Company Notes Series (#18): Oriental Watch Holdings

Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The previous edition in the series can be found here. If you have any thoughts on the series you would like to share, feel free to do so through the “Contact Us” page; we appreciate any feedback. Thanks in advance!

Start of notes for Oriental Watch Holdings

Data as of 22 September 2026

Oriental Watch Holdings (HK:0398) is a pureplay luxury watch retailer listed in Hong Kong.

With a trailing dividend yield of 10.9%, PE of 9 and PB of 0.91, the company screens very well. I originally wanted to do a deep dive into the business, but fellow investment writer Michael Fritzell already published a solid write-up. Rather than repeating what was written, I decided to present a brief overview of the industry, outline the company’s background, and analyze the key considerations for potential investors.

The Industry

Luxury Swiss watch brands traditionally did not operate their own retail outlets. Instead, brands such as Rolex and Patek Philippe partnered with trusted local operators who managed multi-brand stores or dedicated mono-brand boutiques on their behalf.

Unlike traditional distributorship agreements, however, authorized dealer status is granted on a store-by-store basis. Every single store expansion requires separate negotiations with the brand itself.

This setup allows brands like Rolex to maintain tight control over their overall retail footprint.

Despite the rise of smartwatches and digital devices, the luxury watch market has remained resilient. In 2025, Swiss watch exports totaled CHF 25.6 billion across approximately 14.6 million units.

Oriental Watch Holdings

Oriental Watch Holdings operates 39 stores in total: 24 in Mainland China, 11 in Hong Kong, and 2 each in Macau and Taiwan. Founded in 1961 by Dr. Yeung Ming Biu, the company grew from a single shop into a major regional retailer.

Initially operating primarily in the mid-tier segment, Oriental Watch acquired La Suisse Watch Company in 1973. This strategic acquisition secured authorized dealership rights for Rolex and its sister brand, Tudor—two of the industry’s most prestigious brands.

This move laid the foundation for a 50-plus-year relationship with Rolex. In 1993, the company was publicly listed on the Hong Kong Stock Exchange.

Today, the business is led by Dr. Yeung Him Kit, Dennis (son of Dr. Yeung Ming Biu). He served as co-managing director alongside his father starting in 2003 before assuming sole leadership in 2021 following his father’s passing.

Dynamics of Authorized Dealers

Authorized dealers hold an enviable market position due to insatiable demand for top-tier timepieces, which frequently sell out before even reaching the showroom floor.

To secure a spot on waitlists for highly coveted models, clients often build relationships with dealers by purchasing less sought-after inventory. This dynamic enables retailers to move slower-selling stock effectively.

This arrangement is equally advantageous for the watch brands themselves.

Authorized dealers cannot simply order high-demand stainless steel sports models (such as the Daytona or Submariner); they must also accept deliveries of less popular models, such as smaller-diameter two-tone pieces. By moving this broader selection, authorized dealers boost total sales for the brand without diluting the prestige of flagship models.

While Oriental Watch is estimated to carry around 100 brands, its business is heavily anchored by Rolex and Tudor, which together generate an estimated 70%-80% of total sales.

Rolex Certified Pre-Owned Program

Rolex recently launched its official Certified Pre-Owned (CPO) program, marking its first formal entry into the secondary market.

The initiative was designed to provide secondary-market buyers with authenticity guarantees in a market flooded with counterfeits.

Through partnerships with authorized dealers like Oriental Watch, trade-in watches are processed through Rolex’s authentication system and resold with an official Rolex CPO guarantee and seal.

This initiative offers reassurance to pre-owned buyers while providing Oriental Watch with a valuable new revenue stream in the pre-owned segment.

Rather than taking a share of resale profits, Rolex charges service fees for authenticating the watches and issuing official certifications.

Operational Transformation Under Dennis Yeung

While founder Dr. Yeung Ming Biu built the company’s base, his son Dr. Dennis Yeung has significantly transformed its operations.

His leadership—first as co-CEO from 2003 and then as sole leader from 2021—stands out across three key strategic areas:

1. Streamlining Operations and Rightsizing Inventory

At its peak in 2013, the group operated over 100 retail locations, including 89 in Mainland China. However, government crackdowns on conspicuous consumption led to severe inventory accumulation across the region. In response, Dennis Yeung streamlined operations, closing underperforming branches to focus heavily on core high-performing brands like Rolex and Tudor. Today, the store footprint stands at an optimized 39 locations. Inventory fell dramatically from HK$1.8 billion to HK$460 million, significantly boosting liquid cash assets.

2. Opportunistic Share Repurchases

When the stock traded at a deep discount to book value and low P/E multiples around 2020–2021, Dennis Yeung executed a bold share buyback strategy. Rather than making small daily open-market purchases constrained by low stock liquidity, he initiated a tender offer at HK$3.00 per share when market prices hovered near HK$2.00. This HK$250 million authorization successfully retired 14.6% of outstanding shares.

With shares now trading around HK$3.38, that buyback added clear value. Furthermore, distributing total dividends across 487 million shares instead of 570 million has directly boosted dividend per share metrics over the past six years.

3. Highly Shareholder-Friendly Capital Return

Since taking sole leadership in 2021, Dennis Yeung has maintained a payout ratio of roughly 100% of profits in dividends.

With his two sisters holding substantial direct and indirect stakes in the firm, this generous dividend policy serves as an effective mechanism to unlock value for all shareholders. Backed by a strong balance sheet holding HK$961 million in net cash and zero debt, the group can comfortably sustain high payout ratios without risking operational stability.

The Rolex Distribution Landscape

As noted, Rolex remains the key anchor brand for Oriental Watch Holdings.

Across the industry, Rolex has been gradually consolidating its dealer network, favoring larger regional partners capable of opening dedicated mono-brand boutiques. This may be good for Oriental Watch Holdings as most of its 24 stores in Mainland China are mono-brand boutiques.

According to an industry analysis by Grey Market, 437 out of 578 remaining retail partners operate only a single store. These smaller partners are more at risk of losing their partnership with Rolex.

Official Rolex points of sale have dropped from a peak of over 1,800 in 2022 to around 1,300. Given that Hong Kong has a high density of authorized dealers (24 locations), Oriental Watch could capture additional market share if smaller competitors lose their authorised dealer agreements.

However, risks exist regarding Rolex’s direct-to-consumer (DTC) expansion. In 2023, Rolex acquired major retailer Bucherer after 87-year-old chairman Jörg G. Bucherer chose to sell in the absence of direct family heirs. This acquisition gave Rolex a direct retail presence across Bucherer’s multi-region store network.

Today, around 41 Bucherer locations sell Rolex watches directly.

While Bucherer mainly operates in Europe, it recently opened its first store in China, placing it in direct competition with authorized dealers in the region. There is an ongoing risk that Rolex could favor its own Bucherer stores when allocating highly sought-after models.

Nonetheless, industry observers believe Rolex is unlikely to dismantle its third-party dealer network entirely.

Independent dealers have built decades of localized client relationships, established brand presence, and funded expensive store refurbishments required by Rolex. Abruptly severing these relationships could cause unnecessary operational friction for the brand.

Because this partnership structure has proven mutually successful for decades, drastic disruptions remain unlikely in the short-to-medium term.

Current Status of the Swiss Watch Industry

Dr. Henry Tay, Chairman of Singapore-based retailer The Hour Glass, shared insightful observations in his 2026 Chairman’s Letter.

He highlighted structural shifts in the industry, specifically how market profits are increasingly concentrating among top-tier, highly disciplined luxury houses.

The four main privately held giants—Rolex, Patek Philippe, Audemars Piguet, and Richard Mille—have consistently outperformed by prioritizing craftsmanship, brand perception, and tight supply management over volume expansion.

Rather than increasing production during demand booms, these brands raised prices and embraced scarcity, further cementing their market dominance.

Together, these four private brands now command nearly 50% of total Swiss watch market revenue (up 1,240 basis points since 2019) and an estimated 76% of total industry profits.

With approximately 70-80% of sales derived from Rolex and Tudor, Oriental Watch is well-positioned to benefit from this flight to quality and brand concentration.

However, because the company lacks authorization for Audemars Piguet and Richard Mille and has minimal access to Patek Philippe, it is increasingly dependent on its singular relationship with Rolex.

Valuation and Financials

Operating income has moderated from a peak of HK$433 million in FY22 to HK$312 million in FY26.

Management attributes this softness to broader macroeconomic shifts, with consumer spending moving toward experiences rather than traditional retail goods.

