Galeanu Mihai
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The duvet picture reveals {a magazine} advert from 1948 for Farrow’s, a British producer of canned vegetables and fruit and different meals merchandise. Farrow’s was based within the mid-1840s and initially centered on manufacturing of mushroom ketchup and mustard, briefly changing into the biggest mustard producer in Britain on the flip of the twentieth century. They pivoted into canning vegetables and fruit, principally big marrowfat peas, within the Thirties and loved a decades-long interval of growth and prosperity. Shortly after the unique print of this advert, nevertheless, the star of canned meals started to wane, and the Farrow’s canned vegetable enterprise subsequently modified arms various occasions within the ensuing years. Immediately, the Farrow’s model is owned by Alluvial Fund funding NewPrinces Group. Proceed studying the letter to be taught extra about NewPrinces. Photograph Credit score |
Expensive Companions,
Alluvial Fund rose 8.5% within the second quarter, constructing on its strong begin to deliver year-to-date returns to fifteen.6%. At June 30, comparable US benchmarks remained in destructive territory for the yr. I’m happy with our returns up to now this yr, however in fact, by no means happy. There are all the time enhancements to our analysis processes that may be made; our job at Alluvial is to make them.
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TABLE I: Alluvial Fund LP Returns (%) as of June 30, 2025 |
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YTD |
2024 |
2023 |
2022 |
2021 |
Cumul. |
Annual. |
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Alluvial Fund LP NET |
15.6 |
16.4 |
15.1 |
-14.9 |
31.0 |
209.6 |
14.2 |
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Russell MicroCap TR |
-1.1 |
13.7 |
9.3 |
-22.0 |
19.3 |
66.8 |
6.2 |
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Russell 2000 TR |
-1.8 |
11.5 |
16.9 |
-20.4 |
14.8 |
79.4 |
7.1 |
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MSCI (MSCI) World Sm+MicroCap NR |
7.9 |
8.0 |
15.1 |
-19.1 |
15.8 |
94.3 |
8.1 |
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Partnership started operations 01/01/2017 |
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First there have been tariffs. Then there largely weren’t. Now there are tariffs once more, in all probability? It’s dizzying. Markets are now not taking tariff bulletins at face worth, which explains the muted response to latest proclamations. Our direct publicity to those tariffs stays very restricted. Exports to america make up solely a small fraction of our portfolio firms’ income. The oblique results of this unstable tariff regime could have a larger influence. Modifications in shopper and enterprise confidence, forex ranges, and the outlook for continued financial development current a fraught enterprise setting for our holdings to navigate. Alluvial has all the time had a powerful choice for “fundamental” companies that deal in important items and providers, produce predictable money flows, and keep sturdy steadiness sheets. These are the companies which are prepared for a wet day, at any time when it might arrive. And it all the time does, ultimately. I dwell in Pittsburgh, so I do know a bit about rain.
Portfolio Contributors
Talen Vitality (TLN) was the most important contributor to this quarter’s returns. In June, the corporate introduced an settlement with Amazon (AMZN) to supply 1,920 megawatts of nuclear energy to Amazon datacenters by 2042. The settlement supplies a extremely worthwhile long-term earnings stream for Talen. When energy supply reaches scale in 2032, Talen expects the settlement to supply incremental annual free money circulate per share of at the very least $7. I believe this steering will show far too conservative primarily based on continued share repurchases. Talen continues to shift its actions away from service provider energy manufacturing and towards offering clear vitality to datacenters on long-term, extremely predictable contracts. Consequently, traders are beginning to worth Talen shares much less like these of an electrical energy wildcatter and extra like a quasi-regulated utility with a blue-chip finish buyer.
Each enterprise would like to discover a approach to earn more money and take much less danger doing it, and that’s precisely what Talen is attaining.
A portion of Talen’s rise is because of the market’s exuberance over something referring to AI and knowledge facilities. However not like the AI darlings buying and selling at 50 or 100 occasions their 2030 wildest fantasy earnings, Talen’s valuation stays grounded in actuality at only a mid-teens a number of of 2026 free money circulate.
