WinterGems: Industry Research

A Sobre Look at 2026

@Govro12 WinterGems Stocks — Mon, 02 Nov 2026 16:35:54 GMT

Here is my current portfolio on November 1st 2026

Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provided here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsible for their own investment decisions.

This post was triggered by and who generously published their portfolio this weekend. I cannot recommend enough subscribing to these 2 blogposts on substack which I read diligently for their insightful posts and original ideas. We do invest in different industries and have different circle of competency and country expertise. This is what makes life interest…

Champagne SuperNova Revisited and Cognac 2015 Base Level

@Govro12 WinterGems Stocks — Tue, 20 Oct 2026 16:12:10 GMT

Last week, LVMH reported Q3 sales and I took the opportunity to update my model of their Champagne and Cognac sales. It is been also one year since my post “ Spirits Landslide and Champagne Supernova”. Let me also be clear that the materials below only applies to the Moet Hennessy (MC) part of the LVMH and as such is a small part of this holding now. So it should certainly not be viewed as a big positive for LVMH. But still it indicates that this part of the business is getting under control, stabilizing and growing.

No text below was generated by LLM so all hallucinations or errors are solely due to the author.

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One thing also to consider as well, is that the current French crisis has limited impact to 90% exporter company like LVMH. The whole French crisis is actually creating some weakness to the Euros which should provide a currency tailwind to exporters like LVMH.

Also as a disclosure I did take a small position around 380euros on LVMH before the results came out. However I am re-allocating most of my investment in French small caps with no debt while small cap French funds are offloading “délester” aggressively out of French companies. I do not need to report quarterly performance to anyone on Earth in contrast to these funds… and will never do so to Wintergems readers. The long game is the only one I am playing. I do not have to wait out the presidential election.

Champagne Supernova

LVMH is the largest player in the Champagne market, but it is not dominant like Hennessy - Moet-Chandon sales represents 10-15% of the overall market. Still it is 10x larger than Laurent Perrier for example. They also have the first and second largest brands in terms of sales with Moet-Chandon and Veuve Clicqot and the most prestigious brands with Dom Pérignon and Kuig.

I initially captured the sales of LVMH Champagne on a quarterly basis but was not able to get the data before 2021. Also large fluctuations per quarter makes it very difficult to capture a long term trend.

We do see that the latest two quarters, top line has risen YoY and if you normalize for Euro headwind, Champagne sales had actually increase organically in Q3 2025, breaking the downtrend since Q1 2024.

If you look at the annual sales from 2015, you can spot an linear upward trend from 2015 to 2026 with a COVID discontinuity. Please note that I used the 12mo TTM for 2026 so we should expect slightly higher numbers for 2026 if the current trend continues. It is interesting to note that LMVH sales has increased by 42% since 2015 or 3.6% CAGR.

We can also look at other players in the industry. Laurent Perrier sales has seen a similar trend, although at a smaller rate for the same period. Sales did not rise during the 2016 to 2019 but resume growth to reach 303m rising 25% over the period.

If you look at Pernod Ricard and the Perrier Jouet brand over the same period we get those trends:

The granularity of the volume data does not gives a good idea of what happen every year, but still Perrier Jouet’s volume increase by 33% roughly since 2014, which is in line with the trend seen by LVMH and Laurent Perrier.

So in summary, Champagne is the only alcool in my opinion that has sustained continued growth for the last 12 years. Bourbon and Tequila which was trending positively until 2023-2024 are trending lower and still are. Aperol is popular but for how long?

Cognac Circa 2015

If we do the same exercise for Cognac, we can see that Cognac is also rebounding but from a much lower level. Here are Hennessy quarterly sales bundled with marginal spirits brands. Starting Q3 2022, a severe downtrend on cognac by almost half was felt. Since Q1 2026, sales have stabilized to a certain level. We have seen 2 positive quarters YoY.

Cognac sales is known for being cyclic and often follow decade long cycle. It peaked in 1985, reached an ultimate low in 1997 to rebound slowly in the 2000s decade.

If you look at Hennessy sales for the past 12 years, sales has risen steadily until 2022 by 50% to turn South sharply and is stabilizing to 2015 level. What it will do next is anyone guess but the days of sharp drop in sales YoY seems to be over.

We can look at Remy Martin sales to verify if we get the same pattern. We see a less sharp increase in sales from 2016 to 2019, and sharper growth post COVID and a similar sharp drop to current level. Topline sales has not yet rebounded compared to Hennessy yet but still a similar pattern.

If we go back to 1999, we can clearly see sales of Remy Martin going through some rough cycles. The 2015 sales also corresponds to the current 2026 level. 2015 was actually a down year versus previous years.

Martell volume sales confirms a similar trend where we have seen a steady rise from 2009 low sales to 2022 with volume rising close to 50% and then a sharp drop to 2015 level in 2026. Martell being more exposed to the China market which is still weak compared to Hennessy - has not rebounded yet. It may take another year before stabilization.

Moet-Hennessy

One conclusion is that both Hennessy and the Moet-Chandon brands are overperforming their broad market in terms of steady growth and rebound speed.

For Moet Hennessy, we should expect stabilization on Hennessy, improved margin and continued sales increase in Champagne with improved margin as well. So that side of LVMH turn from being a very negative segment in the past few years to a positive segment. If we look at the other segments, both Tiffany and Sephora are strong. Perfume is stable. The focus is now to understand the trend on Fashion and Leather segment, the largest segment. This is what we need to figure out next.

Until then

Cheers!

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No text below was generated by LLM so all hallucinations or errors are solely due to the author.

Gérard Perrier Electrification Play at 5 Years Low

@Govro12 WinterGems Stocks — Mon, 05 Oct 2026 22:57:11 GMT

In this analysis, I am taken a look “Under the hood” at the Four Segments of Gérard Perrier. The case I am making is that the operation of Four segments have shown very different behavior and there is a sharp contrast in terms of sales growth, operating margin, stability and so on. The best way to model this company is to take each segment on its own. Further, in the analysis I will take a normalized view of each operating business to better assess the latest results. Stay tune.

Oh.. and I put on pause my X account again so here is the only way to reach me and my preference would be using the comments below.

Map showing the locations of the Gérard Perrier operations

No text below was generated by LLM so all hallucinations or errors are solely due to the author.

The French market is in disarray due to rising interest and politics tension. An ocean is separating me from all this, but I do feel really sorry for all challenges that the French people are and will be facing. As a French Canadian, I have a strong connection with the French people. I truly believe that something positive will come out of all this …hopefully. But at the same my macro view of the French economy is superficial and so I am not on solid ground for this aspect. So you are warned…

This results in Gérard Perrier trading at a 5 year low as shown below, mostly due to a French market sellof and a strange decision to move to a 2nd tier market in September - Eurogrowth - forcing some funds and most ETF to exit from the stock. Forced seller is music to my ear.

This is an actual bid I have below - still waiting to get those shares. As a disclosure, Gérard Perrier is a top 5 positions and my cost is not very far to the current price.

