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Summary:
Not every position earns its place. This quarter, one didn’t — and we exited before it could do real damage. That’s the bench working as intended, a key part of how we think about portfolio allocation. A topic we’ve found surprisingly harder than finding great ideas.

Alongside that, we go through three bench holdings (small weight) and two watchlist ideas — including a defensive UK compounder at ~12x earnings, a John Malone-linked spin-off trading at ~11x cash flow, and a holding company with exposure to the AI buildout.

Disclaimer: This newsletter is provided for informational and educational purposes only. The views expressed are my own and do not constitute financial advice or recommendations to buy or sell any securities.

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We recently made a mistake. After our recent Serial Acquirer writeup, we initiated a small position in Momentum Group — while passing on Lifco, a clearly better business at a slightly higher multiple. Lifco’s quality became even more evident after Q1 2026: Momentum delivered -6% organic growth, Lifco came in positive, as usual. The market reacted accordingly, sending Momentum Group down ~17%.

So why did we choose the cheaper, lower-quality alternative?
We had studied Lifco years earlier at roughly half the price. That reference point probably stayed with us — making it harder to justify buying a better business at a higher price. This is a classic case of anchoring bias — something we’re aware of, yet didn’t fully overcome here.

The important safeguard here was position sizing. Momentum was intentionally kept small. The “bench” is designed exactly for these situations: to let conviction either build or fade before a position earns meaningful capital allocation. In this case, conviction faded, and we exited with a modest loss.

This stands in contrast to our investment in Norbit three years ago. We scaled in gradually, conviction strengthened with each report, and it has since become our largest position today.

This experience reinforced something we increasingly believe: finding great businesses is often easier than allocating well between them. A structured bench makes that allocation process meaningfully better, at least in our experience.

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Why the Bench matters

Over time, we understand businesses better — both their strengths and their flaws. Our decision-making seem to improve the longer we’ve followed or (more so) owned something. Keeping new positions small gives us time to refine our view before they meaningfully impact returns. If we sized up Momentum Group immediately to 10%, we wouldn’t have a similar opportunity to reassess without impacting returns similarly

Another lesson this year is what a lack of diversification brings — volatility.
Volatility is often viewed as a measure of risk, we think the bigger risk lies in not being able to participate in upside, for instance with the exceptional earnings from the Google and Amazon’s of the world, or the recent rally in energy-related stocks.

However, predicting which style wins when is hard.
Fairfax Financial — a stock that seems to appear every so often in our X feed — is a good illustration. In their 2019 Annual Report, they called out FAANG stocks as trading at absurd valuations. With the benefit of hindsight, that call was spectacularly wrong: those stocks have since returned 3 to 6 times. Similarly, Fairfax themselves have delivered similar returns over the same period, through an entirely different approach.

Given the challenge in predicting the future, we are now more mindful of using the bench and watchlist to look for traits our current key holdings lack. For instance, our latest bench addition, is a defensive consumer business trading at 12x profits, expecting double-digit growth this year.

It’s a very different business from what we currently own: 95% of revenues in their home country gives minimal risks from tariffs and geopolitcal instability. And the defensive traits means it usually performs well in tough economical times.

Similarly, on our watchlist, we have one idea that benefits from the current AI investments. Exposure our portfolio currently lacks. We’ll now go through our 3 Bench Holdings (<3% weight) and 3 Ideas on our Watchlist.

Harvia (3% weight)

Harvia is the leading player in a historically 5% growing global sauna market, now expected to grow faster going forward. A leading brand with stable operating margins around 20% and efficient scale-advantaged sourcing + production. Taking a consolidator role, by buying up attractive assets within the fragmented sauna industry. Significant growth markets: US, Japan and China to name a few, whereas replacement demand provides recurring revenues in well-established markets closer to home (Finland).

To fuel the significant growth Harvia has had, we estimated a ~70% reinvestment rate, while paying out a 50% dividend payout ratio (both in relation to NOPAT). Net Debt to EBITDA have remained stable around 1x, exactly what a high ROIIC business enables — growth, free cashflows and low debt. We estimate around 19% ROIIC.

We believe Harvia is well positioned for double-digit profit growth, while paying a 2%+ dividend yield. Given the growth potential and market-leading position, we think the stock is fairly priced around 20x EV / NOPAT today (36 EUR per share).

We have avoided making Harvia a larger position so far, due to the price tag well north of 20x EV / NOPAT for a long period. Recent share price pressure provided an attractive entry point. We’ve owned Harvia for a year now, and consider scaling it up.

Scottish Mortgage Investment Trust (watchlist)

We’ve learned that we prefer sleep-well businesses — steady growth, lots of free cashflows and easy to understand businesses.

However, the recent AI buildout we did not participate in would require a different investment style. One which the Scottish Mortgage Investment Trust have finetuned over a century. Early investments, fast growth and Long holding periods.

They benefited from Nvidia’s and Tesla’s surging demand, transitioned those position into more Taiwan Semiconductor and ASML. Further, they invested in the private companies SpaceX and Anthropic, both of which could IPO at multiples higher prices than what Scottish Mortgage paid for their ownership stake.

We think Scottish Mortgage is a great way for us to outsource research into the type of companies we would not have an edge in studying, while getting exposure to the largest megatrends of the world. In the last years, they’ve also demonstrated that they’re willing to buyback their own shares when trading at a large discount to NAV.

Momentum Group (recent sale)

An industrial market leader comprising 37+ decentralised businesses. We covered the company in our Serial Acquirer Writeup; key figures are shown below.

In our ROIIC calculations, we’re including our expectations for 2026, which is now showing flat EBITA and negative organic growth, which hurts ROIIC, as plenty of investments will occur this year. 12% ROIIC is not the return we’re looking for, but this is calculated from peak margins in 2021. The comparison point is more favourable from 2019 or 2022 for example.

Organic growth of -6% is not necessarily structural, but it reinforces an initial concern: Momentum Group operates with structurally lower EBITA margins than peers such as Lifco, potentially signalling lower underlying business quality. This concern is further amplified when compared to other industrial acquirers—AQ Group, Lagercrantz, and Diploma—which continue to deliver solid organic growth.

We also note a shift in tone from CEO Ulf Lilius. In Q4 2025, commentary pointed to improving conditions into 2026. However, in the Q1 2026 call, that optimism appears to have faded, with guidance now implying a weaker outlook for the year.

Our long-term view on Momentum Group remains positive. Nevertheless, we expected the Industry segment, given its exposure to aftermarket demand, to show greater resilience. However, the recent performance suggests that a significant share of revenues remains tied to underlying activity levels, making the business more cyclical than initially assumed.

The challenge is compounded by valuation. Even after a ~17% share price decline, the stock trades around 21x EV/NOPAT, offering limited margin for error alongside a modest ~1% dividend yield.

From an opportunity cost perspective, alternatives look increasingly compelling. Volati trades at a ~40% discount, with indications of exiting its current downturn and a planned spin-off of its most cyclical segment — potentially leaving a higher-margin quality core. Alternatively, one could justify paying a ~20% premium for Lifco, given its superior margins, more consistent organic growth, and similarly disciplined acquisition strategy.

We have not reached a final conclusion, but for now, we do not plan to increase our position in Momentum Group despite the recent share price weakness.

Now to the newest bench holding, a defensively positioned UK small-cap at a 12x profit multiple and expected to grow at low double-digits this year. Following this, we share a watchlist idea trading at 10x free cashflows and recently announced a significant acquisition, perhaps the first of many.

A.G. Barr (2% weight)

A portfolio of drinking brands in the United Kingdom, with Irn-Bru as the enduring standout - the only soda brand beating Coca-Cola in a developed market (Scotland). Today, they have 3 other key brands - Boost, Rubicon and Funkin - all acquired at attractive prices and grown organically since. Along with several smaller brands, and partnerships with famous products like Bundaberg, San Benedetto and Snapple.

AG Barr has been a steady grower with low reinvestments around 50% of NOPAT since 2019 and dividend payouts of 40%, resulting in an increasing net cash position. However, the introduction of management compensation tied to EPS growth and relative Shareholder returns to the stock index, means the company now requires high reinvestment rates. The company has clearly stated the ambition to reinvest more.

Luckily, AG Barr has historically been a disciplined capital allocator, with a target of around 20% return on capital employed. Add double-digit EPS growth targets for the compensation to fully vest and 20% ROCE together, and you would have a compounding machine, not something the market is pricing in at 12x EV / NOPAT.

We believe AG Barr will continue increasing their reinvestment rate, and grow high single-digit to low double-digits. The table below does not take into account that the net cash position allows a higher dividend payout while reinvesting. At 12x EV / NOPAT today, around 21% ROIIC and the resilience of a well-tasting drink - we think AG Barr is a more defensive addition to the portfolio, but with upside.

Recent News: The 2026 acquisition of Fentimans at 1x sales, a low-margin century-run family brand, looks like a synergy-play, where AG Barr’s manufacturing scale may generate higher margins for the Fentimans products.

GCI Liberty (watchlist)

We’ve been following GCI Liberty for several months and came away positively surprised by its acquisition of Quintillion.

Quintillion adds a highly complementary network footprint, strengthening redundancy across GCI’s infrastructure in rural Alaska. In practice, this means improved reliability: where one network is vulnerable, traffic can be rerouted through the other. This also serves as a counter to the risk of loss of rural customers to Starlink.

(See video below for more on the transaction and its rationale.)

The deeper investment thesis here is not just about getting a complementary network, it’s about John Malone making this into an acquirer with durable cashflow streams, an advantaged tax-benefit following it’s spinoff in 2025 and a proven acquisition strategy of Malone & Co. Following the spin-off from Liberty Broadband, the small $1.3 billion company GCI Liberty benefits from the M&A knowledge from the broader Liberty Media Group and John Malone himself, as chair of the board.

The stock is now down to $34 per share, or a $1.3 billon market cap. At an Enterprise Value of $360 million, Quintillion is a significant investment for GCI.

The deal is done at ~7x EV / EBITDA, and GCI expects $20 million of cost synergies over the next 2 years, plus the benefit of GCI’s advantaged tax assets being used.

Let’s apply some rough napkin math:
GCI Liberty generates approximately $400 million in annual EBITDA on $1,046 million in revenue. At a capex intensity of around 18% of sales (19–22% range last 3 years, guides lower) — pre-tax profit lands near $200 million. Strip out stock-based compensation and apply zero cash taxes given the company’s unique tax shield, and you’re left with roughly $190 million in pre-interest free cash flow from the core business.

Layer in Quintillion’s ~$25 million in annual FCF and approximately $10 million of first-year cost-synergies, and the post-acquisition run-rate lands around $225 million. Against an enterprise value of roughly $2.3 billion — inclusive of the Quintillion purchase price — the stock trades at approximately 10x EV/FCF.

That price seems low to fair for the defensability this business offers, but very low if John Malone succeed in his ambition of turning this into an acquirer. With the first acquisition underway, the next move may take GCI beyond Alaskan broadband. That would at least make the acquisition-story more compelling, given the lack of growth opportunities within Alaskan broadband.

We recommend Chris Waller’s substack if you are interested to read more about GCI Liberty.

Hidden Gems Investing

GCI Liberty (GLIBK) Acquires Quintillion: What is John Malone up to?

Last week, John Malone’s GCI Liberty announced it is acquiring the Quintillion fiber network for $360mm…

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8 days ago · 22 likes · Chris Waller

That’s it for today, let me know if you have any questions or ideas to look into!

All the best,
Ole

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Two events shaped the portfolio this month: we trimmed our position in Investor AB, and exited Secure Waste Infrastructure following a bid from GFL Environmental.

Investor AB: Our estimated CAGR going forward now at mid to high-single digit.
Secure Waste: Full exit at a 36% IRR over 1-year following GFL’s bid for the business.

And to the lesson of this month. After we studied the Serial Acquirer space again, we appreciated more that growth is not created equal. We illustrate this with two key holdings - Norbit and Shift4 - and why their stock returns turned so different in the last 5 years (1000% vs -50%), despite similar growth (~40% profit CAGR).

NORBIT vs SHIFT4

We gave Claude access to our detailed spreadsheets on both companies to generate the illustration below. The core takeaway is simple: the difference in ROIIC led to very different capital requirements — and the market responded accordingly. Norbit was re-rated from 16x to 26x EV/NOPAT, while Shift4 was punished from 42x down to 15x.

Two similar growing companies had a 20x variance in shareholder returns!

While the answers today are glaringly obvious Norbit was the winner, we think timing of investments are an underappreciated factor in both cases.

Norbit’s elevated ROIIC today reflects sector tailwinds and prior years of groundwork bearing fruit — including a decision to invest in their Norwegian manufacturing facilities at a time when most peers were outsourcing. Shift4, by contrast, are currently within their heavy investment phase: acquiring key assets for future cross-sell opportunities (including the massive acquisition of Global Blue) and securing new contracts by subsidising merchant onboarding.

That last point deserves more attention in understanding ROIIC. Buying out a merchant’s residual commissions to accelerate a switch, or giving away hardware for free, are upfront investments that drag on near-term returns. But once a merchant is on Shift4’s platform, that cost disappears into the rear-view mirror — and the toll-booth kicks in, quietly taking a small share of every transaction the merchant processes, year after year, with limited maintenance investments. The stickiness is the point. Shift4 has deliberately focused on verticals where switching is painful: stadiums with hundreds of software integrations, hospitality, and complex environments. We think that’s a moat built through years of patient investment — not currently reflected fully in trailing ROIC. Thus, once Shift4 slows down on growth spending, the ROIC should expand.

The thesis for Shift4 is therefore relatively simple: Key investments for success in the coming decade has been made, and as a result, debt is at a record 5x NOPAT level and ROIIC is at record lows, scaring investors. But, behind the ugly ROIIC and debt level, is a business ready to generate a ton of cashflows going forward — enough to pay down much of their debt, buyback stock and reinvest a healthy portion going forward too. The first proof was the North American Business in Q4 2025, not impacted by acquisition impact, expected to grow mid-double digits in 2026.

We may be wrong, which is also why we don’t size up positions more than the low double-digits for individual businesses. That’s still meaningful positions in our portfolio, representing almost half a years’ salary for ourselves.

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Portfolio Update

The past year has been challenging for the portfolio, with a -11% YTD return — largely driven by our decision to concentrate into Constellation Software and Shift4 at a time when software and payments became some of the most disliked sectors in the market. That said, zooming out we’re still up 102% over 3 years, and since inception in late 2021, we’ve compounded at a money-weighted CAGR of 13%. Albeit with more volatility than most indices, a price we’ve paid for concentration.

Activity has been relatively limited in recent months, aside from adding to a few key holdings. To better visualize our highest-conviction ideas, we revisited our models and estimated forward CAGRs with a ±1 standard deviation range. The goal is simple: be prepared to act decisively when opportunities arise — and focus on ranges of outcomes, with the aim of being directionally right.

This framework highlighted volatility in names like Norbit, Medistim, Eurofins, and MBB earlier this year — allowing us to increase our ownership at what we thought was attractive levels. Below, you’ll find our estimated CAGR for each of our holdings.

