This position was closed on August, 18, with a return of 21.47%.

Thirteen years after Apollo Global Management, Inc. (APO) took McGraw Hill, Inc. (MH: $17/share) private, the global education solutions provider, raised $415 million in its initial public offering (IPO) at a valuation of $3.25 billion. Sold in 2021 by Apollo to Platinum Equity, LLC for $4.5 billion, the company sought a $4.2 billion valuation, and to raise $537 million. These details alone are enough to rouse the suspicion that this is a business in decline, at a time when private equity-backed IPOs are on the rise, even at the price of markdowns, in order to improve their liquidity in a climate of inflationary pressures, somewhat elevated interest rates, and geopolitical uncertainty. As this thesis will show, McGraw Hill is a business whose products are facing commodisation, which has experienced value-less growth, and faces pressure from niche players, and is priced for a surge in profitability. These factors lead me to assign a “Very Unattractive” rating to the forthcoming stock.

The Commoditization of Education Resources

With competitors such as AMBOSS, Amplify, Cengage, Curriculum Associates, Elsevier, Houghton Mifflin Harcourt, Macmillan Learning, Pearson plc (PSORF), RELX PLC (RELX), Savvas, and Wolters Kluwer N.V. (WOLTF), the industry structure is oligopolistic, with McGraw Hill touting in its S-1 filing, an industry defined by a “relatively small number of large competitors”, in which none of its peers competes with it “across the full learning lifecycle”, “from K-12 to higher education and through professional learning”. However, this is an industry under siege in the wake of the Internet Revolution. As McGraw Hill itself observes, it also faces competition from “open educational resources, which may offer similar digital products at lower costs”. 

McGraw Hill’s core value proposition is being eroded by a fundamental shift in the education value chain. In decades past, the legacy providers benefitted from high transaction costs related to physical production, relationships with institutions, distribution networks, and bundled content, which made centralised publishers indispensable. These publishers could control distribution, and integrate that backwards with control of authors, in order to earn and conserve attractive profits. Indeed, the company says of itself that,

The quality of our content and the effectiveness of our digital solutions are fundamental aspects of our business, and third parties such as authors, subject matter experts and software engineers help to enable us to maintain and to continuously improve in these areas.

In a world of high transaction costs, control of supply relationships was enough to conserve attractive profits. The Internet Revolution reduced the cost of distribution to zero for those publishers with digital goods, reducing to little the importance of supply integration. Moreover, with the cost of transactions reduced to zero, distributors could integrate forward with their users at scale. With educators and learners integrated, direct access to modular, digital content, and platforms was enabled. With control shifting downstream toward users, supply has become commoditized, with user experience rather than control of supplier relationships the key differentiator. Consequently, as Mcgraw Hill acknowledges, it faces competition from digital products that can be delivered at no cost, and offered free of charge. Open education resources such as MIT OpenCourseWare, and Khan Academy, show that education resources have been commoditized. The company acknowledges this commoditization, saying,

Free or relatively inexpensive educational products are becoming increasingly available, particularly in digital formats and through the internet. For example, some governmental and regulatory agencies have recently increased the amount of information they make publicly available at nominal cost or for free. In recent years, there have also been initiatives by not-for-profit organizations to develop educational content that can be “open sourced” and made available to educational institutions for free or nominal cost. In addition, there have been initiatives by the U.S. federal government and certain state governments to enact legislation or regulations that mandate or favor the use by educational institutions of open sourced content and provide funding for the same. The increased availability of free or relatively inexpensive educational products may reduce demand for our products or require us to reduce pricing, thereby impacting our sales revenue.

Large language models ((LLMs)) pose another threat, delivering commoditized education resources in highly personalized ways, even as the company warns that it can deliver inaccurate information. Again, McGraw Hill acknowledges this. Much as Mark Zuckerberg aims at the commoditization of advertising and a world in which Meta Platforms (META) can create ads with AI, generative AI could lead to a world in which educational resources are created by cannibalizing existing content created by McGraw Hill and its peers. 

Finally, with platforms such as Patreon and Substack making it possible for authors and subject matter experts to directly engage with educators, and students, the scale of competition is actually rather great. In its Risk Factors section, McGraw Hill acknowledge that,

The market shift toward digital education solutions has induced both established technology companies and new start-up companies to enter certain segments of our market. The risks of competition are intensified due to the rapid changes in the products our competitors are offering, the products our customers are seeking and our sales and distribution channels, which create increased opportunities for significant shifts in market share. Competition may require us to reduce the price of some of our products or make additional capital investments and may result in reductions in our market share and sales.

In attracting these authors and subject matter experts, McGraw Hill not only has to consider what competitors could offer them, but what they can earn if they embrace the disintermediation offered by the internet. 

