The Curious Investor

June 2026 update - Part 1

The Curious Investor — Fri, 19 Jun 2026 16:30:05 GMT

It has been a long time, nearly six months, since I managed to pen a piece for Substack. I have been “working” quite a lot, although I don’t consider investing to be work in the traditional sense, given that researching companies is something I genuinely enjoy. In that sense, I will have a job for life, even if I am significantly lagging the index so far this year. Thankfully, my time horizon is measured in years, not months, so I won’t be firing myself and going passive, at least not yet.

Managing the demands of a young family is time-consuming, and as much as I may moan on occasion, I wouldn’t swap it for anything. Doing the accounts for a small business or trying to navigate the complexities of trust law constitutes “real” work, but hopefully, that part of 2026 is now largely behind me.

My initial plan was to write this as a single note; however, as it has grown in length, I will break it into two parts. Stage 1 will provide an update on the companies I have previously written about: Hiab, Evolution Gaming and Teqnion, as well as the new positions I opened in 2025: Diageo, Alphabet, Ashtead Technology, Booking Holdings, Judges Scientific, Nedap, Novo Nordisk, and Wise.

Stage 2, which I aim to publish next week, will cover the two new positions I have opened so far in 2026: Topicus and Copart. For reference, a typical new position for me starts at c1.5% of my book and is then increased or sold as I learn more.

Subscribe now

Hiab (€54.50): A market leader across several industrial lifting niches (loader cranes, hook lifts, and tail lifts) with solid exposure to defense logistics. It is a capital-light, high-return business; see my earlier Substack pieces for more detail. Since January, the shares are up slightly, although they have traded within a wide range (€40–€60). Operationally, the outlook for Hiab is improving, with order volumes typically lagging behind the major truck manufacturers, most of which have seen significant pick-ups in orders, particularly in North America (see Daimler Truck’s Q1 results). Hiab’s defense logistics business should also begin to contribute more meaningfully.

The main news at Hiab in the last six months, however, has been the announcement of a relatively large acquisition: Labrie, the number-three player in the North American waste and recycling truck market and the leader in the fastest-growing segment, automated side loaders. Hiab had been focused on smaller bolt-on deals, so at €890 million (against a Hiab market cap of €3.5 billion and an EV of €3.25 billion), this acquisition is a larger strategic move.

On the face of it, the deal looks attractive: Hiab has been following Labrie for five years, the business is not a turnaround (it boasts higher margins than Hiab at c17% EBIT), and it was purchased at an attractive 9.2x EBITDA multiple before synergies. It will be financed with cash and debt at a cost of 3.6%. The transaction will move Hiab from a net cash position to a net debt/EBITDA ratio of just over 2x, but given Hiab’s cash generation, I expect them to deleverage relatively quickly. The deal is significantly accretive c18% pre-PPA.

What’s not to like? My primary concern is that Hiab is buying Labrie from private equity; the chances of securing a “bargain” from a PE firm are rarely high, which raises a red flag. It hasn’t been enough to trigger a change in my position yet, as I like the current setup at Hiab. I see a clear reason for the order book to improve significantly in the second half of 2026 (and possibly Q2 2026), following the higher order volumes seen at the main truck manufacturers. Hiab gave little away at the Q2 pre-close call.

On my numbers, which assume Labrie is not consolidated until the start of 2027 (though it will likely be earlier, with an estimated close in Q3 2026) Hiab trades at 20x PE for 2026 and 15.6x for 2027 including PPA (13.9x excluding PPA). Upside to these figures will likely come from a recovery in equipment orders. At the moment, I am assuming only a very slight organic growth recovery of 2% in 2026 and 5% in 2027, which, given the leading indicators mentioned earlier, seems conservative. This rating for a business of this quality also feels modest. For now, it remains a top-10 position for me.

More detailed piece on Hiab business:

https://substack.com/@tci77/p-161011525

Evolution Gaming (SEK 700): The B2B leader in online gaming. Year-to-date, the shares are up 12%, but they remain significantly down over the three- and five-year periods and are still in a 56% drawdown from their peak. In January, I wrote that the stock was pricing in a very negative scenario. In February, following the FY 2025 results, sentiment worsened, and at SEK 557, I added to my position—primarily to bring it back to a 3% weighting and keep it in the top 15 of my fund (my overall average price is cSEK 900, so no victory laps here).

Growth rates at Evolution have slowed significantly, and the headwinds are well-known: European ring-fencing and channelization pushing gamblers to non-regulated sites, and the persistent issue of Asian cybercrime. For Q4 2025 and Q1 2026, FX was also a major headwind; reported sales in Q1 2026 were down 1.5%, while constant currency growth was c7% YoY. Personally, I found this to be a positive, suggesting the business is not in structural decline, whereas it felt like many investors focused only on the headline figure.

Evolution also announced on March 18th that it would not be paying a dividend in 2026. Strangely, the announcement of a €2 billion buyback did not arrive until May 18^th, a date well after both the Q1 2026 results and the AGM. Management had hinted at a buyback, but I have no idea why it took two months to properly communicate the policy; I have consistently found Evolution’s investor relations department to be subpar or, at best, unresponsive, and this was unfortunately another example.

Putting aside personal frustrations, the decision to cancel the dividend (c€570 million) in favour of a €2 billion share buyback should be applauded. With a market cap of c. €13 billion, the €2 billion allocation allows them, all else being equal to buy back c. 15% of outstanding shares. What is also clear is that at the current price, they are in a hurry; since the buyback started less than a month ago, they have already acquired c1.5% of outstanding shares. Furthermore, if the founder shareholders and Kenneth Dart (who hold a combined 40% of the company) do not sell, Evolution is effectively buying back 25% of the free float. Logically, this should place a firm floor under the share price.

It should also be noted that a €2 billion buyback does not put the balance sheet under major pressure. Evolution had net cash of €1.2 billion and generates around €250 million of cash per quarter. If the share price remains stagnant, they will likely be very aggressive; there is a chance they briefly enter a net debt position, but this would be cleared very quickly given the business’s cash generation. If, like me, you do not believe the business is structurally broken and expect most headwinds to pass, the share buyback is clearly compelling.

At today’s price, Evolution is valued at 11.3x PE (I am 6% ahead of consensus on EPS, mainly due to the lower share count), 9.3x EV/EBIT, and an 8.3% FCF yield. In conclusion, I would frame Evolution as being lowly rated, with knowledgeable insiders buying aggressively—with €1.8 billion left to purchase—explicitly stating that they believe the market is mispricing the stock. This provides a degree of downside protection and an interesting option if the underlying business pivots back to growth. It is worth highlighting that in Q1 2026, the North American business grew by 10% (in Euros) and LatAm grew by 29% (in Euros). In addition, the comps for the European business (down 12% in Q1) start to get easier now that they are lapping the ring-fencing measures. A mid-single-digit growth rate is very plausible and could justify a decent re-rating. On the downside, one thing that would cause me to exit would be if insiders began actively selling into their own share buyback. A future threat I am also considering is whether AI could eventually allow online operators to do away with physical studios and live tables; this would clearly be a significant threat to Evolution’s business model. I have attached an interesting article on this topic below.

https://next.io/news/features/is-the-robot-apocalypse-coming-for-live-casino/

Also attached is a good review on Evolution by Maxx Waring:

The Rational Investor

Evolution AB (EVVTY) May Update: Why I Can't Stop Buying

As of April 2026 I hold a long position in Evolution AB (EVVTY). About 60% of my portfolio. This article is for informational and educational purposes only and is not financial advice. Investing in stocks is risky…

a month ago · 30 likes · 15 comments · Maxx Waring

And a detailed review of the Q1 2026 results by Ali Gunduz and his Do Not Distribute substack:

Do Not Distribute

Evolution's Q1 2026

At first look, Evolution seems unyielding in its decline…

2 months ago · 38 likes · 2 comments · Ali Gündüz

Diageo (£15.30): Owning Diageo has certainly increased my alcohol consumption, and they haven’t been celebratory drinks. Year-to-date, the stock is down 5%. In January, I noted that I saw a risk to consensus numbers given the “mood music” coming out of the company, and with the arrival of a new CEO, there was always the potential for a “kitchen sinking” of the financials or a dividend cut. That has largely played out: the dividend was effectively halved, and there was a slight downgrade to FY26 guidance for both sales and operating profit, though free cash flow was maintained.

What we are still waiting for is the full strategic review by new CEO Sir Dave Lewis, which will arrive alongside the FY 2026 results at the start of August. A margin reset is possible, and to an extent expected—but looking at consensus estimates for 2027 and 2028, it does not appear to be fully reflected yet. I don’t mind the dividend cut; combined with the sale of East African Breweries and the Indian cricket team (via United Spirits, in which Diageo owns a 56% stake), these moves should help leverage move toward a more comfortable level.

What attracted me to Diageo in the first place were its world-class brands, its nature as a long-duration asset, and an attractive valuation. The assets remain unchanged, and the valuation has arguably become more appealing, with the stock trading at a free cash flow (FCF) yield of c7%. For now, I have maintained my position rather than adding to it, as I am waiting for the CEO to fully take ownership of the strategy; the “kitchen sink” could still make an appearance on August 6th.

Very good write-up on Diageo as part of a wider piece by Sector Stories substack:

Sector Stories

Global Spirits: Q425 Earnings Update

With Q4 reporting firmly in the rear-view mirror this post will take a look at the recent results of the five western-style spirits companies initially discussed in my four-part Global Spirits Series…

3 months ago · 38 likes · 5 comments · Sector Stories

Teqnion (SEK 159): Since I last wrote about Teqnion in January, not a huge amount has changed; the share price is down slightly, and I have come to the same conclusion, arguably with more confidence. The Q4 2025 results were “okay” but slightly disappointing compared to the strong Q3 results; part of this was due to timing, a view supported by the Q1 2026 performance. On my updated numbers, Teqnion trades at 16x 2026 earnings (13.3x 2027).

Crucially, the business has clearly turned the corner following a tough 2024 and H1 2025; the last three quarters support this. I expect earnings to increase by c70% in 2026 (+20% in 2027), and I believe the improved operational momentum will eventually trigger a re-rating, especially given that larger serial acquirers trade at roughly double Teqnion’s current multiple.

I have been adding to my position over the last week, and it remains one of my largest holdings. I like the setup: improving operational momentum, the public-to-private multiple arbitrage, the low rating versus peers, and a management team that is genuinely frank about the issues they have faced. There aren’t many CEOs who would grade their own performance in an annual report as an “F” for 2024 and a “D-” for 2025. The point is that Teqnion is moving toward a more “normal” operating performance for its existing businesses, and the runway for highly accretive acquisitions remains long. For the stock to work, I don’t need the CEO to hit an “A” just a “C” or a “B” and given his track record since founding the company in 2006, I don’t think that is overly optimistic.

For more background detail on Teqnion and what the actual business is, have a look at a substack piece written by slow compounding, this provides an excellent deep dive.

Slow Compounding

Deep Dive - Teqnion AB (Part 1)

In 3 articles, you’ll get a deep dive of Teqnion AB (76 pages…

4 months ago · 25 likes · 17 comments · Alexander

It is also worth listening to some interviews with Daniel Zhang of Teqnion to get a better feel of how the two key people in Teqnion operate, below is a link from the Dutch investors podcast:

https://tdi-terminal.com/dashboard/library/96c1d6f4-31bb-4b75-b726-8ec187cbe522

Alphabet ($360): The shares are up 14% YTD. I have very little value to add on the name; I have included it here only for the sake of consistency and completeness. In January, I noted that my position was under review, and that remains the case. The valuation is no longer particularly interesting, and the recent announcement that they are issuing $80 billion in equity—while helping to fund their massive AI ambitions, the fact that they are issuing equity at these levels isn’t the greatest signal. Clearly, capital expenditure commitments will continue to ramp from already extraordinary levels, with 2026 guidance now at $180–$190 billion and expectations for a “significant increase” in 2027. The central question remains what returns they will ultimately generate on this capital. So why am I still sitting on my holding? In simple terms, it acts as a partial hedge against some of my other positions regarding potential AI-driven disruption, and I still believe its portfolio of businesses occupies an enviable strategic position.

Below is a link to the excellent Andrew Walkers blog on Google’s equity raise, which provides interesting commentary and analysis over 3 parts. The link below is to part 3, but links to part 1 & 2 can be easily found.

Yet Another Value Blog

What is $GOOG seeing in AI? Part 3: the real bear case

This is my third and final post in my mini-series on Google’s big equity raise…

12 days ago · 61 likes · 2 comments

Ashtead Technology (£4.52): An oil & gas and offshore wind equipment rental business. Year-to-date, the stock is up strongly (c50%). Ashtead has clearly benefited from a shift in narrative, partly driven by conflict in the Middle East. A higher oil price is supportive of offshore projects, while the renewed focus on energy security aids Ashtead in the geographic markets where it operates (for both oil & gas and offshore renewables). Interestingly, Ashtead is no longer one of the most shorted stocks in the UK; at the end of 2025, short interest was c. 9%, but it has since fallen to c. 1.1%, and this covering has clearly been a factor in the strong year-to-date performance. Consensus numbers do not appear particularly aggressive, factoring in mid-single-digit top-line growth and slight margin compression from the elevated levels seen in 2025. This results in an EPS of c. 47p, a P/E of roughly 9.6x, and an FCF yield of c. 7% (though this is not adjusted for a fair amount of growth capex). The balance sheet remains solid, with leverage at just over 1x EBITDA, and the business has a strong track record of executing accretive bolt-on acquisitions. I haven’t changed my position YTD and am happy to maintain it at c. 1.7%.

For a more detailed write-up see the Rock & Turner substack link below.

Rock & Turner Investment Analysis

Ashtead Technology Holdings: Mispriced?