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I’ll be increasing the price for new subscribers tomorrow, Monday, April 13th. For current subscribers, nothing changes — you’ll remain on your current plan going forward.

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As this has grown, I’ve become increasingly focused on businesses led by exceptional capital allocators. Over time, I’ve found it easier to hold onto companies where management is well-incentivized and has a clear track record of rational capital allocation.

Eurofins Scientific and MBB SE are two such examples — still underappreciated by the market, in our view. It’s no coincidence that both are actively buying back shares (links to writeups below).

These are the types of businesses we will continue to focus on.

If you or someone you know has been considering joining, you can still lock in the current price before the change takes effect tomorrow. Annual plan: $60 → $75

I’m grateful to have you along for the journey.
— Ole

A year and a half after our first deep-dive into serial acquirers, we return with an updated look at seven elite capital allocators. If you’re new to the topic, we recommend starting with the original piece from 2024 — it lays the groundwork for what we cover here, particularly around return on capital and reinvestment rate.

This years’ writeup is available to everyone via the PDF below. If you’re on your phone, download it and open it from there.

Serial Acquirers 2026 Free Writeup

1.45MB ∙ PDF file

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The Valuation Backtest and Discussion at the end are exclusive to paid subscribers.

A note on pricing. We’re raising the annual subscription from $60 to $70 from next week. To everyone who has subscribed, both paid and free — thank you. It means more than you might think.

All the best, Ole

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Today’s piece borrows a framework from elite sport to work through a couple of biases we’ve run into. And as always, there’s a Portfolio Update at the end.

But first, a quick note. It’s been exactly one year since we launched the paid tier, and we wanted to say a genuine thank you. We’re now at 3,500 total followers and 60 paid members — something we don’t take for granted.

While we’ve been quite busy over the past six months running two businesses, one of which was founded this January, things are now settling. Our next piece will be an update to our most-read Serial Acquirer writeup, and we’re hoping it’s something worth waiting for.

One heads-up: from the 1st of April, the annual price moves from $60 → $80. If you’ve been considering a paid membership, now is a good time to lock in the current rate.

Thanks again for being here.
All the best, Ole

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What we learned about Investing from Sports

The Bench
A winning sports team rarely stays at the top forever. Over time, two things tend to happen: competitors catch up, or the players grow too comfortable.

Within any soccer team, there’s a starting eleven.. If those players feel their place is guaranteed, the small edges may start to slip — fewer extra sprints, a bit less intensity, slightly later mornings. Nothing dramatic, but it adds up. At the other extreme, you can turn over the entire squad with hungry players every season but lose the continuity that made the team strong in the first place.

The best teams strike a balance. They consistently introduce a few hungry new players each year, and suddenly the starting eleven has to earn their place again. The same applies to individual sports, where a deep pool of athletes pushing for limited spots forces even the best to go the extra mile, because their position is never secure.

I’ve seen this firsthand after years working in and competing in elite sport. And we believe applying the same lesson transfers well to portfolio construction.

Portfolio Allocation and Bias
If you’re newer to investing, it’s worth spending time understanding the biases you carry. They’re easy to underestimate early on, but you eventually realize they quietly shape almost every decision you make.

Two I’ve personally struggled with: the constant pull toward new ideas (“grass is greener on the other side”), and almost the opposite: constraining myself by thinking we always have to be long-term, even when something better exists.

This is where the sports lesson applies. My portfolio should have a bench.

The purpose isn’t to trade more. It’s to introduce competition.
A bench forces comparison: why have X% in this company, when another option looks better overall? And hopefully, works the other way too — a new idea wasn’t as strong as you thought, and your existing holdings may have had qualities you hadn’t fully appreciated.

When writing about Latour last week, it made me appreciate better how strong Investor AB’s governance is. No real key-man risk, succession already solved, a portfolio structured for stable cash flows across cycles, and the Wallenberg Foundations providing long-term continuity in ownership and strategy.

Without something to measure against, it’s easy to forget why you own what you own. Your best idea may already be in your portfolio.

How we apply the Bench in Practise

In practice, 90% of our portfolio is rarely replaced. But the last 10% change more frequently, we might introduce a handful of new companies in a year, but only a few survive longer than twelve months. There are many ways to invest, and this is simply what works for us. Your approach may look very different, and your strategy should reflect that.

How would you approach sizing up a new idea?

We’ve noticed that conviction tends to grow once we own a business — you read the reports differently, pay closer attention to how management communicates, notice things you’d otherwise skim past. So when we got interested in Kontron recently, we didn’t open at 1% with the intention of sizing up later. We opened at 1% because that is the right size for this stage — enough skin in the game to follow it seriously, not enough to be committed before we’ve seen them execute. With earnings next week, that’s a meaningful data point in deciding what comes next.

We’ve made the mistake of sizing up too early, we didn’t open at 1% with the intention of sizing up later.. The cost of that discipline is occasionally being slow to add into a great opportunity. We think that’s a worthwhile tradeoff — moving carefully means fewer large mistakes, and on the bench, that’s exactly the point. Most of these positions won’t make the cut. That's exactly what the bench is for.

If you find interest in the topics discussed above, you would probably love the book: What I learned about investing from Darwin, by Pulak Parsad. If you’re too busy for that, check out his very quick lesson summary in half a minute below.

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For the first time in 8 years, Latour is priced at a discount to its Net Asset Value. Let’s look under the hood of this $14 billion Holding Company, and ask whether the market has handed us a good entry point into one of Europe’s finest compounders.

Latour was founded in 1985 by the Douglas Family, who remain the controlling shareholder to this day, with four decades of skin in the game.

With the press of a button, we have the chance to partner with these market-beating capital allocators and the portfolio they’ve quietly compounded for 40 years. 15% annually over the last 25, a return that puts most institutional investors to shame.

But perhaps just as impressive as the returns is the patience behind them. Look 20 years back, and you’ll find roughly 70% of today’s portfolio holdings there!

This is not a private equity firm with an exit mandate and a short-term horizon. Latour operates as a permanent home, predominantly for industrial businesses. And the crown jewel is Assa Abloy: the $40 billion global champion in doors and locks.

And yet here’s the detail that separates Latour from most holding companies: its outperformance has not been driven by its largest holding. The portfolio ex Assa Abloy has actually outperformed the market-beating giant itself — a dynamic that stands in sharp contrast to another Hold’co like Exor or Prosus, where the growth story has been driven more by their largest investment alone.

This, more than anything, may explain why this holding company has commanded a premium to NAV for the better part of a decade. That premium is now gone.

Content:

• Management & The Douglas Family

• Track-record

  • NAV Premium / Discount

• Latour’s Portfolio with extensive Data Breakdown

  • Wholly-owned

  • Listed Holdings

• Underlying Valuation

  • Relative to Investor AB & Lifco

  • Market Optimism turn sour

• Conclusion for our own Investment Journey

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Management & The Douglas Family

The irony of partnering with the Douglas Family is that it costs less than the average fund manager — despite a vastly superior track record. Latour runs a Headquarter of only 16 people, with management costs below 0.1% of assets. The family owns 76% of the company and the group is designed to empower decentralized operations.

Gustaf Douglas (1938–2023): The Architect
Gustaf is the man who engineered Latour. Pushed out of his CEO role at Sweden’s largest newspapers for running conflicting private investments, he pivoted to industry and in 1985 negotiated a corporate swap — exchanging his stake in the Skrinet group for a subsidiary (AB Hevea) that came with a 95% stake in Securitas and 25% in Trelleborg. AB Hevea was renamed Investment AB Latour in 1987.

His philosophy was clear: “My role would be an active owner — not to vote with my feet, but to take responsibility for governance and control.”

ASSA ABLOY is a key part of the Latour’s story, which Gustaf co-architected in 1994. Latour remains its largest shareholder today, and the stock is a 100-bagger since the early 2000’s. Such concentrated long holdings remains the backbone of Latour’s long-run returns, benefiting from compound interest.

Gustaf passed away in May 2023, aged 85, having compounded the share price at ~22% annually since inception — a 3,000-fold return over 40 years.

The Keys Pass to Eric & Carl
Gustaf didn’t hand over Latour suddenly — he handed it over slowly and deliberately. Eric joined the board in 2002 and Carl in 2008, both spending years learning the business alongside their father before Gustaf’s passing in 2023 marked the formal transition. Succession done well.

The brothers combined stake carries ~79% of votes, protected by a dual-class share structure common among Scandinavian holding companies. One meaningful distinction from Investor AB, however, is that the Wallenbergs hold their stake through family foundations — a structure explicitly designed to bind future generations to a common mission and prevent fragmentation. Eric and Carl own Latour more directly, which raises a legitimate long-term question: what happens in generation three?

On operations, the family governs — they don’t run the business. The previous CEO, Jan Svensson, ran Latour for 17 years and delivered ~1,500% total return during his tenure, nearly 3x the broader market. His successor, Johan Hjertonsson, was appointed in 2019 after running Fagerhult — a Latour portfolio company — for a decade. The family watched him execute with their own capital at stake before handing him the role.

CEO tenure of 17 years and insider hire says a lot about the culture within Latour. The Douglas family clearly thinks in decades rather than quarters.

A final encouraging signal: Insiders, including Eric and Carl, have been adding shares at current prices. Buying more of something the majority of your wealth is already tied into is a strong statement — and notably, these purchases came after the valuation premium collapsed, not during the frothy years of 2021.

Track-record

Similar to Investor AB, Latour has had market-beating results both from its Listed Investment Portfolio and Wholly-owned Portfolio over time. Remember, the majority of investors (both retail and professionals) don’t beat the index over time.

Below, you can see the Financial Results of the Wholly-owned Portfolio. Compounding sales at high rates with improving profitability over time.

These 2 charts combined show that Latour is both a great capital allocator and a good operator of businesses. Additionally, they’ve been able to partner with other great capital allocators / operators on the public stock market. This creates what we previously referred to as a Dual Engine for Growth for Investor AB back in 2024.

Net Asset Value Premium / Discount

Given this track-record, we think it could explain some of the unusual high premium the market has assigned to Latour’s Net Asset Value (NAV) in the past. While many Holding Companies trade at a substantial discount to its assets, the market decided to price Latour at a 70% premium late 2021!

That premium is now gone and the portfolio trades again close to NAV. This explains the poor 5-year returns for Latour stock.

A good argument for why the discount has closed, is that in recent years, the NAV growth have actually underperformed the SIXRX index, lastly at 2025 with only 2,4% growth vs the 12,7% increase for the index.

While a premium or discount to NAV usually gets most of the attention, there is little doubt that management and the controlling owner, The Douglas Family, has done an excellent job compounding the underlying profits of Latour over the long term.

Latour’s Portfolio

Wholly Owned Holdings (47% of NAV)

The main takeaway from the Wholly Owned Portfolio is that it’s a high quality Industrial. Organic growth averaging more than 5% combined with solid acquired growth, means this portfolio have compounded EBITA by 13% annually since 2018.

The organic growth has on average been 2% higher than the inflation rate in Sweden. Operating margins have expanded and Return on Operating Capital have been stable around 14 → 17% in this period. Note that the wholly owned companies also conduct acquisitions by themselves. This gives the Group a high reinvestment rate, which we can see in the growth in Operating Capital below.

The wholly-owned portfolio has been a growing share of NAV over time, but it’s still the publicly listed holdings held for decades, that is most meaningful for Latour.

Listed Holdings (64% of NAV)

Below, we break down the key figures for all the Listed Holdings. In the valuation section further down, we examine Latour’s share of these profits and how they have evolved over time — and the results were more surprising than we expected.

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This was not a sophisticated cyberattack. It was weak security in connected devices. As connectivity also expands into higher-stakes industries than household appliances, security shifts from a feature to a neccesity.

This is where Kontron operates — supplying embedded systems and connectivity solutions to mission-critical infrastructure, like components used in the F-16. This writeup aims to get a sufficient understanding of the Austrian €1.4 billion firm Kontron, to see whether it can be an interesting Investment Opportunity.

Disclaimer: This newsletter is provided for informational and educational purposes only. The views expressed are my own and do not constitute financial advice or recommendations to buy or sell any securities. The author did not own shares in Kontron as of the time writing this.

Overview

We will go through these topics, starting out with a comparison to a firm we know well.

• Kontron vs Norbit

• Business Model & Capital Allocation

• Capital Allocation & Growth Opportunity

• Management & Incentives

• Risks & Acquisition of Katek

• Valuation

Kontron vs Norbit

Kontron reminds us a lot of Norbit. And not just because you can find some of their products in similar places. We’ll go through 5 key traits we think they have in common.

1. Niche, high-specification components

Both companies operate in technically demanding niches, supplying components where reliability is critical and failure is costly.

Technical complexity and niche end-markets acts as barriers to entry. Customers require high performance, consistent up-time, certification, security, software and long product lifecycles. It’s very different than commoditized electronics.

2. Local manufacturing and in-house R&D

While Kontron did struggle during the chip-shortage of 2022, they are still one of few European manufacturers of certain components, and with their in-house R&D department (3,600 engineers and €200 million spend), they also seem to benefit from the “Made in Europe” label helping win some contracts where that has value.

This is especially relevant in the Defence sector.

3. Having acquired 20+ companies

We’ve shared a lot of research on Serial Acquirers before. Where both Kontron and Norbit is not considered typical serial acquirers doing multiple deals per year, they are more a hybrid — both investing organically and doing 0-2 M&A deals annually.

We’ll look closer on a recent deal Kontron further down.

4. Outsider CEO’s

Both Hannes Niederhauser and Per Jørgen Weisethaunet have unusually high stock ownership relative to their salaries. Hannes was paid just €8k (!) in total remuneration in 2024, whereas Per Jørgen was closer to €690k (60% of this tied to bonuses).

Comparing this to their ownership stakes, Hannes with €73 million (5% stake) and Per Jørgen’s €131 million (11% stake), means their stock ownership stood at 9,000x and 190x their yearly compensation by the company. This is exactly the type of management alignment we’d like to see, as we know these business operators will be kept more up at night than us if a Black Swan occurs. It also signals these managers are highly incentivized to focus on the long-term success of their companies.

The outsized ownership stake relative to base salary is a sign of an Outsider CEO.

5. High Cash Conversion

A concern we had with Kontron, was not finding much disclosure of returns on capital, we think of that as a yellow flag for a (relatively) capital intensive firm like Kontron.

Importantly, Kontron invests heavily in both R&D, tangible capex and acquisitions. Which metric we use to measure capital efficiency matters. For instance, in our calculations, Return on Capital Employed is in the low teens, nowhere near the likes of Norbit. Another return metric we think is underappreciated, is the Bergman & Beving model, popularized by Addtech and Momentum Group, two of B&B’s spinoffs.

Momentum Group’s idea is simple: for asset-light or acquisition-driven industrials, the real capital at work often lives in working capital — receivables, inventory, and payables — rather than fixed assets. Their framework measures value creation as EBITA divided by working capital, where EBITA is EBIT plus amortization of acquired intangibles specifically. Stripping out acquired intangible amortization removes the accounting noise from M&A purchase price allocation, and better measure underlying profitability.

