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Baseline helps you screen for and analyze companies, identifying potential issues from the very first pass.

It aggregates information on where the company is going and what the key risks are in terms of business quality, competitive advantages, and AI.

Of course, none of this replaces a much deeper analysis that you must conduct before deciding with adequate conviction, and we think the best way of doing that is by performing a full scuttlebutt rundown.

Baseline, however, accelerates the process of discarding companies, which saves you time and allows you to focus more on what’s important.

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Check out all of our previous episodes here.

During the chat, we went over the following topics:

• Bulgarian Heating & Infrastructure: Initial banter about cold central heating in Sofia, Bulgaria, the monopoly on heating utilities, and poor internet connections.

• Fun Facts & Pop Culture: Brief tangents on Starlink, looking like a younger Leonardo DiCaprio, and the etymology of “slaves.”

• Gold Origins & Facts: Discussion on gold coming from neutron stars, its finite supply, recycling processes, and eucalyptus trees acting as natural gold pumps.

• Gold Usage Breakdown: A quick pop quiz ranking gold demand: jewelry (40%), central banks (25%), private investment, and industrials (6–7%).

• China’s Gold Strategy: Detailed analysis of why Chinese central banks and retail investors are heavily buying physical gold due to capital controls, real estate market struggles, and concerns over US asset freezing (similar to the 2022 Russian sanctions).

• Paper Gold vs. Physical Gold: The vast discrepancy between physical gold and synthetic/derivative paper gold.

• China’s Economic Model: The dynamics of Chinese corporate taxes, heavy subsidization followed by brutal competition, and the low unit energy costs (burning coal).

• Sourcing & Quality: Discussion on importing manufacturing goods from China, quality-to-price ratios, overcoming the “made in China” stigma, and using super apps like WeChat.

• CareCloud & Medical Billing: Deep dive into hospital/insurance billing software, why medical software remains sticky and looks like it’s from the 1990s, and the challenges of migrating data.

• Financial Engineering & Risks: CareCloud’s recent debt restructuring and redemption of Series B preferred shares, balanced against the risks of a major data breach and pending class-action lawsuits.

• Short Selling Masterclass: Review of David Capablanca’s book on short selling and day trading.

• Closing: Brief plug for the new specialty coffee joint venture (Nokora Coffee Group) in Bilbao, Spain.

Hope you enjoy!

Alejandro Yela

I’m obviously kidding. I’m in no position to lecture anyone on basically anything, but I want to share a much more personal piece than what we typically cover here.

This one is all about processing signals from your body. What people commonly refer to as instinct, intuition, or gut feeling.

Part 1

We all have it. I’m confident you’ve listened to at least one song in your life that gave you goosebumps, just as I’m sure you’ve looked down a dark hallway and felt an immediate chill. There are chemical processes behind pain and pleasure that are tough to explain rationally.

Take falling in love: you don’t make an executive decision to do it, yet when it hits, you can’t stop it. The reverse happens when you instantly dislike a stranger. It isn’t blind prejudice; it’s subtle pattern recognition. Your brain registers cues that make you suspicious—often because someone with those exact traits burned you in the past. You might not pin down why in the moment, but your guard is up.

All of these reactions (and many more), are what I’d describe as gut feeling. They are fundamentally a collection of chemical reactions and biological rules of thumb acting as navigation tools through life.

Part 2

For better or worse (and at the expense of another self-deprecating joke), I usually describe myself as a Labrador. In most settings, I’m just a guy with an easy smile and a non-threatening, non-competitive demeanor that makes it easy for people to open up.

Yet, I’ve also been called intimidating or arrogant, especially by people who have just met me. I express opinions with conviction; I’m quick to spot and discard nonsense, and, most importantly, I listen very closely.

Those traits are an immediate red flag for anyone operating with an ocean of knowledge that’s only one foot deep. They can’t casually talk in circles around a subject with half-baked takes, nor can they dynamically adjust their thinking as the conversation evolves. If I say “I like black”, they’ll cling to that for the rest of the chat, assuming it means I somehow hate white and have ignored every shade of grey in between.

When I mention my political perspectives, which I rarely bother doing these days, the takes are usually met with head-on resistance from both sides of the aisle. Yet as I lay out the underlying logic, the people I actually want as friends update their views in real time and find common ground, while the rest stay fixated on the fact that I said I like white.

I imagine a lot of you run into the exact same thing.

Part 3

What might not happen as often, though, is the intersection of these two things: raw instinct and deep analytical processing.

For me, when they collide, it sucks. Let me pause and deliver that with full emphasis in a greatly improvable British accent:

It bloody sucks.

The reason is simple: when the two combine, it surfaces as depression.

It’s an overwhelming state I can’t simply switch off. It goes on for about a full week and colors (more like removes the light of) everything I do.

The only real cure is time.

You might ask: gut feeling and low moods? Sure, they rhyme. But what do personality, logic, and knowledge have to do with it?

Somewhere in the back of my mind, my brain has been running scenarios on a complex problem, and my nervous system delivers the final output as quiet sadness. The sadness is the answer to an unconscious mathematical equation. It’s preemptive grief for something that I do not know or understand (at least yet). The variables have already aligned in my head, even if the events haven’t played out in real life.

Something bad is approaching, and I can feel it in my bones.

Part 4

Beyond any melodramatic framing, I have a personal track record with this sensation that I genuinely despise… mostly because it has a 100% hit rate.

I’ve felt this specific weight three times in my life:

• The first was around 2008. It hit me roughly three months before one of my major reference figures, my grandfather, passed away.

• The second was in July 2019. I vividly remember aggressively pacing a dark corner of Keio University in Tokyo, calling my girlfriend, and bawling my eyes out over an impending sense of collapse in the markets and the world.

• The third time started a few weeks ago.

I can’t pinpoint the source yet, but it genuinely gives me the creeps. This may all very well be some type of main character delusion.

Yet… I’m confident a shift is coming; I just don’t know what it is. But I do know that the impact (in my life) will be substantial.

And because all of this feels a bit gloomy, I’ll finish with a very short, personal video from a training session with a dog that should still be in my life.

Miss you, buddy.

If you found value in this analysis, please hit the ❤️ button and share your thoughts in the comments. It helps us bring institutional-grade research to a wider audience.

And if you liked this post, we’re confident you’ll love this:

As always, we’ve included our usual short overview, but if you’re already familiar with the company, feel free to skip straight to the insights from our 1-on-1 interview.

Access the Inner Circle

Priority Briefings. Investing is dynamic, so our research never sits still. We don’t file a report and walk away; we maintain an active, ongoing dialogue with the key stakeholders and management teams of our past, present, and future holdings.

Think of these briefs as your “insider access” to those calls. We bring you contextualized highlights and actionable updates. You’ll see exactly how the business is evolving in real-time, long before it hits the quarterly report.

This series is exclusively for 🧙‍♂️ Inner Circle members

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

OMS Energy Technologies ($OMSE) Brief

OMS Energy Technologies (NASDAQ:OMSE) operates an asset-light, high-spec precision engineering and machining model serving upstream shallow-water and platform oilfield operations.

Instead of putting their eggs into the more speculative deepwater plays, OMS focuses on the unsexy physical hardware that holds onshore and shallow operations together:

• Specialty Connectors & Pipes (61.6% of FY26 Revenue): The engine of the business. They manufacture large-diameter welded casing joints and conductor pipes using proprietary fast-locking designs (the JV family) that save operators massive offshore rig time. The vast majority ships directly out of Dammam to Saudi Aramco under a 10-year Long-Term Agreement through 2033.

• Premium Threading & Ancillary Services (31.4% of FY26 Revenue): A pure tollbooth stream. Pipe giants like Tenaris, VAM, and Hunting license OMS to precision-machine patented, gas-tight threads onto seamless pipe before it goes downhole. Every new development well needs it, providing a steady, recurring base of inspection and machining fees with zero raw-steel inventory risk.

• Surface Wellhead Systems & Christmas Trees (7.0% of FY26 Revenue): Precision-engineered surface pressure-control valves and downhole retrievable packers, primarily serving Southeast Asian national oil companies like Indonesia’s Pertamina.

How the Commercials Work

OMS operates on an installed-capacity framework agreement model. They lock in multi-year master supply agreements with massive national oil companies (NOCs) to establish pricing and sole-supplier relationships, while actual cash realization happens via periodic “call-off” purchase orders.

Because the business relies on precision value-add machining rather than capital-heavy foundries or shipyards, capex is tiny (just ~1% of revenue), allowing high-margin hardware sales to convert directly into free cash flow.

If you want to learn more about the catalysts and our valuation for this company, make sure to check out this post.

This conversation reminded us a lot of some of the conversations we’ve had in the past with Massimo Gismondi. Many items are framed as external decisions when they seem mostly internal, and naivety may be disguising a deeper meaning or truth the CEO isn't telling us.

Note that this does not imply they’re bad actors; just like Massimo, it may simply be a different set of priorities from what we as shareholders want.

Just to be super clear about this: investors want returns in the form of payouts, ROIC, FCF reinvestment, etc. For someone who already has money and is a majority owner of the business, interests may look more like status, prestige, networks, holding the CEO title of a listed company, bragging rights… the whole nine yards.

Again, this does not imply they’re bad, and it is usually connected with high intelligence… or at least the fact that they are trying to hide it is.

But it can also mean other stuff. For example, this is common practice in scams where people don’t want you to keep digging because they fear you may find exactly that.

For this reason, we’re confident this is but the first of at least half a dozen meetings we will have with How Meng Hock (and his CFO Kevin Yeo) to fully understand the situation and, in so doing, steer the ship in the right direction.

You’ll be the first to know how that pans out. In the meantime, here are the key takeaways from our very insightful first conversation. You’ll easily notice it’s our first given the tone and initial content.

Takeaway #1. The Saudi Aramco relationship/contract is more complex than we thought and can lead to working capital mismatches.

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If you couldn’t make it, here’s the recording for our Inner Circle members.

Again, we went a bit overboard with 90 minutes of discussion, so if your question wasn’t answered, expect a DM with our take.

We’ve left a timetable below in case you want to jump directly to any part of the discussion.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

Introduction & Disclaimer (00:00 – 02:07)

• Context of the quarterly review covering personal, public, and private investments.

Macro Asset Allocation & Portfolio Performance (02:07 – 08:31)

• Cash & Yield (~36%): SGOV vs. ICSH duration mechanics, yield roll (~4–5%), generating ~$2k/month.

• Equities & ETFs: 19 individual equity positions; ETF buckets in commodities (gold/Bitcoin), broad large-cap (MSCI World, NASDAQ), and regional/opportunistic (China/Hong Kong tech).

• YTD Return: ~11%+ total return.

Core Holdings & 3 Operational Themes (08:31 – 46:33)

• Theme 1 — Capital Restructuring: CareCloud (Series B preferred redemption), Naked Wines (buybacks & inventory cash unwind), and monday.com (large buybacks offsetting 4-5 years of stock comp).

• Theme 2 — Operating Leverage: AEP (Clinton robotic truss line) and Supreme PLC (moat from the UK vaping duty tax stamp).

• Theme 3 — Picks & Shovels: TSSI (Dell integration partner, power capacity, 30% fixed vs. variable capacity upside).

• Individual Focus Deep Dives:

Read more

Here’s the last time we published the companies we were screening including :

The crowd has bashed it for its reliance on tiny-margin procurement that inflated the numbers on the way in and is deflating them on the way out.

But looking beyond that distraction, what we’re really seeing is a servicing component funneling business for Dell Technologies’ data center go-to guy.

We’ve been discussing this name quite a bit, especially throughout the second half of September. Make sure to join our chat so you don’t miss these discussions.

Let’s break this one down.

As we now do every week for transparency, here is our list of past Pick of the Week posts and their returns since publishing:

• All picks (equally weighted): +17.42%

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power (or both).

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

🧰 TSS Inc. ($TSSI)

⭐ Overall Grade: 8.0 / 10

TSS, Inc. (Nasdaq: TSSI) operates as an infrastructure and deployment partner embedded within the physical part of the value chain of hyperscale and AI data centers.

Headquartered in Georgetown, Texas, the company takes high-density computing components (CPUs, high-performance GPUs, liquid cooling loops, switches, power units) and configures them into all-in-one server racks and modular data centers (MDCs) ready for immediate cloud deployment.

Before We Start… Procurement. What is it? Can I eat it?

For all of those who haven’t gone through the grueling process of tenders and procurements… no, you can’t eat it, but here’s a short summary of what the hell that actually is:

Procurement is a zero-margin pass-through purchasing service with a small markup fee that gets booked on gross revenue accounting whenever TSSI touches or configures the gear.

TSSI acts as an official purchasing agent for Dell and its end customers (frequently federal, state, and defense public-sector accounts).

In 2025, TSSI processed $279m of product in procurement. Reported procurement revenue was tens of millions per quarter, which maskes their core Systems Integration business look weak.

TSSI earns roughly an 8% to 11% reported gross margin on GAAP procurement revenue (which drops to ~5.5%–6.0% when measured against total gross merchandise value processed).

On deals where TSSI does not modify the product (pure drop-ship), GAAP forces them to book revenue on a net basis. That means they only recognize their ~6%–8% fee as revenue, and the massive hardware cost never hits the income statement.

The business itself doesn’t really change.

Because TSSI is a micro-cap with a limited balance sheet, it cannot afford to float $50m–$100m of third-party hardware on normal 60-to-90-day corporate payment terms. The mechanism that makes procurement function involves:

1. 80-Day Payment Terms: When TSSI delivers the hardware, the customer (Dell/government) has up to 80 days to pay the invoice.

2. Non-Recourse Factoring: TSSI immediately takes those invoices to its banking partner and sells them within 2 to 3 days.

3. The Factoring Fee Drag: The bank advances the cash immediately so TSSI can pay its equipment vendors within 30 to 45 days, but the bank charges a factoring fee (recorded under operating expenses).

   • In H1 2026 alone, TSSI paid $1.21m in bank factoring fees (and $2.33m in H1 2025).

4. The Net Operating Margin: After factoring fees, shipping, direct admin, and overhead are subtracted, procurement’s true operating margin is only around 3-5%.

With this part cleared up, let’s now look at what they actually do.

The Business Model Explained

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Get the Unredacted Report

Index

1. Executive Summary & Asset Allocation

• 1.1.- Public Equities: Detailed YTD Performance, Asset Allocation, and Holdings Overview

• 1.2.- Private Assets: Business Development Update [Disclosing Details]

2. Q3 Review

• 2.1.- Quantitative Evaluation: YoY Performance Metrics, Sizing, Concentration, Winner/Loser Spread, and Cash Transition

• 2.2.- Qualitative Evaluation: Objectives Assessment, What Worked vs. What Didn’t, Behavioral Biases, and Philosophy Adjustments

3. September Review

• 3.1.- Macro Context and Market Observations

• 3.2.- On Chinese Monetary Policy and Gold Hoarding

• 3.3.- Cash & Treasury Compartment: % Remuneration Breakdown & FX Push

• 3.4.- ETF Compartment: Broad Index and Emerging/Frontier Markets

• 3.5.- Opportunistic Compartment: Individual Names and Goals

4. Holdings & Portfolio Activity

• 4.1.- Position Sizing, Entries and Exits

• 4.2.- Earnings Releases, Upcoming Catalysts, Insights and Updates

Briefing

This 28th edition is a massive one, and we’ve been working on it for a while. We are finally disclosing our private project, laying out the hard numbers alongside how operations are materializing.

Naturally, because good due diligence requires proper fuel, we have also sprinkled in a few serious specialty coffee pointers along the way.

The heart of this letter pulls together several high-stakes threads across our investable universe. Among the newest bits, we’ll break down how we’ve been building out a position (still incomplete) in a major O&G hardware manufacturer, splitting the OpCo from the FinCo to understand what is really going on.

From there, we pivot directly into the legal trenches of Eastern Europe, walking through the critical Ukrainian asset dispute heading straight toward a pivotal ruling on October 12th. Classic case of using a 28%+ WACC to discount dubious production.

Then comes one of the most intriguing valuation anomalies on our desk: a specialized data management firm that would terrify a traditional screener because of its extreme reliance on a single customer. Dig a layer deeper, though, and you find a business minting money with 20% FCF margins while running at 40% capacity.

We round out the entire letter with our classic quarterly retrospective, walking through every single position on our books to check in on thesis tracking, risk management, and the near-future catalysts lined up on the horizon.

Please do not skip the conclusion. We left an essential note at the end detailing how our structure and capital deployment will pivot if that potential merger crosses the finish line.

Inner Circle community, you know exactly what deal we’re referring to… strictly between us for now, of course.

For the Inner Circle members

Your invitation to our live quarterly review is waiting below.

RSVP Oct 12th

We will dissect the individual holdings and themes for the upcoming quarter. We think the value is in having an open room to tackle all of your questions head-on. Make sure to jump in live, but if you can’t make the slot, the full recording will be up shortly after.

So just shoot us your questions via DM, leave a comment at the end of this post, or email us beforehand so we can address everything on the call.

This publication is confidential and intended solely for the use of the person or entity to whom it is given or sent. It may not be reproduced, distributed, or transmitted without the author’s prior written consent.

