Giles Capital Weekly - Week 7
Welcome to another edition of Giles Capital Weekly. Trump's "Chaos Blitz" continues to create ripples, with his administration's moves ranging from FEMA grant halts to potential Treasury payment disruptions. Moving away from distractions we can see companies like Basic-Fit demonstrating how breaking conventional business wisdom can lead to exceptional results, and how the PGM metals sector is showing intriguing value opportunities amid market pessimism. I've also been fascinated by several small-cap stories emerging from various corners of the globe, particularly in the mining and technology sectors.
My top picks for this week highlight two exceptional companies capitalizing on powerful market trends. From Double Alpha Factory, Flow Traders stands out as Europe's leading liquidity provider, delivering its second-most profitable year in history with €468 million in Net Trading Income and impressive 45% EBITDA margins. Their strategic expansion of trading capital by 30% in 2024 and growing presence in crypto ETPs positions them perfectly for the continued growth in passive investing and digital assets. From Safe Harbor Stocks, EnerSys emerges as a transformative force in energy storage, successfully pivoting from traditional batteries to high-margin energy solutions. With guided revenue of $3.6-3.64 billion and projected 19% EPS growth, their innovative Fast Charge & Storage systems and strategic DOE-backed gigafactory development demonstrate strong execution of their energy transition strategy. Their diversified end markets across data centers, telecommunications, and defense, combined with robust margins and an 8.2% free cash flow yield, make them particularly compelling at current valuations.
Americas
Max Dividends on Costco Wholesale (🇺🇸COST US - $423 billion) Strong membership-based business model with 20 consecutive years of dividend increases and consistent revenue growth at $242.3B.
Pillars And Profits on Brookfield Asset Management (🇺🇸BAM US - US$96.56 billion) Analysis of asset management powerhouse with strong recurring revenue and infrastructure focus. Trading at attractive multiples with AI and data center tailwinds.
Rijnberk InvestInsights on The Trade Desk (🇺🇸TTD US - US$84 billion) First earnings miss in 33 quarters sent shares down 32%, yet still growing at 22% YoY with strong fundamentals. Trading at 40x 2025 earnings with potential upside from enhanced margins and growth recovery.
High Growth Investing on Monday.com (🇺🇸MNDY US - US$14.5 billion) Q4 revenue beat with 32% growth and expanding margins to 15%. Trading at 22.5x forward earnings with path to continued 25%+ growth.
Safe Harbor Stocks on EnerSys (🇺🇸ENS US - US$7 billion) Transforming from battery manufacturer to energy solutions provider with potential 6%+ margins. Trading at 15x trailing normalized earnings with strong recurring revenue growth.
Idea Hive on International Petroleum Corporation (🇨🇦IPCO TO - C$1.2 billion) Oil and gas producer trading at 5.5x 2024 EBITDA and 7.7x FCF with significant growth optionality through the Blackrod development project expected online in 2026.
Value Degen on Ensign Energy Services (🇨🇦ESI CN - CAD$ 543 million) Leading drilling rig operator with international diversification and a strong management team. Trading at 0.42x price to tangible book with potential for significant margin expansion.
Waterboy's Substack on FutureFuel (🇺🇸FF US - US$215.3 million) Debt-free biodiesel producer trading at 1.6x EV/FCF with consistent free cash flow generation and 4.8% dividend yield.
Europe, Middle East & Africa
StockOpine on Alcoholic Beverage Industry (🇬🇧Various - Multi-billion) Deep analysis of leading companies including Diageo (£88 billion), Pernod Ricard (€45 billion), and others. Highlights Carlsberg (£40 billion) as most attractive at 7.5x EV/EBITDA versus 5-year average of 10.5x.
Kroker Equity Research on Deutsche Boerse Group (🇩🇪DB1 GR - €32 billion) Comprehensive analysis of Europe's leading financial infrastructure provider, forecasting €5.2B revenue in 2025 with expanding margins.
Undervalued and undercovered on PGM Miners Portfolio (🇿🇦Various SA - $5-20 billion) Comprehensive analysis of major platinum miners including Anglo American Platinum ($5 billion), Sibanye Stillwater, Impala Platinum, and smaller players. Companies trading at attractive valuations with strong recovery potential.
