My original thesis on Wisetech around Q1 2024 was simply that it was the hardest-to-replicate vertical SaaS business.

But after a year-and-a-half-long struggle around the ex-CEO-founder Richard White’s personal conduct and alleged monopolistic behavior after the e2open acquisition before the competition authority (Australian Competition and Consumer Commission - ACCC), shares have cratered to AUD 39/share from $141/share at peak.

Wisetech’s investment thesis is now a ‘special situation’.

I was wrong to catch the falling knife with my 3 additions on the decline. So, FY2026 results a few days ago provided vital information to set up a more methodological buy/sell plan going forward.

We will evaluate

(i) where the business stands after the corporate governance ordeal,

(ii) the e2open acquisition,

(iii) the pricing model transition, and

(iv) AI prospects.

Before that, let’s review my original thesis to see what’s changed.

• Wisetech is a very difficult-to-replicate Software-as-a-service (SaaS) business that solves the most complex logistics problems in a highly regulated industry, resembling the role of Veeva Systems (we own) in the life science industry.

• a backbone of the global trading system, with >50% of global trade going through CargoWise, >90% of the top freight forwarders and 3PLs are customers (47 out of top 50)

• a platform-based business that can extend organic and inorganic growth for decades, from sea freight to landbase, and from freight forwarding to customs and compliance, and warehousing.

• a rockstar CEO founder who has built the business to be profitable from day 1, then grown the company’s revenue, income, and free cash flow by 14x, 25x, and 21x since 2015, respectively. (stats as of FY2024 below)

• 85%+ gross margin and 40%+ EBIT margin, close to 0% attrition for the past 12 years

• valuation at the time was 75x free cash flow at the first buy and 100x FCF at the deep dive.

FY2026 results and how they compare

First, is Wisetech still the backbone of global trade? Mark the month of September 2028.

Read all WTC reviews here. The tracker spreadsheet is reserved for annual members only [Link].

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You can read my deep dive here,

And why I bought it here.

Today, I’ll discuss why future growth will be even higher than FY2026, backed up by larger contracts signed and favorable renewal terms. I’ll discuss key-man risk, AI developments, and, last but not least, the premium valuation.

Read all PME reviews here. The tracker spreadsheet is reserved for annual members only [Link].

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1. Future growth will be higher

PME’s topline growth may be at 24% YoY, but forward growth is likely in the 30% range for the next few years. Contracts are signing faster than revenue is being recognized. We saw record 2025 and 2026 for new and larger contracts, record renewals 6 out of 6 all at higher per-transaction fees, and higher minimum volumes.

As it stands, PME has a total contract value of A$1.75B and a 5-year contract value of A$1.35B, showing the business's floor revenue.

Below are the 10 contracts signed during the year. 9 are in the US, and 1 is at a German university with Europe's largest cancer research center. The large ones are ‘full stack,’ some are ‘full stack +1’ (cardiology imaging, such as UCHealth Colorado), and all are cloud-based.

Below are the 6 renewals (1 extended - VISN23), with higher per-transaction fees and some with increased minimum volume. The company also maintained the 100% retention rate.

These price increases show clear pricing power and directly improve PME’s already impressive margins (74% EBIT and >50% FCF), 3 times higher than the next competitor (Sectra).

Looking at the contract details also shows that PME is successfully transitioning into a true platform, cross-selling core function viewers into archive, workflow modules, and into other imaging scopes from radiology: CT, MRI, X-ray to cardiology imaging: heart and vascular to lung, digital pathology, oncology, and ophthalmology.

Operating as a ‘full stack’ platform (viewer, archive, workflow, and since 2026, reporting) across multiple imaging scopes is exactly why PME will be the gatekeeper for AI applications.

2. The AI playbook

First, I just want to quickly review the three key risks I flagged in the original deep dive: key-man, AI, and valuation.

Key man

There are no changes in senior executive levels, but the list of directors again shows how important Dr. Sam Hupert, Anthony Hall, and Peter Kempen have been to the company. Any of them leaving would be a blow. An interesting read I found is that 30% of the total workforce is female, but 37% are female in senior executive roles. Additionally, voluntary staff turnover is only 2% in FY2026, far below the tech industry average of 10-15%. So not only are customers staying, but employees are staying put too.

On to AI

I find PME not only incredibly insulated, but also able to use AI to improve the business in many ways.

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Understandably, Mr. Market didn’t like it. I didn’t like it. Shares sold off 30%.

Now, at ~10/share and a 14x Adj.EBITDA 2027, are these issues likely to recur? Has the bad prospect been priced in? What about the high stock-based compensation? What’s the real FCF ex SBC valuation? Has the quality of the business changed?

I’ll reserve the analysis for premium members. As much as shares seem like a good deal, I think owners must know the new CEO is inheriting a long-dated execution issue, and there must be a process to reset and improve.

To refresh your memory, here is the link to the deep dive, past reviews here. The tracker spreadsheet is reserved for annual members only [Link].

Let’s get straight to the point.

Q2’26 ARR miss flags a few issues.

1. The timing of Tom Hogan’s replacement is abrupt.

2. A recurring elongated sales cycle issue.

3. Guidance forecast cut after already being tightened in Q1.

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Shares are now up 70% from 2026 lows, and all it took was a stabilizing Adj.EBITDA margin rate of 0.7% from 0.6% in Q1’26 and Q4’25. The increase in Shopee's take rate was impressive given all the talk about competition. But what’s clear to me is that Shopee is self-sustainable and can turn that profitability tap at will, putting Garena in the back seat, and the focus on Monee, just like Mercado Pago of Meli, is all about their exposure to risk. We’ll focus on Shopee in this write-up.

Below, we see that Shopee has been Adj. EBITDA positive since Q3’24, but a deliberate deceleration in Q3 and Q4 last year threw Mr. Market's confidence in Shopee’s future into doubt. The stock fell from $200/share to $77/share.

We added twice during this period. Sea is now over 55% of my PA.

Read all Sea Limited reviews here. The tracker spreadsheet is reserved for annual members only [Link].

Q2’26 shows the first glimpse of a reversal in Adj. EBITDA. It was only growing by 0.1 percentage point to a 0.7% margin in Q2’26, and that was enough for the market to ‘value’ the business at $131/share. Management already spelled out that Q3 and Q4 will be even better!

With this solid momentum we are optimistic that Shopee will achieve the milestone of $1 billion in adjusted EBITDA for the full year. - Forest Li, Q2’26 cc.

Q1 and Q2 were $478M, meaning Q3 and Q4 will be at least $522M. And compared to H2 of 2025, which was $388M, implying 35% growth YoY.

I think the market will like it.

Now let’s skim through the headlines, and then I’ll focus on the key takeaway in each segment.

Q2’26 Group financials

• Revenue grew 48%YoY to $7.8B,

• Gross profit grew the same to $3.6B

• Adj EBITDA grew 11% to $917M

The drivers were Shopee’s revenue growth at 48%, Monee loans book growth at 63%, and Garena’s bookings growth at 15.5%.

Below, you can see that revenue growth for all three segments has been incredible over the past three years. Shopee accelerated from 20% to 48% this quarter, Monee kept growing at a high-speed lane at 60% for 8 quarters, and Garena has recovered from post covid lows.

But all eyes are on Shopee’s long-term margin. Let’s focus on this before moving to Monee and Garena.

Shopee - Long-term margin: 2-3%

Management's goal is to get Shopee margin to 2-3%. We are at 0.7%. How will they get there?