When we put Kontron and Norbit through this calculation, Kontron gets mid 50% and Norbit’s around 100% (!), both above the upper 45% target for the B&B group.

Importantly, Kontron management have called out that there are still room to improve the Working Capital further, especially in the newly acquired solar company Katek. You can see the big jump in working capital in 2024, most of which from that deal.

Good working capital efficiency combined with a large growth opportunity ahead tends to be a good combination for great incremental returns on capital.

Business Model & Capital Allocation

In this segment, we want to try and answer 3 questions.

1. Are profits defensible over time? Pace of Innovation and/or Competetive edge

2. Are customer demand cyclical? Are there any secular demand drivers?

3. Track-record of clever Capital Allocation? And are there attractive places to reinvest capital currently?

We think assessing whether price is cheap, can wait until the end. Most mediocre businesses should probably just be rented until a price discrepency narrows. That’s not our strategy, we’d rather own assets where time is our friend.

Kontron typically operates in niche markets with high barriers to entry. This is important, as larger end-markets are typically more at risk to be commoditized. The Kontron Harrakan is a good example of such a product, made for tough environments.

The competetive position of Kontron varies by vertical. Within high-speed railways for instance, Kontron has >50% market share and 25% EBITDA margins, and is the sole supplier of the new standard, FRMCS edge devices. In contrast, they have closer to 10% EBITDA margins in their automotive segment. There’s no doubt Kontron operates in a competetive field, but their decision to avoid the larger consumer electronics market is a sign they prefer to look for more technical and niche markets.

Kontron view their R&D capacity as a competetive advantage. With more than 3,000 engineers and annual R&D budgets of €200 million (14% of revenue), Kontron is an innovation force in their field. Management highlights their in-house engineering workforce as cost-competetive to, being primarily located in Central and Eastern Europe, with average salaries around €55k p.a.

And with the evolving technology, no wonder Kontron invests so heavily in R&D. They expect disruptive technologies to drive future growth (Exhibit 3).

Cyclicality is there within many Kontron’s markets, but the sheer breadth of their offerings, reduce the Group’s cyclicality. Below, you can see breakdown by vertical.

The breadth of markets, check a box we like seeing for Niche Industrials — the ability to expand into more verticals. Where the technical niche give room for not competing on price, it’s the ability to expand into more verticals which gives room for the reinvestment of capital. If you have both, you got a recipe for compounding.

Capital Allocation Strategy

Over the last decade, there’s two overarching Capital Allocation moves of Kontron. First, moving away from consumer products into networking critical applications, such as trains, aircraft, military equipment and robots. Secondly, the increased portion of sales towards software.

The best example of this is the recent sale of Kontron’s COM modules to their strongest competitor, Congatec, in 2024. This allowed Congatec significant synergies. What we found noteworthy, was that a part of the deal included a partnership between the two, where Kontron will equip future Congatec COM moduls with security software.

This move looks similar to what the semiconductor industry is well known for — specializing. With complexity increasing in Kontron’s industries, it seems they are confident moving up the value chain to the piece with higher margins — Software.

The increased focus on high-margin software and exiting lower margin businesses explains most of the significant gross margin expansion we’ve seen last decade.

A result of the Portfolio Streamlining is freed up resources within Kontron. Their focus is currently on 3 key areas:

1. Cyber Resilience Act in EU from 2025: New standards change the way the industry work, especially for high-stake fields like defence and infrastructure. Kontron OS is the first CRA compatible software for IOT solutions.

   Companies are increasingly having to ask fundamental questions, like:

   1. Are our devices updatable?

   2. Do we meet CRA requirements?

   3. How do we protect data flows in OT networks?

   4. How do we modernize outdated but still used systems?

Kontron expects 100 million devices to be installed with this system until 2030, with a goal of installing more than 30 million by 2028.

2. Future Railway Mobile Communication Standard (FRMCS): By cooperation with Qualcomm, Kontron has become the only full solution provider for solutions that aim to deliver increased train safety and utilization of the rail network. FRMCS is expected to be mandatory from 2028, but most tenders specify this.

3. Network Access Devices (NAD): Also a result from cooperation with Qualcomm, is Kontron’s ability to take a leading position within the connectivity required for autonomous vehicles to detect digital traffic signs etc. Kontron already have orders above EUR 300 million, expected to start delivering this year (2026).

Our view is that Kontron’s strategy seem proactive.
Becoming the first non-Chinese supplier for certain automotive components or having majority market share within new standards for high-speed rail, does not seem like a coincidence. While others could follow, Kontron’s pace of innovation enables them the first-mover advantage, which strengthens their position as a trusted partner for many clients in adapting to new times / regulations / demands.

The Growth Opportunity

Kontron’s Order Backlog as of the Sep, 2025, was €2.44 billion, +18% since Dec, 24. That’s a Book-to-Bill ratio of 1,47x, signalling plenty of opportunity to generate growth.

This backlog comes from contract wins across many sectors, and some of the recent growth is also attributed to the Katek Acquisition in 2024. Kontron has also partnerred with notable much larger companies, namely Qualcomm.

Qualcomm’s General Manager, Nakul Daggal, said this:

“Kontron is one of the Industrial Leaders. It’s a company we really wanted to learn from and expand our portfolio along with them. In a really short time we established a lot of intersection points from connectivity to industrial processors. And because AI is part of all our products, we look forward to expand our partnership with Kontron”.

There is no doubt Kontron is on a winning streak when it comes to contracts.

With the market being especially intrigued with Defence exposure lately, it’s interesting to see the many defence related contracts. But where other IOT players like Curtiss Williams have seen massive multiple expansion, Kontron does not break out their Defence exposure in numbers.

As you can see below, Kontron stock has not benefited from a “Defence Label”.

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The way all the numbers below is calculated is by multiplying all individual subsidiaries fundamentals with Investor’s ownership share. We think the NAV discount popularly used to value Holding companies has its value, but think a better way to value a hold’co is to measure the underlying profitability of the group. If there’s a lot cyclicality in there, probably best to do 3- or 5-year averages.

Exhibit I, show the drivers behind the 2025 returns, which comprised 2% dividend yield, 6% growth in underlying EBITA and another 4% multiple expansion.

With another 10% shareholder return since year-end 2025, the multiple expansion is about to expand 3 years in a row. The market efficiency theory would suggest fundamentals are to improve further, in an attempt for the stock to price in improving fundamentals. But when looking back historically, we wouldn’t say the market have had much success doing this in the past. If anything, the conglomerate may have been consistently undervalued, given Investor’s market-beating returns.

The key number we look at for Investor is the Underlying EBITA. We think this number should correlate well with shareholders returns over long time, as you can see in Exhibit II below.

The 6% growth in EBITA, was driven positively by Ericsson (3% contribution), ABB (2%), Saab (1%), Sobi (1%) and EQT (1%). Negative contributors were SEB (-2%) and Atlas Copco (-1%). Note that currency was a headwind for many in 2025 with weakening USD in particular (eg. AstraZeneca).

Exhibit III show the underlying EBITA by company over time.

Exhibit IV show growth contribution by company for different time periods.

The table below highlights well why Investor does not deserve to trade at a large discount to Net Asset Value. Most of it’s companies are steady growers.

Leverage

Investor AB had 23 billion SEK of Net Debt in 2025. That’s at the lower end of their target range (0→10% NAV), which gives them a lot of optionality going forward. However, what is the leverage of their Listed subsidiaries?

Since we’ve used EBIT (earnings before interest and tax) before to value Investor, and valued this against the Enterprise Value of Investor (calculated using market cap - net debt - EQT funds).

The problem we realised with that calculation is it doesn’t include interest expense or the debt from subsidiaries is excluded. Thus, we have now included the subsidiary net debt in measuring the Enterprise Value of Investor AB.

In Exhibit V, you can see the leverage ratio for key Listed Subsidiaries of Investor.

Leverage went down in 2025 on average, only at 0,5x Net Debt to EBITA. If we multiply this weighted average figure with the Underlying EBITA, we arrive on 30,9 billion of underlying Net Debt. The last component of the Enterprise Value calculation we use to value Investor, is the 39 billion of EQT funds.

Valuation

This section is exclusive to paid subscribers.
The figure below is not available on most brokerage platforms, or even in Investor’s reported financial statements. It requires extensive work to calculate.

We use EBITA, in line with elite serial acquirers, to better reflect the economics of businesses with acquisitive growth models — an approach particularly relevant given the acquisitive nature of many of Investor’s holdings. A subscribtion only costs $8 per month, or a $60 per year price.

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In the January Letter, we shared how we prefer to measure Intrinsic Value over time. Since then, we appreciated that buying stuff below that value is just one side of the coin, with the other being buying something that grows Intrinsic Value. Thus, we wanted to use this letter to share how we can value companies taking into account both these.

An approach we have not seen before, so we always welcome some feedback.

A north start to for quantifying Value Creation is Markel. They published their Annual Report this month, and the highlight below shows their methodology for doing so.

Markel use a simple 3-step framework to measure Intrinsic Value (adjusted profits x fair multiple ± balance sheet adjustments).

We believe this is the best way to measure a company’s success in the rear view mirror. While it can be used as a valuation tool, it’s one that only works of history repeats itself. To value a stock you usually have to look into the future, or at least see whether what’s priced into the stock sounds pessimistic or optimistic. And to be able to do any of this, you should have an opinion of Cyclicality.

Markel worked around their Insurance cyclicality, by multiplying 3-year averages of profits for an estimate of a fair multiple. This approach seem to work well.

Below you can see we’ve done something similar with a company we own, called Medistim. While Medistim is among the more stable topline companies, their operating expenses and capital expenditures fluctuate somewhat, distorting the view.

However, we believe an investor trying to buy companies simply below Intrinsic Value would have a bias towards cheap companies not growing. They would miss the direction of that orange line, which in the case of Medistim, means long-term owners have time to their advantage, as their business keeps getting better (for now).

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The problem of buying a dollar for 50 cents

A low purchase price can serve as downside protection, but as we illustrated with Medistim, so can a business compounding its’ value. Although, owners buying the stock for 80x business profits in 2021 may still disagree there...

We learned after researching Exor that buying something at a discount to NAV (in that example) is alone not very attractive, given the uncertainty around when (and if) that discount closes. If it occurs within one year, great — but then you may have to look for something else (if there aren’t other return drivers there).

The good thing about Exor is that they have grown NAV over time. The problem we have with Exor today, is that we do not know how to value it, nor estimate future compounding rate. The mix of cyclicals, high-priced luxury and other assets with minimal transparency makes it to hard for us.

Investor AB is a different beast. They have focused on stable profitable companies being good at reinvesting capital themselves, and reinvest their own cashflows continoussly at good returns into their wholly-owned Patricia Industries, in addition to some rare additions to their Listed Portfolio of Quality Companies. This makes it easier to value the underlying profits, and compare it to other opportunities.

Link below, to how we track Investor’s Intrinsic Value development over time.

But the question remains, why don’t we use a traditional method like DCF or just slap a multiple on today’s profits?

Why Not a Discounted Cash Flow Model or Multiples?

A DCF can work well, but most of the value usually comes from assumptions far out in the future — especially the terminal value. Change a growth rate or discount rate slightly, and the valuation moves a lot. We find estimating a decade out to hard.

Slapping a multiple on today’s earnings is quicker and can also be useful. But a single number doesn’t tell you much about durability, reinvestment opportunities, or how strong the business will look a few years from now. Cash conversion and how much cash can be distributed while growing are also key topics to keep in mind.

A Reverse DCF, trying to measure what today’s stock price implies about of future growth, can also be very helpful. Still, we prefer another way to look at valuation.

Our Alternative: A 5-Year Valuation model

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Disclaimer: This newsletter is provided for informational and educational purposes only. The analysis shared is based on my personal research and is not tailored to individual circumstances. The views expressed are my own and do not constitute financial advice or recommendations to buy or sell any securities.

Investor AB set a record in 2025 — beating the index for 15 consecutive years! We believe an underappreciated metric in general, but also of this conglomerate, is hit-rate. Over the last decade, 10 of 15 (66%) existing Listed holdings delivered market beating returns (13% CAGR for MSCI World Index), despite having a low portfolio turnover (trading activity). Most current holdings where there 10 years ago.

If we also include Patricia Industries and EQT AB, Investor’s hit-rate was >70% (!).

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HIT-RATE

A simple exercise that any investor can do is to review all past positions, including exited ones, and categorize them by whether they beat a relevant benchmark. When we ran this analysis on our own history (Exhibit II), it made us appreciate a few things.

1. Avoid the big losers, and the winners will take care of the portfolio’s returns. Thus, High risk–high reward is not our game to play.

2. Most positions don’t contribute, despite taking up a lot of research time and also mental bandwith. Losing money hurts more than winning. Those -2% contributors to the right feel much more significant than those 3-4% positive contributors to the left.

3. Further concentration would likely hurt results. We do not believe we could have predicted in advance which holdings would’ve become the biggest winners, nor the magnitude of their success. This creates a dynamic similar to the idea that “time in the market beats timing the market”: Long-term success are driven by having winners in the portfolio — even if they start as small positions.

Let’s go back to Investor’s Hit-rate, we think there are more lessons to draw. If we compare it to another Holding Company like Exor, how do those compare?

From 2016 until 2025, both grew Net Asset Value (NAV) nicely, Investor by 13% annually and Exor 9%. Exor's NAV went from €14 to €35 billion, with more than €13 billion of that NAV increase was from their Ferrari stake alone (>60% contribution). This means that the reminding positions generated subpar shareprice CAGR of 2% for the Agnelli family. Adding dividends (not much from Ferrari), the CAGR for the rest was likely closer to high single-digits. Arguably, not as bad as one may think.

Investor, on the other hand, had multiple winners. Patricia Industries, ABB and Atlas Copco were the largest contributors. We believe the table below, showcase why Investor deserves to trade at a premium to Exor’s portfolio. They delivered more consistent strong returns across the portfolio. Note that dividends received are included in the column to the right for both, which is more impactful for Exor.

We would argue that Investor’s portfolio is also better positioned for the future. But this is also the consensus view — something the market signals through Exor’s substantial discount to Net Asset Value relative to Investor. The discount may even be so deep that Exor’s challenges are not only recognized, but more than fully priced in.

That said, valuation alone is not enough for us. In the section ahead, where we discuss Intrinsic Value, it becomes clear why Exor fits our framework far less naturally than Investor. Our key takeaway from studying Exor was that its combination of cyclical exposure and an unusually heterogeneous portfolio makes it extremely difficult to rely on any meaningful measure of “underlying profitability”.

One could argue that investing in Exor is essentially buying Ferrari and getting almost everything else for free. But if that is the thesis, what is the exit — selling once the discount closes? For us, that is not a sufficient framework.

