I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on Mexican hard discount retailer, BBB Foods Inc. (TBBB). From the executive summary of the article is the following:

• BBB Foods shows exceptional revenue and NOPAT growth, driven by scale economies and a disciplined cost structure.
• Despite growth, the firm’s ROIC remains below WACC, leading to sustained economic losses.
• Persistent negative free cash flow and heavy reinvestment raise concerns about long-term capital efficiency.
• Euphoric pricing implies unrealistic growth expectations, making downside risk greater than potential upside, earning the company a Sell rating.

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on global IT distributor, Ingram Micro Holding Corporation (INGM). From the executive summary of the article is the following:

• Ingram Micro operates in a massive, growing IT market but has failed to translate this into revenue or margin growth, despite strategic investments.
• The company’s transition to a platform model is hampered by its capital-intensive physical logistics, limiting profitability and scale economies.
• Current valuation assumes optimistic growth, but reverse DCF analysis shows significant downside risk if recent trends persist.
• Given persistent thin margins, lack of differentiation, and unattractive returns, I recommend a ‘Sell’ rating on INGM stock.

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on the Commercial Metals Company, whom I have previously covered. From the executive summary of the article is the following:

• I rate Commercial Metals Company as a Hold, given a balanced risk/reward profile and current valuation reflecting only modest growth expectations.
• Strong industry tailwinds exist from infrastructure spending, reshoring, and green construction, but regime uncertainty and tariff risks temper demand visibility.
• CMC’s 100% EAF production, vertical integration, and management alignment support long-term value, yet recent financial performance has deteriorated since 2022.
• With ROIC and NOPAT declining, I recommend current shareholders hold, while prospective investors should await clearer signs of a capital cycle bottom.

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on the steel company, Steel Dynamics, Inc. (STLD), whom I have previously covered. From the executive summary of the article is the following:

• I assign Steel Dynamics a Strong Sell rating due to deteriorating economic fundamentals and an unfavorable risk/reward profile.
• ROIC and free cash flow have declined sharply since 2022, signaling worsening profitability and a poor entry point in the capital cycle.
• Tariffs may provide short-term margin expansion, but long-term effects are likely to constrain growth and competitiveness for Steel Dynamics.
• The valuation is unattractive, with downside risk far outweighing upside potential based on realistic cash flow and margin scenarios.

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on the American investment advisor, Diamond Hill Investment Group, Inc. (DHIL), whom I have previously covered. From the executive summary of the article is the following:

• Diamond Hill faces secular headwinds from passive investing, fee compression, and industry competition, leading to declining profits and revenue over the past five years.
• Despite these challenges, Diamond Hill’s disciplined, value-oriented approach and strong alignment between management and shareholders offer some resilience and capacity discipline.
• The market appears overly pessimistic, pricing in a 14% NOPAT decline; modest upside exists if declines are less severe, with potential 7-20% returns.
• I rate Diamond Hill a Buy for short-term benchmark-beating potential, but caution that long-term prospects remain challenged by structural industry shifts.

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on the American security products company, CompX International Inc. (CIX). From the executive summary of the article is the following:

• CompX International is rated a sell due to declining financial performance since 2022, despite a seemingly reasonable valuation and alignment of shareholder-management interests.
• The business is simple and resilient to tariffs, with a significant portion of its revenue from U.S.-manufactured security products and marine components.
• Despite tariff resilience, CompX’s financials show a concerning decline in revenue and NOPAT, suggesting it may not meet market expectations.
• Valuation analysis indicates significant downside risk if revenue and NOPAT margins do not improve, making CompX a potential value trap.

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I will be covering recent and forthcoming initial public offerings (IPOs). The article is on the Chinese maker of skincare products targeted at people with “problematic skin”, Park Ha Biological Technology Co., Ltd. (PHH). From the executive summary of the article is the following:

• Park Ha Biological Technology operates in a large, fast-growing market but faces intense competition and rising costs, impacting profitability and free cash flow.
• The company’s dual-sales strategy and diverse product range enhance customer retention, but declining franchise numbers raise sustainability concerns.
• High insider ownership aligns interests but increases stock volatility, while capital controls in China pose risks to accessing funds.
• Current valuation implies a 3,492% NOPAT growth, making the stock a “Hold” due to profitability challenges and valuation risks.

The rest of the article is available here.

(This investment thesis also appears on the buy-side investment platform, SumZero.)

The choking uncertainty around U.S. economic policies caused me to abandon Meta Platforms, Inc. (META: $592.49/share) with all the grace of a dog caught ripping up the sofas. This uncertainty opened up a possibility that seemed inconceivable before: that Meta might be grievously harmed. That oft-quoted remark, oft misattributed to Vladimir Lenin, “There are decades where nothing happens; and there are weeks when decades happen”, came to mind. The recent announcement by U.S. Secretary of the Treasury, Scott Bessent, that the United States and China have agreed to swingeing albeit temporary cuts to existing tariffs, leaving them at the baseline rate of 10% for Chinese tariffs on US goods and 30% for US tariffs on Chinese goods -10% baseline plus the fentanyl-related tariffs-, has made U.S. markets and Meta specifically, more palatable. That announcement provides a safe entry point for the firm I believe is the most compelling investment proposition among U.S. large caps, a business I have long admired, and sometime held.