Where McGraw Hill paints a portrait of an attractive industry structure, the realities of the Internet Revolution are that McGraw Hill is structurally disadvantaged and prevents it from exercising the kind of pricing power needed to create value, or to protect the bottom line in challenging times. The import of this is that, while McGraw Hill can boast that “ in the United States, on average, 89% of K-12, higher education and medical school students, faculty and administrators would consider McGraw Hill for their classes”, there is downward pressure on the prices it can charge, because there are free alternatives.

Full Learning Lifecycle Integration is Not a Strength

McGraw Hill, as aforementioned, provides educational resources throughout the learning cycle, from K-12 to professional, competing in the United States and abroad. This is not the advantage that it appears to be. If transaction costs have hurtled toward zero as a result of the Internet Revolution, swelling the number of competitors, then, not only is it easier for niche producers to emerge such as AMBOSS, who educational resources for medical doctors and students, it is also easier for schools and students to access their content, and, I think, more sensible. The specialised knowledge that AMBOSS possesses is likely to be greater than that available to McGraw Hill, and, with focus comes an ability to better reflect the needs of niche markets.

Growth Without Value

Since fiscal 2023, McGraw Hill has grown revenue by 3.85% a year. This is a rather low level of growth and reflects the maturity of the business. Growth has come with rising profitability, with the firm’s net operating profit after tax (NOPAT) going from -$6.44 million to $159.04 million. Driving the rise in profitability has been an improvement in the firm’s NOPAT margin from -0.33% to 7.57%. McGraw Hill’s invested capital turns have declined, however, from 0.85 in fiscal 2024 to 0.48 in fiscal 2025, leading to a fall in return on invested capital (ROIC) from 3.78% in fiscal 2024 to 3.61% in fiscal 2025. McGraw Hill’s anemic profitability has profound consequences on its ability to create and grow value, that is, to earn ROIC in excess of the cost of capital, with the firm generating economic losses in both fiscal 2024 and 2025.

Debt Weighs Heavily on the Company

Absent the impact of the firm’s adjusted total debt, McGraw Hill has an economic book value (EBV) of $1.9 billion based on the IPO price, and a price-EBV ratio of 1.71, implying a 71% growth in NOPAT from current levels. However, with debt, some $3.27 billion, the EBV of the company sinks to -$877.56 million, with a PEBV of -3.7. Loaded with debt that its economics cannot support, McGraw Hill’s value has been obliterated.

Priced for a Surge in Profitability

Using my reverse discounted cash flow (DCF) model, I analysed the price-implied expectations for future cash flow, and found clear evidence that the company is a very unattractive investment proposition. 

In order to justify its IPO price my model shows that McGraw Hill will have to:

• immediately improve its NOPAT margin to 9.9% in fiscal 2026, 12.37% in fiscal 2027, 17.32% in fiscal 2028, 19.8% in fiscal 2029, and 22.27% in fiscal 2030
• revenue grows by 3.85%, its 2-year CAGR. 

In this scenario, McGraw Hill generates $2.5 billion in revenue, and $565.39  million in NOPAT in fiscal 2032, with NOPAT compounding by an average of 13.62% a year within its market-implied competitive advantage period (MICAP) of four years. 

In my second DCF scenario, I unlocked the downsides of this valuation if this surge in profitability does not materialise. 

If one assumes that McGraw Hill’s

• NOPAT margin rises to 9.9%, and,
• revenue grows by 7.18% a year, its 1-year CAGR, then,

McGraw Hill is worth $1.37 per share, a 91.94% downside to the target valuation. In this scenario, McGraw Hill generates $2.97 billion in revenue and $294.24 million in NOPAT in fiscal 2030. 

Finally, if,

• NOPAT margin jumps to 14.85%, and, 
• revenue grows by 7.18% a year, then,

McGraw Hill is worth $10.07 per share, a downside of 40.76% from the target valuation. In this scenario, the firm earns $441.36 million in NOPAT. 

In each of these scenarios, I assumed that Mcgraw Hill will not have to grow its net working capital or adjusted fixed assets. Should McGraw Hill need to grow its invested capital, the stock’s riskiness is even greater. The lesson is simple: given how deep a hole the firm’s debt has left, even incredible performance will not be enough to make the present valuation palatable.

Recently, I have found value in banks, specifically, JPMorgan Chase & Co. (JPM), and Lion Finance Group PLC (LON:BGEO), and now, with Danish regional bank, Ringkjøbing Landbobank A/S (CPH:RILBA, 1400 kr.), the subject of this thesis. With a favourable capital cycle, a robust and resilient business model, and a history of profitability, the firm’s valuation creates a very attractive entry point for investors. This stock forms part of my model portfolio with a very attractive rating.