Before we dig in on the recent results and historical results of the last 5 years, I would invite to look at a memorable post from published in 2013 about the company which made me buy almost instantly some shares in 2013. You will find interesting statistics on historical growth pre-dating 2013.

Gerard Perrier SA (ISIN FR0000061459) – French “Hidden Champion

In those years, coincidently I had been looking at investing at companies providing electrical services only. As a background I am an electrical engineer myself and I knew how nice this type of business is and how sticky it can be. In North America it is very fragmented industry and very difficult to buy as a standalone business except via the large Engineering firm A&E often bundle with EPC which includes large civil engineering arm and project management which tend to be messy. In France, Bouygues has an electrical services operation for example but it is bundled with large civil engineering operation and project delivery. It has also a lot of debt which is painful at current rising yields.

Recent result: Solid Sales & soft rebound in earnings - Relief!

Gérard Perrier published some solid earnings today with operating income up 20% to 11 013 992 Euros, sales is up 10% and EPS is up 16% to 2.09 per share.

This resulted in a operating margin of 6.23%. This is better than last year operating margin of 5.75%. As I mentioned a few times, Gérard Perrier has seen its operating margin decreasing in the last few years. So any improvement in this aspect gives me a sense of relief. Top line growth has been consistent and is not a problem.

Now if you look at the operating margin, although operating margins has rebounded from 1H2025, it is a soft rebound - 6.22% versus 5.75% last year. But if we compare to the last 5 years, which average around 8%+ there is a lot of ground to cover to get to that historical level.

4 segments with strong contrast in operating income

The company reports sales and operating income in 4 segments as shown below:

Installation et Maintenance: Soteb, Ofatec, N-Cyp, Dativ
Fabrication et métiers: Geral, Sera, Seirel
Energie: Ardatem, Technisonic
Aéronautique et Défense: Aece, Aqle, Somalec, Aeva

Another view presented by the company showing the different subsidiaries based on the market (Vertical Axis) and type of services (horizontal Axis). This shows for example that although only sales of Ardatem and Technisonic are under the energie (nuclear) segment, some sales from Geral reported under fabrication, does relate to the Nuclear industry.

If we look at the results of last semester, we can see a sharp contrast in terms of operating margin from best to worst:

Installation Maintenance: 11.81%
Fabrication et spécialistes métiers: 6.20%
Énergie : 3.61%
Aéronautique: -0.76%

Thankfully, the relative importance of the segments in term of sales also follow the same ranking. So we have the two biggest segments operating well.

If you look at the previous 1st Half semester - 2025, we get the same ranking

Lets look at each segment individually over a 5 year period so we can better understand the situation and attempt to normalize earnings

Installation Maintenance

The main subsidiary of this segment is Soteb. This is also the largest and oldest subs.

They design and install electricity solution for a broad set of industries (pharma, chemistry, oil, steel, agro, hydro) and provide a wide array of services, going from high voltage, to low voltage solution, process automation, instrumentation solution. They are mostly in the West part of France and in the French part of Switzerland. They have the CERN has a customer. They also purchased Ofatec based in Switzerland recently which provides services specialized in securing and ensuring the reliability of electrical power networks for sensitive location including data center.

Cloud services Dativ is also part of this segment.

I have charted sales of the “Installation et Maintenance” segment per semester for the last 5 years :

This segment has seen a constant upward trend since 2021, with a CAGR of 10.5%. Ofatec acquisition did contribute to the recent growth, so not all is organic.

If we move to the operating income margin, the situation is positive. We have seen operating income hovering below 10% for the first part and now trending between 10% and high 11% since 2023. Average operating margin over the last 5 years is 10.7%.

In the last semester, this segment represents roughly 60% of the total operating income.

Fabrication et métiers

The most important subsidiary in this segment is GERAL. GERAL design and manufacture of tailor-made electrical and electronic equipment for automated systems and electric power supply of industrial machines and processes. GERAL is the second oldest and second largest subsidiary of the Group.

It also provides End-to-end assistance, from design to commissioning with a multi-technique integration capacity. The segment also regroups SERA, SEIREL and Bontronics in Germany.

I have charted sales of the “Fabrication et métiers” segment per semester for the last 5 years :

This segment has seen a constant upward trend since 2021, with a CAGR of 7.6%. I am not aware of many acquisitions recently so this is mostly organic.

Clearly there is a seasonality aspect here - 2nd half seem to exhibit better margin for the past 2 years. The long term trend of the yearly margin seems to be quite stable at an average 7.6%.

As a sidenote, Soteb and Geral in my opinion a quite synergic, as I suspect that when Soteb wins a contract to open or extend a factory, the custom made Geral product can be a good way to provide an integrated solution made in GERAL facility at Le Mans.

Energie

This segment is composed of Ardatem and Technisonic. Ardatem was founded in 1987 and was acquired by GP in 2006. As shown below, Ardatem offices are spread all over France and in Bristol UK, likely located closed to nuclear facilities of EDF. EDF is the largest customer of GP overall.

Here is a description of Ardatem and Technisonic services

There are involved in almost all electrical aspects of a nuclear reactor including the critical control of valve systems. It is one of the few companies in France certified by EDF for this type of activities.

I have charted sales of the “Energie” segment sales per semester for the last 5 years :

Clearly sales have been stagnant for the past 3 semesters. The company is explaining this by record uptime of the nuclear facilities and thus limited downtime allowing Ardatem to do some maintenance. This is viewed as temporary and maintenance is expected to increase in 2027.

In terms of profitability, this lack of activity has impacted the bottom line as well.

Aeronautique

The Aeronautique segment was created in 2021 following the acquisition of AECE. This is what GP said about AECE in their 2021 annual report

AECE is providing onboard electronic and electric circuit for Aerospace and Defense business with more than 25m Euros in sales in 2020.

Since then, sales has grown quite rapidly at more than 17% CAGR. Although some of the growth - recent jump in the last quarter - is due to the recent acquisition of Aqle. If we exclude the latest semester and the Aqle impact, the sales growth is closer to 14%.

Here is what the company had to see about Aqle in the latest annual report. The company had sales of 12.4m in 2025.

If we look at the operating margin, there is a lot of wide variation from one semester to another. Over the last 10 semester there was 3 large miss, and 4 very good semester reaching 10% and more. This average to about 8%. I think the GP management is not very happy about this situation and they have put some new measures in place to correct the situation. My understanding is that we should expect better results in 2027.

Normalized earnings

As stated earlier, I decided to estimate the normalized earnings of the company by using

The 12 month trailing sales of each segment
The average operating income margin of each segment of the last 5 years.

Using this method we get an operating income of 29.6m euros

which would result in a EPS of 5.89 or 12.30 PE or 10.78 per share excluding net cash of 9Euro per share.

Now current trailing 12mo EPS is 4.92 EPS, or 14.75 PE.

This is a good entry for a patient investor.

Did I say that the company has no debt and has net cash balance of around 9euros per share?