Memyselfandi007's Substack on Robertet SA (🇫🇷ROB FP - €1.8 billion) Leading natural flavors and fragrances company with 175-year history. Trading at 19x 2024 earnings with 10% compound annual EPS growth over the past 20 years.
Kairos Research on Fidelis Insurance Holdings (🇬🇧FIHL UK - £1.44 billion) Specialty insurance and reinsurance company trading at 0.7x book value with strong underwriting performance and 87.4% combined ratio.
The Finance Corner on Basic-Fit (🇳🇱BFIT NL - €1.5 billion) European low-cost gym operator revolutionizing the fitness industry with cluster strategy. Each mature location generates €460k EBITDA with a 7-month breakeven period.
Value Investing by Double Alpha Factory on Flow Traders (🇳🇱FLOW NL - €1.2 billion) Market maker achieving second-most profitable year in company history with €468M Net Trading Income. Trading at 7.5x P/E with 45% EBITDA margins.
Javen's Substack on Litix SpA (🇮🇹LTX MI - €8.4 million) Manufacturer of robotic sculptures trading below €9 million market cap with 29% ROIC, 66% gross margins, and 22% operating margins, benefiting from high barriers to entry in specialized stonework.
One-Foot Bars on DocCheck AG (🇩🇪AJ91 GR - €50 million) German healthcare platform with 60% of market cap in cash and gold. Trading at 3.3x FY24 EV/EBIT with consistent revenue growth.
smallvalue on Toya (🇵🇱TOY PW - PLN 540 million) Polish tools distributor showing 9.46% sales CAGR since 2008. Trading at 7x P/E with founder ownership over 50%.
Asia-Pacific
Dragon Invest on Chinese Auto and Tech Companies includes:
Midea (🇨🇳000333 CH - ¥578.86 billion) World's largest appliance maker growing revenues and profits by 10%+, trading at 13x earnings with a 4-5% dividend yield.
Haier (🇨🇳6690 HK - HK$258.52 billion) Global appliance leader with 60% overseas revenue, trading at 11.8x earnings with a 3.5% dividend yield.
BYD and CATL (🇨🇳002594 CH - ¥776.65 billion & 🇨🇳300750 CH ¥1.13 trillion) Leading battery manufacturers with strong technological advantages and growing global market share.
Dragon Invest on Chinese Real Estate (🇨🇳Various CN) Detailed analysis of opportunities, highlighting:
China Overseas Land (US$28 billion) - trading at 0.37x book value with 5.57% dividend yield
Joy City Property (US$3.2 billion) - trading at 0.08x book value with strong recurring rental income
Researching Global Stocks on Tianli Education (🇭🇰1773 HK - HK$ 8.99 billion), a Chinese education company with strong growth in the student tours segment. Revenue is up 45% YoY with expanding margins.
Turtles Research on Dada Nexus (🇨🇳DADA US - US$500 million) Critical analysis of JD's $2/share buyout offer, arguing it significantly undervalues the company given its $1.5 billion revenue run rate and path to 10% EBITDA margins.
The Great Wall Street on China Starch and Silver Grant (🇭🇰3838 HK - HK$1.42 billion & 🇭🇰0171 HK - HK$ 209.69 million) Multiple company analysis highlighting China Starch's potential to earn twice its enterprise value in 2024 and Silver Grant's HK$509 million gain from NPL sale. Both are trading near net current asset value.
Turtles Research on Steppe Gold (🇨🇦STGO CN - CAD$197 million) Mongolia's leading gold miner with a production target of 140,000 ounces by 2026. Trading at 2x trailing nine-month cash flow with significant expansion potential.
The Magic Bakery on Serverworks (🇯🇵4434 JP - JPY 20 billion) Leading AWS partner in Japan with 90%+ recurring revenue. Trading at 15x trailing normalized earnings with potential for margin expansion.
Jimmy's Journal - What I Learned After 8 Years Working as an Equity Analyst Valuable lessons on target prices, market psychology, and staying within one's circle of competence. Essential reading for investors at all experience levels. (15 min read)
Quality Stocks - Why the Huge Capex in the Big Tech Companies is not an Issue (for Now) Analysis of massive AI infrastructure investments by Microsoft, Alphabet, Amazon and Meta, expected to reach $300B in 2025. Questions remain about returns on these investments as costs could be disrupted by emerging technologies.
