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

Malone had given the impression that GCI would buy assets outside of Alaska, so why is he buying the Alaskan fiber network Quintillion?

I view this deal as Malone’s first step in turning GCI into his “next Liberty Media”. As I outlined in the recent Special Report, most investors think of GCI as an Alaskan telecom, but the company should instead be viewed as Malone’s next advantaged acquisition vehicle.

This article will explain:

1. Why I estimate the deal was done for 8.9x EV/FCF but could be as low as 6.6x

2. The strategic benefits to combining the companies

3. A clue that Quintillion may become a significant growth asset

4. Why I see 169% upside to GCI over the next three years

GCI Liberty (GLIBK) spun out from Liberty Broadband in July 2025, has 90% market share in its key business, and trades for 10x underlying FCF. Investors ignored the spinoff, but John Malone did not. He is Chairman, owns 7.3% of GCI, and has been buying stock. He structured the spin to turn GCI into an advantaged acquirer and “the beginning of a new Liberty Media”. We see 169% upside in our Base case.

For more background, click here to read our 30 page report on GCI, based on interviews with 17 industry sources.

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Quintillion Deal Economics

GCI is buying Quintillion for an EV of $310mm + $50mm in reimbursements for capex, for an overall adjusted EV of $360mm.

Quintillion owns a subsea fiber network in Alaska’s North Slope, going from Prudhoe Bay in the North of Alaska to Nome in the West (red line below). The company is also in the middle of extending that fiber from Nome to Homer in the South (green line).

GCI estimates that in 2026 Quintillion will generate:

• Revenues of $55-60mm

• Adj EBITDA of $30-35mm. Adj EBITDA was $9.2mm in Q4 2025, but that included significant add-backs for costs related to a subsea fiber cut.

• Maintenance capex of $2mm

Additionally, the deal is expected to result in:

• Synergies of $20mm

• A $360mm step up in tax basis which can be used to offset future taxes. Assuming a 30% tax rate, that is a nominal $108mm in taxes and worth about $27mm if we take a 75% haircut to account for its present value (GCI already had a $1bn step up in basis from the spin that could be used first).

Depending on how much credit you give management on synergies and capex, this converts into a pre-tax FCF of 6.6x-11.8x. GCI has $1.36bn in tax shields post deal and accelerated depreciation from the One Big Beautiful Bill Act, so is unlikely to pay taxes for the next decade.

Here is how the valuation changes in different scenarios:

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Here is a video summary of the report:

• Other recent articles: XPEL’s Dealer Conference, Judges Scientific Recovery?, 2026 outlooks for TerraVest and Watches of Switzerland.

• See the Table of Contents for a list of all published articles, grouped by stock.

Hidden Gems Investing has reached over 7,300 free subscribers and 300 paid members in the 16 months since the newsletter was launched. Thank you. Most of our reports require well over 100 hours of work and thousands of dollars in research expenses. A subscription gives you all of that for just $397/year, saving you enormous time and cost and protecting you from future price rises. Join our members by upgrading below, or go here to learn about what you can expect as a paid subscriber:

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Judges Scientific (JDG)

More background: Special Report, 2026 Outlook, Podcast

Judges Scientific reported full-year results on March 31, and I continue to believe that the company is beginning its recovery, driven by a rebound in US spending and a Geotek coring expedition.

Much of 2025 results had already been annouced at the trading statement in January, but the key points were:

• Organic revenue growth +6%, split US -22%, Europe +9%, China +7%, UK +10%, RoW +34% or +15% ex coring.

• EPS = 275p, in line with the reduced guidance. EPS guidance for 2026 remains 200-250p, while assuming no US recovery and no coring expedition. At the mid-point that puts Judges on 19x trough earnings. For context, EPS in 2022 and 2023 were £3.64 and £3.75, which in my view reflects underlying earnings power and puts Judges on 11.5x.

• 2025 organic order intake -10%, split US -23%, China +8%, Europe +6%, UK -9%, RoW -2%. YTD order intake -17% y/y, but remember this is comparing against Q1 last year which was not affected by the US research funding freeze.

• Direct exposure to the Middle East is 2%. No indirect exposure either beyond a general macro slowdown being unhelpful to government budgets.

The two key drivers for the stock over the next 12-18 months are likely to be the size of recovery in the US and coring, and I see positive news in both areas over the last couple of months.

In mid-March, the US Office of Management and Budget (‘OMB’) finally approved the National Institutes of Health (‘NIH’)’s apportionments, allowing the NIH to access the increased funding Congress had approved for FY2026.

This appears to have cleared the key bottleneck to the increased NIH funds being released. At a March 17 House hearing, lawmakers had criticized the OMB for delays in releasing funding.

As Nature magazine wrote in late February:

“Weeks after the US Congress rejected unprecedented cuts to science budgets that the administration of US President Donald Trump had sought for 2026, funding to several agencies that award research grants is still not freely flowing. One reason is that the White House Office of Management and Budget (OMB) has been slow to authorize its release. The US National Institutes of Health (NIH) has so far not received approval to spend any of the research funding allocated in a budget bill signed into law on 3 February. The US National Science Foundation (NSF) was authorized to spend its funding just last week.”

We should now begin to see NIH grant disbursements recover, which I expect will translate into improved orders for Judges in H2. As another scientific instrument supplier Harvard Bioscience said on their earnings call in early March:

“I would love for it to turn into a better academic environment in 1 day…there was a lot of grant submissions, which were waiting to be approved. And we expect to start to see a positive impact both towards the end of Q1 as well as going into Q2…we are a build-to-order business. So we’re starting to see improvement in orders, but in order to get the revenue, it actually needs to come in, in the first half of the quarter. So most of the benefit will start seeing probably in second quarter from the NIH release.”

There will likely still be bumps along the recovery, however.

Just last week, President Trump asked Congress for a $5bn cut to the NIH’s budget for fiscal 2027. That is lower than the $20bn proposed cut last year, which was rejected entirely by both parties in favor of a slight increase in budget, and the Democrats will likely have increased control of Congress after the mid-terms in November. Nevertheless, that and other proposed cuts probably mean there will continue to be noise around scientific spending, even if it does not translate into actual funding reductions.

But given the huge uncertainty and reduced US academic spending over the last 12 months, even this environment should lead to a significant recovery in orders later this year. Judges investor presentation shows that group orders on a trailing four-month basis (green line below) bottomed around the middle of last year and have been recovering since, on course for positive y/y growth by H2 this year:

There was another important piece of good news from the earnings call which I think has gone underappreciated.

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Last week, Hidden Gems Investing published a 30-page Special Report on Douglas Dynamics (PLOW), a snowplow manufacturer with over 50% market share and a clear catalyst for earnings to grow 54% this year. I see 104% upside over three years in my Base case valuation.

I used Google’s NotebookLM to turn the report into an 8-minute video podcast (see above).

I was amazed by the result.

The video includes two AI presenters summarizing the key points from the report to provide an overview of PLOW, its moat, cyclical rebound, the replacement cycle and pent-up demand, valuation, and catalyst path.

Check the video out above if you want to see an example of what AI can now do or simply prefer the video format to reading a 30-page report.

Here’s how I did it.

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NotebookLM is a free tool from Google where you can upload sources to a notebook and query them and/or produce other outputs. Because NotebookLM only uses the sources you upload, it has far fewer hallucinations than other LLMs.

To create this video, I simply:

1. Uploaded the Hidden Gems Investing report.

2. Clicked “Video Overview”.

3. Clicked “Explainer”, then “Generate”.

That was it.

NotebookLM allows you to tell the AI what to focus on as well. The video you see at the top of this post included some additional instructions, but the first attempt with no prompt using just the three steps above was good enough that I could have published it.

The video had only one error - it states that the report includes the full transcripts from 13 interviews with industry sources. That’s not true; I conducted 13 interviews as part of my research which informed my analysis, but they are not reproduced.

Of course, this process is still garbage in, garbage out. That is why I believe in a world of AI hallucinations and shortcuts, feeding genuine primary research into your investment process is more important than ever.

I believe the video is high quality because it draws entirely upon the 30-page Special Report, which was the result of months of research, 13 long-form interviews with industry sources, and dozens of short interviews with dealers. I believe PLOW will grow EBIT 54% this year, 32ppts above consensus estimates, and see 104% upside over three years with a superior IRR because strong results this year should act as the catalyst for most of that upside. Don’t forget to read the Special Report. If you are a free subscriber, take a look at the video summary above.

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Here are a couple more examples of how AI is helping my investment process.

If instead of clicking “Video Overview” in NotebookLM you select “Audio Overview” then “Debate”, NotebookLM will produce a 20-minute podcast between two AI hosts debating the key points of the uploaded documents and stress-testing its analysis.

Selecting “Critique” instead of “Debate” takes this further by creating a review to find holes in your research.

Another tool I find increasingly useful is the ability to create Custom GPTs in ChatGPT.

By going to “Explore GPTs” then “Create”, I have created a suite of Custom GPTs that are able to automate parts of my investment process. For example, every week I read all the earnings transcripts from companies in the same industries as stocks I am invested in, looking for any relevant read-across.

Instead of reading every transcript, I now read the most important ones in their entirety but upload ones where there may only be an occasional read-across into ChatGPT.

If you do that in ChatGPT’s standard chatbot, the quality and approach of the answers will vary each time, and many answers will not be precise and try to give you what it thinks you want.

I created a CustomGPT called “Earnings analysis” to solve this problem.

The GPT has instructions on what to look for when deciding whether a transcript or results statement has a genuine read-across to a company I’m invested in, to extract the key read-across, quote important passages in full and verbatim so I don’t have to find them, to ignore generic / imprecise commentary, double-check its work, and conclude whether I should read the transcript in full.

No coding was needed as instructions can be directly written into the “Instructions” box.

There is also the ability to upload model answers and other relevant information as “Knowledge” files, which it can refer to on an ongoing basis.

By using a CustomGPT, I am able to ensure answers are consistent and high quality. That allows me to follow more companies, extract more insights, and do so quickly.

Let me know in the comments how AI is improving your research process.

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This article is for informational purposes only and is not investment advice. Plural Investing, LLC currently holds a position in Douglas Dynamics. Read important disclosures here.