A History of Exceptional Growth and Profitability

It is easy to see why Meta generally trades at a premium to its economic book value. From 2011 to the last twelve months ended in the first quarter of this year, Meta compounded revenue by 31.43% a year, and compounded net operating profit after tax (NOPAT) by 33.69%. Meta’s exceptional performance has carried on even in the last five years when it has been one of the largest companies ever, with the company having a 5-year sales CAGR of 14.66% -Credit Suisse’s “The Base Rate Book” shows that just 3.3% of firms with a market cap of over $50 billion enjoyed a 5-year sales CAGR of more than 10-15% between 1950 and 2015- and a 5-year NOPAT CAGR of 10.2%. Meta’ return on invested capital (ROIC) has averaged 31.71% in that time, with current ROIC at 31.79%. In that long history, management has never failed to earn an economic profit. Exceptional growth and profitability are a byproduct of the business.

Baseline Tariffs are Acceptable

At former levels, tariffs on China were in effect so high that they act as a trade embargo, an act of decoupling. Temu and Shein, who are responsible for the majority of Meta’s Chinese ad revenue, have both already slashed their U.S. ad spending in response. Analysts at MoffettNathanson Research warned that tariffs on China would reduce Meta’s Chinese revenue by $7 billion, although I worried that not only could Meta lose all its Chinese revenue, which in 2024 was $18.35 billion, according to its annual report, but that tariffs would hurt businesses so much that Meta’s revenue would be affected by even greater amounts. At the same time, capex spending would become less efficient as inflation eroded the impact of that expenditure. Overall, I worried that the value of the business would fall in expected ways. Indeed, although markets responded euphorically to Meta’s first quarter results, that was largely because expectations had been so low that markets ignored the fact that advertising metrics deteriorated, while economic profits, by my estimate, fell from around $51.53 billion in 2024 to $45.06 billion in the LTM. Maintaining the old regime was clearly unsustainable. For now, those concerns have abated and growth and profitability should do better than where I imagined they were headed. At current levels, tariffs are an acceptable cost of business. 

I do not believe that baseline tariffs will be removed. It has been my contention for some time that tariffs are here to stay, and that of all the nations in the world, tariffs on China will be the hardest to remove. In an earlier thesis, I explained that,

…regardless of one’s opinion on tariffs, the Trump Admin. has powerful motives for supporting them:   

• The China Shock has gutted the manufacturing industries of countries across the world, such that, despite the broad wealth created, working class people have been left behind, stoking populist outrage. Such a system is unsustainable.  
• In a military contest with China, the economic benefits of a global division of labour pale beside the risks of relying on a trade partner that builds the things that America will need to wage war.  
• From the perspective of economic competition, the current division of labour is not static, and China can use it to achieve parity with the U.S. in those areas in which the U.S. is currently a world leader. BYD’s stunning success is an example of this.  

…it really does not matter if one agrees with the administration’s motives, just that they are powerful enough that one should not expect tariffs to end completely. At a minimum, tariffs on China are likely to stay, even under a Democratic administration, all that is to be decided is the size of those tariffs. The Magnificent Seven, the most profitable businesses in human history, are a third of the S&P 500. Tariffs will erode their profitability and force investors to look elsewhere for investments, and that “elsewhere” will not benefit from the same premiums-to-value that the Magnificent Seven does, and that implies a downward revision in the price of the S&P 500.

Regime uncertainty persists: a comprehensive trade deal cannot be negotiated in 90 days -the fastest ever such deal was with Jordan, and the U.S. took four months to negotiate and the average is one and a half years-, but the U.K. deal framework suggests that the U.S. has shifted from attempting to strike comprehensive trade deals to pursuing small, focused deals that target specific industries. Even so, such deals are typically not conducted within 90 days, and Peter, Lord Mandelson’s framing of the U.K deal as a “platform for going further and opening up more trade opportunities”, not only points to such small, focused deals, but that regime uncertainty of some sort will persist for the next year or more as countries try and reshape the economic order in more favourable ways.

Meta Should Win its Case Against the FTC

The tariff announcement shifts the calculus in another way, placing the Federal Trade Commission’s (FTC) case against Meta at the head of Meta’s biggest risks. The case rests upon a flawed though pervasive theory of competition. In some ways, Meta’s defence of its actions is also flawed, and is responsible for the company’s lethargy in responding to the threat from ByteDnce’s TikTok. In the case summary, the FTC alleges that,

…the company is illegally maintaining its personal social networking monopoly through a years-long course of anticompetitive conduct. The complaint alleges that Facebook has engaged in a systematic strategy—including its 2012 acquisition of up-and-coming rival Instagram, its 2014 acquisition of the mobile messaging app WhatsApp, and the imposition of anti-competitive conditions on software developers—to eliminate threats to its monopoly.

Jennifer Newstead, the company’s Chief Legal Officer, has credibly argued that,

Meta has made Instagram and WhatsApp better, more reliable and more secure through billions of dollars and millions of hours of investment.

Moreover, she has said what is obvious to many, that Meta has just 30% of time spent in its properly defined market, in which it faces competition, not just from “Snapchat and an app called MeWe”, but also from TikTok and YouTube. In 2020, she called the case, “revisionist history”, writing that, having acceded to both acquisitions,

Now, many years later, with seemingly no regard for settled law or the consequences to innovation and investment, the agency is saying it got it wrong and wants a do-over. In addition to being revisionist history, this is simply not how the antitrust laws are supposed to work. No American antitrust enforcer has ever brought a case like this before, and for good reason. The FTC and states stood by for years while Facebook invested billions of dollars and millions of hours to make Instagram and WhatsApp into the apps that users enjoy today. And, notably, two FTC commissioners voted against the action that the FTC has taken today.

This is closer to reality, but does not fully comprehend the problem, because even Mark Zuckerberg has fallen into the same error. From his 2012 letter in advance of then-Facebook’s listing, he said,

Facebook was not originally created to be a company. It was built to accomplish a social mission — to make the world more open and connected.