• Cost improvements (SPX and fulfillment cost structure improvements over time)

• Better take rate (ads or other forms)

a. Cost improvements

The roadmap has always been reducing costs through volume. Building a logistics network that is cap-light and dynamic. In Q2, the focus of the discussion was on fulfillment. Like Amazon FBA, Shopee shoulders all the logistics and warehousing for merchants in exchange for a fee.

Fulfillment is a double-digit business, and economics are improving

Improvements were driven by

(i) optimizing the cost structures.

(ii) operating leverage as it scales up. More sellers and buyers joining spread more of the cost out.

(iii) integrations between fulfillment and SPX reduced the frictions between how items in the warehouse move across the entire value chain.

Overall, management reiterates the strength of Shopee’s capital-light fulfillment strategy coupled with mid-size warehouses.

We can realize the cost synergies and cost benefits by running both the warehouse and logistics together. All these things help us to build the fulfillment businesses and helping us to gain the advantage of the overall platforms. Again, we run fulfillment business in relatively light CapEx fashions that we do not own the land, we do not own the warehouses. […] We are also experimenting more automation with our fulfillment center recently, which actually reduce our cost to run as well. That is still in the early stage.

b. Take rate

Take rate is a balancing act between

• how much reinvestment is required to grow the ecosystem,

• price competitiveness compared to other platforms and versus offline pricing.

• sellers’ profitability

Management see higher take take from commissions and from advertising.

Advertising - a clear gateway to 2-3% margin and beyond.

Ad revenue was up more than 70%, and ad take rate improved by over 90 basis points year-on-year, driven by more Ad-paying sellers, which rose around 45%, and higher average ad spend per seller, which increased more than 15% year-on-year.

The growth rate is on par with Mercado Libre and much higher than Amazon (20%) today, and higher than Amazon in the early days, which was 50%, but for a long period between 2013 and 2020. Today, it’s already 8% of Amazon’s GMV and 10% of its revenue, with a 60% operating margin.

So, Shopee’s ads are only in the second year running (started in 2024) and have a long runway to improve Shopee’s overall profitability.

Advertising is one of my core theses on why Sea will be a big winner in the future. Everything else (logistics, livestream, AI) is all catered to bring more sellers and buyers to the platform so they can use more ads on Shopee. In Q2, these numbers look strong.

• Average monthly new active buyers grew more than 35% year-on-year, a significant acceleration from previous quarters.

• Average monthly active buyers increased 18% year-on-year, and overall buyer engagement also continued to improve, with purchase frequency increasing by 8% year-on-year.

Other discussions - Market share, VIP, Livestream

Management observed that Shopee is maintaining market share, given its price competitiveness and wide assortment of items.

Competition was also relatively stable in Southeast Asia and Taiwan.

In Brazil, they claimed growth is well above the market growth levels.

Shopee was still very price competitive, a lot stronger than the competitor in the region, even after there is change on the take rate and the free shipping threshold. So we believe that for e-commerce businesses, the fundamental still holds. It is the price competitiveness of our assortment.

Additionally,

It is the completeness of our assortment. It is the fundamental structure of cost to serve, and it is experience of how the buyers can discover the product on our platform. All those things help us to grow faster in the market in Brazil. If you look forward, we still believe that Brazil has a long way to go in term of e-commerce growth. We are hoping to grow in Brazil in a profitable fashion, with the growth rate outpace the market in the coming quarters.

Overall, Shopee management believes it is growing faster than Meli (and perhaps TikTok) in Brazil, even after Meli’s drastic free shipping investment (R19, down from R79)

VIP Members: 15M and contribute 24% of GMV

• Q1 2025: >1m

• Q2 2025: 2m

• Q3 2025: 3.5m

• Q4 2025: 7m

I am very excited about the Shopee VIP program. That’s the e-loyalty program. And it is the most effective way to grow GMV, given that Shopee’s monthly active buyers and market share are already >300M, making it much harder to acquire new Shopee members now. But enticing existing members to spend more and more frequently improves the quality and predictability of Shopee’s revenue. Q1 showed that each conversion increases their spend per user by 30-40%.

Members are still ~4% of total monthly active buyers (est. 300M in 2023) but already contributed 24% of GMV in Asia in the quarter. Average monthly retention remains strong at around 80%, and members continue to show higher engagement, spending meaningfully more after subscribing.

Brazil went live in April and has already surpassed 1M.

Live stream - bringing in traffic (35% of physical goods)

Live streaming and partnerships with YouTube and Meta (Facebook, Instagram) are Shopee’s counter to TikTok. It’s been going on for a year, and Q2’26 shows it’s working. Traffic from outside of Shopee is ringing in.

Orders from live streaming and short-form video grew more than 50% year-on-year, outpacing the 28% total GMV growth and accounting for more than 35% of physical goods orders in Southeast Asia. Unit economics also improved sequentially as Shopee further optimized the marketing spend.

Shopee affiliate orders generated by these creators on Facebook increased by more than 85% quarter-on-quarter, with Facebook Reels proving to be a very popular channel to drive purchases. We have now extended our Instagram collaboration to all eight of our core markets, and we are seeing promising early results from Indonesia, the first market where we launched the partnership

Monee - Brazil expansion and credit risk

Revenue grew 59% to $1.4B and Adj. EBITDA grew 13% to $288m, driven by growth in the

• Loan book at 61% to $11B,

• Active credit users >40m, +34%YoY

There is a growth gap between revenue and adj. EBITDA. Management attributed this to loan mix, promotional loans to new borrowers, and investment in Brazil.

Monee has been a solid source of profitability and growth for the last 2-3 years. However, like Pago, we can see Monee is reinvesting aggressively to acquire new users in off-Shopee SPL lending (20% of SPL today), but that’s naturally lower-margin than on-Shopee.

Monee is also expanding rapidly in Brazil due to the vast potential. Pago has been operating for over 20 years and continues to post 40-50% revenue growth. Q2 saw a 68-75% growth in assets under management and the credit portfolio.

Excerpt from my Meli’s Q2 review

Assets under management grew 68% YoY to $23 billion. The credit portfolio reached $16.4 billion in Q2, growing 75% YoY. Total Payment Volume exceeded $100 billion for the first time. Monthly active users rose 30% YoY to 88M, with even faster growth in Brazil and Mexico.

Hence, Monee launched the ShopeePay app in Brazil, similar to Pago and NU Bank.

Going forward, Monee will no longer be in a supporting role to Shopee but will drive much of future growth and profitability. For now, we can expect Monee’s Adj.EBITDA to grow more slowly and leverage its clear data advantage from Shopee.

With our e-commerce user base, our e-commerce data, and also with our better credit scoring algorithm that's proven in Asia already, but of course, we customize for Brazilian flavor. We are able to broaden our product in Brazil over time. If you compare what we offer and what the other player offer, there are many low-hanging fruits that we believe that we can capture just by doing the right product structures, inputting the right data in our platforms to better credit scoring users, and just also with the license we applied, which is kind of as good as the others already in the market.

Importantly, Monee seems to have risks under control, thus far.

While the loan book grew by 61%, the NPL ratio of 90+ contracted to 1%. Management sees no correlation between loan book growth and the increase in credit risk. My only pickle is that they haven’t shared much about the composition of the loans, the size of the loans, the country, or the NPL of 15-90 days, which can indicate how credit risk is evolving early on. With the 90+ day, it could already be written off and may not show on the 90+ day metric.

One way I see it is that the provisions going up by 71.5% is worth watching. Not a red flag now, but I’ll be monitoring this.

Finally Garena,

Garena - a steady quarter

Nothing special in Q2, with stable 666M quarterly active users and 66M paying users. I’ll post two slides here for our future reference.