Situation Overview

Douglas Dynamics (’PLOW’) is the dominant manufacturer of professional snowplows and de-icing equipment in the U.S. and Canada, with over 50% market share. The company suffered from well below average snowfall between 2020-25 which masked its underlying earnings power and caused the stock to sell down, but our data and industry interviews show the 2025/26 winter season has been the strongest in almost a decade and is already acting as a catalyst to bring earnings back to normal. We estimate the company’s 2026 EBIT will be +54% y/y and 32% above consensus estimates.

PLOW has the industry’s leading scale, dealer network, manufacturing facilities, and a deep bench of expertise led by an honest and capable CEO.

We see limited risk to an investment today. Even if we are completely wrong and EBIT does not grow at all in 2026, the stock trades on 15.1x EV/EBIT and below its historic average of 16.3x. Our Base case sees 104% upside over three years and a superior IRR because we expect strong results this year to be the catalyst for most of that upside.

Key Insights

1. PLOW and its main competitor BOSS control most of the snowplow market, which results in orderly competition and no price wars. PLOW’s scale is its competitive advantage. The company supports the largest dealer network, which is key as dealers act as the gatekeepers to the industry. The density of the network means PLOW’s dealers are often closest to snowplow contractors, which allows them to provide spare parts and repairs quickly during snowstorms. This is usually the main reason contractors pick a brand, and those contractors rarely switch brands afterwards. (See p.7-13)

2. We collected data from 54 weather stations in PLOW’s key cities and interviewed dozens of dealers and smaller OEMs. Many sold out this winter for the first time in years, and our analysis of the industry’s replacement cycle suggests there is substantial pent-up demand that is now returning. We believe 2026 will see PLOW return to its underlying earnings power and possibly overshoot to the upside. (See p.14-20)

3. We think PLOW will beat and raise guidance in Q2 and Q3. The company usually starts the year guiding conservatively because winter has not ended and it does not know what orders will be. Contractors typically place orders in the summer. (See p.27-30)

Research Methods

In addition to utilizing secondary sources such as company filings and transcripts, the information in this report was gathered by speaking with primary sources. This included long-form discussions with:

• 5 former Douglas Dynamics employees

• 6 competitors to Douglas Dynamics

• 2 other relevant sources

• Additionally, dozens of short discussions with independent dealers.

We spoke with some sources more than once. Information that could reveal the identity of the sources above is redacted from this report unless sources gave their permission. While Hidden Gems Investing gained many insights from these conversations, no information that was both material and non-public was shared.

Table of Contents

• Why Does This Opportunity Exist? (p.6)

• Economics (p.7)

• Cyclical Rebound (p.14)

• Governance (p.21)

• Valuation (p.27)

Paid members get the full 30-page report, the 54-station snowfall data, dealer-channel evidence, replacement-cycle model, and the Q2/Q3 beat-and-raise roadmap before the market sees it. This required over 100 hours of research and thousands of dollars. A subscription gives you all that work, saving you enormous time and cost.

If you are a free subscriber and would like to view an example of our Special Reports before upgrading, click here to view our report on TerraVest for free. Now is a good time to upgrade because new subscription prices increase each year, but existing members lock in today’s rate for life.

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• See the Table of Contents for a list of all published articles, grouped by stock.

Hidden Gems Investing has reached over 7,000 free subscribers and 300 paid members in the 15 months since the newsletter was launched. Thank you. Most of our reports require well over 100 hours of work and thousands of dollars in research expenses. A subscription gives you all of that for just $397/year, saving you enormous time and cost and protecting you from future price rises. Join our members by upgrading below, or go here to learn about what you can expect as a paid subscriber:

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Seaport Entertainment (SEG)

More background: Special Report, Podcast

Seaport made two important announcements in the last couple of weeks:

• The sale of 250 Water St was completed for $142mm

• The Tin Building has been shut and leased to Balloon Museum

I will cover these announcements in more detail in an update after Q4 results which are being announced this week, but overall I think these two events remove most of the risk associated with investing in the company and give it a clear path to profitability.

Net of Q4 cash burn and taxes on the 250 sale, I estimate Seaport now has $175mm of cash and $50mm of debt and preferred equity. Its market cap today is $295mm and before these announcements it was $250mm. The remaining properties net of capitalized corporate expenses are worth over $500mm in my view.

The company has made big progress on cash burn since the spin-off, but the Tin Building was the one property holding it back - the building generated $-22mm in EBITDA in the last twelve months.

I think leasing the building out is the best case scenario.

Not only will the cash burn disappear overnight, Seaport will actually generate an undisclosed amount of rent from Balloon Museum when it opens this summer. Combined with a roughly $10mm swing from not having to pay interest expenses on the 250 Water St mortgage and now earning interest income on the cash that means most of the company’s cash burn has been eliminated.

Balloon Museum will also benefit the area more broadly. I argued in the Special Report that the most important thing to successfully turn around the area is creating attractions that New Yorkers are willing to walk 10 minutes from the subway for. Meow Wolf is likely to bring over 1mm visitors to the area when it opens in late 2027, while Balloon Museum attracted 300,000 visitors to a New York pop-up exhibition over 77 days in 2023.

A criticism of the Seaport area in my conversations with industry sources has been that there are too many food & beverage options in comparison to the number of visitors. Now, that is likely reversed with more visitors and the biggest source of food & beverage, the Tin Building, shut down.

The restaurants and bars at Pier 17 and the Cobblestones are likely to do very well as a result, and I would expect the company to have the area mostly leased up in the next six months or so.

That gives Seaport a clear path to profitability when Meow Wolf opens late next year.

TerraVest (TVK.TO)

More background: Special Report, 2026 outlook, Update & trade show

TerraVest reported a weak set of fiscal Q1 results on February 10. Organic revenue growth was +9% against a weak comp of -13%, but cash EBIT margins weakened from 14.1% to 8.9%, driven by a decline in the Entrans business that was acquired in Q2 last year:

Many of the same trends from recent quarters continued to play out:

• HVAC: +1% organic growth. I am surprised that growth wasn’t much stronger against an easy comp of -1% last year considering the long order book at Highland Tank and Simplex from data centers for cooling tanks.

• Compressed Gas: +3% against an easy comp of -13%. These organic numbers exclude the acquisitions of Entrans, Tankcon, and LBT. Management highlighted lower demand on tank trailers in the US, which is impacting Entrans in particular. EnTrans sales were C$115mm in the quarter, down 26% vs the C$154mm in fiscal Q1 last year, which was disclosed to SEDAR at the time of TerraVest’s acquisition.

• The segment is also being impacted by an industrial slowdown in Western Canada, partly driven by tariffs and lower oil prices and highlighted by several companies. For example, Mattr (ticker: MATR), a US and Canadian manufacturer of wire and cables, highlighted “significant declines” in Canadian industrial demand late last year, which it expects will persist for several quarters.

• Processing Equipment: +19% against an easy comp of -40%.

• Service: +30%. This includes the Aureus and Waves acquisitions, which cannot be broken out as it is now fully integrated and boosted growth. The companies were acquired for C$28.5mm and my estimate is that true organic growth was still impressive at around +20%. The strength of the Services business over the last two years continues to significantly exceed my expectations and has boosted profitability given the segment is high margin.

The outlook statement changed significantly for the first time since FQ1 2025 (changes in bold below), suggesting a weakening of the Entrans business and strengthening of cooling tanks for data centers:

In general, TerraVest’s portfolio of businesses is performing well. Recent acquisitions have made a meaningful contribution, and we expect this to continue throughout this fiscal year. Opportunities to enhance performance through synergies between recent acquisitions and the base portfolio of businesses continue to exist and are a focus for management. Recent tariff announcements have created an environment of uncertainty in North America’s manufacturing sector. TerraVest does benefit from a diverse manufacturing footprint in North America that allows it to mitigate against direct tariff related impacts. However, this uncertainty has resulted in softer demand for certain of TerraVest’s businesses, particularly those that manufacture tank trailers. On a positive note, several of TerraVest’s portfolio companies are seeing strong demand for products related to the data center build-out in North America. The Company continues to make targeted investments to improve its manufacturing efficiency and expand its product lines, particularly in end-markets where it has a meaningful presence. With the new credit facility obtained in March 2025, TerraVest is very well-positioned to pursue its acquisition strategy.

While the quarter was fairly weak, there was a clue that one of TerraVest’s segments is about to accelerate rapidly:

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I recently discussed GCI Liberty (GLIBK) with John Mihaljevic from Latticework by MOI Global. Our conversation covered:

1. John Malone’s vision for GCI to become “a new Liberty Media”

2. Three advantages GCI has as an acquisition vehicle

3. The existing Alaska business’ dominant competitive position

4. Why Starlink is a manageable risk

5. Why I see well over 100% upside over three years

The video of our discussion is available above. Paid members additionally have access to:

• A 30-page Special Report on GCI Liberty based on interviews with 17 industry sources

• A cleaned transcript of the podcast (below)

• The 23-page presentation from the podcast (below)

• Monthly updates like this.

• A library of content at the Table of Contents

Most of our reports require well over 100 hours of work and thousands of dollars in research expenses. A subscription gives you all of that for just $397/year, saving you enormous time and cost. Join the over 7,000 free subscribers and 300 paid subscribers who have upgraded in the 14 months since the newsletter was launched, or go here to learn about what you can expect as a paid subscriber:

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GCI Liberty (GLIBK) spun out from Liberty Broadband in July 2025. The company is Alaska’s dominant telecom operator with 90% market share in its key business yet trades for 10x underlying FCF. Investors have overlooked the spinoff because Liberty Broadband was 13x larger and is being acquired.

But John Malone did not ignore the spinoff.

He is Chairman of GCI, owns 7.2% of the company, and has been buying stock. He structured the spin to turn GCI into an advantaged acquirer and “the beginning of a new Liberty Media”. GCI is an ideal acquisition vehicle because it benefits from two substantial tax shields and has ~$2bn of acquisition capacity over three years, greater than its current market cap.

We see limited risk over three years given GCI trades on 10x FCF, our Base case has 155% upside, and the Bull case is that we are at the beginning of GCI being transformed into an advantaged acquirer.