3 months ago · 36 likes · 15 comments · James Emanuel

Booking Holdings ($172 or $4300 pre-split): The leading online travel agent; it’s an excellent, high-return, cash-generative business. In January, I noted that I had just started a small position, writing: “The reason I am building a position gradually is that even though the business is performing excellently operationally, I wouldn’t be surprised if there was a wobble with market sentiment around the narrative, specifically the potential threat from AI agents. Clearly, software names have been very beaten up on the back of AI and vibe coding, and it is quite possible that online travel agencies could see a narrative of increased AI agent threats.”

It is fair to say that this narrative took effect, and Booking did sell off on the fear of AI and how it might impact their business. In addition, the war in the Middle East also hasn’t been helpful, given that it acts as a major travel hub, especially when combined with the secondary impact of higher energy/fuel costs and squeezed consumers. As a result, Booking is down 19% YTD, and it has provided me the opportunity to take a position of over 2%; my average price is now $173.5 (or $4338 pre-split).

The AI agentic threat, in terms of narrative at least, reduced on March 5th when ChatGPT announced that it wouldn’t be completing purchases within the app and would instead be directing users to third-party apps such as Booking. In this case, AI just becomes another funnel, just like traditional search, and is precisely why Booking spends over $7bn pa on digital advertising. My view remains that AI is more of a tailwind than a headwind for Booking, and my view on the stock remains the same. Booking provides users with trust; I know that if I use Booking, I have a lot of protection if something goes wrong. Secondly, Booking has a lot of stickiness from its loyalty plans, with over 50% of room nights coming from the higher tiers of the Genius loyalty scheme. Thirdly, Booking has an amazing set of data (demand and supply) and knowledge about its customers and providers, so there is a reasonable chance that they can build a leading AI agent within their own app. Fourthly Booking provides genuine value for its hotel and alternative accommodation suppliers.

The impact from the war in the Middle East is a headwind to the business, and this was partly seen with the Q1 results, with March seeing a spike in travel cancellations knocking 2% off gross bookings and room nights. The FY 2026 guidance was also slightly downgraded, with gross bookings now forecast at high-single-digit to low-double-digit growth (down from low-double-digit), and FY EPS now guided at low-mid teens growth (down from mid-teen growth, assuming the war in the Middle East lasts for the 2Q only). Given the headwind, I find this guidance incredibly resilient. What was also very interesting in Q1 was that Booking bought back $3.6bn of stock (c2.7%), which was slightly above the $3.1bn of FCF they generated in Q1. The $3.6bn was the largest single-quarter share buyback in the company’s history. The business is highly cash generative, and at the current valuation, the board clearly believes the opportunity lies in using as much free cash flow as possible to retire equity. On my numbers, the stock is trading on a FCF yield of 6.9% for 2026 and a PE of c17x. One potential risk to bear in mind is the threat of fines within the EU, the timing of which is difficult to know.

In summary, Booking Holdings is a high-quality business at an attractive price, exposed to a structural long-term growth trend of increased travel. The AI narrative threat, I believe, is overdone, and the recent headwinds of war in the Middle East will eventually pass. In the meantime, the company is cannibalizing itself with large share buybacks.

Good piece on Booking Holdings from Daniels Deep Dives:

Daniel's Deep Dive

Booking Holdings: Leading Travel or Facing Disruption?

Today’s deep dive takes us into the world of travel. Summer is just around the corner, and for many of us that means it’s time to start planning the next trip. But what is actually the best way to book a holiday today? And more importantly, how can we as investors benefit from this massive global industry…

3 months ago · 28 likes · 12 comments · Daniel's Deep Dive

Judges Scientific (£49): A UK serial acquirer focused on niche scientific equipment. YTD the stock is down 15%. News on Judges has been relatively quiet, with no new acquisitions, a trading update in January, and then the release of the FY 2025 results at the end of March. As expected, the 2H of 2025 was weak, with the main lowlight for FY 2025 being N American orders -23% (US academic spend). Guidance for FY 26 is for an EPS £2-£2.50 (peak in 2023 at £3.69, and £2.75 in 2025). The guidance for FY26 assumes no recovery in US academic spend (this feels conservative, with the main risk being timing of grants); it also assumes no Coring expedition (more likely start of 2027). For 2026, the guidance feels derisked, with upside potential from a quicker recovery in US academic spending, an earlier Coring expedition, or M&A. The balance sheet is solid at 1.5x ND/EBITDA; given they have historically acquired businesses at 4-5x EBITA, any deal is likely to be taken well. My view on Judges hasn’t changed; the valuation is attractive with a FCF yield >5%, the long-term track record of capital allocation is excellent, and the headwinds, in my opinion, are well known and temporary. Given the weak performance, I have been adding to my position to maintain it at its original size. My average in price is now c£61.5.

Review by Chris Waller post the FY 2025 results that were released in March.

A good write-up from post anchor stocks on the FY 2025 results.

Best Anchor Stocks

From headwinds…to tailwinds

You can read this article entirely for free. If you like what you read, consider becoming a paid member to get access to…

3 months ago · 24 likes · 4 comments · Best Anchor Stocks

Nedap (€97): A small Dutch software and hardware provider focusing on four main areas: livestock management (”Fitbit for cattle”), healthcare, retail (loss prevention & inventory management), and security (access control). YTD the stock is +5.8% (and a c4% dividend on top). Operational performance has been good, with the FY 25 results published at the end of February showing 11% top-line growth, and EPS +32% to €3.72. The Q1 trading update (sales only) confirmed that the company continues to generate positive momentum with revenue +14.3% (and recurring +15.5%); this should likely translate into good operating leverage. The balance sheet is strong with virtually zero net debt. The CEO stepped down for health reasons in April and was replaced by the COO, who has been with Nedap since 2004 (so expect business as usual). Nedap has generally continued to avoid any major AI narrative threat to its software business—this might be because it is small and not widely followed. On 2026 estimates, Nedap could do c€30m of FCF, which would place it on a FCF yield of 4.7%, which clearly isn’t unreasonable. I did reduce my position at the end of 2025, and it is down to 1% of my book. For now, I will continue to follow the company and maintain the position, although I have been considering switching the position entirely into Topicus and Booking Holdings.

Novo Nordisk (DKK 295): YTD the stock is down c. 11%. Having bounced strongly in January, Novo continued its trajectory down following the release of the FY 2025 results and, more importantly, the guidance for 2026. The 2026 guidance was clearly disappointing, with sales and operating profit forecast to decline -5% to -13%, despite a strong initial launch of the Wegovy pill. Given that guidance in 2025 was a bit of a disaster, you could make a reasonable argument that management is being particularly conservative. At the Q1 results, guidance was technically increased, but if you blinked, you missed it. The new guidance for 2026 is for sales and operating profit to decline -4% to -12%. The increase was mainly symbolic—in my opinion, a case of management wanting to show something positive while remaining conservative. The guidance was also made just a few weeks after Lilly’s competing weight-loss pill had launched, so again, you can imagine a strong argument for why management would want to remain cautious.

The positive news is that the Wegovy pill continues to perform very strongly in the US, and the launch of Lilly’s Foundayo pill hasn’t really had an impact (yet). For 2026, I think it is highly likely that Novo will upgrade guidance because of the Wegovy pill. A second positive is that the FDA is taking more steps to crack down on compounding; on the 30th of April, the FDA proposed removing three GLP-1s from the 503B bulks list. The review ends June 29th; if the FDA finalizes this rule, it will significantly reduce the availability of GLP-1s from compounders. Realistically, this won’t happen until mid-2027. There were an estimated 1.5m people in the US taking unapproved GLP-1s, and these have been linked to over 1150 adverse events, 100 hospitalizations, and 10 deaths, all of which increases pressure on the authorities to act. This could potentially act as a decent tailwind for 2027.

On the negative side, Novo scored something of an own goal in February with the REDEFINE IV trial results. These showed that its next-generation product, CagriSema—a GLP-1 and amylin combination expected to be approved by the end of 2026—was inferior to Zepbound on overall weight loss (23% versus 25%). This raises questions about CagriSema’s sales potential, although it would still be the first GLP-1 and amylin combination product on the market. The other main concern is Lilly’s strong obesity-drug pipeline, particularly retatrutide, a triple agonist that has delivered strong results and is likely to reach the market in 2027. Novo also has a triple agonist in development with promising early data, but its earliest launch would be in Asia in 2028, and probably not until 2029 or 2030 in the US.

As a simplistic generalist, what I keep coming back to is that the obesity market is huge, and we are at the beginning of the market penetration. The market is also heterogeneous, and I currently don’t believe there will be a “winner-takes-all” product; not everybody will want a 25% weight loss, or an injection, or certain side effects. For this reason, I intuitively don’t currently believe Novo is ex-growth. Pricing in 2026 and 2027 is likely to be a significant headwind, but with the success of the Wegovy pill, I can see a route to growth. The brand, weight loss, and fewer drug interactions make it appear superior to me versus Lilly’s Foundayo, yet expectations seem lower, possibly since Lilly has been so successful with Mounjaro/Zepbound. The current valuation suggests this isn’t the case. Novo also has some interesting products in the pipeline outside of obesity.

When looking at the valuation of Novo, you need to consider that it has been going through a huge investment phase over the last few years, with capex-to-sales c. 20% (in theory, this physical production capacity and manufacturing know-how should provide a certain barrier to entry). For 2027, I would expect capex of c. 10% of sales, which remains elevated versus Novo’s historical levels and against industry standards of 5–7%. Dropping capex to c. 10% of sales results in cash generation at Novo significantly increasing, and at today’s valuation, would see Novo on a c. 7% FCF yield. At this valuation, I see an interesting risk-reward, although given the dynamic nature of the obesity drug market, I will limit myself to a 1.5% position.

Wise (£8.40): A fast-growing fintech with a focus on lowering the cost of cross-border transfers and sharing those lower costs with customers to drive further growth, a very powerful flywheel. The preliminary FY 2026 results released in April showed strong operating momentum, with active customers up 21% YoY and a 25% increase in cross-border volumes. The full release is on June 25th. On May 11th, the company moved its primary listing from the UK to the US; so far, it clearly hasn’t led to a re-rating!

When I first wrote about Wise in January, I highlighted two main risks: “1) Regulatory: there is always the chance of a money laundering or financing of terrorism tail-risk event.“ On June 1st, the story broke that Wise was being investigated by Belgian authorities regarding money laundering. The probe was initiated after Wise Europe’s accounts were identified in “hundreds of criminal files” and cross-border assistance requests from over 30 European countries. It seems even money launderers are cost, and time sensitive. I don’t wish to downplay it, but these investigations are relatively common. There is clearly potential for a fine or forced remedial actions, both of which could be costly, although, looking at past fines within the sector, they haven’t tended to be too onerous. Given the uncertainty and the increased risk, the shares fell on this news.

The second risk: “2) Wise is exposed to falling interest rates since this reduces the income they earn on customer balances. So, falling rates are a headwind, but the growth rates that Wise is currently achieving in customer balances are going a long way to offsetting this.” On this front, the interest rate environment has clearly changed due to the US/Iran conflict. The ECB raised rates last week by 25bps, and expectations are now for the Fed to increase rates rather than cut. A rising-rate environment acts as a tailwind for Wise. Although I wouldn’t count these risk factors as a 1-1 draw, given the uncertainty created by the money laundering investigation, I would currently call it a 2:1 loss.

Despite the money laundering risk, I still really like Wise, and I have slightly added to my position to maintain its size. The valuation remains attractive; at current levels, the stock is trading on an (adjusted) FCF yield of 5.7%. Given the growth and the very long runway, this seems quite compelling. Wise also sits on £1.3bn of net corporate cash and is highly cash-generative and asset-light. I expect that on June 25th, they will announce a large share buyback.

If you have more interest in Wise, I suggest you read one of the following notes. There have been some excellent pieces published on Substack.

Very in-depth piece by Rock & Turner – June 9^th

Rock & Turner Investment Analysis

Wise: The Holy Grail Investment?

14 days ago · 59 likes · 10 comments · James Emanuel

A piece by compound with Rene – 21^st May

Compound with René

Deep Dive: Wise Plc. ($WISE) – 10 Critical New Insights!

You can read a good chunk of this article entirely for free. If you find value in this research, consider becoming a Premium Member for less than $1/day to unlock our full archive and join our growing circle of investors (I highly recommend checking out “The Library” to see what’s inside; you can find it right on the homepage…

a month ago · 14 likes · 2 comments · René Sellmann

Review of business by Fiscal.ai

https://fiscal.ai/blog/wise-building-money-without-borders/?utm_source=newsletter.fiscal.ai&utm_medium=newsletter&utm_campaign=the-12b-company-reshaping-global-payments&_bhlid=7a3837b46691575401e18b3cdc393fff56dbc32a

Subscribe now

Leave a comment

Disclaimer: This is not investment advice, do your own research, all views expressed are my own. I may have a position in the company mentioned and I may increase or sell my position without providing any notifications

An update & 8 new positions added in 2025

The Curious Investor — Wed, 21 Jan 2026 17:04:34 GMT

It has been a while since I have written anything on Substack; spare time has been devoured by the arrival of a second child. I thought I was busy before the second child arrived, but I have a newfound respect for anyone who manages a large family - managing money feels comparatively easy.

I can definitely draw some parallels between the market and managing my four-year-old; both seem to react with very strong emotions and sometimes the smallest of things can apparently be the end of the world. When I look at the new names that I added in 2025, most of them were stocks where the market had decided there was a significant problem, and thus an opportunity was created. New names I added in 2025 were Alphabet, Ashtead Technology, Booking Holdings, Diageo, Judges Scientific, Nedap, Novo Nordisk, and Wise. I will give a brief outline of the reasoning behind each of these below, but first, I will give a quick update on the names I have written about on Substack since I started writing last April.

All valuation multiples are based on prices on the 21st of Jan 2026.