Free Fire is 8.5 years old and still strong, with partnerships and event adaptations. It’s still to prove if Garena and develope and publish another block buster game.

Conclusion

Sea is executing expertly, dominating a very fragmented region in Southeast Asia, and now growing profitably in Brazil. Lots of investments required but also a lot of potential. I am happy management is playing the long game.

I am most impressed by the sustained VIP growth and Livestream's contribution to traffic and order conversion, which proves buyers and users are more engaged than ever and suggests Shopee might have cracked the formula to play offense against TikTok Shop.

With ~4B Adj. EBITDA and an $80B market cap (~75B EV), 20% growth over the next 5 years, and management has started buying back shares ($90/share), Sea remains my largest position and is always a good place to add more shares on dips.

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Before I review Q2’26 results. Let me be clear about my point of view.

I believe Meli is the best technology business in Latin America. It is an incredibly customer-obsessed, adaptable, and high-growth business that has become the commerce infrastructure of the region; therefore, it is almost impossible to replicate.

The fragmented economies and less-penetrated ecoms and fintech in Latin America mean all parts of Meli above have 5-10 years of high growth ahead, yet they are high barriers to entry to new competition.

If I have to rank, Mercado Pago remains the biggest and clearest opportunity, then Advertising. Meanwhile, Envios (logistics) and Libre (marketplace) are the sticky mousetrap that acquire and retain customers.

I will focus on analyzing Pago today as it has become a ‘durable growth’ lever, but the market is questioning its risk management as it expands too rapidly to customers and merchant credit, away from its original setup, which was to process payments between merchants and customers, online and offline.

Ambition - largest digital bank

Meli’s ambition is to be the largest digital bank in the region.

The roadmap to get there is what Meli calls principalities: it wants to be the primary banking partner with users, serving all of their daily financial needs.

That’s payments, transfers, lending, savings, investments, and insurance.

How these products evolve is driven by its customer feedback measured by the annual NPS survey. That's the Net Promoter Score, showing how satisfied users are with Pago’s service.

In Q2, 70M active users said they were highly satisfied with the service; Meli scores an NPS (net promoter score) of 77, the highest in the industry in Brazil, Mexico, and Argentina. The feedback drives Pago’s roadmap and user experience.

But the conviction to expand Pago so rapidly comes from Meli’s scale, something we know as an ‘ecosystem’.

Together with the marketplace, Meli has 150M active users. A distribution advantage that allows Pago to expand at near zero acquisition costs. Then, a 26-year advantage of historical user data that are high-frequency, real-time, and granular. That’s the underwriting advantage that no one has in the region. I want to key on this a bit more before we move on.

• The data for an ecosystemic user is full access to individual navigation patterns and transactional data down to SKU levels.

• Meli knows not just how much customers are spending on each category each month, but also if they are buying running shoes, vitamins, and which reviews they are researching.

• The longitudinal data shows who is more creditworthy and what levers (credits, installments, cash back) allow the individual to make a purchase.

• All this data allows LLMs (AI) to excel even more than other banks, combining transactional, purchase intent, and industry-available data.

Importantly, in challenging or black swan events, Pago can assess which borrowers are most likely to pay and which merchants are likely to recover in challenging times. So when we think about the credit business, they are not giving out credit cards to users who need them; they are giving out the product to customers who shop and interact on Meli and find cashbacks, installments, or other features valuable. Pago can capitalize on this extra information.

Lastly, I can’t emphasize it enough: to achieve the ambition, Meli needs to think and invest long-term.

That’s what we have been seeing over the past year with results that look just like Q2. Strong top-line growth but lower profit and free cash flow.

Q2 results - 30th consecutive quarter of revenue growth above 30%

Net revenue and financial income grew 50% YoY, surpassing the $10 billion mark for the first time, the fastest in four years and also the 30th consecutive quarter of growth above 30%. But profitability compressed: operating margin narrowed 550bps to 6.7%, continuing the slide from Q4’24. Management cited continued spend on free shipping and credit cards.

The market didn't love it — shares fell the next few days (only to recover as Sea Limited reported a recovery of Shopee’s margin), reflecting investor caution about margin sustainability given the pace of investment, even as underlying business momentum is acknowledged.

Here are my good and bads from the quarter.

Good - deepen engagement across segments

• Commerce - saw deeper engagement, users purchasing more across categories, since the drastic investment in free shipping 4 quarters ago. Unique active buyers rose 26% YoY to 90M, and items per buyer increased 14% YoY. The trend seems durable.

• Fintech also saw deeper engagement as users parked more of their money in Pago. Assets under management grew 68% YoY to $23 billion. The credit portfolio reached $16.4 billion in Q2, growing 75% YoY. Total Payment Volume exceeded $100 billion for the first time. Monthly active users rose 30% YoY to 88M, with even faster growth in Brazil and Mexico.

Both segments did well, in my view, but active users who use both products- Meli calls them ecosystemic users- were even more engaged.

• Ecosystemic users were the most engaged group by far, making them the company’s most valuable segment. In details:

an ecosystemic user has 70% more GMV on the marketplace and 90% more TPV, double the assets under management. Very much engaged, and that results in better profitability. We also mentioned that the rate of growth of those type of users is the highest of any kind of users.

I think it’s growing 37% year-on-year. We don’t disclose the actual share of users. We just want to make sure that those are important users to us, growing very fast.

• Advertising: Revenue grew 73% YoY in USD, powered by greater seller engagement with AI tools and growth broadening beyond Self-Service as momentum strengthened in the cross-border trade (CBT) and Top Brands channels.

• Cross-border GMV is growing approximately 60% year-over-year, with triple-digit growth in Brazil, Argentina, and other markets, and above-average growth in Mexico, the largest CBT market by far.

• AI: Mercado Libre completed the rollout of its AI-powered marketplace search architecture across its five largest sites, with higher conversion and click-through rates more than offsetting the cost of third-party LLMs.

AI is definitely contributing to cost efficiency.

AI Customer service shrunk to 7,000 reps, from 10,000 four years ago, even though the business grew by 3x in that period. 90% of the interactions are done without a human participating in the issue.

2026 is probably the first year in many years in which Meli was not growing the engineering team. They have 20,000 developers that are using AI. A year ago, they were coding with help from AI. Today, human-written code is the exception.

A few optimistic quotes from the management:

Product development scaled from 8.4% of revenues to 7.2% of revenues year-over-year, even though it has this incremental cost of AI within it.

We are convinced that the 27 years of proprietary data that we have accumulated across commerce, payments, credit, and logistics position us in a good place in order to capture the opportunity that AI is bringing.

Everything to me was good; now the bad, or what I will be monitoring.

Bad - we need to monitor

Margin compressed by almost half to 6.7% compared to a year ago.

Driven by higher expenditure and investments in free shipping (4.7% operating margin impact) and building the credit portfolio (2.4% margin impact).

Behind the margin compression are actually two moving parts.

• Expansion of the loan book and a shift toward credit cards.

• Mixed picture of the loan quality.

Those two drove higher bad-debt provisions. Let’s look at both in detail.

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I am excited to update you on Grab’s business, a position I acquired in October 2024. So much has been going on this year that may impact the business's long-term trajectory, such as the fuel crisis and FX headwinds, and the rise of EV fleets. I’ll discuss that elephant in the room - Autonomous driving and AI impacts.

But first, I’ll dig into the core flywheel customers and drivers, groceries expansion, advertising, and that promising fintech segment.

For a solid background of the business and industry, read my deep dive here and all previous updates here.