Kingswell - Value Investing According to Li Lu Clear breakdown of Li Lu's six fundamental concepts of value investing, with timeless wisdom particularly relevant in today's market environment. (12 min read)
KonichiValue Japan - Japan's Bubble-Burst: Why Sweden Recovered and Japan Didn't Compelling comparative analysis of how Sweden and Japan handled their respective financial crises, with important lessons for modern policymakers and investors. (20 min read)
Asian Century Stocks - How do Zoomers behave? Comprehensive analysis of Generation Z's consumer behavior and its investment implications across various sectors, particularly in Asian markets. (18 min read)
Capitalist Letters - Why You Should Never Invest in a Pure E-Commerce Business? Insightful argument about why pure e-commerce businesses struggle without ecosystem development, using Amazon and Alibaba as case studies. (15 min read)
Jingshu's Substack - Resonating Cycles as a Potential Source of Alpha Academic yet accessible exploration of various market cycles and their potential for generating investment alpha, with practical applications for portfolio management. (25 min read)
Emerging Market Skeptic - Emerging Market Links + The Week Ahead Detailed roundup of emerging market developments and investment opportunities, with particularly strong coverage of Asian markets. (30 min read)
D Invests - Huntington Ingalls Deep dive into the largest U.S. military shipbuilder, with compelling valuation metrics and analysis of the defense industry landscape. (20 min read)
Noahpinion - Anti-anti-neoliberalism is also not enough Thoughtful analysis of Biden's economic legacy and the future of progressive economics. Essential reading for understanding the evolving economic policy landscape. (25 min)
Rock & Turner - Rolling the Dice: The Leadership Gamble Fascinating exploration of leadership qualities through the lens of Will Thorndike's "The Outsiders." Great insights on what makes exceptional CEOs. (15 min)
Stock Picker's Corner - America's Megaton Debt Bomb Compelling analysis of U.S. debt challenges featuring insights from financial historian Mark Higgins. Important context for macro investment decisions. (20 min)
TQI Capital - The power of brand Insightful analysis of branding moats using Nike and Starbucks as case studies. An excellent framework for evaluating consumer companies. (15 min)
Noahpinion - It's time for Europe to stand up Compelling analysis of Europe's need to increase defense spending and military capabilities as U.S. priorities shift to Asia. Essential reading for understanding geopolitical risks. (15 min)
TQI Capital - 13F Fund Manager Portfolio Reviews Insightful analysis of major fund managers' Q4 portfolio changes, highlighting slowdown in buying activity and shift away from MAG 7 stocks. (10 min)
The Coal Trader - Construction of Coal Power Plants in China Eye-opening report on China's parallel energy strategy, showing how renewable growth coexists with expanding coal capacity. (8 min)
The International Investor - Global Trade, Energy, and Industry Comprehensive overview of major market developments, from auto industry consolidation to surging electricity demand. (12 min)
A Letter a Day - Zero-Toll Medicine Fascinating proposal for revolutionizing healthcare payments using blockchain and smart contracts. (25 min)
Generative Value - OpenAI, Part 2 Deep dive into OpenAI's technology, business model, and financials. Projects $100B revenue by 2029. (20 min)
Behind the Balance Sheet - The Great EBITDA Illusion Eye-opening analysis of how EBITDA adjustments have evolved, showing concerning trends in leverage forecasts. (15 min)
Panda Perspectives - China Weekly Wrap Comprehensive overview of Chinese markets, highlighting strong performance in tech and consumer sectors. (18 min)
Capitalist Letters - Amazon: Still A Double From Here? Thorough analysis projecting potential 100% upside based on cloud, advertising, and e-commerce expansion. (25 min)
The Q4 2024 letters reveal common themes around small-cap value opportunities, concerns about market concentration in mega-cap tech, and mixed views on the new Trump administration's potential impact. Several managers highlight specific value opportunities in overlooked areas while maintaining caution about broader market conditions.