Hiab (Price €49) – Market leader across a number of industrial lifting niches (loader cranes, hook lifts, tail lifts) with nice exposure to defence logistics. A capital-light and high-return business with a net cash balance sheet and a large service element providing some protection from the inherent cyclicality of its equipment business (see previous notes from 11th April, 1st May, and 24th July). Hiab did post a weak set of Q3 results, with the main weakness coming from its US customers. The weaker-than-expected Q3 doesn’t change the thesis, and I would expect Q4 to be an improvement given the start of delivery on a large equipment order from Home Depot. I am maintaining the position, with the key catalyst being the cyclical pickup in equipment orders (Europe & the US) and the tailwind from increased European defence spending. Trades on c.17x earnings, 11.5x EV/EBIT (2026), and c.5% FCF yield.

Evolution Gaming (Price SEK 590) – The leader in online gaming for B2B. Asian growth reverted in Q3 after the promising signs of Q2; this was a clear negative and the shares de-rated as a result. Confidence has been damaged by the Asian reversal in Q3; even I feel “burnt” when I probably should be thinking this is an opportunity to add. For now, I have maintained my position. The positive is that the company continues to buy back shares, and the shares are pricing in a disaster scenario currently, with the reverse DCF pricing in negative FCF growth over the next 10 years. Structurally, the online casino market should see growth (especially in the US), and the specific headwinds Evolution has faced regarding European ringfencing start to get easier after Q1 2026. Regarding Asia, it is impossible to have any confidence in when this will be fixed, but at the current price of Evolution, the risk-reward is skewed in my favor, and any positive news could see a significant re-rating. At c.10x P/E and c.10% FCF yield, with a net cash balance sheet, and being the market leader in a structural growth industry with inflation protection and deeply depressed sentiment, I’m happy to take my chances.

Diageo (£16.60) – Diageo was a new addition for me in 2025, and I wrote about it on Substack - 9th July 2025 with the title “I may need a drink after buying this.” So far, the title has proved to be correct; since my purchase, I am down c.15%, although I have gained utility and made myself feel better every time I drink a Guinness. From its peak, Diageo is down 60%. In fact, all the spirit producers are down a similar amount. What is interesting is that the beer names have started to see a significant positive divergence versus the spirit makers; whether this is a leading indicator remains to be seen. On Diageo itself, my original thesis remains. I see it as a long-duration asset with some great brands; at the current price, it is trading on an FCF yield of over 6.6% based on consensus of $3.2bn for June 2026. On a simplistic PE basis, Diageo is trading on c.13.5x. However, I do see a risk to consensus numbers given the “mood music” coming out of Diageo hasn’t been overly positive, and with the arrival of a new CEO, there is always the potential for a “kitchen sinking” and possibly a cut to the dividend. I have more confidence in the FCF since there is a lot Diageo could potentially do, especially regarding maturing inventories (see original note from July for more detail). The balance sheet also has more leverage than I am usually comfortable with, although the company is proactively looking at a few disposals which will bring this down. So, for now, I will maintain my position and will consider adding after the new CEO firmly has his feet under the table.

Teqnion (SEK 170) – I wrote about Teqnion in a note on the 27th September titled “A serial acquirer getting its mojo back.” Following the Q3 results, I firmly believe this remains the case. The underlying Q3 results significantly exceeded my expectations, and I have subsequently been adding to my position when the shares are below SEK 170. It is now a top-three position in my overall portfolio. When improving operational momentum meets an attractive valuation, the share price performance tends to be very positive. The valuation suggests that the market remains sceptical, which is understandable given the weaker operational performance over the previous 18 months. What was so important about the Q3 results is that they showed underlying operations were significantly improving. I expect this operational momentum to continue, and this will be the catalyst for the shares to re-rate. On my new numbers, the shares trade on c.15x 2026 earnings; this is a significant discount to all other Swedish serial acquirers, and a multiple of 25x would still be relatively attractive given its ability to compound earnings at >15% p.a.

New Positions initiated in 2025:

Alphabet ($321) – Has so far proved to be my best purchase of 2025, having bought on the 7th of May at $150.40. Sadly, it was only a small position - embarrassingly small, and even though it has doubled, it still only accounts for a couple of toes. The purchase was made at a time when Alphabet was seen as a loser from AI, and anti-trust issues were front and center. The purchase was triggered by the attractive starting valuation of c.18x and the constant championing of Google’s technological edge by “Dev” on an investor WhatsApp chat, combined with my increasing use of NotebookLM. Seven months later, the narrative has completely changed, and Alphabet/Google is now seen as the winner of AI given its unparalleled access to data. Anti-trust is no longer seen as a major problem. The rating, at over 30x, has also changed and no longer stands out or particularly appeals to me, so it is currently under review.

Ashtead Technology (£4.04) – An oil & gas and offshore wind equipment rental business. I started a position at the end of August/start of September with an average price of £3.72. What triggered my interest in Ashtead Technology was the lowly rating (8.5x historic earnings), high returns (c.25% ROE), strong historic growth (M&A and organic), and a solid balance sheet (c.1.4x ND/EBITDA). The stock had also seen a significant drawdown of c.60% from its peak in July 2024. The explanation for the strong drawdown seemed to center on a slowdown in organic growth and some suggestions from a friend who is a UK mid-cap fund manager that the company was bullish in investor meetings only to disappoint a few weeks later, causing some to question management’s grasp of the business. The business is also clearly cyclical and is exposed to the oil & gas and offshore wind industries - clearly two areas that have been under some pressure due to weaker energy prices and, in the case of offshore wind, the anti-wind stance of the current US administration. The final explanation for the significant drawdown, and a technical factor that increased my interest in the idea, was that Ashtead was moving from the UK AIM market to the Main Market. In the short term, such a move would likely cause a degree of selling due to the loss of tax advantages of holding an AIM-listed stock, and any benefit from increased index inclusion or exposure to new investors from a Main Market listing would come later. So, in summary, there seemed to be a number of short-term factors depressing the Ashtead price, and as someone who takes a longer-term view, the business at the current price seemed extremely attractive. A recent trading update on the 19th of January confirmed that the business is operating at a good level. Even though 2025 has seen a slowdown in organic growth, it still managed c.3% with an acceleration to c.4-5% in the 2H, while the current valuation would suggest the business shouldn’t grow at all.

For a very good and detailed analysis of the underlying business please see numerous substack posts from Dragon Field Investing.

https://substack.com/@dragonfieldinvesting/p-183587299

Booking Holdings ($5,055) – Booking Holdings is very much a work in progress for me. I have started to build a position, so although it will technically be classed as a new position in 2025, I would expect to significantly add to it in 2026. My current average in price is $5,021. Booking is the leading online travel agent; it’s an excellent high-return, cash-generative business that trades at an attractive valuation of c.5.5% FCF yield (treating stock compensation as a cash expense). I would expect the business to be able to grow its FCF at c.10% p.a. for the next few years. The business benefits from significant negative working capital, and although there is a high level of gross debt, net debt is very small. What makes Booking particularly attractive is that it is using most of its free cash flow to retire equity; the shares outstanding have decreased from 49.1m in 2016 to 32.3m today. The reason I am building a position gradually is that even though the business is performing excellently, I wouldn’t be surprised if there was a wobble with market sentiment around the narrative, specifically the potential threat from AI agents. Clearly, software names have been very beaten up on the back of AI and “vibe coding,” and it is quite possible that online travel agencies could see a narrative of increased AI agent threats. Even though I’m worried about the potential narrative, I am less concerned about the actual fundamentals and would use any weakness to add. I see Booking as having a very strong competitive position and moat. Firstly, Booking provides users with trust; I know that if I use Booking, I have a lot of protection if something goes wrong. Secondly, Booking has a lot of stickiness from its loyalty plans, with over 50% of room nights coming from the higher tiers of the Genius loyalty scheme. Thirdly, Booking has an amazing set of data (demand & supply) and knowledge about its customers and providers, so there is a reasonable chance that they can build a leading AI agent. Overall, Booking strikes me today as a wonderful business trading at a reasonable price.

Judges Scientific (£58) – A UK serial acquirer focused on niche scientific equipment. I first started to build a position in Judges at the end of March and added a few times after; my current average price is c.£68. What attracted me to Judges was its long track record of excellent capital allocation, its successful buy-and-build strategy, and the market’s view that the business had significantly deteriorated - as demonstrated by the current drawdown of over 50% from its historic peak. My view is that the headwinds today are mainly temporary, and at a starting FCF yield of c.5%, given the long runway of growth, it is a good investment.

For those who are interested the excellent Chris Waller pitched Judges Scientific on this pod cast.

Rock & Turner Investment Analysis

Judges Scientific | UK Programmatic Acquirer

Listen now

6 months ago · 14 likes · 9 comments · James Emanuel

In addition there is an excellent post from December by Leeder Capital on Judges, well worth a read.

Just Another Shameless Cloner

Judges Scientific Deep Dive

History and Understanding the Business…

6 months ago · 23 likes · 6 comments · Leeder Capital

Nedap (€88.5) – A small Dutch software and hardware provider focusing on four main areas: livestock management (Fitbit for cattle), healthcare, retail (loss prevention & inventory management), and security (access control). I first bought Nedap at the end of January and added a couple of times in February and April for an average price of just under €60. I actually had a call with IR at the end of March; sadly, I didn’t find it particularly enlightening. My initial buy was based on 2024 being a disappointing year due to temporary headwinds. The company had a CMD in November 2024, and having watched the entire day on replay, it reinforced my view that 2025 should see a recovery and that the business was transitioning from upfront license sales to Software as a Service - a shift the market was misunderstanding. 2025 has proven to be a better year, and organic growth has re-accelerated; given the high operational leverage, this should also feed through into profitability (the FY release is 24th Feb). As operations have improved, the shares have re-rated, and the stock now trades on an FCF yield of c.4.5% and a PE of c.22x. At the current price, I am not inclined to add, and I have taken some profit. Compared to how the market has been treating other software names, Nedap has been relatively ignored (for now).

The substack post from mindful compounding that initially alerted me to Nedap – provides a good background on the business.

https://substack.com/@mindfulcompounding/p-154500545

Novo Nordisk (DKK 375) – Having kicked myself for a few years for not owning Novo Nordisk, I finally got the opportunity at the end of July following a profit warning. I proceeded to continue adding as the shares fell, ending up with an average price of DKK 327. Until the last few weeks, I was still underwater on an absolute basis, and despite the recent performance, I am still c.10% offside on a relative basis, given I sold another pharma name to finance the position. Novo really has had a large fall from grace, with a drawdown from the top peaking at c.70%. The premise on Novo was simple: it felt that the market was overreacting. Yes, 2025 growth hasn’t come through as the company expected, and there is a reasonable chance that 2026 sees earnings slightly down. Novo’s commercial execution relative to Lilly has been poor, hence the change in management and arguably a move to be less Danish and more aggressive in their marketing and trials. Yet, taking a step back, the obesity market is in its infancy with huge growth to come; Novo is one of the current leaders and has a strong pipeline. What also interested me was the disconnect in analyst forecasts for the Novo “pill” versus the expectations for Lilly’s “pill,” Orforglipron. Novo’s Wegovy in a pill has shown higher weight loss versus Orforglipron and has secondary cardiovascular benefits on its label, yet analysts expect Lilly’s pill to dominate the space based on the sole advantage of not having to wait 30 minutes before eating. Given the primary driver of market share has so far been the perceived level of weight loss, this seems a strange conclusion to me. The launch of Novo’s pill also has the potential to gain back customers who are currently lost to the compounders; 2026 will be an interesting year to see if this is the case. In addition, Novo has CagriSema coming for approval in 2026, which has shown weight loss of c.23% - higher than Wegovy (Novo) and Zepbound (Lilly). In 2027, they also expect to show a drug that has a lower weight loss profile (12-15%) but minimal side effects; for many weight loss users, this will be a very attractive proposition. What I’m trying to highlight is that Novo is not just a play on Ozempic/Wegovy. At around 16x earnings today, I believe the risk reward is heavily skewed in my favour.

Wise (£9.65) – Wise is a very interesting company; it’s a fintech with a focus on lowering the cost of cross-border transfers. Wise had been on my “to-do” list for a while, having spoken to friends who used it and raved about the savings. It also appealed because I hate being ripped off on FX charges and have always been amazed at how the spreads on FX transactions for the average person are so outrageous. When I am in an airport, I find myself walking past the currency desks and having to stop myself from telling anyone queuing up that they are having their faces ripped off; it might be commission-free, but the spread on the board is about 10%! At the start of November, I finally got around to looking at Wise properly, and when I found myself constantly thinking about the business and being genuinely excited, it was only a short time before I started building a position. My average entry price is £8.86. The addressable market for Wise is huge, and currently, they are only scratching the surface. They have built a network and infrastructure (£3bn of investment) over 14 years. The price at which they can operate is so low that much larger, established banks such as Morgan Stanley, Standard Chartered, and UniCredit are now using Wise for their cross-border transactions (which shows that the infrastructure really isn’t that easy to replicate). So, the market is huge and Wise is growing at c.20% p.a., the product is great and saves you money, and most customers join through word of mouth. Wise is trading on a PE of c.25x; the business is also highly cash-generative since pretty much everything gets expensed, so for 2025, I have an FCF yield of c.4.5%. In addition, the balance sheet is net cash c.£1.3bn, or c.13% of the market cap. Wise is also conducting a share buyback to eliminate previous dilution from past stock awards; once this is complete, I would expect Wise to announce further share buybacks rather than stockpiling cash (I believe it has the potential to become a “cannibal”). A further catalyst is that Wise is moving its primary listing from the UK to the US in H1 2026. I find this slightly depressing, but from a business perspective, it makes sense and will allow Wise a higher profile, which might help in accelerating its growth in the US; a higher rating may also come. Before I get too bullish, what are the risks? Firstly, regulatory: there is always the chance of a money laundering or financing of terrorism tail-risk event. Secondly, Wise’s profitability is greater than the underlying profitability that the company reports (again, very refreshing - not many companies tell you they are over-earning). This is primarily a result of Wise earning interest on money held for customers and not being able to pass this on; consequently, Wise is exposed to falling interest rates since this reduces the income they earn on these customer balances. So, falling rates are a headwind, but the growth rates that Wise is currently achieving in customer balances are going a long way to offsetting this.