By accepting to receive the full post as a 🧙‍♂️ Inner Circle member, the recipient agrees to be bound by the foregoing limitations.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

📊 Portfolio Overview

Returns (Asset-Weighted)

Public Market Portfolio

Throughout the month, we purchased shares in a few individual names, including:

Read more

We were saving this for the portfolio update (next week), but you all deserve to know, and immediately benefit from, a few defining developments.

Quick note: None of this is chest-thumping. It’s meant as radical transparency so you see exactly where we stand, and where we’re charging next

We’ve had a breakout year. Markets can end on a high or low note, but the ride in between has been nothing short of phenomenal:

• Up 10%+ on the year (+€34,806.91 unrealized, +€89,988.04 realized), staging a decisive turnaround from last year’s drawdown.

• Recaptured our capital from a legacy PE investment (+€79,842.78 net proceeds).

• Cleanly eliminated a major drag, cutting a vehicle after painfully absorbing €135k+ in costs.

• Closed one private transaction (details in the monthly update), with the ink nearly dry on another.

We still have a modest bank balance to clear, which we’ll finish wiping out over the next 12 months.

The discipline and forward planning has paid off. Now the personal balance sheet is fortified, momentum feels on our side, and we are primed to keep building.

The dual goal is pushing both our passion-maxxing endeavors and our profit-maxxing core smartly and with care.

Join Our Community

Insider Developments

Beyond this review, the projects we’ve worked on create a very stable base of income… and that’s basically freedom. Additionally, we’ve been listening to your feedback, and we’re big believers in shared economies of scale.

Beyond natural subscriber rotation, the two primary friction points are too much content and price.

We have deeply thought about cadence, price, content, and community building for a long time. As you know, we’ve made minor adjustments over time, but as an ongoing process, we require testing and improvements.

To address cadence and focus: starting in 2027, our publishing cadence will shift to 1–2 posts per week (down from at least two). We will also likely invert the schedule: publishing PoW on Wednesdays, with portfolio updates and deep dives dropping on Saturdays.

We’ll spend less time on broad, open-ended series like OIJ, sticking strictly to actionable, investment-specific research. And while we do leverage AI to filter and correct grammar, our interviews can’t be found anywhere else. They’re 1-on-1s with management (and stakeholders), the very definition of primary data.

Expect sector deep-dives, like our automotive review spotlighting specific companies, to come out much more frequently.

To address accessibility while protecting the community: we are effectively going almost exclusively paid. We don’t want casual browsers, but committed members of a community that has been growing in quality for a long time.

This fee isn’t meant to monetize research for profit; it serves strictly as a filter against automated scrapers, bot crawlers, and general noise, ensuring our community remains focused on serious market participants.

With that foundation set, we’ve split the offering into two distinct paths:

• The Annual Sub ($30/year): If you want the research component (write-ups, PoW). If you just want to learn and have commenced your journey, it’s a low friction point to participate.

• The Inner Circle Sub ($699/year): If you want the journey component, direct access, and game-changing insight from exclusive conversations.

(Do not worry, anyone who has held an annual subscription for a few years will be automatically upgraded to the Inner Circle.)

In theory, if you want the deeper access, you always have the option to upgrade, and in the meantime you commit to being part of something great:

The Hermit Community

Two Short Notes

New firepower in our evermoe professionalized operations and financing is unlocking more than a few institutional-grade doors, tier-one management rooms, and research caliber we simply couldn't touch before.

The necessary trade-off of scaling up? We’re outgrowing the illiquid shadows of nano-caps to hunt where serious capital can actually deploy effectively.

Our lens is shifting toward better known, high-upside small caps ready to run.

This was always inevitable. It was just a matter of time.

Upcoming Docket & Pipeline:

• Oct 5 [Expected]: MicroCapClub interview dropping. An upstream and midstream O&G masterclass. Delivering an intuitive framework for beginners and very interesting single-name depth for veterans.

• Oct 7: Q3 Portfolio Review covering major public/private moves, YoY performance comps, and dedicated breakdowns on our specialty coffee position and private deal structuring.

• Oct 10: Mini write-up on TSS Inc. ($TSSI). A fantastic, high-conviction play.

• Oct 14 [Target]: Full Naked Wines ($WINE) deep dive. Content has been complete for a week now; we’re simply awaiting final sign-off on direct quotes from management to protect that relationship.

Also landing within the next two weeks: three video updates, including our Q3 review and Q&A for Inner Circle members, Buy Now, Cry Later #3 (w/ Yegor), and an unfiltered review of the Baseline platform.

That adds a ton of value to the piece, so... definitely worth the wait.

Let’s use some Buffett-esque language. Imagine coming across a business that the market has priced like a cigar butt, even though it operates more like a tollbooth on the world’s most lucrative energy basins.

Cue the dramatic tension music, dim the studio lights, and zoom in tight on the hot seat.

Final answer?

In case you’re still unsure, here are the ROCE stats for option D:

As we now do every week for transparency, here is our list of past Pick of the Week posts and their returns since publishing:

• All picks (equally weighted): +15.93%

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power (or both).

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

🛢️ OMS Energy Technologies Inc. ($OMSE)

⭐ Overall Grade: 8.0 / 10

We originally discovered OMSE while deep in the weeds researching CMG.

While both sit squarely in oilfield optimization, OMS carved out a wildly profitable niche on the physical hardware side, effectively anchored in the Middle East and Southeast Asia with an iron grip on shallow offshore and platform operations.

We actually just spoke directly with OMSE’s senior management a few days ago.

If you know our playbook, that executive check is always the capstone of our primary scuttlebutt process. Let’s call it a final sanity check.

While we won’t share direct quotes, you bet we’ll include verified insights from that discussion.

OMS Energy Technologies (NASDAQ: OMSE) is an upstream oilfield hardware and precision-engineering specialist that manufactures the high-spec metal components holding oil and gas wells together at the surface and just below the seabed.

It operates in an unpopular spot, as what’s in vogue are the much deeper offshore facilities.

Shallow-water offshore drilling has fallen out of favor primarily because it centers on mature brownfields with declining production profiles.

The multi-billion-dollar capex cycles and massive reserve discoveries that capture excitement are flowing almost exclusively toward frontier deepwater and ultra-deepwater plays like Guyana, Brazil, and West Africa, leaving the more traditional shallow-water platforms out of the spotlight.

Compounding this lack of excitement is severe dayrate and contract volatility across the jackup space.

Supply additions over recent years were met with abrupt regional pauses. The most explicit example is when Saudi Aramco suspended dozens of jackup rigs to recalibrate its maximum sustainable capacity targets. This all casts a cynical shadow across the entire shallow supply chain.

Lastly, shallow operations basically carry a commoditization stigma. A very large group of people are writing off standard surface wellheads and conductor casing as basic, interchangeable metal, contrasting it unfavorably against their 50-million-dollar subsea blowout preventers and wet trees engineered by global giants that we’ve looked at before like SLB, Baker Hughes, or TechnipFMC.

How Does OMS Make Money?

OMS operates across six core jurisdictions: Saudi Arabia, Singapore, Indonesia, Thailand, Malaysia, and Brunei. They operate 11 precision manufacturing and service facilities. The company generates revenue across four distinct revenue streams:

Let’s break these down:

Specialty Connectors and Pipes (61.6% of FY26 Revenue)

These are large-diameter (16 inches and up) welded joints and conductor casings. These heavy steel pipes are driven or drilled into the ground/seabed to form the foundational structural column of a well.

OMS’s proprietary connections (the JVLW and JVDD series) feature fast make-up thread designs (often 1 to 3 rotations to lock) that save rig crews hours of offshore rig time, where daily spread rates can exceed hundreds of thousands of dollars.

The massive Dammam facility in Saudi Arabia accounts for 95% to 99% of this segment’s sales, delivered directly to Saudi Aramco under a 10-year Long-Term Agreement (LTA) running through 2033.

Surface Wellhead Systems (SWS) & Christmas Trees (7.0% of FY26 Revenue)

This is the complex stack of mechanical valves, casing heads, and chokes sitting directly on top of the well to control pressure (up to 10,000–15,000 PSI) and fluid flows.

Centered in Indonesia (87% of segment revenue), primarily serving Pertamina Hulu Rokan. OMS also holds API Spec 11D1 certification to manufacture its own mechanical and hydraulic downhole retrievable packers, recently expanding into Pakistan, Oman, and Angola.

Premium Threading & Ancillary Services (31.4% of FY26 Revenue)

This part of the company centers around high-precision threading of Oil Country Tubular Goods (casing and tubing) under proprietary licenses from global pipe giants (VAM, Tenaris, JFE, Hunting, NOV Grant Prideco).

It’s effectively a pure toll-booth. Recurring service revenue. Exploration operators purchase seamless pipe, and OMS cuts patented, leak-proof micro-groove threads into the pipe ends before it goes downhole.

To understand whether OMS’s product is good, you have to look at how oil and gas equipment is judged in the field.

If an iPhone has a bug, the app crashes. If an offshore conductor casing joint or a 10,000-PSI surface wellhead shears or leaks downhole, the operator faces an environmental blowout, millions (USD) in rig downtime, and a big bag of liabilities.

Because of all of these, operators never buy unproven equipment on price alone.

OMS’s product suite is technically proven, highly certified, and trusted at the highest tier of the industry.

Prop. Connectors: The JV Series

OMS’s core proprietary hardware line is the JV Family of weld-on casing connectors (JVDD, JVDD2, and JVLW).

These are large-diameter mechanical joints (16” to 36” nominal pipe) used to lock together the top foundation pipe that anchors an offshore or onshore well.

Standard pipe requires long make-up times and carries a high risk of cross-threading. The JVDD series uses a low-ramp angle, multi-start thread design requiring as few as 3 to 6 turns to achieve full make-up torque. On a deepwater drillship costing $300,000+ per day, shaving hours off casing runs saves the client tens of thousands of dollars per well.

Unlike standard threaded pipes that warp or crack if hammered into dense seabed rock, OMS connectors feature dual load shoulders designed to withstand repetitive, high-impact hydraulic driving apparatus strikes without deformative yield.

The JV connection line underwent finite element analysis (FEA) and destructive physical validation by independent engineering consultants in Singapore and Houston, formally passing ISO 13679:2002 CAL-1 (Connection Assessment Level 1) physical test standards.

Surface Wellheads, Christmas Trees & Downhole Packers

OMS manufactures complete onshore and offshore surface wellheads rated up to 10,000 to 15,000 PSI working pressures, as well as production Christmas tree valve blocks.

• API Specification 6A Monogram: API 6A is the gold standard for surface well control equipment. OMS holds this license across multiple plants, including securing API 6A certification for its primary Dammam facility in Saudi Arabia in early 2026. This allows OMS to supply and service complete Christmas trees directly to Saudi Aramco.

• Downhole Tools (API Spec 11D1): In late 2025, OMS Indonesia developed and earned API 11D1 certification for its proprietary retrievable mechanical and hydraulic downhole packers. Packers must reliably isolate casing rings under high-differential pressures downhole—a technical step up from standard surface piping.

• Field Acceptance: Pertamina Hulu Rokan (Indonesia’s largest oil producer) repeatedly extended OMS’s contracts in FY26 beyond baseline award values because of product reliability in steam-flood and conventional basins. In FY26, OMS secured its first 10,000-PSI full wellhead system deployment in Pakistan, as well as customer wins in Angola and Oman.

Premium Threading (Licensing)

Perhaps the clearest validation of OMS’s precision quality is that the world’s most protective seamless pipe manufacturers (VAM (Vallourec), Tenaris, Hunting, NOV Grant Prideco, and JFE) license OMS to machine their patented thread profiles.

These pipe manufacturers spend hundreds of millions developing proprietary gas-tight metal-to-metal seal threads.

They only license machine shops that can repeatedly achieve microscopic CNC tolerances (within thousandths of an inch) under strict API Spec Q1 quality management systems.

If OMS had loose QA/QC or high scrap rates, those licensors would revoke their machine shop agreements immediately to preserve their brand integrity. OMS has held these licenses across Southeast Asia and the Middle East for decades.

Product Scorecard (vs. peers)

OMS’s product is not bleeding-edge, but it does operate in a safety-first, low-risk tolerance environment where proven reliability is everything.

In its target market (onshore, shelf, and shallow-water upstream wells across the Middle East and Asia-Pacific), OMS’s hardware is thoroughly proven, fully certified, and trusted by the most demanding national oil companies in the world.

Contract Structure: Are Revenues Truly Recurring?

In software or consumer staples, recurring revenue means predictable, contractually locked subscriptions. In the upstream oilfield sector, revenue is rarely contracted as a fixed monthly retainer.

While long-term master contracts are multi-year and provide continuous customer exclusivity, actual revenue realization is lumpy and volume-dependent.

Revenue recurrency is driven by “Call-off Orders” (purchase orders issued on demand under fixed pricing agreements) rather than guaranteed minimum take-or-pay volume commitments.

Contract Count & Core Agreement Inventory

OMS has served over 200 upstream clients, but consolidated business visibility rests on a core set of long-term master agreements and framework supply contracts:

The Nature of Recurrence: Revenue vs. Cash Flow

The Call-Off Order “Whiplash”

A long-term contract at OMS is not an annuity. Saudi Aramco’s 10-year LTA is an umbrella agreement that fixes unit prices and technical qualifications, but Aramco orders in batches via call-off purchases:

• FY2025: Revenue spiked to $203.6m because Aramco was winding down an older contract while overlapping the aggressive ramp-up of the new 10-year LTA.

• FY2026: Revenue fell 23.4% to $155.9m when call-offs normalized and Aramco temporarily digested inventory.

This dynamic explains why backward-looking stock screens mistakenly flag the company as declining, even though the master 10-year relationship remains intact.

The 12-Month Visible Order Backlog

OMS tracks short-term guaranteed visibility using its firm order backlog (orders scheduled for delivery within the next 12 months):

• March 31, 2025 Backlog: $102.0m

• March 31, 2026 Backlog: $60.7m

Management explicitly notes that backlog contraction was not due to lost tenders or cancellations, but purely the timing interval between major Aramco call-off tranches.

For instance, right at fiscal year-end in March 2026, OMS booked a fresh $11.0m call-off order from Aramco to kick off FY27.

Premium Threading: “Consumable” Baseload

While connector projects come in multi-million dollar batches, the Premium Threading and Ancillary Services divisions ($48.9m combined revenue in FY26) act as steady, recurring consumables. Every time an operator runs casing into a new development well, pipe joints require threading and NDT inspections. Operators do not alter their casing thread suppliers mid-drilling program due to downhole blowout liabilities.

Quality of Earnings Assessment (Quick Summary)

• Contract Duration: High (Anchored by a 10-year agreement with the world’s largest oil producer through 2033 and a multi-year partnership with Thailand’s PTTEP through 2028).

• Revenue Volatility: Moderate to High (Zero minimum volume guarantees mean revenue swings year-to-year based on NOC budgeting cycles).

• Customer Retention: Exceptional (NOC relationships span 20 to 50 years, with virtually zero historical contract cancellations).

The revenue is pretty sticky over a 3- to 10-year horizon, but lumpy on a quarterly and annual basis.

For an investor, this lumpiness creates mispricings which are basically entry opportunities for us.

Note that the underlying multi-year master supply agreements remain there, which means visibility.

The Unit Economics: Dissecting the Cost Stack

OMS is not a basic foundry; it operates an integrated precision machining and fabrication model. It buys certified heavy steel casing, pipes, and forged bar stock from regional mills, machines high-tolerance threads, welds specialty connectors onto conductor pipe sections, and performs non-destructive testing (NDT).

Segment Gross Margin Profile

• Specialty Connectors & Pipes: Delivers ~29.6% gross margin ($28.5m gross profit on $96.1m revenue in FY26). Highly sensitive to raw steel input prices and volume absorption in Saudi Arabia.

• Surface Wellheads & Trees: Delivers ~28.3% gross margin ($3.08m gross profit on $10.9m revenue). Compressed slightly by higher imported raw material components.

• Premium Threading Services: Historically the highest-margin segment, delivering 28.3% to 40%+ gross margin. Threading carries little raw steel inventory risk; costs are predominantly machinist hours, machine wear, and variable patent royalty cuts.

• Ancillary Services: Delivers ~40.1% gross margin ($6.2m gross profit on $15.5m revenue in FY26), reflecting pure testing, refurbishing, and inspection labor.

Working Capital Dynamics and Cash Conversion

The unit economics of this business are shaped by its cash conversion cycle:

• Receivables & Payables: In FY26, Days Sales Outstanding (DSO) sat at 44 days, while suppliers were paid in ~46 days.

• Inventory Run-Down as a Cash Spigot: In FY25, OMS stocked up heavily ($32.5m inventory) ahead of expected Saudi Aramco call-off orders. In FY26, as Aramco orders normalized, OMS converted that raw inventory down to $17.2m, which released $16.2m in working capital straight into cash.

• Capex Lightness: Manufacturing these tools does not require massive smelters or shipyards. OMS incurred just $1.64m in total Capex in FY26 ($1.11m PPE + $0.52m intangibles) against $155.9m in revenue (a Capex intensity of barely 1.05% of sales).

• Cash Conversion: Because maintenance Capex is negligible, OMS generated $54.1m in operating cash flow and $52.5m in Adjusted Free Cash Flow in FY26.

How can Baseline make your life easier?

As you know, we’ve partnered with Baseline to get you an easy way to verify whether a company is worth your time.