This is both correct, and wrong. Meta is not, ultimately, a social media company, and framing it as such leads to the sorts of confusions that cloud the FTC’s case, because a social media company, or “personal social networking monopoly” to borrow the FTC’s nomenclature, cannot compete with a video-sharing service such as TikTok, unless they are in the same industry. TikTok is not a social media company, after all. The FTC’s deliberately narrow view of Meta creates this logical problem and compels a denialism about the extent of competition faced by Meta. Ben Thompson of Stratechery has tried to get round this by characterising Meta as evolving through “three eras”, with this being an era of competition. I think this is still off. The social media business is at once the core of Meta’s business and a deux ex machina to compete in the Attention Economy. 

In my framework for digital firms, I wrote that,

A consequence of taking a complexity approach to competition is that competition is seen as a multi-level process, in which firms compete and relate with other firms within an industry, who, given the tendency of wealth toward destruction, seek to survive over the long-run and grow in the short run. Within markets, firms maximise their profits and compete for market share by providing sustainable products and services. Competition between firms can also be described in Coasian language as competition between intra-firm and inter-firm organisation, between whether economic activities should be done within the firm, or by the market. Within firms, individuals, units and divisions compete and cooperate to maximise their individual payoffs. Nicolas Petit and Thibault Schrepel call these the macro, meso and micro levels of competition. Competition at the industry level forces changes within firms that result in a firm facing new competitors at the market level. Concretely, by way of example, each of Meta Platforms divisions compete and cooperate over resources, and at the market level, Meta enjoys a monopoly in social media networks, but faces fierce competition at the industry level, where it is part of the Attention Economy. …The emergence of TikTok at the industry level forced changes in Instagram, by way of Reels, which triggered an evolution from a chronological feed of content surfaced from one’s social network to algorithmically sorted content from the universe of all Instagram users.

Meta’s error in not quickly recognising TikTok as a threat, was because Meta itself fell into the error of seeing itself as a social media company and therefore not existing in the same competitive landscape as TikTok. TikTok, after all, was not built on social networks but on algorithmically surfaced content. Calling TikTok or indeed YouTube a social media company, is a stretch if the intuitive sense of the phrasing implies the necessary existence of social networks. What Meta is is a business in the Attention Economy, where, regardless of the deux ex machina that brought one there, the battle is fought for attention, i.e. time spent, and victory is measured in advertising dollars. Meta is not completely oblivious to this. In the first quarter earnings call this year, Susan Li, the CFO, said,

There are two primary factors that drive our revenue performance: our ability to deliver engaging experiences for our community, and our effectiveness at monetizing that engagement over time.

There’s that old saying, “Follow the money”, and in Meta’s case, that proves remarkably revealing in understanding what the business actually is, as opposed to how it is framed. Although Meta’s defence fails to fully reframe what the company is, the weakness of the FTC’s case is such that it is unlikely to succeed, because, ultimately, in order for a final judgment to hold that the company operates an illegal monopoly, it must ignore the competition the company faces. 

There is also the rather mundane fact that the deals to acquire Instagram and Whatsapp were both vetted by the FTC and at the time, it was not clear that a monopoly existed or was being created and that it would become so profitable.

Meta is Well Placed to Profit from AI

In the first quarter earnings call this year, Mark Zuckerberg highlighted the importance of AI to Meta in terms of “improved advertising, more engaging experiences, business messaging, Meta AI, and AI devices”, pointing out that Meta does not need to succeed everywhere to enlarge its returns. The most important of these opportunities in terms of immediate investment results lies with advertising, with Zuckerberg explaining that,

Our goal is to make it so that any business can basically tell us what objective they’re trying to achieve — like selling something or getting a new customer — and how much they’re willing to pay for each result, and then we just do the rest. Businesses used to have to generate their own ad creative and define what audiences they wanted to reach. But AI has already made us better at targeting and finding the audiences that will be interested in their product than many businesses are themselves, and that keeps improving. And now AI is generating better creative options for many businesses as well. I think that this is really redefining what advertising is into an AI agent that delivers measurable business results at scale. And if we deliver on this vision, then over the coming years I think that the increased productivity from AI will make advertising a meaningfully larger share of global GDP than it is today.

In the post-App Tracking Transparency world, Meta’s success has been built on its ability to deploy machine learning tools to probabilistically target users. Without realising it, Apple’s ATT policy may have hurt Meta in the short-term, but, in the long-term, widened Meta’s proverbial moat, by denying social media networks such as Snap access to the data needed for deterministic ad targeting. Meta has the scale and infrastructure to make the best probabilistic targeting available. With generative AI, this competitive advantage becomes even stronger: Meta will be able to test an infinite number of ad ideas and verify the success of each ad, pushing that probabilistic process closer toward certainty. With the scale and infrastructure available to meta, the company will be able to take over the entire creative process for advertisers, with even greater success than it now has, which will attract more advertisers, raising prices and margins. Already, the AI recommendation model Meta is testing on Reels has led to a 5% increase in conversions and has been used by 30% of advertisers.

I cannot conclude this section without mentioning DeepSeek: although investors reacted negatively to it, as a kind of external shock, it is actually favourable, at least to Meta. Meta does not need the Llama family of open-weight models to be the world’s best generative AI tool, what it needs is for the cost of generative AI to sharply decline as models improve, and for content to become even more commoditised. In a 2024 interview with Dwarkesh Patel, Zuckerberg noted that,

there’s multiple ways where open source could be helpful for us. One is if people figure out how to run the models more cheaply. We’re going to be spending tens, or a hundred billion dollars or more over time on all this stuff. So if we can do that 10% more efficiently, we’re saving billions or tens of billions of dollars. That’s probably worth a lot by itself. Especially if there are other competitive models out there, it’s not like our thing is giving away some kind of crazy advantage.