There are also some good writeups online – Value & Opportunity wrote up a note at the start of November:

https://valueandopportunity.com/2025/11/03/wise-plc-the-costco-of-currency-transfers/#more-43826

Holland Advisors also have a writeup on their website:

https://hollandadvisors.co.uk/2024/10/01/wise-plc-the-more-we-look-the-more-we-like/

There is an excellent podcast that is worth listening to:

https://joincolossus.com/episode/revell-wise-moving-money-around-the-world/

The Dutch investors also provide good coverage of Wise.

https://substack.com/home/post/p-185223480

There are also some good pieces on InPractice and on VIC (Value Investors Club)– unfortunately I can’t post the links here.

If anyone has thoughts or questions on any of the above companies please message me, I would be happy to discuss.

Subscribe now

Share The Curious Investor

Leave a comment

A Serial Acquirer Getting its Mojo Back

The Curious Investor — Sat, 27 Sep 2025 11:12:38 GMT

Taking Teqnion to 3.3% of the fund, adding 1.8% at ~SEK150.

Background: I initially took a small position in Teqnion about two years ago at SEK200. Clearly, this purchase is underwater both on an absolute basis and, even more so, on a relative basis. It’s fair to say it has been one of my worst-performing holdings over the last two years. So clearly, I have little credibility with this name, so delete this email now and move on.

For those still reading, I believe Teqnion is very interesting at this point. The negative operational momentum that has been a major factor in the weak share price performance looks set to change. With this shift, I believe the shares have significant potential to appreciate.

The leap of faith (calculated risk) I am making is buying ahead of confirmed improvements in underlying operating performance. In the recent results, management highlighted that order books for a number of problem businesses have significantly improved, and they have been explicit that many of these businesses will return to profitability in the second half of 2025. Because of the operational struggles of the last 18 months, the market has remained sceptical.

I think my downside is protected because Teqnion has made 12 acquisitions, three in 2024 and nine so far in 2025. This year has been transformational: the group started 2025 with 30 businesses and, by the end of September, had grown to 39. Given the model and the traditional multiples they pay, earnings for 2025 and 2026 are strongly supported.

Typically, when a serial acquirer makes such acquisitions, the market reacts positively. In Teqnion’s case, the market remains in “doubt mode” and unconvinced by management’s capital allocation prowess - which is exactly why the opportunity exists. The lack of belief in operational improvement, and the fact the market seems to be ignoring how earnings-accretive the last 12 deals are, creates the setup. The next few sets of results will provide the proof points.

I believe that once Teqnion demonstrates improved underlying performance (which should happen with the Q3 2025 and Q4 2025 results), the shares will rerate strongly. Other listed serial acquirers trade on multiples of 30–40x; Teqnion, on my numbers, trades at 21.6x 2025 and 17x 2026. Management has a target of doubling EPS every five years and has openly stated they expect EPS of at least SEK15 in 2028. On 25x that would give a target price of SEK375.

My own numbers are slightly more conservative:

2023A: 7.51 (+10%)
2024A: 5.58 (–26%)
2025E: 6.94 (+24%)
2026E: 8.82 (+27%)
2027E: 10.62 (+20%)
2028E: 12.67 (+19%)

For 2025 and 2026, I assume no additional acquisitions beyond the nine already announced in 2025 and two similar-sized deals in 2026. My other main assumption is a 5% organic EBITA decline in 2025 (so all growth comes from acquisitions), followed by 5% organic EBITA growth in 2026/2027/2028. The rest of profitability growth comes from acquisitions: two average sized deals in 2026 and then four to five average-sized deals in 2027 and 2028. An exit multiple of 25x in 2028 would imply a share price of ~SEK315.

Keeping It Simple: The Business Model
The model of a serial acquirer is straightforward: buy good businesses at low prices, use their cash flows to acquire more businesses, and repeat. Teqnion targets a payback within five years, typically paying around 5x earnings. They generally assume little growth; when there is growth, they pay less upfront and structure more through earn-outs.

This opportunity exists because of the gap between public and private valuations. As a primarily public investor, the ability to buy cash-generative businesses at such multiples initially surprised me. But after research and speaking with a small-business broker, it became clear it is very feasible. I am also an investor in a private fitness business - profitable and highly cash generative - and business brokers typically market such businesses at just 2–4x EBITDA!

The serial acquirer model is therefore very powerful. In simplistic terms: buy cheap private businesses, which are highly earnings-accretive, and repeat. This creates strong earnings growth and a long runway to deploy capital at ~15–20% ROIC. Successful serial acquirers trade on multiples of 30–40x. Examples include Lifco, Indutrade, Constellation Software, and Chapters Group.

Can Teqnion follow the successful serial acquirers listed above? It is fair to say management talk a very good game and come across as genuinely humble and are focused on doing the right thing. They have most of their net wealth in the business, and they have some interesting shareholders who have previously backed and identified other successful serial acquirers. On the balance of probabilities, it seems a reasonable bet to back them. As noted earlier though the journey so far has not been without some issues.

Teqnion’s Problems
In 2024, a number of businesses hit an air pocket. At the start of 2025, Teqnion had 30 businesses, of which about a third were struggling or loss-making. Problem areas included two Swedish housebuilders and several suppliers to heavy industry or contract manufacturers. A couple of businesses also suffered from self-inflicted execution errors.

The 2024 results reflected this, with organic EBITA down ~25% (–12% reported). Reported EBITA was inflated by SEK17.9m of lower contingent liabilities (less money owed for past acquisitions due to weak profits). Against that, Teqnion took significant restructuring charges (not disclosed), especially in Q4 2024.

Management has been open about mistakes. They admitted some acquisitions such as the housebuilders would not meet their current acquisition criteria (too cyclical). They also acknowledged being too slow to respond to deteriorating performance. These lessons have been taken on board and new processes implemented. In the Q4 2024 report, the CEO graded performance an “F.” Teqnion has been through difficult periods before notably 2008 (the only loss in its history) and 2019 (EPS down 70%). The CEO/founder has shown the ability to adapt. In my view, it’s worth betting they will again. The goal of doubling EPS every five years remains intact.

The Turnaround
In the Q2 2025 results, management indicated the nadir had passed. They provided hard data: four businesses with longer lead times (includes the two housebuilders) are expected to swing from a SEK14m H1 loss to a SEK2–5m full-year profit, a SEK16–19m turnaround. For context, FY2024 EBITA was SEK149.7m.

Other problem businesses are also improving: one has doubled margins under a new CEO, and several others are “on the path to profit.” If not, management has not ruled out exits.

The tone of recent updates is notably more optimistic than in 2024, suggesting they can see light at the end of the tunnel.

Acquisitions have ramped up, 2025 is transformational
So far in 2025, Teqnion has made nine acquisitions (vs three in 2024 and three in 2023). The stock hasn’t reacted, suggesting the market has lost confidence in management’s capital allocation skills, a consequence of the poor 2024 performance.

Acquisition criteria “We are not rigid, but we want at least 15% net margin, preferably higher. Return on capital is also important. If the balance sheet is light and margins strong, most earnings convert to cash. Then we negotiate a price that lets us recoup the investment in about five years.” - Johan Steene

This translates to ~5x earnings for stable businesses with good cash flow. Teqnion seeks companies with high ROIC, strong cash conversion, and low CapEx needs, recycling cash into further acquisitions.

On conservative assumptions, the 2025 acquisitions (plus 2024’s) add ~SEK300m of sales and ~SEK46m of EBITA in 2025. Inorganic growth thus contributes ~19% to sales and ~31% to EBITA this year.

On a full-year basis (as if acquired 1 Jan 2025), the nine acquisitions would add ~SEK400m sales and ~SEK60m EBITA, at a cost of ~SEK270m (pre-contingent earn-outs). Assuming a 6% debt cost, this adds SEK43.8m PBT and ~SEK34m net profit, or ~SEK1.99 per share (vs FY2024 EPS of SEK5.58).

Is the recent deal spree a show of strength or an indication of weakness? Strength since they are more confident that they have fixed most of the underlying operating performance, so they have had more time to execute deals? Or weakness in that they have panicked and lowered their acquisition criteria to help hide the performance of the struggling businesses? I worry about the fact it could be a show of weakness, but I ultimately believe it is more likely a positive indication that the underlying businesses are close to being fixed. A key point to remember is that the vast majority of Teqnion’s management’s net wealth is in Teqnion’s shares, they are true owner operators.

Management Skin in the Game

Johan Steene: 861,471 shares (5% of outstanding shares).
Daniel Zhang: 108,000 shares (0.63%). 100k acquired from Johan Steene at SEK202/share on 19 Feb 2024.

Other notable shareholder transactions:

March 2025: Antheia (Daniel Ek’s family office) acquired 12% from Vixar AB at SEK180/share.
June 2025: Investment AB Spiltan bought 108,995 shares at SEK141.40, raising its stake to 11.4%.
December 2024: Christopher Mayer (Woodlock Capital, 4.5% stake) bought a further 11,000 shares at SEK170.

Conclusion

It has been a tough couple of years for Teqnion, but we are now at a point where the narrative is set to change. The acquisitions of 2025 should feed into a strong set of numbers for 2025 and 2026. The improving underlying operations and the strong growth from acquisitions will see significant EPS growth, and combined with a potential rerating should result in very strong share price appreciation.

Subscribe now

Leave a comment

Diageo review post Change of management, publication of FY 25 results and the 2025 annual report.

The Curious Investor — Sat, 30 Aug 2025 08:19:25 GMT

Previously initiated a position at c£19 with the reasoning set out in the attached link:

Conclusion – maintain current position of 2%. Only look to add below £19 everything else being equal. Expectations for 2025 results and 2026 guidance were limited and met. Stock remains interesting given it is a long duration asset with pricing power, but no current signs of positive operational momentum.

Downside protected by cash generation and levers to improve FCF. Company maintained target of generating >$3bn FCF pa. I remain confident in the ability to significantly improve FCF either from lower capex, and/or potential reduction in maturing inventory additions. I regard the $3bn FCF target as a minimum likely outcome. Importantly at least $3bn guidance includes any exceptional cash costs.

At a share price of £21, $3bn FCF equates to a FCF yield of 4.8% for financial year 2026. Consensus for financial year 2026 (remember year end is June) is for FCF of $3.23bn and equates to a 5.2% FCF yield. This is attractive given the strong brands and long duration nature of the asset. Any evidence of an improvement in operational momentum could lead to a significant rerating.

The recent change in the CEO (by mutual agreement….), highlights that there is currently no light at the end of the tunnel with regards operational momentum. As in my original note I still believe that most of the headwinds are cyclical, and with time the spirits sector & Diageo specifically will be able to generate MSD top-line and HSD operating profit growth over the cycle.

Subscribe now

Review of FY 2025 results:

Expectations for the FY 2025 results and outlook for the coming year were suitably low, in part because the company announced that the CEO Deborah Crew would be leaving Diageo by mutual consent a few weeks prior to their publication.

The 2025 results and the outlook for the financial year 2026 met expectations, a degree of relief resulted in the stock having a nice upswing post.

Sales $20.245bn -0.1%.

On Diageo’s measure (so adjusted for FX and scope) Net sales growth came in at +1.7% of which volume +0.9% and Price/mix +0.8%.

Best performers Don Julio +38%, Guinness +13% and Crown Royal +3%, whilst Johnnie Walker -5%, Casa Amigos -16%, Smirnoff -5% and Capital Morgan -6% all declined. The non- alcoholic portfolio including Guinness 0.0 grew by 40%.

By region Net sales growth: N America +1.5%, Europe +0.3%, APAC -3.2%, Latam & Caribbean +9.2%.

N America remains the most important region at 40% of sales, Europe 24%, APAC 18%, Latam & Caribbean 9% and Africa 9%.

Operating profit $4335m -27.8%. Excluding exceptionals, Diageo's organic operating profit fell 0.7% to $5,704 million.

The main exceptional charges for 2025 include $910m of impairment & other related charges ($458m from exit of Distill ventures business, $231m Aviation American Gin, $170m various other US brands, $51m Bells Whisky). A $225m of restructuring charges for the accelerate programme and $145m for exit of MH distribution in France.

Impairments are clearly non-cash although do highlight previous poor capital allocation decisions.

With the new CFO and now interim CEO, Nik Jhangiani, there is a greater focus on returns, albeit partly driven by the tougher environment and recent weak results.

In 2024 results exceptional charges had a minimal impact on the reported results.

Basic EPS: $105.9 cents -39%

EPS before exceptional items: $164.2 cents -9%. Larger decline versus operating profit before exceptionals is a result of a lower contribution from the stake in Moet Hennessy. Share of after-tax results from JVs and associates fell from $414m in FY 2024 to $193m in FY 2025.

Return on average invested capital 13.7% (down from 15.8% in 2024)

DPS maintained at 103.48 cents.

FCF: $2748m ($2609m in 2024). Reiterate >$3bn FCF from 2026 onwards, and this includes any exceptional cash costs (In 2025 Diageo took a P&L charge of $225m for restructuring part of the accelerate plan, so presumably there will be some cash costs in FY26).

Capex: FY2025 $1549 (FY24 $1496m) Guidance for 2026 $1.2bn-$1.3bn. Will be at MSD as a % of sales within 3yrs, compares to 7.65% in 2025., from 2016-2021 it was around 5%.

Net debt $21.85bn and net debt/EBITDA 3.4x. Net debt increase slightly year on year. From FY26 the leverage ratio should start to come down, and over the next couple of years gradually move back to the stated target range of 2.5-3x.

Accelerate cost saving plan increased from $500m to $625m over 3yrs. Savings evenly split over 3yrs. 50% will be reinvested into the business and 50% will go to the bottom line.

2026 Guidance: Flattish organic sales, and growth in operating profit from cost savings.

Management note the persistence of a challenging consumer environment and anticipates modest growth through 2025. Growth more 2H weighted with a late Chinese New Year in 2026 and lapping high Don Julio stocking. Organic sales growth will be negative in H1 and positive in H2.