Scope for Healthy Credit Expansion

Global interest rates have been in suprasecular decline for the last eight centuries, and Europe and Japan’s flirtation with negative interest rates may, in time, be seen as a return to a historical trend, rather than the aberration it is currently viewed as. Having reached near-zero interest rates in early 2019, Denmark emerged from a brief period of negative interest rates in early 2022, lifting net interest margins (NIM), which peaked in October 2023. Since that peak, the NIM has been under pressure, with Ringkjøbing Landbobank noting that in addition to this, “continuing keen competition for loans resulted in pressure on the lending margin”. 

Regulators report that banks’ deposit margins are at historically high levels, driven by abundant deposits and positive policy rates, while lending margins have fallen to record lows. In other words, banks pay more on deposits but have not raised loan rates commensurately. The Danish Financial Supervisory Authority (FSA) cautions that record‐low lending margins for households may underprice underlying risk. Nonetheless, banks’ profits have surged, with credit institutions earning a record 71.4 billion Danish kroner (kr.) pre‐tax in 2023, about 30 billion kr. above 2022, driven chiefly by higher net interest income thanks to the wide deposit‐loan spread. The Systemic Risk Council likewise notes “high earnings and moderate lending growth” are allowing banks to build capital, even as lending margins on new household loans continue to decline.

Credit is supplied endogenously by banks to meet profitable loan demand, creating deposits and driving aggregate demand. Historically, this credit‐driven process can amplify business cycles, as rising loans fuel an asset boom and bust cycle. In Denmark, medium‐term swings in house prices and credit are tightly linked to GDP, with Nationalbanken noting that peaks in financial cycles often precede crises. 

Recent Danish data show moderate credit expansion. Private housing debt grew only 0.6% in 2024, up 12.2 billion kr. to 1.94 trillion, finally surpassing its mid‐2022 peak. Nationalbanken attributes this to higher real incomes and falling long rates, which have kept house‐price inflation subdued. Mortgage institutions’ outstanding lending is climbing again, after 2022’s plunge, as rates stabilised in 2023, but overall loan growth remains modest in historical terms. Commercial bank lending to businesses has been mostly flat, while mortgage credit to firms is rising.

With dividend restrictions imposed by regulators in the wake of the Covid-19 pandemic, banks were left with excess capital to deploy. That, alongside strong balance sheets, with a current non-performing loans (NPL) ratio of 1.9%, led to a wave of consolidation, which in turn boosted shareholder value. Rising interest rates and deepening consolidation have continued, leading to strong results in the industry, with profitability doubling in the last two years. However, consolidation in Demand, and indeed across Europe, is at such high levels now that it is bound to slow down. 

Banks now face the prospect of higher expenses, and squeezed net interest margins and growing loan losses as a consequence of this epoch of uncertainty, although only the first has materialized. 

Denmark’s robust employment and real incomes support sustainable household borrowing, and banks’ high profits and capital buffers mean there is ample capacity to lend. Indeed, the systemic council maintains a 2.5% counter-cyclical capital buffer to allow creditworthy lending to continue. Current conditions, defined by subdued growth in credit volumes, stable banks’ liquidity, and plentiful capital, permit moderate loan growth.

A Low Cost Regional Giant

Ringkjøbing Landbobank is a regionally focused retail and small-to-medium enterprises (SME) bank in Denmark that describes itself as a “customer-focused relationship bank” in Jutland, with branches in Copenhagen and Aarhus for niche clients. The bank serves household and business clients with a full suite of products, but concentrates on markets in West, Central and North Jutland. It also pursues niche segments: private banking for affluent individuals and medical professionals, financing of renewable energy projects (wind, biogas, solar), and select commercial real estate financing. In all its lending, the bank’s philosophy is conservative: it typically requires first‐lien security and closely monitors credit quality through its robust evaluation models. The bank’s low and secularly declining cost/income ratio and its good credit quality are what makes it so unique and able to generate a high free cash flow (FCF) and a strong revenue shield.

Strategically, management emphasizes organic growth through cross‐selling and deepening relationships, backed by strong personal advisory service and enhanced digital capabilities. The CEO, Mr. John Bull Fisker, highlights the mantra “the customer is king”, aiming to offer all functions that matter and partnering where others excel. Notably, Landbobank has invested heavily in digitalisation and staff training to combine the benefits of personal advice with efficient execution. This dual focus on personal service and technology is a core element of its business model, and management cites its low cost structure as evidence of efficiency, with the cost/income ratio remaining below 26% in Q1 2025.

A Customer-Centric Brand

Independent surveys consistently rank it very highly for customer satisfaction and brand image. The bank itself notes that its “strong image and high level of customer satisfaction” drove a large increase in new customer relationships. This virtuous cycle helped grow loans, up and deposits, up 10% and 8% respectively in 2024. Such loyal retail and SME customers allow the bank to maintain high margins on new business despite overall margin pressure and keep impairment rates negligible.