…

Here’s one analogy on this. One thing that I think generally sucks about the mobile ecosystem is that you have these two gatekeeper companies, Apple and Google, that can tell you what you’re allowed to build. There’s the economic version of that which is like when we build something and they just take a bunch of your money. But then there’s the qualitative version, which is actually what upsets me more. There’s a bunch of times when we’ve launched or wanted to launch features and Apple’s just like “nope, you’re not launching that.” That sucks, right? So the question is, are we set up for a world like that with AI? You’re going to get a handful of companies that run these closed models that are going to be in control of the APIs and therefore able to tell you what you can build?

For us I can say it is worth it to go build a model ourselves to make sure that we’re not in that position. I don’t want any of those other companies telling us what we can build. From an open source perspective, I think a lot of developers don’t want those companies telling them what they can build either. So the question is, what is the ecosystem that gets built out around that? What are interesting new things? How much does that improve our products? I think there are lots of cases where if this ends up being like our databases or caching systems or architecture, we’ll get valuable contributions from the community that will make our stuff better. Our app specific work that we do will then still be so differentiated that it won’t really matter. We’ll be able to do what we do. We’ll benefit and all the systems, ours and the communities’, will be better because it’s open source.

In the wake of DeepSeek’s launch, Zuckerberg said he believed that not only could Meta incorporate some of the novel things DeepSeek did, which, presumably, would mean that spending would become more efficient, but also that,

There’s going to be an open-source standard globally, and I think that for our own national advantage it’s important that it’s an American standard. The recent news has only strengthened our conviction that this is the right thing to be focused on.

In effect, this would free Meta from the kinds of dependencies it had on Apple, while making more developers dependent on Meta.

Meta Is Attractively Valued

At the current price, Meta is not cheap, but rates attractively valued according to my stock rating methodology. It has a price-to-economic book value (PEBV) of 2.1, which implies that the market expects its net operating profit after tax (NOPAT) to grow by 110% from current levels. Using my reverse discounted cash flow ‘DCF) model, one can uncover the expectations implied by the current stock price. 

If, in the first scenario,

• revenue grows by an average of 9.31% a year, in line with consensus estimates, before rising to 15% a year, as a function of its AI investments. 
• and Meta maintains its current NOPAT margin of 36.97%, then,

the shareholder value equals its current stock price in 2045, with a market-implied competitive advantage period (MICAP) of 20 years. 

If, on the other hand, 

• revenue grows by 14.66% a year, its 5-year sales CAGR
• and NOPAT margin rises to 41.02%, its 2024 peak, then

Meta is worth $990.15 per share, an upside of 67.17% from the current price. 

If, however, 

• revenue grows by 13.47% a year, its 3-year sales CAGR
• and NOPAT margin rises to 41.02%, then,

Meta is worth $652.16, a 10% upside to the current price.

Impact of Footnotes Adjustments and Forensic Accounting

Here below are details of accounting adjustments made to Meta’s’ LTM periodic reports:       

Income Statement: I made $6.63 billion in adjustments to calculate NOPAT, with the net effect of deducting $3.65 billion in non-operating income. The adjustments are equal to 9.95% of Meta’s GAAP net income.      

Balance Sheet: I made $138.36 billion in adjustments to calculate invested capital with a net decrease of $83.54 billion. One of the largest of these adjustments was $72.99 billion in excess cash, an adjustment worth 26% of reported assets.

Valuation: I made $136.79 billion in adjustments with a net effect of increasing shareholder value by $9.19 billion. The largest of these adjustments was $63.8 billion in adjusted total debt, representing 4.28% of Meta’s market cap. 

Position closed on 13 May 2025, at a loss of 1.4%.

Orge Enerji Elektrik Taahhüt Anonim Sirketi (IST:ORGE, ₺108.20/share) is a compelling investment opportunity within the Turkish electrical contracting and renewable energy sectors. Orge Enerji earns a very attractive rating according to my stock rating methodology, thanks to its ability to grow revenue and profitability at quite astonishing rates, in fairly competitive markets, a feat made possible by its competitive advantages.

A Moderately Competitive Industry

The Turkish construction market, within which the electrical contracting industry operates, is characterized by a high degree of competition, with numerous companies vying for projects across various sectors. However, at the electrical installation industry level, the degree of competition appears to be more constrained. Similarly, the electrical equipment manufacturing sector in Türkiye also exhibits a moderate level of competition. Several major players dominate the electrical contracting market in Türkiye, including well-established conglomerates such as Girisim Elektrik Sanayi Taahhüt ve Ticaret A.S. (IST:GESAN), Astor Enerji A.S. (IST:ASTOR), and Kontrolmatik Teknoloji Enerji ve Muhendislik A.Ş. (IST:KONTR). While precise market share data for the electrical contracting industry is not readily available, the presence of these multiple established companies suggests a market that is relatively fragmented rather than dominated by a few major players. Over the last five to six years, the Turkish energy sector has witnessed a notable increase in the participation of private sector entities, signaling a continued liberalization of the market.

In the rapidly expanding renewable energy sector in Türkiye, Orge Enerji’s major direct competitors include firms such as Margün Enerji Üretim Sanayi ve Ticaret A.Ş. (IST:MAGEN), Mogan Enerji Yatirim Holding Anonim Sirketi (IST:MOGAN), and A1 Yenilenebilir Enerji Üretim A.S. (IST:A1YEN). And İnşaat Ticaret A.Ş.’s direct competitors incude firms such as Enka Insaat ve Sanayi A.S. (IST:ENKAI), Tekfen Holding Anonim Sirketi (IST:TKFEN), and Gulermak Aglr Sanayi Insaat ve Taahhut A.S. (IST:GLRMK). This further adds to the view that the company is engaged in fairly competitive markets.