As we dont need to assume any growth here, just normalization of margin and EPS should improve by 20%.

Now we have seen that 2 segments have seen its sales growing at more than 10% CAGR (Installation and Aeronautique) and Fabrication is also growing steadily. The company is benefiting from the continued robust electrification trend and aeronautic and Defense boom in France (Safran, Thales are major customers) . So you have a nice compounder here. A French Champion like would state in 2013.

I have not done elaborate projections in terms of expected sales on a segment basis and so on over the next 3 years. I just dont need to.

Cheers,

Oh.. and I put on pause my X account again so here is the only way to reach me and my preference would be using the comments below.

Leave a comment

No text here was generated by LLM so all hallucinations or errors are solely due to the author.

A Lolopolooza lineup of quality GARP stocks trading at a PE of 12 to 19

@Govro12 WinterGems Stocks — Tue, 14 Jul 2026 21:19:26 GMT

As a follow-up to the danger zone post, I have decided to rank 12 holdings in what I believe is the sweet spot zone for GARP stocks, trading at below PE of 20. I have decided to rank those stocks based on valuation as well as earnings quality.

Update October 26 2026: I no longer own Eurokai Takeuchi, Robertet, Intuit and SAP. Not necessarily because I dont like those names, but because I decided to concentrate on Gérard Perrier, Thermador and Aeroedge which are facing 20%-40% drawdown from 200ma which are not backed by fundamental.

Forward PE ranking:

The following table ranks the 12 stocks based on the forward earnings for the current year, from the lowest PE to the highers. All companies are trading between 12 and 19 PE. Similar to the magic formula approach but with my own twist, I will rank all companies based on the lowest PE to the highest. Then I will rank the companies based on the earnings quality (Growth, cyclical, short term momentum).

As we see below, Eurokai, Takeuchi, Teikoku and Kimura Kehko are trading at the cheapest PE. Not surprising, all stocks are small cap. The most expansive are Intuit and SAP. Stocks that typically are never trading below a PE of 20. These are good time.

Earnings quality ranking:

I have then ranked the 12 companies based the earnings quality. My first criteria is growth. I also assign some value on cyclical earnings versus steady earnings. For the same growth I will favor steadiness. I also look at the short term momentum in the near future based on my own understanding of the business. I always favor companies with short term momentum growth for similar growth. A company like SAP with good momentum in growth recently (in operating income) was judged to have superior earnings quality than Thermador (more cyclical) even though Thermador was able to grow EPS more in the last 10 years. This is not exact science…

1. Intuit

Monopoly on accounting for small business and independent workers with QuickBooks and domination of the annual tax report with turbotax in North America (USA and Canada).

Steady 5x: Intuit had seen an increase in EPS at a 20% CAGR from 2016 to 2020. The EPS raise has accelerated even more since 2023 small drop in EPS. Over a 10 year period, EPS has increase at a 20% CAGR.

2. Kimuka Kohki

Kikuka Kohki makes high-end industrial air conditioning systems for large-scale factories, food processing plants, precision equipment factories, and data centers; commercial air conditioning business includes large retail stores, commercial facilities, and office buildings; and our healthcare air conditioning business includes medical and welfare facilities, schools, libraries, and hotels.

Steady 4x -8 years : Kimura Kohki has quadrupled EPS since 2018. Sales has doubled in 8 years while margin has expanded steadily from 10% operating margin to 25% today.

3. Teikoku

Teikoku is the leading sealless pump manufacturer in the world with 40% market share and 60% market share in Japan.

Cyclical 5x: Teikoku’s EPS has risen sharply by 5x over the last 10 years. There is some short term cyclicality with decline in 2018, 2021, 2023. But a straight upward trend can be interpolate clearly over this chart.

4. Okano Valve

Okano valve is the leading valve manufacturer for the Japanese domestic nuclear market with a monopoly for the BWR type.

4x Steady since 2021 - strong pipeline ahead . EPS has grown steadily since the preparation work for the BWR nuclear plants restart has started. EPS is expected to reach 872 Yen in fiscal 2026 so almost 4x. The number of restarted BWR plants should double (from 3 to 6) by 2029. This should bring further increase in earnings.

5. Fukui Computer

Steady 3x + Accretive Merger : Sharp increase in EPS from 2016 to 2021, then plateau from 2023 to fiscal 2025. In fiscal 2026, EPS went up (EPS 230) without a one time investment charge of 600m Yen. The main product Architrend saw a raise in sales again of 16%.

Fukui Computer is merging with its largest shareholder Daitec (47% shareholder) in April 2027. This should be acreditive by almost 20% as Fukui Computer made 350Yen in operating income per share in fiscal 2026 (20 670 000 shares) while post merging, operation combined with Daitec would have generated 16 961 000 thousands Yen or 403 Yen per share in operating income (over 42 058 000 shares). Synergies over a few years should bring EPS to the 300 level in my opinion.

As we can see, besides the drop in 2023 and 2024, operating income has risen steadily since 2011.

6. Robertet

Robertet is the leading natural flavour supplier in the world.

Steady 3x: Robertet has increased EPS steadily by 3x over the last 10 years. The growth is very steady and is immune to economic cycle.

7. Sony

Sony is the leading game console, the #1 music publisher and recorder in terms of operating income and the #1 chip provider for image sensor.

Steady 3x on Operating income. Sony should generate 208 EPS in the current year, so about double the earnings since late 2017, and 3x the operating income over the same period.

8. SAP

SAP is the leading Software Provider of enterprise resource planning (ERP), supply chain, and cloud computing platforms.

Steady 2x - strong growth in operating income since 2016: EPS has doubled and grown steadily (if you look at operating income included below). Recently, growth has accelerated so there is strong momentum for the next few years.

9. Thermador

Thermador is a leading supplier of valves, pumps, piping, and heating accessories.

Cyclical 3x: Thermador has tripled the EPS over the last 10 years and EPS growth should resume in 2026. Expected EPS is the 5.30 range. The company is dependant of the France economy so Thermador so Thermador has seen decline in earnings at the start of COVID and recent years. 2026 are showing improvement.

10. Takeuchi

Takeuchi is a leading provider of compact excavator and crawler especially in USA and Western Europe (UK, Germany, France).

Cyclical 3x: Takeuchi has grown EPS 3x in the last 10 years. Earnings are impacted by tariff with USA which is its largest market. Only half of tariff increase has been compensated by increase price. Expected a small decrease in EPS next year due to continued tariff.

11. Groupe Perrier

Steady 2x: Steady slow growth with sporadic decline lasting 18 months - as it happen during COVID and now. 2026 should see resumed growth. Expects doubling in EPS every 10 years.

12. Eurokai

The group operates a vital network of container hubs across the North Sea (Germany), Mediterranean, and Atlantic.

Cyclical 2x: Eurokai has doubled its EPS over the last 10 years with some cyclicality.