Simultaneously, pre-owned secondary market prices for Rolex models have normalized following their 2022 peaks.

When secondary market premiums compress, authorized dealers face greater friction selling less-demanded models to buyers seeking waitlist priority.

However, secondary market prices have stabilized recently, which could provide a modest operational tailwind moving forward.

Investment Thesis

At the current share price of HK$3.38, Oriental Watch commands a market capitalization of HK$1.6 billion. Backed by HK$961 million in cash and zero debt, the net enterprise value (EV) stands at just HK$650 million.

For FY26, the company declared dividends of HK$0.37 per share, translating to a trailing twelve-month (TTM) yield of 10.9%.

Total dividend distributions amounted to HK$180 million, representing roughly 100% of full-year earnings after tax.

While performance remains tightly bound to Rolex, management’s 50-year plus relationship with its key supplier provides a level of stability.

Assuming the company continues distributing ~100% of earnings, income-focused investors should enjoy strong yield generation.

Conclusion

Oriental Watch Holdings presents a compelling valuation case for income investors. Under Dr. Dennis Yeung, management has demonstrated exceptional capital allocation—rightsizing the store network when needed and executing aggressive share buybacks when valuations plummeted.

A net cash position of HK$961 million offers a strong buffer to support the 100% dividend payout policy. Even if the group sees an opportunity to open a few new stores, the expansion could be easily supported with cash on the balance sheet.

Although heavy reliance on Rolex is the primary risk factor, Rolex’s long-standing track record of supporting key retail partners provides some reassurance.

Overall, Oriental Watch offers attractive potential for yield-focused investors. While annual profits may fluctuate with broader luxury demand cycles, the company’s moat and capital discipline suggests near to mid term results should remain fairly consistent.

Disclaimer: The Good Investors is the personal investing blog of two simple guys who are passionate about educating Singaporeans about stock market investing. By using this Site, you specifically agree that none of the information provided constitutes financial, investment, or other professional advice. It is only intended to provide education. Speak with a professional before making important decisions about your money, your professional life, or even your personal life. We currently have no vested interest in any company mentioned. Holdings are subject to change at any time.

Company Notes Series (#17): Federal National Mortgage Association

Start of notes for Federal National Mortgage Association (Fannie Mae)

Data as of 31 March 2026

Fannie Mae has a long history of profitability since 2012, and the net profit has been quite consistent:

*Table 1; Source: Fannie Mae annual reports*
* Net profit is to company, and not to common shareholders, because under the current conservatorship, the net profit of Fannie Mae essentially accrues to the Senior Preferred Securities
** 2013’s net profit was unusually high because of a large US$45.41 billion ***benefit*** *for federal income taxes, largely as a result of a one-time release of valuation allowance against deferred tax assets; for perspective, 2012 and 2014’s* ***provision*** *for federal income taxes were US$0 and US$6.941 billion, respectively*
*** 2017’s net profit was unusually low because of a large US$15.984 billion provision for federal income taxes, largely as a result of a one-time tax charge of US$9.9 billion for federal income taxes; for perspective, 2016 and 2018’s provision for federal income taxes were US$6.02 billion and US$4.14 billion, respectively

In September 2008, the US Treasury provided financial support to Fannie Mae by investing in the company’s senior preferred stock (SPS). The SPS also gave the Treasury warrants to purchase shares equal to 79.9% of Fannie Mae’s common stock, on a fully-diluted basis, for effectively nothing.
Under the terms of the SPS, the US Treasury has committed US$233.7 billion in funding-support, and Fannie has drawn down US$119.8 billion as of 31 December 2025. Fannie last drew upon the funding support in early-2018, with the super-majority of the amounts being drawn-down in 2008-2011. Fannie has paid a total of US$181.4 billion in dividends to Treasury as of 31 December 2025, which is substantially higher than what Fannie has drawn upon; Fannie stopped paying the US Treasury a dividend in 2019 Q3 at the direction of the government. The SPS terms initially came with a dividend rate of 10% annually in cash, or 12% annually in payment-in-kind. Based on IRR (internal rate of return) calculations, the US Treasury has earned an annual return of 9.8%, which is just lower than the dividend-rate of the SPS.
The SPS also comes with a liquidation preference. As of 31 March 2026, the liquidation preference for the SPS is US$230.5 billion. What Fannie’s common stock is worth will depend heavily on how Treasury sees the liquidation preference terms for the SPS. If Treasury decides to waive the liquidation preference and thus cancel the SPS, there can be significant value in Fannie’s common stock. If Treasury wants to pursue the liquidation preference, through, say, conversion of the SPS into common stock, then the value in Fannie’s common stock can be wiped out.
As a sense check, Fannie’s total diluted outstanding common shares (this includes full conversion of all preferred stock, including the SPS-related warrants owned by Treasury) of 5.893 billion as of 31 December 2025. Net income in 2025 was US$14.364 billion. Diluted EPS in 2025 is thus US$2.45. At a P/E of 8, Fannie’s stock price would be nearly US$20. Fannie’s stock price as of 31 March 2026 is only US$7.35. A P/E of 8 is consistent with what Farmer Mac (Federal Agricultural Mortgage Corporation) carries at the moment. Farmer Mac is equivalent to Fannie Mae, but for loans made to farmers (Fannie Mae is for mortgage loans). Farmer Mac is much smaller than Fannie Mae, with annual net income in the US$150 million to US$200 million range. So Fannie might even deserve a premium; at a P/E of 12, Fannie’s stock price would be US$29.
Just official confirmation from Treasury that it wants to cancel the SPS and waive the liquidation preference can significantly boost Fannie’s stock price, without anything else changing.
One negative point worth noting is the enterprise regulatory capital framework (ERCF) that Fannie is under. The ERCF is imposed by the FHFA (Federal Housing Finance Agency) and requires Fannie to hold a certain amount of risk-weighted capital in-relation to the assets owned by the company. Right now, the ERCF applied to Fannie requires a CET1 (Common Equity Tier 1) ratio of 4.5%, which is really high and is similar to a US bank. Under the current ERCF, Fannie’s risk-based adjusted total capital has a shortfall of US$215 billion.

Company Notes Series (#16): Federal Home Loan Mortgage Corporation

Start of notes for Federal Home Loan Mortgage Corporation (Freddie Mac)

Data as of 31 March 2026

Freddie Mac has a long history of profitability since 2012, and the net profit has been quite consistent:

*Table 1; Source: Freddie Mac annual reports*
* Net profit is to company, and not to common shareholders, because under the current conservatorship, the net profit of Freddie Mac essentially accrues to the Senior Preferred Securities
** 2013’s net profit was unusually high because of a large US$23.305 billion income tax ***benefit****, largely as a result of a one-time release of valuation allowance against net deferred tax assets; for perspective, 2012 and 2014’s income tax* ***expenses*** *were -US$1.537 billion and US$3.312 billion, respectively*
*** 2017’s net profit was low because of a large US$11.209 billion income tax expense, largely as a result of a one-time tax charge of US$5.4 billion for federal income taxes; for perspective, 2016 and 2018’s income tax expense were US$3.824 billion and US$2.239 billion, respectively