Alluvial Capital Management: Value-oriented strategy focused on small and micro-cap companies. Outperformed Russell 2000 with a 16.4% return in 2024. Continues to find opportunities in overlooked real estate and international markets despite mega-cap tech dominance. Letter discusses:
Net Lease Office Properties - Existing Position: Liquidation play with strong property sales progress, debt reduced from $215M to $61M in 6 months
Zegona Communications (🇬🇧ZEG - £4.29B) - Existing Position: Telecom turnaround showing stabilizing revenues and improved cash flow, fiber asset sales expected H1 2025
Blue Tower Asset Management: Global value strategy returned 22.27% net in 2024. Notes significant market disparity between tech giants and the rest of the market. Discusses AI developments including DeepSeek breakthrough and Stargate Project infrastructure buildout. The letter discusses geopolitical developments including potential Ukraine-Russia resolution.
Diamond Hill Small Cap Fund: Outperformed Russell 2000 in Q4 and full year. Finding opportunities in industrials and consumer staples while remaining underweight technology. Letter discusses:
United States Lime & Minerals (🇺🇸USLM - $2.98B) - Existing Position: Benefiting from higher pricing and volumes in construction markets
Mesa Laboratories (🇺🇸MLAB - $791.58M) - New Position: Life sciences company transformed into biopharmaceutical solutions provider
Donville Kent Asset Management: Growth-focused strategy returned 102.75% in 2024. The portfolio includes high-growth Canadian small caps with strong profitability metrics. Letter discusses:
Zedcor (🇨🇦ZDC - $340M) - Existing Position: Security technology company with 85% projected revenue growth and 107% earnings growth for 2025
Propel Holdings (🇨🇦PRL - $1.5B) - Existing Position: Fintech company projecting 41% revenue growth and 72% earnings growth for 2025
MDA Space (🇨🇦MDA - $3B) - Existing Position: Projecting 29% revenue growth and 37% earnings growth for 2025
Fiduciary Management Inc: Value-oriented strategy highlighting concerns about market concentration and speculative behavior. Notes top 10 S&P 500 stocks now represent 40% of the index, a 100-year high. Letter discusses:
Donaldson Company (🇺🇸DCI - $8.19B) - Existing Position: Global filtration leader with resilient aftermarket business and attractive valuation below-market multiple
Progressive Corp (🇺🇸PGR - $153.83B) - Existing Position: Auto insurer benefiting from pricing recovery and commercial lines expansion
Edenred SE (🇫🇷EDEN - €8.16B) - Existing Position: Digital payment solutions provider trading at low-teens earnings multiple with strong growth prospects
Giverny Capital Asset Management: Returned 21.09% net in 2024, trailing the S&P 500's 25.02%. The portfolio has 16.8% exposure to mega-cap tech vs index at 33.7%. Letter discusses:
M&T Bank (🇺🇸MTB - $33B) - Existing Position: Best-in-class regional bank trading at 12x 2025 earnings with strong capital position
Ashtead Group (🇬🇧AHT - $28B) - Existing Position: Equipment rental leader benefiting from skilled labor shortages, trading at 17x cyclically weak earnings
Installed Building Products (🇺🇸IBP - $5.5B) - Existing Position: Leading insulation installer with 30% market share and strong pricing power
Kinsale Capital Group (🇺🇸KNSL - $10B) - New Position: Specialty insurer with 1.5% market share and industry-leading expense structure
Greystone Capital: Small-cap-focused strategy returned a median of 19.9% net in 2024. Finding opportunities in overlooked areas while maintaining concentrated positions. Letter discusses:
Sylogist (🇨🇦SYZLF - CAD$222.38M) - Existing Position: ERP software provider with 70% recurring revenue and 60% gross margins
Natural Resource Partners (🇺🇸NRP - $1.33B) - New Position: Coal royalty business with 90% free cash flow margins and decades of reserves
Innovative Food Holdings (🇺🇸IVFH - $105.33M) - Existing Position: Specialty food distributor targeting $100M revenue and 10% EBITDA margins
Hoisington Investment Management: Macro-focused strategy highlighting global capacity utilization concerns. Notes U.S. capacity utilization at 76.9%, significantly below historical recession entry levels of 82.9%. Expect continued disinflation pressure globally.
Thanks to Letters & Reviews (lettersandreviews.blogspot.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.
Thanks for including my piece!