Click here to read our 30 page report on GCI, based on interviews with 17 industry sources (preview image is above).

Timestamps to the Podcast

• [01:45] Introduction to GCI Liberty

• [05:50] The spin-off and why this opportunity exists

• [07:00] John Malone: vision, insider buying, and the $300m rights offering

• [10:15] The Alaska telecom cash cow and dominant position

• [16:00] The Universal Service Fund and ‘use-it-or-lose-it’ subsidies

• [22:10] Starlink risk deep dive

• [32:30] Advantaged acquirer: Huge tax shields, $2bn buying power, best-in-class management

• [35:40] Valuation scenarios with acquisitions

• [43:20] Q&A

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I was in San Antonio, Texas, recently for XPEL’s Dealer Conference (‘XDC’). The conference was attended by 725 of XPEL’s top installers, making it the company’s biggest event ever. I spoke with many of the installers to get their views on XPEL’s manufacturing plans and growth runway.

The stock has risen from $32 in March 2025 when I published a Special Report on the company to $55 today, but I think can double again over the next three years.

If you are interested in more background, take a look at the 35 page Special Report. I believe XPEL is a great company with an excellent owner/operator that is now coming through a blip. The report was based on 54 interviews and covers XPEL’s:

• Economics and competitive advantages

• Growth runway

• Difficult cyclical conditions

• Governance

• Valuation

Hidden Gems Investing has reached over 6,500 free subscribers and 300 paid members in the 14 months since the newsletter was launched. Thank you. Most of our reports require well over 100 hours of work and thousands of dollars in research expenses. A subscription gives you all of that for just $397/year, saving you enormous time and cost and protecting you from future price rises. Join our members by upgrading below, or go here to learn about what you can expect as a paid subscriber:

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Manufacturing Build-out

At its Q3 results, XPEL announced that it will invest heavily in manufacturing. This is expected to:

• Require $75-$150mm over 2 years via capex, M&A, and/or JVs

• Increase gross margins by 10ppts to 52-54% and EBIT margins to mid/high 20s% by the end of 2028

My experience is that the base rates of companies achieving transformational changes on time and on budget are low, but I believe that XPEL’s plans are plausible.

XPEL’s manufacturing goals are mostly centered around cost reduction and margin improvement, but there was some evidence from XDC that installers would see minor benefits also.

CEO Ryan Pape’s keynote speech focused on deepening the quality of the company’s existing products, and the insourcing of manufacturing should allow the company to speed up the innovation of new films by months and improve quality.

That is partly because the incentives for XPEL are different to its manufacturers. It makes sense for XPEL to increase the amount of waste/discarded PPF at the manufacturing stage if that results in less work being redone by its installers down the line, as the cost to installers and XPEL is much greater than the cost to the manufacturer.

When I asked installers about XPEL’s plans, they were optimistic that this would ensure the company had the best quality films. They did admit though that most major film brands are already similar on quality and were unsure if much innovation was possible.

The Acquisition Route

My assumption is that XPEL’s manufacturing buildout will only address:

• The US market (56% of sales)

• Product COGS (82% of COGS)

• TPU and coatings but not every process and product (80% of product COGS)

That means the company’s plans address 56% x 82% x 80% = 37% of COGS.

With XPEL likely to have generated $480mm in sales and $280mm in COGS in 2025, that translates to about $100mm in COGS.

If XPEL were to acquire a manufacturer for $150mm, the top end of management’s guidance, that would imply an EV/S ratio of 1.5x. That is a lower multiple than most acquisition multiples in the industry over the last decade, but not unheard of.

The Capex Route

I spoke to ex-employees from XPEL’s suppliers recently to better understand the challenges involved in the company building out its film manufacturing from scratch.

All of them felt XPEL was in a good position to in-source its supply chain, but there was still significant execution risk.

PPF typically has three layers:

• TPU (urethane) - this is the vast majority of the film by cost and volume

• Adhesive - glue beneath the TPU that sticks it to the vehicle

• Clear coat - on top of the TPU for scratch resistance.

The hardest and most important part of this process for XPEL will be making its own TPU. This involves buying resin from large chemicals companies and using an extruder to turn the resin into film that consistently has the correct clarity, thickness, stretch, etc. without tiny defects.

The people I spoke to thought building this process out and perfecting it would take at least three years, meaning XPEL’s end of 2028 target appears ambitious.

Buying the equipment is unlikely to be the hard part. There are major equipment suppliers like Davis-Standard and Midwest Engineering that know XPEL well.

This equipment can also be customized. For example, the machines that handle coating and lamination often have cartridges that can be pulled out and replaced. Similarly, other machines have coating heads that can be customized.

XPEL will also benefit from all new equipment, which makes customization easier - its key supplier Entrotech has an old production line that has limited its ability to retrofit pieces and improve quality.

The hardest part for XPEL is likely to be staffing.

Running the three lines (TPU, adhesive, lamination) will likely require four people per line for three shifts a day, or 36 people in total before staff for warehousing and material handling.

While the employees will not be anywhere near as expensive as the equipment, they will be essential to the lines running effectively and on time. I believe that whether XPEL can bring the right people on board who have run these lines before will be the key determinant of whether its manufacturing buildout is successful.

One negative XPEL has is that if its plant is built near San Antonio that will make it harder to hire more than a few former employees from Entrotech, which is based in Ohio.

However, the company has got off to a good start. I met XPEL’s Director of Manufacturing Greg Booth at XPEL’s Investor Open House in 2023. Booth was previously Director of Film Technologies at Entrotech and the people I spoke to recently said he is exactly the type of person who has the right knowledge and knows who to contact.

XPEL already has a team of engineers that go on site with its suppliers, do some R&D, and test the products. If management does go down the capex-only route this will have been the result of years of planning and recruitment, which I think reduces the execution risk.

These tables lay out what I think XPEL’s economics look like once it insources its production:

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• Expect an update from XPEL’s Dealer Conference next week.

• See the Table of Contents for a list of all published articles, grouped by stock.

Hidden Gems Investing has reached over 6,600 free subscribers and 300 paid members in the 14 months since the newsletter was launched. Thank you. Most of our reports require well over 100 hours of work and thousands of dollars in research expenses. A subscription gives you all of that for just $397/year, saving you enormous time and cost and protecting you from future price rises. Join our members by upgrading below, or go here to learn about what you can expect as a paid subscriber:

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Judges Scientific (JDG.L)

Special Report, Podcast

Judges released a brief but tough trading statement on January 23rd:

• 2025 EPS guidance cut from previous consensus of 289p to 275p (-4.8%).

• Order book ex coring -6% for the full year, with the US -23%.

• No recovery so far in the US.

• No coring expedition likely until early 2027.

• 2026 EPS guidance of 200-250p, -18.2% at the mid-point. Guidance assumes no recovery in the US throughout 2026.

These results look very tough at face value, but as I wrote last month I expect the trading statement to mark the low point of the cycle and for a recovery to begin from here. I added to my position significantly post results.

I continue to view Judges as a great business with an excellent management team who as outlined in the Special Report have a 20 year track record of delivering 20%+ returns on incremental capital. The company has had a difficult couple of years, primarily for macro reasons, and I believe investors have been too quick to dismiss the previous track record.

I estimate the stock is trading on 13.8x underlying earnings power today, or 9.6x EPS in three years before acquisitions are taken into account.

Underlying Earnings Power

Despite guiding to adj EPS in 2026 of 200-250p, I believe the same guidance implies that Judges’ underlying earnings power is £3.78/shr.

There are two effects that I think are one-offs and impacting earnings in 2026:

• No coring expedition (53p headwind)

• Dramatically lower US college spending (100p headwind)

By backing these two effects out, we can see that the mid-point of 2026 guidance for 225p EPS implies 378p without the one-offs. That is 6% higher than 2025 and in line with Judges’ historic organic growth of about 7%.

I assume that over three years both of these one-offs recede and that the underlying business continues to grow at 7%, which results in EPS of 433p and £10.30/shr of cash generation in the interim.

At today’s share price of £52 that implies the stock is trading on 9.6x P/E minus excess cash in three years. Of course, Judges will likely do better than that by creating value with the cash through good acquisitions. The stock has historically traded on 25x and above.

Coring

By comparing earnings in H1 2025, which included a coring expedition, to H1 2024, which did not, I estimate a coring expedition adds about £3.5mm to EBIT or 52p to EPS.

Judges will have owned Geotek / coring for five years by the end of 2026 and in that period will have had expeditions in three years out of five.

Does that mean that these missed coring expeditions are no longer a one-off?

I have data on coring expeditions from 2002-2018 which shows 19 expeditions in 17 years. There were no expeditions in 2003, 2008 (but two in 2007), 2009, 2011 (but two in 2012), and 2014 (but three in 2015). So there were no expeditions in five out of 17 calendar years, but three of those were because of timing with multiple ones in adjacent years.

It is hard to know whether having expeditions in 3/5 years is meaningfully different to 12/17. My research suggests that there is nothing substantially worse about coring’s end markets. But even if we assume three expeditions in five years from now on, it would only lower EPS by 21p on average. That would be disappointing, but not a game-changer against my estimate of 433p in three years before acquisitions. This is one of the reasons why I believe investors are too focused on the Geotek acquisition.

US College Spending

I estimate that the decline in US academic spending was an 80p headwind in 2025, given Judges cut guidance by 38-82p in July last year when this issue became apparent then finished the year below that guidance.

Since academic spending began falling in March the full year impact, assuming no recovery in 2026, should be higher at 100p.

But I believe the recovery is about to begin.

Two weeks ago, the US House of Representatives passed a major spending bill which increases the National Institute of Health’s funding by 1%. Budgets for various other institutes are also about flat y/y, not the roughly 40% cuts the President was very publicly calling for.

The bill passed the House 341-88 and there has been consistent support for scientific funding from both House and Senate committees. The bill now needs to pass the Senate to avoid another partial government shutdown. The shutdown will have likely begun by the time you read this article, but Polymarket has the odds of a shutdown over 7 days at just 14%.

In other words, we should see much greater certainty in funding for Judges’ customers soon.