A credible investment case for Exor would, in our view, need to look different. We focus less on the headline discount to NAV and more on management’s ability to compound intrinsic value over time. Exor has been explicit that Industry is not a long-term priority, with luxury, technology, and healthcare identified as the core focus areas. Yet today, cash flows remain overwhelmingly industrial. Seen through this lens, investments such as Philips make strategic sense—and offer a glimpse of what the portfolio could evolve into. If Elkann & Co. succeed in this transition, the combination of share buybacks at a wide discount, substantial dividends from cyclical industrial holdings, continued growth in Ferrari, and the gradual introduction of more stable cash generators could create the conditions for a classic multiple engine for it’s stock.

Thus, an investment case for us in Exor would have to rest on deep trust in management’s ability to allocate cyclical cash flows intelligently into new long-term opportunities aligning with their objectives.
We are not convinced there yet.

But now, let’s go over the key topic of today — how we measure our companies progress and how to potentially find buying opportunities more cleverly than we had in the past. The commonality for both: how to estimate a business’ Intrinsic Value.

Intrinsic Value

If book value per share is no longer the best metric to monitor our value creation over time, what is? We suggest intrinsic value growth over time.

As a “Surgeon General’s warning,” we completely believe that no intrinsic value calculation is perfect. Any calculation involves estimates and trade-offs between simplicity, understandability, and precision. We didn’t create a spreadsheet with fifty lines. We don’t wish to communicate any false sense of precision. But we realize we can’t draw a line with a slope of ascent without some point estimates along the way. (Thomas Gayner, 2024 Markel Annual Report)

We believe Tom presents us the tools needed to do this ourselves. The rest of this writeup will be exclusive for paid members, where we’ll go through how we did this with our 10 core Portfolio Holdings and go over the Portfolio Update as usual.

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Last year, we shared five key lessons from the year and presented an investment idea we had just initiated ourselves — Medistim. While we can’t promise that this year’s idea will match Medistim’s +70% return, we hope this letter is still an enjoyable read.

As Christmas is a time for tradition, we’re keeping a similar format this year, albeit with new lessons and a new idea. Remember, nothing I write constitutes investment advice. Please do your own due diligence.

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We would also like to extend a sincere thank you to everyone following along. The chart below shows the growth in followers on this Substack since we started in 2023. This is a hobby project for us, which we enjoy a lot. Our full-time work now involves operating two small private companies, and we hope to bring the lessons learned from running them back into our greatest passion: investing.

5 Biggest Lessons this Year

1) Don’t drive looking in the rearview mirror

Our biggest mistake this year was Evolution AB. We bought in late 2024, impressed by strong past results, a historically cheap ~15x P/E, and a high dividend + buyback yield — assuming growth might slow from the then 15% rate, but remain solid.

Several risks were already visible at the time, but we had not done the depth of work required to truly understand them. Instead, we relied to heavily on strong past performance, giving us unwarranted confidence that the business would largely continue its historical growth trajectory, albeit at a slower pace.

Lesson learned: By overweighing historical results, we underestimated forward-looking risks and overestimated our understanding of the business. While the stock may work from here, we acknowledged how wrong our initial analysis was, and therefore concluded to sell it. We also recognized that rapid growth often carries lagging risks, which proved to be employee dissatisfaction and security weakness.

Evolution ultimately contributed –2% to our Total Invested Capital, as shown in the table of all exited positions below. Despite this, the aggregate result from all exited positions this year was +1%, helped by Hermès, Paradox, and Borregaard.

Looking at the number of exited positions above, we had unusually high turnover this year, but all these holdings were relatively small at less than 5%.

2) One winner pays for many losers

Evolution now ranks as our biggest realized loss to date. Still, as the Exhibit III illustrates, a single large winner can more than offset all our realized losses to date. We have exited 19 stocks in total since we started investing late 2021. You can see the assymetry of investing starting to show itself in the return contribution from our 5 biggest winners to date, versus our 5 losers.

This underscores a core principle of portfolio construction: long-term returns are driven by asymmetry. If you can consistently avoid large permanent losses (>50%) while allowing a small number of positions to compound meaningfully, the winners will largely determine overall returns.

One approach is the venture-capital model—small allocations across many highly speculative bets. However, we believe superior risk-adjusted returns are more often achieved by prioritizing downside protection while allowing upside optionality to run.

Accordingly, we look for businesses with some form of downside protection: robust balance sheets, durable unit economics, and business models that reduce the risk of catastrophic loss. Certain business models are particularly well suited to this, a topic we will return to in the next lesson. REQ Capital, for instance, has previously highlighted Programmatic Acquirers as an attractive example.

3) Serial Acquirers = low risk, high return business models?

That said, the Serial Acquirer space has become increasingly crowded, making valuation risk a central concern. Even over long horizons, this matters. A multiple compression from 30x to 20x P/E translates into roughly a 4% annual headwind over ten years—longer than most investors’ actual holding periods.

By contrast, Holding Companies — with fewer, larger acquisitions (think Berkshire, Fairfax, Brookfield, Investor AB, Scottish Mortgage, MBB) — have historically traded at persistent discounts to the market. Even after doubling recently, MBB trades around 13x P/E adjusted for net cash and significant NAV discounts, which we view as undemanding given its track record.

We find this structure compelling, with a great example being Scottish Mortgage Investment Trust — participating in upside from a number of exceptional investments (e.g. Amazon, Nvidia, SpaceX) with diversification protecting the downside.

We recommend Tresor Capital if you find interest in Holding Companies.

4) Acquired vs Organic Growth

It seems to us many investors view organic growth as “free”.
While that may be true for your toll-booth business model (think Visa), most companies are not like this. Most companies need to reinvest capital to grow.

With hindsight, reinvestment stories like Amazon and Constellation Software look obvious. In reality, their peak reinvestment years showed little free cash flow (measured as operating cashflow - investing cashflow) and muted reported profits, weighed down by depreciation, amortization of acquired intangibles, and heavy spending on growth. Yet, both returned exceptional long-term returns. We believe the key was not to see whether growth was acquired or organic, but rather how much capital was invested and what returns those investments made on aggregate.

To us, it seems investors looking at Shift4 would prefer their Capital Allocators to build a factory for $1,000 rather than acquire the exact same factory for $500.

With Shift4’s strong multiple contraction in recent years, we think the market is telling us they disagree with how Shift4 management goes about growing their business. We think studying the playbook of Constellation Software, shows where to look.

The previous CEO of Constellation, Mark Leonard, previously stated that they noticed better returns from acquisitions than organic reinvestments. In essence, they are agnostic to the source of growth — they care only about the return. This probably also means there may come a day when they shift their investment spend towards more organic initiatives, if they see that offers more potential.

We believe Shift4’s management team operates under a similar philosophy, but with a different growth playbook. Their primary objective is to scale their payment offerings across as many merchants as possible, but their method of customer acquisition (CAC) is unconventional:

• The Traditional Friction: Competitors often rely on broad marketing campaigns to convince individual hotel or restaurant owners to replace their entire infrastructure — which could be a high-friction, low-conversion process.

• The Shift4 Shortcut: Instead of “hunting” merchants one by one, Shift4 acquires entire customer cohorts by purchasing companies that solve a single piece of the merchant’s puzzle (e.g., a specific software tool or giftcard solution).

• The Cross-Sell Engine: Shift4 lowers its CAC and gains a “warm” lead. They found it far more efficient to cross-sell a broad payment suite to an existing customer than to acquire a new one from scratch.

And with Shift4’s heavy acquisition spend in recent years, most recently with the luxury retail giant Global Blue, they now have a simpler avenue to grow “organically”. And they can benefit from the existing relationship from the likes of Global Blue, and perhaps even combine the technology of Global Blue into a common product.

5) Cash-on-Cash returns — Good way to evaluate growth?

With the recent example of Shift4 in mind, we think comparing reinvestments in vs growth out, is the ideal way to evaluate companies reinvesting capital.

Amazon is perhaps the best example, with consistently expensive looking Price to Earnings and poor traditional return on capital metrics. That was because current P&L profits where punished from reinvestments. However, if investors instead focused on the growth in operating cashflow, and consider what portion of existing capex would actually be necessary to sustain operations — the business quality would appear clearer. And if that growth vs the corresponding capital invested was considered, the Cash-on-Cash return would be much higher than ROIC, ROE or ROCE.

In order to do such an approach, we would only need the growth in operating cashflow, and the cumulative investments into key buckets. We have shown the 10y Cash-on-cash returns of Vitec & Lagercrantz in Exhibit V below.

Both companies delivering fast growth, but Lagercrantz requiring less capital in order to do so — thereby not requiring more debt and issue equity to fund this.

Last Years Top Idea

Last year’s pick, Medistim, has delivered strong fundamentals, and the stock is up more than 70% this year. With roughly 23% topline growth and 16% profit growth from expanding margins, much of this shareprice gain also reflects valuation expansion.

Our 5-year forward return estimate now sits around 9% in our base case — less compelling than it appeared last year. Still, we continue to hold every share, despite Medistim now carrying the highest multiple among our holdings at 24x Enterprise Value to EBIT. We believe Medistim can continue their historical growthrate, due to structural tailwinds and new innovations enabling more pricing power, like we’ve seen in their US pricing this year (occured last half 25, becomes tailwind for H1 26 figures).

Best Ideas 2026

This year, we highlight three ideas for paid members. Two are existing holdings that we added to meaningfully during the year, and one is a new position, inspired by another Substack writer.

The new idea is a stable, low-growth business trading at a very low free cash flow multiple. It operates in an unpopular industry facing structural competitive headwinds. As is often the case, the market has largely thrown the baby out with the bathwater, despite this company being only marginally affected by the industry’s broader challenges.

Crucially, the stability of the underlying business provides meaningful downside protection. The upside depends on the company successfully transforming itself into an advantaged acquirer — an outcome the board and operators have clearly articulated as a strategic goal. Notably, the team involved has a long track record of doing exactly this, and appears unusually capable for a company of this size.

The two existing ideas are long-standing core positions. Over the past year, their fundamentals have strengthened, while their share prices have been flat or declined. We much prefer this to weakening fundamentals, especially when we have the opportunity to add more.

If you’re not a paid subscriber, we still want to thank you for following along. We’ll leave the 3 most popular free writeups to date, if you would like to take a look there.

Wish you a happy new year,
Cheers Ole

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His insights made me think deeply around AI risk. In particular, his example illustrated the power of being Counter-positioned — a situation where one player benefits from adopting new solutions whereas someone else (often the incumbent) would cannibalize their current profits doing so. The business graveyard is full of such examples, with Blockbuster vs Netflix perhaps being the most known. Callesen used a firm we (used to) own, one we’ve now decided to part ways with.

1. Parting ways with our Consultants

20 months ago, we presented an optimistic view on IT consultancy Bouvet. Today, after listening to Callesen, we’ve changed our mind.

Callesen illustrated AI risk for consultant firms through Consigli, a firm with AI-driven project-planning tools for construction developers at roughly 1/10 the cost of human consultants. Junior consultants — typically handling repeatable, simpler tasks yet invoicing expensively — are particularly vulnerable. Senior consultants, dealing with complex problems with their extensive know-how, seem less at risk.

The CEO of Bouvet frames AI as another leg for growth, while Callesen points out the vulnerability within pockets of these firms. Maybe both are right — but as investors in a competetive world, we have to consider who is incentivized to attack them?

We believe the tech giants are.
Microsoft and Google have deep pockets and no internal risk of cannibalization here. And even in the more specialized fields, players like Nemetschek, already entrenched in architecture software, could integrate AI solutions reducing demand for traditional consultant services. In short, these firms are counter-positioned against the consultants (in our opinion). And whereas you typically see startups being counter-positioned, it’s not calming seeing some of the best capitalized and talented companies in the world being incentivised to disrupt you.

Further, at 16-17x earnings, Bouvet stock does not adequately compensate for this risk. Opportunity cost matters. For a similar multiple, we could for instance buy convenient store giant Cirkle K — recession-proof, stable, and free from such threats.

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2. Could I Be Disrupted Too?

When thinking through this topic, I appreciated how relevant it is for my own practise to. My service business focuses on exercise physiology and endurance sport, helping athletes measure and improve their performance.

Just as AI is reshaping consulting, it is beginning to impact my own field. Athletes increasingly use tools like ChatGPT to generate training plans for free, rather than paying a coach. I’ve tried it myself — it works surprisingly well. But it works best for strength, running, and cycling, where abundant, high-quality data allows AI to produce effective plans as long as the prompt contains sufficient relevant information.

The key insight: in these fields, a slightly lower-quality solution can disrupt a higher-quality offering if it is cheaper and available instantly. At least for the recreational athlete and in large sports (also the places where the big money lies).

We think this is a similar dynamic to consultant firms and their junior consultants invoicing for repeatable, “simpler” tasks.

By contrast, more niche focus — like those I do within physiological testing, skiing, and polar expeditions — is far less exposed. These are small markets with limited data, where expertise cannot be easily codified. Also, we believe just the nature of operating within a niche, make something less disruptable.

The interesting thing for our portfolio, is that we have a similar view on Vertical Market Software (VMS). These markets are too small to attract large competitors, but technical and complex enough that proprietary data is essential to deliver effective solutions. And with Mr.Market starting to price in this AI risk being real, we’ve decided to make a VMS company our Top Idea, surpassing Investor for the first time.

Disclaimer: This newsletter is provided for informational and educational purposes only. The analysis shared is based on my personal research and is not tailored to individual circumstances. The views expressed are my own and do not constitute financial advice or recommendations to buy or sell any securities.

3. Why we’ve made this our #1 Holding

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Asseco’s stock is currently at 194 PLN, up 128% since Topicus acquired their stake.

We’ve already written a detailed writeup of Topicus, but this time it’s time we look closer at their recent bold move — a 24.8% stake into this Polish software-giant, with many layers to dissect. You can see the topics we’ll cover below.

1. Branching out — Decentralized structure

Asseco Poland is now part of an impressive decentralized structure, shown in Exhibit I, with all ties leading up to the “mothership” Constellation Software. Asseco Poland is a separately listed decentralized entity, with ownership across many companies, both listed and private. Note that there are hundreds of individual companies behind many of the entities you see below — a remarkable example of Decentralized Capital Allocation.

While Exhibit I show many of the Listed Entities surrounding Asseco Poland and Topicus, this is not how Asseco Poland chooses to report it’s segments. Instead, the also listed Asseco South Eastern Europe and Business Solutions, are classified under Asseco International — A large group consisting of many subsidiaries itself. The 3rd group, beside Asseco Poland and International, is Formula Systems, which makes sense, given the different geographical exposure in the different groups.

And for this writeup, we’ll exclusively focus on Asseco Poland (incl. International and Formula), but also consider Topicus’ role in shaping Asseco’s future — where we already have some insight from their stake in another listed Polish company, called Sygnity.

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2. How to read the numbers

First, when valuing complex holding companies, one method consistently stands above the rest in our opinion: look-through earnings. Also why we’ve detailed every ownership stake in Exhibit I.

Many of Asseco Poland’s subsidiaries are fully consolidated even though they are not 100% owned, simply because Asseco have control, similar to how Constellation have control over Topicus. To understand the true economic profitability of the group, we need to strip out the portion of earnings that belongs to other owners.