Simply hours after I completed the primary draft of this missive, Talen introduced an settlement to buy two fashionable high-efficiency combined-cycle gasoline era services in Pennsylvania and Ohio.
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TABLE II: Prime Ten Holdings, 6/30/25 (%) |
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Zegona Communications plc. |
10.6 |
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Web Lease Workplace Properties (NLOP) |
8.7 |
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McBride plc. (OTCPK:MCBRF) |
8.3 |
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Talen Vitality Inc. |
4.7 |
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Fitlife Manufacturers Inc (FTLF). |
4.0 |
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Seneca Meals Corp (SENEA). |
3.9 |
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NewPrinces S.p.A. |
3.6 |
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Crawford United Corp (OTCPK:CRAWA). |
3.5 |
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Garrett Movement Inc (GTX). |
3.0 |
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The Monarch Cement Firm (OTCPK:MCEM) |
2.8 |
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Complete, Prime Ten |
53.0% |
These crops will assist Talen fulfill the burgeoning demand for energy from the information middle business. The acquisition is vastly helpful to Talen’s free money circulate. Shares reacted properly to the information, however we don’t suppose the market absolutely appreciates the influence the acquisition could have on Talen’s long-term outcomes. We gladly bought further Talen shares when the information broke.
Zegona Communications continued its successful methods, rising 6.4% within the quarter. Rumors of a doable buyout proceed to swirl, as does hypothesis concerning the end result of the gross sales course of for Zegona’s fiber optic property.
I shall be over the moon if a sale to Telefónica (TEF) materializes, however that’s not my base case neither is it mandatory for an amazing end result. In my opinion, the almost certainly state of affairs continues to be a sale of the fiber property, adopted by a return of capital and continued operational enhancements at Vodafone (VOD)Spain. Zegona’s June 30 reporting confirmed buyer development, enhancing margins and strong money circulate.
Shares of Zegona have greater than doubled from our common buy value. Whereas I proceed to consider within the firm’s prospects, there is no such thing as a query that the danger/reward on provide shouldn’t be fairly what it was when shares traded at GBp 250. With that in thoughts, we’ve been trimming our Zegona place, preferring to maintain some money in reserve for different alternatives or to re-buy Zegona shares in the event that they head decrease.
Our different UK-traded holding, McBride Plc, additionally loved a powerful quarter. A college endowment had been a constant vendor of McBride shares, however ran out of shares to promote close to quarter-end.
Sadly, traders took a dim view of McBride’s July buying and selling replace and despatched shares tumbling. The replace didn’t comprise something stunning, only a recognition that the development of European shoppers buying and selling down to personal label soaps and detergents is plateauing and that margins would retreat from document highs. This was all the time the case. McBride operates in a aggressive business the place bumper earnings merely don’t final. Nonetheless, I anticipate McBride to get pleasure from some everlasting margin uplift because of its elevated scale and investments in automation. Even when working margins retreated all the way in which to pre-COVID averages, McBride would nonetheless be buying and selling at mid-single-digit earnings a number of.
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TABLE III: World Allocation, 6/30/25 (%) |
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United States |
58.2 |
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United Kingdom |
21.4 |
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Eurozone |
11.7 |
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Poland |
4.1 |
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Sweden |
2.1 |
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Denmark |
1.4 |
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Different |
1.1 |
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Complete |
100% |
McBride has succeeded in normalizing its steadiness sheet and can resume paying dividends later this yr. Regardless of the dip, McBride stays one in all this yr’s greatest performers, up 25%.