In September 2008, the US Treasury provided financial support to Freddie Mac by investing in the company’s senior preferred stock (SPS). The SPS also gave the US Treasury warrants to purchase shares equal to 79.9% of Freddie Mac’s common stock, on a fully-diluted basis, for effectively nothing.
Under the terms of the SPS, the US Treasury has committed US$211.8 billion in funding-support, and Freddie has drawn down US$71.6 billion as of 31 December 2025. Freddie last drew upon the funding support in early-2018, with the super-majority of the amounts being drawn-down in 2008-2011. Freddie has paid a total of US$119.7 billion in dividends to the US Treasury as of 31 December 2025, which is substantially higher than what Freddie has drawn upon; Freddie stopped paying the US Treasury a dividend in 2019 Q3 at the direction of the government. The SPS terms initially came with a dividend rate of 10% annually in cash, or 12% annually in payment-in-kind. Based on IRR (internal rate of return) calculations, the US Treasury has earned an annual return of 12.7%, which is higher than the dividend-rate of the SPS.
The SPS also comes with a liquidation preference. As of 31 March 2026, the liquidation preference for the SPS is US$143.0 billion. What Freddie’s common stock is worth will depend heavily on how the US Treasury sees the liquidation preference terms for the SPS. If the US Treasury decides to waive the liquidation preference and thus cancel the SPS, there can be significant value in Freddie’s common stock. If the US Treasury wants to pursue the liquidation preference, through, say, conversion of the SPS into common stock, then the value in Freddie’s common stock can be wiped out.
As a sense check, Freddie’s total diluted outstanding common shares (this includes full conversion of the SPS-related warrants owned by the US Treasury) of 3.234 billion as of 31 December 2025. Net income in 2025 was US$10.731 billion. Diluted EPS in 2025 is thus US$3.32. At a P/E of 8, Freddie’s stock price would be nearly US$27. Freddie’s stock price as of 31 March 2026 is only US$6.40. A P/E of 8 is consistent with what Farmer Mac (Federal Agricultural Mortgage Corporation) carries at the moment. Farmer Mac is equivalent to Freddie Mac, but for loans made to farmers (Freddie Mac is for mortgage loans). Farmer Mac is much smaller than Freddie Mac, with annual net income in the US$150 million to US$200 million range. So Freddie might even deserve a premium; at a P/E of 12, Freddie’s stock price would be US$40.
Just official confirmation from Treasury that it wants to cancel the SPS and waive the liquidation preference can significantly boost Freddie’s stock price, without anything else changing.
One negative point worth noting is the enterprise regulatory capital framework (ERCF) that Freddie is under. The ERCF is imposed by the FHFA (Federal Housing Finance Agency) and requires Freddie to hold a certain amount of risk-weighted capital in-relation to the assets owned by the company. Right now, the ERCF applied to Freddie requires a CET1 (Common Equity Tier 1) ratio of 4.5%, which is really high and is similar to a US bank. Under the current ERCF, Freddie’s risk-based adjusted total capital has a shortfall of US$165 billion.

Company Notes Series (#15): Northern Ocean

Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The previous edition in the series can be found here. Please share your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes for Northern Ocean

Data as of 2025-11-19

Northern Ocean is listed in Norway’s Oslo Stock Exchange, with the ticker symbol NOL
Northern Ocean is the owner of 2 oil rigs as of 16 November 2025, namely, Deepsea Bollsta and Deepsea Mira:

*Figure 1; Source: NOL 2025-09-10 investor presentation*

Both Deepsea Bollsta and Deepsea Mira were acquired by Northern Ocean in 2017. Deepsea Bollsta was acquired for US$400 million while Deepsea Mira was acquired for US$365 million; it’s interesting to note that Deepsea Mira’s construction cost was around US$720 million. Both Deepsea Bollsta and Deepsea Mira are managed by Odfjell Drilling and have similar specifications and ages, as shown in Figure 1
On 17 November 2025, Northern Ocean announced the sale of Deepsea Bollsta to Odfjell Drilling for US$480 million; management intends to return capital to shareholders when the sale is complete.
On 18 November 2025, Northern Ocean’s stock price was NOK 8.13. The company has 303.2154 million shares outstanding as of 30 June 2025, and 9.5 million outstanding and unvested options, given a fully-diluted share count of 312.7154 million. Northern Ocean’s market capitalisation is thus NOK 2.542 billion, or US$251.7 million.
As of 30 June 2025, Northern Ocean has US$28.1 million in cash, US$299.3 million in debt, and US$248.7 million in related-party debt. This gives Northern Ocean an enterprise value of US$771.6 million. After selling Deepsea Bollsta, Northern Ocean’s enterprise value would become US$291.6 million. And now that Northern Ocean has only one asset left, if management has no ambition to buy more assets, it makes sense for the company to sell Deepsea Mira. It’s likely Deepsea Mira fetches a price that is around US$365 million or higher. Assuming a sale price of US$365 million, Northern Ocean would thus have a negative enterprise value of US$73.4 million, and this compares with a market capitalization of US$251.7 million, which equates to an upside of around 30%.
Northern Ocean has positive operating cash flow of US$4.3 million in 2025 H1, with capex of US$35.8 million, and interest expense of US$30.3 million. With the cash inflow from the sale of Deepsea Bollsta, Northern Ocean can pay down significant amounts of its debt, reducing interest expense by, say, two-thirds; the sale of Deepsea Bollsta will also reduce capex. All in, Northern Ocean’s pro-forma financials for 2025 H1 could look something like this: positive operating cash flow of US$22 million, with capex of US$18 million, and interest expense of US$10 million. This means Northern Ocean’s enterprise value, post sale of Deepsea Bollsta, will be reducing over time (a good thing for equity holders in terms of the bargain they are getting), while waiting for the sale of Deepsea Mira.

Company Notes Series (#14): The Central and Eastern Europe Fund

Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The first 13 editions in the series can be found here, here, here, here, here, here, here, here, here, here, here, here, and here. Please share your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes for The Central and Eastern Europe Fund

Data as of 2024-11-09
Ticker: CEE
Exchange: NYSE
CEE is a closed-end fund that invests in equities and equity-linked securities in Central and Eastern Europe. It is managed by DWS, which has €933 billion in assets under management as of 30 September 2024.
CEE’s NAV per share as of 30 September 2024 is US$11.40, with total net assets of US$73 million, giving rise to about 6.4 million shares outstanding in the fund. Share price on 2024-11-09 is US$13.14.
CEE’s Russian holdings have been valued at zero since 14 March 2022. The manager of the fund has observed occasional privately negotiated transactions in depositary receipts of non-sanctioned Russian issuers taking place (at prices that are deeply discounted from those taking place through the facilities of the Moscow Stock Exchange). In May 2024, CEE was successful in selling depositary receipts of one non-sanctioned Russian issuer in such a privately negotiated transaction, resulting in positive impact to the fund’s net asset value. DWS will continue to monitor developments in this area and may make further opportunistic sales of depositary receipts for Russian securities. Three of CEE’s remaining 16 positions in Russian securities are “local shares” which cannot currently be sold. In addition, four positions are in securities of issuers that are subject to US sanctions that bar CEE from selling, unless special permissions are granted by the US. So CEE continues to value certain Russian securities at zero, unless it has received a recent bid for the security and the sale of the security would be permissible under the applicable sanctions and other laws and regulations.
CEE’s Russian stocks as of 30 April 2024 are shown in Table 1. Unsure which stock was sold in May 2024, but it was a depository receipt.

Valuation on 2024-11-09:
- 6.4 million shares outstanding
- NAV of the Russian portfolio in Table 1 equates to US$9.88 per share for CEE (US$63.27 million divided by 6.4 million shares), so total NAV for CEE is US$21.28 (US$11.40 + US$9.88)
- If we remove the value of the most valuable depository receipt (Novatek PSJC) to account for the sale of a depository receipt in May 2024, the NAV of the Russian portfolio in Table 1 equates to US$9.32 (US$59.64 million divided by 6.4 million shares), so total NAV for CEE is US$20.72
- Stock price of US$13.14, so there’s a prospective return of around 60% if Russian stocks are no longer barred from being traded globally
CEE’s portfolio characteristics are shown in Figure 1 below:

A quick look at the current valuations of CEE’s 2024-09-30 top 10 holdings is shown in Table 2. It’s clear that most of the top 10 holdings carry very low valuations. The top 10 holdings account for 60% of CEE’s NAV. So CEE at its current state, even with the Russian holdings held at effectively zero, looks like a low-risk investment.

Company Notes Series (#13): SR Bancorp

Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The first 11 editions in the series can be found here, here, here, here, here, here, here, here, here, here, here, and here. Please share your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes for SR Bancorp

Data as of 2025-04-24

General background on SR Bancorp

SR Bancorp (ticker symbol “SRBK”) is the holding company for Somerset Regal Bank.
Somerset Regal Bank was established in 1887 as The Bound Brook Building and Loan Association; it became Somerset Regal Bank in 2023.
Somerset Regal Bank conducted a standard conversion that was completed in September 2023; trading of SR Bancorp shares on the NASDAQ exchange started on 20 September 2023. When the IPO was completed, SR Bancorp had 9.50793 million shares outstanding.
A day prior to the conversion, SR Bancorp acquired Regal Bancorp and its subsidiary, Regal Bank. The Somerset Regal Bank of today is thus the combination of Somerset Savings Bank and Regal Bank.
SR Bancorp’s branches are under either the Somerset Savings Bank banner or the Regal Bank banner; all the branches are in the North Eastern part of the state of New Jersey in the USA.