The easiest anchor point is the Net income attributable to shareholders line, where non-controlling interests are already removed. This gives a clean view of what actually accrues to Asseco Poland’s shareholders. But elsewhere in the statements, the picture becomes noisier. If you believe certain expenses meaningfully distort underlying cash generation, such as the amortization of acquired intangibles, a dynamic we know well from CSU and Topicus, the reported net income may understate true economics. Similarly, the advantageous cash-conversion profile of VMS businesses (often benefiting from negative working capital) appears more clearly in cashflows than in the P&L.

Before calculating look-through earnings, it’s worth examining Asseco Poland’s track record — and understanding where its profit contribution truly comes from.

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3. Track-record & Business Model

Asseco has grown to become the 6th largest software vendor in Europe. Own solutions are 80% of sales, with their speciality being production and development of software. More specifically, some of Asseco’s key assets includes critical software infrastructure for the banking, insurance and public administration sector (source).

Other sectors are utilities, telecommunications, healthcare, local admin, agriculture, uniformed services as well as supporting large organizations like NATO and EU. Asseco is a well-diversified group.

And, with more than 140 acquisitions completed, there is no doubt Asseco Poland can be called a serial acquirer.

Business Model and Value Creation

Asseco Poland operates through decentralized Business Units, a structure shared with other successful serial acquirers such as Constellation, Lifco, and Ametek. Exhibit I shows that this structure continuously expands, enabling the company to scale without losing local expertise or agility. Central to this model is a perpetual-owner mindset, which prioritizes long-term performance over short-term gains.

Unlike acquirers that depend on high leverage or aggressive cost cutting, Asseco generates attractive returns primarily by buying companies at compelling valuations. While post-acquisition synergies exist, they are intentionally modest because each business unit retains substantial autonomy.

Decentralization and Local Autonomy

Each Business Unit is empowered to pursue localized product strategies tailored to its sector and region. This brings several advantages:

• Aligned incentives: Local management is motivated to maximize performance.

• Operational agility: Units can quickly respond to market and customer needs.

• Systematic knowledge sharing: Best practices can be shared across the group.

The decentralized model also mitigates the law of large numbers: Asseco can continue expanding without central bottlenecks limiting growth.

Cash-on-cash returns

To illustrate Asseco’s value creation, we’ve modelled Asseco Poland vs Topicus since 2018, by looking at the incremental operating cashflow vs total investments. While such models ain’t perfect, they give a rough estimate on the returns vs the reinvestments. You can see our napkin math model in Exhibit III below.

Asseco Poland’s 26% cash-on-cash returns are some of the strongest we’ve seen. Also close to Topicus’ 28%. For Industrial acquirers, we would also consider working capital as an investment, as purchasing inventory is a continous struggle in order to sell more physical goods (for most — not Costco for example).

However, Asseco had a much lower reinvestment rate than Topicus. Also explained by their significant dividend payout, but interesting to see, is the larger proportion of organic investments within Asseco.

Constellation and Topicus have long preferred inorganic investments, due to the higher and more consistent return they’ve been able to earn here. An important sidenote here is that both companies have not built their cash position over time, which means there is not a buildup of leftover cash, operating cashflow has been deployed, but also to other places not shown here (dividends, equity investments and more).

Another interesting observation from the (imperfect) Cash-on-cash return calculation, is the divergence from compounding rate (return x reinvestments) vs CAGR in cashflows. OCF compounded faster, by 15% at Asseco and 25% at Topicus, versus model-based compounding rates of 10% and 18%.

Our conclusion is that Asseco Poland is creating value and it will be interesting to see whether their acquisition spend increases following Topicus stake (through a subsidiary called TSS). Importantly, Asseco are positioned in an economy growing much faster than most of Western Europe, having just overtaken Switzerland as the World’s 20th largest Economy.

Nevertheless, while Poland sounds like the key market of Asseco Poland, their geographical footprint is far broader. In banking software alone, the company operates in more than 40 countries, making it a truly global player. What portion of Asseco’s value actually occurs within Poland?

4. Geographical Footprint

So we already know Asseco Poland is a global group. But once looking at the segment breakdown for consolidated revenues, Exhibit III below, you would think there’s almost no Poland (which is wrong, we’ll come back to this soon), with the Israel-based Formula Systems representing most of their consolidated sales.

Looking at the chart on the right, we see that the Formula Group operates with the lowest EBITA margins, significantly below those of Asseco Poland. Since 2017, sales have compounded at: Formula Systems (14%), Asseco International (9%), and Asseco Poland (7%).

However, there are two key considerations when analyzing Asseco by segment.
First, as we just noted, Asseco Poland generates a disproportionately high share of consolidated profits relative to its share of sales, due to structurally higher margins.
Second, Asseco Poland’s ownership stake differs materially across the three segments, which has a major impact on how much of each segment’s profit ultimately belongs to Asseco’s shareholders.

5. Profits Attributable to Asseco Poland Shareholders

Once we break down the net profit attributable to Asseco Poland shareholders, the picture becomes clearer: Asseco Poland and Asseco International contribute in roughly equal measure, while Formula Systems contributes meaningfully less on a look-through basis.

This means that, in economic terms, Asseco Poland shareholders are exposed to a ~40% / ~40% mix between Poland and the rest of Europe, with the remaining ~20% tied to Formula Systems’ exposure in Israel and other markets.

To summarize, these graphs highlight a remarkably stable and consistently profitable group, with value creation occurring across multiple fronts. This is one of the central insights about Asseco Poland—just as with Topicus or CSU. Despite their size, these organizations are structured in a way that pushes back the law of large numbers, enabling continued growth. Their deeply decentralized models allow each unit to scale independently, creating an architecture where the whole can keep expanding long after most companies would have hit structural limits.

And despite completing more than 140 acquisitions to date, Asseco Poland still sits at only about a $3.5 billion market cap — a size some investors may classify as a small-cap.

Let’s go over the signs we have for their strategy going forward.

6. Topicus’ Strategy with Asseco?

Signs from Topicus majority stake in Sygnity 2022?

Before looking at what the leaders of Topicus’ and Asseco had to say on this, let’s take a look at what happened after Topicus acquired a ~72% stake in Sygnity during Q2 2022, another Polish listed company — shown in Exhibit V below.

The key observations from the above graphs are:
1) Sygnity experienced rapid revenue and margin expansion following Topicus’ stake.
2) Acquisition spend drastically picked up 1,5 years later.

As a result, Sygnity is now a 10-bagger for Topicus in just 3 years. It seems like having Topicus as a controlling owner resulted in a classical win-win.

Asseco & Topicus CEO’s comments on the deal

Asseco’s founder and long-time CEO, Adam Góral, described the shareholder agreement with Total Specific Solutions (TSS, a Topicus subsidiary) as both a strategic and cultural fit:

“The shareholder agreement we signed significantly increases the likelihood of further value growth for all Asseco shareholders while providing broad development opportunities for employees and management… TSS’ commitment to supporting operational independence while ensuring that the values my teams uphold remain a shared priority for both myself and my partners.”

This is the same sentiment many small entrepreneurs express when selling to TSS: autonomy is preserved, teams are protected, and long-term customer relationships take priority. Sellers often accept a lower price because they view Topicus/TSS as the preferred home for their business.

Góral also highlighted the scale advantages:

“TSS is one of the leading software groups in Western Europe, while Asseco is the leader in Central and Eastern Europe… Companies within both groups will have the opportunity to expand their product offerings and gain access to new markets.”

TSS CEO Ramon Zanders underscored the cultural alignment:

“We will build a partnership of two strong European software groups based on perpetual ownership, decentralized governance, and client centricity.”

Our View: Why Topicus + Asseco Makes Sense

Constellation Software spun out Topicus to build a European hub capable of scaling the Constellation playbook across a continent fragmented by language, regulation, and local norms.

Seen through that lens, acquiring a stake in Asseco is almost a perfect fit:

• It gives Topicus immediate depth across Central and Eastern Europe, and access to Asseco’s distribution across these geographies.

• It partners them with a group that has decades of embedded customer relationships and regional trust.

• Asseco gains expertise from one of the more experienced acquirers out there, with close ties to Constellation Software, the controlling owner of Topicus.

• It aligns them with an organization that already shares their core philosophy: perpetual ownership, decentralized governance, and local autonomy.

In Europe, where borders matter commercially, culturally, and legally — these traits would be very hard to replicate organically for either groups.

And consistent with Constellation’s value-investing DNA, the timing of Topicus stake — during a period of depressed valuations for Asseco Poland — is unsurprising. And so far, early numbers for Asseco are showing positive signs.

While many may expect Asseco to increase acquisition spend drastically, similar to Sygnity, we would like to emphasize what stood in the Shareholder Agreement, about preserving Asseco’s identity as a dividend-paying company. The bull case for Asseco is an increased M&A spend + margin expansion similar to Sygnity. However, in our opinion — Asseco Poland is a higher quality business than Sygnity was back then.

7. AI Risks

Market concerns around Constellation Software and Topicus recently, have revolved around two topics in particular: 1) Law of large numbers with acquisitions and 2) Artificial Intelligence disrupting legacy software companies.
Our view currently on the AI risk summarized:

1. AI could strengthen incumbents more than it threatens them.
   Topicus, Constellation, and Asseco already have customers, domain expertise, and entrenched platforms — three difficult assets to replicate for newcomers.

2. Decentralization reduces systemic risk.
   These organizations are not single headquarters making top-down decisions. They are networks of thousands of small, specialized software units.
   For AI to “disrupt” them broadly, it would need to materially impair dozens of independent niche markets simultaneously.

3. Localized experimentation is a major advantage.
   Each business unit can test, deploy, and iterate on AI features independently, then share successful approaches across the broader group.

4. Advantage of a high hurdle rate

   Constellation and Topicus are highly disciplined with high hurdle rates, particularly for small deals. Paying a low price means the investment doesn’t rely on a high terminal value to deliver strong returns.

5. New deals take over Value generation over time

   Because these companies continually redeploy much of profits into new acquisitions, current cash flow gradually becomes a smaller part of total value. Even if existing businesses decline or run off due to for example inability to compete with AI startups, their cash flow may last long enough to fund replacement acquisitions, allowing the platform to sustain over time.

That said, Asseco seem somewhat more vulnerable than Topicus due to its larger presence in broad verticals like banking and insurance — areas where AI-driven disruption (perhaps) is likely to appear sooner. Niche VMS markets (libraries, bowling alleys, municipal platforms, etc.) remain far less attractive targets for AI-first disruptors, simply due to the nature of being vertical (small adressable market).

But enough speculation from our side, if Constellation Software management calls out they are unsure how this will develop, that probably warrant some caution for ourselves in having any success predicting this.

However, there were some light on this topic from the take-private of Formula Systems Sapiens division.

Sapiens taken private by Advent for $2,5 billion

Sapiens, a specialist in intelligent software-as-a-service solutions for Insurance, with customers like global insurer Chubb to Norwegian-giant Gjensidige (and 600+ more).

Sapiens is very clear that AI redefines the Insurance Industry, from calculating risks more accurately, marketing more efficiently to taking in more data, like those of satellite images of a particular home roof for example. Paid members will be aware of a company we’ve been invested in for 3 years now addressing these topics.

This also seem to be part of the reason for Advent, a Private Equity firm, to acquire Formula System’ owned Sapiens for $2,5 billion. While Formula will retain a minority stake, the 64% premium to Sapiens closing stock price, will be a significant cash inflow to Formula System. CEO of Formula, Guy Bernstein, had this to say on the deal:

Formula will continue to retain ownership in Sapiens and is excited to partner with Advent to accelerate the transition to AI and SaaS, delivering the next generation of insurance solutions for our customers. This partnership builds on Formula’s longstanding commitment to innovation while bringing in Advent’s global expertise and resources. Customers can be assured that the trusted relationships, service quality, and industry leadership they have relied upon will remain, strengthened by a shared vision for driving the future of insurance technology

The family-tree we shared earlier continues to branch out. Sapiens will now be a privately owned company, but Formula retains a minority stake in the company. Thus, the lookthrough earnings will still be there, but in a lesser extent.

8. Valuation

Lastly, we wanted to touch on Valuation, and here we used Price to Earnings and EV / EBITA multiples.

Topicus acquired their 25% into Asseco Poland for 85 PLN per share, or 8x EV / EBITA for LTM figures as of Q2 2025. Given the business quality we’ve observed from the key figures above, this serves as a reminder of the exceptional capital allocation skills for Topicus (and also Constellation Software). Today, Asseco Poland shares trade around 20x EV / EBITA or 23x Price / Earnings.

Q3 2025 results were postponed by 4 days to December 1st 2025. By H1 2025, results have been outstanding for Asseco Poland. If we annualize the improvement seen in H1 2025 for the fully year, the stock is today priced closer to 21x PE and 18.5x EV / EBITA. Given we’re close to 2026 now, and with Asseco’s track-record of steady growth, it’s likely Asseco trade closer to 19x PE or 17x EV / EBITA for FY 2026 figures.

That price seem very fair given Asseco’s business quality and growth runway.

And if we add in the insights Tresor Capital shared recently, highlighting Asseco as “the architect of the next Polish growth era”, it’s clear Asseco is positioned perfectly in an area experiencing multiple tailwinds, with an underlying need for investments into software. Asseco is for example the second cloud infrastructure player in fast-growing economy Poland. Tresor Capital concluded their writeup perfectly:

And with Constellation Software (through Topicus) now as a key partner, we would not be surprised seeing more capital being put to use into more value-accretive acquisitions — just like we’ve seen with Sygnity. Still, it’s clear from the Shareholder Agreement that Asseco will retain their identity, also as a dividend-paying company.

And for Topicus and Constellation Software, their strategy of continuing to branch out capital allocation, seem to lengthen their runway to continue deploying capital into value-accretive deals. Despite this, investors should be very careful extrapolating high reinvestment rates indefinitely at today’s returns, as we’ve both seen capital deployment can be lumpy, but returns also tend to decrease with size. Still, we see little signs that the collective group is about to slow down any time yet.

Asseco Poland reports Q3 numbers next week, 1st of December.

If you enjoyed this writeup, you’ll find many more on Outsiders Corner. Consider subscribing if you want more of these in your inbox. While you won’t see us weekly in your inbox, it’s a lot of effort behind those few that pops in. Thanks to all subscribers, and especially those who’ve opted to become paid members.

Disclaimer: This newsletter is provided for informational and educational purposes only. The analysis shared is based on my personal research and is not tailored to individual circumstances. The views expressed are my own and do not constitute financial advice or recommendations to buy or sell any securities.

We like such environment as it provides long-term investors the opportunity to own durable companies, at attractive prices. When you don’t overpay for a good asset, you are less likely to have multiple contraction as a headwind going forward. Still, getting the business right often matters more than getting the price right.

In this month’s letter, we will go over:

I. Two watchlist Ideas solving the same problem, but with different solutions
II. A review of our own portfolio (for Premium members)
III. 3 companies we continue to add capital to currently

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Investing behind long-term secular tailwinds can be powerful. When a business operates in a market where demand keeps expanding, its existing assets often generate higher incremental returns — provided the company is competitive enough that customers continue choosing its products and services.

