Jacobus Enslin @Enslinjaco: "𝙅𝙪𝙣𝙚 𝟮𝟬𝟮𝟲 𝙪𝙥𝙙𝙖𝙩𝙚 𝙋𝙚𝙧𝙛𝙤𝙧𝙢𝙖𝙣𝙘𝙚 • The portfolio..."

United Kingdom

𝙅𝙪𝙣𝙚 𝟮𝟬𝟮𝟲 𝙪𝙥𝙙𝙖𝙩𝙚 𝙋𝙚𝙧𝙛𝙤𝙧𝙢𝙖𝙣𝙘𝙚 • The portfolio returned -8.31% in June vs -1.06% for the SP500. • YTD the portfolio returned -6.14% vs the SP500 return of 9.55%. • The annualized return since inception of the portfolio is 18.51% vs 12.65% for the SP500. The market is currently extremely bifurcated with narrow breadth into a handful of AI related beneficiaries. Margin debt as a % of GDP is also at an all-time high. Simply put, everyone is all in on one sector and are using debt at record levels to fund their purchases. This is not an environment that lends itself to finding bargains. I much prefer to focus on the companies and sectors that have been sold off to unreasonably cheap levels during the process of bidding up the AI trade. As an example of the (in my opinion) unsensible valuations being applied I refer you to this analysis on one of the aspiring Neocloud company’s, $KEEL (Keel Infrastructure Corp) that has been bid up by investors this year as part of the AI computing hype. balanciercapital.substack.com/p/keel-infrastructure-corp-nasdaq-keel $VTY.L (Vistry Group PLC) share price remains under severe pressure and is now the most shorted company on the LSE. The UK has a critical shortage of new houses. This is being absorbed by lower family formation. House demand and selling prices are high. So in theory this should be a good environment for a housebuilder. The problem is on the costs side. It is just not profitable enough on a consistent basis to build new houses and this is largely as a result of the UK government and their self-defeating regulatory actions leading to increased costs of building. When interest rates were low these costs could be passed on via higher selling prices. But house prices have now reached a level where it is just not feasible to increase them further. When input costs and taxes keep increasing and cannot be passed on via higher selling prices, profits turn into losses. What needs to happen for UK housebuilders to improve is lower interest rates, lower taxes and lower regulatory barriers. Instead the UK government is doing the exact opposite. Their actions of running large deficits indirectly will keep putting upward pressure on interest rates. Andy Burnham floated the idea of higher taxes on land which is going to hurt developers. He also wants more control at local/mayoral level and stronger standards, which is unlikely going to lead to looser regulations. Since 2020, the regulatory requirements set by the UK government have increased the cost to build a new house by £20k-£40k. This is 10-20% of the cost to build the house. These include things such as Community Infrastructure Levy, S106 planning obligations, Biodiversity net gain, various assessment costs (ecologists, heritage reports, environmental impacts) and a long list more. Additionally the government's policies on energy has caused the UK energy costs to be 2x higher than other developed countries which has led to a hollowing out of their manufacturing competitiveness. You can’t produce steel competitively if your energy costs are 2x higher than other countries’ energy costs. Now for example the UK is adding tariffs to steel imports, forcing input costs for housebuilders even higher. As long as the answer to everything is more regulations and higher taxes, I struggle to see an investment case to be made. I was originally planning to increase the allocation to Vistry in the second half of this year in anticipation of the £39bn affordable housing program. However I am reconsidering this until we get more clarity on the impact of the new labour leadership’s plans. Vistry will release a trading update within the next 2 weeks which will provide an updated outlook. I added a new position in $CPS (Cooper-Standard Holdings Inc) which sells fluid handling components to vehicle OEM’s. They basically sell the pipes and fittings that go into a car. EVs and hybrids have 30-80% more fluid handling components than ICE vehicles. CPS has a tailwind of increasing sales volumes materially as the share of EVs and hybrids in new vehicle sales grows. As a company with a large fixed cost base, the increase in revenue will have an exponential impact on earnings. If CPS executes there is a real possibility of them earning well over $10 per share by FY29. For reference the current stock price is $28 per share, which would put them on a fwd P/E of <3x. A detailed analysis will follow. Best regards Jacob Enslin

Not investment advice. The author may have financial interests in the mentioned instruments.