SR Bancorp engages primarily in the lending of fixed-rate and adjustable-rate commercial real estate and residential mortgage loans to individuals. Within commercial real estate loans, most of them are in multi-family loans, which are still related to residential real estate (see Figure 2). Loan-to-value ratios for the loans are acceptable: generally no more than 75% for commercial loans, 80% for multifamily loans and 80% for residential loans (residential mortgage loans granted in excess of the 80% loan-to-value ratio criterion generally require private mortgage insurance). Nearly all of SR Bancorp’s loan portfolio is in New Jersey.

*Figure 2; Source: SR Bancorp FY2025 Q2 10-Q*

Investing information on SR Bancorp

SR Bancorp is a thrift conversion – see here for how to invest in thrifts
As of 31 December 2024, SR Bancorp had total assets of US$1.065 billion and shareholders’ equity of US$0.198 billion, giving a total equity to assets ratio of an excellent 18.6%. SR Bancorp’s total assets include securities held-to-maturity at amortized cost of US$148.8 million as of 31 December 2024; these securities have a marked-to-market value of US$122.6 million. If SR Bancorp’s shareholders’ equity is adjusted for the marked-to-market value, it would be US$0.172 billion, which would give a total equity to assets ratio of a still-robust 16%.
As of 24 April 2025, SR Bancorp has a stock price of US$13.23. Its latest financials (for the 3 months ended 31 December 2024) has its adjusted tangible shareholders’ equity (adjusted for mark-to-market value of securities and intangible assets) at US$0.144 billion, and its share count as 9,255,948, giving an adjusted tangible book value per share of US$15.56, and thus a price-to-tangible book (PTB) ratio of 0.85. If tangible shareholders’ equity was used, the tangible book value per share would be US$18.45 and the PTB ratio would be even better at 0.72
On 20 September 2024, SR Bancorp adopted a program to repurchase up to 950,793 shares, which was around 10% of its outstanding share count back then. Since the adoption of the buyback programme, SR Bancorp’s management has led buybacks of 347,067 shares, as of 31 December 2024, at an average price of US$11.29 each. Considering SR Bancorp’s low PTB ratio, the buybacks are accretive to shareholder value. Moreover, the adoption of the repurchase program happened exactly on the 1st anniversary of the thrift’s IPO, which is the earliest date on which a converted thrift can start repurchasing shares; this is a sign that management understands capital allocation and is trying to do the right things for shareholders.
SR Bancorp has no non-performing assets as of 31 December 2024. Non-performing assets were 0.00% and 0.03% of total assets in FY2024 (fiscal year ended 30 June 2024) and FY2023. This points to well-run lending practices.
SR Bancorp’s annualised return on average equity in the first half of FY2025 was a decent (relative for a thrift!) 2.47%.
SR Bancorp’s three senior-most leaders are:
- William Taylor, CEO of SR Bancorp and Somerset Regal Bank, and Chairman of Somerset Regal Bank; Taylor has been CEO since 2013, and Chairman since 2018; Taylor is already 67
- Christopher Pribula, President and COO of SR Bancorp and Somerset Regal Bank; Pribula has been COO since 2013; Pribula is already 60
- David Orbach, Executive Chair of SR Bancorp and Executive Vice Chair of Somerset Regal Bank; Orbach had been Executive Chairman of Regal Bancorp since its formation and of Regal Bank since 2011; Orbach is only 51
The compensation of Taylor, Pribula, and Orbach, are reasonable, as shown in Figure 3 below. As of 12 February 2024, Taylor, Pribula, and Orbach control 49,269 shares, 30,166 shares, and 133,919 shares respectively; based on SR Bancorp’s share price of US$13.23 as of 24 April 2025, the value of their stakes are US$0.652 million, US$0.399 million, and US$1.77 million, respectively. For Orbach, who has the most shares among the leadership team, his equity value significantly outstrips his annual compensation.

*Figure 3; Source: SR Bancorp FY2024 proxy filing*

Taylor, Pribula, and Orbach have compensation plans that include change in control provisions. In the event that SR Bancorp or Somerset Regal Bank is acquired and the trio’s employment ends, they are each entitled to a severance payment that is equal to 3x the sum of (1) their highest base salary in the three years before their termination, and (2) their average annual total incentive bonus for the three years before their termination. In addition, the terminated executive would also receive a lump sum payment equal to the value of the cost of 36 months of health care.
Putting everything together, it appears that SR Bancorp is a thrift with (1) a low valuation, (2) a management team that understands capital allocation, (3) well-run lending operations, (4) a management team with reasonable capability in running a profitable banking operation, and (5) a management team with reasonable compensation and some incentive to sell the bank. SR Bancorp’s standard conversion was completed in September 2023, so the earliest it can sell itself will be September 2026. The ages of Taylor and Pribula suggest that they would be very open to sell SR Bancorp, but Orbach is still relatively young so Orbach’s age could be a “risk” of SR Bancorp choosing to remain independent – the saving grace is that Orbach’s equity value significantly outstrips his annual compensation, as mentioned earlier
Assume that SR Bancorp (a) has a return on equity of 2.5% each year, (b) has a P/TB ratio that consistently hovers at 0.7, (c) uses up its repurchase program by April 2026, and subsequently buys back 5% of its outstanding shares annually, (d) gets acquired at a P/TB ratio of 1.4 eventually. Under such a scenario, the returns we could theoretically earn are shown in Table 1

Company Notes Series (#12): Descartes Systems Group

Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The first 11 editions in the series can be found here, here, here, here, here, here, here, here, here, here, and here. Please share your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes for Descartes Systems Group

Data as of 2023-02-21

Background

Founded in 1981
Listed in 1999, dual listing on NASDAQ (NASDAQ: DSGX) and Toronto Stock Exchange (TSX: DSG)
Headquartered in Ontario, Canada
Over 1500 employees
Reports financials in the US$

Business

The problem Descartes is trying to solve:
- We believe logistics-intensive organizations are seeking to reduce operating costs, differentiate themselves, improve margins, and better serve customers. Global trade and transportation processes are often manual and complex to manage. This is a consequence of the growing number of business partners participating in companies’ global supply chains and a lack of standardized business processes.
- Additionally, global sourcing, logistics outsourcing, imposition of additional customs and regulatory requirements and the increased rate of change in day-to-day business requirements are adding to the overall complexities that companies face in planning and executing in their supply chains. Whether a shipment is delayed at the border, a customer changes an order or a breakdown occurs on the road, there are increasingly more issues that can significantly impact the execution of fulfillment schedules and associated costs.
- The rise of e-commerce has heightened these challenges for many suppliers with end-customers increasingly demanding narrower order-tofulfillment periods, lower prices and greater flexibility in scheduling and rescheduling deliveries. End customers also want real-time updates on delivery status, adding considerable burden to supply chain management as process efficiency is balanced with affordable service.
- In this market, the movement and sharing of data between parties involved in the logistics process is equally important to the physical movement of goods. Manual, fragmented and distributed logistics solutions are often proving inadequate to address the needs of operators. Connecting manufacturers and suppliers to carriers on an individual, one-off basis is too costly, complex and risky for organizations dealing with many trading partners. Further, many of these solutions do not provide the flexibility required to efficiently accommodate varied processes for organizations to remain competitive. We believe this presents an opportunity for logistics technology providers to unite this highly fragmented community and help customers improve efficiencies in their operations.”
Provides software for logistics and supply chain management business processes; helps customers to streamline their logistics processes and save costs. Customers use Descartes’ software “route, schedule, track and measure delivery resources; plan, allocate and execute shipments; rate, audit and pay transportation invoices; access and analyze global trade data; research and perform trade tariff and duty calculations; file customs and security documents for imports and exports; and complete numerous other logistics processes by participating in a large, collaborative multi-modal logistics community.” In other words, Descartes help customers manage their end-to-end shipment, including researching global trade information, booking of shipment, tracking of shipment, regulatory compliance filings, settlement of audit etc. Descartes offers many software applications that are modular and interoperable.