Organic operating profit expect MSD growth including tariffs with main contributing driver being the accelerate savings. Organic operating profit growth will be 2H weighted.

Assume tariffs 10% UK, 15% Europe. $200m impact, $100m expected to be mitigated in first year. Assumes that Mexican and Canadian imports remain USMCA compliant.

Maintain FCF guidance of at least $3bn, it is important that the CFO now interim CEO has staked a lot on this. Free cash flow will clearly be helped by lower capex of $1.2bn to $1.3bn vs $1.545bn in FY 2025, management on the call acknowledged room to improve working capital, although they have been vague on what exactly the plan for maturing inventory is. Management will exercise caution, as mature inventory supports future expansion and represents a distinct competitive advantage. However, since growth has lagged expectations in recent years, there is an opportunity to moderate the pace of matured inventory build.

Worth noting that Pernod with its FY25 results release (28^th August) provided a similar outlook for the next 12 months, with 2026 (again June end financial year) being very much a “transitional” year, with H1 seeing a decline in organic sales, and a return to growth in the 2H.

Notes from the 2025 annual report: Supportive of future levers to improve FCF generation.

Total inventory: June 2025 $10658m vs $9720m June 2024, an increase of 9.6%. Inventory to sales has now increased to 52.6% of sales from 48%. Maturing inventories Increased to $8,667m from $7,832m an increase of +10.6%, at least half of this move is a result of FX. A weak $ vs GBP increases the $ value of maturing scotch inventory (scotch makes up the majority of Diageo’s maturing inventory portfolio).

The good news is that the free cash flow of $2.748bn in FY25 wasn’t significantly boosted by lower investment in maturing inventory, this lever/benefit is still to come, and provides me with confidence that FCF can be significantly raised (see original note for more detail).

View on the change of management: A net positive given poor previous capital allocation.

Debra Crew left Diageo on the 16^th of July and was replaced by the CFO Nik Jhangiani who has been named interim CEO. Crew had been CEO since June 2023, having previously been Head of N America from July 2020 – October 2022, and then Chief operating officer from October 2022 to June 2023.

Since Crew has been CEO, Diageo has had a tough time, the blame for this can’t be solely placed on Crew since the whole industry has faced a cyclical downturn. Where Crew can be criticised is in capital allocation over her time in charge. Diageo (like the rest of the industry) significantly over invested in spirits capacity, and arguably under invested in Guinness capacity (they were supplied constrained at the end of calendar year 2024). Crew was also in charge whilst the balance sheet of Diageo became over leveraged and is now at 3.4x net debt/ebitda above the company’s self-imposed range of 2.5x-3x. Crew was also head of the US when Diageo acquired Aviation American Gin for which they have just taken a sizeable impairment.

What is clear from the board replacing Debra Crew is that there is currently no quick operational turnaround on the horizon, this was confirmed by the 2026 guidance.

The interim CEO Nik Jhangiani’s main background is from the Coca Cola bottling system. In Investor meetings he comes across well, with a clear focus on improving returns, he basically says the right things. He acknowledges the need for greater consistency particular with regards to FCF, and he clearly owns the >$3bn FCF guidance. In my opinion it is likely that Nik Jhangiani is named permanent CEO.

Leave a comment

Subscribe now

Disclaimer: This is not investment advice, do your own research, all views expressed are my own. I may have a position in the company mentioned and I may increase or sell my position without providing any notifications.

A follow up on looking for gems in the market wreckage

The Curious Investor — Thu, 24 Jul 2025 15:41:40 GMT

Hiab is what prompted me to first write on Substack in April 2025 “looking for gems in the market wreckage”

See previous link below for more details of the business:

Hiab proved to be a gem, since that publication the stock is up 60% in just over 4 months.

Subscribe now

My motivation to publish is that I write these short summaries internally for my family office, so the move to publish on a substack wouldn’t take much additional time. There was always a chance it could generated some interesting conversations or feedback, that might help me understand any flaws in the idea, or gather new information. I was right in that it didn’t take any real additional effort (a bit of cut & paste, and some editing in an attempt to make it a bit more readable), however I may have overestimated the amount of people who may have been interested, and consequently there was disappointingly no feedback loop!

Hiab is a high-return, niche industrial market leader, but is the stock still worth buying after the re-rating?

Valuation:

At E59 Hiab has a market capitalization of E3.8bn, with a net cash balance sheet of E303m post the MacGregor sale (closes next week).

Hiab trades on 2.14x EV/Sales 2025 (1.94x 2026). 14.3x EV/EBIT 2025 (12.5x 2026). P/E 20.4x 2025 and 18.6x 2026.

I forecast FCF cE180m for 2025 (E105m in H1), putting the stock on a 4.7% FCF yield.

Reverse DCF: Using a 10% required return pa and a 3% growth in perpetuity, for the next 10 years Hiab is pricing in FCF growth of 9.85% pa. In April the stock was pricing in 2.75% pa FCF growth.

Hiab is targeting through the cycle sales growth of 7%. Over the last 10yrs it has averaged 6.5%. There remains clear room for margins to improve, especially when equipment volumes return. I believe FCF growth of c10% on average pa is possible, therefore the stock at todays price still offers acceptable returns, although clearly below those on offer in April.

The stock multiple is unlikely to rerate further, the valuation now more closely reflects the quality nature of Hiab and its large service exposure (30% of group sales, c24% operating margins, capital light, hence very high return). Additional upside will come from a recovery in sales (likely to be driven by Europe and defence), and or successful bolt on acquisitions.

Maintain a 4% position.
No new capital for now, and no profit‑taking—“water your flowers and cut your weeds.”

I see more attractive opportunities for new money in other industrial cyclicals, such as Daimler Truck, which is facing some short term headwinds, but is a high quality, high return market leader, whose high underlying returns are masked by its financial services business. Anyway, that will be for another post in the near future.

Review of 2Q results - the execution has been excellent.

The margin progression given the decline in volumes has been exceptional.

Margins boosted by commercial and supply chain actions.

Equipment 2Q margin 13.9%, but adding back a E5m asset write-down gives an underlying margin of 15.6% (15.2% Q2 24). H1 Equipment margin 14.8%, but with the writeback the underlying is 15.67% vs H1 24 14.9%.

Services 25% margin in 2Q, and 24.3% in H1.

Outlook for 2025 updated: Hiab estimates its continuing operations' comparable operating profit margin in 2025 to be >13.5 percent (2024: 13.2 percent). This has been increased from greater than >12%.

On the call management noted that 13.5% is a floor. I have assumed 15% for FY2025 (this is still conservative), which would imply a 14.5% margin in H2, on sales of E784m -2% YoY for H2 (compares to -4% in H1). I expect some improvement from Europe and defence orders. Management commented that they see robust replacement demand, and growing momentum in defence logistics. Whilst they see weakness in N America from higher uncertainty.

As discussed earlier the H1 margin was depressed by E5m in the equipment division (asset write-down as part of the Italian restructuring). Without this write-down H1 group margins would have been 16% rather than 15.5% reported. My forecast of 15% for the full year is conservative, since the 2H will see the benefit of cost savings from restructuring at the Italian site.

Confident in 2028 targets of 16% operating margins, and through the cycle sales growth of 7% pa, and a ROCE >25%. Arguably the 16% target looks conservative, given at some point there will be a volume recovery. Management tend to set margin targets as floors.

Orders:

2Q orders +8% (+10% cc).

H1 orders +3% (+3% cc)

Total order book E556m down from E648m end of Dec24 –14%.

Management noted orders have been relatively steady for the last 11Q’s.

Americas orders were boosted by one large order in 2Q (Home Depot?).

Orders for defence logistics were MSD-HSD of total orders. In 2Q 2024 there was a large order for defence in EMEA, which made it a tougher comp. On the call management noted good momentum in defence logistics, and suggested more orders in the 2H (they can be quite lumpy).

Sales:

2Q Sales -7% (-5% cc).

H1 Sales -4% (-4% cc)

Split between Equipment 71% and Service sales 29% of group.

Hiab is seeing strength in lifting equipment orders & sales and weakness in delivery areas (especially Americas).

I would expect European sales to pick up in the 2H, driven by defence logistics and construction. We will get more potential insight on this from Palfinger on July 25^th.

Net cash balance sheet:

Net cash for continuing operations at end 2Q E78m.

MacGregor deals closes 31^st July and E225m of cash in. The deal was originally expected to close by the 1^st July, but regulatory approvals took slightly longer, these have all now be attained.

With the cash from MacGregor net cash will be E303m, or c8% of market cap (at E59).

Still not well covered: there were no questions on the 2Q results call.

Potential next two drivers:

1) A recovery in sales – to come from EMEA with a recovery in construction related orders (already seeing green shoots), and growth in defence logistics (good momentum highlighted, and high margin business).

2) Bolt on M&A - strong balance sheet, and historically been successful within the Hiab business unit, but always a risk. Management noted a few projects in the pipeline (don’t want turnarounds) - new developing markets or growth in adjacent segments. I’m not prepared to pay up in advance for this, although I would expect any announced deals to be taken positively given the strong execution of management.

Updated numbers post Q2 results:

Main changes are an uplift to margins given the strong H1 results, and slightly lower capex for FY25.

Updated valuation summary:

Subscribe now

Leave a comment

Disclaimer

None of the above is investment advice, do your own research, all views expressed are my own. I may have a position in the company mentioned and I may increase or sell my position without providing any notifications.

Evolution Gaming thoughts post H1 results

The Curious Investor — Mon, 21 Jul 2025 15:08:52 GMT

30 second summary:

· Share price back to SEK 840 (from SEK 650 post-Q1); sentiment improving.

· Q2 growth better than feared: +8.8% constant currency; Asia returned to growth.

· CEO bought €6m in shares in June — strong insider signal.

· Europe still soft due to ringfencing.

· Margins down but resilient given the circumstances

· Valuation attractive: 12.5x 2026 P/E, 7.7% FCF yield.

· Ongoing buybacks: €280m planned for H2.

· Risks remain, but clearer path to recovery and rerating.

Subscribe now

Turning the corner

I first wrote about Evolution on 23rd April 2025, when the share price was SEK 820: https://tci77.substack.com/p/evolution-gaming. At the time, I argued that the shares were attractive despite operational headwinds — namely cyberattacks targeting Asia and increased costs stemming from disruption at Evolution’s largest studio in Georgia.

Today, the share price is SEK 840. But it dropped as low as SEK 650 shortly after the Q1 results in late April. The Q1 disappointment introduced a new headwind: the ringfencing of European markets. This came on top of the ongoing issue of Evolution’s game streams being stolen in Asia. At the time, there was no clear visibility on when the Asian pressures might ease, and it was evident that the European ringfencing would have a larger impact in Q2 - as Q1 only reflected two months of the new measures. These compounding operational challenges, and the lack of clarity on when they might subside, contributed to a significant derating of the stock.

Sentiment turned sharply negative. As I wrote on 21st May, following the Q1 results, the shares were effectively pricing in no further free cash flow (FCF) growth: https://tci77.substack.com/p/evolution-post-q1-review.

Since then, two key developments have helped shift sentiment. First, the CEO made a notable open-market purchase of €6 million shares on 13th June - a strong signal that the worst might be behind us. That view was arguably confirmed by the Q2 results.

On 17th July, Evolution reported Q2 numbers. While the headline sales growth of 3.1% wasn’t overly exciting (though expectations had been low), the constant currency growth of +8.8% was much more encouraging. Importantly, Asia returned to growth both year-on-year and sequentially - a clear sign that the worst pressures may be easing.

Interestingly, the share price is now roughly where it was when I first wrote in April, but my confidence in the stock has increased.

I can now start to see a path where Evolution returns to reaccelerating growth and improving operating margins - setting the stage for a rerating and a reversal of the past 12 months’ weakness.

Valuation:

P/E: 2025: 14.1x | 2026: 12.5x
EV/EBIT: 2025: 11.4x | 2026: 10.5x
FCF yield: 2025: 7.1% | 2026: 7.7%

Reverse DCF: Using a 10% required return, 3% perpetual growth, and starting FCF of €1,071m (consensus for 2025 is €1,080m; H1 delivered ~€500m), the stock is currently pricing in just 2.9% annual FCF growth - a conservative assumption that offers attractive risk-reward.

Assuming 7% FCF growth implies ~30% upside from the current share price.
At 10% assumed FCF growth, the fair value would be ~60% higher (SEK 1,344).

Net cash (including bond portfolio): €606m

Q2 Results Summary:

Asia: Revenue grew 3.6% sequentially and 4.2% YoY (reported, so includes FX headwinds). Management is cautiously optimistic for the remainder of 2025.
They’ve started taking active steps to stop stream theft, including ending relationships with aggregators/customers involved and using technological measures. It’s still a cat-and-mouse game, but progress is being made. Importantly, Q3 marks the anniversary of when this issue started (Q3 2024), so comps should begin to ease.

Europe: Another quarter of negative growth due to February’s ringfencing measures.
Q2 revenue declined 5.8% YoY and 5% QoQ - versus only two months of impact in Q1. Summer is also a seasonally weaker period.
Ringfencing will remain a headwind for the next two quarters, but by early 2026, Europe will return to positive growth given the easier comps.

Management acknowledged that the financial impact outside the UK has been greater than anticipated. They reiterated their view that regulation is a long-term positive - but only if structured properly. Excessive regulation reduces player protection and shrinks the addressable market, while a balanced framework can protect players and support a healthy industry.

North America: Strong momentum continues. Revenue grew +23% YoY (including FX headwinds) and +3.5% QoQ.

Latin America: Revenue grew +2.8% YoY. Evolution remains optimistic about the medium- to long-term potential, particularly in Brazil, though adoption of new regulations will take time. A new studio in São Paulo opened.

More share buybacks coming:

H1 2025: €219.5m in share repurchases (~3.2m shares).
H2 2025: Evolution plans to buy back another €280m worth of shares.