Rounding out this quarter’s winners is Seneca Meals. Seneca is emblematic of Alluvial’s efforts to purchase boring and little-known, but extremely worthwhile and undervalued firms. After we first started shopping for Seneca Meals, the corporate was coming off a bumper vegetable harvest. This meant a variety of corn and inexperienced beans to pack, leading to excessive stock and massive borrowings on Seneca’s working capital line of credit score. This scared off a variety of traders, however an occasional massive pack yr is simply the way it goes for Seneca. When the beans develop, can them. They know that for each bumper crop, there shall be a yr with extra meager yields. Certain sufficient, this previous yr noticed a modest harvest, and Seneca lowered its borrowings by $259 million, or a whopping $37 per share.
Seneca’s steadiness sheet has normalized, to the good thing about shareholders. Intriguingly, a Seneca competitor, Del Monte, has entered chapter after years of economic struggles. The chapter might current Seneca with the chance to choose up some enticing property at good costs.
Including…
We added a major new holding to the Alluvial Fund portfolio this quarter, NewPrinces SpA. Whereas nominally an Italian firm with shares traded in Milan, NewPrinces is quickly changing into a pan-European chief in branded meals. Previously generally known as Newlat Meals, NewPrinces acquired its begin within the pasta business. From there, the corporate expanded into dairy, baking merchandise, immediate noodles, child meals, canned tomatoes, oils, drinks, and canned seafoods. The technique is straightforward. NewPrinces buys small meals divisions from bigger firms, typically multi-nationals like Kraft Heinz (KHC) or Mitsubishi. The manufacturers NewPrinces buys are sometimes mature and sometimes considerably uncared for. Their house owners are pleased to promote so as to reinvest in faster-growing, trendier product strains. As soon as acquired, NewPrinces will get to work wringing out manufacturing efficiencies and striving to cut back internet working capital, successfully lowering their buy value.
NewPrinces’ most vital acquisition thus far was the July 2024 buy of Princes Restricted, a venerable producer of basic British meals with £1.7 billion in income. With the acquisition, NewPrinces greater than tripled its income base and set itself as much as IPO in London, aiming to drift 25% of its now majority-UK enterprise later this yr. Following the acquisition and profitable integration of Princes, NewPrinces has stayed busy on the acquisition entrance, shopping for a Diageo (DEO) manufacturing unit in Northern Italy and agreeing to purchase Kraft Heinz’s European child meals enterprise for €120 million.
The market has rewarded NewPrinces shares for its sequence of profitable acquisitions, however the shares stay attractively priced. The corporate is rumored to be engaged on one other sizable acquisition, which might lead to shares reaching new heights.
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TABLE IV: Sector Breakdown, 6/30/25 (%) |
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Shopper Staples |
21.6 |
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Communications |
17.3 |
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Actual Property |
14.9 |
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Financials |
14.5 |
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Info Expertise |
8.4 |
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Shopper Discretionary |
7.9 |
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Supplies |
6.2 |
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Utilities |
4.7 |
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Industrials |
2.7 |
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Vitality |
1.2 |
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Well being Care |
0.6 |
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Complete |
100% |
We’ve got additionally purchased shares of SigmaRoc Plc, a number one European producer of lime and minerals. SigmaRoc is one other serial acquirer with a powerful document of shopping for the cast-offs of bigger producers. SigmaRoc is the highest lime producer in Scandinavia, the UK and Eire, and far of Western Europe, and the quantity 2 producer in Germany, Poland, and Czechia. Lime is a vital enter for quite a few industrial processes, starting from steelmaking to building to meals and beverage and cosmetics. Limestone producers have enticing financial traits paying homage to cement and aggregates. Particularly, they get pleasure from sturdy regional moats because of transportation prices and the challenges of bringing new quarries into manufacturing. I like SigmaRoc’s valuation primarily based on its present asset base and profitability, however there’s actual potential for a wave of European infrastructure and protection spending to kick demand for SigmaRoc’s merchandise into overdrive. European building and infrastructure spending has been moribund at greatest for practically twenty years now, however Germany seems able to unleash
€500 billion in infrastructure spending. This wave of funding could be very prone to be a constructive for lime and minerals pricing, and Germany is SigmaRoc’s largest finish market.