One of the most significant findings in finance is that low asset growth firms outperform high asset growth firms, with investments destroying rather than creating value. Resisting the gravitational pull of the asset growth effect is extremely difficult. A sign of the competitiveness of the market and Orge Enerji’s need to compete through investments is that its total assets compounded by 67.24% a year since 2019, while the firm burnt through -₺42.42 million in free cash flow (FCF) in the same time. Yet, Orge Enerji has created ₺1.94 billion in economic profits, as economic profit margins have fattened. Orge Enerji has indeed been able to defy the gravitational pull of the asset growth effect.

Powering Türkiye’s Future

Orge Enerji is primarily engaged in electricity contracting, offering comprehensive, turnkey services encompassing the design, installation, and maintenance of medium voltage, low voltage, and weak current electrical systems for residential and commercial construction buildings. 

The Turkish electrical contracting industry is closely linked to the overall health and growth of the nation’s construction market. This construction market demonstrates promising growth prospects, with expectations of a 3.0% annual increase in 2025 and a compound annual growth rate (CAGR) of 2.5% projected for the period between 2025 and 2029. In terms of market size, the construction sector in Türkiye is substantial, estimated at $173.56 billion in 2025, with a projected CAGR of 5.75% from 2025 to 2030. Within this broader construction landscape, the electrical installation market in Türkiye holds significant value, estimated at €6.6 billion in 2025.

Several key factors drive the growth of this industry, including a steadily increasing demand for energy fueled by Türkiye’s growing population, rapid urbanization, and ongoing industrial expansion. Moreover, the need to upgrade and modernize existing infrastructure across various sectors further bolsters the demand for electrical contracting services. 

The Turkish government is actively investing in a wide range of infrastructure projects, encompassing transportation networks, industrial facilities, and a significant push towards renewable energy development, all of which necessitate robust electrical contracting services. The nation’s commitment to increasing the share of renewable energy in its electricity generation mix serves as a particularly strong growth driver for electrical contractors specializing in this area. Consequently, Orge Enerji has expanded into renewable energy, where it provides turnkey installation services for solar power plants, catering to various deployment methods including roof-mounted, facade-integrated, ground-mounted, and agricultural installations, as well as wind power plants.  Their renewable energy service extends beyond initial installation to include post-installation warranty support, ongoing maintenance, operational services, and round-the-clock remote monitoring, ensuring the longevity and efficiency of these renewable energy assets. 

Orge Enerji also operates a trade division that focuses on the sales, marketing, and trading of a comprehensive range of electrical supplies, materials, and equipment, with a particular emphasis on electrical cables. This trading arm serves both Orge Enerji’s internal project needs and external clients, providing an additional revenue stream and potentially enhancing supply chain efficiencies. 

Orge Enerji’s wholly-owned construction-contracting subsidiary, And İnşaat Ticaret A.Ş, was formed in 1985 to meet rising residential and workplace demand on İstanbul’s Anatolian side, and specializes in urban‑transformation feasibility studies,and  turnkey construction projects, and has delivered multiple landmark sites.

Reducing Transaction Costs for Clients

As a turnkey contractor, Orge Enerji assumes responsibility for the entire project lifecycle, offering clients a comprehensive suite of services from the initial design and engineering phases through the procurement of necessary materials and equipment, the physical installation of electrical systems and renewable energy infrastructure, the critical commissioning process to ensure operational readiness, and finally, ongoing maintenance and support services. This end-to-end approach simplifies project execution for clients, allowing them to rely on a single, experienced partner for all their electrical and renewable energy needs. As aforementioned, Orge Enerji also actively engages in the trading of a wide range of electrical materials and equipment. This division ensures a reliable supply of quality materials for Orge Enerji’s own projects while also catering to the needs of other businesses and clients in the broader market. This integrated approach, encompassing both contracting and trading, enhances Orge Enerji’s operational efficiency and reduces client costs.

Regulations Are Shaping a More Attractive Market

The regulatory environment governing the Turkish electricity market has undergone a significant transformation over the past two decades. Since 2001, the market has transitioned from a predominantly state-controlled system to one characterized by regulated competition, with the aim of enhancing efficiency and attracting private investment. The Energy Market Regulatory Authority (EMRA) plays a central role in overseeing the market, responsible for issuing licenses to market participants and ensuring fair competition within the sector. The structure of the Turkish electricity market covers various activities, including power generation, electricity transmission -which remains a state-owned monopoly operated by Türkiye Elektrik İletim A. Ş. (TEIAS)-, electricity distribution -which has been largely privatized with regional entities responsible for local networks-, wholesale electricity trading, and retail electricity sales.

Management-Shareholder Incentives are Aligned

Established in 1998, Orge Enerji grows and is built upon decades of family and founder expertise. Orge Enerji began trading publicly on the Istanbul Stock Exchange (IST) in 2012, and, while 52% of the company’s are publicly owned, the founding partner, chairman and CEO, Mr. Nevhan Gündüz, owns 17%, and co-founder and vice chairman, Mr. Orhan Gündüz, owns 31%. 

Executive directors (Orhan Gündüz and Nevhan Gündüz) each receive a gross ₺30 000 monthly retainer; non‑executive directors receive ₺6 750 gross per month. The group of “Üst düzey yöneticiler” (the board plus the CEO) received ₺906 003 in benefits in 2024, and ₺3 052 969 in travel/representation expense reimbursements. Remuneration is not tied to financial or operational KPIs, nor are there disclosed stock‑option or bonus schemes. The primary mechanism for incentivising the Messrs. Nevhan and Orhan Gündüz are through their shareholding. As a founder-led, family owned business, management’s incentives are in harmony with those of the investing public.