Baseline helps you screen for and analyze companies, identifying potential issues from the very first pass.

It aggregates information on where the company is going and what the key risks are in terms of business quality, competitive advantages, and AI.

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Of course, none of this replaces a much deeper analysis that you must conduct before deciding with adequate conviction, and we think the best way of doing that is by performing a full scuttlebutt rundown.

Baseline, however, accelerates the process of discarding companies, which saves you time and allows you to focus more on what’s important.

You don’t have to take our word for it; here’s the report for a few companies we love and hold so you can see firsthand what we’re talking about:

Baseline Five Name Pack Bl Cmg Mndy Tssi Green

712KB ∙ PDF file

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🎯 Catalysts: Why Now?

Initiating Cash Returns

The company holds $154.3m in cash and restricted cash (against an ~$185m market cap) with zero bank debt.

Because this cash sits largely in short-term bank deposits earning modest yields, it dilutes headline ROE and fuels market skepticism that the cash is “trapped” or earmarked for empire-building.

For us shareholders, the solution is super straightforward:

With the stock trading around book value ($4.03) and cash backing ~$3.60 per share, buybacks at current levels would be heavily accretive to per-share intrinsic value.

Even establishing a modest 4%-6% dividend yield would cost less than $10m annually, a fraction of FY26’s $52.5m in Adjusted FCF, instantly putting the stock onto institutional income screens.

Saudi Aramco Call-Off Resumption & Revenue Normalization

This is also an easy one. Revenue fell from $203.6m in FY25 to $155.9m in FY26 as Aramco call-off orders normalized following an overlap period between supply contracts. Algorithmic screens and quant models see this as a red flag (top-line decline) rather than normal contract timing.

The $11m call-off order booked right at the end of FY26 in March was the first sign of this replenishment.

Once upcoming quarterly filings demonstrate that the Aramco baseline has stabilized back toward its historical $120m–$200m multi-year run-rate, the market’s “terminal decline” narrative should break.

Diversification Beyond Aramco

Saudi Aramco accounted for 57% of group sales in FY26 and 67% in FY25. The market demands a heavy small-cap discount because a single procurement pause in Saudi Arabia directly hits earnings. If the company accelerates conversion of non-Saudi contract pipelines, particularly for Surface Wellhead Systems (SWS) and proprietary packers, we should see an instant rerating (it’s only upside).

In FY26, non-Saudi specialty connector sales rose 130%. OMS secured its first 10,000-PSI surface wellhead contracts in Pakistan, landed initial customer orders in Angola and Oman, and earned the new API Spec 11D1 certification for downhole retrievable packers.

Proving that OMS can generate $40m–$50m+ in recurring high-margin billings outside of Saudi Arabia will show institutional investors that the company is a multi-regional platform rather than an Aramco captive shop.

Material Weakness in Internal Controls and Visibility

In its Form 20-F for FY26, management disclosed a continuing material weakness in internal control over financial reporting, citing a shortage of personnel experienced in IFRS and SEC accounting guidelines following its recent transition to public markets. Not sure how to fix this beyond a clean third-party audit, but addressing this should change perception and clarify what a red flag is for most institutional players.

This is a tiny company, but it’s one of those that, with a bit of coverage, would zoom as it checks most of the criteria that institutional holders look for.

💰 What’s It Worth?

We used a demanding 13% discount rate to account for its small-cap size and customer concentration with Saudi Aramco, along with a 2% perpetual growth rate.

Base Case [$4.30] (126% Upside)

On the operating side, we assumed revenue rebounds gradually from its FY26 post-order normalization ($155.9m) toward $200m, while maintaining operating margins that level out at 21.5%.

Setting aside cash to upgrade equipment across its plants and rebuild raw steel inventory, OMS projects to generate $27m to $33m in annual FCF, giving its underlying operations an enterprise value of $272.4m.

After adding back OMS’s $154.3m cash and subtracting minority partner interests and facility leases, the total net value to shareholders reaches $412.5m.

Divided across its 42.45m shares, that’s an intrinsic (fair) value of $9.72 per share.

Even under harsher stress tests with higher discount rates and slower growth, fair value remains comfortably in the $8.30 to $9.30 range.

Note that unrestricted cash alone accounts for $3.58 (~80% of the entire stock price), meaning you are effectively buying OMS’s manufacturing hubs, proprietary connection designs, and multi-year national oil company contracts for a stub enterprise value of just ~$40m.

We’ll leave you to do the super complex math on EV/FCF figures. 😉

Bear Case [$3.50]

We really don’t think a bear case is necessary here. Given the nature of their operations, it would be very surprising if the company lost money. At the end of the day, the stock has a natural floor value anchored by its net cash.

Don’t forget to check out Baseline. Take it for a spin using code HERMIT for that sweet 20% off.

Disclaimer

This presentation is provided for informational purposes only and is not intended to be, and should not be taken as an offer or solicitation to buy or sell any securities or to invest in any investment strategy. The information contained in this presentation is not investment advice and should not be relied on as the basis for any investment decision.

The views, thoughts, and opinions expressed in this presentation belong solely to the author and are not necessarily indicative of the views of Equity Focus FIL, Hermit Ventures Ltd., 25Delta E.A.F., their management, affiliates, or employees. This presentation may contain forward-looking statements, which are based on beliefs, assumptions, current expectations, estimates, and projections of the author. Such statements are subject to risks and uncertainties that could cause actual results to differ materially.

Readers should consider the investment objectives, risks, charges, and expenses of any investment carefully before investing. The author does not guarantee the accuracy or completeness of the information presented, which is subject to change without notice. The author is not responsible for any errors or omissions, or for the results obtained from the use of this information.

This publication does not take into account the investment objectives, financial situation, or specific needs of any particular participant. It is not to be construed as legal, tax, investment, or other advice, and the author recommends that investors seek independent financial, legal, and tax advice before making any investment decision.

Investments involve risks, including the loss of principal. The value of investments and the income from them can fluctuate, and investors may not get back the amount originally invested. Past performance is not necessarily indicative of future results.

This presentation is confidential and is intended solely for the use of the person or entity to whom it is given or sent and may not be reproduced, distributed, or transmitted without the prior written consent of the author. By accepting this presentation, the recipient agrees to be bound by the foregoing limitations.

For everyone in our chat, you already know what’s up.

We’ve been covering this company for a long time (since 2021).

It used to be priced for perfection, and now it’s trending toward being priced for obliteration. Neither extreme reflects reality.

While a sudden collapse is almost impossible, the company is heading to a slow bleed of it’s serial compounding machinery that can be easily resolved with some good decision making and a unified focus on deleveraging.

We think there’s light at the end of this tunnel, and the investment case grows stronger by the day as the valuation continues to de-risk the entire thesis.

As we now do every week for transparency, here is our list of past Pick of the Week posts and their returns since publishing:

• All picks (equally weighted): +14.91%

To keep things clear and easy to follow, we’ve slightly adjusted the formatting.

1. Companies we purchased are in bold.

2. We’ve replaced "Allocation" with Current Allocation to show the approx weight of each position as a percentage of our total assets today.

As a reminder, companies that we don’t hold that were discussed over a year ago are removed from the list and excluded from our average performance. In this update, we removed Portillo’s (-40%) and Tobila (+40%), which roughly cancel each other out. We still own CROX.

Overall, the priority is maintaining a clean LTM track record as we’re only as good as our last pick.

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power (or both).

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

🌿 Green Landscaping Group AB ($GREEN)

⭐ Overall Grade: 8.0 / 10

As its name states, this is a landscaping company; more precisely, it operates as a decentralized Stockholm-based HQ for 59 companies dedicated to outdoor environment services, grounds maintenance, and green infrastructure across Sweden, Norway, Germany, Finland, Lithuania, and Switzerland.

Note: Green Landscaping reports profitability using EBITA, whereas we generally prefer standard EBIT.

In practice, the difference between the two is small, it just comes down to non-cash amortization from past acquisitions.

Relying on EBITDA, however, would be deeply misleading. Physical machinery and fleet equipment are the lifeblood of this business, and because these assets wear out quickly in the field, depreciation represents a very real and unavoidable cost of keeping everything running.

Service Lines & Revenue Breakdown

The business is a mixed bag of recurring and seasonal jobs awarded via procurement processes that combine low-cost labor and very manual work:

1. Grounds Maintenance (Recurring): Lawn mowing, pruning, arboriculture, seasonal plantings, and facility perimeter care.

2. Winter Services (Seasonal): Snow clearing, gritting, salting, and ice removal for municipalities and commercial centers.

3. Hard Landscaping & Green Space Construction (Project-Based): Urban park development, civil stone paving, retaining walls, drainage systems, and green roof installations.

Around 60% of group revenue originates from the public sector (municipal councils, state agencies, public housing authorities, regional transit hubs), while the remaining 40% comes from private real estate managers, corporate facilities, and general contractors.

Grounds maintenance contracts are typically multi-year framework agreements running 3 to 5 years, often carrying extension options (up to 8 years) that push customer relationships well past a decade.

This creates a stable base of predictable cash flows, but it can also lead to painful multi-year opportunity costs when contracts are lost.

In practice, this dynamic tends to produce binary outcomes:

• On the one hand, operators in smaller municipalities often enjoy quasi-monopoly status with high margins, though this eventually draws the eye of neighboring competitors.

• On the other hand, larger or growing municipalities attract aggressive, low-cost bidders. Price wars ensue, compressing margins until unsustainable operators are eliminated from the market.

Over time, these procurement dynamics move in distinct cycles.

Decentralized M&A Playbook & Track Record

We’ve seen this play out successfully with a few other Swedish companies:

• Fasadgruppen Group: Building facades, masonry, exterior insulation, roofing, and window replacement.

• AddLife: Life sciences, laboratory equipment, diagnostics, and medtech. Spun off from Addtech in 2016.

• Sdiptech: Critical infrastructure and urban environmental technology.

• Instalco: Technical installation services (electrical, heating & plumbing, ventilation/HVAC, and industrial piping).

• Beijer Ref: Commercial & industrial refrigeration, HVAC, and heat pumps.

• Nederman: Industrial air filtration and environmental clean-air technology.

• VBG Group: Specialized commercial vehicle components and industrial power transmission.

• Teqnion: Niche B2B industrial products (specialized logistics equipment, safety illumination, surgical components, lab machinery).

• Cary Group: Vehicle glass repair, calibration (ADAS), and replacement.

• Addnode Group: VMS, CAD/BIM tools, and digital engineering platforms.

Back to Green Landscaping, they acquire subsidiaries that keep their local branding, customer relationships, equipment yards, and day-to-day management teams. More than 99% of group staff are employed directly at the operating subsidiary level rather than at corporate headquarters.

Context: If numbers on employees seem a little off is becasue they are. Beyond their 2,500+ mostly fixed staff they hire heaps of seasonal workers locally from April/May through October to handle all the labor-intensive work.

Management targets profitable, niche market leaders generating roughly SEK 50m ($5m) to SEK 250m ($25m) in sales with sustainable EBIT margins of 8%–10%.

Management used to publish a count of how many subsidiaries were in approximate EBIT margin ranges (in 5%-ish intervals), which was very helpful.

Note that management has also purchased subpar operations that can be pushed towards that 8% EBIT hurdle with a few tweaks.

Historically, deals are completed at disciplined multiples of 4.5x to 6.5x EV/EBIT. A substantial portion of the transaction consideration (often 20% to 40%) is structured as multi-year earn-outs (contingent considerations) linked directly to operating cash flow and EBIT hurdles.

Over the past five years, the group scaled net sales from SEK 3,139M in 2021 to a rolling twelve-month run-rate of SEK 6,632m as of Q2 2026.

However, rapid balance sheet expansion pushed leverage up to 3.4x pro-forma EBITDA (above the 2.5x internal ceiling), forcing management to pull back their acquisition pace in 2026 and focus entirely on deleveraging.

Pricing Dynamics & Economic Moat

Green Landscaping does not possess IP or patented technology… in general, the contracts they work on are price- and relationship-based bids that usually go to the person who can best do the job for the lowest price tag.

Let’s break down a few of their other advantages.

Grounds maintenance and snow plowing are route-density businesses. The subsidiary with the greatest concentration of nearby parks, housing complexes, and roadways incurs lower non-billable drive times and lower equipment transportation costs per job.

Bidding on municipal tenders in Northern and Central Europe requires ISO certifications, environmental compliance credentials, labor union registrations, and substantial financial bonding. Independent “mom-and-pop” operators are locked out of the largest regional contracts, leaving Green Landscaping to bid against a limited field of mid-sized contractors.

Local subsidiaries retain decades-long relationships with municipal purchasing officers, yet gain central group advantages: group-wide fuel discounts, preferred fleet leasing terms, insurance procurement, and back-office IT infrastructure.

How can Baseline make your life easier?

As you know, we’ve partnered with Baseline to get you a simple and easy way to test for all of these.

Use code HERMIT for 20% off

Baseline helps you screen for and analyze companies, identifying potential issues from the very first pass.

It aggregates information on where the company is going and what the key risks are in terms of business quality, competitive advantages, and AI.

Of course, none of this supersedes a much deeper analysis that you must conduct before making a decision with adequate conviction, and we think the best way of doing that is by performing a full scuttlebutt rundown.

Baseline, however, accelerates the process of discarding companies, which saves you time and allows you to focus more on what’s important.

You don’t have to take our word for it, here’s the report for a few companies we love and hold so you can see first hand what we’re talking about:

Baseline Five Name Pack Bl Cmg Mndy Tssi Green

712KB ∙ PDF file

Download

Download

🎯 Catalysts: Why Now?

There’s a bit of everything, but we will focus on imbalances between regions, balance sheet leverage, and a leadership transition.

Here are some catalysts that could prompt a market re-rating:

Resolution of the Norwegian Drag

While Sweden has returned to organic growth and the Continental European unit (Germany, Lithuania, Switzerland) continues to print operating margins between 15% and 22%, Norway has dragged down group earnings (reporting negative EBIT in Q1 and just a 4.1% margin in Q2).

The primary internal catalyst is the restructuring underway by new regional leadership, cleaning out legacy fixed-price contracts that lacked inflation indexation, standardizing operational controls, and aligning project bidding discipline with group standards.

Deleveraging Toward the 2.5x Target

Group net debt sits at SEK 2,859m including earn-outs, leases, and minority interests.

Management has paused aggressive M&A to let working capital and operating cash flow pay down bank credit facilities.

As leverage drops below 3.0x on its way toward the 2.5x target, financial risk diminishes, reducing the cost of debt and freeing up capital to resume acquisitions.

There is a denominator issue here, though, as less efficient operations (lower EBIT) will increase the ratio. So they want to at least maintain their capex and operations as is.

New CEO Appointment & Governance Upgrades

Following Johan Nordström’s departure after 11 years as CEO, the board appointed Clein Johansson Ullenvik as interim CEO while a permanent search is underway.

A permanent CEO with an operational integration background who can institutionalize financial controls across autonomous subsidiaries without destroying their entrepreneurial spirit could restore investor confidence.

We are aiming for decentralized (and no dividends).

Contract Indexation & Inflation Pass-Through

Public contracts signed during past inflationary spikes are systematically resetting or expiring into renegotiations with municipal inflation-adjustment clauses.

In Lithuania, recent contract extensions were renewed at margins higher than segment averages, demonstrating that long-term contract pricing is catching up with wage and equipment costs.

💰 What’s It Worth?

Green Landscaping has built up a sizable debt load to fund its acquisition strategy, which heavily shapes what the business is actually worth to shareholders.

Right now, the company owes about SEK 3.33bn across bank credit facilities, corporate bonds, vehicle and equipment leases, and future earn-out payments owed to the entrepreneurs they bought businesses from.

Because they carry elevated leverage, their lenders charge higher interest rates, putting their borrowing cost before taxes at around 6.2%.

However, interest payments reduce taxable income; factoring in Sweden’s 20.6% corporate tax rate brings their true out-of-pocket borrowing cost down to 4.92%.

We’ll be using a 9.0% (total) cost of capital and assuming the business grows at a steady 2.0% each year into perpetuity.

Please note that with the assumed data, the appropriate cost of capital should be ~7.5%, but we choose to be overly conservative just in case.

Base Case [SEK 41.59] (152% Upside)

To value the core operating machine, we look at the actual cash it produces each year before paying off lenders.

Starting from roughly SEK 6.7bn in annual revenue and working toward normalized profit margins around 6.5%, the business is projected to generate between SEK 266m and SEK 405m in clean FCF each year between 2026 and 2030 after funding mandatory lease payments, machinery upgrades, and daily operations.

The combined present value of these future cash flows values the entire operating enterprise at roughly SEK 5.21bn.

After taking out the roughly SEK 2.86bn in net financial debt, lease balances, and earn-out commitments (offset by their cash on hand), what remains for common equity holders is SEK 2.35bn.

Spread across their 56.46m outstanding shares, this yields an intrinsic fair value of SEK 41.59 per share.

Bear Case [SEK 6.40]

In a realistic bear case, Green Landscaping pauses all acquisitions to focus entirely on paying down debt, leaving top-line revenue to drift higher at just 1.5% to 2.0% annually purely through basic contract price indexing.

