Giles Capital Weekly - Week 32

Welcome to another edition of Giles Capital Weekly. Fed Governor Musalem made three appearances this week calling for rate increases and "meaningful restraint" on inflation, pushing rate expectations higher. A coordinated US-Japan yen intervention briefly reversed the dollar's run before surrendering half its gains within days, confirming intervention without policy change buys time, not direction. China's July trade surprised: exports and imports both posted double-digit gains, led by AI electronics. Cost of capital stays elevated. Price matters.

Our top picks this week are PPinvest on GRAVITY Co., Ltd., a South Korean game publisher with $434m net cash against a $452m market cap, where the Ragnarok franchise is priced at zero and a Chinese market license for the mobile sequel arrived three weeks ago; and The Oak Bloke on Altyn Gold, a Kazakhstan gold miner generating £1,366 net profit per ounce at current prices, with enterprise value approaching zero as production doubles by 2027.

Long-Term Pick on Microsoft Corporation (🇺🇸 MSFT US - US$3.4tn)
Azure crossed $100B in annual revenue this quarter, growing 43%, with $678B in contracted future revenue up 84% year-on-year. Trades 23.9x forward P/E, below the five-year average, as the capex cycle temporarily compresses free cash flow. Net cash, 68% gross margins.

Felix on Meta Platforms (🇺🇸 META US - US$1.75tn)
All the anxiety surrounding Meta's capex spending seemed to overlook that ad revenue accelerated 28% in Q2, with pricing and volume both expanding. Trades 17x forward P/E versus the five-year average of 24.5x. One-time legal charges obscure 9% underlying operating income growth.

Kairos Research on FTAI Aviation (🇺🇸 FTAI US - ~US$8bn)
FTAI Aviation trades 9-11x 2028 EBITDA with a $350 base case - roughly 70% upside from current levels. Aerospace margins compressed deliberately to 28.5% as management prioritises market share over near-term profitability. The Power segment, guiding $450-750m EBITDA by 2027, is the unpriced option.

Show me the incentives... on E.W. Scripps (🇺🇸 SSP US - ~US$500m)
Scripps is a controlled, highly-levered equity stub at 10.7x EV/EBITDA with $125-150m EBITDA growth targeted by 2028. The CEO carries a $10m award tied to EBITDA targets plus 100% payout on any change of control. Aggressive insider buying signals confidence in a near-term M&A outcome as the regulatory environment improves.

N.R98 on Vaso Corporation (🇺🇸 VASO US - US$37m)
The market is ascribing a negative value to this profitable business as a going concern. Net cash roughly equals the entire market cap, meaning the GE HealthCare partnership business comes free. Founder family controls 44% and the exclusive service contract runs to 2030.

Asymmetric Ventures on LVMH Moet Hennessy Louis Vuitton (🇫🇷 MC PA - US$257bn)
Fashion and leather organic growth turned positive in Q2 for the first time in seven quarters, ending a prolonged declining run. The question of when luxury would recover has now been answered. Arnault family owns 48%, stock trades at 20x earnings.

James Emanuel on Universal Music Group (🇳🇱 UMG AS - US$28bn)
Imagine finding a company with 13.3% revenue growth and stable 20.5% EBITDA margins trading 50% below a rejected takeover bid from three months ago. That is UMG at €14.50 today. Bolloré family owns 31.7%, buybacks accelerating.

Christian Schmidt on Avingtrans (🇬🇧 AVG LN - US$330m)
Nuclear supply chain covering decommissioning, life extension, and new build through Hayward Tyler, Metalcraft, and Booth Industries. Management projects nuclear revenue of £90m by FY31 from £35m today, at 35-38% EBITDA margins.

The Oak Bloke on BTG Consulting (🇬🇧 BTG LN - US$233m)
Most investors see a 21x P/E and move on. The underlying number is 9x once acquisition accounting non-cash charges are stripped out - a distinction most will never bother to check. FY27 profit guided up 53%, dividend 4.3%.

The Finance Corner on PARKEN Sport & Entertainment (🇩🇰 PARKEN CSE - US$195m)
The beautiful thing about Lalandia's business model is that 2,300 holiday home owners pay recurring commissions, making the revenue stream predictable. PARKEN trades DKK 2.1bn versus a fair value estimate of DKK 2.94bn across three assets: Lalandia, Copenhagen's national stadium, and F.C. Copenhagen.