The company has historically lost, over a 1-year period, 4% to 6% of aggregate annualised recurring revenue
Customers include logistics companies (3P logistics providers, freight forwarders, and custom brokers), transportation companies (air/land/ocean), and distribution-intensive companies where logistics is critical in their own product or service offering (direct-to-consumer e-commerce companies for example); these customers include Delta Air, CMA CGM, FedEx, DHL, Home Depot, WayFair, Coca-Cola, Toyota, Fresenius.
Has a mostly SaaS model subscription model but also has a few clients on perpetual licenses – worth noting that some of the revenue earned by Descartes from its software is tied to volume of shipments being processed.
Descartes’ tailwinds: Can benefit from the rise of e-commerce and greater demand for logistics
Created a Global Logistics Network (GLN) – a state-of-the-art messaging network – of trading partners that customers can use. This GLN is the moat behind Descartes as it is the foundation of the company’s technology platform that manages the real-time flow of data and documents that tracks and control the movement of inventory, assets, and people. Customers can use the GLN to access and collaborate with a wide range of trading partners.
In first 9 months of 2022, USA was 63% of total revenue, EMEA 26%, Canada 7%, and Asia Pac 4%

Sales strategy

Sales in North America and Europe are through direct sales
Use channel partners in APAC, India, LATAM, and Africa. Channel partners include distributors, alliance partners, and value-added resellers
Has a “United by Design” alliance with numerous companies so that Descarte’s software is interoperable with numerous other service providers (this is another moat in my view)

Customer Stats

25,000+ customers worldwide, from 160+ countries
On an annual basis, Descartes now tracks >575 million shipments in real time and processes >18.6 billion messages

Growth strategy

Acquisitions are a key factor in Descartes’ historical growth (see “Financial Results” below); the acquisition strategy is focused on “complementary technologies, industry consolidation and close adjacencies across logistics”
Made 31 acquisitions for a total sum of $1.04 billion since 2014. This is more than its total free cash flow generated, so it funded some acquisitions through secondary public offerings in July 2014 (in FY2015) and June 2019 (in FY2020). But Descartes has recently been building back its cash position; as of October 2022, it has net cash of US$229 million (cash minus capital leases)
Likely will accelerate acquisitions again?

Financial Results

Fiscal year ends on 31 Jan
Revenue compounded at 15.7% per year (FY2010 – FY2022)
FCF compounded at 22%
FCF ex WC (working capital) margin has grown from 22% to 36%, aided by some WC change. But even excluding WC changes, FCF has compounded at 20.7%
Cash conversion is 231% of net income. Cash conversion ratio is super high for two reasons: (1) Net income impacted by amortisation of intangible assets which is not a cash expense but quite significant on the income statement; (2) Some SBC
FCF per share has compounded at 16.5% (FY2010 – FY2022) which accounts for the dilution from the two secondary offerings made in the period
Company is now net cash positive at US$229M
There is some dilution from SBC (stock-based compensation) but it is minimal and well-controlled (weighted average diluted share count up 3.6% from FY2010 to FY2022)

FY2023 Q3 Results

New financial year starts on 1 Feb
Q3 FY23 revenues were up 12% but down QoQ due to forex to US$121.5 million
91% of revenue is service revenue and 8% is professional fees
License only makes up 1%
CFO was US$50.9 million, up 18%, and 42% of revenue
Year-to-date revenue was up 16% and CFO up 8%
Has US$237 million in cash and US$350 million of credit facilities (which can be expanded to US$500 million upon lenders’ approval), so there’s ability to leverage up the balance sheet which could be good for shareholders

Management

CEO Edward J. Ryan (54). Been CEO since November 2013, was previously Chief Commercial Officer (2011-2013). Joined Descartes in 2000.
President and COO J. Scott Pagan (49). Been COO since November 2013. Joined Descartes in 2000.
CFO Allan Brett (55). Been CFO since May 2014. Joined Descartes as CFO
Hard to tell exactly how many shares are owned by them because the data reported is only for market-value of shares held, and market value of “in the money” of unexercised but vested options held by them. But nonetheless, as of 29 April 2022, based on a share price of C$80.14 (the weighted-average price for the 5 days prior to 29 April 2022) – price is C$101.29 as of 21 Feb 2023 – the value of Descartes shares controlled by Ryan, Pagan, and Soctt, is US$34.0 million, US$35.0 million, and US$14.0 million, respectively. That is a decent amount of skin in the game.

Compensation of Management

Compensation consists of 3 components: (1) Base salary and benefits, (2) Short-term incentives, and (3) Long-term incentives.
Base salary for FY2022 was US$500,000 for Ryan, US$350,000 for Pagan, and US$350,000 for Brett.
Short-term incentive for FY2022 was a maximum of US$750,000 for Ryan, US$446,250 for Pagan, and US$367,500 for Brett. Short-term incentive for FY2022 was based on Descartes’ adjusted EBITDA, revenue, and OCF as % of adjusted EBITDA. Descartes had to meet targets in FY2022 of 10% growth in adjusted EBITDA (actual was 31%), 9% growth in revenue (actual was 22%), and OCF as % of adjusted EBITDA of 80-50% (actual was 95%). All 3 executives were paid short-term incentives of the maximum amount stated.
Long-term incentive for FY2022 consists of:
- PSU grants which vest at the end of a three-year performance period
- RSU grants which vest over a period of three fiscal years; and
- stock options that vest over a period of three fiscal years.
The actual PSU to be received by the executives ranges from 0% to 200% of the granted target PSUs and depends on the total shareholder return of Descartes relative to a Comparator Group over a 3-year period. If Descartes is less than the 30th percentile, the actual PSU distributed will be 0%; if Descartes is in the the 90% percentile or higher, the actual PSU distributed will be 200%. On the date of the grant, the target PSUs were worth US$2 million; the RSUs were worth US$1.4 million, and the stock options were worth US$0.6 million. The Comparator Group includes Enghouse Systems, Kinaxis, Wisetech Global, Aspen Technology, Ebix QAD, and more.
Sensible compensation structure, since it emphasises long-term stock price return. Dollar-amounts are reasonable (though on the high-side) since the total compensation of each executive in FY2022 is still a single-digit percentage of net income and FCF.

Valuation

US$6.4 billion market cap (as of 21 February 2023) and trailing FCF of US$182 million
~35 PFCF ratio
EV of US$6.1 billion, so EV-to-FCF of 34
Doesn’t pay a dividend nor does it buyback shares, so no cash is being returned to shareholders yet
But there are good capital allocators at the helm so far, judging from growth of business through acquisitions
Pricey given that all the cash flows need to be reinvested back to drive growth in the form of acquisitions

Company Notes Series (#11): Alquiber Quality

Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The first 10 editions in the series can be found here, here, here, here, here, here, here, here, here, and here. Please share your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes for Alquiber Quality

Data as of 2023-09-07

Background

Ticker: ALQ
Listed in Spain in 2018
Spain has a dividend withholding tax of 19%
Alquiber runs a vehicle rental business in Spain and operates in a highly fragmented market
The largest player is Arval Service Limited with US$1 billion in revenue; Alquiber has around US$100m revenue in FY22

Key information

Recent share price of €8.85
Outstanding shares of 5.5 million
Market cap of €48.6 million or US$52 million
LTM revenue of US$107 million, operating income of US$16.8 million, and net income of US$9.1 million
US$7.2 million in cash, US$39 million in near-term debt and US$40.7 million in long term debt

Business

Rental automotive business
Alquiber’s business is capital intensive, as the company needs to buy automobiles first and then earns revenue after
Had 221 staff in 2022, consisting of 51 technical staff, 100 admin staff, and 70 other services staff
Very simple business model: It earns revenue from rental services as well as the sale of used vehicles
In 2022, Alquiber’s rental income was €83 million, and the sale of old vehicles was €16 million; rental income accounted for 84% of total revenue and revenue of old vehicles was 16%

Key stats of the business

Fleet was 16,000 vehicles in 2022, up 21% from year ago
Average purchase price was up 21%
Average occupancy rate was 91%
Number of commercial offices was 23, up from 22 in 2021

2022 growth

Rental revenue increased 31%
Alquiber also started industrial vehicle rental, which contributed to growth
There was YoY rental growth in every month in 2022

Alquiber’s advantage

Strong relationships with clients with significant percent of revenue from large corporations and companies in essential sectors (such as electricity and infrastructure)
Wide network of offices across Spain which ensures proximity to the client
Wide range of vehicles that can cater to clients’ needs
Offices across the country also allow for fast response speed

Cash flow

Operating cash flow is very strong
In 2022, Alquiber had US$49 million in operating cash flow from just US$107 million in revenue
Operating cash flow minus depreciation for the year is a better gauge of the company’s real cash-flow generation because there’s a need to depreciate its vehicles, which need replacing
2022 operating cash flow minus depreciation was only US$5 million

Historical numbers (2014-2022)