Rather than rebounding toward historical highs above 6.5%, operating margins remain pinned near current levels around 5.0% as intense bidding competition in Sweden and persistent operational friction in Norway prevent meaningful profitability gains.

This steady-state profile still generates reliable cash flow from recurring municipal upkeep contracts, delivering roughly SEK 270m to SEK 285m in unlevered free cash flow each year between 2026 and 2030 after funding maintenance equipment needs and mandatory fleet lease repayments.

Even though we have preliminary pessimistic income statement assumptions, we have to change out our WACC slightly, as their borrowing costs will stay higher for longer with credit facilities and senior bonds rolling over.

A 10.0% WACC would be an appropriate rate together with a 1.5% long-term terminal growth rate.

This combination values the operating enterprise at approximately SEK 3.22bn.

With this, senior claims take nearly the entire pie: after subtracting SEK 2.86bn in net bank debt, bond obligations, lease liabilities, and earn-out commitments (offset by cash on hand), only SEK 361m in residual equity value remains for common shareholders.

Spread across 56.46m shares, this bear scenario provides us with an intrinsic fair value of SEK 6.40 per share.

Note that there is even a worst-case scenario whereby debt rollovers become unsustainable, and the Equity Value is completely absorbed by their net debt, meaning the price per share could reach SEK 0.

To avoid this doomsday scenario, we must see operating margins reaching roughly 5.5% or borrowing costs dropping as leverage recedes. If either of these is true, we can discard total loss.

This, in our take, is what is being discounted by the market.

Overall Take

As we said at the beginning, people are discounting the worst possible scenario for this company, but things are never really so extreme in normal conditions.

We are still conducting interviews mainly to validate our ideas on pricing power, but this company looks like a pretty decent candidate to us.

The only thing we don’t like is debt, which effectively creates friction or stops their ability to continue compounding inorganically, but we strongly think that once that is worked out, which may take about 1 year, this company still has a role to play in the Northern EU groundskeeping business.

At least we’re confident AI won’t take those jobs away; at least that’s what Baseline says, especially if you try it out using code HERMIT for that sweet 20% off.

Disclaimer

This presentation is provided for informational purposes only and is not intended to be, and should not be taken as an offer or solicitation to buy or sell any securities or to invest in any investment strategy. The information contained in this presentation is not investment advice and should not be relied on as the basis for any investment decision.

The views, thoughts, and opinions expressed in this presentation belong solely to the author and are not necessarily indicative of the views of Equity Focus FIL, Hermit Ventures Ltd., 25Delta E.A.F., their management, affiliates, or employees. This presentation may contain forward-looking statements, which are based on beliefs, assumptions, current expectations, estimates, and projections of the author. Such statements are subject to risks and uncertainties that could cause actual results to differ materially.

Readers should consider the investment objectives, risks, charges, and expenses of any investment carefully before investing. The author does not guarantee the accuracy or completeness of the information presented, which is subject to change without notice. The author is not responsible for any errors or omissions, or for the results obtained from the use of this information.

This publication does not take into account the investment objectives, financial situation, or specific needs of any particular participant. It is not to be construed as legal, tax, investment, or other advice, and the author recommends that investors seek independent financial, legal, and tax advice before making any investment decision.

Investments involve risks, including the loss of principal. The value of investments and the income from them can fluctuate, and investors may not get back the amount originally invested. Past performance is not necessarily indicative of future results.

This presentation is confidential and is intended solely for the use of the person or entity to whom it is given or sent and may not be reproduced, distributed, or transmitted without the prior written consent of the author. By accepting this presentation, the recipient agrees to be bound by the foregoing limitations.

How would you feel about dragging this over to your Primary inbox right now?

And while you’re there… hit Reply with the one ticker keeping you up at night and what makes it worth a teardown. What’s the biggest reason we shouldn’t cover it?

We are releasing a comprehensive update on the Car Distribution and Logistics segment (with a North American focus) centered around Carvana ($CVNA), Copart ($CPRT), and Credit Acceptance ($CACC), while incorporating insider perspectives on roughly a dozen other listed companies referenced throughout the piece.

This write-up includes key takeaways and contextualized transcripts from four interviews conducted a few weeks ago.

Take your time with these, as the reading time of this article exceeds 2 hours. We recommend going over the takeaways and then dissecting each interview slowly, one by one.

Because these businesses are already well covered, we are skipping the standard overview and jumping straight into the insights from our three direct 1-on-1 conversations and one third-party interview.

Access the Inner Circle

Priority Briefings. Investing is dynamic, so our research never sits still. We don’t file a report and walk away; we maintain an active, ongoing dialogue with the key stakeholders and management teams of our past, present, and future holdings.

Think of these briefs as your “insider access” to those calls. We bring you direct contextualized highlights and actionable updates. You’ll see exactly how the business is evolving in real-time, long before it hits the quarterly report.

This series is exclusively for 🧙‍♂️ Inner Circle members

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

We provide context on who these experts are at the top of each interview in the full transcript section.

This is a clear example of combining warm introductions with expert networks, but more importantly, it illustrates the sheer amount of work that goes into every single write-up.

Most of these primary checks never see the light of day, yet they remain essential to the process. Sometimes they lead nowhere; other times they completely rewarp our perspective.

The following conversations fall squarely into the second camp.

Copart ($CPRT)

Brad Stewart’s account confirms why Copart behaves more like an entrenched liquidity monopoly than a standard auctioneer.

Takeaway #1. A shadow dealer in the making

Your typical person views Copart as a junkyard for wrecked cars, but its fastest-growing profit engine is selling clean, drivable vehicles that command double the sale price of a total-loss clunker.

Copart Dealer Services (CDS) processes roughly 300,000 units annually, while its higher-spec whole-car channel, Blue Car, runs around 8,000 units. While this is a small fraction of the ~12m commercial wholesale cars remarketed annually in the US, it represents a massive TAM expansion beyond the saturated insurance salvage pool.

The unit economics are driven by Copart’s tiered member fee schedule, where fees scale with the Average Selling Price (ASP).

Because member transaction fees are back-end loaded and scale with ASP, capturing whole-car inventory compounds incremental EBIT margins with negligible added variable cost.

To unlock dealer trust on drivable cars, Blue Car instituted 45-point condition inspections and a 45-day arbitration policy. Similar to Carvana, this systematically neutralizes the historic “as-is, buyer-beware” penalty that depressed whole-car bids. In the end, it’s all a trust-building exercise.

Takeaway #2. There’s a lot to say about offshore cost arbitraging

Copart is an active global brokering desk where 90% of dealer car deals are negotiated after the virtual auction ends.

39% of all vehicles sold across Copart’s 200+ yards are exported to international buyers spanning 190 countries. These global buyers possess fundamentally different salvage economics, lower offshore repair labor costs, and resourceful workarounds (such as cutting unibodies into sections to clear customs as low-tariff “parts” before re-welding them abroad).

Crucially, roughly 90% of CDS inventory does not clear at the reserve during the live auction; it is completed through post-sale intermediation.

Copart’s internal platform captures all bidder identities and pricing thresholds down the line. Dedicated sales reps call the second- and third-highest bidders overseas (e.g., in Dubai or Eastern Europe) to negotiate directly between the seller’s reserve and the runner-up bids.

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Does this business have pricing power, what are barriers to switching, is there AI risk?

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As we now do every week for transparency, here is our list of past Pick of the Week posts and their returns since publishing:

• All picks (equally weighted): +15.52%

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power (or both).

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

🌊 Wavestone SA ($WAVE)

⭐ Overall Grade: 8.5 / 10

Wavestone is a solid European consulting firm. I know what you’re thinking… another one of those (e.g. Accenture), but do listen in because these guys are absolutely crushing it while the sector is being punished. So it’s one of those macro super pessimistic with a micro doing fantastic stories.

These guys operate in the intersection of management tech and IT. Rather than executing on separate strategies, Wavestone positions itself as a trusted partner for tier-1 enterprises (more on these in a second) for complex and high-stakes transformations.

The company employs over 6,000 professionals across 17 countries, with primary operational strongholds concentrated in five key geographies: France, Germany, Switzerland, the United Kingdom, and the United States.

FYI, based on Wavestone’s client disclosures, these are the Top-20 accounts across these key sectors:

• Energy & Utilities (18% of Group Revenue):

  • EDF (5% of total revenue)

  • Engie (3% of total revenue)

  • TotalEnergies (3% of total revenue)

• Financial Services. Insurance & Banking (33% combined):

  • Crédit Agricole (4% of total revenue)

  • AXA (3% of total revenue)

  • BNP Paribas (2% of total revenue)

  • BPCE (2% of total revenue)

  • Munich Re (2% of total revenue)

  • Confidential Tier-1 Insurance Client (2% of total revenue)

• Luxury & Consumer Goods (10% of Group Revenue):

  • L’Oréal (2% of total revenue)

  • Chanel (2% of total revenue)

  • Hermès (1% of total revenue)

  • (Wavestone also works extensively across Asia with LVMH)

• Transportation, Travel & Logistics (13% of Group Revenue):

  • Deutsche Bahn (5% of total revenue)

  • SNCF (2% of total revenue)

  • SBB (Swiss Federal Railways) (2% of total revenue)

  • La Poste (1% of total revenue)

Now that you have a big-picture understanding of where they stand and who's buying, let's look at what they actually do and how they monetize it.

How Wavestone Makes Money & Unit Economics

Wavestone’s revenue model revolves around intellectual services and billed consulting hours/days.

Note: As you already know, having worked in this space, how it works comes naturally to us, but these guys do have a distinct tech edge.

The firm operates via two primary contracting frameworks:

• Time-based Services: Approximately 45% of total revenue is derived from traditional time-and-materials contracts.

• Fixed-price Contracts: Roughly 55% of revenue comes from fixed-price projects, where Wavestone assumes delivery risk but captures margin upside through efficient project execution and proprietary methodologies.

Key Unit Economic Drivers:

• Wavestone commands a robust pricing power across its markets, with an annual ADR hovering around €938 (and varying slightly by geography). This is usually a product of expertise (specialization) and seniority. E.g. your typical partner/manager hours will be billed at 4-5x that of a junior consultant.

Note: While working for the Canadian Pacific spin off as an analyst (back in 2021/22) we charged roughly C$300-350/day for my extremely undeveloped financial modeling skills. My boss could charge up to C$1,500/day but he worked as a supervisor so less hours.

Your average project had roughly a C$500-600/day rate. These guys are doing 2x of that, so they’re freaking experts… or should we say LE EXPERTS 🥖.

• The Utilization Rate is the critical operational heartbeat of the business… manhours (not very politically correct). It’s calculated as the ratio of billable days to total available billable hours (excluding vacations). Historically normalized around 72%–73%, utilization rates have faced temporary macro pressure (slipping to roughly 71%) as clients adjust deployment schedules.

  • 75% and above is really good; 80% is peak.

• The cost structure is heavily weighted toward personnel expenses (accounting for over €600m annually [2/3 of revenue]). Managing the balance between junior staffing, senior management oversight, and subcontracting purchases (~€134m) dictates operating margins (EBIT).

Economic Moats & Competitive Advantages

This really is a game of specialists. Most traditional consultants are either pure-play strategic advisors (lacking deep technical implementation capacity) or IT system integrators (lacking board-level strategic vision).

Wavestone is a combo of both, allowing it to design transformation roadmaps and execute them down to the code and infrastructure level. We guarantee you that this is much better than writing up a report, which usually no one reads.

Additionally, Wavestone derives a significant portion of its revenue from repeat relationships with mega-cap European institutions (e.g., EDF, Engie, Deutsche Bahn, TotalEnergies, and major European banks and insurers).

Switching costs are high because Wavestone embeds itself directly into core operational workflows. There are quite a lot of layers of bureaucracy in these institutions, plus career risk for the higher-ups, so supplier changes happen rarely, and when they do, they’re reaaaaaally slow.

On a final note, unlike consulting arms tied to major software vendors or audit firms, Wavestone remains independent. This objectivity is vital when advising executive boards on multi-million-dollar software and cloud architectures. It sounds like a small detail, but it really is a game changer. Instead of giving these companies multiple commodity-like services, they’re focused on one very specific thing.

🎯 Catalysts: Why Now?

Pretty Freaking Explosive Multi-Year AI Wave

AI is the name of the game. It’s all transitioning from an experimental sandbox to a core corporate priority for all of their clients.

Wavestone’s AI-related revenue has expanded significantly, surging from 8% of total revenue in FY 2024/25 to 17% in FY 2025/26, and tracking even higher in recent quarters (reaching ~22%).

Management expects AI to become the firm’s primary growth catalyst, moving toward >25% of revenues.

Unlike software houses vulnerable to product disruption, Wavestone monetizes the implementation, organizational change management, and agentic governance required to scale AI safely inside Fortune 500 enterprises.

It really feels like when you buy an iPhone and then purchase an indestructible privacy screen, a hard case, and a subscription tutorial on how to get the most out of it… with all of the installation and guidance, of course, provided by Wavestone.

Thus Far… Value-Accretive M&A

Wavestone has strategically deployed its balance sheet to acquire high-value niche capabilities. We’ve seen this playbook before with firms like MHA absorbing Baker Tilly offices across regions to scale operations and consolidate costs.

The recent acquisitions of AI Builders (~50 consultants specializing in AI strategy in France) and Sand Cherry (a Denver-based US business consulting firm expanding their North American platform footprint to ~€103m in proforma revenue and ~370 employees) add directly into high-margin segments without overextending the balance sheet (net cash position of €121m).

Green Energy Transition (important in the EU)

While traditional segments like banking and transport have experienced headwinds, Wavestone’s strategic expansion into Energy and Utilities has turned it into the firm’s leading revenue sector (18%).

Driven by Europe’s mandate for energy autonomy and grid decarbonization, this vertical provides a structural, non-discretionary revenue stream.

It’s not where the super intense growth will occur, but green transition revenue serves as a very stable base from which to grow and expand via the AI theme.

Utilization Rebound = Operating Leverage

Consultant utilization rates dipped to ~72% during recent geopolitical and macroeconomic friction points (including trade policy shifts).

As enterprise decision paralysis thaws and backlogs clear, even a modest 2–3% recovery in utilization back toward historical normalized targets (73%–75%) will drive outsized operating margin expansion due to high operational leverage.

If they ever go past 75%… well, that’s a bull-case guarantee right there.

The 2030 Strategic Roadmap: “Lead the Shift”

We separated this section because it's not really a short-term (12-18 month) catalyst, but it does speak loudly of the ambition of the company. Probably the thing that makes us like this company the most is how they’re targeting growth, and that’s laid out in their 2030 plan (up to €100m in organic OPEX dedicated to AI and up to €800m in firepower for external growth (inorganic) funded via cash flows and debt facilities).

We could discuss this thoroughly, but it might just be better to show you where they’re focusing their efforts:

💰 What’s It Worth?

Both our cases use an 8.5% discount rate and a long-term terminal growth rate of 2.0%.

You can probably be more aggressive, but their healthy FCF, net cash position, and overall growth are really pointing in the right direction. Plus, there is no need for an illiquidity discount or any type of size add-ons to the WACC.

FYI, the company is sitting on €121.4m of net cash with a market cap of ~€730m (€29.20/share). They have effectively no debt, disregarding the €20.2m of property and equipment lease liabilities.

Base Case [€82.60] (183% Upside)

To figure this out, our projection model relies on a few key assumptions. We start conservatively, reflecting management’s guidance of modest organic growth between -1% and low single digits for the immediate term.

From there, we model a steady acceleration toward the 5% organic CAGR outlined in their 2030 roadmap. We assume operating margins gradually climb from 12% to 15% over the next five years, backed by strict operational execution and disciplined capital spending.

Over the next five years, the business is projected to generate roughly €454m in cumulative NPVed cash flows, with a terminal value contributing another €1.48bn in present value.

Bridging that enterprise value back to equity, adding back net cash and dividing by the 24.91m diluted shares outstanding, gives us an intrinsic value of €82.59 per share.

Wavestone has been dragged down by broader tech sector jitters and temporary utilization hurdles. However, its underlying cash engine remains pretty much untouched and debt-free.

This feels like a solid margin of safety.

Bear Case [€61.68]

Stress-testing our assumptions, we can include some macro headwinds lingering longer than expected, European client decision-making remaining sluggish, and the integration of recent acquisitions facing friction.

Instead of a smooth recovery, we model organic growth stagnating near 0% for the next two years before limping up to a modest 3% CAGR by 2030.

We also assume operational inefficiencies persist, keeping recurring operating margins compressed at an average of 10.5% to 11.5% rather than expanding.

Running those tighter margins and slower growth rates through the same WACC (8.5%) and growth rate (2%), the cumulative present value of explicit cash flows drops to €365m, and the present value of the terminal value shrinks to around €1.05bn. Adding back their net cash (€121.4m) gives us a stressed intrinsic value of roughly €61.68 per share.

Even under this pessimistic bear case, where management largely fails to execute their 2030 roadmap and margins stay depressed, the intrinsic value still sits comfortably above the current market price.

That’s, by definition, margin of safety.

Overall Take

We would not be surprised if there was a short-term rerating towards €60.00 to €75.00 once the narrative changes and as their AI transformation strat (25% of revenue) takes effect.

Any additional share repurchases at these prices would disproportionally add to the intrinsic value, so keep an eye out for that.