Misha on EuroEyes International Eye Clinic (🇩🇪 1846 HK - US$100m)
Founder-led German ophthalmology group at 4.5x EV/EBIT with 60% insider ownership. The HK$1.2B FYEO Europe acquisition drives 58% proforma revenue growth, and at 18% capacity utilisation the proforma earnings number is deliberately conservative.

The Oak Bloke on James Cropper (🇬🇧 CRPR LN - US$43m)
A £34m paper mill pivoting into fuel cell substrates and aerospace composites, both growing 20%+ at 45% margins. Trades 0.85x NAV and 4.8x EV/EBIT. The new CEO comes from Zotefoams, where he ran the same playbook. This is operational accumulation, not financial engineering.

Etruscan Capital on Cedergrenska (🇸🇪 CEDER ST)
Whether Swedish education policy shifts post-election is subject to interpretation. What's clear is that Cedergrenska buys schools at 3-4x EBITDA and trades at 7x, with 21% annual revenue growth across 54 facilities. The discount is political, not operational.

Crack The Market on SK Hynix (🇰🇷 000660 KS - US$716bn)
SK Hynix hit its first-ever 30% limit-up on July 31 after record Q2 revenue, then kept climbing. One cannot completely rule out the risk of a memory down-cycle reverting. But so far, the evidence is thin - and at 4.4x forward P/E with KRW 69 trillion in net cash, the downside is well backstopped.

Angsana Anderson on Nexon (🇯🇵 3659 JP - US$12bn)
Zero debt, founding family majority, and the Saudi sovereign wealth fund at 11%. DNF Mobile 2.0 relaunches August 13 - a catalyst with a known date. Trades at 11% FCF yield with takeover optionality priced at zero.

Myles Kuah on Ultragreen.AI (🇸🇬 ULG SI - US$1.5bn)
Think of Ultragreen.AI as the infrastructure layer beneath industrial cooling: 70% global market share, invisible from the outside, impossible to remove from within. Listed in December 2025, P/E 10x, net cash $176m, Sajwan family majority. The "AI" in the name is cosmetic.

PPinvest on GRAVITY Co., Ltd. (🇰🇷 GRVY US - US$452m) TOP PICK
GRAVITY is the South Korean game publisher behind Ragnarok Online, a franchise with over 100 million registered users. At a $452m market cap the company holds $434m in net cash, meaning the franchise, the licensing royalties, and a new Chinese government approval for the mobile sequel are all priced at zero. First-ever dividend paid this year. P/E 8x.

The Oak Bloke on Altyn Gold (🇰🇿 ALTN LN - US$320m) TOP PICK
Gold at $4,035 per ounce, production plan to double by 2027, and an enterprise value approaching zero. Inventory is carried at one-third of spot price - you could almost buy the company, sell the inventory at market, and be left with more than you paid. Assaubayev family holds 65%.

Joe - Bridges to Nowhere Part IV: A Lesson on CAPEX from Charlie Munger
Munger's framework for separating productive capital investment from spending that looks purposeful but destroys long-term value. Uses historical case studies to screen for companies that chronically misallocate capital before the damage appears in reported earnings. (12 min read)

Hermes Agent - Volatility Profit Maxxing: Our Add-on Micro-Cap Earnings Strategy
A rules-based strategy for sizing into micro-cap positions around earnings events, using volatility as the entry trigger rather than price action alone. Details position sizing, timing, and the specific conditions that produce the add-on signal. (8 min read)

Anh Hoang - The Fund That Lost Its Situational Awareness
A post-mortem on a fund that underperformed not from bad stock picks but from losing grip on why each position was held, what the exit thesis was, and how the macro had changed. A framework for maintaining portfolio-level situational awareness through position size discipline and thesis tracking. (18 min read)

@ValueInvesting - What Really Matters
Strips value investing back to first principles: free cash flow yield, management incentives, and the size of the moat. Argues most analytical complexity adds noise rather than signal, and that the investors who outperform over 20-year periods share one trait: they know what not to analyse. (8 min read)

Schwar Capital Research - An Investor's Odyssey
A personal account of fifteen years as a value investor, structured around the mistakes that cost the most: overpaying for quality, underestimating balance sheet risk, and confusing narrative with thesis. Includes a practical checklist for avoiding each category of error. (12 min read)

