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INVESTMENT STRATEGY QTD YTD 1 YEAR 3 YEAR 5 YEAR 10 YEAR Since Inception VVP All Cap (Gross) -13.3% -13.3% 0.7% 9.9% 1.7% 8.3% 9.9% VVP All Cap (NET) -13.5% -13.5% -0.1% 9.1% 1.0% 7.5% 9.0% Russell 3000 Value Index 2.2% 2.2% 16.4% 14.3% 9.2% 10.5% 10.3% Russell 3000 Index -4.0% -4.0% 18.1% 17.9% 10.9% 13.7% 12.8% Inception 04/01/2011
We purchased one new position during the quarter: SAP SE (SAP).
We sold one position during the quarter: ISS A/S (ISSDY).
There was one material contributor to performance: Littelfuse, Inc.
There were five material detractors to performance: TPG Inc., Salesforce, Inc., Ibstock Plc (IBSTF), Ryan Specialty Holdings, Inc., Premium Brands Holdings Corporation (PRBZF).
SAP SE is the global leader in enterprise resource planning (ERP) software, which serves as the operating system for many of the world's largest companies. SAP's software manages many functions across an organization, including financial accounting, supply chains, customer relationships, human capital, and procurement. SAP and Oracle dominate the global ERP market. We have owned both businesses in the past and we are thrilled to have the opportunity to own SAP again with a substantial margin of safety.
We believe SAP is one of the best businesses in the world. They have over 425,000 customers, including 98 of the 100 largest companies globally. SAP's ERP solutions often have decades of embedded data, business processes, and software customizations. It is extremely rare for companies to switch ERP vendors due to the cost, time, and disruption risk that switching creates, particularly for large, global enterprises that make up SAP's core customer base.
SAP's stock price is down significantly due to concerns about AI disruption. SAP is the system-of-record for its customers. All their business data, context, and business logic sits within SAP. AI-enabled agents do not work without this data and business context. Customers would be taking on significant risk by using AI to recreate business processes that SAP already handles well. SAP's core customers are global businesses with enormous complexity, thousands of employees, and a vast web of customers, suppliers, and distribution networks, in addition to many different tax and regulatory jurisdictions. The time and difficulty to replicate all this using AI is enormous. SAP is currently investing in agentic AI solutions that enable their customers to be more productive. As the incumbent with a broad array of software solutions, SAP is in a superior position to develop AI agents that work effectively across an organization in an integrated fashion. Even if SAP's customers adopt third party AI agents instead of SAP's agentic agents, we believe that SAP will still benefit. The ERP system drives AI. Any enhancement to the ERP system increases its value which makes SAP even more competitively entrenched. Either way, we believe that SAP will ultimately be an AI beneficiary, helping to make themselves more efficient internally while also creating more value for their customers.
ISS A/S is an outstanding company. Its stock price has risen materially over the last 12 months. We sold it to buy even better businesses at meaningfully lower price to value ratios. We continue to own it in our small cap portfolio.
Littelfuse is an industrial manufacturing company focused on developing circuit protection, sensing, and power control products used to safeguard electrical systems in automotive, industrial, and electronics end markets. Its portfolio includes fuses, power semiconductors, relays, sensors, and surge protection devices that help prevent electrical damage and enhance reliability. The company reported strong results for the quarter with revenues rising 12% and margins improving by over 500 basis points. In addition, their data center business is growing very strongly and is now up to a double-digit percentage of revenue. Data center design wins doubled in 2025 and next generation data centers use significantly more of Littelfuse's content, often double or more. We expect the data center opportunity to contribute meaningfully to growth and continued margin expansion going forward.
We bought TPG, Inc. in the first quarter of last year during a similar market overreaction caused by the tariff tantrums. In this year's first quarter, TPG is down due to AI disruption fears around its software investments. As was the case last year, we believe that the market is overreacting again. TPG's software exposure is approximately $34 billion and represents approximately 11% of its total assets under management. TPG has been investing in software for years and has a very strong track record. Their flagship buyout fund, TPG VII, which was started in 2015, invested in several software companies. They sold all of their holdings by the end of 2021 at very good valuations.
Subsequent funds have had the benefit of learnings from those successful exits. The investment period for these newer funds has had the unique benefit of occurring during the period that AI was becoming more visible. We believe that TPG will have some losers, but in the aggregate, the growth in value creation from the winners is going to more than offset the laggards.
Like us, TPG is focused on identifying businesses with sustainable competitive advantages. We believe that they have allocated capital intelligently across their portfolios, including software. Some of the competitive advantages they look for include proprietary data over public data, transaction processing where precision is mission critical, and vertical software. Factory automation is an example of vertical software. In 2025, TPG's fee earning AUM grew 21% and its fee related earnings grew 25%. We expect another strong year of growth in 2026.
