience through underweight positions in technology and consumer discretionary, coupled with overweight allocations to energy. Management has grown more cautious on the economy and markets due to trade tensions. Letter discusses:
Nestle (🇨ðŸ‡NESN) - Existing Position: Top positive contributor during the quarter alongside Coca-Cola
Sempra (🇺🇸SRE) - Existing Position: California utilities underperformed due to wildfire concerns affecting the state's utility-backed wildfire fund
CVS (🇺🇸CVS) - New Position: Initiated position after poor Aetna execution and declining retail profits created attractive entry point
Lakehouse Global Growth Fund: Experienced a challenging month in March, returning -7.4% versus -4.2% for its benchmark. The fund maintains strong conviction in its portfolio of market leaders with robust underlying economics. Since inception in December 2017, returned 224.5% versus 126.3% for its benchmark. Letter discusses:
Amazon (🇺🇸AMZN) - Existing Position: Largest detractor in March (-10.6%) despite strong Q1 results
Sea Limited (🇸🇬SE) - Existing Position: Delivered 37% revenue growth to $5.0B and 366% growth in adjusted EBITDA to $591M
Tradeweb (🇺🇸TW) - Existing Position: Top contributor (+9.5%), captured 17.8% market share in electronic trading for U.S. high-grade credit
Lakehouse Small Companies Fund: Returned -7.7% in March versus -3.6% for the benchmark. Management maintains conviction despite volatility, citing strong fundamentals and limited exposure to businesses manufacturing in international markets. Since inception in November 2016, the fund has returned 167.8% compared to 65.3% for the benchmark. Letter discusses:
FINEOS Corporation (🇮🇪FIN) - Existing Position: Top contributor (+17.4%), trades at 2.7x forward EV/Revenue with improving operating metrics
Pinnacle (🇦🇺PNL) - Existing Position: Largest detractor (-21.8%); consortium including National Pension Service of Korea paid $50M for 4.17% stake in Metrics Credit Partners subsidiary
Catapult (🇦🇺CAT) - Existing Position: Targeting growth from $100M to $1B annual contract revenue with current market penetration at only 17%
Manole Capital Management: Celebrating its 10th anniversary, the fund delivered strong performance in January alongside broader market gains. Management highlights concerns about the Magnificent Seven's shifting free cash flow dynamics as capital expenditures increase for AI investments. Letter discusses:
DeepSeek controversy: Questions China's claim of training a high-performing AI model for just $6M while tech stocks shed $1 trillion in value
Credit card regulation: Analyzes proposed bipartisan caps on interest rates at 10%, suggesting such price controls could backfire by reducing credit access
X (formerly Twitter): Details Elon Musk's plans to transform the platform into a financial super app with X Money, securing money transmitter licenses in 41 states
Pabrai Wagons Fund: Portfolio consists of diversified value investments across global markets. Fund shows significant allocations to Turkish airports (16%), coal businesses (15%), and Indian financial services (15%). Performance metrics indicate the fund has outperformed the S&P 500 over various time periods, though specific numbers aren't clearly presented. Letter discusses:
TAV Airports (🇹🇷TAVHL) - Existing Position: Turkish airports operator representing 16% of portfolio
Edelweiss Financial (🇮🇳EDELWEISS) - Existing Position: Indian financial services company representing 15% of portfolio
Multiple U.S. car dealerships and homebuilders - Existing Positions: Combined allocation of approximately 20% of portfolio
Thanks to Buy Side Digest (buysidedigest.com) for compiling investment letters, which is where I sourced these letters.
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Disclaimer: This newsletter is for informational purposes only and does not constitute investment advice. All opinions expressed are those of the quoted authors and do not necessarily reflect the views of the newsletter creator. Always do your own research before making investment decisions.
Great read thanks. Thoughts on NXT's constant decadent share issuance?