Disclaimer

This presentation is provided for informational purposes only and is not intended to be, and should not be taken as an offer or solicitation to buy or sell any securities or to invest in any investment strategy. The information contained in this presentation is not investment advice and should not be relied on as the basis for any investment decision.

The views, thoughts, and opinions expressed in this presentation belong solely to the author and are not necessarily indicative of the views of Equity Focus FIL, Hermit Ventures Ltd., 25Delta E.A.F., their management, affiliates, or employees. This presentation may contain forward-looking statements, which are based on beliefs, assumptions, current expectations, estimates, and projections of the author. Such statements are subject to risks and uncertainties that could cause actual results to differ materially.

Readers should consider the investment objectives, risks, charges, and expenses of any investment carefully before investing. The author does not guarantee the accuracy or completeness of the information presented, which is subject to change without notice. The author is not responsible for any errors or omissions, or for the results obtained from the use of this information.

This publication does not take into account the investment objectives, financial situation, or specific needs of any particular participant. It is not to be construed as legal, tax, investment, or other advice, and the author recommends that investors seek independent financial, legal, and tax advice before making any investment decision.

Investments involve risks, including the loss of principal. The value of investments and the income from them can fluctuate, and investors may not get back the amount originally invested. Past performance is not necessarily indicative of future results.

This presentation is confidential and is intended solely for the use of the person or entity to whom it is given or sent and may not be reproduced, distributed, or transmitted without the prior written consent of the author. By accepting this presentation, the recipient agrees to be bound by the foregoing limitations.

Leverage does not pass judgment; it merely accelerates arithmetic.

You guys know we’re suckers for great stories… and this one’s not only entertaining, but extraordinarily educational. Like an ogre, it has a lot of layers.

By now, we all know the gist of it. Leopold Aschenbrenner managed to vaporize $30 bn in a matter of weeks, clearing out roughly 67% of Situational Awareness LP while his wedding guests were gathering in Carmel for pre-ceremony colloquiums.

The immediate post-mortem from financial media was, to say the least, predictable: a 25-year-old former OpenAI researcher ran 4-to-1 leverage on concentrated tech equities, met a wave of prime broker margin calls, and was carried out on a stretcher.

On the morning of Thursday, July 30, Citadel stepped in, winning a fire-sale block auction against Millennium and Jane Street to absorb the fund’s $16bn public book at a steep discount. Aschenbrenner was left with roughly $10bn, anchored largely by an illiquid private stake in Anthropic.

Blaming leverage explains the surface component of it all, the speed of the liquidation… but it misses the underlying core of it all.

Aschenbrenner did not blow up because he used borrowed money. He blew up because his core economic premise, the thesis underpinning Silicon Valley’s multi-trillion-dollar infrastructure land grab, was fundamentally inverted.

Let’s break it down.

But before we do… at the end of this month, we are publishing our most exhaustive deep dive since launching The Hermit.

This is an overlooked micro/small-cap that the market has written off, but whose inflection into a high-quality compounder is backed by more than 50 first-hand interviews with management, competitors, plant operators, and institutional peers.

To welcome a few new readers ahead of the release, we’re opening an exclusive window for $100 off your annual subscription (forever), strictly limited to the first five subscribers.

Claiming one of these (now) two spots locks in your lifetime rate and keeps that full $100 credit intact if you later decide to step into our Inner Circle, which unlocks 360º portfolio tracking, private chat access, and uncut full-transcript access to the primary interviews we conduct (and their insights).

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The Pseudo-Hedge and the Fatal Pivot

The fund was designed around a dual trade:

In theory, long/short equity eliminates broader market beta. For the uninitiated, that’s exposure to the ups and downs of the market.

In practice, Situational Awareness eliminated beta only to double down on an aggressive factor or thematic bet:

• Long Hardware & Speculative Power: SanDisk (-55.3%), Nebius (-46.3%), Bloom Energy (-45.9%), CoreWeave (-38.9%), Micron (-36.0%), and IREN (-35.9%).

• Short Enterprise SaaS: Workday (+37.2%), Adobe (+28.5%), Intuit (+27.6%), Salesforce (+20.3%), and Veeva Systems (+17.2%).

While the S&P 500 stayed essentially flat and Nvidia slipped just 5%, capital executed a violent rotation. That doesn’t mean individual companies are bad, but rather that there was a narrative change which, in retrospect, was a temporary blip of mostly noise.

This, however, resulted in institutional money for a second abandoned capital-hungry buildout infrastructure and piled into higher-margin + cash-generative software incumbents.

SaaSpocalypse In a Nutshell

Aschenbrenner articulated the consensus view of the AI engineering complex, which is basically that large foundational models will automate knowledge work.

This, in turn, will make everything super cheap and, in the process, disintermediate “thin” software applications.

If an autonomous agent can code, reconcile books, and execute workflows, software companies selling digital labor become obsolete. They effectively become commoditized, and we all know human labor would be their higher cost.

In our opinion, this view misdiagnoses what enterprise software actually sells. Corporations do not pay Salesforce or Microsoft for code; they pay for systems of record, legal compliance, and liability protection. And more importantly, they pay for consistency.

We’ll give you a few examples:

• Veeva Systems dominates the pharmaceutical pipeline with 19 of the top 20 global biopharmas on its platform. Its architecture is validated under FDA 21 CFR Part 11 and GxP standards.

  • An AI agent generating raw code cannot replace a federally qualified audit trail where an unauthorized schema change halts a clinical trial.

• A Veeva seat runs $1,800 to $6,600 annually against an enterprise field rep costing $150,000 to $220,000. Microsoft 365 E5 sits around $60 a month. Enterprise software represents 1% to 3% of a knowledge worker’s fully loaded cost.

  • Even if an internal open-source agent matches the software’s utility, no enterprise CIO risks multi-million-dollar compliance breaches to shave 100 basis points off headcount overhead.

• Panorama Consulting pegs average enterprise ERP transition budget overruns at 189%, with Gartner projecting that over 70% of implementations fail to realize initial objectives.

  • Enterprises are locked into their core transactional databases (and contracts).

Rather than being hollowed out by models, mature software platforms are acting as compute toll booths. In fact, they’re the first to use agents to improve processes within their existing workflow. Incumbents package foundational models directly into validated workflows and charge high-margin markups:

Market participants pricing these at 11 to 14 times earnings mistook deep-value cash-flow machines for dying entities.

And in the case of Situational Awareness, the sheer size of their shorts was pushing per-share prices down. The more capital it attracted, the more this was the case, as they needed to find liquid names that could act as a “hedge”. In fact, their size forced them to start using… alternative tactics.

If you look up the official public data for big software stocks like Adobe, Salesforce, Workday, Intuit, or Veeva, the numbers look completely harmless.

The stock exchanges publish a report twice a month showing how many shares are being bet against, and for these enterprise giants, that figure usually hovers between 1.5% and 4.5% of their available stock.

Something obviously changed in March for all of these.

At one point, the size of these bets against a stock could no longer happen with just institutional money.

So they went directly to the prime brokerage banks like Goldman Sachs or J.P. Morgan and set up private derivative contracts. These are custom off-exchange side bets on baskets of stocks they label as “AI losers.”

Because these private swap contracts don’t show up in the standard public short-interest numbers, the real level of skepticism across the industry was actually invisible.

This is, by definition, a massive hidden traffic jam.

When Microsoft delivered a solid earnings report and buyers suddenly stepped in, every fund caught on the wrong side rushed to exit through a very narrow door at the same time.

Trying to unwind billions of dollars in off-market bets against an illiquid market triggered a short squeeze, rocketing these supposedly doomed software stocks up anywhere from 17% to 37% in just a few trading sessions.

The Capital Cycle and Depreciation Arithmetic

The inverse error of the thesis was assuming that massive societal transformation yields equivalent equity returns for infrastructure builders.

In historical capital expenditure cycles, the opposite is almost uniformly true.

Hyperscaler capex projections for 2026 approach $785bn, trending toward $1tn by 2027. Amazon alone is running near $220bn in annual capex guidance. Microsoft’s capital expenditure reached nearly 35% of total revenue, causing free cash flow to drop from $74.1bn to $67.0bn even as sales grew double digits.

To shield operating income from this capital intensity, hyper-scalers extended server asset depreciation schedules from three years to six, inflating accounting profits by billions.

Amazon quietly bucked this trend by reverting hardware life back to five years, taking a $1.4bn depreciation charge because cutting-edge silicon becomes obsolete long before it physically degrades.

David Cahn (Sequoia) and Bain calculate an implied $800+ bn annual revenue deficit between infrastructure amortization requirements and real AI revenue.

While OpenAI and Anthropic generated a combined ~$23 bn in 2025, Nvidia extracts 72% to 75% gross margins upstream. The margin resides almost exclusively in selling the picks and shovels, not running the processing workloads.

Secondary infrastructure players like CoreWeave carry net debt above 8x EBITDA with double-digit debt coupons, while balance sheets across the sector are buffered through off-balance-sheet Special Purpose Vehicles (such as Meta’s $27bn Hyperion funding structure).

The combination of all these elements created a narrative that may or may not be entirely true. But overall, it’s a story… and like every good story, it’s based on facts, with a few myths and legends baked in.

Infrastructure Destroying Capital. A Trip Back to 1873

Capital markets have run this exact experiment before. Between 1865 and 1873, the United States built out its transcontinental rail system:

• Rail track grew from 35,085 to 74,096 miles.

• By 1870, railroad issues represented 87% of all New York Stock Exchange volume.

• European capital poured in, chasing 6.5% to 7.5% debt yields.

The economic thesis of the transcontinental buildout was correct: rail completely transformed logistics, lowered shipping friction, and industrialized North America. Yet the equity was an absolute slaughterhouse.

In September 1873, Jay Cooke & Co. (bank) collapsed under unplaced Northern Pacific rail paper. The NYSE shuttered for ten days.

By 1876, 134 rail companies defaulted on $500m of debt (that’s about $16bn in today’s money which at the time was even more because railways were 6% of US GDP); by 1877, fully 20% of all US rail mileage was in receivership. Severe price competition drove New York-to-Chicago freight rates from $1.88 per ton-mile down to $0.20.

Great for consumers, awful for companies trying to stay afloat.

The durable fortunes were not forged by the track layers. They were generated by the asset-light operators running cargo. Two great examples are:

• Adams Express Company: Owned zero track. It secured payload space on competing trains to move high-value freight. Adams paid an unbroken $8 per share dividend straight through the Long Depression of the 1870s and 1890s, later converting into a closed-end fund that trades today on the NYSE (ADX).

• Pullman’s Palace Car: Formed with $1m in initial equity to build luxury sleeper cars. Pullman leased the rolling stock directly to rail operators, taking virtually no physical line construction risk. By 1879, it cleared $1m in pure annual profit on a network funded by billions in defaulted capital.

The identical script played out in the 2000 telecom crash.

Global Crossing, WorldCom, and 360networks (Canadian) laid tens of millions of miles of dark fiber. Over 95% of transatlantic fiber lay unlit as operators went bankrupt at 1 to 2 cents on the dollar.

The ultimate beneficiaries were Amazon, Google, and Netflix, which built software monopolies on top of stranded, sub-marginal infrastructure capital.

A Bit of Math: Volatility Drag and the Ruin Problem

Aschenbrenner did not simply make an incorrect fundamental rotation call. To put it very plainly, he violated the mathematics of geometric compounding, technically inverting it to the point where it was working against him.

In leverage-constrained portfolio theory, the expected long-term compound growth rate (g) of a portfolio is approximated by:

Where:

• mu (μ) is the expected arithmetic return.

• sigma^2 (σ²) is the variance (volatility squared).

When applying leverage (L), expected return scales linearly, while the variance drag scales quadratically:

Note: For those who don’t know the Kelly Criterion, here’s a short guide. It effectively tells you how to optimize your bet given the certainty/conviction of an outcome.

Assuming an unlevered AI thematic basket with an expected return (μ) of 15% and an annualized volatility (σ) of 40%:

By running at 4x leverage on an asset class with 40% historical volatility, Aschenbrenner mathematically guaranteed a negative geometric (or exponential) drift.

Even if the terminal bull case for AI infrastructure carries a positive arithmetic mean over a decade, the distribution is extremely right-skewed. This means the positive mean is propped up by low-probability, hyper-lucrative tail scenarios, while the median path decays toward zero.

This may sound like a minor detail, but it makes all the difference… in fact (and as a side note), if we ever write a PhD dissertation, it will be on these mathematical moments and their effect on compound returns.

In sum, a low chance of super-high returns paired with a slightly negative median. Amplifying this profile with leverage leads to a near-guaranteed loss as you constrain your time horizon, cutting off the window needed for these rare giga-positive tail events to occur, while the average play plus the added cost of borrowing guarantees the downside.

A leveraged vehicle hits an absorbing boundary condition like a margin call, decades before the right tail has time to materialize. Even if things happen faster today, we can almost guarantee that the margin call will come in first.

Core Takeaways

The collapse of Situational Awareness LP marks the turning point of this first phase of the AI capital cycle.

We have observed market shifts towards the cash-flowing end of the spectrum, with companies like Google, Nvidia, and Microsoft taking on the burden of debt to finance these operations.

We strongly believe past, present, and future capital allocation rests on three principles:

Tech Transformation ≠ Capital Return

The absolute utility of a technological breakthrough has no correlation with the return on capital invested to construct its physical footprint.

When supply expands unchecked, basic infrastructure rapidly commoditizes.

Moats Lie in Systems of Record, Not Systems of Compute

Ripping out deeply entrenched, heavily regulated, and auditable enterprise workflows is economically irrational for corporate operators.

The applications will purchase commodity intelligence at marginal cost and re-sell it as high-margin workflow automation to their captive user bases.

Correct Capital Structure = Survival

No investment thesis survives excessive leverage if its factor exposures are correlated.

The winners of industrial shifts are consistently the liquid buyers of last resort… the Citadels, Pulmans, and Adams Expresses.

These acquire distressed, essential physical assets for cents on the dollar after the visionary capital has been liquidated.

If you found value in this analysis, please hit the ❤️ button and share your thoughts in the comments. It helps us bring institutional-grade research to a wider audience.

And if you liked this post, we’re confident you’ll love this:

These are two companies that have surfed well (maybe too well) the bull wave of AI infrastructure and space parts supplies.

Both seem to be priced for perfection, and although they may continue to operate perfectly, life has shown us multiple times that the chances of that occurring are, to put it lightly, tiny.

Please do not take this to be some type of short report on the companies; the thing with shorting is timing, and we are not advocating for any of that (nor is it something we’re particularly good at).

Similarly to how we processed $MODD back in the day, we are now taking a look at two pretty decent companies by most standards that will very likely see a reversion-to-the-mean type narrative coming into play shortly.

If you want to make the most out of your sub, please check this short video (even shorter if you watch at 1.5x speed)… It truly is a great overview of all that we have to offer.

As we now do every week for transparency, here is our list of past Pick of the Week posts and their returns since publishing:

• All picks (equally weighted): +15.27%

Note: For accountability purposes, we will record Filtronic ($FTC) as a short in our official track record. We no longer publish our track for executed picks as we’re aiming for each idea to be exceptional on its own.

Inner Circle members receive advance notice on which ones we execute well ahead of time through the community chat and a recap every month.

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

📡 Filtronic ($FTC)

⭐ Overall Grade: 3.0 / 10

For all of you SpaceX enthusiasts, here’s a parts provider aiming to take them (and you) to the moon. Or at least that’s the pitch.

Read more

Check out all of our previous episodes here.

During the chat, we went over the following topics:

• Buy Now, Pay Later (BNPL) & Accounting Quirks: Banter around the “Buy Now, Cry Later” brand joke, the consumer psychology of 0% interest promotions (including joking around about “girl math”), and how companies account for BNPL sales through deferred revenue, bringing future quarters forward, or monetizing user transaction data.

• Bitcoin Fundamentals & Real-World Use Cases: Bitcoin viewed as “digital gold” and a store of value against fiat debasement; proof-of-work mechanics, SHA-256 encryption security, and mining energy costs (comparing hydro power in Canada vs. renewables in Germany); transaction trackability when off-ramping to fiat; and practical adoption in places like Southern Africa alongside SMS-based payment systems like M-Pesa.

• MicroStrategy’s ($MSTR) Capital Structure & Debt Strategy: An analysis of MicroStrategy (Strategy Inc.) utilizing cheap convertible debt and mezzanine preferred instruments to buy Bitcoin, the risks of servicing yields when underlying cash flows are zero, and the vulnerability of holding companies to severe crypto downturns or theoretical quantum-decryption risks.

• Gaming Industry Dynamics & Company Moats:

  • Nintendo & Console Cycles: Nintendo’s long-term moat, evergreen family-friendly IP (Pokémon, Mario, Zelda), and the strategy of pairing proprietary hardware (Switch/Switch 2) with high-profile third-party releases (e.g., Cyberpunk, Grand Theft Auto 6).

  • Publishers vs. Platform Holders: Why IP-only publishers face fast depreciation and must keep releasing sequels or DLC to survive, compared to console makers that control the distribution platform and generate recurring cash flow.

  • Other Gaming Companies: Gravity’s Ragnarok IP, activist investor pressure, and dividend payouts; TinyBuild’s founder incentives, ecosystem model, and turnaround efforts; and the impact of the upcoming GTA 6 release on Take-Two Interactive.