…And, Subtracting
We bought our shares of Titan SA (OTCPK:TTCIF) for a small acquire. The IPO of Titan’s US operations went off as deliberate, however the brand new itemizing’s shares traded weakly, shortly fall by the IPO value.
Following the partial sale of the US enterprise, the guardian firm’s shares continued to commerce at ranges that valued their European operations at half the a number of of comparable companies. Credit score to Titan’s administration for attempting to deal with the low cost, however we opted to maneuver on to higher concepts.
The Actual Property Replace
Out-of-favor business actual property continues to be a theme in our portfolio. Our greatest actual property holding, Web Lease Workplace Properties, has eradicated all corporate-level debt and is poised to start returning capital quickly. PeakStone Realty (PKST) continues its transition into an industrial out of doors storage-focused REIT. And lastly, CBL Properties (CBL) continues to cut back leverage and divest its marginal mall properties.
Web Lease Workplace Properties lately succeeded in promoting a vacant Texas workplace property at a gorgeous valuation of $80 per sq. foot. The corporate is actively advertising and marketing a number of of its remaining higher-value properties. The corporate at the moment has distributable money available of round $3, with extra coming in every month. Excluding mortgaged properties, Web Lease is at the moment buying and selling at a capitalization charge of round 18%. I proceed to consider shares are price $45- 50.
PeakStone Realty has now bought all its non-core properties, and is at the moment advertising and marketing one other workplace constructing that’s anticipated to herald $100 million. As soon as bought, PeakStone could have reached its leverage goal and may then focus fully on rising its industrial out of doors storage platform. Valuing solely at the moment leased industrial properties utilizing a 6% cap charge and valuing the remaining places of work utilizing a 9% cap charge yields internet asset worth of $30 per share. This needs to be discounted for ongoing company prices, however the firm’s strong free money circulate yield helps a good worth a lot greater than present buying and selling round $14.
In April, CBL Properties introduced it had met the circumstances to increase its time period mortgage maturity to late 2026, and that it expects to additional lengthen the mortgage to November 2027. The corporate continues to have ample unrestricted money available, and to have success in refinancing its premiere properties at decrease prices. Earlier this month, the corporate introduced it had refinanced the mortgage on its Cross Creek Mall property at a 6.9% charge, down from 8.2%. CBL will proceed to dedicate its money circulate to a mixture of debt discount, return of capital, and funding in its greatest property.
Particular Conditions
The inventory market is about as ebullient as I’ve ever seen. Day-after-day it appears some beforehand obscure firm is rocketing to fame and riches by asserting a “Bitcoin Treasury Coverage” or another crypto-related initiative. And at any time when I see speculative fervor rising, it makes me wish to personal extra particular conditions: securities and conditions that may present constructive absolute returns whatever the market setting. Alluvial Fund has all the time had an allocation to particular conditions, the scale of which modifications relying upon the chance set. Given prevailing market sentiments, I believe the time is true to extend our allocation to particular conditions that meet our danger/reward parameters.
One such holding is ContextLogic (OTC:LOGC), Inc. ContextLogic is what stays of the previous Want. com, a former e-commerce highflyer that crashed and was bought for scraps. Following the sale of its working subsidiary, ContextLogic has a big pot of money, minimal liabilities, and large internet working loss carryforwards (NOLs), which can be utilized to offset future taxable revenue. ContextLogic has partnered with giant world different funding agency BC Companions to search out potential acquisitions. BC has invested $75 million in convertible most popular shares of a ContextLogic subsidiary and has the fitting to take a position one other $75 million on the identical phrases. Assuming BC workout routines its rights, ContextLogic has simply over $6.50 per share in money with which to pursue an acquisition. If ContextLogic can discover the fitting acquisition and execute properly, its tax property alone may very well be price >100% of its present market capitalization.