Ageing Population, Screentime & 2 European Companies

Few trends are as strong as an ageing population. But, within eye-care, this trend is accelerated by the high screentime we’re seeing today. For every additional hour of screentime daily, the risk of myopia increases by 21%. Additionally, screen time has shown to reduce blink rate by ~66% on average, leading to dry eye. This is especially a problem for those using contact lenses, and perhaps also, those selling them.

I: Fielmann Group & Clinica Baviera

Fielmann Group, a European market leader in prescriptive eyewear and lenses, are a company positioned in the middle of this secular tailwind. However, as Exhibit II below highlights — the market has rarely had less faith in the future of this company.

Clinica Baviera, another European market leader, but in vision correction, also benefits from this secular tailwind. But in contrast to Fielmann who is selling a solution to your eye problems, Clinica tries selling a fix to your problem.

Exhibit II shows that the market is pricing both business at ~ 13x EV / EBIT — a price not expecting much growth from these tailwinds going forward.

Looking at both companies updates for Q3 2025, shown in Exhibit III below, there is little evidence suggesting these businesses are struggling much so far.

Their recent results tell a different story.

• Fielmann: +9% revenue, +18% adj. EBITDA

• Clinica Baviera: +12% revenue, +14% EBITDA

Both have faced margin pressure due to international expansion (Fielmann in the US, Clinica in the UK), but trends are diverging. Fielmann’s US EBITDA margin improved from 7% to 14%, closing the gap to its European margin of 25%, while Clinica’s UK operations continue to weigh on profitability.

Financial KPI for Clinica & Fielmann

Below are the key figures we track for all our watchlist companies.
We view growth in NOPAT per share + dividend yield ± changes in the valuation multiple as a practical framework for thinking about forward return potential.

We believe this overview highlights that both Clinica and Fielmann are:
1) Growing faster than their underlying markets, thus taking market share
2) Reports strong margins, with recent margin improvement
3) Are able to both grow NOPAT per share while paying out dividends (good ROIC)
4) Low Net Debt to EBIT levels.
5) Rather low expectations for future performance, despite improving fundamentals.

In conclusion, we like both ideas — but there are a few points we think about.

First, both companies have controlling shareholders owning roughly 75% of the business. In Fielmann’s case, this is the Fielmann family. That’s not an issue for us; in fact, we generally prefer to align with family or owner-operators, as with MBB.

But for Clinica, which perhaps looks like the most intriguing case at first sight, the company is 75% owned by a Chinese giant called Aier Eye Hospital Group. However, we were less skeptical when we saw the fundamentals of this Chinese giant — topline growing 20% annually with operating margins and ROCE around 20% for the last decade. There are simply not many companies in the world with such figures.
To us, Aier’s majority stake in Clinica looks like part of their strategy to expand into Europe — while for Clinica, it provides access to the market leader’s expertise, capital, platform, and cutting-edge technology. Clinica’s shareholders, including the founding family still holding ~10%, have clearly benefited since Aier’s acquisition in 2017. With Aier behind them, Clinica has also shown the ability to expand into new geographies.

Another question we consider is durability: is the most robust model selling recurring solutions to a chronic problem, or solving it once and for all with a high-priced procedure? While Clinica’s “fix-the-problem” model is appealing, cost matters — the upfront price of surgery versus simply buying a new pair of glasses.

In our view, there is room for both models, each addressing different customer needs, painpoints and price sensitivities. Fielmann’s may be more stable during tough economic times, given the lower price points. Additionally, Fielmann have succesfully expanded into hearing aids as well — with good results so far.

We think both of these businesses look like interesting investment ideas, which we will look further into. (Note to new readers: We usually follow a company roughly 1 year on average before buying).

Disclaimer: This newsletter is provided for informational and educational purposes only. The analysis shared is based on my personal research and is not tailored to individual circumstances. The views expressed are my own and do not constitute financial advice or recommendations to buy or sell any securities.

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II: Portfolio Update

As mentioned earlier, we are beginning to see signs of capitulation in several interesting names — including some we own, one of which we will detail shortly. By capitulation, we mean situations where share prices fall far more than fundamentals would justify. Mr. Market tends to overshoot both on excitement and on pessimism.

That said, we can always be wrong — the market may be correctly pricing a deterioration we have not yet identified. This is why position sizing is crucial, arguably the most important skill in investing. If you size positions so aggressively that you cannot withstand volatility or losses, you are playing the wrong game. The power of compounding only accrues to those who survive to play the next day.

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Since then, Paradox stock climbed quickly back up to 210 SEK, before now diving down back down to 170 SEK today. What’s happened since August 2024?

Active Players by Game

In Exhibit I, we highlight Paradox’ average Players per game over time. Perhaps the most important KPI for Paradox, as active players means their products are relevant. Note that this metric ain’t the same as Monthly Active Users Paradox reports, which is around 6 million currently. Our metric is the data we could retrieve from Steam for average player per day.

We think there are two key lessions from this graph:
1) Paradox games are unusually durable. These games can last decades.
2) Paradox are slowly adding more legs to their revenue base over time.

Key Franchises

In Exhibit II below, the individual game Franchises are merged, like Cities Skylines and it’s successor Cities II. 6 franchises accounts for >90% of Paradox’ player base, and likely, >100% of Operating Profit (as failed games are a cash furnace).

And their major launch of Europa Universalis V this November, looks to have received excellent reviews on Steam, with 88% of the 47 thousand (!) reviews being positive. That potentially means those green bars above can expand, and more importantly, it’s sales and cashflow should inflect drasticallu upwards this Q4 2025.

Revenue Model

Paradox’s business model is straightforward: sell games and then expand those games over time through downloadable content (DLC). While the company has experimented with subscription offerings, the dominant model remains full game purchases supplemented by optional DLC that lets players customize their game.

Two dynamics are essential to understand game development:

1. New game development is high-risk. Creating a successful title is difficult, unpredictable, and carries a high failure rate. This can be seen by the numerous poor game releases of Paradox in recent years (similar to most competitors).

2. DLC is the opposite. Expanding an existing game for an established player base generates exceptionally high ROI, since the core development costs are already paid. It’s a rare combination of low risk and high incremental returns.

Paradox has through most of its time as a listed company had a massive premium valuation to the market average. Since 2015, the average EV / EBIT has hovered around 28x, with the peak in 2018 at 60x! Today, we’re 35% below average, at 18x, on what we believe are a lower than usual comparison base for the rolling 12 months.

The lower than usual comparison base, comes from the few releases we’ve seen in the last year. Although Paradox have recurring revenues from DLC sales and players still purchasing old games, game releases have a drastic impact on sales and profits. (Slightly less on profits actually, as the game is quickly amortized).

Conservative Accounting

An important aspect to highlight, is that Paradox is quite conservative in their accounting. After releasing a game, they amortize the capitalized development cost very rapidly, over 1,5 years. This is also part of the reason why the historical ROIC is so high for Paradox (10y average 34%), because many items worth 0 on their balance sheet still contributes significant profits, since they have been depreciated fully.

And since amortisation and depreciation happens above the EBIT line in the P&L, it can distort current cash generation when releasing games. The way we can see that is in the cash flow statement.

Cash Flow

In Exhibit V below, you can see the years where Operating Cashflow (orange columns) are well above Operating Income (blue line). These are the years with the significant releases, as they receive larger inflows in cash from game sales, but incur a lot of amortisation rapidly post game release.

What Exhibit V also show, is what happens to Operating Cashflow.
First, Paradox spend minimal on tangible capital expenditure, basically a rounding error. Instead, Paradox invests in game development, which is reported as purchase of Intangible Assets. Additionally, they have done a few acquisitions (in red), the most recent of Haemimont games this year. Then, the reminder cash is distributed as a dividend (yellow columns), close to 500 million SEK in the last twelve months.

Let’s do a quick Napkin math over incremental cash-on-cash returns.
We believe most investments from 2024 have not contributed to cash generation yet (but much from next big release quarter, Q4 ). Thus, if we sum up the capital invested in intangible assets and acquistions from 2015 - 2023, we end up with roughly 4 billion SEK in Invested cash, vs the 900 million of incremental operating cashflow. That’s a roughly calculated 20%+ incremental cash-on-cash return.

Recent Developments

For the 9 months ended Q3 2025, Paradox reported sales of 1317 million, down 12% from last year. Operating profit of 391 million, a 20% increase. That divergence is mostly explained by the significant 200 million writedown in Q2 2024. Cashflow, which similar to revenues highlights customer activity better, have declined.

Q3 2025 comments by CEO and owner-operator (33% stake) Fredrik Wester:

The third quarter has been characterised by a high pace in preparing for what will likely be the most intense period in Paradox’s history. In the fourth quarter we will launch two new titles and one remaster, as well as content to most of our core games: a testament to both our breadth and our development capacity.

He also notes that the few releases, the strengthening Swedish Krona and intense marketing campaigns in 2025, have put a pressure on their numbers so far this year.

Like previous years, the number of releases has been fewer in the third quarter, which together with a stronger Swedish krona has had a dampening effect on revenues. Simultaneously the period has been marketing intense with campaigns for our coming releases. In total it affects the quarter’s results but strengthens our position for the important period that now awaits.

Importantly, when we buy a company we buy it’s future cashflows.

Finally some success in new Game Releases?

Where the remaster of a core Paradox game, Europa Universal V, seems to be off to a great start in Q4, the two new titles, Vampire Bloodlines 2 and Surviving March Relaunced, seems less so.

Vampire Bloodlines 2

57% of 5000 reviews are positive, giving a Mixed Steam rating. Averaging around 2,000 active players at peak per day, 1 month after launch, means it could add 1% to the graph we highlighted first. And normally, the number of players flattens somewhat over time. From our point of view, looks like another rounding error in the long-run. Although, sales this quarter likely improved.

Surviving March Relaunched

44% of the 750 reviews are positive, giving another Mixed rating. This is a game in collaboration with the newly acquired Haemimont games. Since it’s just been out for 5 days, it’s little data on the number of players yet, but 3,000 players are currently playing. Vampire Bloodlines had 1,000, as of mid-day Sunday Nov 15th.

For comparison, Cities II and Hearts of Iron IV, key titles for Paradox, have more than 15,000 and 50,000 active players at the time of writing this. Europa Universalis, on the other hand, currently have more than 50,000 players now!

It’s no doubt the remake of Europa Universalis is the one which should contribute most to bottom line going forward. For comparison, it’s predecessor EUV IV, had 15,000 peak players at launch in 2013 and 5,000 average players, but player activity grown since then and remained incredibly stable around 12 - 18,000 since. While EUV V definitely will cannibalize some of the EUV IV player base, it seems like EUV V is up to a good start, and hopefully for Paradox, can expand the player base to.

In summary, Exhibit VII highlights the mixed success of launches within last years.

While assymetric risk / reward is a structural feature of Game Development, we have our own view of how to think about a Paradox investor’s risk profile adjust accordingly.

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Investment Idea

Paradox’s share price has again fallen to around SEK 170 per share, corresponding to a market cap of roughly SEK 17.5 billion. We believe the company can comfortably support a SEK 600 million dividend in 2026 alongside necessary growth investments, implying a dividend yield of ~3.5% at today’s price. The net cash position is also likely to climb back above SEK 1 billion after the launch-heavy Q4.

At an EV/EBIT multiple of ~18x, Paradox is not cheap. However, we continue to argue that the durability of the company’s core franchises supports this valuation — assuming that durability persists. For context, the historical trough multiple was ~14x (during our 2024 update), while the 2018 peak reached 60x EV/EBIT.

We do not expect multiple expansion from current levels. But for long-term investors (including us), further multiple compression appears less likely to remain a material headwind — unlike the period since 2018. Investors who paid 60x EV/EBIT back then likely expected far higher growth than the ~10% top-line performance delivered, leaving them with seven years of flat returns and sharp volatility.

Sentiment today is weak, understandably, after several quarters of negative growth and increasing competition in gaming. However, we now have confirmation that one of this year’s major releases performed well, and — as our header image suggests — Paradox’s core titles remain highly relevant.

Assumptions

Paradox’s long-term growth rate is uncertain in our opinion.
But, if the company can continue generating roughly a 20% cash-on-cash return on reinvested capital, then with a 40–50% reinvestment rate, a high-single to low-double-digit growth profile appears reasonable.

A common bear thesis is that competitive pressure will intensify. This overlooks a defining characteristic of Paradox: it dominates narrow, defensible strategy-gaming niches. Some argue that AI-driven reductions in development cost will flood the market with new games. But the gaming market is already oversaturated — thousands of titles launch annually. It’s not obvious that consumers want (or could even process) 10x more.

On the other hand, continued semiconductor progress will enable more realistic gaming experiences. Yet, as noted in our previous update, Paradox’s successes are not driven by cutting-edge graphics, but by depth, storytelling, and strategic complexity. It feels unlikely that Hearts of Iron players would migrate solely for better graphics — though this definitely cannot be ruled out for all games. Further, other game developers may be able to creep into some niches Paradox dominates with a better game. City building for example is still dominated by Paradox, but who knows what will be launched in the future, and how players will respond.

A more material risk, in our view, is game development discipline. Paradox has taken steps to terminate weak projects earlier, which is important given that releasing an unsuccessful game is vastly more expensive than cancelling it mid-development. Still, if Paradox fails to expand its player base through new titles, upside potential becomes limited. It should also be noted that a lot of players seem frustrated with how Paradox charge their players. Our opinion, is that games in general are a really low cost entertainment per hour played. Prices of games, in contrast to everything else in society, have not risen much since last time I touched a Paradox game myself, back in 2017-2018 with Cities Skylines I.

Franchise Expansion Is the Engine for Upside

Paradox’s long-term success has depended on steadily adding new franchises. This dynamic explains the rich valuation in 2018: Investors believed new hit titles would continue to appear at the same pace.

Growth of Core Franchises

• Pre-2015: 2 Core Titles (Europa Universalis, Crusader Kings)

• 2015: 3 Core Titles (+ Cities: Skylines)

• 2016: 5 Core Titles (+ Hearts of Iron, Stellaris)

• 2022: 6 Core Titles (+ Victoria 3)

Perhaps Prison Architect 2 becomes the next major franchise — perhaps not. Historically, Paradox has added a successful new franchise roughly every three years. No wonder investors are losing patience with Paradox stock with only one new title becoming large in the last 9!

Still, the current franchises continues to be cash-cows and larger audiences, with the multiple remakes and DLC’s released per year to monetize this. While they may not alone contribute to double-digit growth, they can potentially serve as protecting the downside for current investors — with the ability to deliver mid-single digit growth.

Summary

In summary, we think the potential for a 3-4% dividend yield next year and a mid-single digit growth from current franchises supports an investment case for 8-10% annual returns for shareholders.

However, while many investors may look over the hill and see management reverting focus back on their core titles, we believe the failure to expand Paradox’ portfolio proved this business lacks optionality. M&A looks like an increasingly likely capital allocation lever, and given the software selloff and poor sentiment among gaming stocks, could bode well for attractive purchase prices.