• Trophy Assets vs. Cash-Flow Businesses: A discussion on buying sports teams (e.g., NBA franchises, Manchester United, or Wrexham) as status symbols, the “greater fool” model of flipping clubs, and potential arbitrage setups like creating European football academies for Latin American talent.

• Book & Media Recommendations:

  • Ian Cassel’s book on his investing journey, covering wins, mistakes, and fund management.

  • Iain M. Banks’ Culture sci-fi series (specifically Consider Phlebas and The Player of Games), along with discussions on classic investing reads like Hedgehogging.

• Research Craft & the Rise of AI: A warning against over-relying on AI summaries or shallow Substack takes instead of reading original filings and doing primary groundwork, highlighted by an anecdote about Capex quirks and local cultural practices in Eastern Europe.

Hope you enjoy!

Alejandro Yela

Unlock the 50-Page Deep Dive

Investment Thesis is our core series where we break down standout public companies so you understand exactly how they make money, where the risks lie, and why the opportunity exists long before the market agrees.

This content is intended for informational purposes only and should not be taken as investment advice. The author does not represent any third-party interest, and he may be a shareholder in the companies described in this series.

Please do your own research or consult with a professional advisor before making any financial decision. You will find a full disclaimer at the end of the post.

Context

• Business Overview

• Origins

• Industry Overview and Competitive Landscape

The Business

• Business Model

• Management

• M&A Activity

Investment Case

• Comprehensible Financials

• Catalysts Explained

• Valuation

• Risk Assessment

🔍 Business Overview

If you think organic food is just a bland, overpriced tax on people who do yoga, prepare to have your worldview completely dismantled. We are diving deep into Smart Organic ($SO), a European beast that scaled from a €20,000 shoestring startup into an international manufacturing powerhouse, all while being anchored by an owner-operator who literally locks himself in an office to meditate when tough business problems arise.

This deep dive covers everything: why taste always beats clinical logic in the grocery aisle, how they turned a string of distressed European acquisitions (like Germany’s Naughty Nuts and the UK’s LoveRaw) into a ruthless “buy-and-fix” playbook, and how they’re positioned for massive European expansion.

Expect raw ground-level factory and supermarket floor scuttlebutt, crunchy details on why their new mega-facility changes the game, and an unfiltered look at why their thin float is both a masterclass in asymmetric value and an absolute logistical headache.

Do not read this, especially the product section, if you’re hungry.

We can guarantee that the main item causing delays for us was the number of times editing this piece caused pretty intense cravings.

You have been warned.

This write-up includes takes and opinions from various stakeholders. We conducted 8 interviews and visited several facilities, gathering first-party data in the process to better understand how the business actually operates.

A lot of this information was heavily guarded, and we’re not surprised given the excellent results they’ve collected, especially in the last decade.

The most impactful conversation was with Yani Dragov, founder and CEO of Smart Organic, which helped us unpack past product selection, capital allocation, and capex-related decisions, while giving us a clear view of where the company is headed.

With this owner-operator holding an 80.76% stake (55.45% directly and 25.31% through a wholly owned holding) this is a fantastic example of skin in the game.

In many ways, it strongly mirrors how one of our past holdings, Limes Schloss Clinics, was set up for success.

If you’ve followed our research for a while, you know we typically focus on two archetypes of leadership: those who decentralize operations entirely, and detail-obsessed operators who manage every moving part of the machine.

🌱 Origin Story

In 2009, at just 28 years old and armed with a modest starting capital of €20,000, Yani Dragov laid the foundation for what would become one of Europe’s most formidable organic food success stories.

Armed with a dual background in finance and investment management, having studied in Germany and worked as an asset manager, Dragov did not set out to build a typical consumer products company.

Driven by a personal commitment to a sustainable, vegetarian, and health-conscious lifestyle (routines that traditionally begin with early morning meditation and mindfulness), his vision was anchored by a deceptively simple core paradox in the global food market:

The niche was theirs for the taking.

Historically, clean-label, organic food carried an elite, sometimes prohibitive price tag and a reputation for uninspired taste, crippled by low producer scale, outsourced manufacturing, and inefficient supply chains.

Dragov’s foundational thesis was built on solving this exact friction point: to make all yummy high-demand food genuinely healthy, completely uncompromised, and universally affordable.

From Scrappy Trading to Mega Mergers

Note: We will discuss all of these in great detail below (and everything will be linked and referenced), but we want you to both get used to the names and get a sense of how the company has developed chronologically from a single shop to mainstream large-scale production.

Smart Organic’s growth trajectory reflects an uncompromising operator’s playbook characterized by three distinct chapters:

(2009–2011) The enterprise officially began as a specialized organic retail venture in Sofia (Zelen Bio), giving management immediate, grassroots insight into consumer behavior, product gaps, and daily retail friction.

Rather than opting to remain a localized storefront operator, Dragov quickly realized that true leverage required moving upstream into bulk trading and primary distribution.

(2012–2018) Shifting focus toward production, the group began creating its own category-defining brands. This era marked the birth of global mainstays like Roobar (raw organic bars), Dragon Superfoods (functional powders and superfoods), Kookie Cat, and Bett’r.

(2021–Present) To fund aggressive capacity expansion, Smart Organic made history on the Bulgarian Stock Exchange. After successfully executing an IPO on the BEAM growth market in late 2021, the company scaled its manufacturing footprint.

This has culminated in the state-of-the-art mega-facility in Bozhurishte.

In 2024, Smart Organic achieved a historic milestone for the Sofia bourse by successfully transitioning from the SME growth tier straight onto the Main Market (Standard Segment), cementing its status as a mature, institutional-grade European food operator.

We’ll see how this story ends, but so far, this rhymes with a zero-to-hero archetype.

🌐 Industry Overview and Competitive Landscape

Unlike most of our other write-ups, traditional comparative metrics don't tell you much here.

The sector is wildly fragmented, packed with hidden shadow producers and dark-kitchen operators fulfilling unlisted white-label orders for single supermarket chains.

On the one hand, outsourcing is everywhere, making surface-level data deeply misleading.

Ranging from razor-thin margins, commoditized, undifferentiated, and tasteless food to brand-centric “Italian” delicatessens, quality control mismanagement, and uninnovative portfolios.

On the other hand, major specialist corporations have nailed production and distribution for decades and now seem to pop up everywhere but have yet to master the healthy side of the equation.

Smart Organic operates in a fragmented European organic and health-food landscape.

Because the company straddles both proprietary brand manufacturing and large-scale B2B white-label production for supermarket chains, its competitive set spans several categories:

Legacy Mega Corporation

Multinational legacy FMCG (Fast-Moving Consumer Goods) titans like Mars, Inc. and Ferrero Group do not typically challenge Smart Organic by launching organic startups from scratch; instead, they buy into the “better-for-you” space through balance-sheet scale, acquiring high-profile challenger brands and plugging them into their global supply chains and retail relationships.

Mars has assembled a healthy-snacking platform anchored by KIND Snacks (marketed as BE-KIND in continental Europe), Nature’s Bakery (soft-baked, whole-grain fig and fruit bars), and Trü Frü (real freeze-dried and frozen fruit dipped in dark and milk chocolate).

Ferrero has mirrored this pivot by moving beyond pure confectionery to build an active-nutrition and wholesome snacking arm, acquiring UK-based raw fruit-and-nut bar maker Eat Natural, European high-protein bar specialist FULFIL, North American high-protein wafer company Power Crunch, and more recently, clean-label granola and functional breakfast maker Purely Elizabeth and Brazilian protein snack producer Bold Snacks.

In the spreads and indulgent treats segment, the clash is philosophical and nutritional.

Ferrero’s Nutella remains the entrenched global king of sweet spreads, commanding unmatched brand equity and mass-market volume through a recipe driven by refined sugar and palm oil. Smart Organic’s organic nut-butter brand Naughty Nuts and Bett’r organic hazelnut spreads deliberately formulate around this legacy vulnerability by offering low-sugar, palm-oil-free, and clean-label alternatives (sweetened with coconut nectar or dates) that target consumers fleeing ultra-processed foods.

Similarly, in the vegan confectionery aisle, Mars’s plant-based extensions of iconic candy (such as vegan Galaxy, Topic, and Bounty bars in the UK) and Ferrero’s plant-based Nutella variants compete directly for mainstream vegan chocolate market share against Smart Organic’s acquired LoveRaw wafer bars and choc cups.

Megacorporations rely on long planning cycles, massive minimum-batch runs, and often high-cost outsourced co-packers for their niche acquisitions. Smart Organic operates as an agile, vertically integrated manufacturer controlling high-throughput, automated production hubs in Sofia and Bozhurishte.

While Mars and Ferrero charge a steep corporate markup on KIND or Eat Natural to cover massive overhead, Smart Organic uses its low Bulgarian conversion costs to price clean-label, bio-certified products at accessible price points while sustaining ~25% operating margins.

Note that, unlike these giants, Smart Organic captures upside that the legacy giants ignore (or don’t want to compete in): partnering with European grocers (Lidl, Aldi, dm) to formulate custom private-label organic bars and spreads that directly undercut the legacy giants’ shelf presence.

Major European and Branded Competitors

In the physical grocery store, the primary battlefield is retail shelf-space allocation and premium placement across Tier-1 supermarket chains (REWE, EDEKA, Tesco, Sainsbury’s, Carrefour, and Billa) as well as the checkout lane.

Mars’s BE-KIND and Ferrero’s Eat Natural and FULFIL sit squarely in the premium on-the-go snack bar aisle, competing directly against Smart Organic’s flagship raw and functional bar lines like Roobar and Bett’r.

Ferrero and Mars possess enormous slotting-fee budgets, multi-brand volume rebates, and trade-marketing leverage that allow them to secure eye-level positioning and exclusive end-cap displays. Smart Organic, by contrast, must defend its space through higher inventory turnover per square meter, clean organic certifications, and lower supply friction.

Large multinational consumer goods conglomerates and specialized regional manufacturers also produce competing organic snacks, plant-based foods, and superfoods distributed across major European retail chains. The ones that SO has a competing bid on (production) include REWE, Aldi, Lidl, and dm.

Regional Organic Brands

To really understand where Smart Organic sits in Europe, you have to look at heritage heavyweights like Alnatura in Germany and Biona in the UK.

These are the original pioneers that put organic food on the map decades ago, but they built their empires around the traditional “general store” pantry. Walk down their aisles, and you’ll find walls of organic canned beans, brown rice, grains, passata, and cooking oils.

While that stuff sells consistently, it has slowly drifted into a low-margin commodity trap where everyone is cutting prices and customer loyalty is paper-thin.

For better or for worse, Yani Dragov saw this trap early on.

Smart Organic deliberately keeps its pantry staples to a minimum, using them mostly as legacy anchors or foot-in-the-door items, while pouring almost all of its R&D and capital into high-velocity, impulse-driven snacking… things like Roobar, Bett’r cups, and Naughty Nuts spreads, where taste and formulation actually give you pricing power.

Alnatura and Biona are essentially master brand curators and distributors rather than factory owners. They design recipes, run strict quality checks, and slap their famous logos on the packaging, but they outsource the heavy lifting to a vast web of third-party co-packers across Western Europe.

That setup works fine when the economy is cruising, but the moment cocoa or hazelnut prices go berserk, those co-packers pass every single cent of pain down to the brand, squeezing margins dry.

Smart Organic takes the exact opposite approach by owning the entire factory floor. When they bought broken, cash-strapped brands like Germany’s Naughty Nuts or the UK’s LoveRaw, they didn’t just redesign the wrappers; they ripped manufacturing away from expensive German and British co-packers and dropped it straight into their automated mega-hubs in Bulgaria.

That single operational shift wiped out middleman fees overnight and restored healthy gross margins.

Let’s not discount the power of volume. While Alnatura and Biona treat their brand names like sacred ground and largely avoid making products for other people, Smart Organic plays both sides of the retail counter.

They happily balance their factory output 50/50 between their own proprietary brands and custom, high-end private label runs for supermarket giants.

Because these aren’t boring commodity grains but complex chocolate-enrobed bars and nut butter cups, Smart Organic can pull roughly 25% operating margins across both sides of the house.

Their own brands capture long-term retail pricing power and street cred, while private label deals keep the automated machinery in Bozhurishte running at full blast with zero marketing spend.

Supermarket In-House Private Labels

To come full circle, you also have major retail giants (such as REWE Bio and Carrefour Bio) that have developed their own organic lines.

These compete directly with Smart Organic’s custom white-label projects, although Smart Organic simultaneously acts as a supplier to many of these same grocers.

These brands usually rely on specialized, dark-kitchen-style suppliers for distinct product groups, meaning snack suppliers are typically not the same as olive oil or tomato sauce suppliers.

To be perfectly honest, rather than pure competitors, these present a massive expansion opportunity for SO, as much of their success is driven by acquired taste.

If they can start supplying (e.g.) Carrefour with their snack bars, they will wedge their way into controlling and expanding across several Mediterranean markets.

That opens the door to easier M&A in those regions and smoother distribution, especially given how long-term relationships with these retail giants directly influence pricing and shelf-space negotiations.

🧩 Business Model

Smart Organic operates as a vertically integrated producer and distributor of certified organic, vegan, and clean-label snacks and superfoods. Their base premise is, paraphrased…

“you can be both healthy and tasty”

Rather than acting purely as a co-packer or brand marketer, the company controls the entire value chain from direct origin sourcing to manufacturing and distribution, mainly B2B but also partly B2C.

We believe the TL;DR of this business case can be summarized in four major points.

Firstly, Smart Organic purchases raw commodities (nuts, cocoa, coconut, superfood powders) directly from farming cooperatives and producers across 30+ countries.

Raw materials cost roughly half of total sales value every year. Improving and maintaining these relationships together with smart purchases and hedging practices (direct and indirect), explain most (if not all) long-term margin variations.

Secondly, production takes place across their owned and operated facilities, including the main Sofia hubs and the 6,000 m² Bozhurishte mega-facility.

The setup handles high-throughput automated lines for chocolate-enrobed bars, nut butter cups, wafers, cookies, spreads, and functional powders. Controlling all variables at this stage of production ensures quality and consistency.

Thirdly, revenue is split relatively evenly between their own brands (Roobar, Bett’r, Kookie Cat, Dragon Superfoods) and custom non-commodity private-label projects for major supermarket chains.

Lastly, roughly 70% of production is exported to over 60 countries, anchored by DACH (Germany, Austria, Switzerland), the UK, and Romania.

In Bulgaria, the group operates its own retail and e-commerce chain (Zelen Bio / ЗЕЛЕН), which doubles as an immediate R&D test center.

If you understand these four concepts, you understand what the company does.

Products. What Does Smart Organic Actually Sell?

This may not be an exhaustive list, as the company is constantly testing, discarding, and improving products.

However, we’ve done our best at providing you with the main products and subcategories that Smart Organic produces under their different brands. Custom or white-label products are, at times, harder to identify.

Organic Snack Bars

Their most recognizable product and definitely the most widely distributed across Bulgaria has to be Roobar.

These are mostly bars, but they come in different shapes and sizes, made from clean ingredients like dates, nuts, and superfood powders. Again, they usually lean on the fact that it’s high protein or just has a few calories.

Spreads, Nut Butters and Cookies

High-growth, low-sugar spreads and nut butter cups (such as Naughty Nuts), designed as healthier alternatives to legacy confectionery spreads by radically cutting sugar content.

We are personally hyper (addicted) users of these spreads, and the only one we’ve come across that can compete in the taste arena is a super niche company called Valnuts.

They commercialize their spread via their subbrand Енергия от Ядки / Energy from Nuts, and it’s freaking delicious, albeit not as healthy.

Their brand Kookie Cat should also be included here.

Confectionery and Baked Goods

Probably their most health-conscious brand is better, which is most famous for the protein pancakes. These are freaking delicious and fall under the Better brand.

This section has more than a few organic chocolates, wafers, and bite-sized treats manufactured mostly with automated lines at their modern Bulgarian facilities.

They also have instant soup, hummus and potato puree. It’s also likely their most experimental segment… healthy popcorn and all.

Superfoods and Powders

These are mostly branded under one of their longest-running subbrands, Dragon Superfoods, and they come in easy-to-use packs that usually last a few weeks.

To be perfectly honest, these are the ones we’ve tested the least, but we can guarantee you they are ever-present throughout small and large stores across the major supermarket chains in the country.

Cold-Pressed Beverages

These are mostly a new inclusion from a recent acquisition, and they account for a tiny part of revenue.

Fresh, organic cold-pressed juices and smoothies (under the Frudada / Santulita brand) serve as a specialized, non-dry-shelf complement to their main portfolio.

From their entire portfolio, this is probably the first product we came across via a local Kaufland and our personal favorite in terms of taste.

Again, the key to all of these is differentiation in both health and taste; more on this in the next section. Both contribute to stretching the products as far away from the commodity category as possible.

And this leads to acquired tastes by the population, which provides the company with both a moat and pricing power over what should be a commodity with near-zero margins.

Management is quite conscious about this.

Q: How would you categorize your brand? Would you say it’s on the one that you have like super commodity and on the other hand you have like super premium? Where would you place your brands and what are you looking to see that develop like into the future?

Yani: Yes, so how much do you know about our portfolio?