Net debt has risen substantially over time as capex has exceeded depreciation and amortisation, as the rental fleet expands; the rental fleet has been growing with property, plant, and equipment on the balance sheet growing from US$25 million to US$200 million
Free cash flow has been consistently negative
Operating cash flow minus depreciation has also not been very strong
Alquiber seems focused on EBITDA, which is probably the wrong metric to use as it is a capex-heavy business
Revenue CAGR of 26% since 2014, and net income CAGR of 32%
Near-term debt has become an issue, with near-term debt more than cash on hand

Debt profile

Alquiber appears to have raised some 2-year bonds to cover its current debt for the year

Valuation

Market cap of US$52 million, and net debt of US$76 million, giving an enterprise value of US$128 million
Net profit of US$9 million, so EV/net profit of 14
But cash conversion when using operating cash flow minus depreciation has not been strong
Overall, not an interesting business with too much debt and weak cash flows

Company Notes Series (#10): Ponce Financial Group

Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The first eight editions in the series can be found here, here, here, here, here, here, here, here, and here. Please share your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes for Ponce Financial Group

Data as of 2025-06-07

Background on Ponce Financial Group

Ticker: PDLB
Listed exchange: NASDAQ
HQ location: Bronx, New York
Ponce Financial Group is the holding company for Ponce Bank (from here on in this set of notes, Ponce Financial Group will be referred to as PDLB)
Ponce Bank was established in 1960 under the name Ponce De Leon Federal Savings and Loan Association. In 1985, the bank changed its name to Ponce De Leon Federal Savings Bank. In 1997, the bank changed its name again to Ponce De Leon Federal Bank. In 2017, the bank adopted its current name of Ponce Bank.
Ponce Bank conducted a second-step conversion that was completed on 27 January 2022. The first-step of the conversion was conducted in September 2017. When the second-step conversion was completed, PDLB had 24.712 million shares outstanding.
PDLB’s banking offices are all located in New York; at the end of 2024, PDLB had 13 full service banking and 5 mortgage loan offices.
PDLB engages primarily in making mortgage loans consisting of one-to-four family residential (both investor-owned and owner-occupied), multifamily residential, nonresidential properties and construction and land, and, to a lesser extent, in business and consumer loans – see Figure 1. As of 31 March 2025, PDLB’s weighted-average loan-to-value ratio for its loans portfolio is a healthy 56.4%. PDLB’s loans are granted to customers who are located primarily in the New York City metropolitan area.

Details of PDLB’s ECIP preferred stock

The acronym ECIP stands for Emergency Capital Investment Program. The ECIP was set up by the US Treasury to provide investment capital directly to CDFIs (Community Development Financial Institutions) or MDIs (Minority Depository Institutions) to provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, in low-income and underserved communities.
On 7 June 2022, PDLB issued 225,000 shares of preferred stock for US$225.000 million to the US Treasury, as part of the Treasury’s ECIP.
The ECIP preferred stock issued by PDLB has the following characteristics:
- No dividends will accrue for the preferred stock in the first two years after issuance. For years three through 10, depending upon the level of Qualified and/or Deep Impact Lending made in targeted communities, as defined in the ECIP guidelines, dividends will be at an annual rate of 2.0%, 1.25%, or 0.5% and, thereafter, will be fixed at one of the foregoing rates. As of 2025 Q1, PDLB has reported 11 consecutive quarters for which it has met both the Deep Impact and Qualified Lending Conditions, and the ECIP preferred stock currently has a dividend rate of 0.5%.
- As a participant in the ECIP, PLDB must adopt the Treasury’s standards for executive compensation and luxury expenses for the period during which the Treasury holds the ECIP preferred stock. PDLB also cannot pay dividends or repurchase its common stock unless it meets certain income-based tests and has paid the required dividends on the ECIP preferred Stock; PDLB started paying the ECIP preferred stock’s dividend in 2024.
- On 20 December 2024, PDLB entered into an option agreement with the US Treasury to repurchase the ECIP preferred stock. PDLB now has the option to purchase all of the ECIP preferred stock during the first 15 years from the date of issue of the preferred stock. The purchase price will be based on a seemingly publicly-undisclosed formula to calculate the present value of the preferred stock, but management expects the purchase price to be at a substantial discount to the face value of the preferred stock, potentially less than 7 cents on the dollar. This is in line with the US Treasury’s announcement on 13 August 2024 that as of March 2024, any repurchases of ECIP preferred stock by the issuer can be done at a price ranging from 7% to 28% of the principal amount. As another sense check, given the current dividend rate of 0.5% on PDLB’s ECIP preferred stock, the annual cash flow accruing to the US Treasury is US$1.125 million; the present value of a perpetual annual cash flow of US$1.125 million, at a discount rate of 5%, is US$22.5 million, which is just 10% of the face value of PDLB’s ECIP preferred stock.
- PDLB cannot exercise the option to repurchase the ECIP preferred stock until at least one of the Threshold Conditions are met and the earliest possible date by which a Threshold Condition may be met is 30 June 2026. The Threshold conditions are, such that, in the first 10 years from the issue of the ECIP preferred stock, PDLB meets either of: (1) over any 16 consecutive quarters, an average of at least 60% of PDLB’s total loan originations qualifies as Deep Impact Lending, (2) over any 24 consecutive quarters, an average of at least 85% of PDLB’s total loan originations qualifies as Qualified Lending, and (3) the preferred stock has a dividend rate of no more than 0.5%. As mentioned earlier, as of 2025 Q1, PDLB has reported 11 consecutive quarters for which it has met both the Deep Impact and Qualified Lending Conditions, and the ECIP preferred stock currently has a dividend rate of 0.5%.
- Qualified Lending and Deep Impact Lending are, broadly speaking, loans made to (1) low-to-moderate income individuals, (2) rural communities, low-income communities, underserved communities, minority communities, and counties in persistent poverty, (3) small businesses and farms, and (4) affordable housing projects, public welfare and community development investments, and community facilities.
If PDLB ends up meeting at least one of its Threshold Conditions by 30 June 2026, and its US$225 million in ECIP preferred stock can be repurchased for US$15.75 million (7%) or less, at least US$209.25 million can be added to PDLB’s common stockholder’s equity. In the meantime, the ECIP preferred stock serves as a very low-cost source of capital for PDLB, given the annual dividend rate of just 0.5%.

Investing information on PDLB

PDLB is a thrift conversion – see here for how to invest in thrifts
As of 31 March 2025, PDLB had total assets of US$3.090 billion and common stockholders’ equity of US$288.886 million, giving a common stockholders’ equity to assets ratio of a poor 9.3%. PDLB’s total assets include securities held-to-maturity at amortized cost of US$358.024 million as of 31 March 2025; these securities have a marked-to-market value of US$349.518 million, so the difference is not material and can be ignored in the calculation of PDLB’s common stockholders’ equity. But the true economic value of PDLB’s ECIP preferred stock (see the “Details of PDLB’s ECIP preferred stock” section) should be factored into the calculation of PDLB’s common stockholders’ equity. Assuming the ECIP preferred stock can be repurchased for US$15.75 million (7% of the face value), PDLB’s adjusted common stockholders’ equity becomes US$498.136 million, and the common stockholders’ equity to assets ratio becomes a good 16.1%.
As of 07 June 2025, PDLB has a stock price of US$13.36. Its latest financials (for the 3 months ended 31 March 2025) has its share count as 23.9662 million and its reported tangible book value per share as US$12.05. This gives a high price-to-reported tangible book (PTRB) ratio of 1.11. But if PDLB’s adjusted common stockholders’ equity of US$498.136 million is used, its price-to-adjusted tangible book (PTAB) ratio becomes an attractive 0.64.
PDLB has not bought back shares since its second-step conversion, and that’s a bad sign on management’s understanding of capital allocation, especially since PDLB is now trading at a deep discount to its adjusted tangible book value.
Non-performing loans were 0.88% of total assets in 2025 Q1, while non-performing assets as a percentage of total assets were 0.91% in 2024, 0.65% in 2023, 0.78% in 2022, 1.07% in 2021, and 1.35% in 2020. These are not exceptional nor bad.
PDLB’s annualised return on reported common stockholders’ equity in 2025 Q1 was a strong (relative for a thrift!) 7.97%. Using the adjusted common stockholders’ equity, the annualised ROE is still decent (again, relative for a thrift!) at 4.6%. But PDLB’s net income has been volatile since its second-step conversion: It was US$10.334 million in 2024, US$3.352 million in 2023, and -US$30.0 million in 2022.
PDLB’s three senior-most leaders are:
- Steven Tsavaris, executive chairman of PDLB. Tsavaris has served as a director since 1990. He joined Ponce Bank in 1995 as an executive president and became CEO of Ponce Bank in 2011. He became chairman of the board and CEO of Ponce Bank in 2013. Tsavaris is already 75.
- Carlos Naudon, president and CEO of PDLB. Naudon has served as a director since 2014. He became president and COO of Ponce Bank in 2015, and is currently the president and CEO of Ponce Bank. Naudon is already 74.
- Sergio Vaccaro, executive vice president and CFO of PDLB. Vaccaro joined PDLB in June 2022 in his current role. Prior to PDLB, he was the CFO of Private Bank America at HSBC from 2015 to May 2022. Vaccaro is still young at 49.
The compensation of Tsavaris, Naudon, and Vaccaro in 2024 are high, as shown in Figure 2 below, when compared to PDLB’s net income; their compensation for 2023 are even higher, although the step-down in 2024 is welcome to see.
As of 16 April 2025, Tsavaris, Naudon, and Vaccaro control 476,142 shares, 500,149 shares, and 22,660 shares respectively; based on PDLB’s share price of US$13.36 as of 07 June 2025, the value of their stakes are US$6.361 million, US$6.682 million, and US$0.303 million, respectively. For Tsavaris and Naudon, who are the two most important leaders in PDLB, their equity values significantly outstrips their annual compensation.