Extreme Efficiency

The bank’s cost/income ratio is among the lowest in Danish banking. With a less-than 26% cost/income ratio, the bank boasts superior efficiency to the wider Danish banking sector, and the wider European banking sector, which boasts a cost/income ratio of 53.89%. This, as aforementioned, supports high profitability. The bank’s 22% return on equity (ROE), at 22% in Q1 2025, is nearly double the 12% Danish banking sector average. The firm’s return on invested capital (ROIC) has improved from 14.26% in 2020 to 20.7% in the LTM.

Exceptional Financial Strength

Ringkjøbing Landbobank’s very strong capitalization and conservative funding mark it out. At the end of Q1 2025, the bank reported a common equity tier 1 (CET1) ratio of 15%, and a total capital ratio of 15%, compared to a 28.2% Minimum Requirement for own funds and Eligible Liabilities (MREL) capital ratio. With a loan‐to‐deposit ratio of 99.15%, nearly all lending is funded by stable retail deposits, giving a very strong liquidity profile. Regulations demand that the bank maintains a statutory requirement of at least 100% for both the liquidity ratios Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), and it has done so, with an LCR of 184.1% and an NSFR of 118.8%. With one of the highest capital and liquidity cushions of any Danish bank, it is extremely resilient.

Earning Attractive Profits

Since 2020, Ringkjøbing Landbobank’s operating revenue has compounded by 17.14% a year, from 2.39 billion kr. to 5.27 billion kr. in the last twelve months (LTM), compared to a 6.9% and 5.2% global mean and median 5-year sales CAGR respectively. In that time, the bank’s net operating profit after tax (NOPAT) compounded by 15.22% annually. NOPAT margin, however, declined in that period, from 47% to 43.25%.

FCF Generation Supports Dividend Payments

Ringkjøbing Landbobank’s rising profitability has given it the platform to generate meaningful free cash flow (FCF), with the bank generating positive FCF throughout the analysis period, and a cumulative 6.69 billion kr. over the last five years, equal to 19.17% of its present market capitalisation. Ringkjøbing Landbobank’s 2.3 billion kr. in FCF over the LTM equates to an attractive 6.48% FCF yield. The firm’s FCF generation supports its dividend payments, with the firm paying out 1.19 billion kr. in dividends in the last five years, compared to 6.69 billion kr. in FCF generated. This demonstrates the prudence that guides the firm’s dividend payment policy. 

Priced for a Fall in Profitability

At the current price, Ringkjøbing Landbobank has a price-to-economic book value (PEBV) of 0.71, implying that the market expects its NOPAT to permanently fall by 29% from current levels, despite the firm’s history of earning attractive profits. 

Using my reverse discounted cash flow (DCF) model, I tested a variety of scenarios to unearth the cash flow expectations baked into Ringkjøbing Landbobanks current stock price. Afterwards, I analyzed the implied value of the stock based on different and conservative assumptions to predict the bank’s future growth in cash flows.  

In the first scenario, I modeled the catastrophist scenario implied by Ringkjøbing Landbobank’s current stock price. In this scenario, I assume:  

• Revenue declined by 5% a year, 
• NOPAT margin falls to 30.08%, its lowest level in my analysis period.  

In that scenario, the company’s market-implied competitive advantage period (MICAP) is less than a year, at which point its shareholder value per share equals the current price.   

In the second scenario,  

• Revenue grows by 11.33%, its 3-year CAGR, and, 
• the bank maintains its current NOPAT margin of 43.52%. 

In this scenario, the stock is worth 2,335 kr., an upside of 66.79% from the current price.   

In the final scenario,   

• Revenue grows by 10%, and, 
• NOPAT margin falls to 37.59%. 

In this scenario, the stock is worth 1993.43 kr., an upside of 42.36% from the current price. 

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 Aspen Insurance Holdings Limited (AHL). From the executive summary of the article is the following:

• Aspen has demonstrated strong underwriting profitability and value creation despite industry headwinds, supported by a hardening insurance market and disciplined capital allocation.
• The company’s integrated ‘One Aspen’ approach and ACM platform differentiate it, enabling bespoke risk solutions and stable, growing fee income from third-party capital.
• Aspen continues to generate economic profit with solid free cash flow and an attractive valuation, with the market pricing in conservative growth assumptions.
• Given the company’s resilient performance, unique value proposition, and undervaluation, I assign Aspen a Buy rating, despite ongoing industry risks.