As of end-June 2025, there were 203.4 million shares outstanding. The balance sheet remains robust, with net cash (incl. bond portfolio) of ~€600m. The business remains highly cash generative, and excess cash (beyond the dividend) will continue to be returned via buybacks.

Are Evolution’s super-high margins sustainable?

Margins have been trending lower since early 2024 - one factor behind the share price derating. The concerns are twofold: (1) margins started from unsustainably high levels, and (2) expansion into regulated markets brings higher costs.

I see things differently. In fact, I'm reassured by how resilient margins have been given the scale of the headwinds - especially the disruption at Evolution’s largest and most efficient studio in Georgia, alongside cyberattacks in Asia & ringfencing in Europe. Despite all that, margins only declined 340bps YoY to 58.3% in H1 2025.

More impressively, these margins were delivered during an investment phase, where Evolution is consciously prioritising growth over short-term margin optimisation. They are investing in new studio capacity and headcount in key regulated markets - North America, Brazil, and the Philippines - which is weighing on current margins. Management has said they could improve margins by slowing expansion, but are instead choosing to invest for the long term. A key goal is to reduce reliance on Georgia and diversify operational risk.

Growth in regulated markets does not automatically mean structurally lower margins. Evolution has strong pricing power in regulated markets, particularly the US, where competition in live casino is limited. Players in these markets also tend to have higher value and engagement levels, which offsets higher local costs.

Moreover, regulatory barriers are high, which discourages smaller competitors and reinforces Evolution’s market leadership. Combined with continuous product innovation and premium positioning, this helps protect margins in more complex jurisdictions.

UK Gambling Commission review – a risk to watch:

No update from management on the timing of the UKGC review. The UK makes up about 3% of group revenues - so while any negative outcome could weigh on sentiment, the direct financial impact would likely be limited.

It remains a noisy stock:

My biggest gripe with Evolution is the ongoing noise around the name - particularly from retail investors. (Yes, I realise the irony given I’m also writing about it.)

That said, sell-side and institutional coverage remains relatively limited given the company’s size, with many funds avoiding the sector altogether. That lack of attention may be part of what attracted a contrarian investor like Kenneth Dart to the name.

Conclusion:

Maintain position at 3.5%.

Subscribe now

Diageo – I might need a drink after buying this…

The Curious Investor — Wed, 09 Jul 2025 10:30:47 GMT

This is not investment advice, do your own research, all views expressed are my own. I may have a position in the company mentioned and I may increase or sell my position without providing any notifications.

Subscribe now

30 second summary

Core idea: Diageo is a high-quality, global branded spirits business that has de-rated heavily (c. 50% drawdown from peak) due to cyclical and execution issues, not structural impairment.
Catalyst: The company has a new CFO who has set a floor of $3bn FCF for FY26, with clear self-help levers (lower capex, lower inventory build, cost savings) to take FCF to $3.5–4bn. This could mean 6–7% FCF yield on a depressed multiple.
Valuation angle: Historically trades at ~4% FCF yield → ~50–75% upside on mean-reversion.
Balance sheet: Slightly stretched at ~3.3–3.5x ND/EBITDA, but management is committed to bringing it back to ~2.5–3x by FY28. Some planned divestments could help.
Brand power / moat: Strong brand portfolio (Johnnie Walker, Guinness, etc.) with scale/distribution advantages, ROIC ~13–18% historically (on adjusted basis).
Concerns addressed: Weak recent growth (seen as cyclical normalization), Guinness “fad” fears rebutted with evidence of innovation and growth drivers.

Overall, this is a classic “quality at a reasonable price” / cyclical mean-reversion thesis with a clear path to FCF improvement.

Diageo

I might need a drink after buying this… but the beauty is that every time I see someone order a Guinness or a Johnnie Walker (or any of about 200 other brands), I now take some additional pleasure.

After watching from the sidelines with interest as Diageo rerated post-COVID and then significantly derated from early 2022, I am now opening a position. In short, I feel like I’m buying a quality, long-duration asset at a value price, with a large part of the opportunity created by cyclical factors.

Starter position: 1.5%, purchased between 13 June and 25 June at an average price of approximately £18.95. I’ll look to add on any further weakness.
Diageo has seen a drawdown of over 50% from its peak at the end of 2021.

Why now

What triggered me to start building a position was listening to the company state that it will generate FCF of at least $3 billion in its financial year 2026 (Diageo’s financial year runs 1 July 2025 to 30 June 2026).

At a share price of around £19 (2,234 million shares in issue and an FX rate of 1.35), Diageo’s market capitalisation is $57.3 billion (EV ~$78 billion), and a floor of $3 billion FCF equates to a FCF yield of 5.2%.

“But ultimately our free cash flow is going to be growing also from top-line growth, operating leverage and driving that piece, that's critically important as well. So, we've got to put it all together. And like I said, the three billion is a floor on which we feel very confident that we can continue to grow by using all of those multiple levers.”
CFO speaking at DB conference, 24 mins into fireside chat, June 2025

The floor is important, given this is a new CFO (joined September 2024) who is acutely aware that Diageo’s performance hasn’t been consistent or reliable:

“Diageo, like I said, is a highly cash generative business, but it hasn't been consistent over the years. We will be intently focused on maximizing free cash flow, and there's further opportunity to do so to drive absolute dollar cash flow growth and consistency.”

In further discussions, it also became apparent that the $3 billion FCF floor is resilient under very different macro scenarios. That $3 billion doesn’t include significant help from lower capex, since capex will remain elevated in FY2026 as several projects are mid-stream. There may be some benefit from a reduced maturing inventory headwind, but I believe most of the improvement will come from the accelerated cost-saving plan targeting $500 million in savings.

A FCF yield floor of 5.2% is interesting, but that alone wouldn’t be enough. What really grabbed my attention is the self-help Diageo has in improving FCF. Significant savings could come from lower capex and slower additions to maturing inventories. It doesn’t require heroic assumptions to see Diageo improving FCF by ~$500 million to $1 billion from these sources.

A FCF of $3.5–4 billion equates to a FCF yield of 6.1–7%. Now I’m interested.

For reference, FCF over the last three financial years has been: FY24 $2,609 million, FY23 $2,235 million, and FY22 $3,695 million.

Capex

One of the main levers for improving FCF after FY26 is capex. Capex is currently 2.43x depreciation. After demand exploded post-COVID (organic sales declined 8.4% in FY2020, then grew 16% in FY2021, 21.4% in FY2022, and 6.5% in FY2023), Diageo invested heavily in new capacity (a classic capital cycle!).

Demand clearly disappointed in FY2024 at -1%, and FY2025 (reporting in August) is also subdued at around flat. As a result, Diageo now finds itself heavily invested, with a growing realisation that it needs to sweat its assets.

Capex for FY2026 will remain elevated with many projects mid-way, but from FY2027 there is significant room to reduce capex.

CAPEX to DEPRECIATION:

CAPEX/SALES:

The uplift in capex is clearly visible in the capex/sales ratio. Every 1 pp move represents ~$200 million of FCF. It isn’t unreasonable to assume capex/sales could fall to ~5% post-FY27, or around $1 billion absolute, compared to ~$1.5 billion p.a. over the last three years. That suggests potential to boost FCF by up to ~$500 million p.a. from FY2027.

Maturing inventories

The second significant improvement in FCF could come from slowing the growth in maturing inventories. In simple terms, maturing inventories are stocks of products that require extended ageing before sale. Scotch whisky accounts for most of Diageo's maturing inventory value.

Diageo has invested significantly in maturing product to support future growth and premiumisation. However, given weaker demand in the last few years, there is now an opportunity to see less FCF consumed—at least over the next few years.

From the table above you can see Diageo has steadily increased maturing inventories from $5,591 million in 2019 to $7,832 million in 2024. That growth has been consuming an extra ~$400 million p.a.

Looking at total inventory as a % of sales, you can see a clear step-up from pre-COVID times.

Each 1 pp represents ~$200 million. If Diageo reduced inventory-to-sales to ~43% (a pre-COVID level), it would free up ~$1 billion in FCF.

Diageo FCF yield over the last 10 years

If you can get comfortable that Diageo could trade at a 6–7% FCF yield, why is that interesting?

Because historically it has tended to trade around 4%, and a return to this yield would imply upside of 50–75% from a share price of £19.

Other considerations

Is Diageo a quality company?

Looking at ROIC (from fiscal.ai) shows Diageo is a decent rather than outstanding business. However, that likely understates the full picture, complicated by Diageo’s 34% stake in Moët Hennessy (equity accounted and excluded here). This calculation also includes exceptionals that Diageo excludes in its own figures.

Diageo’s annual report provides an adjusted average ROIC including its 34% Moët Hennessy stake and before exceptionals:

Again, it shows Diageo is a decent business. It is logical that the world’s largest spirits company would have some competitive advantage or moat, with clear benefits from scale and distribution, and brand heritage supporting a reasonable return on capital.

Potential hidden value from United Spirits stake in India

Diageo owns 55% of United Spirits and fully consolidates it.

United Spirits’ share price has performed strongly in recent years (in stark contrast to Diageo). The whole company has a market cap of ₹994 billion ($1 = 85.4 rupees) or ~$11.6 billion, making Diageo’s 55% stake worth ~$6.4 billion (about 11% of Diageo’s current market cap).

United Spirits contributed $1,338 million in net sales in 2024 and $152 million in comprehensive income (of which $65 million was lost through the minorities line).

It trades on 56x NTM earnings and 41.7x EV/EBITDA, versus Diageo at ~16x NTM earnings and 12.8x EV/EBITDA.

United Spirits looks very expensive, partly because it owns the trophy asset of an Indian Premier League team (Royal Challengers Bengaluru), rumoured to be for sale at ~$2 billion (IPL team revenues of $77.8 million and net profit of $26.5 million—~17% of United Spirits’ market cap).

I’m not making a sum-of-the-parts argument for Diageo, just highlighting that some assets have clearly appreciated in recent years, and the market may not be fully recognising that. Diageo has also said it is looking at divesting some assets to delever the balance sheet.

How much of the recent lacklustre growth is cyclical vs structural?

Diageo’s recent organic growth:

For FY2025 (year ending 30 June), Diageo is likely to report low single-digit organic net sales growth and a low-single-digit decline in organic operating profit growth. The last two years—and possibly FY26—will have seen lacklustre growth after a strong post-COVID rebound.

On paper, the organic net sales growth doesn’t seem too worrying. Arguably, sales in 2021/2022 (and part of 2023) ran ahead of themselves, with recent weakness representing normalisation, wholesaler destocking (due to higher interest rates making inventory more expensive), and a tough consumer environment.

Breaking sales growth down by region shows similar trends with some lags.

If I looked through sell-side research from early 2022, I’d probably find notes arguing that Diageo and the whole industry had strong structural growth prospects—from a growing global middle class wanting more premium branded spirits—with models extrapolating at least mid-single-digit organic net sales growth forever. That justified share prices well north of £45.

Today, focus is on lacklustre growth driven by GLP-1 use, greater health and wellbeing focus, and threats from alternatives like THC hemp-derived beverages. As always, the truth likely lies somewhere in between.

GLP-1 penetration is highest in North America, but recent weak growth has been broad-based. GLP-1s are unlikely to be helpful and may be a slight headwind (arguably more so for beer than spirits), but I don’t see them as a killer blow to spirits or Guinness consumption.

Health & wellbeing, and Gen Z drinking less: the evidence on spirits is mixed. Some data show household penetration of spirits slightly higher than for prior generations at the same age.

Threat from THC/hemp-derived beverages: there’s no clear evidence of these hurting spirits consumption, and one can argue there’s often co-consumption with cannabis.

These threats deserve monitoring, but they attract far more attention when the share price is weak and growth has stalled. If growth rebounds, we’ll hear the usual arguments about a growing global middle class and premiumisation.

I’m firmly in the cyclical camp. Given the pricing power spirits companies have historically demonstrated (gross margins consistently above 60%), I can envisage top-line growth over the cycle running at ~5%, with at least half from pricing and some volume growth driven by developing markets. Over the last 10 years, Diageo’s sales CAGR was 4.7%.

Is the growth in Guinness a fad?

Guinness has been growing strongly for the last few years, with eight consecutive halves of double-digit growth. In December 2024, news articles appeared about Guinness being capacity-constrained, with some pubs receiving rationed orders (likely true but also very clever marketing). Guinness is now Diageo’s third-largest brand, with sales around $2 billion.

When I first looked at Diageo properly in April 2025, my initial inclination was that the Guinness growth was likely a fad. I thought back to Magners (Irish cider) over ice, which boomed 2006–2008 in the UK but then collapsed.

Diageo is investing heavily in increasing Guinness production capacity, opening a new brewery south of Dublin in summer 2026 to brew other beers currently made at St James’s Gate, freeing up Guinness capacity and increasing it by 25%.

Having looked at Guinness in more detail, including its investor event in May 2025, I’m now less sceptical. Unlike cider, Guinness is unique in the beer world. A key driver of recent success has been marketing that extended its appeal as an all-year-round product.

Guinness has also expanded its target market, gaining share with women (not traditionally Guinness drinkers) and innovating with Nitro Surge cans for at-home draught pours, increasing penetration in the off-trade. Remarkably, around 1 in 5 Irish households have a Nitro Surge.

Guinness 0.0 (the alcohol-free version) has been another growth driver, with strong sales and a product very similar in taste to the alcoholic version (at least for me). Guinness plans to grow 0.0 with increasing draught tap penetration in the key UK market. In the US, Guinness 0.0 launched in 2022 and accounted for 50% of US growth in 2024.

Over 60% (~$1.2 billion) of Guinness sales come from the UK, Ireland, and the US. There is significant potential to grow in new markets, especially in Europe, where sales were only ~$100 million in FY2024.

From August 2024, Guinness became the official sponsor of the English Premier League (a 4-year deal), which could drive growth in less penetrated markets.

To show the brand’s strength and iconic status, the Dublin brewery tour welcomed over 1.65 million visitors in 2024 and was named the world’s leading tourist attraction in 2023. Building on this, Guinness will open a microbrewery in Covent Garden, London, in December 2025, following two successful US microbreweries opened in 2018 and 2023.