While M&A could add another succesful franchise leg, we think it’s unlikely to come with a similar 20% cash-on-cash return like organic investments. We exited our small position in Paradox late November 2025, but the stock remain on our watchlist.

Disclaimer: This newsletter is provided for informational and educational purposes only. The analysis shared is based on my personal research and is not tailored to individual circumstances. The views expressed are my own and do not constitute financial advice or recommendations to buy or sell any securities.

Our preferred KPI for Investor, Underlying Operating Income, is up 7% from 2024.

This number would have been 8% if we reported it in local currencies, and not translating EUR and USD numbers into SEK. Either way, with one quarter left of 2025, it looks like Investor will deliver around 10% growth in Underlying Operating Income in 2025. A respectable growthrate in a market environment where such growth is rare, and well within Investor’s objective of deliver more than 8% annual returns over time.

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We know many investors who prefer individual companies within Investor, like Atlas Copco. However, this year has shown why the stability of Investor can be so valuable. I have yet to see retail investor’s discussing companies like Sobi or ABB, but these have contributed greatly to Investor’s underlying profits in a year where more commonly owned names (at least in the retail community), like SEB and Atlas Copco, have delivered declines in their profits.

We find Investor’s exposure to companies with strong competetive positions, in several markets with durable tailwinds, as worthy of a cornerstone holding within our own portfolio. We’ll now go over valuation, and which subsidiaries having contributed most (and least) to this year’s 7% growth.

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October is coming to an end, and the first snow has already settled over the Norwegian mountains. The topics of this month’s letter will be:

• Lessons on Opportunity Cost and Management Alignment

• Portfolio Year-to-Date

• Key Q3 Results from our Holdings

Where the Norwegian OSEBX and American S&P500 are up 15% YTD, the OMX Nordic 40 in Scandinavia is down 4%. It’s been a tough year for many of Scandinavia’s long-term champions, especially those from Denmark.

However, we still think Scandinavia offers many excellent opportunities. It’s a small world in miniature: Norway brings energy and seafood; Denmark offers world-class healthcare and financials; and Sweden stands as the region’s industrial and technological engine. For our taste, there are many more hidden gems to be found outside these sectors as well (like Finnish saunas or Norwegian Medtech).

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1st Lesson: Opportunity Cost

The longer the time horizon, the more opportunity cost seems to matter.

We’ve noticed a pattern of ourselves, one many investors probably can relate to.
Our best ideas never received enough capital, while we continued to add capital to our losers, on the basis that their low valuation provided attractive risk-adjusted returns and that mean reversion in their stock prices would occur one day.So far, that hasn’t worked great.

The positive, is that we’ve avoided trimming or selling our winners, which means our top 10 positions is almost exclusively our winners.

The key lesson for us is to keep an eye on Invested Capital, and placing a limit on how much capital we allow to allocate to one holding, call it a fully built position.

Others may prefer to do this differently, but we think a key risk to our long-term returns is overconfidence in going against the market, instead of continuing to add to our winners. Once that threshold is reached, we can’t add more to that position. It serves as protection against our own ignorance or bias.

To illustrate the potential after just a couple of years: Norbit, a 3-bagger of ours, has only received 4.5% of our invested capital, whereas a loser of ours, Evolution, received 8.5%. Today, their respective weights in the portfolio are 7.5% and 4.5%. Luckily, we never trimmed Norbit — only added new capital to Evolution.

While we think of ourselves as business owners, there is something difficult in our brains buying a stock that has gone up a lot. The lesson with some of our recent winners, like MBB, Medistim and Norbit, is that fundamentals actually have justified their runs. Thus, we should add capital here, rather than adding it to the weakening investment cases, like for example Evolution AB.

Note that we still believe sometimes falling shareprice offer excellent opportunities we should take advantage of. Like we believe with Constellation Software at the moment.

2nd lesson: Management Alignment

Holding onto a stock through tough times, which always come sooner or later, is far easier when three conditions are met from the start:

1. You understand the business.

2. Management is aligned and thinks like owners.

3. They have an exceptional track record.

Why partner your capital with managers who haven’t proven themselves over time, when there are those with decades of disciplined outperformance? Why own companies where executives get paid regardless of performance and might be gone in a year or two, when you can back those who feel the pain alongside you?

Without these three, we would not be interested. And that excludes a lot of ideas, many good ones to, but it improves our behaviour as investors.

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Portfolio Year to Date

Year-to-date our portfolio is now up 15%.
The big drivers of return is a double in both Norbit and MBB, and a 70% return in Medistim — all top 5 positions by now. Looking at their quarterly results, we actually find these moves justified. For MBB and Medistim, we’ll take a closer look soon.

We’ve also made a few adjustments recently, most recently selling our position in Momentum Group. At first glance, the decision might seem odd following another quarter of solid high single-digit profit growth. But beneath the surface, organic growth continued to slow, reaching –4%.

In contrast, Constellation Software, another serial acquirer we own, reported +5% organic growth, with a similar inorganic contribution on top. Given that both trade at comparable valuation levels, we find it difficult to continue holding Momentum Group. Despite holding for 9 months, we never managed to add more than 2% to Momentum, due to what we found was an expensive pricetag for their current growth.

We remain open to owning Momentum Group again. We have trust in what Ulf Lilius & Co are building, seasoned entrepreneurs returning to a smaller known stage. They’ll join our other recent sale in Borregaard on our watchlist.

Eurofins entered our top 10 ideas now, a company we did a writeup on recently.

Now, let’s go over our portfolio & the key results from our holdings in Q3 2025. This section is exclusive for paid members.

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I wanted to make it a bit unique, so I also decided to include company highlights from the previous quarter and what we’re keeping an eye on in the next.

But, as always, the future is uncertain, and forecasts often tell you more about the forecaster (me) than the future itself.

Either way, I hope you’ve had a great weekend! If you’re a free subscriber, you’ll only be able to see the first 2 slides. If you’re thinking about subscribing, it’s $8 a month or $60 a year.

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I hope you enjoy it!

Until next time,
Ole

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Eurofins is one of Europe’s great under-the-radar success stories, compounding at 27% annually from 1997 to 2022, turning €1 into €361. They even kept pace with the most famed compounding stories like Apple, Monster Beverages and Amazon.

Yet in the past three years, the stock has stood still. Has this compounder run out of fuel, or is this setting up an attractive entry point into a world-class business?

We believe it’s always worth asking where returns came from.
When Eurofins went public in 1997, expectations where optimistic. The company had €23.5 million in revenue, €5.5 million in EBITDA, and an enterprise value of €132 million, an expensive 24x EV/EBITDA at a time when the US 10-year yielded ~7%. Investors were paying up for growth, and Crédit Lyonnais’ research note made that clear: it projected revenues would grow almost 10x in just four years.

Chris Mayer pointed out in his studies of 100-baggers, that such compounding stories typically benefit from twin engines — the combination of growth + margin or multiple expansion. Eurofins, however, already had expectations for EBITDA margins around 17% before year 2000 (not to far off today’s 21%) and multiples have actually compressed from 24x to 9x. What explains Eurofins’ run?

Exponential Revenue growth
Revenues compounded from €23.5 million in 1996 to about €7 billion in 2024, an astonishing 23% per year for nearly three decades. That kind of growth will not repeat. But the story today can still be interesting. At ~9x EV/EBITDA, expectations have reset. Management guides for mid-single-digit organic growth, complemented by steady tuck-in acquisitions — a playbook not unlike Alimentation Couche-Tard’s.

The difference now lies in price. When you pay less for each stream of cash flow, the composition of returns shifts. Cash distributions, dividends and buybacks, become a more meaningful driver of value creation than topline growth alone. At current levels, Eurofins trades at roughly 13x distributable cash flow, or a 7–8% free cashflow yield. For patient investors, if half of that can be returned to shareholders and half reinvested into growth, starting returns can already be ok, especially when factoring in the potential of those growth investments, a topic we will come back to.

First, let’s understand the basics of their Business Model.

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The Business Model

Eurofins tests to ensure products are safe, authentic, and compliant through a global network of 950 entrepreneur-led laboratories. The founder, Dr. Gilles Martin, is still the CEO and owns 35% of the company through his family holding company.

Its hub-and-spoke structure combines local customer reach with centralized scale and specialization across more than 200,000 analytical methods, where these hubs can collect samples from the spoke (local labs) for specialized testing. This model makes sense when we understand the unit economics behind running a laboratory.

A laboratory, is in effect a fixed cost, due to the facilities, equipment and staff required. Tests usually have low variable costs. Consequently, maximizing volumes and revenues (…) generate better economic returns. (Analyst Hire Report)

At its core, Eurofins’ outsized success has been driven by one thing in particular: fast turnaround times (TAT). But Eurofins’ competitive advantage extends beyond speed. It is broad and built over decades. Here are a few examples that come to mind.

1. Scale Advantage. In testing, volume matters. Eurofins’ network across 60 countries and 200,000 testing methods allow it to become a one-stop shop for many clients, while spreading fixed costs across an enormous base of samples.

2. Regulatory Barriers. Testing is highly regulated, and approvals are both costly and time-consuming. Eurofins has accumulated the certifications and trust that new entrants struggle to replicate.

3. Customer Stickiness. Once a client, Eurofins can be hard to replace. Food, pharma, water, and environmental clients rely on recurring tests, where switching risks compliance failures, delays, or worse. In a few places, labs are even physically co-located close to major producers, making Eurofins part of their daily operations.

4. Data Advantage. Decades of test results give Eurofins a proprietary knowledge base that strengthens accuracy, benchmarking, and insights. In an era of machine learning and AI-driven analysis, this dataset becomes increasingly valuable in sending back acurate and quick results.

Nevertheless, we belive Eurofins has a perhaps even more interesting edge, beyond their daily operations — being a disciplined allocator of capital.
One example, is their decision to acquire key laboratory real estate now. Real estate on its own rarely delivers great returns, but here it serves a different purpose: it removes a structural vulnerability. Typically, the investments in a lab can be more costly than the building itself. Thus, some landlords have exploited this switching cost with steep rent increases, most notably in the UK.

In our view, such moves highlights the long-term thinking by management. A similar company under Private Equity ownership, would perhaps opted to do the opposite, becoming more capital-light. But we believe such bets improves the MOAT of Eurofins, and as we’ll come back to, done at a time when office real estate is not in high demand, illustrating their counter-cyclical view on capital allocation.

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Capital Allocation

In The Outsiders, William Thorndike highlights Henry Singleton, a legendary CEO renowned for his exceptional capital allocation. Singleton was a master of counter-cyclical capital allocation: he issued shares to fund acquisitions when his stock was expensive and repurchased aggressively when it was undervalued.

Exhibit III below, shows how Eurofins mirrors this strategy, issuing shares when their stock is expensive, and like today, repurchasing shares aggressively when cheap.

However, issuing or repurchasing shares is just the icing on the cake of capital allocation — the real question should always be: where can the next euro be deployed for the highest return?

Eurofins illustrates this mindset in Exhibit IV below.
In 2024, the company repurchased its own shares at lower multiples than those paid for acquisitions — showcasing a disciplined, returns-oriented approach to capital allocation. Conversely, when shares were issued in earlier years, it was done at multiples much higher than what the company could achieve via tuck-in acquisitions. Multiple arbitrage done at its best.

While we generally dislike dilution, it can be accretive to shareholders when executed intelligently to drive per-share growth in distributable cash flows. It’s all about playing well with the hands you’re dealt with at any given time.

Distributable Cashflows (our favourite metric)

After deducting maintenance investments from operating cashflow, we arrive at Distributable Cash Flows, the capital that could be returned to shareholders.

In reality, Eurofins rather invest a portion of this distributable cashflow into future growth, whether through expanding operations, acquiring new sites, or making acquisitions, while also returning some cash directly to shareholders. Growth investments are highlighted in orange below. Exhibit V below, highlights where their capital has been allocated in recent years.

Eurofins’ breakdown here aligns well with how we prefer to evaluate companies — tracking growth in Distributable Cashflows and assessing how skillfully management deploys Growth Investments to generate long-term value.

And, importantly, we can measure how good they are at this.

Return on Incremental Investments (cash ROIIC)

Our preferred metric here is incremental cash-on-cash returns: Operating Cashflow grew from €540 million in 2018 to €1.4 billion in 2024. Roughly €0.9 billion in incremental cashflows. Against €4.4 billion in Growth Investments and €1.9 billion in leases and Maintenance Investments etc, this implies an incremental cash-on-cash return around 14% on incremental capital.

This is especially impressive given the significant capex tied to owning more of their sites. More specifically, they increased square footage from 240,000 → 633,000 m² over the same period (2018→2024). This means they now own 34% of their sites.

While there are businesses which boast higher ROIIC, some of which we’ve covered here before, few of those could match Eurofins’ ability to reinvest at scale. What truly matters is the combination: strong ROIIC (14%), high reinvestment rates (85%), attractive shareholder yield (~4%), and the durability of value creation, well above the cost of capital.

And of course, price matters. With a high ROIIC, companies can both grow quickly and distribute cashflows to owners, as growth consumes little incremental capital.

While different, another interesting dynamic is what happens once a company trades at a high free cashflow yield. Now, shareholders don’t require as much growth to earn decent returns themselves, more of their returns can come from dividends and buybacks.

The ideal would of course be to find the rare high reinvestment and ROIC companies trading at high free cashflow yields.

To put the math for Eurofins in context: at a market cap of ~€11 billion, shareholders stand to earn roughly a 4-5% combined dividend and buyback yield, once real estate investments taper post-2027. Layer on management’s guidance of ~6.5% long-term organic growth, plus a couple % from further acquisitions, and you’re already looking at an implied IRR close to 14%.

Additional upside could come from start-up investments (currently depressing margins), operating leverage from reduced rent costs or startups maturing, or potential efficiency gains from IT investments. Or perhaps a multiple re-rating.
All possible levers in our view.

We will cover the risks later, which (as always) can derail any investment thesis. But first, we want to highlight Eurofins’ investments in real estate, as they underscore the company’s long-term strategic mindset.

Investment Cycles & The Reverse Private Equity Playbook

Eurofins has a track record of making thoughtful, long-term bets. As illustrated in Exhibit VI below, the company has historically cycled between periods of growth and periods of harvesting those investments, with expanding profit margins.

We think this history is helpful in assessing how management think around the investments of today.

Current Investments

As seen earlier, Eurofins broke down their 2019-2024 growth investments as such:
- Acquistions (34%) - mainly tuck-in acquisitions
- Expansion capex (25%) - stuff like IT investments & lab expansions
- Capex owned sites (15%) - buying out previously leased key locations real estate
- Seperately disclosed (11%) - mainly related to start-ups investments

In total, an 85% Reinvestment Rate of distributable cashflows, with the last 15% being returned to shareholders. However, with the multiples of their own shareprice, this dynamic changed in 2024, with a third of cashflows being allocated to buybacks, showing management is ready to act once they see good opportunity.