Tsavaris, Naudon, and Vaccaro have compensation plans that include attractive change in control provisions. In the event that PDLB or Ponce Bank is acquired and the employment of Tsavaris and Naudon ends, they are each entitled to a severance package that includes: (1) 3x the amount of their highest gross income in the three years before their termination, (2) an amount equal to the value of any restricted stock, stock options, or stock awards, whether vested or unvested, and (3) 2 years of health insurance. In the case of Vaccaro, he is entitled to a severance package that includes: (1) 1.5x the amount of his average annual compensation in the five years before his termination, or whatever number of years that applies if he has been employed for less than five years, and (2) continuation of life, medical and disability coverage that is substantially identical to the coverage maintained by PDLB.
Putting everything together, it appears that PDLB is a thrift with (1) a low valuation, (2) a management team that does not seem to appreciate capital allocation, (3) average lending operations, and (4) a management team at retirement age with high ownership in PDLB and attractive change in control provisions, giving them incentive to sell the bank. PDLB’s second-step conversion was completed in January 2022, so it can already sell itself if management wants to (January 2025 would have been the 3-year anniversary), but management may be waiting for 30 June 2026, because that is the earliest date on which PDLB can repurchase its ECIP preferred stock. Management commented in the 2024 Q4 earnings release that they intend to repurchase the ECIP preferred stock:

“We are working diligently to ensure that we will meet the conditions necessary to allow us to repurchase our ECIP preferred stock in the future. The agreement we executed with the U.S. Treasury in December 2024, allows for a repurchase of the ECIP preferred stock once we have achieved Deep Impact Lending, as defined under the ECIP program, that is at least 60% of our total originations on average over 16 consecutive quarters, provided that we also meet certain other conditions at the time we exercise the repurchase option. As of December 31, 2024, our Deep Impact Lending over the last 10 consecutive quarters stands at 79%, well above the threshold. Also, from second quarter of 2024 to fourth quarter of 2024, we have originated $514 million of Deep Impact Lending as well as $54 million of qualified lending which represents 383% of our base, which period, together with the first quarter of 2025, will determine the rate of dividends payable on the ECIP preferred stock from the third quarter of 2025 to the second quarter of 2026. With one quarter to go, we are confident that we will get to over 400% of our base and ensure another year of preferred dividends of 0.50%, which is the lowest dividend rate.”

Assuming that (1) PDLB has a return on common stockholders’ equity of 7% in 2025, (2) PDLB’s ECIP preferred stock can be repurchased for 7% of face value in June 2026, and thus US$209.25 million can be added to PDLB’s common stockholder’s equity, (3) PDLB has an annualised return on common stockholders’ equity of 4% in 2026 H1, and in subsequent years and (4) PDLB gets acquired at a P/TB ratio of 1.2 eventually. Under these assumptions, the theoretical returns are shown in Table 1.

Assuming that (1) PDLB has a return on common stockholders’ equity of 7% in 2025, (2) PDLB’s ECIP preferred stock can be repurchased for 7% of face value in June 2026, and thus US$209.25 million can be added to PDLB’s common stockholder’s equity, (3) PDLB has an annualised return on common stockholders’ equity of 4% in 2026 H1, and in subsequent years and (4) PDLB gets acquired at a P/TB ratio of 1 eventually. Under these assumptions, the theoretical returns are shown in Table 2.

Company Notes Series (#9): CompoSecure

Editor’s note: This is the latest edition in the “Company Notes Series”, where we periodically share our notes on companies we’ve studied in the recent past but currently have no vested interest in (we may invest in or sell shares in the companies mentioned at any time). The notes are raw and not updated, and the “as of” date for the data is given at the start of the notes. The first eight editions in the series can be found here, here, here, here, here, here, here, and here. Please share your thoughts on the series through the “Contact Us” page; your feedback will determine if we continue with it. Thanks in advance!

Start of notes for CompoSecure

Data as of 25 September 2024

Details of CompoSecure

Ticker: CMPO
Exchange: NASDAQ
HQ: New Jersey
Founding year: 2000
Date of IPO: December 2021, via a SPAC-merger with Roman DBDR Tech Acquisition Corp