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1. Core business: more users, more engagement.

The most important metric for a marketplace like Grab is the number of its transacting users and drivers. In the quarter, it delivered.

• 54M MTU, 16.7% YoY growth driven by a 19% increase in monthly active drivers.

Grab ended the quarter with 54 million monthly transactive users, growing 16.7% YoY and higher than the last 5-year compounded annual growth rate of 13%. There is a lot of room to keep growing, considering Uber also reported “adding more first-time users in the last twelve months than in any period in the last five years".

Grab doesn’t disclose how many drivers, but in Q1, a study found Grab had ~ 6 million partners (drivers + merchants); this number grew 19% in Q2. Very healthy supply and demand growth.

Also healthy is that daily transacting users grew faster than monthly transacting users, indicating higher engagement in the period. Grab highlighted that groceries (GrabMart) grew 42% YoY, 1.7 times faster than Food, and is still only 14% of Food’s user base; we’ll go deep on the revenue contribution and the likely significant size of this vertical to Delivery later, but the key takeaway now is that Deliveries have plenty of room to grow.

At the core of Grab, the flywheel is working nicely.

More users, more partners (drivers, merchants), and more engagement (more products).

2. Group financials and segments

The flywheel turns into growing financials

Group

At the group level, revenue grew 22%, GMV grew 21%, and Adj. EBITDA reached $168M, growing 54% YoY.

It’s great to see steady and resilient growth despite the fuel crisis (2% of Mobility revenue impacted) and the recently announced commission cap. This is the 18th straight quarter of EBITDA growth.

The management sees $4.125B in revenue and $730M in Adj. EBITDA for the year. There is plenty of growth left, so I believe the business is priced very reasonably for a $10B EV (15B market cap) today.

Ok, let’s go into a little more detail.

Mobility: 8-9%Adj. EBITDA margin longterm

Mobility GMV grew 18%, transactions grew 28%, but revenue only grew by 12%.

Management explained the lagging revenue growth was due to the net-off from the savers program (cheaper fares) and the targeted incentives to drivers to support the fuel surge.

The goal is to make Grab a sustainable workplace for drivers (more earnings - 4%YoY growth, and less impacted by the fuel surge - $7M targeted support) and an affordable place for customers at the same time. That meant revenue grew more slowly due to more discounts to passengers and more incentives to drivers. We also see that reflected in rising incentives, but it’s something I expect to decrease as the marketplace matures.

Despite the above, mobility margins this quarter were still at 8.6%, within the 8.5%-9% guidance range. Going forward, with the rollout of EVs, fuel costs will have less impact.

EVs actually have lower costs once the initial investment is made in the vehicle. This quarter, for example, we announced nine new fleet partnerships in Thailand. We've announced a new partnership with Wuling in Indonesia, and we've expanded charging access through the app for drivers in the Philippines. In nearly every market, we have examples of how we're becoming a positive catalyst for the introduction of cleaner vehicles into Southeast Asia.

Now to the key discussion,

Autonomous driving (AV)

AV is a structural risk to Grab; we can already see what is happening with Uber. The many partnerships with OEMs (Zoox - Amazon, Rivian or Lucid) in the US don’t guarantee that Uber will be the aggregation app for AV. It makes sense for the industry, but Waymo and Tesla could go alone and own the whole stack (physical and app). Why wouldn’t they? They have even better distribution than Uber, and they also own the supply of cars and technologies around it. They can also just acquire Lyft if they needed something like Uber.

Looking at Grab, the risk of disruption is less immediate.

First, what Grab has is time. The Southeast Asian region is highly fragmented (8 distinct government policies for AV), chaotic roads, low cost per ride, and low-wage drivers that make it less cost-effective for AV to compete. Most importantly, what is less discussed is…

The next section is for premium members; I discuss the idiosyncrasy of Grab, mapping capabilities, hybrid approach to AV, preparedness for AV. Then I also discuss the growing influence of Groceries and GrabFin. Subscribe for the real details.

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Sea Limited (SE) and Mercado Libre (MELI) have approached my 6 years of ownership. In this period, I have experienced two major stock declines. While the first was broad-based due to the post-COVID hangover, the second and current one is more driven by a new, elevated reinvestment cycle as both lock horns in Brazil. The two positions constitute over 50% of my net worth, so I write from a very biased but very critical and long-term point of view. Past reports below if you want fuller coverage:

SWI’s SE coverage: [deep dive, 4th buy, 3rd buy, 2nd buy, 1st buy, AI risks, Sum-of-parts Valuation, tariff review, Q4'25, Q3’25, Q2’25, Q1’25, Q4’24, Q3’24, Q2’24]

Meli: CEO transition, AI risks, Q3’25, Q2’25, Q1’25, The Most Sleep Well Investment Of LATAM, Top pick for 2025, Q4’24, Q3’24, and Buy Alert.

In this article, I evaluate their investment decisions to determine whether they are justified and whether the Latin American e-commerce sector market is a zero-sum game.

I’ll start with Sea Limited (SE), going in-depth, then Mercado Libre (MELI).

1. Sea Limited (Decentralized and capital-light logistics investments, 2% ad take rate, 3% penetrated VIP program, Monee, Garena, Investments to counter TikTok Shop)

2. Mercado Libre (Cross-border and verticalization investments, Margin compression, Long-term impact, Battles against Shopee)

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TLDR (too long didn’t read):

Sea is the largest e-commerce company with ~53% market share and the largest digital-only bank in Southeast Asia. Meli is the largest e-commerce company with >35% market share and >50% in retail digital media, and a top 10 digital bank in Latin America.

Both are clearly dominating their respective markets, born of building the largest distribution moat (the most users and traffic). The next leg of growth can be simplified to:

One, acquiring new users (buyers and merchants), and two, enticing existing ones to spend more, focusing on retention and operational depth.

In my view, acquiring new users from such a dominant position is harder and less productive than the second option. The emergence of TikTok Shop, Temu, and other cross-border platforms also forced Sea and Meli to double down on reinvestment, playing both defense and offense.

I believe both are reinvesting in the right tools (moving up to higher-value SKUs, building cross-border trade, improving service through in-house logistics and fulfillment, focusing on retention through VIP programs, and integrating financial services), tools that TikTok Shop can’t easily replicate. Early results are strong, and I am confident that both businesses’ free cash flow per share (the ultimate financial metric) will be higher than it is today. And as free cash flow per share diverges from the stock price (see the orange lines below), I will continue to accumulate shares.

Sea Limited

Between May 2022 and Aug 2024, Sea Limited traded around $75/share, with a market cap of $40B.

At the time, the market viewed the company as a grow-at-all-costs business, underpinned by subsidies, marketing intensity, and logistics partnerships. It burned $2B/year to support the e-commerce segment, Shopee. All the while, the main source of cash, its gaming segment, Garena, was shrinking rapidly. That narrative was enough for the market to forget that Sea also had a third segment, a very promising ‘digital-only bank’ in Monee, formerly SeaMoney. At this point, in the worst case, I valued Sea at $44B: 

• Garena at $12B (12x EBITDA, low range of industry 12-20x EBITDA),

• Shopee at $25B (2.5x EV/Revenue, lower than peers at 3x), and

• SeaMoney (Monee) at $7B (15x EBITDA).

Still, the stock dropped to a record low of ~$40/share, or a ~$30B market cap.

Forrest Li issued a rallying cry in September 2022 to turn the company into a self-sufficient, profitable business. He ruthlessly cut costs, canceled all non-core growth initiatives, and enforced a ‘zero cash compensation’ scheme for executives. It was an all-out change and marked the bottom of Sea’s stock at ~$40/share.