That is crucial because it is primarily uncertainty that has stopped colleges from spending. While the NIH and National Science Foundation (NSF) terminated a large number of grants between March and July last year as the President asked for ~40% cuts, most of the grants were in fact restored by September and there have been no material cuts since.

Customers have halted spending because of the rhetoric and fear of future cuts, which the House’s bill should begin to draw a line under.

As Thermo Fisher, a major seller of scientific instruments, said last week:

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Watches of Switzerland (‘WOSG’) is a retailer and partner to Rolex and other luxury watch brands. Rolex only sells through authorized retailers like WOSG, which gives WOSG economics closer to a subsidiary of Rolex than a typical retailer because of lengthy customer waiting lists, no online or price competition, and no inventory risk.

WOSG has around 50% share of all Rolex sales in the UK and 10% share in the US where it is the leader consolidating the industry. Management are competent, experienced, and well incentivized, with CEO Brian Duffy owning around £40mm worth of stock.

Despite this, the company trades on just 11x FCF. I believe intrinsic value in three years will be more than double today’s price.

This update to the 30 page Special Report Hidden Gems Investing published in August 2024 is the result of 59 interviews with watch industry sources over the last two years, and updates on WOSG’s:

1. Fiscal H1 results and expectations for H2

2. Risk of being disadvantaged following Rolex’s acquisition of Bucherer

3. Cyclicality - Waiting lists, secondary market prices, and tariffs

4. Structural growth through market share gains and acquisitions

5. Valuation

Hidden Gems Investing has reached over 6,400 free subscribers and 300 paid members in the 13 months since the newsletter was launched. Thank you. Most of our reports require well over 100 hours of work and thousands of dollars in research expenses. A subscription gives you all of that for just $397/year, saving you enormous time and cost and protecting you from future price rises. Join our members by upgrading below, or go here to learn about what you can expect as a paid subscriber:

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• Expect an update on Watches of Switzerland next week.

• See the Table of Contents for a list of all published articles, grouped by stock.

Hidden Gems Investing has reached over 6,400 free subscribers and 300 paid members in the 13 months since the newsletter was launched. Thank you. Most of our reports require well over 100 hours of work and thousands of dollars in research expenses. A subscription gives you all of that for just $397/year, saving you enormous time and cost and protecting you from future price rises. Join our members by upgrading below, or go here to learn about what you can expect as a paid subscriber:

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TerraVest (TVK.TO)

Special Report, Update & trade show, Podcast

TerraVest reported a strong set of fiscal Q4 results on December 11. Organic revenue growth was 7%, with FCF growing 128% in absolute terms driven by the acquisition of EnTrans and others.

Organic revenue growth for the year was 1% and has averaged 2% over the last three years. That is lower than CPI inflation of 3.2% and RPI of 5.7% over the three years, as some of TerraVest’s traditional businesses continued to decline and the company faced headwinds with a slowdown in the US trailer market which has particularly impacted EnTrans, tariffs, and lower oil prices that have affected Western Canada.

These headwinds have been offset by strong growth in the Services business and TerraVest entering new verticals like serving datacenter customers. Those new markets have led to some investor excitement, but I think it is worth re-emphasizing that organic growth has averaged below inflation for three years.

These trends continued to play out in the quarter:

• HVAC: +14% organic growth, against an easy comp of -13% last year. Driven by growth in demand for cooling tanks from data centers, which has resulted in a very long order book at Highland Tank and Simplex. Some of Highland Tank’s orders are being completed by TerraVest’s other subsidiaries.

• Compressed gas: +2%. Higher sales for domestic tanks were offset by weaker demand in Western Canada and a continued slowdown for tank trailers and EnTrans. My estimate is that EnTrans’ EBITDA is currently annualizing around C$90mm, down from C$100mm in 2024 and C$130mm in 2023 (calculated using current USD/CAD rates).

• Processing equipment: -23%. Continues to be hit by reduced demand in Western Canada.

• Services: +19%. The organic growth number included the acquisition of Aureus which has been fully integrated and added to growth. The strength of the Services business over the last two years has significantly exceeded my expectations, and boosted profitability given the segment is higher margin.

The outlook statement was virtually identical to the previous quarter (the only change in bold):

“In general, TerraVest’s portfolio of businesses is performing well. Recent acquisitions have made a meaningful contribution and we expect this to continue throughout the next fiscal year. Opportunities to enhance performance through synergies between recent acquisitions and the base portfolio of businesses continue to exist and are a focus for management.

Recent tariff announcements have created an environment of uncertainty in North America’s manufacturing sector. This uncertainty has resulted in softer demand recently for a few of TerraVest’s businesses. However, TerraVest’s portfolio businesses are well-positioned manufacturing products predominantly for their domestic markets, which greatly limits the impacts of any potential tariffs.

The Company continues to make targeted investments to improve its manufacturing efficiency and expand its product lines, particularly in end-markets where it has a meaningful presence. With the new credit facility obtained in March 2025, TerraVest is very well-positioned to pursue its acquisition strategy.”

With FCF margins down to 10% in 2025 after a strong 2024 and a balance of headwinds and tailwinds facing the company, I think TerraVest heads into 2026 with financials back reflecting the underlying earnings power of C$175mm I estimated in Is TerraVest still cheap?. Unlevered FCF in H2 was C$176mm on an annualized basis.

Last week, the company announced the acquisition of KBK Industries for US$90mm / C$125mm and 5.6x EBITDA. KBK is a manufacturer of steel and fiberglass storage tanks based in Texas, and one of its key markets is underground fiberglass storage tanks for convenience stores. The convenience store market is growing at high single-digit / low double-digit rates, driven by strong ROICs companies are seeing from opening new stores and fiberglass taking share from steel as it lasts 30 years instead of 10.

It will be interesting to see if TerraVest can help KBK take share, as the market is currently dominated by NOV (ticker: NOV) and Mattr’s Xerxes (ticker: MATR). I have spoken with NOV and Xerxes at trade shows and both currently view the market as largely a duopoly with regulatory and reputational barriers to scale (customers have to believe the tanks will last 30 years).

Post the KBK acquisition, I estimate TerraVest is trading on 24x EV/FCF.

At first glance that appears to be not far off fair value, but I believe a better way to value a serial acquirer is to look out three years and estimate how much acquisition capacity the company has and what earnings power could be following future acquisitions and synergies.

Here are my latest estimates:

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Rock & Turner Investment Analysis

Judges Scientific | UK Programmatic Acquirer

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5 months ago · 5 likes · 1 comment · James Emanuel

I recently discussed Judges Scientific with James Emanuel from Rock & Turner. Our conversation included my updated thoughts on several significant developments at the company this year, including:

1. Whether to view the Geotek acquisition as a red flag on Judges’ acquisition runway and management incentives

2. Succession: The recent news that David Cicurel is moving from CEO to Chairman

3. Recent headwinds: Geotek, US academic funding, China

4. Valuation after the share price decline

You may find the discussion particularly helpful because James has published a series of articles on programmatic acquirers and challenged several of my thesis points.

James’ articles and podcasts on acquirers include:

• The Secret of Investing in Programmatic Acquirers

• Topicus - Part 1

• Valuing Programmatic Acquirers

The video of our discussion on Judges Scientific is available in full and for free at the link above. Paid members additionally have access to:

1. A cleaned transcript (below)

2. Our 35-page Special Report on Judges Scientific

3. Monthly updates like this

4. A library of content at the Table of Contents

Most of our reports require well over 100 hours of work and thousands of dollars in research expenses. A subscription gives you all of that for just $397/year, saving you enormous time and cost. Join the over 6,000 free subscribers and 300 paid subscribers who have upgraded in the 12 months since the newsletter was launched, or go here to learn about what you can expect as a paid subscriber:

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Judges Scientific (JDG.L) is a serial acquirer of niche scientific instrument businesses in the UK. The company has delivered 22% returns on incremental capital for 20 years by my estimates and 25% p.a. shareholder returns. Cofounder David Cicurel remains Chairman and is someone with high integrity, a clear customer focus, strong capital allocation skills and owns shares worth around 170x his base salary. The stock trades at 15x my estimate of underlying FCF and I believe can still deliver a 25%+ IRR going forwards, potentially plus a short/medium term bounce back given recent declines.

Timestamps to the Podcast

• [01:27] Introduction to Chris Waller and the appeal of Judges Scientific

• [05:56] Overview of the business model: Niche instruments and high returns

• [09:40] The growth algorithm: Buying at 5x EBIT

• [13:17] Why founders sell to Judges cheaply

• [26:29] The Geotek acquisition: Breaking the playbook or opportunistic?

• [35:26] Management succession

• [42:38] Evaluating the new leadership team

• [59:48] The 50% share price drawdown and current headwinds

• [01:10:48] Incentives, shareholder base, and valuation

• [01:13:47] Final Verdict: Buy, Hold, or Sell?

James Emanuel: Welcome back to the Rock and Turner podcast. I’m James Emanuel. Joining me today is Chris Waller from Plural Investing. He has done a great deal of research on the programmatic acquirer in the UK named Judges Scientific.

So to start with, Chris, do you want to give us a quick introduction of who you are, what you do, and why you were drawn to Judges Scientific?

Chris Waller: Thanks, James. And thank you for having me on this podcast and everyone listening today.

I run a global small cap fund based out of New York. I grew up in the UK, but I’ve been based in New York since 2016. I’m looking for seven to eight what I call “hidden gems” in the small cap markets, typically in the US, Canada, or UK. Generally, I look in the more boring sectors—consumer and industrial businesses.

These are small cap companies that are usually the leaders in a niche industry. For a small cap to be a leader in a niche, that niche probably is not very well covered by the sell-side or even by the buy-side investor base. So there’s an opportunity there, if you do a lot of in-depth research, to understand that industry and business significantly better than most investors. That’s really why I try and fish in those waters.

The centerpiece of my research process is really around trying to do this “scuttlebutt” research—speaking to around 20 people in an industry prior to investing in a company, and then trying to speak to people like that on an ongoing basis and attending industry events like trade shows. That’s really how I try and get that understanding of a company.