Business of CompoSecure

CompoSecure led the creation and growth of the metal card form factor through its expertise in material science and has been at the forefront of emerging embedded payment card technology.
CompoSecure is a category leader in the design and manufacture of premium metal payment cards. Its metal payment cards are currently issued typically on the Visa, Mastercard, American Express, and China Union Pay payment networks.
In 2003, for the American Express Centurion program, CompoSecure created the world’s first metal payment card. In 2009, CompoSecure developed the first commercialized metal payment cards with embedded EMV chips (EMV is an acronym derived from the names Europay, Mastercard, and Visa, and is a high-security payment protocol for payment cards which utilizes an embedded microprocessor that, when paired with an EMV enabled payment terminal, authenticates cardholder transactions; EMV cards are often called “chip cards”). In 2010, for the JP Morgan Chase Sapphire Preferred program, CompoSecure created the first metal payment card targeting the mass affluent segment. In 2017, CompoSecure introduced the first large-scale NFC-integrated dual-interface metal payment cards for the American Express Platinum program; NFC refers to the near-field communications protocol which enables RFID (radio-frequency identification) communications between payment cards and payment terminals.
Dual-interface payment cards comprise the majority of CompoSecure’s sales volume today.
CompoSecure has many form factors for metal payment cards and the primary ones are shown in Figure 1.
In 2022, CompoSecure also began offering its customers the opportunity to include innovative features in their payment cards:
- Biometrics – Fingerprint sensors for added security
- Dynamic CVV – Converts the CVV code from a static number printed on the back of a card to one on a tiny e-ink screen that refreshes periodically.
- LED – LEDs on the face of a CompoSecure Metal Veneer card that lights up when the card is used for transactions; the LEDs can form the issuing bank’s logo or other elements
CompoSecure’s customers are global issuers of payment cards. Its largest customers are American Express and JP Morgan Chase. Together these customers represented 70.5% of CompoSecure’s revenue of US$390.6 million in 2023, with American Express representing 28.8% and JP Morgan 41.7%. See Figure 2 for the proprietary and co-branded card programs of JP Morgan Chase and American Express that CompoSecure supports.
CompoSecure’s contract with American Express was extended in 2023 and will be up for renewal on 31 July 2026. Under the contract, American Express reserved annual capacity of products and is required to order a certain percentage of that capacity from CompoSecure, and the company may charge American Express for a portion of that capacity even if American Express orders below capacity for any given year. American Express can terminate the contract with written notice. CompoSecure has been working with American Express for nearly 20 years.
CompoSecure’s contract with JP Morgan was extended in 2023 and will be up for renewal on 31 December 2028. Under the contract, JP Morgan Chase agreed to purchase its metal payment cards only from CompoSecure during the contract-term, and reserved annual capacity of products. JP Morgan can terminate the contract with written notice. CompoSecure has been working with JP Morgan for nearly 16 years.
CompoSecure’s revenue comes primarily from the sale of its metal cards. In 2023, CompoSecure produced 31 million metal cards, and it served more than 150 card programs. There are recurring elements in CompoSecure’s revenue because the company’s metal cards support its customers’ new customer acquisition and replacement card activity for lost and stolen cards, account fraud, and natural card reissuance cycles.
82.3% of CompoSecure’s revenue in 2023 came from the USA; the rest was grouped under International.
CompoSecure competes with other card manufacturers. But most of the company’s competitors in card manufacturing are large, diversified businesses with areas of strategic focus outside of the payment cards market, and their card operations focus primarily on lower margin plastic cards. CompoSecure’s management also believe that most competitive metal card manufacturers have substantially less production capacity, less technical expertise in the metal form factor, a limited selection of metal card designs and constructions, and less extensive supplier relationships for the raw materials needed for metal cards. CompoSecure’s metal-card competitors include Idemia France S.A.S., Thales DIS France SA, CPI Card Group, Giesecke & Devrient GmbH, Federal Card Systems, Kona I, BioSmart Co., Ltd., and ICK International.
CompoSecure designs and manufactures its metal payment cards. It has 5 facilities that total 241,000 square feet, and all are in Somerset, New Jersey.
In the third quarter of 2021, CompoSecure entered the cryptocurrency market through the launch of the Arculus Platform, a three-factor security platform with broad industry applicability. The Platform makes it safe, simple and secure for an individual to buy, swap and store cryptocurrencies. CompoSecure started with offering the Arculus Cold Storage Wallet to businesses and consumers. The Arculus Cold Storage Wallet allows users to easily and securely buy and swap cryptocurrencies and store their private keys, providing the convenience of a hot storage wallet with the security of cold storage. Hot storage wallets generate and store private and public keys and digitally sign transactions within Internet-connected devices where storage of the keys is hosted by a third party. Cryptocurrency exchanges typically provide their customers hot storage wallets with the exchange having custody of the user’s private keys. Cold storage wallets store private keys and sign transactions in an offline device, with the private key in the custody of the user, thus protecting the wallet from network-based security vulnerabilities; cold storage wallets are thus less prone to risk of cyber-theft than hot storage wallets. Today, CompoSecure has expanded the Arculus platform into two areas, Arculus Business Solutions, and Arculus consumer products.
Arculus Business Solutions consist of:
- Payments + Arculus Authenticate: The Arculus Authenticate solutions can be seamlessly integrated and paired with CompoSecure’s payment cards, allowing consumers to make secure transactions and gain secure access to personal accounts, all from the same metal card. This custom security solution enables card issuers and other businesses to build multi-factor authentication solutions for their customers, through the convenience of the Company’s premium metal cards
- White-Labeled Cold Storage: CompoSecure provides white-labeled cold storage wallets in the form of a premium metal cards, to give consumers the ability to make transactions and store the private keys to their digital assets in the same metal cards
- Payments + Arculus Cold Storage: CompoSecure provides the combination of Arculus Cold Storage combined in premium metal payment cards to give consumers the ability to make transactions and store the private keys to their digital assets in the same metal cards
- Payments + Arculus Authenticate + Arculus Cold Storage
Arculus consumer products consist of the Arculus Cold Storage Wallet

Market opportunity of CompoSecure

CompoSecure’s sales volume of payment cards in 2023 is less than 0.7% of the estimated addressable market for payment cards. Worth noting that CompoSecure’s market share was around 0.5% in 2021.
In 2023, CompoSecure produced metal payment cards for 8 of the top 10 U.S. card issuers. Management believes there are substantial opportunities to expand adoption of metal cards for existing customers’ proprietary and co-branded mass affluent card programs in the U.S. which do not currently offer metal payment cards. The number of issuers adopting metal programs continues to increase, and there has been an increase in card issuers expanding their metal card programs to additional proprietary and co-branded portfolios.
Management believes that issuers in international markets are still in the early stages of adoption of metal cards and largely untapped opportunities exist across major markets in Europe, Asia, India, the Middle East, and Latin America. In these regions, issuers are developing awareness of the relatively low cost and attractive economics of metal payment card programs.
Digital banks and other fintechs are increasingly seeking premium physical touch points to enhance their typically digital-only customer relationships, which mean they are more likely to offer premium metal cards to their customers.
CompoSecure’s metal cards use 65% post-consumer recycled stainless steel and this is a major sustainability advantage over plastic cards.

Management of CompoSecure

On 7 August 2024, David Cote announced that his family office will invest US$372 million to buy 60% of CompoSecure’s shares (49.3 million) from existing CompoSecure shareholders and thus become a majority shareholder. The investment equated to a price of US$7.55 per share and it was completed on 17 September 2024. As part of the investment, David Cote became executive chairman of CompoSecure’s board, while CompoSecure’s management team – including CEO Jon Wilk – continued in their current roles. Wilk has been CEO since May 2017.
Prior to Cote’s involvement, CompoSecure had Class A and Class B shares, where Class B shareholders could receive certain tax benefits; the entire set-up was very complicated. Cote’s investment cleaned up the capital structure as the sellers of CompoSecure’s shares converted all of their Class B shares into Class A shares, and sold the Class A shares to Cote. CompoSecure now has only one single class of common stock.
Cote has a legendary track record of improving companies’ efficiency and margins.
Cote first built his reputation with Honeywell, where he was CEO from 2002-2017. 2003 was the first full-year Cote was CEO of Honeywell. Table 1 below shows Honeywell’s revenue, operating profit, and net profit from 2003 to 2017. Notice the strong growth in operating profit and net profit (2017’s net profit was hurt by very high taxes because of the US tax reform). Cote became executive chairman of Vertiv Holdings in February 2020 and is still executive chairman today; Vertiv’s operating margins have increased from 7.7% in 2020 to 15.1% in the last 12 months.
In talking about his investment in CompoSecure, Cote said:

“We are excited to begin working with Jon Wilk and the team at CompoSecure to continue driving long-term value for shareholders. We plan to focus our efforts on enhancing the Company’s organic growth and operational efficiency while evaluating ways to further diversify its customer base and business mix through M&A. The Company’s permanent capital base eliminates the duration and transactional constraints of traditional alternative asset structures and can allow it to become the acquiror of choice for companies in need of operational improvement and M&A expertise.”

The prior major shareholders of CompoSecure were Mitchell Hollin and Michele Logan. Mitchell Hollin is a leader of LLR Partners, a private equity firm, while Michele Logan is a co-founder of CompoSecure. They were the ones who sold their shares to David Cote.

Financials and valuation (numbers as of 2024-09-25) of CompoSecure

For 2019-2023, CompoSecure’s revenue CAGR is 12.6%, helped by a big jump of 41.3% in 2022; 2023’s revenue growth is 3.2%
For 2019-2023, CompoSecure generated consistent profit and free cash flow.
Note that CompoSecure’s net profit in Table 2 includes the portions that accrue to the Class B shareholders; after David Cote’s investment, there is only one single share class as mentioned earlier.
As of 30 June 2024, CompoSecure had:
- 81.7 million Class A and Class B shares, so after David Cote’s investment, we can take the total number of Class A shares to be 81.7 million.
- A total of 8.4 million restricted stock units, performance stock units, and earnout shares that have yet to be vested.
- 22.415 million public warrants outstanding; the warrants expire on 27 December 2026, and each public warrant entitles the registered holder to purchase one share of the company’s Class A common stock at a price of $11.50 per share.
- US$130 million in exchangeable notes that can be exchangeable into Class A common stock at a conversion price of US$10.98 per share, which works out to 11.8 million shares. But CompoSecure has the intention to redeem the exchangeable notes and it’s at the discretion of the company to make the redemption, instead of letting the notes convert.
- A total diluted share count of 112.52 million, taking into account: the 81.7 million Class A shares; the 8.4 million RSUs, PSUs, and earnout shares; and the 22.415 million public warrants outstanding
CompoSecure’s trailing EPS and FCF per share are US$1.06 and US$0.96 respectively, using the 112.52 million total diluted share count. CompoSecure’s stock price of US$13.75 gives it a PE and PFCF ratio of 12.9 and 14.3. Worth noting that David Cote’s investment (as a result of the simplification of the tax structure) is expected to deliver an additional annual US$20 million in free cash flow.
Is a PE and PFCF ratio of 12.9 and 14.3 too low for a company with an effective monopoly in metal payment cards, and with a new major shareholder on board who has a long history of excellent execution at industrial companies?

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