Theme of the Week
Refiners
In equities, people obsess over product launches, management changes, Fed policy pivots, and even Reddit threads, but it ultimately comes back to supply and demand. Consider Lululemon. Ten years ago, if you wanted athleisure, there was essentially only one place to get it. Because LULU was early to the trend, it enjoyed a near-monopoly on supply and capitalized accordingly.
The company sold products at substantial markups with minimal advertising and ran virtually no sales or discounts, which produced very strong profit margins. If you were long during that phase, you likely did extremely well.
Then capitalism did what it always does. Those excess profits attracted a wave of new entrants. Today, there are dozens of imitators, many sourcing similar products from the same low-cost manufacturing base and pushing them into the U.S. market. As supply increased and differentiation narrowed, LULU’s advantage eroded, and the market re-rated the business accordingly.
The dynamic is not meaningfully different from high oil prices acting as a beacon for every wildcatter to rush into the Permian, drill aggressively, and expand supply until returns compress and shareholders suffer. In that sense, yoga pants and oil are similar: when margins are unusually high, competition and capital show up, supply expands, and economics normalize.
Kliff Note of the Week
Cluster Insider Buy Monitor: Cardinal Infrastructure (CDNL) just listed, and insiders are already out buying. You don’t see that often. Good business with secular tailwinds. Also, large market fragmentation; Cardinal has been actively consolidating the market, though conservatively.
Announced Buyback Monitor: Wendel’s (MF) recent investor day saw the level of action we like/hope to see at such events. The company decided to transition from a traditional investment holding to a (much more) capital-light asset manager.
By 2030, they plan to generate €7bn in cash, largely from selling its entire proprietary portfolio, including Bureau Veritas, Stahl, and CPI, while expanding Wendel Investment Management into a €4.5bn platform with funds and some M&A.
Not bad for an EV of €9bn and a market cap of €3.5bn. The legacy balance-sheet model will effectively wind down, and a €300m buyback is planned for 2026.
Completed Spac Monitor: Willow Lane Acquisition (WLAC) is merging with Boost Run, a profitable AI-infrastructure “neocloud” operator growing rapidly with ~80% EBITDA margins. Boost Run is projecting roughly 500% revenue over 2026 (from a low base) and c. $140m EBITDA.
There’s a 2-year, $127m Fluidstack contract that secures a big chunk of revenue over the next few years, with more in the pipeline. WLAC trades at ~4.5x 2026E EBITDA (it’s a SPAC), quite below peers like CoreWeave and Nebius.
SPAC NAV floor of ~$10.60 (pre-merger). Could be very interesting (if you believe that the entire AI infrastructure space won’t collapse next year).
13D Monitor: Be Brave continues to hammer the Buy button at Univance (7254), now at ~5%. Operations are relatively cyclical (transmission units for motor vehicles) and there hasn’t been much (read, any) growth over the past years, but Univance did a good job protecting margins and cash flow generation.
Even more, despite the shares doubling since Oasis began buying, the company remains a net-net, with the market cap reflecting only current assets and investments, net of total liabilities. 1.5x TTM EV/EBITDA.
13D Monitor: Computer Institute of Japan (4826) has seen funds selling down their positions (big time) over the past months.
5-10% revenue growth p.a., EBITDA margins are now close to hitting 10%, steady cash flow generation, and a strong net cash balance sheet.
CIJ recently set out new policies to “strengthen management practices tied to capital cost and stock performance, aiming to boost long-term shareholder value”, mainly by focusing on improving ROIC and profitability. Always good to hear from a Japanese company. 10x EV/EBITDA.
Other Interesting ED action: Martinrea International (MRE) has been experiencing a few tough years, and as a consequence, the share price performance has not been great, with a significant multiple contraction. But profitability and cash flow generation remain ok.
It’s a cyclical; the cycle will turn at some point, and a rerating of the multiple towards mid-cycle alone would mean +75-150% upside. MRE hasn’t bought back shares over the past few quarters, even though it has historically been very active on that front.
We suspect we’ll see a new buyback soon. Worth keeping an eye on.
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