An Experienced and Reputable Deliverer

Orge Enerji possesses a significant competitive advantage stemming from its extensive experience in the Turkish electrical contracting business. The company’s operational history spans over 25 years since its founding in 1998, but this is built upon an even longer legacy of 51 years of family and founder experience in the sector. This longevity has allowed Orge Enerji to cultivate a strong reputation in the market, known for its consistent track record of completing projects on time, adhering to high-quality standards, and offering optimal pricing that reflects the value and reliability of its services. Over its history, Orge Enerji has successfully delivered a multitude of major projects across a diverse range of sectors, including infrastructure, commercial, residential, and industrial developments. This proven ability to handle complex and large-scale projects enhances its credibility and makes it a preferred partner for clients seeking reliable electrical contracting solutions. The company’s long-standing presence and positive reputation serve as an intangible but significant barrier to entry for newer competitors and provide a solid foundation for continued success in the Turkish market.

An Elite Performer History of Profitability

Since 2019, Orge Enerji’s revenue has compounded by 72.46% a year, a 5-year sales CAGR that places the company among the top 1.3% of companies globally. In the same period, its net operating profit after tax (NOPAT) has compounded by 97.39% a year, from ₺55.68 million to ₺1.69 billion, while its NOPAT margin widened from 39.56% to 48.66%, while its invested capital turns nearly doubled from 0.87 to 1.66. As a result, the company’s return on invested capital (ROIC) has more than doubled, from 31.58% to 81%.

Orge Enerji Still Has Upside

Despite a 25.96% share price appreciation in the year-to-date (YTD), the company remains attractively valued. At the current price, of ₺108.20 per share, Orge Enerji trades at an attractive price-to-economic book value (PEBV) of 1.32. This ratio implies that the market expects Orge Enerji’s NOPAT will increase by just 32% from current levels. I used my reverse discounted cash flow (DCF) model to tease out the expectations for future growth in cash flows implied by various scenarios for Orge Enerji.

In the first, I quantified the expectations implied by the current price, wherein:

• NOPAT margin falls to 43%, and
• Revenue compounds by 89.38%, its 5-year average.

In this scenario, NOPAT rises by 67% in 2025, with a market-implied competitive advantage period (MICAP) of less than one, and the stock is worth ₺108.80, roughly equivalent to the current share price. 

If, however, 

• NOPAT margin remains at 2024 levels of 48.66%,
• While revenue compounds by 89.38%

The stock is worth ₺132.39, an upside of 21.6%. 

If, on the other hand,

• Revenue compounds by the 3-year CAGR of 61.85%, its 3-year average, and,
• NOPAT margin remains at 48.66%.

Orge Enerji is worth ₺116.73, an upside of 7.2%.

Impact of Footnotes Adjustments and Forensic Accounting

Here below are details of accounting adjustments made to Orge Enerji’s’ 2024 annual report:     

Income Statement: I made ₺1 billion in adjustments to calculate NOPAT, with the net effect of adding ₺977.31 million in non-operating expenses. The adjustments are equal to 144.85% of Ogre Enerji’s IFRS net income.    

Balance Sheet: I made ₺973.89 million in adjustments to calculate invested capital with a net decrease of ₺955.24 million. One of the largest of these adjustments was ₺73.53 million in excess cash, an adjustment worth 1.9% of reported assets.    

Valuation: I made ₺964.46 million in adjustments with a net effect of decreasing shareholder value by ₺325.82 million. The largest of these adjustments was 577.28 million in net deferred tax liabilities, representing nearly 7% of Ogre Enerji’s market cap. 

Victory belongs to the most persevering.

Napoléon Bonaparte

Companhia de Saneamento Básico do Estado de São Paulo – SABESP (BVMF:SBSP3: R$109.01/share), Brazil’s largest water and sanitation utility, serving 28.1 million people with clean water and 25.1 million with sanitation services in 375 municipalities in the state of São Paulo,, stands at the nexus of Brazil’s urgent infrastructure needs and an unprecedented wave of regulatory reform. Over nearly five decades it has operated as a publicly guaranteed regional monopoly, managing an R$ 80 billion asset base under long‑dated concessions, yet chronic underinvestment left service gaps, high water losses and mounting fiscal pressures on São Paulo’s state government. Privatisation has been the state’s answer to these problems, and with it an era of private‑sector discipline, enhanced governance and broader capital access. Traditionally, an investment that hinges upon an influx of capital is a thesis whose final outcome is shareholder value destruction, but the company’s existence as a monopoly whose essential profitability is protected, means that the investments-to-come will likely grow shareholder value, rather than destroy it, while achieving the state’s goals of universalisation of access to clean water and sanitation services. Management’s revamped incentive scheme and independent board, combined with a “strategic investor” privatization structure, have realigned leadership to profitability and service targets. Against a backdrop of rising sector margins, the country’s regulatory reforms and growing public-private partnerships (PPP) concessions nationwide set the stage for Sabesp to leverage scale, secure tenured assets until 2060 and navigate macro‑risks—be they tariff‑shielded inflation pass‑through or minimal exposure to trade‑war supply shocks. I believe Sabesp is a very attractive investment, whose economics, and a valuation that assumes a 36% decline in its core profitability, are hard to match.