Overall Ranking

If we combine both rankings, we get the following table:

Teikoku and Kimura Kohki end up being ranked first ex-equo. Followed by Fukui Computer, Takeuchi and Intuit.

In terms of earnings quality, Intuit, Kimura Kohki are really standing apart and as such deserve a certain premium, both in terms of growth and short term earnings momentum. Teikoku being my largest positions among those 12 names, based on this I will increase further my holdings on Intuit and Kimura Kohki.

Trade carefully

Any quality name in this PE range, feel free to mention those in comments

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Danger Zone Revisited

@Govro12 WinterGems Stocks — Mon, 06 Jul 2026 03:03:50 GMT

This is a short post on my holdings currently trading at a PE ratio of 20 and higher paying special attention to stocks currently in the danger zone - ie. with trailing PE higher than 30.

Below is a table of holdings with trailing PE higher than 20 and ranked based on the forward 2030 PE - from cheapest to most expansive.

Teikoku Pump $6333 Niche market leader

@Govro12 WinterGems Stocks — Fri, 05 Jun 2026 02:18:54 GMT

Investment Quest

We are in June 2026, AI hypergrowth frontier labs and SpaceX are rushing to IPOs before the hype window closes and we have skyhigh valuation on most AI and space related stocks which are polluting the market and the planet, in a unsustainable way. I am preparing for a harsh winter. So I am actively looking for slow compounders trading at 10-15x PE to protect from PE compression, occupying niche market, with a dominant position limited competition and pricing sustainability as the economical fallout of a bubble bust are unforeseeable. I do expect that even if the business is decoupled from AI or semifab, still second level effect will funnel through and the Company must be able to keep operating margin stable in difficult time. Now this winter may last a lot of longer than I would like so, so I am also looking for compounders with real shareholder yields via buyback and dividends so that I can increase my ownership of the business even without adding new capital.

In the quest of finding those cheap compounders, I stumble upon Teikoku. I found this company by looking at the list of certified Japanese manufacturer for nuclear plants. Since Teikoku pumps are used to handles toxic and radioactive liquids in super hot or super cold temperature and high pressure, it is not surprising to find that Teikoku pumps are certified and used in primary or secondary line of the PWR and in the BWR nuclear plants, side by side with Okano Valves. Okano Valve is another low PE compounders with super high margin recurring maintenance revenues but not as friendly in terms of shareholder yields.

A nice view of a standard Teikoku pump:

Teikoku has a 40% market share in the mission critical canned sealless pump market, these are numerous niche markets where the pump must pump toxic or precious liquid with no tolerance for contaminant often operating at extreme temperature or pressure. Teikoku makes them extremely robust with life expectancy of more than 10 years. They do require some maintenance at some point as maintenance and repair represented 26% of total sales. Teikoku has a proprietary monitoring system onboard on all their 700 000 pumps deployed all over the world called Teikoku Rotary Guardian (TRG): It measures induced voltage to continuously monitor radial bearing wear and shaft position without the need to disassemble the pump.

The management is extremely shareholder friendly and has returned more than 100% in the last 3 years in buyback and dividends. Actually it returned 128% of earnings in the last fiscal year using part of its big cash position. It is expected to return at least 100% of net income to shareholder in this fiscal year (ending March 2027) while investing in a brand new cryogenic lab to advance its LNG pump offering for 700m Yen.

Canned Sealless Pump

According to management, canned sealless pump is a niche market and represent only 1% of the overall pump market. It must compete with wet pump in some applications - i.e. pump where motor and pump are not encapsulated together. There is a tradeoff. In the wet pump, the motor is actually not confined or protected thus it is mixed in the open. On one hand canned sealless pump (at least the Teikoku brand) have a much longer life expectancy, 10 years plus, versus wet pumps around 5 years. On the other hand, the wet pumps have higher efficiency. In very high toxic application there is no alternative to canned sealled pump. In cryogenic application I suspect.

If you want to figure out what a canned sealless pump looks like and the benefits the chart can be useful. So leak free, no contact with outside air, support extreme temperature and pressure, no lubricant, light and silent. In a nutshell, the pump and the motor is combined in one enclosure thus the canned label.

In 2004, Teikoku actually bought Chempump, the USA company which is behind most of the development of this type of pump in the 50s, being involved with the US Navy on the development of leak free pump for nuclear submarines. Chempump then reused the technology in other mission critical situation like in the nuclear plants (there are 90 nuclear reactors in USA), aerospace, including refueling rockets before launch but also high toxic fluids in chemical industry as well as oil and gas. Today, USA represents 5.8B of sales or 20%. China is the largest market followed by Japan.

This company is very steady and has compounded revenue by 5% since IPO in 1999 and risen operating margin steadily from 7.5% to 17.5% today.

The Company is expecting sales to grow 6.6% next year after a small decline last year. Note that 1B of last year decline is due to the Company decision to exit from non pump electrical product.

In terms of operating income, Teikoku generated 4.983B Yen in 2026 and is expecting 5.020B in 2027 and EPS of 244 Yen. In 2026, they generated 266 EPS due to a one time gain on LT investment.

Massive buyback in the last 3 years

In the last 3 years, the company has returned about 50% of earnings in dividends and 54% to 78% of earnings in buyback. In 2023, the Company was sitting on 16B of cash- now this has gone down to a still very healthy 11.7B Yen in cash with no debt or about 750yen per share. They did two tender offers in 2024 and 2025 of more than 1 million shares and 1.286m shares respectively.

There is 15.32m shares if treasury stocks are excluded down from 19.69m shares 5 years ago. So 4.4m shares were taking out or around 23%. There is an acceleration in the last 2 years with a promise of more of the same in the subsequent years.

At the same time you get a fat 4.6% dividends - 132 Yen, which can be reused to buy some more shares.

In terms of the market segments, 56% is in the chemical business, followed by refrigerants 7.9% and electric power 2.9%. Parts and repair is at a healthy 26%. The chemical market is pretty broad as you can see in this slide:

One thing I check is that semifabs is not a critical market but still an important market where Teikoku pumps are used to pump high purity water and CMP slurries for wafer processing.

They do sell pumps specifically for the critical and expanding LNG market, thus this year big investment in cryogenic lab.

Teikoku’s cryogenic pumps feature a hermetically sealed, canned motor design. Because they lack dynamic seals or mechanical packings, they eliminate the risk of the highly volatile and flammable LNG leaking into the atmosphere. Cryogenic Construction: These pumps are built entirely of stainless steel and feature specialized bearing journal configurations and circulation flow paths engineered to safely withstand temperatures dropping down to -160 celsius

Honestly, I am still learning more about this company, the chemical business is something I am not yet an expert on, but the 9% shareholder yields at a attractive PE of 12, with very good prospect in the future for growth in a mission critical niche with dominant market share was too good to pass. So I did a Stan Druckenmiller of me and I am building a large position while learning more on the business.