Six quarters later, Shopee reached ‘self-sufficiency’ and was $22M from breakeven. Then, two quarters later, in Q1’25, the company reached the $1B EBITDA mark ($4B annualized).

It was one of the most impressive turnarounds and showed the company can turn the profit tap on and off when required.

Q1’26 marks 7 quarters of stable profitability. The company also posted:

• >$7 billion of revenue, representing 47% year-on-year growth.

• Adjusted EBITDA exceeded $1 billion for the first time ($4B annualized)

With a market cap of $53 billion, that’s ~13x Adj.EBITDA for a company that is still growing at least 20% for the next 5 years. This is 2x cheaper than when I first pitched the company in Q1’2024 at ~25x Adj. EBITDA.

The question for me is: Can Sea earn multiple times the $4B in Adj.EBITDA in 2037, when I pass on the portfolio to my daughters? How much does it need to reinvest to exist alongside TikTok Shop and Mercado Libre (in Brazil)?

In other words, I care about Sea’s future earning power in 2037 and beyond. That’s very different from the market’s focus.

Sea’s Q1’26 financial commentary

On Shopee:

Gross merchandise value (GMV) grew 30% YoY and posted a $223M Adj EBITDA.

Compared to Q1’2024, when the share price was about what it is today:

• GMV has increased by 60%, to $37B vs $23B

• Revenue has increased by 64%, to $5.1B (take rate increased from 12-13%)

• Adj. EBITDA has increased to $233M, from breaking even.

Everything has gone in the right direction.

Underneath the numbers is a richer ecosystem of broader SKUs at lower prices, with financing options, faster delivery, and refunds, which broadens to more diverse shoppers and VIP shoppers. AI also continued to accelerate the business

around 80% of customer queries are now handled by our AI chatbot. AI usage helped reduce customer service cost per contact by around 30% year-on-year while maintaining high satisfaction rates — Q1’26

When the ecosystem creates more value, the company can improve monetization.

That’s why we saw a gradual increase in take rate to 14% from 12%.

At the center of it is ad revenue, which grew 80%, accelerating the pace of growth since it was first discussed in Q1’24. This is one of the most forward indicators of a marketplace's health. Why? Ads reflect merchants’ intention to invest in their business on Shopee. If they see strong traffic and strong buyer retention, merchants will invest more.

Ad revenue grew 80% and ad take rate increased by more than 90 basis points year-on-year.

Ad-paying sellers and their average ad spend both increased by around 35% year-on-year, reflecting the strong value sellers see in our ad offerings.

Average monthly active buyers increased 16% year-on-year, and the buyer purchase frequency grew around 12% year-on-year.

Looking back at my original thesis and the quarterly commentary summary below, we can see the rapid progression toward a 5-7% ad take rate.

Read more

In this report, I dive straight into four underlying growth drivers that require owners’ attention.

Before you start, you can skim through the Q1’26 results here — I won’t discuss the obvious. We will focus on:

• Drivers and customers’ incentives, fuel prices, and commission decree.

• Financial services reinterates breakeven by H2’26 - showing risk control

• Advertising monetization - active advertiser growth slowing, durable average spend growth

• Capital allocation showing positive direction - $5B cash position.

• Positioning to future-proof from AI and AV.

Then we’ll revisit why Sleep Well owns Grab and whether a ~20x free cash flow valuation (~10B EV) is attractive/unattractive for the Sleep Well Portfolio.

Read our previous write-up on Grab for more context.

• Q3’25 - Earning update

• Q1’25 - Tariff Review, Q1 Update

• Q4’24 - Update, New Risks, TopSWI

• Q3’24 - Update

• Q2’24 - Deep Dive, 1st BUY

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Sea Limited (SE) holds a special place in my portfolio. The central thesis has always been a three-headed technology company growing more heads, leveraging the growing scale and data richness. When I first bought the company for my daughters (Sleep Well Portfolio), it had just risen (posting $1.5B in free cash flow) from the crushing depths of post-COVID. The group was burning $2B a year, the e-commerce arm, Shopee, was still loss-making; the gaming arm, Garena, was not seen as evergreen; and Monee (SeaMoney at the time) was still a ‘promising’ fintech venture.

Today, three years later, the company generated ~3.5B in free cash flow. Impressively, across the ~700M people in Southeast Asia (and +200M in Brazil), ~400M unique buyers and ~20M sellers are on Shopee, ~37M take credit (BNPL, personal loans, SME loans) on Monee, and ~100M play games daily on Garena. Half of the sellers were reported to earn their main income on Shopee (per Q1’25). And, 20% of total GMV was generated by just ~2% of buyers (VIPs). Incredible. Ah, then the current loan book is just $9B (growing at 80% rate), or <10% of a typical bank's loan book in Southeast Asia. Finally, only 10% of quarterly active gamers pay on Garena.

When you internalize the sheer impact of Shopee on sellers’ lives, the sheer purchasing power of VIP members (similar to Amazon Prime members), and the number of gamers spending time on the platform. I don’t see any issue with Sea's decision to invest in increasing the wallet share and penetration. Of course, it depends, but we will see what they have invested in (FY2025) and what they are going to focus on, which makes a stronger company.

To me, this is a multi-year, decade-long story, as the business's lifecycle is still in its early stages.

At the helm, Forest Li, CEO and founder, is a rare breed. I admire him for the ability to pivot (2015) to a platform, grow the company at the speed of light (2016-2021), then brake hard to rebalance and change course as soon as things didn’t work out (2022-2023). Every quarter, I listen to his call and see a humble, eager-to-improve CEO. So when he said that AI would help Sea become a $1 trillion company (15x its current size). I tend to believe in the story.

So, that’s the lens I use when I read the quarterly results. With shares declining to ~$88/share after the Q4’25 announcement, the road I am walking may not be shared with the majority of the market, but I am totally ok, as my additions will be more meaningful at these levels.

But let’s get one thing out of the way: why were shares down by -16%?

Shopee's Adj.EBITDA margin was guided to be

• FY2027: ~0.55%, compared to

• FY2025: 0.7% in 2025, and

• FY2024: 0.2% in 2024.

Further away from the 2-3% long-term goals.

But that’s not what I am focused on. There is an enormous underserved community in Southeast Asia and Brazil that Shopee monetizes on, but the time isn’t now.

Let’s go through

• 1. Brief FY2025 results

• 2. Shopee - where are the investments?

  • SPX Express

  • VIP program

  • Shopee Live + Youtube + Meta

• 3. Monee

• 4. Garena

SWI’s SE coverage: [deep dive, 4th buy, 3rd buy, 2nd buy, 1st buy, AI risks, Sum-of-parts Valuation, tariff review, Q3’25, Q2’25, Q1’25, Q4’24, Q3’24, Q2’24 update]

**Links to thesis updates, buy-and-sell, and deep dives—all in the Sleep Well Portfolio spreadsheet above.

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Hi sleep well investors,

As long-term owners, I get excited when there are indiscriminate sell-offs. This is when good deals are found. Last year, I conducted a tariff risk review across all holdings and, as a result, cut MIPS from the portfolio.

This time, I see a lot of AI-related disruptions across all businesses. And with the rapidly changing context, I need to act quickly and decisively. I found one in which one of twelve holdings is highly disrupted (a Sell candidate) and two that require close observation; the rest are highly insulated.

Before we dig into the analysis, I’ll present the framework and the context.

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Absolutely—founder Richard White’s power grabs, sex scandal, and share-trading probes, in my view, not only caused the 2nd most significant stock decline after the 2020 crash but, fundamentally, (i) caused significant key product delays and (ii) eroded shareholder trust.