Q: Well, I think I’ve tested most of it out. (Wink) I mean, I ate all the avaible product. I don’t know so much about the white label stuff because I haven’t identified everything, but definitely have eaten most bars and protein-related products.

Yani: Yeah, so we have the snacking. So snacking is the biggest part of our business. Snacking like bars, cookies, cups, these products and they are far away from commodity.

The closest to commodity would be organic lentils and organic rice, these kind of things. It’s a part of our business.

(But I ) would say much bigger part is the more added value and we’re also focusing on that. We want to sell more and more bigger added value products. This is our future.

This commodity, don’t believe in that. I have friends in Germany who have this (type of) company just packing organic commodities and just the margins, they just earn the same type of package, if at all. So risky, they never have money to grow and pay the invoices. It’s big struggle.

So we want to go as far as possible away from this. And we’re doing it. We have very few products which are close to that. We only started in Bulgaria because we have been doing it originally, so we keep doing that. But we don’t expand this range. We don’t grow in that.

Taste vs. Health (Core Philosophy)

Early lessons proved that consumers do not make food choices based purely on clinical logic.

Consequently, Smart Organic’s core expertise lies in formulating products that combine strict clean-label/health parameters with mainstream taste appeal.

Q: Well, that was exactly my question. But if you had to prioritize one, would you go for the healthy or would you go for the tasty? Would you rather have tasty but unhealthy?

Yanni: I got your point. This is exactly why we’re both at the same time.

This is our core expertise to make it healthy AND tasty. We’re working on combining both. In the past we’ve been focusing on healthy. Our early years, we realized this is not going to work. People are not, I mean, they’re just not… logic, don’t take logical decisions; they just take decisions based on taste. This is the first thing.

So, like you saw in our presentation that I sent you, taste is the number one factor when people choose food. So we prioritize taste.

I mean, taste is very important, but we don’t sacrifice healthy; we don’t sacrifice using harmful ingredients or something that doesn’t fit in our values. This we don’t do. We just keep working in the lab until we find a tasty enough product with all the clean-level characteristics.

Mainstream confectionery brands often rely heavily on cheap inputs like refined sugar and palm oil (e.g., legacy hazelnut spreads containing ~56g sugar per 100g).

Smart Organic prices its premium, low-sugar alternatives (sweetened with erythritol, dates, or coconut blossom nectar) at an affordable markup over mass-market brands while drastically undercutting legacy specialty health-food store pricing.

This is only possible thanks to their initial jump in a lower cost country like Bulgaria back in 2009, and nowadays it’s sustained through their economies of scale.

To be perfectly honest, it is a challenge to start from scratch today, especially with the inclusion in the Euro which provides a great position for Yani and his team. Starting early and having scale are effectively a moat.

Pricing Power. Value-Add Cost-Plus

Even though we haven’t been able to find accurate and reliable measures of their market share, multiple sources affirm that the company (combining private label and white label) sells the majority of products in their category within Bulgarian borders.

Because Smart Organic is the dominant organic market leader in Bulgaria by a wide margin, it holds substantial negotiation power with major supermarket chains (Kaufland, Lidl, Billa)… if a dispute arises, half of a retailer’s organic shelf space would go empty.

A lot of these collaborations, especially with German supermarket chains, make a very strong case for their positioning both inside and outside of the country.

Smart Organic deliberately avoids competing in low-margin commodity auctions. Instead, it prices its products based on functional differentiation, speed to market, and dynamic cost management:

The company avoids complex commodity hedging (except for selective forwards like USD or cacao). Instead, it leverages 1-year supplier contracts and directly passes input price swings through to retail and B2B clients.

Q: A lot of these are essentially commodities that you’re purchasing. How do you deal with the prices? Do you have a hedging strategy, or do you just have multiple sources and just buy from the best at any given point in time?

Yani: We have multiple sources, but we also like our long-term suppliers that we work with them long-term. We check prices to make sure nobody speculates with us, but we like to work with the same suppliers for longer. We have many suppliers.

We don’t do hedging right now.

We can do it; maybe we’d plan to do the featuring with Cacao, but the market was so volatile and we also it would prefer to wait, and our clients also they understand when that some raw material is going up, they see that and they accept higher prices. I mean, our B2B clients are supermarket chains and everybody, so right now we have preferred to pass on the price movement up or down to our selling price (rather) than hedging.

But the cacao is something that we can hedge. Others we cannot hedge. Other raw materials, they’re not… I mean, you cannot hedge hazelnuts or pistachio, etc.

The company procures raw materials globally from over 30 countries via a dedicated 5-person team.

To manage currency volatility, they utilize forward contracts (such as buying forward US dollars) when necessary, though they primarily absorb or pass foreign exchange and commodity price fluctuations directly into their final selling prices.

While gross margins on own brands are higher before marketing spend, the bottom-line net return between proprietary brands and custom private label runs is roughly equal.

Private label projects achieve unit economics through volume and zero marketing overhead, while own brands capture long-term retail pricing power.

Long-term White-Label Contracts

Smart Organic balances its revenue roughly equally between private label production and proprietary brands.

[Note: this one quote is parraphrased given his English was not too good]

Q: What would you guess is the balance between private label and white label

Plant Manager: I cannot speak for other plants, but for us, it comes out to be about half-half. At times, contracts for white label can freeze because they maybe are reordering inventories or negotiating prices or something, so for a week or a month we almost only produce our own stuff, but at the end of the year the balance is always 50/50.

They completely avoid low-margin commodity auctions, focusing instead on unique custom projects for retailers where they only compete with themselves.

Again, net margins between private label and own brands equalize once marketing expenditures are factored in.

Q: It seems the market here has a few very dominant German brands, like the Kauflands of the world. Is it hard to deal with these people? Are they tough negotiators, or are they more friendly than one would expect?

Yani: Some are more friendly, some are less friendly. It’s never easy. Whoever tells you it’s easy to negotiate with the big supermarkets is not true. It’s never easy.

We’re managing right now in a good position, especially in Bulgaria, in a very good position because we are market leaders with a big distance to everybody else. So if we don’t agree with them, half of their organic shelf will be empty. And it’s a growing category. They don’t want that for sure.

So we have a little bit more negotiation power right now (than in the) last 7, 8, 10 years. […] So it’s quite balanced. It’s a balanced thing. Give and take.

Zelen Bio (ЗЕЛЕН). Their Own Retail Shops

Back in 2008, before Smart Organic grew into a massive international manufacturing and distribution company, founder Yani Dragov started his journey in the organic sector by opening one of the very first physical organic food stores in Bulgaria under the name Zelen.

While Smart Organic’s primary scale today comes from B2B manufacturing, global exports, and its proprietary brands (Dragon Superfoods, Roobar, Kookie Cat), the Zelen retail arm serves as their direct-to-consumer footprint.

These physical shops (and their accompanying online platform, zelen.bg) offer a curated selection of organic groceries, superfoods, natural cosmetics, and fresh healthy snacks.

Our take is that operating their own retail shops gives the company a direct testing ground for new product launches, consumer feedback, and retail trends.

It’s great to focus on large-scale manufacturing, but first you need to focus on understanding the end consumer and this is the perfect way of doing exactly that.

Major Base Currency Changes

Starting 2026, Bulgaria officially changed its currency from Leva to Euros. We should know, we were there…

… and that has heavily affected all businesses.

On the one hand you have cost pressures from raw goods, distribution and wages. On the other hand, you have the lag of everyone adjusting to the new prices.

We’d say it’ll take 2 years for everone to adjust but in the mean time core goods ranging from cooking oil all the way to real estate should see the changes happening nearly in real time

Q: Have you had any issues with the transition from Leva over to Euros in the sense of raising capital but also in terms of costs, particularly on the financial end of things right now?

Yani: We haven’t had any issues. Of course, when we take down new loans, they might be a little bit more expensive. We haven’t yet taken a loan since we’re in the Euro. Last, just before, I mean, in December, we signed a big loan for our new project. We signed it still in Leva, so it was on the outterms. So, we might need to pay somewhere around a little less than 1 % more interest.

Now we’re paying about 2.3%. We might need to go to 1%, maybe more. 3 points or something. It depends on the year report. I usually pay for something like 1 % plus the year report, plus three months year report.

Q: What about on the cost end, so on the operating end, have you seen any changes because of the currency change? Cost pressures, materials pressures, imports restrictions.

Yani: We buy most of our materials abroad.

Q: Well, I was just curious. I wouldn’t expect any, but maybe you had like some random guy who increased, prices by 30% and you were like, what are you doing, man?

Yani: No, I think this is the sphere of solitude, generally (we’re safe from) competition in the market. One guy decides (to increase) so we go to another guy.

It happens in retail. I think it happens on these small tickets. If you buy something, if it was costing 129 leva and then now somebody makes it 99 euros (194 leva). But on the small things, it’s the bigger change, and it’s mostly on the retail.

Competitive Advantage and Runway

We outlined the core competitive advantages here:

Beyond these core advantages, and to achieve long-term success, management is working on deep market penetration in key Western European regions.

Smart Organic prefers establishing its own local distribution and marketing teams rather than relying solely on third-party brokers (with active setups already in the UK, Germany, and Romania).

Unlike most other companies we see, SO has the ability to scale up, from our perspective, infinitely. There is no ceiling preventing sales, margins, and consequently market cap from scaling 10x or 100x from here.

The growth percentage on a given year, though, may be capped as growing in volume requires capacity (and CAPEX) and growing in price may only be possible by retaining their position plus inflation. This latter option is really not a lever they can pull.

Product Cannibalization & R&D

Management embraces internal product cannibalization, preferring its own superior products to compete against and replace older lines rather than losing shelf space to external competitors.

An in-house R&D team of 6 people operates out of a dedicated laboratory, prioritizing rapid testing and market speed over exhaustive analysis.

Q: I’m asking because one of the issues I’ve seen is, especially when you put them all in the same shelf, there’s a little bit of cannibalization. Your products compete against each other. How are you combating that? How are you setting up a shelf, for example, in one of these supermarkets?

Yani: I don’t mind competing with our own products. I prefer that we compete with our own products, not somebody else.

So whenever we launch a new product and it’s super cool, and even if it will cannibalize some of our old products, we don’t mind doing that. We’ve done that in the past.

When doing that, it’s fine because, I mean, if you have a good product, better launch it and people will buy more of it. Even if you kill a little bit old, something old from yours, it’s fine.

Facilities Overview

The company has two major production centers and they recently raised money in April to build another one.

Note: A lot of what happens internally remains extraordinarily confidential, so we cannot really disclose a lot of what we know, and we probably only know 20-30% of what’s going on inside of these.

Karpuzitsa Base (Sofia)

The company’s established operational base features specialized manufacturing and warehousing spaces (including an expanded 5,000 m² building equipped with a 330 kW rooftop solar park).

This site located at 6 Damyanitsa str., 1619 Sofia, Bulgaria, serves as both their head office and the original production center. All managerial decisions are taken from this building right here.

This location also houses the corporate R&D laboratory where a dedicated team tests and iterates new product formulations.

We only wish we could be part of THAT team. That really does sound like a fun job.

Bozhurishte Mega-Facility (Industrial Zone near Sofia):

To support its heavy international export demand across 60+ countries, Smart Organic constructed a state-of-the-art 6,000 m² production and logistics complex in Bozhurishte.

It was built intensively throughout 2023 and 2024, received its official Act 16 (Certificate of Occupancy) in December 2024, and officially commenced production in early 2025.

The facility is now being expanded with an adjacent 6,500 m² second production and warehousing base, which doubles capacity.

Operationalized to triple manufacturing output, this facility features highly automated lines dedicated to chocolate products, nut butter cups, spreads, wafers, and raw bars.

Q: So if I’m not mistaken, Bozhurishte would be your facility, the stuff you set up in 2024.

Can you talk a little bit about capacity usage since it is a major project and whether you've gotten to a hundred percent use? Whether you’re able to absorb the overhead, the fixed cost that comes with it? Look at it from two years down the road, do you think it’s been worth it? What would you have changed over there? Give me your thoughts on the facility and how it’s working out for the company

Yani: In terms of capacity, it depends on different aspects. One is the capacity of the machinery. One is the capacity of the people you have and the people with how many shifts you are making.

Q: Yeah.

Yani: So with the current machinery, we can produce much more. We have the capacity. At the same time, now we’re building a new factory because we’re doing different projects, different products. So we have capacity for one product and we’re growing, but we have developed an amazing product we want to launch and we need new machinery for that. And some of the coolest products help us also open doors where we can sell some also more simple like more simple products.

So that’s why we want to invest now, even though we have some capacity. We invest in a new factory, and we already have the financing for that. Now in the process of construction

As a fun fact, and because you probably don’t understand the context, building or expanding one of these facilities is a massive endeavor in every single sense of the word.

If Eastern Orthodox Europeans quite literally baptize (they're technically blessed by a priest) their cars for around €50 plus the taxi ride for the priest, you can imagine what building something like this entails.

And if you can’t, as they say, “a picture is worth a thousand words”.

Manufacturing Capacity, CAPEX and OPEX

New facilities (such as the Bozhurishte expansion) require heavy physical capital for buildings and machinery, but we know internal estimations are set achieve to fast capital payback period of 2 to 3 years once operational on $20m invested.

Sources also confirmed that future manufacturing will prioritize full automation on dedicated single-product lines to handle high volume efficiently.

This may seem like a minor topic, but beyond raw goods, wages and administration are by far the largest cost, adding up to nearly 31.9% of revenue in 2025.

Factory wage growth in Bulgaria historically ran at double-digit percentages driven by tight labor supply, but labor intensity and wage pressure have cooled off as general manufacturing demand stabilized and certain external industrial plants closed down.

In these processed the company also has to manage inventories. The company manages raw material inventory buffers spanning 3 to 4 months.

To eliminate legacy system errors and streamline cross-border integrations with e-commerce platforms (like Shopify) and marketing tools, they transitioned to Microsoft Business Central.

Note that this system is not even close to perfect.

There’s a great example of a past inventory write-downs were largely administrative or system-based rather than product spoilage. We’re talking about their €200,000 write-off caused by an ERP error that failed to track wooden pallets exiting the system.

This has been confirmed as a mistake by management and is also the main reason that prompted a complete system migration to Microsoft Business Central together with more frequent and rigorous physical inventories.

Raising Money. EU and Bulgarian

When looking at where to list the company, the most logical starting point for Smart Organic was right at home in Bulgaria.

While many growing companies of similar scale opt for a dual listing on prominent Western exchanges like Germany, France, or the UK, management has deliberately chosen to stick to the local market for now.

Maintaining a listing in a market like Germany comes with heavy overhead price tag, running an estimated €200,000 annually in various fees and costs.

Because management’s goal is to fund business operations efficiently rather than pay for prestige or popularity, paying those recurring costs without an urgent capital requirement simply doesn’t make sense.

Instead, management takes a pragmatic approach: if a massive capital-raising project materializes down the road (anywhere from €30m to €50m confirmed by management), that is when they will pull the trigger on a German listing.

Until then, utilizing the local Bulgarian exchange keeps overhead low while the stock price grows alongside the underlying business

Q: Okay, there’s a cost embedded into all of these but more in terms of visibility… because investors, particularly Western European investors, they will participate in projects that are listed in countries like Germany but not so much in Eastern Europe.

Yani: Yes, but keep in mind we are being listed because we want to finance our business. We’re not listed to be popular.

And if we get the money that we need in our local stock market, then that’s cheaper for us. And if the market appreciate our stock. I mean, if our stock value grows with the growth of the company, I’m happy. I don’t need to go abroad, spend a lot of money. Because if we get local investors doing that, why bother about German stock market?

But the time will come because we’re growing a lot. Next time we need to raise a big amount. I mean, now €10 million, we made a small round.

But my plan maybe after 2030, maybe about three, four years to make what we have the need, especially if we grow outside Europe. And these are our plans, we want to expand to build factories also on other continents. And we just will need much bigger amounts of money.

As pointed out before on the facility section and just now in the transcription, the company raised €10.6m to expand their Bozhurishte facility in April 2026.

The only thing we would note is that, even though obvious, this increases the free float and therefore derisks for us in any investment as it increases liquidity for the company.

Here’s the presentation for the raise in case you want to dive in a bit deeper. It includes their entire product catalogue at the end which is not a recommended read for people on a diet.

Smart Organic Presentation Capital Increase 2026

9.79MB ∙ PDF file

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Related-Party Matters

We can’t claim to have done a proper analysis without stopping and acknowledging their related party transactions. Even though the company is under the complete control of it’s CEO, governance still matters and on that we must underline the influence of Yani’s brother in all of this.

Yani Dragov's brother is Konstantin Veselinov Dragov (Константин Веселинов Драгов), with whom he co-manages and co-owns joint business ventures such as Dragov Brothers OOD. He’s also been involved with the company until recently where he got replaced as a director (March 2024).

Related-party activities (such as distributing cosmetics for Orenda Group, aid to “yoga studio” The Art of Living or light production work for family-associated entities) represent negligible turnover relative to group scale, and board structures have been formally adjusted to include independent members as part of public compliance.

We’re not big fans though (of the whole thing), but we can’t do anything about it either.

Note: We know very little about it, but The Art of Living looks to me like a mega cult (on the surface). We asked Claude about it, as we don’t want to waste time here, and apparently it’s a legally dubious international wellness and humanitarian brand founded in 1981 by a guru-like figure called Sri Sri Ravi Shankar.