Salesforce is the world's leading SaaS vendor for customer relationship management (CRM) and salesforce automation (SFA) software, including AI agents. Salesforce's stock price has been negatively impacted by AI disruption fears. Salesforce largely has a seat-based subscription model. Bears fear that AI agents will replace human beings and that Salesforce's seat count will decline. We believe that AI will enhance incumbent platforms such as Salesforce, which are also in the best position to keep software updated and maintained in the future. We also believe that Salesforce will be a net beneficiary if seats do decline as clients adopt its agentic AI solution, Agentforce. For example, on average Salesforce charges approximately $2,000 per seat for its product suite. A typical user might make $40,000 per year. Salesforce is able to charge approximately 10-20% of the cost of a human for Agentforce. If that human user is replaced by Salesforce's AI agent, Salesforce's revenue will increase 2x to 4x to approximately $4,000 to $8,000.
Ibstock is the largest manufacturer of clay bricks and concrete products in the United Kingdom. There is a structural supply and demand imbalance in UK housing. Demand for housing exceeds supply. In addition, the UK brick market is also structurally undersupplied. There is not enough domestic capacity to meet demand and the gap is made up by imports, which are more costly to ship and not very profitable. This structural imbalance gives Ibstock a cost advantage over imports. There are very high barriers to entry to adding new brick capacity in the United Kingdom. The company is currently underearning due to a housing downturn in the UK caused by higher interest rates and a weak economy. We remain confident in the company's long-term outlook and the fundamentals of the British brick market.
Ryan Specialty Holdings was founded by Pat Ryan, who also founded AON and turned it into the second largest insurance broker in the world. RYAN is one of three Excess and Surplus or E&S brokers that dominate the U.S. market. E&S is more complicated, specialized insurance that is sold to manage risks not adequately covered by the highly regulated admitted or standard insurance market. The E&S market is growing much faster than the admitted market and RYAN is gaining market share, so it has been growing at a solid double digit rate for many years. E&S and RYAN continue to gain market share, but the insurance market is inherently cyclical with regard to price. We are entering a soft market with price declines for certain segments, especially property. As a result, RYAN's growth is slowing in the short run and its stock price declined meaningfully in 2025.
More recently, RYAN's stock price has declined meaningfully again on AI related fears. During the first quarter OpenAI announced a partnership with Insurify, a privately held company using an app to sell auto insurance to consumers. They are adding AI functionality to the app. Most auto insurance is sold through the admitted market. RYAN does not sell any consumer auto insurance. RYAN mostly sells very complex E&S insurance for its clients, who include very large insurance companies. They trust RYAN to help them manage risks that can be as much as several hundred million dollars. We asked the CEO of one of these large insurance companies if they would consider using AI instead of an E&S broker such as RYAN to place these large, complex risks. The answer was an emphatic, "No." On the other hand, RYAN is using AI to lower costs and provide faster, better risk assessment by making its brokers more efficient. We believe that RYAN will benefit from AI as opposed to being harmed by it. We have been buying RYAN.
Premium Brands is a high-quality, diversified specialty food business focused on protein-based foods. The stock price declined in the quarter, despite very strong results. Organic revenue grew 12% and EBITDA grew 21% in the quarter. The company has added significant capacity over the past few years to meet rising demand for its products and is now benefiting from those investments. As we expected, volume growth accelerated meaningfully in 2025, driving margins and returns on capital higher. We expect another very strong year of growth in 2026 with robust free cash flow production. We are pleased to be long-term shareholders in this wonderful business.
We know that short term volatility, especially downward volatility, creates stress. However, when we limit ourselves to companies that we believe to have stable values, as we have, it creates a wonderful opportunity for long term investors. We are gratified to have this opportunity and have added capital recently.