I found one application quite interesting, where Teikoku is collaborating with Mitsubishi Heavy Industries where they were mixing ammonia into coal to produce power while reducing the amount of coal they are using. Teikoku pumps are used to pump the toxic ammonia. Ammonia is also starting to be used in ships using a modified internal combustion engines or used in fuel cells to generate power without emitting CO2.

This chart shows the different pump types based on specific applications

Solid Margin

On aspect that I forgot to mention is that for the pump business the aftersales are high margin in the range of 25-35% operating income. Since the Company has expanded its customer base and as now deployed 700k pumps deployed worldwide it is normal that the aftersales business increase over time and thus the operating margin. Although not disclosed, assuming a 30% operating margin on aftersales, 26% aftersales sales would provide a floor of 8% on operating margin. To achieve 17.5% overall, new sales must bring 12.5% of operating margin which is not the case for many peers.

The following figures shows the operating margin of 4 pump makers:

Ebara: mostly involve in the semiconductor has recently seen a boom in sales and margin rise to 12%.

Graco has very high margin currently at 27%.

Flowserve which is very dependant on oil and gaz has seen margin go back to 13.45% like before the crash in oil in 2013.

Peers

If you compare the 12x PE of Teikoku, with some other compounders in USA such as Flowserve and Graco, and a larger player in Japan like Ebara, these companies trades at twice or 2 and half times the PE ratio of Teikoku:

Flowserve 27x PE

Graco 25x PE

Ebara 30x

Also Teikoku is involved in many niches, so oil and gas is not a critical for Teikoku then for Flowserve or semiconductor for Ebara. Although smaller it is in some way more diversified. You could also look at the EV/EBIT ratio which would be quite attractive if you remove the 12B Yen of cash and add the 900m in depreciation on the numerical, but I prefer to stick to the classic PE ratio. Call me old fashion but a lot of investors are like me. We stick to PE.

Shareholders (updated july4th)

This is not a family led company. VARECS Partners a small boutique investment firm has disclosed last week that they have increased their ownership by a percentage point to 18%.

One shareholder being not satisfied with the current valuation, has asked the Company to start a strategic review. The management and the board rejected the proposal. But what is interesting is the back and forth argumentations. One argument is that the Company is currently aiming for a 70B sales goal by 2035 through the future expansion of the decarbonization market. I do like this grand ambition. As a counter argument, the shareholder is arguing that current factories are already operating at 80-90% capacity. As such a major plant expansion will be required which is costly. The Company has started to act to this effect and recently announce the purchase of a land to build a new plant by 2029.

The management do confirm that Teikoku has a dominant domestic market share in canned sealless pump with more than 60% domestically and 40% worldwide.

The high return ratio to shareholders - more than 100% in the last 3 years was raised as a strong argument in favor of shareholders by the management. I could not agree more.

I hope you found this useful. I will keep digging into these mission critical and specialized market.

Cheers and feel free to chip in in our common understanding in this highly specialized business

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Bombardier Q1 call

@Govro12 WinterGems Stocks — Fri, 01 May 2026 14:46:12 GMT

Bombardier has risen 17% yesterday following the Q1 results.. Here are my notes. After the big jump of both Google and Bombardier last 2 days, these 2 companies are back to over 50% of my portfolio.

Google is a Ultra-Wide Moat Company in Search

Bombardier is a Wide Moat Duopoly in business jets.

I am quite bulish on my other top 10 positions like D-Box, Adyen, eurokai, my 2 Japan micro/small cap Aero Edge and Okano Valve, but the overall performance is dictated by those 2 names..

Some notes on Bombardier Q1 call:

all figures are in USD but stock trade at roughly 285CAD

Very strong orders lead to 1.1B in cash advance

Strong performance in the quarter was driven by growth in customer advances of nearly $1.1 billion, reflecting both strong order activity as well as customer progress payments for orders, which were already in our backlog. This was partially offset by $670 million of inventory investments to support higher delivery activity in the second half of the year as well as a $126 million decrease in other liabilities, which includes incentive plan payments following a very strong 2025 financial performance. Other uses of cash in the quarter came from $33 million in CapEx spend and net cash interest of $74 million.

Finally, we achieved a unit book-to-bill of 3.6 in Q1, supported by broad-based demand and strong orders across all platforms. This level of backlog provides strong visibility for future financial performance, support margin durability and position us well for sustained growth.

Free cash flow machine!

We are increasing our full year 2026 free cash flow guidance. We now expect free cash flow of over $1 billion in '26, while reaffirming guidance on all other financial metrics.

Rising CAPEX level versus previous last few years..

Bombardier is building a new plant for the Challenger series

Looking at the second quarter specifically, we expect similar deliveries and profitability to last year as well as year-over-year improvement in free cash flow. Regarding CapEx, as we noted on our previous call, we plan to continue making incremental investments in 2026 across our product portfolio and facilities to support growth, while still expecting CapEx to remain close to the $300 million level.

Product sales a bit lower in Q1:

As Eric mentioned, we experienced a supplier snag, which affected our deliveries by a handful of aircraft, but which is now resolved. This was offset by a better performance in services and shows the benefit of our revenue diversification strategy, which helped mitigate the overall impact to our Q1 results.

And the quality snag we had, the issue we had in Q1 that prevented us of flying did not come from an engine. So it was another issue that we sort out. We're back and we're flying and those airplanes give us confidence that will happen in the remaining of the year. So we're catching up very nicely right now. So that's the thing.

Aircraft manufacturing and other revenues were $975 million, down $47 million year-over-year. Total deliveries in the quarter were 24 aircraft compared with 23 in the same period last year, with 2 additional medium aircraft and one fewer large aircraft.

On services:

Services business, this business continued to perform exceptionally well, with revenues up 25% year-over-year to $617 million, once again adding to its track record of consistent and robust growth. And we are well positioned for another strong year in aftermarket in 2026.

on deleveraging

Positive momentum has continued in April with S&P Global Ratings changing our outlook to positive on April 14. And we announced earlier this morning the early redemption of our CAD 150 million debenture, representing just under USD 110 million. When we put it all together, we will have repaid $860 million of debt by the end of Q2, resulting in annual interest savings of more than $52 million- thats 0.5$EPS USD in savings

On margin

Our gross margin was slightly higher than last year, seeing a 10-basis points improvement.

but spending more on SG&A on defense and future services…

Below gross margin, our spending to support future services and defense growth was up a bit, resulting in higher SG&A as a percentage of revenues and increased R&D spending. The resulting Q1 margin decline was in line with our expectations entering the year, and we continue to expect full year margins to be similar to last year. Adjusted EBITDA for the quarter was $246 million compared to $248 million in the first quarter of '25. Adjusted EBITDA margin was 15.4%, down about 90 basis points year-over-year.

Very strong underlying demand in terms of flying hours

And the other thing also is despite everything going on right now, the war with Iran and Ukraine, we see still growth in flying hours, which, again, for us, fleet is growing, the hours are growing. I don’t know, I was just looking at the number. We’ve seen on our platform, if you think of the Global Q1-over-Q1, 8% more flying hours since last year, 6% more flying hours on the Challenger.