Let’s break down the 5-year accumulated investments in a bit more detail.

1. Acquisitions (34% of 2024 growth capital)

Eurofins added 22 acquisitions in H1 2025, bringing the all-time total to 589. This years deals have brought in €210m in annual revenue for a cost of €150m — about 0.75x sales. On price paid, we only found multiples paid for 2024 acquisitions, of around 10x EV/EBITDA. At this price, great returns would require synergies, improved margins, or decent growth to deliver double-digit returns on capital.

Napkin Math: If new labs convert 60–70% of EBITDA into free cash flow, Eurofins locks in a ~6-7% cash yield on day one from 10x EBITDA multiple. Add 5-6% annual profit growth including synergies (similar to Eurofins organic growth targets), and returns climb toward 12%. Solid, but not spectacular. At 10x EV/EBITDA, acquisitions look fair, though not as compelling as buying back their stock at 9x. If larger synergies or growth is achieved, the return profile improves.

Our take is that acquisitions is a decent use of capital, especially with the amount Eurofins have shown they can deploy. Still, the year 1 ROIC is much lower than what we’ve found among the best serial acquirers (Momentum Group, Lifco, Topicus etc).

2. Expansion Capex (25% of growth capital)

Running a lab isn’t cheap. However, management expect declining capex intensity following their recent investments in consolidating into the hub & spoke network. This is a key reason to why management expects ROCE to expand over the next years.

This reduced capex intensity a critical piece of our Eurofins investment thesis. Current investments consume capital today, but can generate returns in many years down the line. To us, this seems like just another investment cycle, where they can now reap the benefits. When we assess the company having generated a 14% ROIIC in recent years, this includes several investments not yet having reaped all their potential. Thus, as capex intensity reduces, ROIIC should climb, all else equal.

IT Investments, on the other hand, is likely to persist at high levels, especially with the potential automation and AI can have within their labs. To illustrate the potential, management showcased an improved Asbestos Testing Flow in a 2023 presentation. Here, they highlighted how Automation and AI implementation in the Asbestos workflow, could enable 2 employees to do the previous job of 3. Automated handling, AI detection and assisted preperation, where seen as tasks robots or machines could assist more with.

Further, management called out potential competetive advantages in deploying such technologies, from: 1) Testing volumes, 2) Standardized shared practises across network, 3) Large databases to train AI and 4) Capacity to invest in technology.

We think IT investments is a necessary and great use of capital for Eurofins, because their decentralized network of labs means they can do experiments at scale, and then share best practises. Their centralized hubs for large-scale specialized testing, also have the volumes to invest in expensive technology.

On the flipside, competitors are probably also considering ways to implement such technologies, and with this still being early days, we think its difficult to suggest advancements in AI technology is a net positive to Eurofins. Another option, is that it enables more advancements in remote testing, outside Eurofins’ Laboratories.

3. Capex Owned Sites (15%)

For H2 2025, management called out €443 million worth of real estate they plan to buy. For these assets, Eurofins currently pays €36 million in annualized rent at these sites, almost an 8% yield in saved costs. Appraisal from independent real estate professionals confirms the attractive valuation, with equivalent reconstruction up towards €1 billion.

However, such investments ties up a lot of capital, which makes management willing to increase their leverage ratio, in order to do so. They expect these investments in H2 2025 to result in an increase of 0,2x effect on Net Debt to EBITDA.

We were surprised seeing how high the rent savings where in relations to price paid (yield). Thus, we align with management that this is a good use of capital now. Owning key real estate is an advantage which could compound over time. And being able to pull this lever at a time when office real estate etc. are unpopular, seems like the typical move a counter-cyclical capital allocator would do.

Eurofins themselves, calls out that owning these assets themselves, enables more flexibility around future-proofing buildings (energy efficiency) and custom-building them for optimised productivity (optimizing layouts). Interestingly, Eurofins have been able to improve revenues per squaremeter by roughly 27% since 2018.

4. Seperately Disclosed Items (11%)

Usually, we save the best for last, and we found start-ups as a very interesting capital deployment opportunity for Eurofins. It’s easy to imagine Eurofins as just a bunch of decentralized old labs within a massive network. But reality is much more nuanced.

Eurofins have initiated 325 start-ups and 118 Blood-collection points (BCS) since year 2000. The strategic rational has typically been as a complement to their acquisition strategy, typically in high-growth markets without availability or affordable acquisition targets. Importantly, returns on these investments are showing excellent results.

In 2024, mature start-ups from the period 2010 - 2021, generated a 59% ROCE. No wonder management plans to continue deploying more capital here.

That said, this is a form of organic investment where simply adding more capital may not necessarily lead to better results. Success here likely depends as much on finding and empowering the right people as it does on financial resources. Therefore, we wouldn’t expect the percentage of distributable cashflows here to increase that much.

5. Dividends & Buybacks

Capital distributions have become a meaningful driver of shareholder returns at today’s valuation. Subsequently, management is directing a significant share of free cash flow toward buybacks, alongside the steady dividend.

With investments in owned lab sites tapering off, most key locations soon secured, we expect more excess cash to be available for distribution (or growth) in the years ahead. You’ll find more of this in the Valuation section, but first let’s look at risks.

BUSINESS RISKS

Assessing risks are hard. The future is inherently uncertain, but what can we learn from its past? With this in mind, we tried collecting what risks in their annual reports have actually materialized in the last decade using AI tools. After each point, we cover our own thoughts in this particular subject.

Last Decade’s risks materializing

• Cybersecurity and Operational Disruption Risk

  In 2019, Eurofins subsidiary NPCC experienced a ransomware attack, where 20,000 forensic cases in criminal investigations where delayed as a result.

  In July 2025, the 2019 acquired subsidiary NMDL, experienced a serious data breach, where half a million Dutch cancer screening women’s data where stolen.

  Cybersecurity is a critical business risk, both for litigations and reputation. On the other hand, one advantage of Eurofins’ decentralized structure, is that these risks typically don’t materialize groupwide. However, this decentralization can also be a two-sided sword.

  For instance, smaller labs are likely to have worse IT systems, and thus may be easier targets. Even if a case like NMDL occurs within one subsidiary, the risks can be felt by the Eurofins group, also in terms of reputational damage.

  Similarly, while centralizing and modernizing IT systems may reduce cybersecurity risks, they could also increase the vulnerability to group-wide outages, as perhaps one breach could reach more of the Eurofins group.

• Other Reputational Risks

  Eurofins was accused in a short-report by Muddy Waters in 2014. While this report seem to have weighed on the stock price ever since, a detailed forensic audit by Ernst & Young later found no evidence of misstatements or irragularities.

  Short reports feel unsettling at first, but they can also offer valuable opportunities for investors.

  First, if someone has put in significant effort to uncover risks, and you can build solid counterarguments, this can strengthen your conviction.

  Second, once the initial turbulence subsides and you’ve analyzed the claims, the accusations may weigh more heavily on the stock price than the actual probability of them materializing. This disconnect can create good buying opportunities — both for the company through buybacks and for investors.

• Acquisition Risks

  With 59 acquisitions completed in 2022 for instance, this typically brings risks within integration, culture, potential management transitions and more. While we haven’t found examples of outright failures, it’s almost certain that some transactions have been less successful than others. Retaining key employees and preserving an entrepreneurial culture are particularly dependent on well-structured incentive systems, making this an interesting area for deeper research.

  That said, Eurofins’ strong track record of organic growth, measured from revenue streams not acquired in the past year, suggests that integration has not created significant long-term issues. Another positive sign, is that the average cash-ROIIC for the group (14%) is much higher than that achieved in year 1 following an acquisition (10% EBITDA yield), suggesting value creation also occurs within most subsidiaries, also newly acquired ones.

Technological Risks

A risk we think a lot about, but couldn’t find much material on, is the potential of decentralized testing.

In our own full-time profession within Physiological Endurance Testing, we can see increased availability of equipment customers can use themselves, outside labs. For instance, athletes can now do hemoglobin testing themselves, without stepping into the doctor’s office at all.

Could such risks play out in some of Eurofins 200,000 testing methods as well?

We find it hard to generalize such theories. Perhaps in the less complex tests, one could imagine a cheap collector sending signals to a smartphone for further analysis, could reduce demand for laboratory testing in some verticals. However, this risk would never apply broadly across Eurofins’ 200,000 different testing methods. Highly specialized or heavily regulated testing will remain anchored in professional labs, where reliability and accuracy are hard to match.

When considering this risk, another emerges: the incentives around developing new testing methods. We appreciate Eurofins’ willingness to deploy capital into start-ups, as these players often have stronger incentives to innovate. However, cost-reducing innovations are typically easier for new entrants to pursue. This dynamic is often known as Counter-Positioning — when challengers can disrupt incumbents by offering a cheaper or better alternative without jeopardizing existing revenue streams.

The overarching potential risk here, is how Eurofins adopts to changing technology. We think its worthwhile reflecting over their decentralized structure in this regard.

Decentralization - A double-edged sword?

A positive about Decentralization, is that it can be a structure avoiding bureacracy, typically limiting the speed of which decisions is taken at large organisations. Entrepreneurial units can experiment and adopt tools and learnings faster. On the flipside, coordination can be difficult in local units that value autonomy, like implementing transformational large-scale rollouts of new technology tools etc.

Management Incentives & Valuation

Most of today’s write-up on Eurofins was free to read — only the Incentives and Valuation section is reserved for paid members. If you consider joining, a subscription is $60 per year or $8 per month.

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Part I: The Constellation Model

Constellation Software and its European spin-off, Topicus, share a rare feature: decentralized capital allocation. Unlike most holding companies, where operations may be decentralized but capital allocation remains centralized, Constellation has evolved into multiple layers of capital allocators. We think this significantly lengtens their runway to continue deploying capital at their historic exceptional ROIC. We covered this in the writeup of Topicus earlier this year (link below).

Operating groups execute smaller acquisitions independently, while head office typically focuses on larger, more complex transactions — several of which we have already seen this year. This model is the underappreciated engine of value creation, but it complicates analysis: tracking reported revenue and margins is not sufficient. Investors must also consider subsidiary ownership, minority interests, and ultimately how much economic value flows to shareholders. And with this model, it may make sense that we could see further spinoffs in the future, like that of Topicus or Lumine.

To cut through the noise, we maintain detailed tracking models — similar to those we have built for Investor AB and MBB — focusing on distributable cash flows before growth investments.

Capital Deployment — The Core Driver

The durability of Constellation’s acquisition engine is the single most important factor for long-term value creation. Organic growth in their vertical market software (VMS) businesses tends to be low- to mid-single digits, but they consistently delivers high ROIC by buying companies cheaply.

In Exhibit I below, we’ve illustrated just how cheap. Historically, Topicus has paid slightly lower multiples than CSI, despite stronger margins. This changed in 2025 with Topicus’s purchase of Belgian software company Cipal Shaubroeck, at nearly 2x sales - more than double its usual entry multiple. It should be noted that despite CSI paying slightly more for their average deal, they have maintained a more consistent high-reinvestment engine, despite being significantly larger.

The bear case would be that multiples paid go up or/and reinvestment rates fall. Or perhaps that organic growth detoriate and turn negative.

Topicus ($160 CAD per share)

Topicus has two layers of non-controlling interests we need to consider:

• Subsidiary level — in entities like Sygnity, GeoSoftware, and GeoActive.

• Holding-company level — through other Topicus shareholders, such as Joday Group.

Following its minority investment in Asseco Poland, we prefer to calculate the market cap for Topicus using fully diluted shares outstanding. This eliminates the need to adjust for holding-level non-controlling interests (e.g., Joday), while still accounting for subsidiaries. We could also use basic shares (~65% of diluted), but then we would have to deduct the ~35% non-controlling interest as well.

The Asseco investment is a good example of the capital allocation skills at work. Topicus acquired a 10% stake early this year at 85 PLN per share, roughly 60% lower than the 200 PLN its trading at today. And, pending regulatory approval, this stake may raise to 25%, also at PLN 85/share. If completed, the value of the stake would rise from €337m to ~€844m, making Asseco a material part of Topicus’s value.

In Exhibit II, you can see the metrics we keep track of for Topicus.

Given we are already in September 2025, we find forward estimates for 2025 and 2026 more relevant than trailing results when assessing valuation.

On a distributable cash flow basis, Topicus trades at roughly 43x LTM, 39x 2025E, and 32x 2026E. Importantly, both Topicus and Constellation report free cash flow available to shareholders more conservatively than peers.

Where the general operating cashflow less physical capital expenditures is commonly used to calculate operating cashflow, Constellation also include other cash outflows, like interest paid on lease and debt obligations. They also pay employees’ bonuses in cash, where parts of it is required to be invested in company shares. This in contrast to most, who issue stock-based compensation, diluting shareholders and overstating actual operating cashflows, as the alternative would be paying employees in cash. Either we have to include it as a cost, or we have to look at per-share value.

Constellation Software ($4400 CAD per share)

For CSI, we adjust reported FCFA2S by adding back the IRGA liability (USD 1.0bn at June 30, 2025). While booked as a liability, it effectively acts as a strategic asset.

The IRGA gives Joday Group the right to sell Topicus Coop units to CSI at a formula-based price tied to revenue and tangible assets, not market value. This means that as Topicus grows, the liability increases, but CSI gains the ability to acquire more Topicus shares at a steep discount. In practice, the IRGA represents embedded optionality, not a burden.

On this adjusted basis, CSI trades at ~35x 2025E distributable cash flow and 29x 2026E, roughly 10% cheaper than Topicus. We see reasonable arguments for either deserving a premium: CSI for its scale and track record, Topicus for its earlier stage and runway. So far, we have leaned toward Topicus, whose smaller market cap means each acquisition moves the needle more meaningfully.

AI — Management presenting their thoughts

On September 22, Constellation Software management will present its perspective on how Artificial Intelligence may affect their business. The discussion could have important implications for assumptions around long-term organic growth rates and the pipeline of acquisition opportunities.

At present, it remains unclear whether AI will be a net positive or negative for vertical market software. On one hand, it could challenge established niches; on the other, it may unlock opportunities previously unavailable, potentially also creating room for greater returns on organic capital deployment alongside acquisitions, either by need (competition) or to increase the value proposition for sticky software customers.

Given CSI’s track record, we are eager to listening to management’s view on this, but also how they view the terminal value of the average VMS business in their portfolio.

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Part II: September Portfolio Update

This month, we exited one position and added to key holdings we found attractively priced. Our portfolio is now up 14% YTD, recently being surpassed by the Nasdaq, as shown below. While we will admit we can feel some FOMO from time to time, seeing many megacaps continue to rise, we cannot do other than congratulate those of you who’ve held onto recent winners like Google and ASML (among many others). While we haven’t participated in those gains, we have been positively surprised with the stability of our portfolio over the last couple years.

Today, we will go over our Portfolio, and cover a couple ideas of ours. At the end, we will publish our investment thesis on a holding we haven’t discussed much before.

This part is exclusive for our paid members, if you consider becoming one, it costs $8 per month or $60 per year.

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