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 Flowco Holdings Inc. (FLOC). From the executive summary of the article is the following:

• Flowco appears cheap on P/E but is in a phase of the capital cycle defined by deteriorating ROIC, with no clear turnaround catalyst.
• Material weaknesses in internal controls and questionable executive compensation practices undermine trust in financial reporting and management alignment.
• The Up-C structure and noncontrolling interests siphon most economic benefits away from public shareholders, with dilution risks compounding the problem.
• Despite theoretical upside in optimistic scenarios, the risk of total capital loss makes Flowco a gamble, not an investment—Strong Sell rating assigned

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 OMS Energy Technologies Inc. (OMSE). From the executive summary of the article is the following:

• OMS Energy is undervalued post-IPO, with strong capital cycle dynamics and profitable growth supporting a ‘strong buy’ rating.
• The company benefits from industry consolidation, a capital-light business model, and alignment between management and shareholders.
• OMS Energy’s geographic strength and single-source supplier status enhance pricing power, but heavy reliance on Saudi Aramco is a key risk.
• Market pessimism and lack of analyst coverage have created a compelling entry point, with significant upside potential as fundamentals are recognized.

The rest of the article is available here.

I recently published an investment thesis exclusive to the investment platform, Seeking Alpha, where I cover recent and forthcoming initial public offerings (IPOs). The article is on Belgian manufacturer and supplier of heavy building materials, Titan America SA (TTAM). From the executive summary of the article is the following:

• Titan America operates in a growing industry, but rising supply and capex across the sector raise concerns about future returns and overinvestment.
• The company’s focus on supplementary cementitious materials and its regional presence provide growth opportunities and potential margin stability.
• Ownership by Titan Cement offers strategic alignment and long-term focus, but also limits minority shareholder influence and adds governance risk.
• Despite profitability and growth, scenario analysis suggests the current share price may be too high without further margin or revenue expansion—warranting a Hold rating.

The rest of the article is available here.

“Fish big enough to swallow a boat are not found in ditches.”

Yang Zhu

At a time of record-high U.S. equity preference, evidence of some diversification away from the U.S., and dollar weakness, Lion Finance Group PLC (LON:BGEO, ₤73.90/share) is a very attractive investment opportunity that joins my model portfolio.

Favourable Supply Dynamics

Lion Finance’s most important business segment is Georgian Financial Services (GFS), which represents 72% of the group’s total assets, while Armenian Financial Services (AFS) accounts for 25%, with the residual encompassing JSC Belarusky Narodny Bank (BNB), serving retail and small to medium-sized enterprises (SME) clients in Belarus, and JSC Digital Area, a digital ecosystem in Georgia including e-commerce marketplace, ticketing marketplace, and inventory management Software-as-a-Service (SaaS) solution for merchants.

Georgia’s gross fixed capital formation to GDP, at 24% in 2024, is down from the last decade’s 28% average; while Armenia’s gross fixed capital formation to GDP, at 22% in 2024, is slightly up from the last decade’s 21.2% average. Both numbers are in line with Eurozone and OECD averages. Data from the World Bank shows that Georgia’s domestic bank credit to the private sector as a share of gross domestic product (GDP) is 68.9%, while Armenia’s is 64.8%, compared to around 77.8% for the Eurozone and 149.4% for the OECD. Greece’s non-performing loans (NPL) ratio is 1.47%, while that of Armenia is 1.25%, with both countries experiencing a sharp decline in the NPL ratio in recent years, with Armenia and Georgia reaching a record low in 2024. Both countries have some of the lowest NPL ratios in the world. These factors suggest ample room for profitable credit expansion before oversupply of capital becomes a concern. This is especially attractive given that Georgia is the world’s sixth fastest growing economy in terms of real GDP growth, while Armenia is the world’s 42nd, with strong growth likely to continue in 2025 going forward.

Despite this, Akaki Liqokeli, the bank’s macro economist, indicated in the Q1 2025 earnings call that,

Downside risks remain elevated for the whole region. However, Georgia and Armenia maintain their leading positions according to the latest IMF forecast for the next five year growth, as you can see on the right hand side chart. So external sector inflows have been historically one of the main drivers of growth and currency values in Georgia and Armenia.

External sector inflows, traditionally a key driver of both growth and currency stability, have begun to normalise. In Georgia, inflows such as export proceeds, tourism revenues, and remittances remained resilient, showing a modest year-on-year increase in Q1 2025. In contrast, Armenia experienced a larger adjustment, mainly due to an unusually high base effect from the prior year. That said, both countries are now benefiting from the emergence of non-traditional, service-based inflows, particularly from IT and transportation services, which are proving more durable. These sectors have become significant contributors to hard currency earnings and productivity gains. Importantly, these inflows are helping to support the value of local currencies. The Georgian lari (GEL) and Armenian dram (AMD) both appreciated against the U.S. dollar in early 2025, aided by broader USD weakness. However, looking over a longer time horizon, this strength is also attributable to sound macroeconomic policies and sustained current account support. As a result, both currencies are expected to remain stable over the medium term. A macroeconomic environment of strong and diversifying inflows, sound policy frameworks, and low NPL ratios further supports Lion Finance’s opportunity to profitably expand credit in its core Georgian and Armenian markets.