Today, the market cap stands at AUD $21B ($13.6B), and the stock hovers in the AUD $60s.

You could say the moderating top-line growth since Q4’2024 caused the fall.

So, we’ll dig in to see why and if this situation is permanent. And if the multiple contraction to P/FCF of 41x? And 37x Proforma EV/FCF (with E2Open) attractive?

We are going to ask the same questions we asked when we deep dived in the company in January 2024, including:

• Who are the customers? How do customers use CargoWise? Why do they choose it over alternatives?

• Have the moats eroded or widened?

• How does CargoWise + E2Open extend product and market penetration?

• What free cash flow growth can we expect from here vs. what the market is expecting?

• What are direct peers and top businesses trading at?

To understand the context, read my deep dive, buy alert 2, buy alert 1, FY24 update, H1 FY25 update, CEO shake-up, and E2Open acquisition.

First principle thinking

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Garena’s cash and mobile UX / UI built Shopee, an online marketplace for merchants and customers to exchange goods. Monee facilitates payments and adds credit to build more trust and enable more transactions. Logistics further improve convenience and trust. Emerging subsegments, such as advertising and VIP programs, add value to power-sellers and buyers.

Garena is perhaps the odd one out, but it provides stability for management to build Shopee and lay the foundation. Hence, if you remove any segment, the Sea’s ecosystem suffers.

As a result, this valuation is merely an estimate of the value of each segment if sold as a whole. I don’t think the value is worth as much if they are sold separately.

Let’s start

Sea Limited, a 55% position in my PA and 21% of the Sleep Well Portfolio, continued to perform, yet shares dipped 30% from their peak for reasons not aligned with my time horizon and thesis. As a result, I have given extra time to look into valuation to help me and SW investors know why they should be adding shares.

SWI’s SE coverage: [deep dive, 4th buy, 3rd buy, 2nd buy, 1st buy, tariff review, Q3’25, Q2’25, Q1’25, Q4’24, Q3’24, Q2’24 update]

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Hedgeye analyst Felix Wang’s short call at $190/share in September is correct in this time frame, and I am thankful to him, as I can add more shares at a 25% discount today.

Why am I bullish on the business long-term? I’ll go through:

1. KPIs (operations, financials, peers, market share)

2. Other highlights (Brazil, Argentina)

3. Why is it the largest position of SWI

4. Valuation - $145/share, market expectations vs. SWI’s expectations

SE coverage: [deep dive, 4th buy, 3rd buy, 2nd buy, 1st buy, tariff review, Q2’25, Q1’25, Q4’24, Q3’24, Q2’24 update]

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KPIs (operations, financials, market share)

As a group, this was a blowout reacceleration of growth.

Management’s focus remains the same:

“continuing to deliver high and profitable growth across all three of our businesses. With e-commerce and digital finance penetration in our markets still low but increasing, strong growth lays the best foundation to maximize our long-term profitability,” - Forrest Li, Sea’s Chairman and Chief Executive Officer.

Q3 saw 38% growth as a group, with Monee growing the fastest again at 60% YoY.

All still profitable with Monee investing heavily in increasing the loan size (marketing up 140% to $157M and provision for credit loss up 76% to $373M)

Let’s dive into all the segments. I’ll focus on the long-term trajectory.

Garena - back to hyper growth, best Q since 2021

Garena, once a hyper-growth cash cow pre-COVID, then a struggling division post-COVID, is back in hyper-growth mode, posting 31% revenue growth and 51% bookings growth.

The trend is well supported by the 670M Quarterly Active Users and 66M Quarterly Paying Users. Numbers are yet to hit peak Covid, but it doesn’t have to. I view this segment as a cash cow and expect little growth onwards.

Booking per paying user was at ~$13/user, an increase of ~20% from the bottom two years ago.

As such, EBIT has remained strong at ~$300M and Adj.EBITDA at $456M (operating cash flow). Annualized, this is almost a $2B operating cash flow segment!

Why the strong performance may continue.

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Intellego, a position acquired in September, just before the storm of bearish reports, is down 50%. Am I wrong? Yes, it’s not a sleep well pick (I admitted my mistake on 10th October here), but am I wrong about the business? I am not sure!

I need at least another quarter to know.

Before you read my Intellego’s Q3’25 review, please read the 29-page report first.

I am biased. But in my opinion, the disclosure has improved significantly.

Content:

• Q3’25: Expectations

• What was delivered?

• Q3’25: results, including EKN and Moveomed

• Future expectations

SWI’ writeups on INT: [mistake, deep dive, 1st buy, 2nd buy, 3rd buy, risk management, 1st live event, mispriced]

If you are new, read more about us here, our latest portfolio review here, and best buys here.

Q3’25: Expectations pre result.

I wanted better disclosure. Details:

i) sales composition, including from subsidiaries, and payment terms

ii) more information on the business model

iii) cash flow conversion from operating income (EBIT),

iv) working capital needs, and capex.

v) progress of the partnership with Henkel and Likang.

vi) capital allocation from recent cash build-up.

What was delivered?

i) sales composition, including from subsidiaries (Yuvio & Daro) - YES - page 10 and more, the top 10 customers composition was provided

ii) more information on the business model - YES - page 5, prior quarters focused more on the ‘What are the technologies’, this one explained the ‘Why it matters to customers’. It also clearly shows that the strategy is to sell/lease disinfection devices at minimal profit to up-sell the dosimeters, which are high-margin and recurring.

iii) cash flow conversion from operating income - YES - page 22-24, page 8 (EKN)

iv) working capital, including a breakdown of day sales outstanding (DSO) - YES - page 10

v) partnership with Henkel and Likang. YES, but limited—pages 3 and 6 show how and why the dosimeter is essential in the curing process. Page 3 also discloses what to expect in 2026 when all hospitals in China must use products like Intellego to validate their disinfection runs.

vi) capital allocation from recent cash build-up. YES

Q3’25 Results

Let’s skim through the income statements and cash flow statements.

• Sales was ~300M SEK increased ~300%, 87% from existing customers (recurring). To date, the Group has sold hundreds of devices globally. It has 331 active customers (who bought once in the last 12 months). Millions of dosimeters were sold and could double in 2026. Dosimeters are becoming an integral part of daily routines across the healthcare sector. It helps to improve workflow efficiency and disinfection results for users.

  Below are the top 10 customers. There is a high concentration, but it’s common in hyper-growth companies. Likely the 13% from China was from Likang? The 1.5% from a medical device is likely HAI Solutions, which is very interesting. Do check it out.

  Importantly, the top customer is likely to be Moveomed’s €22M deal announced on 4th October. I find this one a little strange, as the deal was announced just after the Q3 cut-off dates. Smarter investors can shed light here, but as long as the orders were delivered and ‘in the customer’s control’, Intellego is allowed to recognize the sales in full under IFRS 15. I would argue that would be for Q4. Why was it recognized in Q3? I don’t know.

  

  Below is the sales broken down by country, with the US and Europe accounting for the majority.

  

  Disinfection is still 98% of sales in Q3 and 93% YTD.

  

  In disinfection, the company expects a significant tailwind in 2026 when the national regulations take effect. Likang’s connections to 30,000+ hospitals MUST use products like Intellego. Given the development, it’s now likely that it’s just a matter of time before the EU, the US, and other markets implement the same regulations.

• EBIT was 171 SEK, increased by ~700%.

• Cash flow from operations was SEK 37M, increased from a cash burning position of SEK -5 M. So, the conversion from EBIT to cash is just 22%, low but not out of the ordinary for a hyper-growth company.