Take out whatever conclusion you want from this data point, we’re only here to inform not to opine.

👥 Management

Yani Dragov – CEO
Yani is the co-founder and Chief Executive who guiding pretty much everything including the company’s overall strategy, international expansion, and production operations.

Originally transitioning from a background as a financial analyst, Yani maintains a firm grip on operational control as a strict "red line" to prevent losing majority oversight while the company scales toward its long-term goal of hitting €1bn in revenue.

Even though in Bulgarian, this chat was quite good and it tells you a lot about his qualities and character. In this TEDx talk Yani Dragov shares how foundational spiritual principles… stuff like radical sincerity, living in the present moment, taking full responsibility instead of complaining, practicing meditation for creative problem-solving, and focusing on a win-win mindset.

He claims all of these elements helped him scale Smart Organic from modest beginnings into a major international manufacturer.

You’ll need to read the English translation though… so you’re welcome.

Entrepreneurship And Spirituality Yani Dragov Tedxstarazagora Tedx Talks [en]

67.3KB ∙ PDF file

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Teodora Karadzhova – CMO
Teodora is the Chief Marketing Officer who oversees brand development, commercial positioning, and market growth across international retail channels.

Petya Stoyanova – CFO
Petya is SO’s Chief Financial Officer managing dialy corporate finances, financial planning, regulatory reporting, and fiscal administration.

🤝 M&A

For Smart Organic, international market entries (such as entering Romania or the UK) are frequently triggered by opportunistic acquisitions of locally known brands, allowing them to leverage already existing (brand) visibility while manufacturing the products in-house to retain their high margins.

To date, Smart Organic has executed a disciplined, highly opportunistic inorganic growth strategy that complements it’s already excellent organic strat.

Rather than buying expensive, fully priced revenue streams, management targets asset-light or distressed consumer brands that possess strong product-market fit and consumer pull, but suffer from broken unit economics or sub-scale manufacturing.

By acquiring these targets through accelerated M&A processes or bankruptcy proceedings and immediately shifting production into its automated Bulgarian facilities, Smart Organic rehabilitates their cost profiles, purchases client portoflios and unlocks immediate gross margin expansion.

We’ll review each one indicidually but here’s a overview of what they’ve done to date.

Comprehensive M&A Audit (Last 7 Years)

Please note that many of the price tag figures are not publicly disclosed and are derived from our own internal financial analysis and estimates, meaning there may be some inaccuracies in these valuations.

Amigos International Trade B.V. (Acquired January 2022)

Finalized in January 2022 for an undisclosed amount estimated at roughly €400k, this 100% equity acquisition of Netherlands-based organic food and sustainable sweetener distributor Amigos International Trade B.V..

Known for Red Ape wild-harvested Indonesian Arenga sugar protecting rainforest orangutan habitats, the purchase was designed to establish a direct Benelux distribution foothold and source ethically branded sweeteners.

Although it initially gave Smart organic market access, the setup proved difficult to scale independently. Management ultimately made the decision to wind down and close the non-operational entity, fully writing off its initial asset carrying value and minor €30k goodwill allocation to protect capital.

Biopack EOOD (Acquired July 2022, Merged March 2023)

Finalized on July 30, 2022, the 100% equity acquisition of Biopack EOOD was completed via a purchase agreement with an estimated net asset book value transfer of €140k.

These are key supplier of compostable HORECA (above) packaging, cups, and eco-friendly bags designed to replace single-use plastics

Designed to capture supply chain synergies for sustainable packaging materials and expand HORECA channel reach, management executed an internal legal absorption via a merger-by-acquisition (вливане) on March 14, 2023.

This legally dissolved Biopack and transferred its net assets directly into the parent company on May 18, 2023, ultimately eliminating external supplier markups on eco-packaging, saving over 55 tons of historical carbon emissions, and streamlining administrative overhead through full corporate consolidation.

Santulita OOOD / Frudada (Acquired July 2022)

This company was and still is leading Bulgarian producer of 100% natural, cold-pressed fruit and vegetable smoothies and juices sold under the Frudada brand without added sugars, preservatives, or water.

Acquired on July 1, 2022, the 70% controlling equity stake in Santulita OOD involved a purchase price of €250k (~490k BGN).

Part of this transaction was settled via newly issued Smart Organic shares transferred from the majority shareholder, generating a corresponding premium reserve addition, alongside a put/call option structure exercisable between June 1, 2026, and June 1, 2028, to buy out the remaining 30% minority stake.

Designed for immediate expansion into the cold-storage liquid beverage category to complement dry-shelf snacks with refrigerated health-conscious drinks, the acquisition added a premier regional cold-press brand with €1m+ in baseline revenue (~2% of group sales) and solidified domestic leadership in functional beverages.

Anchoring a major chunk of group goodwill at €837k, the business has since been optimized to generate steady incremental cash flow despite initial break-even friction.

Naughty Nuts Vertriebs GmbH (Acquired 2023/2024 Integration)

Founded in Cologne in January 2021 by Benjamin Porten and Lorenz Greiner, Naughty Nuts is a fast-growing German bio-food startup specializing in innovative flavored organic nut spreads (fantastic stuff like salted caramel and raspberry rumble) distributed across 1,200+ retail locations including REWE, EDEKA, and denn’s.

Acquired out of insolvency and bankruptcy proceedings for a nominal cash consideration of €150,000 for assets only with zero historical liabilities, Smart Organic established a German subsidiary (Naughty Nuts Vertriebs GmbH) holding a 68% controlling stake, while the original founders retained 32% and stayed on to operate the business.

Designed to establish a high-velocity direct-to-consumer and retail footprint in the core DACH market while rescuing a distressed brand suffering from high-growth cash burn, the acquisition addressed a company that had generated €2.5m in turnover during 2022 before falling into insolvency due to a lack of institutional growth capital.

Smart Organic solved this instantly by shifting production from high-cost German co-packers to its low-cost Bulgarian facilities, a single operational fix that restored gross margins and drove a 100% sales increase for Naughty Nuts over the course of 2025, perfectly validating the group’s “buy-and-fix” playbook.

LoveRaw Limited (Acquired April 2025)

Founded in 2013 by Manav and Rimi Thapar, LoveRaw is a premier UK-based vegan confectionery brand famous for palm oil-free, dairy-free chocolate wafer bars, peanut butter cups, and choc balls, which at its peak was stocked in 13,000 retail outlets across 25 countries and generated £3m in revenue, earning a spot on the Financial Times FT 1000 list.

Clients include Tesco, Asda, Waitrose, Ocado, Co-op, and Whole Foods.

Acquired via an accelerated M&A process while under administration, with Joint Administrators Jimmy Saunders and Mike Lennon appointed on April 16, 2025, the brand and business assets were bought through Bettfr Food Limited (legally still LoveRaw), a wholly owned UK subsidiary of Smart Organic.

Designed to aggressively scale the group’s footprint in the UK retail market, cross-sell into Tier-1 Western European grocers, and absorb high-potential confectionery IP, the transaction targeted a brand that had suffered sharp revenue contractions in 2024 due to supply chain disruptions and investment bottlenecks.

Smart Organic immediately began integrating production into the newly opened Bozhurishte mega-facility, with management targeting medium-term run-rate revenues of £6m to £9m from LoveRaw-branded products alone, alongside high-margin private label upside in the UK region.

💵 Comprehensible Financials

As always, we’ll keep this part simple. We look for five core traits in every company we own:

1. Sensible leverage. Healthy debt levels and smart, disciplined use of it

2. Profitable growth. Steady revenue expansion supported by strong margins

3. High returns on capital. Efficient use of every dollar invested or employed

4. Cash discipline. Capital requirements and consistent free cash flow

5. Shareholder alignment. Minimal dilution and thoughtful per-share allocation

Note: Please understand that we used USD as the base currency for all of these figures, as it provides a much more stable constant YoY comparison following the EUR integration. In terms of underlying trends, this is more accurate, and for the valuation itself, we will translate the final figures into EUR.

The long-term trend for returns should see an ROIC or ROCE of around 20%. However, this figure will spike down hard in times of investment, essentially through a denominator effect where we have to spend a substantial amount of money to acquire assets (land, buildings, machinery, etc.) to build out capacity while revenue and margins experience a lag.

However, because the investment was recently done, we can pretty much guarantee that we are currently on the lower end, especially after the April 2026 raise. We should now expect the trend to be upwards from the 2025/2026 figures.

Read more

A great place to start is our latest post.

We’ve published one on the first Wednesday of every month since June 2024… that’s 27 editions and counting.

Everything we’ve built, our full thought process, and the underlying data behind our decision-making, distilled into an extraordinarily thorough 30-minute read.

Here are the easy-access links to every series mentioned in the video, in the exact order we cover them:

• Pick of the Week (Mini Thesis)

• The Institutional Deep Dive (Full Thesis)

• The Hermit Portfolio

• Priority Briefs

Hope you enjoy!

Alejandro Yela

Get the Unredacted Report

Index

1. Executive Summary & Asset Allocation

• 1.1.- Public Equities: Detailed YTD Performance, Asset Allocation, and Holdings Overview

• 1.2.- Private Assets: PE Update and Core Business Developments

2. August Review

• 2.1.- Macro Context, Market Observations and MicroStrategy (now Strategy)

• 2.2.- Cash & Treasury Compartment: Currency Transition, Remuneration & FX Drag

• 2.3.- ETF Compartment: Broad Index and Emerging/Frontier Markets

• 2.4.- Opportunistic Compartment: Individual Names and Goals

3. Holdings & Portfolio Activity

• 3.1.- Position Sizing, Entries and Exits

• 3.2.- Earnings Releases, Upcoming Catalysts, Insights and Updates

• 3.3.- Options Strategy Update

Briefing

This 27th edition is packed with context on what is unfolding at both the macro and micro levels.

The tides are shifting in the SaaS-pocalypse theme just as we predicted (and positioned for), we are applying our schmuck insurance principles in creative ways, and we are evaluating a few new UK names to round out a portfolio of already excellent companies.

The overall premise of our strategy comes down to a simple rule:

That is why we plan, stress-test, and iterate every day on our portfolio architecture. A clear example is how we’ve built directly on the blueprint outlined in last month’s update.

We truly love having these conversations with our community, and as always, we are deeply grateful to have you here.

This is quite an extensive report on everything that has unfolded over the past month… and I can guarantee you a lot has happened.

Feel free to use the index to jump directly to the sections you find most interesting, as reading the entire memo in one sitting might feel a bit dense.

While it isn’t overly long, it is definitely packed with very high-signal detail that you won’t find anywhere else.

This publication is confidential and intended solely for the use of the person or entity to whom it is given or sent. It may not be reproduced, distributed, or transmitted without the author’s prior written consent.

By accepting to receive the full post as a 🧙‍♂️ Inner Circle member, the recipient agrees to be bound by the foregoing limitations.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

📊 Portfolio Overview

Returns (Asset-Weighted)

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As always, we’ve included our usual short overview, in this case one for each company, but if you’re already familiar with the companies, feel free to skip straight to the earnings review and the insights from our 1-on-1 interview.

Access the Inner Circle

Priority Briefings. Investing is dynamic, so our research never sits still. We don’t file a report and walk away; we maintain an active, ongoing dialogue with the key stakeholders and management teams of our past, present, and future holdings.

Think of these briefs as your “insider access” to those calls. We bring you direct contextualized highlights and actionable updates. You’ll see exactly how the business is evolving in real-time, long before it hits the quarterly report.

This series is exclusively for 🧙‍♂️ Inner Circle members

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

Omni-Lite Industries ($OML) Brief

Omni-Lite Industries (TSXV: OML) is a precision manufacturer serving niche corners of the aerospace and defense sectors. While publicly listed in Canada, its core manufacturing engine is firmly rooted in North America across AS9100D- and ITAR-certified facilities in California, New Hampshire, and Ontario.

They are essentially the high-reliability precision backbone supplying the fasteners, electronic modules, and cast alloy components that keep modern commercial aircraft flying and defense systems operational.

The company operates through three integrated, highly technical divisions that solve difficult engineering, weight, and extreme-heat challenges:

• Multi-Die Cold Forming (California): Instead of slowly chipping away at expensive metal using traditional subtractive machining, Omni uses multi-station presses and custom sensor-equipped tooling to cold-shape superalloys (such as Inconel, Titanium, and A286) into complex, near-net-shape fasteners at high speed with close to zero material waste.

• Defense Microelectronics (Monzite in New Hampshire): Specializes in designing and manufacturing custom RF, microwave, and millimeter-wave modules, alongside next-gen Gallium Nitride (GaN) sensor electronics. These high-bandwidth assemblies serve as the brains for missile guidance, radar systems, and air defense platforms.

• Precision Investment Casting (DP Cast in Ontario): Pours complex superalloys using proprietary counter-gravity fill techniques and in-house non-destructive testing (NDT) to produce flight-critical engine housings, brackets, and structural components capable of withstanding extreme thermal stress.

Their production is scaling up across two high-priority application areas:

• Commercial Aerospace Programs: Supplying qualified blind fasteners and structural hardware for composite-heavy, high-build-rate aircraft like the Boeing 737 MAX, 787 Dreamliner, and Airbus A320neo. All of these platforms require 2-3x more engineered fastener content than legacy planes.

• Missile Defense & Radar Modernization: Producing ruggedized RF driver modules, GaN sensors, and structural engine hardware for defense prime programs, including SHORAD (Short-Range Air Defense) systems and tier-one jet engine platforms (Pratt & Whitney, Rolls-Royce).

Omni-Lite operates as a qualified, sole- or dual-source domestic manufacturing partner for major aerospace OEMs and defense contractors. With production lines operating at roughly 60% capacity and strict ITAR/Buy America requirements locking in high switching costs, the business offers massive operating leverage alongside a new opportunistic and accretive acquisition strategy focused on bolt-on aerospace roll-ups.

If you want more information about the company, check out our write-up:

AND…

California Nanotechnologies ($CNO) Brief

California Nanotechnologies (TSXV: CNO) is a quasi-monopoly manufacturer in the advanced materials sector. While listed in Canada, it is entirely US-based, headquartered in Southern California, and is currently the only commercial provider of its core technologies in North America.

They’re essentially the high-tech foundry for the next generation of materials that will build the future of space travel, defense, and clean energy.

The company specializes in two highly technical processes that solve the hardest problems in material science… making things stronger, lighter, and more heat-resistant.

1. Spark Plasma Sintering (SPS): Traditional manufacturing melts materials to form them. SPS uses pulsed electricity and massive pressure to bond powders into solid parts without fully melting them. This is faster, uses 80% less energy, and creates super-materials (like transparent metal alloys) that traditional methods simply can’t handle.

2. Cryogenic Milling (Cryomilling): Imagine a high-tech rock tumbler filled with liquid nitrogen. Calnano grinds powders at extreme sub-zero temperatures, which prevents heat-related damage and creates alloys up to 3x stronger than standard materials.

Their production is scaling up across two high-priority application areas:

• Defense & Aerospace: Producing custom, ultra-dense metallurgical and ceramic parts built for extreme operating environments including missile systems, armor, and military equipment.

• Nuclear Energy (SMRs): (A more recent pivot into…) Manufacturing consumable hardware for next-generation Small Modular Reactors. This includes components designed to withstand extreme radiation and heat, such as reactor control rods and thermal heat shielding. These parts wear down during reactor operation and require ongoing replacement cycles.

Calnano operates as a specialized domestic partner for commercial clients, aerospace primes, and government-backed programs looking to onshore critical component supply chains.

A move encouraged (and funded) by the current administration.

If you want the full picture of the company, check out our write-up:

Note: After this conversation, we placed two limit buy orders for Omni-Lite at C$2.10 and C$2.00, one of which was partially filled. We have not placed any orders for Calnano.

We are disclosing this now because the share price has spiked, so the risk of being front-run is minimal. The takeaways from this conversation are invaluable and it’s a great example of how (ongoing) Scuttlebutt is the best way of investing. Investing through conviction.

Earnings Update ($OML)

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Because of these catalysts, looking at standard EV multiples or ROIC figures is essentially useless.

Read until the end and you’ll get 2 or 3 valuable insights that Claude simply can't grasp… drawn both from our deep understanding of FDA approval pathways (like we broke down for MODD) and direct conversations with stakeholders.

Hold onto your seat and let’s break this one down.

As we now do every week for transparency, here is our list of past Pick of the Week posts and their returns since publishing:

• All picks (equally weighted): +21.06%

• Our picks (executed): +29.83%

Note: We’ve been traveling since Thursday to visit companies, so this data was last updated on August 20th. Moving forward we will eliminate any picks we don’t hold past one year. You may notice CROX is our #2 PoW.

Pick of the Week. A curated series of high-conviction research on companies currently under our microscope. We screen for specific dislocations where the market has mispriced the balance sheet or earnings power.

None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.

💊 Elite Pharmaceuticals Inc. ($ELTP)

⭐ Overall Grade: 8.5 / 10

Elite Pharmaceuticals ($ELTP) has executed an internal model turnaround by transitioning from a partner-dependent R&D shop into a vertically integrated specialty generic manufacturer, capturing all of the downstream margins under its proprietary “Elite Labs” label.

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