Vitaliy Katsenelson - Today's Market = 1999 Capex + 2008 Credit
Argues the current market combines the speculative capital expenditure dynamics of 1999 with the credit extension patterns of 2008, and that the combination is more dangerous than either cycle in isolation. Draws parallels to specific indicators that preceded both corrections. (8 min read)

Angsana Anderson - Evergrande's Collapse Was Actually Predictable
Retraces the public signals that were present years before Evergrande's 2021 default: debt-to-asset ratios, pre-sale liability accumulation, and the regulatory signals from Beijing. Written for the same analyst who covers Nexon this week, making it a useful companion piece on Chinese corporate governance opacity. (6 min read)

Letters from a Capitalist - It's Time To Be Bullish On Compute, Again.
Makes the case that compute infrastructure is entering a second growth phase after 2024's digestion period, driven by inference demand that is structurally different from training demand. Reviews the supply chain from chip design through to data-centre power procurement and identifies where margin accrues. (18 min read)

Bill Bishop - Advantage Does Not Equal Victory: Sinification July 2026
Bill Bishop's monthly China briefing argues that China's current technology advantages in AI hardware and electric vehicles do not translate automatically into geopolitical or economic victory, and that the US-China competition will be decided at the level of institutional resilience rather than technological edge. Required context for the Kimi K3 piece below. (18 min read)

Neo Kim - Alibaba, Moonshot and the US Government Squabble Over What Trained Kimi K3
Covers the dispute between Alibaba and Moonshot AI over training data provenance for the Kimi K3 model, and the US government's interest in whether restricted compute was used. Important context for the China AI competitive landscape that underlies the GRAVITY thesis and the Nexon digital economy investment. (8 min read)

Rei Saito - Kyushu Isn't Dying. Half of It Is.
Pushes back on the narrative that Japan's regional economies are in terminal decline. Uses Kyushu as the case study to show population stabilisation, industrial restructuring around semiconductor fabs, and tourism infrastructure investment that mainstream commentary is missing. Useful framing for any Japan-exposed position. (18 min read)

Value managers split sharply on AI exposure this quarter. Antipodes added Japan hardware names and trimmed Workday on agentic disruption risk, while Hotchkis & Wiley's energy overweight and absence of AI hardware stocks cost them 860 basis points of relative performance in Q2. Healthcare managed care was the standout winner across three funds as margin recovery played out across Humana, Centene, and Elevance.

Antipodes Global Value Strategy: Underperformed the MSCI ACWI in Q2 and over 12 months, but ahead of benchmark over 3, 5, and 10 years; added five Japan positions as AI hardware supply chain beneficiaries, including data-centre passive component and motor names. Letter discusses:

• Booking Holdings (🇺🇸 BKNG US - ~US$170bn) - New Position: AI-agent travel fears created margin of safety; underperformance versus hotel operators seen as the entry point.

• TDK (🇯🇵 6762 JP - ~US$15bn) - New Position: Passive component exposure to AI racks at 10x the content of standard servers; magnetic heads for data-centre HDDs.

• Nidec (🇯🇵 6594 JP - ~US$25bn) - New Position: Motor company repositioning around AI data-centre liquid cooling and electrification; self-help margin recovery underway.

• Workday (🇺🇸 WDAY US - ~US$60bn) - Trimmed: Agentic AI threatens seat-based pricing model; decelerating revenue and margin guidance for FY27.

Matrix Asset Management: Up mid-teens in Q2 2026, roughly in line with the S&P 500; median portfolio P/E of 16.9x versus 21.8x for the index, with new positions initiated at names near 52-week lows. Letter discusses:

• Abbott Laboratories (🇺🇸 ABT US - ~US$200bn) - New Position: 25% discount to its own historical P/E, 54 consecutive years of dividend increases, 2.8% yield at entry.

• McDonald's (🇺🇸 MCD US - ~US$195bn) - New Position: Near 52-week low on traffic concerns; 95% franchised model, dividend paid every year since 1976; near-term headwinds seen as temporary.

• Meta Platforms (🇺🇸 META US - ~US$1.4tn) - Increased: AI advertising products scaling, Advantage+ at $75bn annualised run rate; added on valuation.

• FedEx (🇺🇸 FDX US - ~US$65bn) - Exited: Results exceeded expectations and stock reached full fair value.

