YB new stock pitches (Tue, May 26)

Nu Holdings (NYSE: NU), a digital-only bank dominating Latin America with 135 million customers (115 million in Brazil where it's the largest private financial institution, 15 million in Mexico as the third largest, and expanding in Colombia), is trading at ~$12.80, down roughly a third from the start of the year, despite recording its first $5 billion revenue quarter in Q1 2026 with 29% ROE, a 17.6% efficiency ratio, 21.1% net interest margin, and 41% year-over-year net income growth to $871 million. The company's business model centers on acquiring customers for a few dollars through referrals and monetizing them through net interest income from lending (credit cards and personal loans funded by cheap deposits) and fee/interchange income, with ARPAC (average revenue per active customer) reaching $16 versus a monthly cost-to-serve of just $1, creating a compounding flywheel as the spread expands. The market sold off on a $1.79 billion loan-loss provision (up about a third quarter-over-quarter) and management's declaration of 2026 as an 'investment year' with an 80-100bp drag on efficiency from return-to-office costs, AI/GPU spend, and international expansion, though late-stage NPLs actually improved to 6.5% from a 7% peak and management stated the provisions reflect seasonality and deliberate 40% year-over-year credit book growth to $37.2 billion rather than underwriting deterioration. Major catalysts include Brazil interest rate normalization improving loan demand and credit costs, the conditionally approved US national bank charter (Nubank, N.A.) targeting a 2027 launch for remittances and the 60-million-plus US Hispanic population, Mexico reaching break-even profitability at 15 million customers with room to scale, continued ARPAC expansion through cross-selling insurance/investments/marketplace products, and margin proof points once the investment year lapses. Using a Fair-PE framework that scores Nu a 9/10 on quality (product, moat, market, management, financials), applying a 24x multiple to conservative 2028 EPS of $1.56 yields a $37 fair value target representing approximately 43% annualized returns over three years, with even the bear case ($1.20 2028 EPS at 20x PE = $24) delivering 23% annualized returns. Risks include a real deterioration in Brazilian or Mexican consumer credit if NPLs exceed AI model predictions, execution challenges in Mexico converting savers to profitable borrowers, FX and emerging-market macro volatility, US regulatory hurdles on the charter, and the inherent cyclicality of banking with credit cycles. The investor is taking a first position, viewing this as a founder-led (CEO David Vélez) world-class compounder trading at fair-to-cheap valuation due to one investment year being discounted by a market focused on near-term quarters rather than long-term compounding, with Warren Buffett's Berkshire Hathaway having fully exited between Q3 2024 and Q1 2025.

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Okano Valve Manufacturing (6492.T), Japan's monopoly supplier of main steam safety relief valves (MS-SRVs) and main steam isolation valves (MSIVs) for every Japanese boiling water reactor, reported H1 FY9/26 operating profit of ¥1,787M, representing 185% of the original ¥966M full-year guidance, continuing a three-year pattern of guidance beats averaging +115%. The company benefits from structural moats including NRA qualification requirements that make supplier switching cost 'structurally infinite,' with each reactor's safety valves written by model number into licensed safety analysis, and decades of irreproducible field service data. Japan's operating BWR fleet tripled from one to three units in twelve months (Onagawa-2, Shimane-2, Kashiwazaki-Kariwa Unit 6), with KK-7 restart underway and a fat tail opportunity in KK units 1-5 once TEPCO's PE capital partner (KKR, Bain, JIP, or JIC expected late 2026/early 2027) removes balance sheet constraints. Q2 FY9/26 revenue hit ¥40/day, smashing the ten-year historical range of ¥17-23/day and exceeding the prior all-time peak of ¥30.3/day by 32%, driven by post-Fukushima severe accident equipment installation (30%+ content uplift per unit), periodic inspection cycles, and ongoing maintenance across three concurrent revenue streams per operating unit. The company holds 23% cash/market cap and trades at 19x current guidance versus global comparables Curtiss-Wright and BWX Technologies at 20-30x and domestic analog Japan Steel Works at 30x+, despite equivalent monopoly positions. Base case: ¥1,090 EPS x 25x P/E = ¥27,250 price target (+63% upside); Bull case: ¥1,743 EPS x 30x P/E = ¥52,290 (+213% upside); Bear case: ¥530 EPS x 17x P/E = ¥9,010 (-46% downside), yielding 4.6x risk/reward, with the bear case requiring a 28% miss against revised guidance and 91% H2 sequential collapse. Management's implied 2H run-rate of ¥22.8/day requires simultaneous disappearance of KK severe accident work, Shimane-2 inspection cycles, and Tokai-2 content, none of which are scheduled to end, while holding share price flat at ¥16,730 creates roll-forward EV compression from ¥21.2B today to ¥6.5B by FY9/29 as accumulated free cash flow lifts the cash position to ¥20.4B, with cumulative EBIT reaching 130% of starting EV within four years.

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HgCapital Trust (HGT.L), a UK software private equity trust, trades at a 39% discount to NAV (15x EV/EBITDA versus 24x exit multiples), representing an exceptional opportunity at a £1.45 billion market capitalization. The trust's top 10 holdings, comprising two-thirds of NAV, demonstrate 18-20%+ organic EBITDA growth, with Visma (#1 at 11.9% NAV) growing 18.8% organically and EBITDA up 20.4%, IFS (#2 at 9.6% NAV) showing over 20% organic ARR growth, and other holdings like Access, P&I, and Howden maintaining strong performance. FY25 trading performance contributed £547.1 million to NAV growth, refuting concerns that AI threatens software businesses, as the evidence shows AI is embedded within these holdings, which benefit from proprietary data moats governed by Metcalfe's law and serve a vast, still-unautomated market where less than 25% of businesses use any invoice automation. The trust has delivered realized gains of £677.2 million over five years (approximately 9% annually based on current market cap) plus 1.7% income returns (£40 million per year, 2.5% of market cap), totaling nearly 12% annual cash returns, while 2025's unrealized gains of £515.2 million (over one-third of market cap) signal future performance. AI concerns are deemed unfounded as AI is itself software, requires human supervision by subject matter experts at software companies, and businesses progress through multiple generations of technology adoption with most still far from current capabilities, meaning increased efficiency through AI actually increases software demand via Jevons's paradox. The cashflow story shows strategic capital deployment with £553.8 million in exits in 2022, £170.2 million in 2023, followed by a £641.3 million buying spree in 2024 and a £220.4 million cooldown in 2025, demonstrating disciplined portfolio management through market cycles.

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