The key thing to see here is the reduction in accounts receivable, indicating customers have paid more of their invoices.

However, it will still be a slow grind, as day sales outstanding were 142 days, so the company still has to wait over 6 months to receive cash from customers. The good news is that the DSO has improved from 173 last year.

Below is the company's context.

Since 2023, Intellego has offered extended payment terms as part of a deliberate strategy to increase market share. Over the past year, we have gradually begun shortening these terms to improve cash flow and strengthen the company’s financial position. The transition is taking longer than expected, as customers have become accustomed to longer payment periods and the associated liquidity benefits.

The other core thing to understand is also the following disclosure:

The extended collaboration with The Swedish Export Credit Agency (Exportkreditnämnden, EKN) has enabled the Group to receive SEK 52 313 thousand in financing, after deductions for transaction costs, during the third quarter. Leading to totally received funds during January to September 2025 of SEK 128 645 thousand, after deductions for EKN and financing partner transaction costs. The financed invoices are not considered in the accounts receivable per 30 September 2025 as they are financed without recourse. The total EKN guaranteed invoices per 30 September 2025 conclude to SEK 132 996 thousand (0) when EURO is converted to SEK currency.

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Better, it’s a leader for the last 60 years in an incredibly slow-changing, highly regulated LNG industry, making it difficult to disrupt.

Today, I’ll discuss the its excellent 9M 2025 results, revenue (up 29%), 67% EBITDA margin, and guidance upgrade. Best of all, it was hiding growth opportunities in plain sight.

No. 18th Sleep Well readings: deep dive, 1st buy alert, H1’25

First, let’s be reminded why it was chosen as the 18th Sleep Well Pick and why it has entered the portfolio since March 2025.

The company provides me ownership in the green energy megatrend and also an European business: importantly, it offers a top-of-class, resilient quality, and AI proofing business, that my Sleep Well Portfolio requires.

It has been the gold standard in membrane containment technology for LNG transportation for over half a century. In the past 5 years, 90% of new builds have used this technology, i.e., a 90% market share. Its best sleep-well qualities:

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However, the stock felt red hot into the earnings.

In this report, I dive straight into four underlying growth drivers that require owners’ attention.

On Q3’25. I invite you to skim the overall headlines (Q3’25 presentation here) — I won’t discuss the obvious. Then focus on:

• Drivers and customers’ incentives

• Financial services growth is not so remarkable

• $5.5B cash position, $250M wasted.

• Velocity of product release, and advertising’s growth.

Then we’ll revisit why Sleep Well owns Grab and whether a ~24x free cash flow valuation is attractive/unattractive for the Sleep Well Portfolio.

Read our previous write-up on Grab for more context.

• Q1’25 - Tariff Review, Q1 Update

• Q4’24 - Update, New Risks, TopSWI

• Q3’24 - Update

• Q2’24 - Deep Dive, 1st BUY

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We review the latest quarterly report to see how the business has performed amidst rising competition, namely Shopee (extensively covered here), Amazon, Temu, TikTok, and even OpenAI.

1. Why do I own it?

2. KPIs (Operations, Financials, Market share)

3. Other highlights (Argentina, OpenAI, TikTok, Advertising)

4. Valuation

To understand the discussion, read my Meli’s writeups: CEO transition, Q2’25, Q1’25, The Most Sleep Well Investment Of LATAM, Top pick for 2025, Q4’24, Q3’24, and Buy Alert.

Don’t miss out on the first Best Buy list. The next one will come in a week.

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1. Why do I own it?

This is Meli’s Q3’25 results. Revenue grew ~40%! – the 27th consecutive quarter of growth above 30% YoY.

More impressively, it’s an acceleration from the 37% CAGR since 2012.

Before we dive in, why do I own it?

2. KPIs (Operations, Financials, Market share)

Meli is the largest and fastest-growing octopus in Latin America, extending its tentacle across Latin America yet avoiding all the political landmines since 1999.

There are lots of stats to digest. Everything in my original deep dive is going well. But since it’s nearly a ~20% position, I’ll try to cover as much as possible.

The core takeaway is that Meli is expertly balancing growth, investment, and profitability. The runway is incredibly long, so if you own shares, do remember that Meli’s goal is to build an ecosystem that enables ordinary people to engage in trade, online and offline, as seamlessly and cost-effectively as possible. This will take time and investment into a proper foundation. Competition will come, but the population is young, digitally versed, and served by traditional commerce and banks, so there is room for multiple winners. Meli would be one of those.

In 10 years, Marcos Galperín quantified a goal to triple Meli’s customer base, serving 300M active buyers (100M today). That’s roughly half of the region’s population. To get there, you need an ultra-long-term mindset… so quarterly fluctuations mean very little here.

This is what he said last year.

“Every time we have invested in enhancing our customer experience, in the past, we have been rewarded with strong growth and improvements in our market position.”

Marcos Galperín, CEO

The above refers to the logistic investment (and free shipping) in 2017.

And what’s special is that despite the high investments, we don’t have to trade it for negative free cash flow or disrupted growth.

You will see what I mean. Let’s dive in.

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Kinsale (KNSL), a business acquired in May 2024, is a leader in Excess and Surplus (E&S) insurance.

We review the latest quarterly report to see how the business has performed amidst rising competition.

1. Why do I own it?

2. KPIs (Operations, Financials, Market share)

3. Other highlights

4. Valuation

To understand the discussion, read my deep dive, the Q4’24, Q3’24, and Q2’24 updates, and the 1st Buy alert.

Don’t miss out on the first Best Buy list.

Links to all other writeups here. Please use the FAQ alongside the SWI Manual to get the most out of your subscription.

1. Why do we own KSNL?

I own Kinsale because of (i) its disciplined and exclusive focus on just one line of insurance - E&S (a $100B TAM of hard-to-place small business and personal lines risks), (ii) the lowest-cost provider (technology-driven, one location), and (iii) total control of its underwriting and claim management processes (no middle man), which together allows it to underwrite risks at ‘high speed, accuracy, and efficiency’. [link]

The focus and advantages above explain why Kinsale has been the most efficient and fastest-growing player. It boasts an industry-leading combined ratio (loss and expense ratio) of ~75% vs. peers’ 90%+, which has contributed to an impressive 28% CAGR in free cash flow per share since 2015. The founder-CEO, Michael Kehoe, also owns 5% of the business, so we have a well-incentivized capital allocator to protect and grow our investment.

Having said the above, I have been monitoring risks, including unpredictable weather catastrophes, float allocation, and increased competition since Q3’24 (and initiated coverage since Q1’24).

Let’s review whether the business remains on the right track despite these risks, and whether the current valuation is fair.

2. KPIs (operations, financials, market share)

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Intellego is an easy pass, if you invest to profit next year, focus on the stock volatility, and don’t look beyond its past issues.

SWI’s approach is different.

We take into account the (i) context the business is running—country/industry/life cycle. We assess the investment by its (ii) future value creation.

And through that lens, we see the issues as temporary. As such, the stock is highly mispriced at 8x FY2025 EBIT.

As the current Sleep Well Portfolio primarily consists of proven businesses with a high degree of certainty, Intellego can enhance the return profile if our assessment is correct.

But investing is not simple. There is an admission price. No success comes without learning. And no high return comes without understanding risks.

The good news is:

Risk is inversely correlated with knowledge. Risk can be lowered if you extend your time horizon, leave emotion out of your investment process and allocate capital with discipline. - Understanding Risk

If you can do the above, in my opinion, Intellego is a low-risk, high-return investment.