Diamond Hill Mid Cap Strategy: 7.92% in Q2 2026, trailing the Russell Midcap Index by 591 basis points, as not owning the AI hardware and storage group (which returned +84% in the quarter) was the primary drag. Letter discusses:

• Humana (🇺🇸 HUM US - ~US$25bn) - New Position: Second-largest Medicare Advantage insurer; temporary utilisation pressure expected to resolve; 2027 rate increases tracking better than expected.

• Equifax (🇺🇸 EFX US - ~US$35bn) - New Position: Proprietary credit and employment data embedded in customer workflows; consolidated industry structure supports consistent pricing power.

• Verisk Analytics (🇺🇸 VRSK US - ~US$35bn) - New Position: Dominant data analytics provider to the insurance industry; critical to underwriting operations, supporting sustained pricing power.

• Wix.com (🇮🇱 WIX US - ~US$8bn) - Exited: AI-driven site-building tools disrupting the core small-business website product; reduced guidance and workforce reduction confirmed.

Hotchkis & Wiley Mid-Cap Value Fund: 4.74% net in Q2 2026 versus Russell Midcap Value Index return of 13.40%; underperformance driven by not owning the AI hardware and storage group and an overweight in energy; ahead of benchmark since inception in January 1997 at 11.41% net versus 10.42%. Letter discusses:

• Centene (🇺🇸 CNC US - ~US$20bn) - Existing Position: Top contributor; adjusted EPS beat consensus by 48%, full-year guidance raised, ACA membership reset tracking ahead of plan.

• Humana (🇺🇸 HUM US - ~US$25bn) - Existing Position: Strong performance on 2027 payment rate increase news; annual repricing mechanism enables margin recovery.

• Olin Corp (🇺🇸 OLN US - ~US$4bn) - Existing Position: Announced merger with Huntsman; below-normal pricing expected to recover on multi-year North American supply tightening.

• APA Corp (🇺🇸 APA US - ~US$8bn) - Existing Position: Declined on Iran de-escalation and oil price drop; strong free cash flow thesis seen as intact.

Greenskeeper Asset Management: Up 10.9% in Q2 2026; standout performer was ICON, which rose 57% in the quarter after the fund added materially in February at roughly a 15% free cash flow yield. Letter discusses:

• ICON plc (🇮🇪 ICLR US - ~US$15bn) - Existing Position: Clinical research organisation; accounting restatement scare reduced revenue under 2% with no cash impact; book-to-bill above 1.3x.

• Richemont (🇨🇭 CFRUY US - ~US$100bn) - Existing Position: Luxury jewellery up 30.8% in the quarter; ultra-high-net-worth exposure insulates from aspirational consumer weakness.

• Intercontinental Exchange (🇺🇸 ICE US - ~US$90bn) - Existing Position: Declined 21.7% despite revenue and earnings up 20% and 34%; "perpetual futures" competitive threat assessed as overblown.

• Lockheed Martin (🇺🇸 LMT US - ~US$100bn) - Existing Position: Declined 15.7%; aeronautics delivery delays and fixed-price rework costs seen as temporary.

Rowan Street Capital: Down 1% in Q2 2026; net return for H1 2026 is negative 21%; the letter argues the portfolio's underlying businesses are performing well and the divergence between business performance and stock prices is temporary. Letter discusses:

• Meta Platforms (🇺🇸 META US - ~US$1.4tn) - Existing Position: Core holding since 2018; H1 2026 revenue $117bn, up 30% year-over-year; AI-powered Advantage+ at $75bn annualised run rate; $130bn capex guided for full year 2026.

• Tesla (🇺🇸 TSLA US - ~US$1.2tn) - Existing Position: Record Q2 deliveries; largest order backlog since 2023; full self-driving cited as primary demand driver; robotaxi service expanding to 7 cities.

• Shopify (🇨🇦 SHOP US - ~US$130bn) - Existing Position: Q1 revenue up 34% to $3.2bn, gross merchandise volume up 35% to $101bn; B2B revenue up 80%; positioning as infrastructure layer for agentic commerce.

Thanks to Insider Monkey for compiling the investment letters which are featured here.

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Disclaimer: This newsletter is for informational purposes only and not investment advice. The intro reflects my views, while investment summaries are my interpretations of original authors' analyses. Information may not be fully verified and is subject to correction. Original authors' complete views may differ. Always do your own research before making investing decisions.