In conclusion, I was initially worried Guinness’s growth was a fad. Now I can see a further runway for growth.

Should I be worried about the balance sheet?

One concern I have with Diageo is the leverage on the balance sheet. The company has a stated goal of maintaining net debt/EBITDA at 2.5–3x. However, by the end of the 2025 financial year (June year-end), this ratio is likely to be 3.3–3.5x, with net debt around $21bn. Leverage has increased in recent years, as Diageo has continued to pay dividends of $2.0–$2.3bn per annum, alongside share buybacks totalling $5.6bn over financial years 2022, 2023, and 2024. Meanwhile, free cash flow (FCF) in recent years has been only slightly ahead of the dividend, making such a capital return policy clearly unsustainable.

Although Diageo has historically operated with relatively high net debt/EBITDA levels, it’s clear that the current range (3.3–3.5x) is now slightly uncomfortable. Management has committed to reducing this ratio to 2.5–3x by the 2028 financial year. Diageo is a cash-generative business, and the increased focus on FCF will help. As noted above, there is room to significantly increase FCF by returning to more normal levels of capex and maturing inventory growth.

Management has also indicated that they are likely (though not forced) to make some significant divestments, which would help reduce leverage. Diageo owns a large portfolio of assets and brands—some of which it no longer sees itself as the best long-term owner of—so I wouldn’t be surprised to see sales of certain assets that, while not very profitable or cash-generative, are highly valued. The Indian Premier League cricket team is one potential example.

In my view, leverage is too high, and the balance sheet offers little in terms of positive optionality. However, I’m willing to believe that leverage can be reduced. A successful asset sale could also serve as a catalyst for the equity.

Given that the share buybacks have played a role in stretching the balance sheet, I would say that Diageo—and management, despite a new CFO—do not score highly in terms of capital allocation. It’s also hard to argue that the company has been investing counter-cyclically.

Why not a bigger position?

I’m starting with a 1.5% position, as I view the risk/reward as currently attractive over a medium-term horizon. In the short term, although much appears priced in, there remain clear headwinds that could present further opportunities to add at more attractive levels.

The underlying operating environment remains unfavourable for the sector, as highlighted by the recent guidance from Brown-Forman at the start of June. I expect Diageo to provide cautious guidance for its 2026 financial year when it reports FY2025 results on August 5th.

There is also potential for further tariff-related volatility. As with many companies, the tariff outlook for Diageo has improved from initial headlines. The company initially expected a $400m full-year operating profit impact, which has since been significantly reduced to $150m before any mitigating actions. Roughly 45% of Diageo’s U.S. sales come from Mexican tequila and Canadian whiskey—products currently protected from tariffs under the USMCA agreement (for now). In addition, the UK–U.S. trade agreement caps Scotch tariffs at 10%.

The U.S.–EU tariff negotiations are ongoing. Although the tone is currently positive and some headlines suggest that spirits and wines could be exempt, escalation remains a risk before a final agreement is reached.

Finally, the size of my position is also limited by Diageo’s current leverage level. As noted, I am comfortable that the company can bring this down to a more reasonable range, which in itself could be a positive catalyst for the stock. However, any company with significant leverage inherently carries more risk and is more vulnerable to left-tail events.

Leave a comment

If you get this far, and are ever in London, message me and I will buy you a pint of Guinness.

Evolution post Q1 review

The Curious Investor — Wed, 21 May 2025 11:48:04 GMT

Conclusion: Maintain position size.
There’s no sugar-coating it - Q1 results were disappointing, with the main negative (and new) surprise being the European ring-fencing and its impact on regional revenues. Given that Q2 will reflect a full-quarter impact of the ring-fencing, and with management providing no clarity on when Asia will return to growth, sales growth will likely remain under pressure in the near term.

My 2025 EPS forecast has fallen by ~5%, while the share price has declined by ~20%. Evolution is now quite a simple investment case: if you believe the company can grow its FCF, then it looks like a bargain - current pricing implies a slight decline. So, two key questions remain:

1) Can Evolution grow? — Yes. In my view, the growth opportunity in online casino remains highly attractive and relatively immature. The U.S. market is a clear long-term opportunity and should expand meaningfully as more states legalize iGaming (timing remains uncertain), with Evolution rolling out more of its leading game shows and content. Europe will continue to grow, although from a lower base, given the ring-fencing will disrupt 2025. Asia is still growing underneath, but cyber-related disruptions are masking that. While there are short-term issues, the structural growth opportunity remains intact.

The increase in headcount and studio rollout indicates management’s confidence in long-term growth - far more than is currently priced in by the market. If management starts cutting capacity expansion, I’d view that as a bearish signal and a potential indicator of deeper structural problems. So this is something to keep a close eye on.

The current valuation reflects significantly lowered expectations. A potential catalyst would be if the Asian business begins to show sequential growth again.

2) Are margins sustainable? — Yes.
This partly depends on top-line performance due to high operational leverage. The 66% EBITDA margin already reflects headwinds from new studio costs and the loss of very low-cost Georgian capacity. Management indicated that the Romanian studio will be cost-competitive and should help offset this.

Valuation:
I forecast EPS of €5.26 (vs. consensus €5.29) - down ~5% from pre-Q1 estimates due to reduced top-line growth (from ~10% to ~5% for FY2025), which puts Evolution on 11.5x 2025 earnings. I estimate FCF at €1.12bn (consensus: €1.1bn), giving a 9% FCF yield. Combined with a net cash balance sheet, Evolution is extremely lowly rated, and the risk/reward looks very attractive.

Reverse DCF:
At the current share price, using a 10% required return, €1.12bn starting FCF, and 3% perpetual growth, the market is effectively pricing in a 1% annual FCF decline over the next 10 years. That’s a major disconnect from the high single-digit to low double-digit growth I believe Evolution can deliver.

Subscribe now

Q1 2025 Results and Management Commentary Highlights:

Net Revenue: +3.9% (+6% local currency), to €520.9m
Live Casino: +4% to €448.7m
RNG: +3.1% to €72.3m
EBITDA: -1.1% to €342m (vs. €345.8m prior year)
EBITDA Margin: 65.6% (vs. 69% in Q1 2024)
Management maintains FY EBITDA margin guidance of 66–68%.
H2 2025 margins expected to be stronger than H1.

Revenue:

Top-line weakness was mainly due to the ring-fencing of European markets (following the UK in Q4 2024), which impacted both Live and RNG segments. Management described this as a proactive regulatory move - implying Evolution likely pre-empted forced action by regulators.
The ring-fencing began in February, so Q1 only saw a partial impact. Q2 will reflect a full quarter and is likely to be tougher headwind.
European revenue fell 6% vs. Q4 2024 and was down 0.7% YoY.
The revenue impact depended on the degree of channelisation—markets with higher levels saw little impact, while low-channelisation markets suffered significantly. Regulation that pushes users toward unregulated platforms is the main issue.
Management suggested the greatest impact was on traditional games/tables rather than Evolution’s game shows.
The games round index grew 10.9% YoY, with game shows cited as the key driver.
No additional markets require ring-fencing. In the U.S., the responsibility lies with operators, not game providers.

Asia:
The second major headwind—ongoing cyberattacks in Asia—has persisted for three quarters. While underlying demand is reportedly strong, revenues have remained flat QoQ. Management gave no clear timeline for recovery, despite earlier suggesting a resolution would come in a couple of quarters.

On the Q1 call and follow-up (GS-hosted), management repeatedly declined to provide a timeline for improvement, suggesting that this issue will likely persist for at least the next few months.

My fear is that there is something else impeding growth in Asia in addition to the cyber headwinds. Needs watching/further digging.

LatAm:
Disappointing Q1 top-line. Brazil was slow post-regulation but is now reportedly growing from a lower base.

Profitability:

Revenue growth is currently below capacity.
Management confirmed no changes to commission rates.
The strategy remains focused on long-term revenue over short-term margins. New studio development is prioritized, despite near-term margin impact.
Headcount rose 8.2% YoY (1,000 net new hires vs. Q4 2024).
New studios launched in New Jersey and Romania. Ongoing buildouts in Brazil and the Philippines.
Georgia labour unrest appears resolved. A third-party report concluded Evolution acted appropriately. However, they will not expand in Georgia and will diversify studio footprint going forward.
Romanian studio should offset the loss of Georgia’s favourable cost base.
Q1 operating expenses rose 15% to €217.5m. Labor costs: €120m (+12% YoY).
Other operating expenses +21% YoY, largely due to legal costs.

Other:

Regulated markets now represent 45% of revenues (up from 41% in Q4 2024), mainly due to Brazil becoming regulated.
No update from the UK Gambling Commission; Evolution states full compliance with all requests.
No major impact from tariffs.
Tax rate: 15.7%
Q1 CapEx: €33.6m (50:50 split between PPE and product development). FY guidance: €140m (~7% of sales).
Cash: €1.1bn
Share buyback: €154.1m in Q1; €345.9m remaining (~2.8% of shares at ~SEK 660/share).
One Stop Shop (OSS): Fully implemented (except part of the U.S.). Potential to monetize OSS via partnerships was discussed but not currently a focus.

Subscribe now

Hiab update post Q1 Results 30th April

The Curious Investor — Thu, 01 May 2025 14:41:59 GMT

Disclaimer

Conclusion:

Maintain position at 3% of the fund. Strong Q1 2025 results, with extremely high profitability. Orders for Q1 were slightly weaker, with a clear impact from increased uncertainty in the US - mostly offset by stronger orders in EMEA and Asia. I expect Q2 sales to be softer given the weaker order book in Q1 (especially from the US). However, order momentum in Europe should continue to improve, supported by the troughing of European construction markets and a pickup in defence logistics.

The stock remains under-the-radar and is not widely covered.

It is cyclical, but its asset-light approach, high service exposure (29% of sales), and leadership in niche markets provide it with a high degree of resilience. I look forward to business volumes picking up (2026?), at which point the real margin potential of the business will be demonstrated.

The balance sheet is very strong, with net cash of €117m prior to the €220m cash inflow from the MacGregor sale.

Valuation:
At a share price of €41.80 and a market cap of €2.67bn, the EV is €2.43bn (assumes €220m from the MacGregor sale, €117m net cash at end-Q1, less €77m paid in dividends).

On 2025 numbers:

1.48x EV/Sales
11x EV/EBIT
15.8x P/E (clean, ex-MacGregor)

Hiab is clearly cyclical and not immune to the current macro environment. However, it’s easy to argue that the current valuation doesn’t reflect the underlying quality of the business. It is a market leader in its chosen niches, generates high returns, and is asset-light. Combined with a net cash balance sheet and conservative guidance, the stock remains very attractive—an interesting way to gain exposure to improving European construction and defence markets.

Reverse DCF:
Using a 10% required return p.a., €170m starting FCF, and 3% growth into perpetuity, Hiab is currently pricing in ~4.5% annual FCF growth over the next 10 years. This is significantly below both historical performance and likely future results.

Subscribe now

Notes from Q1 2025 Results and Call:

Orders:

Americas: -20% YoY in Q1, offset by EMEA and Asia. Defence logistics supporting EMEA.
Orders slowed during Q1 due to uncertainty related to US tariffs. The main impact was in the US, with some weakening also seen in Europe toward the end of the quarter.
In Europe, they are benefiting from a pickup in defence logistics; waste & recycling remains stable; construction is still at a low level but is expected to improve.
Order book now stands at €601m vs €770m at the end of Q1 2024. Lead time from orders to sales is 4–6 months.
Quarterly order intake has remained fairly stable over the past 10 quarters.
Weak Q1 US orders will translate into weaker sales from Q2 onward.

Sales:

Reported sales: -1%; organic (constant FX): -2%.
Equipment sales down 1% YoY; likely to see weaker development in Q2, given the Q1 book-to-bill ratio of 0.88.
Service sales were flat.
Services now account for 29% of sales (vs 28% in Q1 2024).
Gross margin improved to 31.6% from 30.2%, driven by better sourcing, procurement, and cost-focused design programmes.

Margins:

Group comparable operating margin of 16% was the key positive surprise—this is actually the 2028 target.
Q4 2024 margin was impacted by €15m in restructuring charges; adjusting for this gives a clean Q4 margin of 13.6%.
Management confirmed that the Q1 margin was "clean" with no one-offs.
The 16% margin in Q1 is impressive given lower sales—uplift driven by improved gross margin.
Expect slightly lower margins in Q2 due to lower US sales and the higher margin contribution from direct sales in the US.
H2 2025 will benefit from additional cost savings following the consolidation of two Italian sites (main driver of the €15m Q4 restructuring charge).
Targeted savings from restructuring: €20m.
The only official guidance for 2025 is for margins >12%. Management reiterated this at Q1 but stated that 12% is a floor and could be revised upward at H1 results.
I currently assume a 13.5% margin for 2025, which still feels conservative. This compares to a clean 2024 margin of 14.1% (13.2% reported for Hiab).
My 13.5% forecast assumes no further restructuring charges. Based on company commentary, further charges appear unlikely but could change with macro conditions.
Tariff exposure: Loader cranes most exposed, but all competitors face similar issues (all import into the US).

Equipment:

Impressive margins again, driven by improved gross margin from sourcing and commercial actions.
Second half will benefit from cost savings related to Italian restructuring

Services:

Connected units now total 48k, with 20k service contracts.

Balance Sheet:

As of Q1 2025, Hiab (excluding MacGregor) had net cash of €117m.
The MacGregor sale will bring in €220m, with closure expected by 1 July 2025—no change to timing or confidence.
In April 2025, a dividend of ~€77m was paid.
Management would not take gearing above 50%, implying theoretical firepower of €630m.
Q1 again showed strong cash conversion, with a €15m reduction in inventory.