Judges, that we’ll talk about today, is a company very much in that vein. It’s a small business that acquires even smaller businesses that are even more niche. So it fit in with my style of investing. I was able to speak to a number of people in the industry who recommended the company strongly. I thought it was undervalued as well, which is what got me initially interested.

James Emanuel: So you run quite a concentrated portfolio. I’m guessing you look for companies that you can buy and hold for the long term. What’s your average holding period?

Chris Waller: Yeah, so seven to eight stocks, typically for a three to five-year initial timeframe. The fund is about five years old and there are several of the biggest positions that were held in the fund at the beginning. So it has been five years and that has played out. So, yes, we do hold for the long term.

I should also have mentioned at the beginning: I run this fund, Plural Investing, but I also started a newsletter on Substack called Hidden Gems Investing, where I publish some of the research that I do. One of the things I do is I try and write a roughly 30-page research report on these companies after doing that research.

The reason I started doing it is I found it gave sources in an industry a reason to talk to me. If I would talk to 20 sources and share this type of research with them in return, particularly in industries that don’t have a lot of research because they’re so niche, it was valuable. Eventually, I realized, why not distribute this further? Anyway, that’s why I started the newsletter.

James Emanuel: Thanks, Chris. So we’ve touched on Judges Scientific at a very high level. They’re a programmatic acquirer. What does that mean?

Chris Waller: It means that acquisition is their business. So they don’t have their own operating model as such. They have a portfolio of smaller companies and they all run relatively autonomously. So there’s no integration involved.

James Emanuel: And incidentally, for those not familiar with the terminology—at least the terminology that I like to use, which is borrowed from McKinsey—I always refer to a serial acquirer as a company that buys similar companies that need to be integrated. So they’re looking for synergies between those companies.

A programmatic acquirer is a company like Constellation Software, which buys lots of autonomous companies which run entirely independently. There’s no integration required. They don’t look for synergies. And Judges Scientific fits into that latter bracket.

So Chris, the name Judges Scientific gives us a hint at the kind of companies that they target. Do you want to just give us a little bit more detail on that?

Chris Waller: Judges is a UK listed company, just under £400 million market cap. It trades for about 20 times free cash flow on its guidance this year—I think probably 15 times its underlying earnings power.

As you say, they do acquisitions of small companies, typically £5 to £10 million deals, of scientific instrument companies in the UK. These are companies that are selling typically expensive and niche instruments like vacuum chambers, ultra-low temperature instruments, and instruments analyzing different rocks and soils. These products typically sell for anywhere from £1,000 up to £1 million for the most expensive system. So very high value. In many cases, these companies invented the particular instrument or niche that they’re in.

They are UK companies, but revenues are split about one-third in the US, one-third in Europe, and one-third rest of world, with China being a big component of that.

They have a very good track record. Over the 20 years Judges have been doing this, they’ve generated about a 20% return on incremental capital, by my estimate. The stock has returned just over 20% as well over that period of time.

So these are good businesses: very good return on capital, leaders in the industry, and sort of 7% to 9% organic growth over this period of time.

Judges is quite selective. They’ve done 25 deals in 20 years. Typically, they’re buying at about 5x EBIT, although there’s one bigger acquisition that we’ll touch on, Geotek, which was more expensive than that.

So very disciplined in their acquisition multiple, very return on capital focused, not a lot of synergies—but they don’t necessarily need them at that multiple and with that organic growth. Their growth algorithm would be sort of 13% post-tax return based on their initial acquisition price and then 7% to 9% organic growth. That’s how you get to the 20%.

That’s really the business model. Their model relies on a very high integrity, hands-off approach, which is why people sell to them cheaply. They have a founder, David Cicurel, who’s just moved up to Chairman and we’ll talk about. They’ve been very, very successful, and I expect them to continue being that successful.

James Emanuel: And in terms of your research process, you touched on it earlier, you go deep and you interview lots of people. For this particular piece of research, I think you said that you conducted an interview with nine former senior management executives and seven other external sources. Are you able just to give us a little bit more color on that?

Chris Waller: I think with a company like this, it’s really important to understand: do they have an advantage as an acquirer? I don’t think it’s good enough just to be an acquirer. There needs to be some reason why you’re able to get good deals or you’re able to extract some extra value in some way. So I think speaking to people who were either the founders of businesses that sold to Judges or they were at the C-level is important to get those insights.

What was really interesting about this company was, probably more than any other I looked at, the feedback from the industry was very, very consistent in terms of why they sold their companies—which was really around Judges’ hands-off approach and about some of the future prospects of the business.

James Emanuel: So the company was listed in 2003 at 95 pence with a £2 million market cap. By 2023, it reached a peak of £600 million market cap, which is a 35% CAGR. Very, very impressive. Today, it’s had a bit of a drawdown. In fact, it sits at half that level, £300 million market cap, which is still a 24% CAGR, which really puts it in the kind of top decile of performance, if not higher. What exactly is the model here?

Chris Waller: I looked at the 25 acquisitions they’ve done so far, and on average they pay about 5x EBIT. That, I think, is by far the most important factor in the success of this company and the discipline that they’ve had in very rarely going above that. That’s why they’re able to buy in that revenue at such a good return.

Now, they do have a little bit of margin expansion over this 20-year period. I think revenue growth has averaged 7%, EBIT growth has averaged 9%. That margin expansion is not really because of any synergies. Some of that’s just the natural growth of the business.

But we could talk a little bit more about what they do once they make those acquisitions. Really three things they do:

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You can read my full thesis on ContextLogic from July here, but essentially the company had no operations, $6.7/shr in cash, and NOLs worth up to $13.4/shr on an undiscounted basis. The stock traded at the cash value of $6.7 and in my view the company was likely to make an acquisition over the next six months that would act as a catalyst to monetize the NOLs. That acquisition was announced last week.

This update discusses:

• The deal and likely NOL usage

• Funding sources and new ownership structure

• Incentives for Abrams Capital and BC Partners

• ContextLogic becoming a serial acquirer

• US Salt

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The Deal and NOL Usage

The deal values US Salt at a $908mm EV, with another $35mm in fees for a total transaction value of $943mm.

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• See the Table of Contents for a list of all published articles, grouped by stock.

Hidden Gems Investing will be raising prices at the end of this year, but any subscription made before then locks in today’s rate for life. Most of our reports require well over 100 hours of work and thousands of dollars in research expenses. A subscription gives you all of that for just $347/year, saving you enormous time and cost. Join the over 5,800 free subscribers and 280 paid subscribers who have upgraded in the 12 months since the newsletter was launched, or go here to learn about what you can expect as a paid subscriber:

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There was a lot of (largely positive) news on many of the stocks this month. This update will be longer than usual, and I will follow up with separate pieces and deeper analysis. Here are the updates:

GCI Liberty (GLIBK)

Special Report

The rights offering is now underway, and you can read my analysis on it here.

John Malone also made some comments about GCI at Liberty Media’s Investor Day on November 20th, which I think are worth reprinting in full:

“And the spin-off of a little company that I’m going to talk about in a minute, GCI out of Liberty Broadband because I was already over 50 of the voting control of Liberty Broadband, I end up in hard control of it. And it will be, let’s say, by next summer, the only company that I expect to still be on the Board of, a public company, where I’ll be Chairman, at least until it figures out what its strategy is.

I personally believe I can start another Liberty Media with appropriate strategy and capital structure using that as a core vehicle. It got spun off with extraordinarily good tax attributes. Why would you think that?

And I think a sustainable cash flow generation, relatively modest capital investment requirements to sustain the business. And I think it is appropriate to think of as a vehicle for growth and for recreating something like the original Liberty Media. The benefit, of course, is that the great staff at Liberty Media that has been assembled, the young folks, quite talented are available to support that enterprise on a contractual basis.

And I’ve asked some close friends of mine to be involved. Now I made the original investment, I believe, in the Alaska Communications business in 1989, I believe, Ron Duncan, who’s been consistently its CEO since, done a great job. It does a wonderful job for the state of Alaska. It’s not like most companies, it doesn’t face multiple competitors in every aspect of its business. It’s a duopoly really in the cellular business in the larger towns and it’s a virtual monopoly in terms of the terrestrial broadband business.

So it’s a little different than what you see under a lot of stress in terms of the average cable company right now or old cable company. So that differentiates it. But using my thesis that you can do well by accumulating undervalued assets, sheltering them, sheltering their taxes, appropriately managing their tax liabilities and their use of capital, I think, it represents kind of an interesting opportunity for me and for anybody else who chooses to come along. We are doing -- we’ve announced the rights offering where we’re going to raise $300 million of new equity. It’s not an over levered business. It’s only levered about 2.7x with pretty good debt.

So I’m setting it up basically to be able to do deals and grow. And I personally am backstopping the $300 million rights offering. So we’ll see what happens. It’s an interesting thing.”

Later on:

“Well, first of all, on my scheme for what do I do with GCI. When markets dump sectors they’re not very discriminatory, okay? They throw the baby out with the bathwater. So trust me in this huge world we’ve got there are a number of communications businesses that are going to generate a lot of free cash flow for a very long time that are selling very cheap okay? And so the goal is to find those, be selective, own enough of them that when you shrink them, you’re just driving up your own economics, okay?

Same model. And shelter their free cash flow because you have extraordinary tax attributes, use financial engineering where it’s appropriate. When we created the spin-off vehicle GCIL, we did it in the state of Nevada, which has much more flexible charter governance than Delaware. We set it up with the ability to do tracking stocks, for instance, to do preferred of anything I can dream up. I might point out the first Liberty Media when we first created it was because we didn’t think we were getting appropriate valuation on miscellaneous assets.

We threw them into an entity called Liberty Media. We did a simultaneous incorporation. Within a month or so of its creation, I issued a preferred stock, distributed to all Liberty Media shareholders that had a bigger face value than the market cap of the company because I wanted to shift tax basis from common to preferred. And then those people who wanted to recover their tax bases like me, could sell the preferred, recover the capital and go forward with an equity that was more levered, but without a risky type of leverage because the preferreds were very soft and very flexible.

And so it was a little financial engineering, but it was very important to effectively in one transaction, double the value of the common equity, which effectively happened. So financial engineering in some situations is important and the flexibility to do so is important. So that’s kind of the way I look at it. So I look at opportunities in a space that I’m familiar with.