A Banking Oligopoly

The Georgian and Armenian markets are highly concentrated. The Georgian market is dominated by a duopoly of TBC Bank (LON:TBCG), and JSC Bank of Georgia, a branch of GFS that enjoys 37.3% of the market by total loans; while the newly acquired Ameriabank CJSC, a branch of AFS that enjoys 20.3% of the Armenian market by total loans. A survey by IPM Georgia found that JSC Bank of Georgia is the most trusted universal bank in the country, while a survey by Invia found that Ameriabank is the leading and the top-of-mind universal bank in Armenia.

The World’s Best Digital Bank

In 2024, Global Finance named the JSC Bank of Georgia the world’s best digital bank, breaking Citigroup (C) multi-year stranglehold on that title. The bank was also named the Best Consumer Digital Bank. These awards recognise the bank’s customer-centric machine learning and AI-driven solutions, such as its retail financial super app and its business mobile apps. The bank’s mobile app is the dominant distribution channel, with 85% of loans and 74% of deposits now sold digitally. Its financial super app ecosystem includes daily banking, instant money transfers, card issuance, low-cost brokerage, bill payments, embedded insurance, loyalty programs, and even open banking integrations—all accessible from a single interface.

The platform’s growth is staggering: in Georgia alone, digital monthly active users (MAU) rose 17.1% year-over-year (YoY) to 1.65 million. User satisfaction remains industry-leading, with a Customer Satisfaction (CSAT) score of 91% and app ratings of 4.9/5 (iOS) and 5.0/5 (Android). Importantly, this growth is not confined to retail: digital adoption among SMEs is also rising, aided by end-to-end onboarding, digital underwriting, and merchant tools like POS analytics, inventory management, and business financing.

In Armenia, through Ameriabank, the group is replicating its digital success. Digital MAUs there jumped 53.1% YoY, reinforcing Lion Finance’s regional edge. Across both markets, the bank’s payments infrastructure is robust and fast-growing, with acquiring volumes rising 31.9% and monthly active card users approaching 1.5 million.

Lion Finance’s integrated, AI-enhanced, mobile-first model positions it as a technology company with a banking license, and arguably the most advanced digital banking platform in any frontier or emerging market globally.

Earning Attractive Profits

Lion Finance has a remarkable history of earning and growing attractive profits. Since 2020, the bank has compounded operating revenue by 25.63% a year, compared to a global mean and median 5-year revenue CAGR of 6.9% and 5.2% respectively. In each of the last five years, the bank has expanded its net operating profit after tax ((NOPAT)), with NOPAT compounding by 40.58% a year.

The rise in NOPAT was powered by an increase in NOPAT margin from 17.65% in 2020 to 30.98% in the last twelve months (LTM). In that time, the company’s invested capital turns, a measure of balance sheet efficiency, remained at 0.88. The combination of these two factors drove a rebounding of return on invested capital (ROIC) from a 2020 low of 15.48% to 27.16%. 

Lion Finance’s ability to earn attractive profits allows it to earn significant free cash flow (FCF), with the firm generating a cumulative GEL2.14 billion since 2020, equal to around 19% of its current market cap. The firm’s GEL1.5 billion in FCF over the LTM equates to a 12.71% FCF yield. As Liqokeli explained, the bank expects interest rates in Georgia and Armenia to remain level throughout the rest of 2025. With the era of low and falling interest rates at a pause –in the longue durée, interest rates are falling-, growth alone will not be enough to attract capital. Firms that generate meaningful FCF will be rewarded and Lion Finance’s FCF generating business is a source of stability and safety.

A Fortress Balance Sheet

Lion Finance maintains a fortress balance sheet, underpinned by strong capital ratios, prudent asset quality, and ample liquidity. As of Q1 2025, the group’s Common Equity Tier 1 (CET1) ratio stood at 16.4% in Georgia and 14.7% in Armenia, both well above regulatory minimums. The total capital adequacy ratio (CAR) was 21.2%, and the liquidity coverage ratio (LCR) exceeded 133% in Georgia and a remarkable 230% in Armenia, reflecting conservative liquidity management even amid macro and political uncertainty. Notably, client deposits fund 63% of total liabilities, giving the group a high-quality, sticky funding base.

Asset quality is equally strong. As aforementioned, the group NPL ratio is just 2.0%, with adjusted coverage at 117.1% and a cost of risk of only 0.2%, far below the group’s long-term guidance of around 1%. Credit growth has been rapid, with loan book up 23.6% YoY, with underwriting remaining disciplined, high collateralisation levels and digital scoring models reinforcing risk controls. Conservative management is further highlighted by a loan-to-deposit ratio of 96.89%.