On defense

We are building a good backlog right now. Last year, we're at about $1.5 billion on defense. We are expecting similar, if not better this year. So we had no deliveries in the first quarter, but the deliveries are coming, starting soon, and we're very enthusiastic about the defense business.

And if you look at the opportunity, you've heard about NATO looking at AWACS last week. We're partnering with both Saab and L3Harris on the AEW&C aircraft solution. Both are on the Global 5500. So some of them are waiting on some decision, but things are really looking promising in that field.

Global 8000 is replacing the Global 7500

Yes. So no, it’s completely done. Since January 1, we are only delivering Global 8000. So it went very smooth. As you know, we certified the plane in Canada first in the U.S. and in Europe, all according to our plan. So we produced the last 7500 last year. And it’s been a very, very smooth transition throughout the first quarter.

The other piece also where we have quite a bit of momentum is, as you know, we have a 200-plus installed base of 7500 flying out there. And the customer have the possibility to buy our service, Bolton in service to upgrade their 7500 to become an 8000. So a lot of customers have elected to do that, which preserve their value of the plane. So we have a lot going on at the service center right now in that regards. You’ve seen some announcement of fleet operator recently that did that. So we’re very enthusiastic about also that momentum.

On rising delivery rate

Yes. On the Challenger, we're building capacity right now. We've announced it in January, and that's progressing very well. We have had significant demand on the Challenger, long-term demand also, as you know with fleet operators. So we feel very confident because the fleet operator are all buying the 3500 these days, and that's visibility for us probably for the next 10 years. So that's helpful to make a decision that you want to make for the long run. So we're feeling pretty good about the Challenger piece.

Valuation

The Company is guiding to over 1B of Free cash flow even if they are increasing inventories and investing in a new plant for the Challenger series. I would guess that Free cash flow ends-up close to 1.2B so the company is trading at a FCF to EV of 5%. The stock trade at roughly 210USD and we can round up to the number of shares to 100m shares. So easy to calculate. Considering that the only reason for not increasing sales is the worldwide supplier and capacity constraints but eventually this will be figure out and we have strong visibility that sales (both product and services) will raise steadily over the next 5 years, we should see a steady rise in income over the next 5 years. Net Debt represents now a very small % of the Enterprise Value. They paid down 750m in the Quarter and might pay back a 700m Bonds due in 2029 later this year. M&A in Defense or Services is certainly in the horizon, now that debt repayment is less critical.

Feel free to ask any questions here or comments!

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Aeroedge

@Govro12 WinterGems Stocks — Sun, 15 Mar 2026 16:04:12 GMT

Published on December 28th 2025 as part of the Danger zone post which is now in archive. I Decided to extract the part related to Aeroedge since I have not seen much analysis covering this small cap stock. I am providing a quick update first:

The process of making Titanium Blades is requires 5 complex steps, which starts with using waterjet, high precision machining and grinding as shown here.

Since the December post, the stock has more than doubled. Goldman Sachs has recommended this stock in January and Aero Edge published fantastic results on February 13th - more on this later. The stock is now trading at roughly 50x earnings now. Still might be good to track this stock as this stock is very volatile and readers might have a chance to catch this one. This is currently my largest Japanese position helped by the sharp increase.

This year will be a transformative for Aeroedge.

It should become the second source of manufacturing titanium blades for another commercial engine OEM. Although not disclosed, we believe this is Pratt & Whitney and likely to become the second source for the PW1100G used in the Airbus 320neo. As discussed below, P&W is having issue of reliability on their titanium blades.
Aeroedge should start making components for the next generation fighter jet engine developed jointly for Japan, Italy and UK - Rolls Royce is involved.
AeroEdge will start processing internally the raw titanium received from generic suppliers instead of relying on processed titanium block received from Safran. Allowing Aero Edge to increase its share of the blade business. Aero Edge is currently constrained to 40% due to intrants limitation from Safran.

AeroEdge published impressive results on February 13th 2026 as some of the program mentioned previously has started to ramp-up. We are still in early stage of those. Revenue increase 46% and and profits roughly 2.5x. Assuming similar results in the second half, the company could earn 90yen EPS. So close to 50x earnings. We are in exponential growth territory here, so very difficult to project earnings in 3 years from now.

Related to item 3, This is what the company had to say:

While demand for titanium-aluminum blades has expanded in this way, the supply of materials for titanium-aluminum blades has been dependent on only one European company, and this dependence has become a business risk. As a countermeasure to this risk, our company has been working for several years to develop new materials with the aim of building a vertically integrated system that handles everything from material supply to processing and to expand profits. As a result, we have made progress toward mass production of the new material and have concluded an agreement with SAFRAN of France regarding the supply of the new material and the expansion of market share. Mass production and supply of the new material will begin in stages from the next fiscal year, and from 2028, our market share is expected to expand from the current 40% to the high 40s. To address these issues, we are proceeding with preparations for mass production, including the construction of a laboratory building for new materials on newly acquired land. In conjunction with this, we are also working on the progress of mass production development

So expect in 2027 and 2028 to increase its shares of the LPT blades from 40% to high 40% and a higher share of the value (operating income margin).

Regarding item 1 and 2:

Regarding our efforts toward new mass production projects, we are simultaneously working on the mass production launch of two aircraft engine components, distinct from the LEAP engine, at our new factory, which was completed in 2024, and are proceeding with preparations for the start of mass production from the second half of this fiscal year.

So expect more revenue growth in second half once the mass production starts. They already got some revenue in this quarter making some samples for certification and testing I suspect.

Original Post published in December 29th as part of the Danger Zone post

AeroEdge

Aeroedge makes titanium aluminide blades for the LEAP aircraft engine, the Low Pressure blades at the rear of the engine as shown below. The exhaust gas, after passing through the high-pressure turbine, still has significant energy. The LPT blades spin as this gas flows over them, converting that thermal energy into mechanical energy. These blades made of titanium aluminide are very complex to manufacture, but are 50% lighter than traditional blades used (made of Nickel).

Correction from original post: The LPT blades are under the responsibility of Safran in the CFM partnership of the LEAP engine. GE makes the high pressure part. So AeroEdge is the secondary source for supplying LPT blades for Safran. My understanding is that Safran is manufacturing around 60% portion of the LPT blades inhouse. In my original piece, I mentioned that a GE subsidiary Avio Aero was also making LPT blades. This is correct but for another GE engine, not the LEAP. GE makes the HPT blades using a 3d printing techniques with titanium powder inhouse. This process using 3d printing for Titanium can be very tricky. P&W is having issuee with its own manufacturing of titanium blades with 3d printing. P&W numerous recalls on the PW1100G used in the Airbus 320 NEO - and the main headache of Airbus production ramp-up is due to contamination of the titanium powder used in titanium blades. Something related to the oxyde level.

In a away, AeroEdge could become Airbus most important supplier indirectly. Solving the P&W issue and helping Safran in ramping up the LEAP.