If you can’t find them in the space you’re familiar with, you look at tangential synergies where your tax attributes, your financial attributes, your timing, you can be truly opportunistic. I mean what the hell did we know about satellite radio when Sirius became an opportunity, for instance.

So being opportunistic, making sure you’ve got flexibility and currency to be able to take advantage of opportunities when they present themselves. I think -- so timing is a very important thing. I think that’s the way I see it as an opportunity because I’ve got some pretty smart staff members over at LMC.”

XPEL

Special Report, Notes from the trade show

XPEL reported good Q3 results, which included several meaningful announcements. The stock has rallied strongly since, but I think may be just as undervalued today.

• Revenues = $125.4mm, +11.1% y/y

  • US +11.1% / China +11.2% / Canada -10.0% / Europe +28.8% / Asia Pac +21%

  • PPF +4.9% / Window film +22.2% / Installation +16.9%

• EBIT = $16.8mm, 13.5% margin, -8.9% y/y

  • Margins were quite disappointing at face value and once again included various one-offs like timing related issues and significant investments in sales & marketing (+29.7%) and G&A (+15.8%), which they expect to leverage in the future.

  • However, their announcement of a mid-high 20% EBIT margin by the end of 2028 (see below) overshadowed the margin in the quarter.

• Q4 guidance is for revenues to be $123-125mm, or +14% to +16%. That includes the China distributor acquisition, which I estimate adds ~4% to revenues.

The real story though is that management made important announcements on (i) future growth, and (ii) the margin expansion opportunity.

Growth

As a reminder, XPEL’s stock since 2020 has gone from $15 to $100 and back to the $30s after the company went from delivering 25%+ growth for years to 6% in 2024. The Special Report published in March argued that investors have overreacted and are extrapolating 2024 growth to be the new normal when in fact XPEL still has a long runway of around 13% organic growth and that margins will rebound. XPEL still has four large organic growth opportunities, each of which could contribute 5ppts of revenue growth at the company level. These are growth by:

1. OEM & dealership channels

2. New products

3. International expansion

4. Pricing

XPEL’s Q3 results were significant because they directly support the thesis that the company still has a long runway of ~13% growth and addressed points 1-3. Aside from the growth in the quarter and guidance for Q4, which will bring 2025 growth to ~14% despite a turbulent year, management stated that:

1. XPEL experienced double-digit growth in the dealership channel and expects to continue expanding the OEM referral program. See my update from a trade show in September if you’re interested in why I think the OEM opportunity is large and accelerating.

2. The new color PPF products are “probably the best rollout we have ever done”. The +22.2% growth in the Window Film segment in the quarter also suggests that the windshield film rollout continues to progress well, given that it is booked in that segment and window film itself is increasingly a mature business.

3. The reception following the acquisition of their China distributor has been “incredibly encouraging”. My understanding is that the OEM and dealership businesses in China are multiples larger than the aftermarket, and that the distributor had been reluctant to pursue those channels for fear of being cut out. XPEL can now go after that business.

More generally, I think CEO Ryan Pape summed up the growth opportunities well on the call:

“There’s no better time in history to make these really final investments in these countries where we want to operate the most. This is a very tough environment for many people, for many of our competitors. You see a lot of folks pulling back where we’re investing. And I think that’s what you want for the long term. The investments in SG&A in these countries is very much front-end loaded. But these are the best markets in the world, and they’re ones that are impossible to develop in any meaningful way without our direct participation.”

Margin Expansion & Manufacturing

Perhaps even more eye-catching than the growth opportunities was the announcement that XPEL will invest heavily in manufacturing. This is expected to:

• Require $75-$150mm over 2 years via capex, M&A, and/or JVs.

• Increase gross margins by 10ppts to 52-54% and EBIT margins to mid-high 20% by the end of 2028.

If XPEL gets close to these targets it will result in a massive increase in profitability vs my expectations. For context, in the Special Report I had modelled a 2027 EBIT margin of 17.3%.

Assuming XPEL hits 25% implies a 45% increase in profits over what margins would have increased to without the investment. That equates to a ~$50mm increase in EBIT in 2028+ on a $75-$150mm investment for a 1.5 to 3 year payback. A 25% margin would also result in a ~$5 EPS.

I will provide a deeper analysis after attending XPEL’s Dealer Conference in January, and my experience is that the base rates of companies successfully achieving their target paybacks are low. I would prefer XPEL primarily goes down the M&A and JV route given the reduced execution risk and shorter timeline, and suspect that even if that costs $150mm instead of $75mm the company will have made up much of the difference by generating higher margins sooner.

Nevertheless, if management does go down the capex-only route this will have been the result of years of planning and recruitment, which I think reduces the execution risk.

I know this because I attended XPEL’s Investor Open House at its San Antonio headquarters, warehouses, and R&D facilities in 2023, and one of the speakers was Greg Booth. Greg was already XPEL’s Director of Manufacturing at the time and was previously Director of Film Technologies at Entrotech, XPEL’s key manufacturer. It appears that XPEL has been preparing to expand into manufacturing for three years.

My notes from the time were:

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On November 5, GCI Liberty (GLIBA) announced a $300mm rights offering, equivalent to ~30% of its market cap. An offering, particularly one of such size, surprised me and the market and caused the stock to fall ~5%.

John Malone is Chairman of GCI, owns 7.2% of the company, has been buying shares since the spin-off, and had stated in June that GCI was underlevered and may launch a sizeable buyback if the stock does not appreciate significantly post spin.

So why is Malone now issuing shares?

As I outlined in the recent Special Report, most investors think of GCI as an Alaskan telecom, but the company should instead be viewed as Malone’s next advantaged acquisition vehicle.

This article will explain how the rights offering supports this strategy and:

1. Increases GCI’s acquisition capacity by $300mm and accelerates the use of its tax shields

2. Will not dilute attentive shareholders

3. Allows you and Malone to increase ownership in GCI at a discounted rate

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GCI Liberty (GLIBA) spun out from Liberty Broadband in July 2025. The company is Alaska’s dominant telecom operator with 90% market share in its key business yet trades for 10x underlying FCF. Investors have overlooked the spinoff because Liberty Broadband was 13x larger and is being acquired.

But John Malone did not ignore the spinoff. He is Chairman of GCI, owns 7.2% of the company, and has been buying stock. He structured the spin to turn GCI into an advantaged acquirer and “the beginning of a new Liberty Media”. GCI is an ideal acquisition vehicle because it benefits from two substantial tax shields and has ~$1bn of acquisition capacity over three years, equal to its current market cap.

We see limited risk over three years given GCI trades on 10x FCF, our Base case has 155% upside, and the Bull case is that we are at the beginning of GCI being transformed into an advantaged acquirer.

Click here to read our 30 page report on GCI, based on interviews with 17 industry sources (preview image is above).

The Rights Offering

The full details of the offering can be found here, but the key details are:

• $300mm offering size

• C Shares (GLIBK) will be offered at a 20% discount to a stock’s volume-weighted average price (VWAP) over a 10 day period set prior to the offering

• Each share on Nov 25 will be issued a fraction of a right to subscribe to the offering, with 1 right entitled to buy 1 new share.

• There will be an oversubscription privilege

• The rights will be tradable under the symbol “GLIBR” from Nov 26

I will unpack the meaning of all these points below, but everything should be viewed in the context of this key line in the press release:

John C. Malone, Chairman of the Board of GCI Liberty, has advised GCI Liberty that he intends to exercise in full his basic subscription privilege and exercise his oversubscription privilege to acquire any and all shares remaining available following appropriate proration allocations by the subscription agent. Dr. Malone may also acquire rights in the open market.

My translation: Malone will be buying every share others leave on the table, and perhaps you should too. (Not investment advice.)

And while several of Malone’s other companies have done similar offerings post spin, including Liberty Ventures in 2012, Liberty Broadband in 2014, and Liberty Braves in 2016, none included the same commitment from Malone.

This means that Malone is willing to buy the entire $300mm offering, although I do not believe that will be necessary in practice.

Here are the economics behind the rights offering:

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• See the Table of Contents for a list of all published articles, grouped by stock.

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GCI Liberty (GLIBA)

Special Report

Shortly after the Special Report was published, the FT and WSJ reported that John Malone would be stepping down as Chairman at Liberty Media and Liberty Global, but seemingly remaining at GCI Liberty. From the FT:

John Malone is stepping down as chair of his media and telecoms empire, marking the end of an era in which the “cable cowboy” reshaped both industries over the course of 50 years of dealmaking. Malone, 84, is relinquishing his full-time board role at Formula 1 owner Liberty Media and at Liberty Global, the group behind telecoms operator Virgin Media O2…

… He told the FT in August that he expected to end up directly controlling just two businesses, including an Alaskan communications group that he said “could be a vehicle to do something with”.

From the FT article in August:

“Everything will be spun off, and then let’s see what new things we can create,” Malone said, adding that GCI — an Alaska-based telecoms company in which he will retain a shareholding — “perhaps could be a vehicle to do something with”.

I think Malone choosing to stay at GCI when he is stepping back from his other companies would be a significant positive if true, which appears likely given the reporting and the fact he has bought stock on multiple occasions since the spin. It is a signal that he sees a significant opportunity to use GCI’s cash cow business, underleverage, and tax shields to build the advantaged acquirer outlined in the writeup.

We will learn more about the vision when GCI reports Q3 results on Wednesday.

I think the company could surprise positively on EBITDA but negatively on revenues. Revenue growth was +7% in H1, driven by Business Data growth of +14%. That was largely the result of GCI’s E-Rate government subsidies for schools jumping 63% from fiscal 2023 to fiscal 2024 to fund the build out of new fiber infrastructure in Western Alaska. Since the fiscal year runs from July-June that translated into a boost in H2 2024 and H1 2025 revenues.

Q3 2025 will be the first time GCI comps against those elevated levels and since fiscal 2025 E-Rate funding was still elevated but down 4% y/y, Q3 revenues should be similarly down low single-digits.

On the other hand, GCI was preliminarily awarded $141mm in BEAD funding in late September, which investors seem to have missed given the stock did not react when it was announced on the Alaska Broadband Office’s website. I expect management to call that out.

