YB new stock pitches (Wed, Jan 7)

Maximus Inc. (MMS), a government services company trading at 11.8x P/E and $87 per share, is positioned to benefit from massive daycare fraud in Minnesota that resulted in $9 billion in losses and HHS freezing all Minnesota payments while mandating nationwide verification systems for all states or they lose federal funding. MMS already operates verification systems for 22 states with $5.4 billion in revenue and 52 million users, essentially owning this market rather than trying to win it. The company is guiding for FY25 revenue growth of +10%, EPS growth of +20%, and margin expansion from 12.9% to 15%+, while benefiting from multiple catalysts including the national daycare fraud prevention market estimated at $20-50 billion and the existing OBBBA Medicaid catalyst worth $1 billion+ by 2027, making it a quality government services compounder with converging tailwinds.

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Klarna Group plc (KLAR), the largest and most global BNPL player with 115 million users and over $100 billion in GMV, is trading at 2x revenue compared to peers Sezzle at 4.5x and Affirm at 6.5x, presenting a compelling buy opportunity for 2026. The company's unique value proposition lies in its ability to attach rewards and cashback via subscriptions to debit and BNPL payments through physical and virtual cards, which significantly improves the value proposition for BNPL and should be a game changer when paired with Klarna's massive first-party traffic advantage through its app (currently ranked 8th in US shopping app charts). While transaction margins are currently depressed at around 40% due to Fair Financing loss provisioning requirements, they are expected to expand to 50-60% by 2026, following a similar trajectory to Affirm which went from -5% to +16% margins in 12 months. The stock is cheap due to post-IPO selling pressure, low float and liquidity, tax-loss harvesting, and the temporary under-earning from Fair Financing growth, but as margins expand and fundamentals strengthen with accelerating business momentum, there's potential for the stock to re-rate from 2x revenue to 4-6x revenue as transaction margins normalize, with margin expansion expected to begin showing in 2026 prints.

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Shepherd Neame Limited (43Y.F), Britain's oldest brewer founded in 1698, operates a brewery and substantial estate of 286 freehold pubs across London and Southeast England with the founding family maintaining active management control through CEO Jonathan Neame and 54% insider ownership. The company trades on the Aquis Stock Exchange Growth Market but remains technically unlisted, creating institutional neglect and illiquidity that facilitates large price dislocations, while the rural, 'wet-led' pub portfolio lends itself to a tenanted business model across three core segments: Brewing and Brands, Retail Pubs and Hotels, and Tenanted Pubs. Despite several years of economic and regulatory headwinds impacting financial results, the company remains profitable and highly cash generative with well-capitalized operations, plenty of equity in its freehold property estate, manageable leverage ratios, and long-term fixed-rate debt with well-covered interest expense. The shares currently trade at deeply depressed valuations of 0.39x book value, 0.31x real net asset value (due to understated property values), offering a 6.2% earnings yield and 4.4% dividend yield, with normalized metrics suggesting double-digit earnings yields and mid-to-high single-digit dividend yields, leading to expectations of £10-12 per share within 3 years versus the current £4.85 price, representing a potential 20%+ IRR over 3 years.

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