The LEAP engine populates 60% of the Airbus 320Neo and 100% of the Boeing 737Max. These 2 planes represent the vast majority (80% in the case of Airbus) of the total commercial airplane deliveries of Airbus and Boeing. The LEAP engine are manufactured by a joint venture of Safran and GE called CFM International (50% split).

Both the Airbus 320Neo and Boeing 737Max is extremely popular with backlog of more than 12 years ahead. However, both Airbus and Boeing are struggling to increase delivery rates. Boeing is also facing some serious reliability issues so FAA is limiting the number of delivery per month. The increase in rate for Airbus has been slow but more progressive. It should get to 75 monthly planes in 2027. Boeing should reach 430 planes in 2025 (36 planes per month) and 50 planes in 2026. The impact of Boeing production ramp-up is more significative for the LEAP engine since 100% of the aircraft use the LEAP engine.

Furthermore, the company has signed a contract with a major engine maker to supply a key component. It could by Pratt and Whitney which also uses titanium aluminide blades for its PW1100g engine used in the Airbus 320Neo. Just speculating. The production of this new contract will start in 2026.

Finally, AeroEdge has internalize the production of the Titanium Aluminide raw material and will start using this raw material instead of relying on Safran.

So we have strong visibility for future profitable growth and as such the current EV/EBIT of 31 is justified and with a PEG of less than 1, we will slowly increasing on weakness. Adding

End of Original Post published in December 29th as part of the Danger Zone post

Feel free to post any questions or comments

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Part2: Industry Research on Video Games in Japan : SONY

@Govro12 WinterGems Stocks — Thu, 12 Mar 2026 21:31:27 GMT

Summary: Both Sony Games and Sony Music have higher sales and higher operating income than their peers Nintendo and Universal Music respectively. This was not the case a few years back, but the mainstream narrative that Nintendo and Universal Music are superior business hasn’t change and the investment community still views Nintendo and UMG as the leaders and the most valuable assets in their respective industry. Nintendo is worth 60 billion USD in enterprise value and 72 billion USD in market value alone. Universal Music is currently at a enterprise value of 41 billion USD - although was trading at a much higher price not long ago. Sony Music is trending to earn 45% more in operating income than UMG based of fiscal 2025 ending March 2026. On the same ratio, Sony Music could trade at 60 billion USD. Sony as a whole trade at 130 billion USD. Sony has 3 other business, including a dominant position in image sensor which should generate 350 billion yen or 2.3 billion USD in current fiscal year. Last year, the image sensor division earned 260 billion yen so operating income has increased by 34%. Such a business should probably trade at more than 20x operating income or 50 billion USD. These 3 business alone are worth (65+60+50) 175 billion USD. Add Sony Pictures (20 billion USD( and Sony Entertainment (10 billion USD) and we are at 205 billion USD. So the market value of these 5 entities could be valued at roughly 50% higher than current market value. Sony has generated 10 billion USD in the last 12 month and is net cash. Since its 3 main segments should be valued at 20x operating income - as a whole Sony should be trading at 20x operating income in my opinion.

ME with my favorite orange jeans casually chating with Tom Holland on the reason why Sony is trading at such a discount!

Spider man movie rights are the most important IP for Sony Pictures. New Spider Man movie will come out on July 31st.

Part 1 ReCap

Before we start the analysis on Sony, lets go over again over the summary table of the 5 companies we have introduced in Part 1 of the Industry research on video games in Japan.

In Part 1, we have focused on the console wars, and concluded that Sony PS5 is winning in terms of performance, unit sold and critically software attach rate. X-Box has become a marginal console in this cycle with only 2m units sold in 2025. Nintendo had a very good start and sold 17.3m units in 2025. PS5 - a 5 year old console has sold 17.2m units to reach 92m units since launch.

We are forecasting that due to the underwhelming performance in CPU and GPU of the Switch 2 compared to PS5, Nintendo 3rd party revenue from the Switch 2 will still be limited in this cycle as the previous one. Furthermore, the capability to sell AAA 3rd party titles on the Switch 2 will be significantly limited after 2026-2027 timeframe. In 2028, hardware requirements for AAA titles will increase significantly after the likely launch of the PS6 in 2027.

We then turned our focus on Capcom and we were impressed by the results growth since 2015:

Unit sales has quadrupled (4X) since 2015 from 13m units to 54m units projected.
Sales has tripled (3X)
Operating income has multiplied by seven (7X) .

Capcom is one the most consisting and steady grower in the industry. A large portion of the sales is related to catalog sales so it is not as hit driven. It has 3 major franchises: Resident Evil, Monster Hunters and Street Fighter. Last week, Capcom released Resident Evil 9, which has sold 5 million units in just 3 days, its fastest release to reach 5 million copies. Game reviews are almost perfect. This bodes well for fiscal 2026 and fiscal 2027. RE9 will be very significant for this mid cap company. The stock did go up 10% on the news up from when we published 2 weeks ago but still trade at a reasonable 18x EV/EBIT.

Nintendo raised almost 15% since our post. It is trading at a more fairly valued 25x EV/EBIT.

Sony has been down a few % since our post and is trading at the cheapest ratio of the list. Lets move to Sony and look at the Sony Game and Network Service first:

Sony Game and Network Services

The IP

God of War is one of the most important IP for Sony video game. Some of the games released over the last 3 consoles shown below:

Although not owned by Sony, Spider man developed by internally owned Insomniac studio is the most popular game developed by Sony for the PS5. This is a critical IP for PS5. Gran Turismo is a very consistent IP for Sony have generated 90m units over its history. The last of US and Uncharted developed by naughty dogs (acquired in 2001) have both generated 40m units each.

Since the release of the PS5, in November 2020, the Revenue of the Sony G&NS division has more than doubled. Sales shown are in million yen.

The early years of a new platform often leads to negative earnings, as hardware platform in the early cycle are sold at lost, but not this time:

Fiscal 2020 was the worst year in their console cycle - it is the year where gamers basically stop making purchase of the old console and where both developers and gamers refrain from releasing/ buying games. From 2021 to 2024, the operating income of Sony was impacted by selling a large amount of consoles at loss and a limited amount of PS5 active. Sony gets a 30% cut from game sold on the PS5. Sony does not disclose its operating income/loss separately related to hardware.

However, the slide below part of the Q3 2025 presentation clearly state the losses from hardware was smaller YoY, so hardware is still sold at a loss even in 2025.

The gaming division is currently projecting to make 510 billion yen or 3.24 billion USD in operating income in fiscal 2025 (ending March 2026), or more than double the operating income it made in 2020, and 65% more than in 2019 in the later part of the previous console cycle (PS4).

I have captured the sales split of the gaming console business since 2019.

As shown below, higher margins sales related to digital software and network services had plateaued in 2021-2023, after a jump from 2020, but then have climbed fast in fiscal 2024 and fiscal 2025, thus the significant rise in operating income.

In contrast, hardware sales with negative operating margin, which have risen since the launch in fiscal 2021, has more of less plateaued since 2023.