Finally, EBITDA margins averaged 41% in H1, up from 35% in H2 last year, I believe driven by the elevated E-Rate funding. If margins are 41% in Q3 that will drive 12% EBITDA growth to $103mm even with revenues down 4%.

Some other positives on future EBITDA guidance could come from the loss-making video business being shut in Q3, and technology savings management have touched upon a couple of times on the pre-spin call without quantifying.

Watches of Switzerland (WOSG.L)

Special Report, Notes from the trade show, Podcast

Watches of Switzerland will release a trading update on November 6.

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Situation Overview

GCI Liberty (GLIBA) spun out from Liberty Broadband in July 2025. The company is Alaska’s dominant telecom operator with 90% market share in its key business yet trades for 10x underlying FCF. Investors have overlooked the spinoff because Liberty Broadband was 13x larger and is being acquired. The spinoff was small and not relevant to the deal.

But John Malone did not ignore the spinoff. He is Chairman of GCI, owns 7% of the company, and has been buying stock. He structured the spin to turn GCI into an advantaged acquirer and “the beginning of a new Liberty Media”. His existing Liberty Media team will work for GCI too, giving it an exceptional management team and deal flow for a small cap.

GCI is an ideal acquisition vehicle for two reasons. First, it benefits from substantial tax shields with a $1bn step-up in tax basis from the spin that can offset future profits, and 100% first year depreciation of capex under the One Big Beautiful Bill Act that will be very meaningful given capex is typically 15-20% of revenues. Acquired businesses will likely not have to pay tax once they are part of GCI.

Secondly, GCI has ~$1bn of acquisition capacity over three years, equal to its current market cap. The company has a cash cow business to build around and is already under-levered.

We see limited risk over three years given GCI trades on 10x FCF, a lower multiple than telecoms suffering from cord cutting. Our Base case has 155% upside, and the Bull case is that we are at the beginning of GCI being transformed into an advantaged acquirer.

Key Insights

1. GCI’s key business is providing broadband to rural hospitals and schools in Alaska. The company has 90% share of funding and that is unlikely to change given the state’s small population and harsh climate make the economics poor for new entrants. (see p.9-17)

2. The biggest threat GCI faces is from Starlink, which is cheaper in remote areas and could pressure the size of GCI’s contracts. But Starlink has problems around reliability, latency, security, and bandwidth and we think is a manageable risk. Starlink is unlikely to win hospital customers but will take some remote schools and consumers. (p.18-23)

3. Malone has an outstanding record creating value from spinoffs, acquisitions, and tax shields. We think he is incentivized to allocate the best $1bn deals to GCI ahead of his other Liberty companies. (p.24-32)

Research Methods

In addition to utilizing secondary sources such as company filings, transcripts, and services such as Tegus, the information in this report was gathered by speaking with primary sources. This included discussions with GCI Liberty and:

• 7 former employees of GCI

• 6 business customers of GCI

• 2 competitors to GCI

• 2 other relevant sources

We spoke with some sources more than once. Information that could reveal the identity of the sources above are redacted from this report unless sources gave their permission. While Hidden Gems Investing gained many insights from these conversations, no information that was both material and non-public was shared.

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Hidden Gems Investing will be raising prices at the end of this year, but any subscription made before then locks in today’s rate for life. Most of our reports require over 100 hours of research and thousands of dollars in research expenses. A subscription gives you all that work for just $347/year, saving you enormous time and cost. Join the over 5,000 free subscribers and 270 paid subscribers who have upgraded in the ten months since the newsletter was launched, or go here to learn about what you can expect as a paid subscriber:

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Watches of Switzerland (WOSG.L)

Special Report, Notes from the trade show, Podcast

Watches of Switzerland released a trading update on September 3 that was positive across the board.

“We are pleased with our performance in the 18 weeks to 31 August 2025 and are on track to deliver a good H1 FY26 in line with our expectations. We have seen consistently strong trading throughout the period, particularly in the US despite the announcement of increased tariffs on Swiss imports. The stability we saw in the UK luxury watch and jewellery markets during H2 FY25 has continued, and we have delivered good year on year growth. Registration of Interest lists continue to grow in both markets.”

This matches my data, which continues to suggest that waiting lists for Rolex remain healthy in the US (there is not enough data to meaningfully track UK wait times):

Watches of Switzerland also provided this outlook:

“We do not anticipate any material impact from the US tariffs in H1 FY26 as brand partners have increased inventories as shown by Swiss Watch Exports in July 2025 (+45% vs prior year). We will provide a further update as to any potential impact on FY26 guidance, if any, once more information is available.”

The Swiss watch export data the company cites shows that the value of exports to the US is +19.5% cumulatively YTD through the end of August. This suggests that pre-39% tariff inventories are unlikely to run out until towards the end of the year.

However, we are now beginning to see watch brands raise prices in the US and cut retailer margins. Patek Phillipe has raised US prices by 15%, while most major brands are raising prices by 6-10% and cutting retailer margins.

That is unsurprising and I expect will hurt Watches of Switzerland’s margins vs their full year guidance, which assumed a US tariff of 10% and corresponding margins from watch brands.

But with the stock trading at 9x FCF I believe some reduction in guidance is already priced in, and the question is whether tariffs remain at 39% and how the brands react.

You can see the full mechanics of how tariffs impact the brands and retailers in my analysis from attending Watches & Wonders, but to simplify I believe roughly speaking, an X% tariff reduces Watches of Switzerland’s group profits by 0.5* X%.

For instance, the company’s guidance assumes a 10% tariff. If the current 39% remains, that is an additional 29% which I think would reduce group profits by another 15%. If tariffs are reduced to 20%, that would be an additional 10% or an extra 5% hit to profits.

I believe the current price rises by the watch brands are assuming that tariffs are eventually reduced to around 20%. Watches of Switzerland earns a roughly 40% gross margin from most non-Rolex/Patek brands, meaning a watch that retails for $10,000 incurs $6,000 of COGs and $4,000 of gross profit. A 6% rise in retail prices to $10,600 and 10% rise in wholesale prices (paid to the brand) to $6,600 still leaves the same $4,000 of gross profit to Watches of Switzerland even though margins are reduced in percentage terms.

Since most brands already adjusted for the initial 10% tariff in April or May, this suggests that they have just adjusted for another 10% rise for a cumulative 20% tariff.

Note this example is a simplification and I expect Watches of Switzerland will take some margin hit in $ terms too, but the point is if the ‘final’ tariff comes down to 20% then I think most of the knock-on effects are already priced in by the industry and investors.

I have no special insight into when and whether a tariff reduction will be announced, but Howard Lutnick did say in early September that “We’ll probably get a deal done with Switzerland.”

Judges Scientific (JDG.L)

Special Report

Judges reported H1 results on September 18 that were in line with the trading statement in July:

• Revenues = £70.2mm, +15% y/y.

  • Organic growth: +7% at group level, -18% in North America, China +12%, EU +5%, UK +1%, ROW +41%.

• EBIT = £8.4mm (+17% y/y)

  • Adj EBIT = £14.3mm (+16% y/y). This adds back £4.9mm of acquisition amortization and £0.9mm of stock-based comp.

• Order intake:

  • North America -18%, China +120%, EU +7%, UK -7%, ROW +2%.

While these headline numbers were strong, bear in mind the growth in revenues and profits was entirely driven by a coring expedition taking place in H1 the year vs none last year. Profitability was down excluding coring, primarily because of the weak academic environment in the US. That should continue in H2 and is factored into full year EPS guidance of £2.9, meaning Judges is under-earning right now.

There were a couple of other positives. First, China has been a drag on growth for a couple of years and management said it was “back to normal”, although they noted that in the long run Chinese customers will increasingly buy from local producers. CEO David Cicurel said this meant the Chinese market would no longer be a source of “super growth”.

Secondly, Cicurel stated that the addition of Rik Armitage as Head of M&A should “increase the rhythm of acquisitions”, particularly outside the UK, and that Judges has “significant firepower”. I thought this was an important point. It is very unlikely that Judges relax their valuation criteria on acquisitions, and the ability to deploy more capital at 4-6x EBIT is key to the business continuing to compound at 20%.

I do think there was one negative that has been underreported.

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I was in Reno, Nevada, a few days ago for the International Window Film Conference and Tint-off (WFCT) – a trade show for the auto film industry attended by XPEL and most of its competitors. I spoke with 17 film brands, manufacturers, and distributors to try and understand the growth runway for the industry and XPEL and came away concluding that XPEL still has a long runway of double-digit growth ahead of it once the current cyclical headwinds subside.

As a reminder, XPEL’s stock since 2020 has gone from $15 to $100 and back to the $30s after the company went from delivering 25%+ growth for years to 6% in 2024. The Special Report published in March argued that investors have overreacted and are extrapolating 2024 growth to be the new normal. I believe the company’s long term growth rate is the key debate among investors today.

XPEL still has four large organic growth opportunities, each of which could contribute 5ppts of revenue growth at the company level. These are growth by:

1. OEM & dealership channels

2. New products

3. International expansion

4. Pricing

This update will focus what I learned at the trade show and why it was supportive of XPEL’s growth opportunities among the OEM and dealerships channels and new products like colored PPF and windshield film.

If you are interested in more background, take a look at the 35 page report on XPEL published in March. I believe XPEL is a great company with an excellent owner/operator that is now coming through a blip. The report was based on 54 interviews and covers XPEL’s:

• Economics and competitive advantages

• Growth runway

• Difficult cyclical conditions

• Governance

• Valuation

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OEM Demand is Accelerating

The biggest positive I took from the trade show was that the OEM channel is clearly going to be a big opportunity, this is accelerating, and XPEL is in an advantaged position to capitalize on it.

Until recently, the OEM market for PPF was primarily made up of white label products. A typical relationship involved an OEM sourcing cheap films from China or India and pre-loading that onto a few areas of a car where the paint is particularly vulnerable to rock chips and scratches. For instance, some Toyotas have a small amount of film applied to protect particularly vulnerable areas like fenders and hood arches, and in many cases customers have not paid extra for that and may not even be aware of it. Installation typically takes place at the factory or a port where Toyotas come off a boat and film is installed on-mass.