The Road to Privatization

Privatization of Brazil’s water and sanitation sector began in 1996 under the government of Mr. Fernando Collor de Mello through the Programa Nacional de Desestatização, and by 2008, the private sector provided water for 4% of the country’s population. Today, ten of Brazil ‘s 26 states, São Paulo, Rio de Janeiro, Espírito Santo, Mato Grosso, Mato Grosso do Sul, Santa Catarina, Minas Gerais, Paraná, Pará and Amazonas, are now covered by 65 concessions contracts. Under concession contracts, the infrastructure is owned by the government and awarded by municipalities and states, but operated by concessionaries. This model has proven successful in expanding access to clean water and sanitation services. The private sector remains a small though growing player in water and sanitation, with private players such as AEGEA Saneamento e Participações S.A, enjoying higher-margins. 

The drive toward privatization is a consequence of the need to address the infrastructure deficit the water and sanitation sector suffers. The government has attempted to spur added investment through legal mandates, most recently, the 2020 Sanitation Legal Framework (Law 14.026). The aim of this mandate is that, by March 2033, 99% of Brazil’s population  will have access to drinking water, and 90% will have access to sewage collection and treatment services, a significant improvement from 2018, when, according to the National Sanitation Information System’s (SNIS), half of the population did not have access to sewage collection and treatment services and 16% did not have access to drinking water. This mandate envisages investments of around R$95 billion to achieve these twin goals, with a focus on underserved regions. Sector rules were standardised and private participation was incentivised through 30-year concessions and penalties for non-compliance. In the aftermath of the mandate, auctions surged, AEGEA, for instance, secured a R$15.2 billion contract in Pará state, demonstrating private appetite for long-term concessions. 

Not only did the country witness a great demand for concessions, but, the Banco Nacional de Desenvolvimento Econômico e Social (BNDES) structured auctions and declared a financial capacity to finance as much as 80% of projects. For the 2019 to 2025 period, sanitation debentures are expected to reach R$43 billion, while multilateral institutions such as the International Finance Corporation (IFC) has also entered the fray, with João Carneiro, the IFC’s head of infrastructure investments, saying, “No other sector has a greater positive impact on society than sanitation.” The impact of this influx of capital will be to reduce the long-run cost of capital for concessionaires, an important point given high interest rates and residual regulatory uncertainty. 

Sabesp, facing aging infrastructure with around 20% water loss due to leaks and underinvestment, long ago began the process of privatisation, but its operating structure, as a private-profit publicly guaranteed monopoly, proved a disincentive to investing in long-term infrastructure. During São Paulo’s 2014 Water Crisis, Messrs. Steffen Böhm and Rafael Kruter Flores explained that, 

One of the world’s largest water utilities, Sabesp was founded as a public institution in 1973. Since part-privatisation in 1994 the state of São Paulo has maintained at least half of the company’s voting capital, though shares are also traded on the New York and São Paulo stock exchanges.While The Economist and others were keen to point out that Sabesp is “majority-owned by the state government”, this doesn’t tell the whole story. The utility is neither a public organisation concerned with providing a public service, nor a private company facing competition from other companies and controlled by regulatory agencies. Just like the “natural monopolies” enjoyed by water companies in the UK, Sabesp has a publicly guaranteed monopoly, yet its profits are part-privatised – earlier this year it paid out R$252m (US$83m) in dividends.

Sabesp pursued an alternative model to the private concession model in vogue, believing it a better way to resolve the incentive problems the previous model created. The company, like Companhia de Saneamento de Minas Gerais – COPASA MG (BVMF:CSMG3) in Minas Gerais and Companhia de Saneamento do Paraná – SANEPAR (BVMF:SAPR3) in Paraná, listed on the B3 S.A. – Brasil, Bolsa, Balcão. Sabesp is also listed on the New York Stock Exchange (NYSE). Sabesp also obtained loans from the Inter-American Development Bank and the Japan Bank for International Cooperation. 

In 2019, São Paulo proposed to privatize Sabesp that very year in order to reduce fiscal burdens and align with federal pro-market reforms under President Jair Bolsonaro. Share prices rose 31% on privatization hopes. Privatisation, however, was only completed in July 2024 by the governor of São Paulo, Mr. Tarcísio de Freitas (Republicanos-SP). Under that agreement, São Paulo reduced its stake from 50.3% to 18.3%, while Equatorial Energia acquired 15% of Sabesp’s shares and became the new reference shareholder, and 17% of the shares were offered to minority shareholders, and another 40% of the shares are traded on B3 and 9.7% on the NYSE.

A Synergistic Relationship

Equatorial Energia, which owns power distribution companies in seven states, as well as a sanitation concession in Amapá, believes that its footprint in other states grants it the economies of scale and richness of expertise necessary to advance Sabesp’ expansion. According to Valor International, the firm’s focus is on improving Sabesp and its management, with the CEO, Mr. Augusto Miranda, envisaging a “long-term partnership”. Mr. Miranda believes that there are synergies between the two, given that not only is Equatorial Energia in energy and sanitation, but Sabesp itself not only serves 375 municipalities with water and sanitation services, it is also engaged in energy, paving and other sanitation-related services through six subsidiary companies:

Being a ‘multi-utility’ company is a differentiator – you’re already operating-, so these are complementary services, energy, and sanitation. 

…

“We don’t need to grow for the sake of growth; we need to allocate resources efficiently.

In essence, what is promised is a blend of Equatorial Energia’s management model and Sabesp’s technical expertise. Noting that some municipalities in São Paulo are not covered by Sabesp, he said that,

If you look internally, there are municipalities that haven’t joined [the company] and are in neighboring areas. This is an opportunity. Sabesp’s reputation is an invitation for this.

New management, in place since October 1, 2024, and headed by CEO Mr. Carlos Leone Piani, who had previously served as chairman of Equatorial Energia, plans to invest R$70 billion by 2029 and R$260 billion by 2060 to fulfill its goal of achieving universal access to  clean water and sanitation services. Piani is tasked with reducing the firm’s operating costs and optimally allocating capital without sacrificing service quality. 