Built-In Structural Resilience

The bank is structurally resilient to financial and macroeconomic shocks, with internal stress-testing frameworks that model severe currency devaluation and liquidity disruptions. According to its Q1 2025 disclosures, the bank maintains sufficient capital buffers to withstand a 10% depreciation of the Georgian lari and Armenian dram, while keeping CET1 ratios above regulatory minimums in both jurisdictions. Liquidity is proactively managed at the subsidiary level, preventing contagion between jurisdictions. Each entity, the JSC Bank of Georgia and Ameriabank, operates with independent regulatory oversight, ensuring local compliance with Basel III liquidity and solvency standards.

Although the bank is not subject to European Central Bank (ECB) or Federal Reserve-style stress tests, management conducts internal scenario analyses that align with international best practices, incorporating macroeconomic, geopolitical, and idiosyncratic risks. Importantly, the group is not reliant on contingent capital instruments or central bank facilities, and its conservative loan-to-deposit ratio around 96.89% limits refinancing risk. With an exceptionally low cost of risk in a high-growth environment, and provisioning coverage exceeding 100%, earnings resilience in a downturn is highly probable. With its strong capital, liquidity, and risk governance, Lion Finance ranks among the most robust banks in the emerging market banking universe.

Priced for a 62% Decline in NOPAT

At the current price, Lion Finance has a price-to-economic book value (PEBV) of 0.38, implying that the market expects its NOPAT to permanently fall by 62% from current levels. Given the bank’s history, this is clearly a catastrophic scenario and the geopolitical risks entailed in ownership are likely responsible. The market has priced in disaster. Remarkably, this is the highest PEBV the bank has had in my analysis period. The bank’s current EBV, or no-growth value, is GEL699.45, equivalent to £192.65, an upside of 161.75% from the current price.

Using my reverse discounted cash flow (DCF) model, I tested a variety of scenarios to unearth the cash flow expectations baked into Lion Finance’s current stock price. Afterwards, I analyzed the implied value of the stock based on different and conservative assumptions to predict the bank’s future growth in cash flows.

In the first scenario, I used recent projections for revenue declines, and historical margins, to model the catastrophist scenario implied by Lion Finance’s current stock price. In this scenario, I assume:

• Revenue grows by an average of 34.95% a year, in line with the Financial Times’ consensus estimates, and,
• NOPAT margin falls to 9.36%, its lowest level in my analysis period. 

In that scenario, the company’s market-implied competitive advantage period (MICAP) is less than a year, at which point its shareholder value per share equals the current price. 

In the second scenario,

• Revenue grows by 25.63%, its 5-year CAGR, and,
• NOPAT margin remains at its LTM level, 30.98%.

In this scenario, the stock is worth GEL840.35 or ₤231.70, an upside of 231.53% from the current price. 

In the final scenario, 

• Revenue grows by 13.67%, its 3-year CAGR, and,
• NOPAT margin falls to 32.74%, its 3-year average.

In this scenario, the stock is worth GEL806.22, or ₤222.24, an upside of 200.73% from the current price.

In a period of regime uncertainty, JPMorgan Chase & Co. (JPM: $288.19/share) is not only a paradigmatic bank, with a history of profitability stretching back decades,and a “fortress balance sheet”, it is also an attractive investment opportunity.

Banking in a Fuzzy Zone

Since the Great Recession, termed, “largely unprecedented and virtually inconceivable“  by JP Morgan Chase & Co Jamie Dimon, banking has undergone profound changes, with a wave of bankruptcies, government bailouts and nationalisations, and restructuring and industry consolidation in terms of branch deposits, and increasing competition in terms of lending. Regulators, in the United States, the Federal Reserve, along with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), have intensified bank regulations, with more stringent capital requirements, greatly curtailed trading operations, and, in Europe, caps on bonuses. The ongoing “Basel III Endgame” proposal, opposed by the American Bankers Association (ABA), seeks to further increase capital requirements, particularly for larger banks. Although the initial proposal for a 16-19% increase has been revised downwards to around 9% for the largest banks, this still represents a substantial increase in the “capital buffer.” 