With respect to the discussion of contributors and detractors or the performance of any individual holding shown here, no individual investment is intended to be representative of any particular strategy. For a complete understanding, please see the performance and accompanying disclosures at the end of this letter. Important Definitions DISCLOSURES Opinions and views expressed constitute the judgment of Vulcan Value Partners as of the date shown and may involve a number of assumptions and estimates which are not guaranteed and subject to change without notice. No representation is being made with respect to their accuracy on any future date. Although the information and any opinions or views given have been obtained from or based on sources believed to be reliable, no warranty or representation is made as to their correctness, completeness or accuracy. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice, including any forward-looking estimates or statements which are based on certain expectations and assumptions. The views and strategies described may not be suitable for all clients. This document does not identify all the risks (direct or indirect) or other considerations which might be material when entering any financial transaction. Vulcan focuses on long-term capital appreciation; purchasing publicly-traded companies that we believe are competitively entrenched and emphasize a margin of safety in terms of price as compared to our estimation of their intrinsic value. Value is our estimate of the intrinsic worth of a company based on our assessment of certain quantitative and qualitative factors. Vulcan defines risk reduction as reducing the portfolio's price to value ratio by either buying (or adding to existing positions) high quality companies which are trading well below fair value as estimated by Vulcan or selling positions which are trading at or near their fair values. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations. There is no assurance that any securities discussed herein will remain in the composite or that the securities sold will not be repurchased. The specific securities identified and described are not representative of all the securities purchased, sold, or recommended for client accounts. Actual holdings may vary for each client and there is no guarantee that a particular client's account will hold all of the securities described. The securities discussed do not represent the composite's entire portfolio. It should not be assumed that any of the securities transactions or holdings discussed will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. There may be market or economic conditions which affect our performance, or that of our relevant benchmarks, that may have changed Vulcan Value Partners' views regarding the prospects of any particular investment. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities discussed in this letter. Vulcan buys concentrated positions for our portfolios, at times averaging 5% in our model portfolios, which may make our performance more volatile than that of our benchmark indices, and our performance may diverge from an index, positively or negatively, as a result. Our focus is on long term capital appreciation, so our clients should consider at least a five year time horizon for an investment with Vulcan. The S&P 500 Index is an unmanaged index of 500 common stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index. The Russell 1000® Value Index measures the performance of the large cap value segment of the U.S. equity universe. It includes those Russell 1000 companies with lower price-to-book ratios and lower expected growth values. The Russell 2000® Index includes the 2000 firms from the Russell 3000® Index with the smallest market capitalizations. The Russell 2000® Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. Index figures do not reflect deductions for any fees, expenses, or taxes. Investors cannot invest directly in an index. Peer ranking information sourced from eVestment using Vulcan Value Partners Large Cap, and Focus Plus Composites versus peer group of US Large Cap Value Equity Universe, Vulcan Value Partners Small Cap Composite versus peer group of US Small Cap Value Equity Universe.
TERM VULCAN DEFINITION* Competitive Advantage/PositionMoat or Economic Moat A company's ability to maintain competitive advantages over its competitors in order to protect its long-term profits and market share from competing firms. Discount The difference between Vulcan's estimated intrinsic value and the market price of a company. EBITDA EBITDA is earnings before interest, taxes, depreciation, and amortization. Fair Value/ Intrinsic Value/ Value/Intrinsic Worth Vulcan's estimate of the price a willing buyer would pay and a willing seller would accept, assuming neither was compelled to enter into a transaction. Firm Assets Vulcan's fully discretionary assets under management. Free Cash Flow The amount of cash that a company has left over after a company has paid all of its expenses, including investments. Free Cash Flow Yield (FCF Yield) A company's free cash flow divided by its market price. High Quality Business A company that meets Vulcan's standards for investment. Investment Team Vulcan's Investment Team includes members from both its Research and Trading Teams. Investment Time Horizon Investment holding period considered by Vulcan when evaluating a potential investment. Macro Factors The general economic and business environment. Margin of Safety A favorable difference between the price of a company's shares and Vulcan's estimated fair value of those shares. A quantitative Margin of Safety is measured by discount (defined above). Qualitative Margin of Safety is measured by our assessment of the quality of a business. MVP List A proprietary list of qualifying businesses that Vulcan believes have identifiable, sustainable competitive advantages and the ability to consistently produce free cash flow through Vulcan's five-year investment lens. This list includes Vulcan portfolio companies in addition to others but is not representative of any existing Vulcan client accounts, composites, or funds. Name Turnover The number of companies bought plus the number of companies sold divided by 2 and then divided by the average number of companies in the portfolio during the relevant time period. Portfolio Improvement Overall improvement of the quality of the businesses in the applicable portfolio. Position Size A security's weight in the applicable portfolio or composite. Price to Value Ratio A calculation that compares the price of a company's stock to our appraisal of the company's intrinsic value. Risk Reduction/ Risk Management Reducing the portfolio's price to value ratio by either buying (or adding to existing positions) high quality companies which are trading well below fair value as estimated by Vulcan or selling positions which are trading at or near their fair values. Stable Value Companies Companies with intrinsic values that Vulcan believes will remain stable over its investment horizon of five years. Total Addressable Market (TAM) Also referred to as total available market, is the opportunity that would be available to a product or service if 100% market share was achieved. Value Growth The sum of the growth in a company's profitability and its free cash flow yield.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.
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