Let me expand:

• Know the business better than the average market participant. With the material provided [deep dive, 1st buy, 2nd buy, risk management, 1st live event], you and I have done more work than 99% of investors, both on the negative and positive sides, and have gained sufficient insight to engage constructively with the CEO [details].

• Focus on facts - I have shut off the stock screen and spent more time speaking with early investors (including a family office who invested at SEK 10/share), exchanging questions and answers with the CEO, digging into third-party sources on the product, the current deal with Henkel and Likang (interesting link), as well as academic research papers and local knowledge of the management team (CEO, Claes has grit but is inexperience at this scale), the stage of the company (either take more sales for lower cash flow or higher cash flow for slower growth), and the ‘logum’ context (be good but not too good) around running a successful business in Sweden.

  Facts with local contexts are key, in my opinion, which explains why Intellego has temporary flaws and was an easy target for ‘bears’.

• Extend your investing horizon - A key factor in becoming an owner of businesses, rather than holding paper shares, is to extend your time preference. A nice byproduct is that you also become immune to the volatility of the stock price (Mr. Market is a maniac).

  My time horizon is 12 years. In 2037, my daughters will start using the fund for their university (or whatever they choose). I don’t need to set short-term targets for any of my ownership. The business doesn’t need to revolutionize the industry or drastically transform the structure by 2026.

  The market doesn’t have patience for mistakes, miscommunications, or incremental changes.

  Let’s use it to our advantage.

  Facts have shown that Claes has already achieved a miracle in bringing Intellego to an MSEK 700 business, despite failures after failures in his many start-up attempts. Now, running a company at a new scale, serving industrial giants, in the public eye, and achieving triple-digit growth requires a very different skill set and business structure.

  The most significant misunderstanding around Intellego is its high receivables. If you were the CEO, would you accept more sales with longer payment terms now, or would you negotiate to receive cash quicker but with smaller sales orders?

  Extending my time horizon enables me to see how this dynamic unfolds. As Intellego earns more trust from customers, customers will be more willing to accept shorter payment terms. Additionally, I will have more time to witness the improvement that Claes and co will make, or even see a more appropriate leadership to take over the day-to-day operation. Whatever it is, Intellego has a good foundation to change positively. And allowing more time, I will collect higher rewards.

• Allocate with discipline - risk is lowered with the level of knowledge and time I have allocated for Intellego. With the initial 5% allocation, I am positioned to lose less than 5% if I am wrong, but I win multiple times my capital if I am right. There is a triple-digit fundamental improvement [100% free cash flow per share growth] + multiple expansion opportunity [8x EBIT] on offer here. The more I search for reasons and the likelihood Intellego could be overstating its sales, the more I see that the product is genuine, and customers are getting value from it. How durable is the positive trajectory? A more intelligent investor prompted me to consider this question.

  “As Henkel reports higher production quality while reducing costs from integrating Intellego’s technology, how long will Henkel’s competitors stand on the sidelines before they ‘google’ the name?

  So, either I am wrong and cause limited damage, or I am right and rewarded with outsized returns.

Why is Intellego not fraudulent?

Everything is predicated on determining the likelihood that Intellego is not fraudulent. My arguments are, in order of importance:

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Intellego just hosted its first live video presentation in response to questions about the company and potential business risks summarized in the previous write-up.

I will summarise the event in this post and wait until Q3 to reassess my 5% (now 3% after the share decline) position in the company.

Before you proceed, here are the Intellego’s required readings [deep dive, 1st buy, 2nd buy, risk management].

Key points

1. Business application of Intellego’s color indicators remains extremely valuable and promising. Claes elaborated on how cities are disinfecting their main water supply using UV, and how companies also disinfect food products.

2. 3-5year guidance remains the same: SEK 2 billion in revenue and SEK 600 million in EBIT, or €200 million in revenue and €60 million in EBIT. This aligns with the guidance from the Q3’24 report (old guidance). Claes hinted it will be revised on the Q3’25 results day.

3. Market size & growth remain the same: UV Disinfection is valued at ~€1.6B annually (~1.6B disinfections × 1 dosimeter/run). Curing at ~€5B, growing at ~19%. Horticulture at ~€4B, growing at ~22%

4. Improvements mentioned: (i) Stronger corporate governance, more detailed information in the reports (better revenue segmentation in the future) & potentially more regular earnings calls. A potential uplisting will naturally force the change. (ii) Hiring of a PR person to help with the communications.

5. Cost efficiency & offices: The company's DNA is to be cost-efficient. Claes provided an example showing that, in the first 10 years, the company raised just around €1 million. And that there is no need for an office, given that the potential cost of €25,000 could be allocated more productively to R&D. It would also save time for Claes and Hans (the new CFO), who live outside of Stockholm and need to travel 45 minutes to an office in the city.

6. Recent team changes: The two layoffs have no material effect, and that was ‘business as usual’. A Daro (UK subsidiary) replacement has already been found. They aim to have new hirings across R&D, finance, and sales, in addition to the mentioned new Head of PR.

7. Henkel & Likang partnerships are moving in the right direction. Order sizes are improving, but timing is not in the company’s control. In the past, big orders came once every six months and have now been reduced to every quarter, and can now arrive monthly. As a result, quarterly results could be lumpy.

8. Customer base: Intellego has hundreds of customers, with more customers inbound organically, thanks to the reputation boost from the Henkel/Likang deals. Additionally, ~60% of customers are recurring, buying more than once. A returns policy is not provided to customers unless there are quality issues.

9. A new professional app has been developed to convert color to a number for a more precise indication. It is in the early roll-out phase and was built based on customer feedback. A small number of customers are already paying, and can be available for general customer use (in app stores) in the future.

10. Long-term SEK 10B revenue ($1B revenue), not an official target, is possible given the right investments & new UV-curing use cases (printing, coating, etc.)

11. Regulations: China is the front-runner; the US & Canada are relatively new. Claes provided more context, stating that ~20 billion medical devices are disinfected each year, indicating a strong revenue potential for Intellego’s dosimeter.

12. Yuvio requires some additional documentation to satisfy the new regulatory pathway, but it is not seen as a new hurdle.

13. Conservative reporting: Last year, the company's share price suffered a significant decline due to the missed guidance, so they have adopted an ‘under promise over deliver’ approach. However, it was also said that large orders can shift timing materially. Hence, the guidance will be updated in the third quarter. [This seems to be the key point that upset/confused the market the most—but nothing has changed since Q2’25 report]

14. Short-term margin: The ~70% EBIT margin from Q2 is expected to decline slightly, but the 3-5 year EBIT margin was projected to decrease to 30% (as per the old guidance, the new target should be around 50% EBIT).

15. Payment terms: The company is working to shorten payment days (as indicated in a direct email from Claes, a 30-60 day target was mentioned, compared to the previously stated 60-90 day period, which was publicly announced). The company is prepared to utilize more factoring if needed.

16. Revenue by region is volatile due to bulk orders, as shipping may be to one area (where revenue is then recognized) with subsequent global redistribution.

17. Operating cash flow for Q2 was €6 million, and the cash position remains strong at €9 million (approximately SEK 100 million, improving fast). The 12-month operating cash flow run rate would equate to €24 million ($28 million). The current market capitalization of approximately $400 million implies a valuation of 15 times operating cash flow.

18. Capital allocation: Claes mentioned the board is in discussion about what to do with the SEK 100 million. Buybacks, dividends, and even acquisitions are considered.

My impression

Intellego required readings [deep dive, 1st buy, 2nd buy]

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