What has changed is that the growing popularity of PPF means some consumers are willing to pay for higher quality and more expensive branded film and for it to be installed on more surfaces like the entire front of a car. Some customers also want other types of films like window tint, windshield film, or colored PPF.

This creates a very complex logistical problem for OEMs because different amounts and types of film need to be installed on different vehicles. Doing such quantity and variation of installation at the OEM’s factory requires a lot of space, cars coming off the production line, and an inventory backlog because film needs time to set. That has been the key bottleneck which has held OEMs back from upselling film to customers, which in turn limits the awareness of film among people who are not car enthusiasts.

XPEL is in the leading position to solve the logistical problem because the company has the most extensive installer network in the world and its software now allows OEMs to outsource all installation and aftermarket services to that installer network. Some customers also ask for XPEL specifically, which means OEMs are more likely to successfully upsell film to customers if they partner with XPEL.

As a result, XPEL is currently the only company that has significant branded partnerships with OEMs, although a small number of competitors like Eastman (SunTek & Llumar) have partnerships with a few dealers. XPEL has direct partnerships with Tesla, Rivian, Porsche, Jaguar Land Rover, and several others and I had many conversations where competitors told me how envious they were of the Tesla partnership.

As a reminder, in early July Tesla greatly expanded its partnership with XPEL by now offering XPEL PPF on the Model 3 and Y (see here). Tesla’s website and app is taking customers to an XPEL page where you can place an online order which is then routed to a local XPEL shop for installation.

The growing popularity of PPF, XPEL’s increasing ability to route an OEM’s orders to its aftermarket installer base, and the success of the Tesla partnership have all led to growing interest from OEMs. I got a sense across conversations that the OEM market will be large and that interest has accelerated quite a bit recently. Some of that is also because of colored PPF, which I discuss below.

Read more

1. Why Meow Wolf and more concerts will transform Pier 17 (p.11-17)

2. A new section on leasing up the Cobblestones (p.18-19)

3. A 9-step plan to turn around the Tin Building (p.20-27)

4. Thoughts on the CEO change last week (p.28-32)

5. Valuation post the 250 Water St sale and opportunities for M&A (p.33-36)

All research on Seaport Entertainment be viewed at the Table of Contents.

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Situation Overview

Seaport Entertainment (SEG) stock was spun out of Howard Hughes (HHH) in July 2024 and owns a complex portfolio of loss-making properties, primarily in Manhattan just 10 mins walk from Wall St. The company is ignored or put in the ‘too hard’ bucket by investors but has a market cap of $330mm vs $162mm of net cash and properties Howard Hughes spent $1.2bn on.

Execution by new management post-spin has been strong and cash burn is rapidly reducing, with Seaport targeting breakeven in 2026. One property was recently sold for $150mm.

Bill Ackman’s Pershing Square owned 38% of the company pre-spin and Ackman was Chairman of Howard Hughes for 13 years, including when the spinoff was announced. Pershing backstopped the post-spin rights offering at $25/shr and increased its stake by oversubscribing to the shares. Seaport’s new CEO moved his family to New York for the role and is largely compensated in stock.

That suggests insiders think the stock was cheap at $25 before the substantial progress Seaport has made, yet it trades at $26 today and has $13/shr of cash. We believe intrinsic value will be increasingly recognized as the company becomes FCF positive and investors shift focus towards its capacity to redeploy large amounts of capital on acquisitions and growing FCF.

Key Insights

1. Pier 17 could be worth more than the market cap and recent leases will help realize its earnings potential. The Cobblestone area next door is similarly being leased up (See p. 11-20)

2. The Tin Building food hall accounts for most of Seaport’s cash burn but management are about to redesign the building or lease it to another party. We share 9 steps to turn the building around. (See p. 20-28)

3. New CEO Matt Partridge was promoted from CFO last week and we believe is better positioned to deploy Seaport’s substantial acquisition capacity. (See p.29-36)

Research Methods

In addition to utilizing secondary sources such as company filings, transcripts, and services such as Tegus, the information in this report was gathered by speaking with primary sources. This included discussions with:

• Seaport Entertainment’s CEO and former CEO

• 5 former employees at Howard Hughes

• 4 former or current employees at comparable properties in New York

• 10 real estate specialists in New York or Las Vegas

• 2 other relevant sources

• Multiple visits to all of Seaport Entertainment’s properties in New York and several comparable properties in New York

We spoke with some sources more than once. Information that could reveal the identity of the sources above are redacted from this report unless sources gave their permission, apart from Seaport Entertainment’s CEO, CFO, and IR given the company is publicly traded. While Hidden Gems Investing gained many insights from these conversations, no information that was both material and non-public was shared.

We think you will enjoy this writeup more in a pdf format. Click “Download” below:

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TerraVest (TVK.TO)

Special Report, Podcast, Presentation

TerraVest reported weak fiscal Q3 results on August 14 as it continued to lap an unusually strong 2024 and face some cyclical headwinds. Organic growth was -2%, with FCF margins by my calculations declining from 14.2% to 10.7%. FCF in absolute terms grew by 28.7%, driven by the large EnTrans acquisition:

Overall, I think profitability has largely declined to mid-cycle levels now, although the Services segment is still probably overearning after a very strong two years. The multiple on the stock has declined to 22.5x EV/FCF and in my view is now slightly below fair value.

By far the largest segment of TerraVest is Compressed Gas Equipment, which after the acquisition of EnTrans in March now accounts for just over half of company revenues.

That segment is facing softer demand with tariffs creating uncertainty for customers, which is causing delayed or reduced orders. Organic revenue growth was -12% in the quarter, which is not as bad as it looks given the tough comps of +12% in fiscal Q2 and +13% last year in fiscal Q3.

I believe the segment could face further headwinds in fiscal Q4 given current conditions and an even tougher comp of +21% from last year. My understanding is that demand remains weak, particularly for the tank trailers that EnTrans manufactures.

The tariff induced uncertainty and weakness in this segment was reflected in TerraVest slightly downgrading its outlook from previous quarters (new words in bold):

“In general, TerraVest’s portfolio of businesses is performing well. Recent acquisitions have made a meaningful contribution and we expect this to continue throughout the fiscal year. Opportunities to enhance performance through synergies between recent acquisitions and the base portfolio of businesses continue to exist and are a focus for management. Recent tariff announcements have created an environment of uncertainty in North America’s manufacturing sector. This uncertainty has resulted in softer demand recently for a few of TerraVest’s businesses. However, TerraVest’s portfolio businesses are well-positioned manufacturing products predominantly for their domestic markets, which greatly limits the impacts of any potential tariffs. The Company continues to make targeted investments to improve its manufacturing efficiency and expand its product lines, particularly in end-markets where it has a meaningful presence. With the new credit facility obtained in March 2025, TerraVest is very well-positioned to pursue its acquisition strategy.”

Results in the other segments were mixed:

• HVAC: +1% organic growth. Continued uptick in sales and new end markets. A decent quarter given the pull forwards from tariffs in fiscal Q2.

• Processing equipment: -4%, with reduced demand for energy in Western Canada.

• Service: +10% despite a very tough comp with fiscal Q3 last year at +51%. The organic growth number was boosted by the acquisition of Aureus, which has been fully integrated and so included in organic numbers.

FCF or underlying earnings power for the quarter by my calculations was C$43.5mm for an annualized C$174mm, almost the same as what I estimated in Is TerraVest still cheap?, which discussed the runway the company has post four acquisitions to continue making attractive deals.

And although fiscal Q3 is usually one of TerraVest’s seasonally weaker quarters, I view C$174mm as a reasonable annual estimate because tax was exceptionally low this quarter at just C$1mm, and I believe the Service segment is still over-earning.

Note also that I remove “other losses/gains” from my FCF estimate because this is typically made up of FX or equity gains/losses - e.g. TerraVest this year has benefited from big gains in equity investments, which I remove as I assume they are not recurring and do not reflect underlying earnings power.

The company’s enterprise value is: C$3,126mm market cap + C$702mm net debt = C$3,918mm.

The stock is therefore now trading at an EV/FCF of 22.5x. That is down from the high 20s earlier this year and in my view now slightly below fair value.

At 22.5x FCF I would typically be arguing that TerraVest is “significantly” rather than just “slightly” below fair value, but in this case the company has less capacity than normal to make attractive acquisitions after the super-sized purchase of EnTrans.

Net debt of C$702mm puts ND/EBITDA at 2.6x if fiscal Q3 is annualized, which places it roughly in line with the historic average of 2.4x. Cash generation is likely to be around C$336mm over the next three years (3 x C$174mm in FCFF - C$62mm in interest expenses).

That means today’s net debt of C$702mm is on track to become C$366mm over three years. At a ND/EBITDA of 2.4x that implies the company has only C$287mm of buying power (C$272mm in current EBITDA x 2.4 - C$366mm net debt = C$287mm).

At TerraVest’s normal acquisition multiples of 11x FCF and 7x post-restructuring, that would imply acquired FCF of C$41mm post-restructuring and total company FCF of C$215mm.

That puts TerraVest on 18x post-restructuring FCF in three years if it can continue making good acquisitions. Given the exceptional management team and track record I think that makes the stock slightly undervalued after recent declines, without being exceptionally cheap.

Management may choose to create more acquisition capacity by issuing equity, which is not my preferred method of financing. Interestingly, TerraVest instead launched a potential buyback / NCIB after results for up to 7% of its shares. The company has not bought back shares materially since 2021, and I would be surprised if they did at these prices having issued equity twice in the last couple of years.

However, management is likely giving itself the ability to buy shares if the stock declines further from headwinds continuing / worsening or sentiment weakening. That would likely be a good time for investors to buy too.

XPEL

Special Report, Notes from the trade show

XPEL reported a strong Q2 on August 6, with growth so far this year above my expectations. I have two important takeaways from the quarter which I believe investors are underappreciating:

• XPEL are making substantial progress on using pricing power and growing the OEM channel. These are two of my key thesis points for why the company's structural/mid-cycle growth rate remains around 15%.

• The company is close to acquisitions that could add around 25% to FCF.

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