YB new stock pitches (Thu, Feb 12)

Legence Corp (LGN), a recently IPO'd Blackstone-backed HVAC company with 50% exposure to the rapidly growing data center market (60% YoY growth in Q3), trades at approximately 12x 2026 pro-forma EBITDA versus comparable companies like EMCOR, FIX, and PWR trading at 14-20x multiples, presenting an undervaluation opportunity. The company provides engineering, installation, and maintenance services for mechanical, electrical, and plumbing systems across two business lines: Engineering & Consulting (30% of business, 30% margins) and Installation & Maintenance (70% of business, mid-teens margins). Q3 2024 results showed strong momentum with 26% revenue growth (accelerating from 15% in Q2 and 8% in Q1), over $1 billion in orders (up 40% YoY), and I&M margins expanding to 16.3% from 14.7% in Q1. Management guides for 15% organic top and bottom line growth in 2026 before the Bowers acquisition (pro-forma 2026 EBITDA of $400 million), which appears conservative given recent performance. Key bull cases include the ongoing data center boom benefiting from Blackstone's ownership of QTS (Legence's largest customer at 4% of 2021-2024 revenue but growing quickly), preferred access to Blackstone's other data center investments, aging data center infrastructure driving maintenance revenue, remote data center locations generating higher margins, and diversified exposure to life sciences, healthcare, education, and government sectors (50% of business growing single digits). The main risk is a potential data center boom slowdown that could cause HVAC service multiples to revert to high single digits. The upside scenario suggests EBITDA growth from $420 million in 2026 to over $600 million by 2029, with a re-rating to 15x EBITDA on $650 million yielding approximately 2x returns over three years, while a quick re-rating to current peer multiples would represent a 50% upward move. The catalyst is continued post-IPO awareness, with the stock already up 50% from its $28 September IPO price, largely driven by strong November 14th earnings.

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MSA Safety Incorporated is a leading workplace safety equipment manufacturer with approximately $2 billion in revenue and a $7 billion market capitalization, specializing in self-contained breathing apparatuses (SCBAs) for firefighters and gas detectors for commercial and government customers, holding #1 or #2 positions in most core product categories. The stock weakened in late 2024 due to an expected 2025 SCBA slowdown as fire departments delay equipment replacement ahead of an upcoming regulatory standards change, a typical pre-change pattern historically followed by elevated 'catch-up' growth periods. Shares were purchased at a mid/high-teens forward P/E multiple. The investment thesis centers on MSA being in the early innings of a transformative shift toward 'connected' equipment with subscription models that generate higher margins and lifetime revenue multiples compared to traditional upfront-payment products. The company's connected gas detectors, launched in 2022, have grown rapidly from a standing start to become a meaningful portion of the detector business, which represents roughly 40% of total company revenues, with significant headroom remaining as most of the portable detector market remains un-connected. MSA has invested heavily in developing connected SCBA solutions (representing approximately 25% of revenues) and is significantly ahead of competitors, having signed connected firefighting deals with the Los Angeles and London fire departments that cover current-generation equipment and provide frameworks for developing connected features. While the timing of the full connected SCBA launch remains uncertain, the expectation is that when (not if) it comes to market, it will drive sustained and significant revenue and profit growth over the next 5-10 years.

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Intred S.p.A. (ITD.MI), a fiber optic infrastructure builder serving enterprise customers in Northern Italy, has been in the portfolio since 2021 and has delivered strong operational performance with revenues increasing 57% and adjusted earnings rising 79% since then, despite the share price remaining flat. The discrepancy between share price and fundamentals stems from an aggressive reinvestment phase where founder Daniele Peli reinvested all profits to build one of Lombardy's most powerful regional fiber optic networks, successfully winning two public tenders. With organic revenue growth of 7.8% in H1 2025 and the network far from fully utilized, the company generates high incremental returns on invested capital with expanding margins. Intred is simultaneously building a strategically located data center in Brescia, east of Milan, targeting AI and enterprise applications in a region with limited data center capacity, high business customer density, and stable power supply. The company trades at approximately 7x EBITDA despite growing revenues around 8% and earnings even faster, with structural tailwinds from increasing data volumes and compute-intensive applications including AI. As the investment phase ends and capital returns to shareholders increase, the investor expects market perceptions to shift, emphasizing that patience is crucial as this is a long-term investment.

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