This isn’t our first time investing in an “NOL shell.” We’ve got additionally tracked a very good variety of NOL shells through the years and we’ve seen what does and doesn’t lead to good outcomes. To succeed with an NOL monetization technique, the NOL shell will need to have the next:
- Lengthy-lived NOLs, and the extra the higher. If most of an organization’s NOLs expire in only a few years, the corporate is incentivized to make any deal it may well, not the fitting deal for shareholders. ContextLogic has $2 billion of federal NOLs that don’t expire.
- Ample money and a low burn charge. Below-capitalized NOL shells danger blowing by their money earlier than figuring out an acquisition. ContextLogic at the moment has $222 million in money available and a really low burn charge. Overhead prices are largely offset by curiosity revenue.
- Dealflow. Doing a very good acquisition is difficult, and it’s tougher with out entry to alternatives. ContextLogic’s partnership with BC Companions be sure that CEO Rishi Bajaj will get a variety of “appears to be like” at potential acquisition targets.
We have been capable of purchase an inexpensive variety of ContextLogic shares from pressured sellers following the corporate’s delisting from the NASDAQ. Even now, with shares rebounding, patrons are paying little or no for the tax property. Our draw back is well-protected by the corporate’s steadiness sheet money. If ContextLogic is unable to finish an acquisition on cheap timeline, the corporate will liquidate.
Along with ContextLogic, we’re actively growing our holdings in liquidation situations and different particular conditions. These will present some portfolio “ballast” within the occasion the market’s temper turns bitter.
In Abstract
We’re having an excellent yr. I have no idea if the nice occasions will proceed, however I’m as excited as ever about our assortment of securities. They’re each deeply undervalued and properly off the radar of most traders. The market might have a tough time getting enthusiastic about SigmaRoc’s lime or Seneca Meals’ canned Lima beans, however I’ve discovered that given sufficient time, the market does respect money flows.
As all the time, I significantly respect the chance to handle capital in your behalf. All of my and my household’s property are invested alongside yours. If in case you have any questions concerning the portfolio or Alluvial’s technique, I’m ever at your disposal. Please don’t hesitate to e-mail or name. I stay up for writing to you as soon as once more in October.
Greatest Regards,
Dave Waters, CFA
Alluvial Capital Administration, LLC
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Disclosures Funding in Alluvial Fund are subįect to danger, together with the danger of everlasting loss. Alluvial Fund’s technique might expertise larger volatility and drawdowns than market indexes. An funding in Alluvial Fund shouldn’t be meant to be an entire funding program and isn’t meant for short- time period funding. Earlier than investing, potential restricted companions ought to fastidiously consider their monetary scenario and their means to tolerate volatility. Alluvial Capital Administration, LLC believes the figures, calculations and statistics included on this letter to be appropriate however supplies no guarantee towards errors in calculation or transcription. Alluvial Capital Administration, LLC is a Registered Funding Advisor. This communication doesn’t represent a advice to purchase, promote, or maintain any funding securities. Efficiency Notes Web efficiency figures are for a typical restricted associate below the usual price association. Returns for companions’ capital accounts might fluctuate relying on particular person price preparations. Alluvial Fund, LP has a fiscal yr finish of December 31, 2024 and is subįect to an annual audit by Cohen & Firm. Efficiency figures for year-to-date durations are calculated by NAV Consulting, Inc. Yr-to-date figures are unaudited and are subįect to vary. Gross efficiency figures are reported internet of all partnership bills. Web efficiency figures for Alluvial Fund, LP are reported internet of all partnership bills, administration charges, and efficiency incentive charges. Contact Alluvial welcomes inquiries from shoppers and potential shoppers. Please go to our web site at Alluvial Capital Administration, LLC, or contact Dave Waters at information@alluvialcapital.com or (412) 368-2321. |
Editor’s Observe: The abstract bullets for this text have been chosen by Searching for Alpha editors.
Editor’s Observe: This text discusses a number of securities that don’t commerce on a significant U.S. trade. Please concentrate on the dangers related to these shares.