The company must abide by covenants which hold that at the end of every quarter, net debt/adjusted EBITDA must be lower than or equal to 3.50; and adjusted EBITDA/financial expenses must be equal to or higher than 1.5. Management expect to run at the limit of these restrictions, which are lower than other private-sector companies in the sector, with Equatorial Energia’s CFO, Mr. Leonardo Lucas, explaining that,

These are appropriate limits, especially in this interest rate environment. The company’s leverage is very low, and there is a significant opportunity to increase productivity. Additionally, the tariff review will be annual, so once the investment is made, there won’t be a long wait to receive the return.

An immediate benefit of privatisation is that, free from the shackles of state procurement policies, the firm will be able to act faster than it previously could.

Aligning Incentives

With privatization has come an additional lever for what Equatorial Energia’s CEO, Mr. Augusto Miranda calls, “engaging people”:

For example, Equatorial has a policy where there is a base salary, a medium-term salary with goals, and long-term incentives. With the company listed on the stock exchange, some people can even hold shares.

Although the role of reference shareholder lasts until 2029, the shareholder’s agreement can be renewed, which creates additional incentives for Equatorial Energia to deliver on its promises. 

In tandem with the privatisation process, the company signed a new concession agreement with the Regional Unit of Drinking Water Supply and Sewage Services – URAE 1 – Southeast, covering 371 municipalities. It is in effect till 2060. Under this concession agreement ,the company is compensated based on its regulatory asset base, with annual tariff adjustments tied to how quickly the firm is accelerating its investments. In a field in which the firm faces no competition, this is a guarantee of profitability in the aftermath of the sought-out investments. 

There are two five-year cycles whose asset base functions as a reference point for tariff adjustments: (i) 2024 to 2029 and (ii) 2030 to 2034. In the first, the goal is to achieve universalisation and quality improvement, for which significant investments are expected, enough to double the size of Sabesp’ regulatory asset base. All efficiencies with respect to the firm’s operating expenses are retained by it. In the second cycle, the goal is to improve operational efficiencies, for which there are loss reduction targets that will result in shared efficiencies with customers. The company will be remunerated based on the costs incurred and a predetermined weighted average cost of capital (WACC). 

Tariff adjustments will, as aforementioned, be annual in the first two cycles, and quinquennial in the third cycle, subject to the company meeting universalisation and quality targets. The burden on customers is eased thanks to a Support Fund for the Universalization of Sanitation in the São Paulo State (FAUSP), which uses funds from Sabesp’ privatisation to keep tariffs at affordable rates, without hurting Sapesb’ profitability.

Improving Economic and Financial Performance

Even before these changes, Sabesp’ economic and financial performance was improving. The firm’s 5-year revenue CAGR for the 2019-2024 period was 14.98%, while its net operating profit after tax (NOPAT) compounded at a rate of 26.16%. 

In that 2019-2024 period, Sabesp’s economic profit per share compounded from R$3.50 to R$11.47, at a rate of 26.79%, although the firm earned economic losses in 2021 and 2022, as its return on invested capital (ROIC) was lower than its WACC. At 23.2% in 2024, Sabesp’ ROIC is at its highest level ever.

In terms of operational efficiencies, it is noteworthy that Sabesp’ total operating costs and expenses as a share of total revenue, have fallen from 67.9% in 2019 to 55.94% in 2024, although the median value for the interim period was 77.11%. In other words, Sabesp was able to grow while keeping its operating costs under tight control.

Sabesp Is Priced for a 34% Decline in NOPAT

At its current price, Sabesp has a price-to-economic book value (PEBV) of 0.66, implying that the market expects its NOPAT to permanently fall by 34% from its 2024 levels. Using my reverse discounted cash flow (DCF) model, I teased out the expectations for future growth in cash flows implied by various scenarios for Sabesp. 

In the first, I quantified the expectations implied by the current price, wherein:

• NOPAT margin remains at its 2024 level of 39.98%, and,
• Revenue declines by 20.55% in 2025, grows by 0.095% from 2025 onwards, in line with consensus estimates.

In this scenario, NOPAT falls to R$11.92 billion in 2028 -giving us a market-implied competitive advantage period (MICAP) of three years-, and the stock is worth R$110.93 today, approximately equal to the current price. 

If, on the other hand, Sabesp’s

• NOPAT margin falls to its 3 -year average of 24.49%, and
• Revenue grows at 13.15% a year, it’s 3-year average, then, 

the stock is worth R$123.69, an upside of 13.47% from the current price.

If, however, we assume that Sabesp’s 

• NOPAT margins remains at 39.98%, and
• Revenue grows by its 5-year average of 14.98%, then,

the stock is worth R$255.69, a 135% upside from the current price.

Impact of Accounting Adjustments

I made numerous accounting adjustments to Sapesp’ 2024 financial statements, with the following impact:

Income Statement: I made R$4.87 billion in adjustments to calculate NOPAT, with the net effect of adding R$4.87 billion in non-operating expenses. The adjustments are equal to 50.84% of Sabesp’s IFRS net income.  

Balance Sheet: I made R$11.54 billion in adjustments to calculate invested capital with a net decrease of R$11.07 billion. One of the largest of these adjustments was R$4.66 billion in excess cash, an adjustment which, on its own, is worth 5.75% of reported assets.  

Valuation: I made R$32.58 billion in adjustments with the net effect of reducing shareholder value by R$23.26 billion. The largest of these adjustments was R$25.26 billion in adjusted total debt, representing 33.9% of Sabesp’ market cap.