Tariffs & US Market:

The company aims to increase US assembly capacity; this initiative began even before “liberation day.”
Tail lift and demountable businesses have similar US exposure to their largest competitors.
Loader cranes face similar import exposure to other non-US-based competitors.
Chinese components account for <10% of inputs in only two product lines—considered immaterial. Confident in mitigating risks or passing on tariff-related costs.
Supply chain visibility remains good, with no recent surprises. The market remains competitive, and Hiab must continue to offer strong value.
Competitors are raising prices in response to tariffs, and Hiab intends to do the same.

Hiab's US growth strategy is focused on expanding through third-party distributors (generally slightly lower margins than direct sales, but product-dependent).
Currently, 60–70% of group sales come through the distributor channel.

Subscribe now

Appendix - Hiab vs Palfinger

Differences between Hiab and Palifinger:

Palfinger has more product areas, including marine (had been a problem area of Cargotec although separate from Hiab). Greater product complexity results in higher SG&A costs.

Hiab focus on asset light/assembly whereas Palfinger produces more components inhouse, and even sells components to third parties. Compare the difference in capital employed, employee numbers, and sales per employees

Palfinger has a loss making tailgate business, which they were unable to sell and are currently restructuring.

Hiab has a significantly higher proportion of service as a % of sales, which generates a very high margin >20%.

Palfinger had historically been quite acquisitive, and acknowledges that these weren't integrated well, resulting in complex operations.

Disclaimer

Evolution Gaming

The Curious Investor — Wed, 23 Apr 2025 07:59:27 GMT

Disclaimer: This is not investment advice. All views expressed are my own. I may hold a position in the company discussed and may buy or sell without further notice.

I hadn’t planned to write about Evolution since the company is already widely covered. However, this Substack is primarily a result of publishing what I write internally, and after reading Evolution’s 2024 annual report - and recently adding to my position (now 3.5% of the fund) - I felt it was worth putting a few quick thoughts on paper.

I won’t focus on Evolution’s history or business model, which have been covered extensively elsewhere. Instead, I want to address the market’s current concerns and explain why I believe a compelling opportunity exists today, especially with some of the 2024 operational headwinds likely to persist into H1 2025. For long-term investors, buying the market leader in an industry with strong secular growth at this valuation offers an attractive risk-reward profile with a high margin of safety.

Business Quality and Financial Strength

Evolution is the clear market leader in live online casino, with a significant moat, and outstanding financial metrics.

5Y Average ROE: 26.7%
5Y Average ROIC: 25.1%
10Y Revenue CAGR: 46.5%
10Y Earnings CAGR: 56%

Evolution is largely insulated from the broader tariff and macro uncertainty affecting other sectors.

The company operates with a net cash balance sheet (€900m including its €100m bond portfolio, ~6% of its market cap) and has a capital allocation policy of returning excess cash to shareholders. In 2024, it repurchased €678m of shares and has announced another €500m buyback for 2025.

Subscribe now

Why the Opportunity Exists

Despite these strengths, Evolution’s shares have significantly de-rated over the past few years. 2024, in particular, has been disappointing from a share price perspective.

The following chart illustrates the sharp derating via rising FCF yield and falling P/E ratio - this, despite the fact Evolution is still growing strongly with a long growth runway and remains the undisputed market leader.

Here’s what’s driving the market's hesitation:

Slowing Operational Momentum

Reported revenue growth in 2024 was +23.1%, but underlying growth (excluding a €151.1m earn-out reversal) was just +14.7%.
This compares to +23.5% in 2023 and +36.3% in 2022.
On an absolute basis, revenue added slowed from €388m (2022) to €342m (2023) and €264m (2024).

While this slowdown initially appears worrying, it's largely due to internal disruptions - not waning demand. In 2023, Evolution noted that demand outpaced capacity, and they were constrained by studio expansion and hiring. In 2024 Evolution’s sales faced the headwinds of disruption to its largest studio (Georgia), Asian cyber attacks and greater ringfencing of regulated markets.

Georgia Studio Disruption

Evolution’s largest studio is in Tbilisi, Georgia. In 2024, it faced major disruption:

Political unrest during national elections raised operational risk perceptions.
More significantly, labour unrest led to a strike beginning July 12, 2024, following a breakdown in union negotiations.
Evolution responded by downsizing the studio, reducing capacity by 200 tables (operating at 60% previous capacity) and laying off ~1,000 employees.

Georgia’s share of group headcount fell from 38% (2023 average) to 27% by year-end 2024.

The attraction of Georgia is clearly the low labour costs (remember labour is Evolutions largest cost and accounts for 55% of total operating expenses and is c20% of sales). Despite the disruption, top line growth remained resilient, and labour costs as a % of sales actually declined in H2 2024 (20.9%) vs H1 (21.6%). Evolution will continue to reduce its exposure to Georgia through the opening of new studios, targeting markets where labour costs are low such as the Philippines.

The operational environment in Georgia is now described by the company as stable. Georgia remains an area that needs monitoring, but its potential to significantly disrupt has been reduced.

Regulatory Risk

On the positive side, an investigation by New Jersey’s DGE concluded in February 2024 that Evolution did not knowingly operate in prohibited jurisdictions.
However, late in 2024, the UK Gambling Commission launched an investigation into Evolution’s games being accessible through unlicensed UK operators.

In response, Evolution has stepped up efforts to geo-fence and ringfence regulated markets, which is a near-term headwind to growth - and will likely remain so through much of 2025.

The UK represents just 3% of revenues, but losing its UK license would be a major negative headline. Evolution argues it has fully cooperated with authorities and responded swiftly, so a severe outcome seems unlikely.

Regulatory risk is probably the biggest bogie man for Evolution. The markets degree of concern with regards regulation goes through waves, with the recent UK announcement and current Evolution valuation it is fair to argue that a high level of regulatory risk is currently being discounted.

In the long run, regulation can be a positive for scale players like Evolution who can more easily absorb compliance costs and benefit from a trusted, licensed status.

Cyber Attacks in Asia

Since Q3 2024, Evolution has been hit by cyber attacks targeting its Asian business. Hackers have been illegally re-streaming Evolution’s games - essentially pirating the product and cutting the company out of its revenue share.

This has had a visible impact: Q4 Asia revenue was flat at €202m vs Q3. Management has described the situation as an "IT arms race" that may require several quarters to address, and is expected to continue to pose challenges through at least the first half of 2025.

For Evolution there is a huge incentive to fix this issue, and any signs of success here will be hugely positive for sentiment.

Higher Tax Rate

Evolution’s effective tax rate rose from 6.8% in 2023 to 13.5% in 2024, due to Pillar II global minimum tax reforms.

This was a significant headwind to underlying earnings growth in 2024, and yet despite this Evolution still grew EPS. It is worth noting that the higher tax rate hasn’t yet worked its way through to cashflow, this won’t happen until 2025 where it will be a cE125m headwind vs 2024.

My numbers:

I have tried to effectively sandbag these numbers, taking into account continued headwinds from Asian cyber attacks and greater ringfencing of regulated markets. In addition I have been conservative on my assumptions for labour costs. I arrive at the low end of managements EBITDA margin guidance for 2025 66-68%.

Valuation and Reverse DCF

At SEK 820:

Market Cap: ~€15.1bn
Enterprise Value: ~€14.2bn
2024 FCF: ~€1.16bn → FCF Yield: 7.7%
2025E FCF (my est.): ~€1.13bn → FCF Yield: 7.5%

Valuation multiples:

2024 P/E (underlying): 14x
2025 P/E (my est.): 13.3x
- (Consensus 2025 EPS: €5.77 → P/E 12.7x)

Reverse DCF:

At SEK 820, assuming a 10% required return pa and 3% terminal growth, the market is pricing in just 2% annual FCF growth over 10 years.
An 8% FCF growth assumption would imply a 50% upside to today’s share price.

Conclusion

The market appears to be pricing in a material long-term issue - one that doesn’t align with Evolution’s long-term growth potential, robust margins, and structural tailwinds.

Yes, 2024 was difficult. But the challenges were largely navigated: a labour dispute at its largest studio, a significant increase in tax, cyber piracy, and tighter regulatory scrutiny. None of these are thesis-breakers - and in fact, Evolution’s ability to grow underlying sales ~15% despite these disruptions speaks volumes about the strength of the market opportunity.

At current prices, long-term investors are being offered a high-quality compounder at a very attractive multiple. With reacceleration in growth from the second half of 2025, this looks like a compelling entry point.

Subscribe now

Leave a comment

Disclaimer: This is not investment advice. All views expressed are my own. I may hold a position in the company discussed and may buy or sell without further notice.

Looking for gems in the market wreckage…………

The Curious Investor — Fri, 11 Apr 2025 09:26:59 GMT

The current market volatility and uncertainty present a compelling opportunity to pick up high-quality businesses for the long term at very attractive prices.

If you’re looking for a high-return, cash-generative market leader with a net cash balance sheet, trading at an attractive valuation — read on.

The business is Hiab.
Hiab is a Finnish-listed industrial company that provides lifting equipment (load handling) mounted on trucks.

It is a high-return, niche industrial market leader.

Hiab reported equipment sales of €1,185m in 2024 (vs €1,335m in 2023). Service sales — which include spare parts — amounted to €462m in 2024 (vs €452m in 2023). The total equipment market size for Hiab’s combined niches was €4.5bn in 2023, implying a market share of 29.7%.

This strong market position, combined with leading technological know-how, has enabled Hiab to consistently deliver ROCE above 30%. Over the past 10 years, Hiab has grown sales at a 7% CAGR.

By 2028, Hiab is targeting:

ROCE >25%
Comparable operating margin of 18% (or 16% after central/HQ costs)
7% Sales CAGR

The lower ROCE target reflects Hiab’s plan to pursue bolt-on acquisitions, which may temporarily dilute returns.

A particularly attractive aspect of the business is its high-margin service segment. In 2024, services accounted for 28% of total sales, with operating margins above 20%.

Despite an 11% decline in equipment sales due to weakness in Europe (especially construction), service sales still grew 2%. This segment not only generates strong profits, but also provides cyclical resilience, as customers must maintain their equipment. Hiab is actively expanding this business further.

Strong cash generation
Free cash flow (adjusted for discontinued operations) was €230m in 2024, versus a current market cap of ~€2.4bn (share price: €37). This included a ~€80m working capital inflow (working capital/sales ~20%).

Capex: €66m in 2024 (vs €45m in 2023), historically 2–4% of sales
Depreciation & Amortisation: €44m in 2024 (vs €41m in 2023)
Sell-side consensus: ~€170m in FCF for 2025

Exposure to a recovering European construction & infrastructure market and growing defence logistics business
European construction has been a headwind in recent years, but signs of recovery are emerging — supported by commentary from players like Saint-Gobain and Palfinger. Tailwinds include:

Germany’s large infrastructure commitments
Potential post-war reconstruction in Ukraine
UK construction stimulus aimed at economic growth

Hiab’s defence logistics business (6% of 2024 sales) offers further upside. This includes loader cranes and demountables, backed by long-term contracts such as the 2021 Rheinmetall agreement:

https://www.hiab.com/en/media/newsroom/hiab-to-supply-rmmv-with-up-to-4000-multilift-hooklifts

Hiab typically only includes near-term revenue in the order book for such contracts. On the recent pre-close call, the CFO noted that defence clients are shifting to off-the-shelf solutions — a trend driven by urgency and likely to accelerate orders and sales.

Super-strong balance sheet
Hiab will have a net cash position exceeding 10% of market cap once the MacGregor sale completes (expected by July 1st, 2025).

End-2024 net cash: €70m
Expected proceeds from MacGregor sale: €200–220m

Why the opportunity exists

• Short track record in current form & relatively unknown
Hiab became a standalone company on April 1st, 2025, following the breakup of Cargotec (which had included Hiab, Kalmar, and MacGregor).

Kalmar was spun off in July 2024 and now trades independently
MacGregor sale agreement in November 2024, with the transaction completing by 1^st July 2025 at the latest.

Hiab’s FY2024 report clearly separates continuing (Hiab) and discontinued operations, but historical data clearly reflects the combined three business units. The 2024 reported results are also impacted by a €200m goodwill write-down from the MacGregor divestment, which significantly impairs the reported returns.

• Cyclical exposure
Hiab is cyclical. 43% of 2024 sales came from the Americas (mainly the US). With macro concerns elevated, the share price has weakened.

Despite a 10yr 7% sales CAGR, growth has not been linear — sales fell 8% in 2024, primarily due to Europe. That said, the European outlook is improving.

EMEA’s share of total sales dropped from 53% in 2023 to 46.2% in 2024.

• Tariff concerns
About 60% of US sales are locally manufactured, in line with peers.

Hiab assembles demountables and tail lifts in the US, and Maxon tail lifts in Mexico
Truck-mounted forklifts are assembled in both the US and Europe
Loader cranes are exported from Europe, like competitors

While tariffs will raise costs, Hiab is in a strong position to pass these on and can increase US production. The greater risk is demand disruption due to uncertainty or higher prices.

Guidance and visibility
2025 outlook is particularly uncertain due to macro conditions. Hiab is guiding for:

Operating margin >12% (including HQ costs)

For comparison, 2024 guidance was >14% (pre-HQ costs), and the company delivered 14.9%, despite absorbing €15m in restructuring costs (impacting margins by ~0.91%). Adjusted, the 2024 margin was 15.78% vs >14% guidance.

Despite an 8% sales decline, margins improved in 2024 — reflecting strong execution and prudent guidance.

Hiab expects restructuring benefits to flow through in H2 2025, supporting a €20m full-year cost savings target — further reinforcing confidence in hitting 2025 margin guidance.

Some numbers:

Valuation

Reverse DCF:
At a €37 share price, and assuming:

€170m in FCF
10% required return
3% terminal growth,

Hiab is pricing in just 2.75% annual FCF growth over 10 years.

Compare that to:

Historical sales CAGR of 7%
Hiab’s 2028 targets:
- Sales CAGR of 7%
- Operating margin of 18% (or 16% incl. HQ, vs 13.2% in 2024)
- ROCE >25%

→ This implies a significant margin of safety for such a quality business.

Subscribe now

Leave a comment

Disclaimer