Since 2018, U.S. banks have benefited from the country’s stellar economic growth, attendant burgeoning loan demand, and a decline in bad debts, that has allowed them to outstrip their pre-crisis profit levels, compared to a Europe that Dimon recently warned is “losing”. Events in 2024, an unfolding of regime uncertainty, has benefitted European bank valuations, even if European fundamentals have not meaningfully improved compared to the United States. Banking is in a fuzzy zone between boom and bust, in which regulatory constraints have served to discipline the market. Although the collapse of the Silicon Valley Bank, Signature Bank, and First Republic Bank and the emergence of banks-as-synthetic-hedge-funds, has exposed the profitability challenges of small and regional banks; although the non performing loans ratio has increased modestly; although the prospect of interest rate cuts threatens net interest margins (NIM), on the rise since Q1 2024, given the relationship between the two; although loan demand is weakening; the Federal Reserve has concluded that, “large banks are well positioned to weather a severe recession, while staying above minimum capital requirements and continuing to lend to households and businesses”.

Profiting Across Cycles

JPMorgan Chase has been a beneficiary of the tailwinds of the post-Great Recession world, while prudently managing the risks of that period. A consequence of this success is that, since 2019, the bank’s operating revenue has swelled from $142.42 billion to $281.51 billion in the last twelve months (LTM), compounding at a rate of 12.03% a year. The bank’s 5-year sales CAGR, at 16.8%, compares very favourably to a 6.9% mean and 5.2% median for the world’s 1,000 largest firms. In that time, the bank’s net operating profit after tax (NOPAT) has ballooned from $34.18 billion to $60.06 billion, compounding at a rate of 9.85%.

With rising profitability has come copious amounts of free cash flow (FCF), with the firm generating $$171.17 billion in FCF since 2021, equivalent to 21.37% of its current market cap. With $50.35 billion in FCF in the LTM grants it an attractive 6.17% FCF yield.

Prepared for Severe Adversity

The bank’s “fortress balance sheet” has continually been reinforced under Dimon’s stewardship. As of the end of Q1 2025, the bank’s Common Equity Tier 1 (CET1) was $280 billion, with a Standardized CET1 capital ratio of 15.4%, compared to 15% in Q1 2024, and 15.7% at the end of 2024.

JPMorgan Chase’s recently disclosed results from its 2025 Annual Dodd-Frank Act Stress Test projected financial resilience under the Federal Reserve’s Supervisory Severely Adverse Scenario, which hypothesises a severe global recession accompanied by substantial stress in commercial and residential property markets and corporate debt markets over a nine-quarter period from 1Q 2025 to 1Q 2027. Under this extraordinarily challenging scenario, characterised by a 7.8% decline in U.S. GDP, unemployment reaching 10%, a 50% stock market decline, and 33% fall in house prices, the bank’s Common Equity Tier 1 capital ratio would decline from 15.7% to a minimum of 13.7%, whilst still maintaining comfortable margins above regulatory minima. The stress test projects cumulative pre-provision net revenue of $93.8 billion offset by $79.3 billion in credit loss provisions and $12.4 billion in trading and counterparty losses, resulting in a modest net loss before taxes of $3.2 billion over the entire nine-quarter period. Notably, the bank’s capital position would remain robust throughout the hypothetical crisis, with all key capital ratios, including the Supplementary Leverage Ratio maintaining a minimum of 5.6%, demonstrating the bank’s fundamental strength and capacity to continue serving clients even under severely adverse economic conditions.

Moreover, the bank’s catastrophic loss-absorbing capacity is impressive, with JPMorgan Chase boasting a Total Loss-Absorbing Capacity (TLAC) (see page 106 of the 2024 annual report for a detailed explanation) of $558.3 billion as of Q1 2025, 30.8% of risk-weighted assets (RWA), compared to a regulatory requirement of 23%, indicating a $140.8 billion surplus. TLAC is 11.3% of total leverage exposure, compared to a 9.5% regulatory requirement, indicating an $87.7 billion surplus. 

Upside Remains

At the current price, $288.19 at time of writing, JPMorgan Chase trades at a price-to-economic book value (PEBV) of 1.25, its highest ever level in my analysis window. This implies that the market expects the bank to grow its NOPAT by 25% from current levels. Using my reverse discounted cash flow (DCF) model, I unearthed the cash flow expectations implied by the current price. 

In the first scenario, I determined the conditions under which the firm’s share price is justified, wherein,

• Revenue grows by 7.1% in 2025, 2.6% in 2026, and 3.9% in 2027, in line with consensus estimates, and by 16.8% thereafter, and,
• NOPAT margin remains at 21.33%

In this scenario, NOPAT compounds by an average of 4.11% a year, and the firm has an attractive market-implied competitive advantage period (MICAP) of four years in which the shareholder value per share equals the current stock price. 

If, on the other hand,

• Revenue grows by 16.8% a year, and,
• NOPAT margin remains at 21.33%.

Then the stock is worth $404.75, an upside of 40.45% from the current price. 

If, 

• Revenue grows by 12.71% a year, the 3-year CAGR, and,
• NOPAT margin remains at 21.33%.

Then the stock is worth $337.31, an upside of 17.04% from the current price.

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.