The chart shows the number of PS5 sold since fiscal 2021.

9months fiscal 2026 sales as shown below is following the same trend with high single digit growth in digital software, low double digit growth in Network Services and and mid to high single digit decline in hardware sales.

To sum up, as I mentioned in the previous post, PS5 has won the 3rd party AAA game console wars and is reaping the benefits. The Switch 2 released last year, is already CPU constrained for high end game released this year and must be downframed at 30FPS to make it playable. Furthermore, complex open world game like GTA6 will not be supported by the brand new Switch 2 due to CPU limitation. X-Box will likely release the Xbox Helix when PlayStation 6 will be released in 2027 at a much higher price than PS6. There is a high likelyhood that the next console market will be dominated by PS6 again.

Sony must be doing something right since the latest 2 consoles have generated significantly more income than its previous iterations:

This slide was published last year, so it does not take into account the current fiscal year, so considering 2025, PS5 has already generated 16.3B of operating income, and by the time PS6 is out, will probably generate around 23-24B of income, assuming 7B of operating income for 2026 and 2027 in total. This cycle will thus generate almost 3 times what PS4 has generated, which was the best console in terms of operating income before.

Nintendo historical results comparison

The following chart captures sales from Sony and Nintendo since 2019. Sony seems to be on a much higher growth trajectory than Nintendo since the launch of the PS5. It will be interesting to see how sales will translate on a going forward for 2027 and beyond.

If we look at the operating income, Nintendo was generating a lot more income since the launch of PS5 in 2020 until fiscal 2024. The reasons were explained in the previous section. Note that in 2019, both company were generating the same level of income.

If we compare the console market in terms of users, Sony has stated in the latest quarter that it has 132m monthly users. In contrast, Nintendo do not publish monthly users, only yearly users, ie users that have used a Nintendo software on the Switch (or Switch2) in the last 12 month and was connected to the internet. The Annual Playing Users is currently at 128m and to convert to monthly users, some estimates considers using a 70% factor, leading to around 90m users. Thus, Sony monthly users is about 46% higher than Nintendo.

If we look at the 8 year Switch 1 console cycle - the total amount of operating income achieved by Nintendo is 23.4B. So, Nintendo thanks to its very strong IP has generated about the same income for the Switch 1 than Sony is projected for the PS5 cycle.

As I discussed in the latest post, the GTA6 effect will be a big push towards the PS5 in the later part of this year. The GTA has a huge pent-up demand, and will be running only on PS5 and Xbox at launch. Hardcore PC gamer may not want to wait 1 year plus and may buy a PS5 or PS5Pro. Xbox being marginalized - with only 2m unit shipped in 2025 - most of sales will be on PS5. It is expected that 40m copies of GTA6 will be sold in the first year. The Switch 2 will not be able to support GTA6. PC support will come later, a year or 2 later. Expect close to a Billion USD in operating profit for Sony to come from this game alone over the fiscal 2027 and fiscal 2028 based on a 30% cut.

In summary,

Switch 1 and PS5 will generate about the same operating income for Nintendo and Sony respectively (about 23-24B).
PS5 will have a very strong end of cycle due the GTA6 effect.
Switch 2 had a good start and sales will be mostly driven by first party release as in the previous cycle. 3rd party sales will remain marginal especially when PS6 will come out.
I suspect that PS6 and Switch 2 will earn similar operating income like in the previous cycle but likely higher. Conservative estimates for Switch 2 is around 30 billion USD to 40 billion USD for the full cycle - ending 2034. I suspect PS6 will earn similar level.

As such, I would make the case that Sony game market value should be similar to Nintendo or about 65 billion USD. Considering that Nintendo is viewed as currently undervalued versus historical average, that market value for Sony Games could also be considered undervalued.

Now lets turn to Sony Music:

Sony Music

Sony Music has acquired over the past 40 years, some of the largest music labels.

Columbia Records (1988)

Contemporary: Beyoncé, Adele, Harry Styles, Miley Cyrus, Lil Nas X, and Rosalía.
Catalog : Bruce Springsteen, Bob Dylan, Celine Dion, AC/DC, Billy Joel, and Johnny Cash.

RCA Records (2004)

Contemporary: SZA, Doja Cat, Tate McRae, P!nk, Shakira, Justin Timberlake, Alicia Keys, and A$AP Rocky.
Catalog: Elvis Presley, Whitney Houston, and David Bowie.

Epic Records

Contemporary : Travis Scott, Future, 21 Savage, Tyla, and Meghan Trainor.
Catalog: Michael Jackson, Ozzy Osbourne, and Sade.

The Orchard (Distribution)

Music distribution company that provides services to independent labels. Through this arm, Sony handles the global distribution for Bad Bunny.

Sony Publishing is the largest publisher in the world since the EMI merger:

Catalog: Queen, Carole King, Pink Floyd, and the legendary Motown catalog (Stevie Wonder, Marvin Gaye, The Supremes).
Contemporary: Kanye West, Pharrell Williams, Drake, P!nk, Calvin Harris, Sia, and Alicia Keys.

Publishing only gets 15% of the streaming revenue, versus 50-55% for the recording label.

Recording music represents 350 billion yen of sales versus 108 billion yen for Publishing in the latest quarter.

The following shows Sony Music sales since 2019. 2026 is based on the forecast for the year ending March 2026.

Sales have grown strongly about 2.5x since 2019 for a CAGR of 14%.

Operating income did grow even faster (3.4x) as operating margin increased by 400BP resulting in a CAGR of 19.4%. Operating income and sales have been accelerating in recent years. Now, operating income represents 2.8 billion USD.

Such a high growth business and a light business company should be worth at least 20x operating income or 60 billion USD at a minimum.

Comparison with Universal Music

The mainstream narrative is that Universal Music Group is the most valuable and important music label of the industry, but when I compare sales in the recent years, I find that Sony Music sales has surpassed Universal Music group this year. Please note that we compared Sony fiscal year ending March 2026 with UMG calendar year ending year 2025. Universal sales has been growing much slower in the past several years - CAGR of 5.6% versus Sony Music 14%.

Sony is generating significantly more operating income about 45%.

As I mention before, Sony with operating income of 2.8 billion USD should be worth a range of 60 billion to 70 billion USD considering recent growth (19% CAGR on operating income) and the business light model. This is truly a gem in the Sony empire.

Imaging & Sensing Solutions

Sales increase in 2025 is due to the continued trend toward larger size, higher image quality and higher performance image sensors for mobile products, primarily in high-end smartphones, and the resolution of the manufacturing yield issues that began in the fiscal year ended March 31, 2024, which led to both sales and operating income reaching record highs.

Sony has a dominating market share of the image sensors business with 57% market share versus 53% a few years back. Sony is the exclusive image sensor provider for Apple. It is aiming for 60% market share. Image sensors are used in smartphone (largest market), but critical emerging markets in cars, robots and drones.

Sales in this segment has more than doubled since since 2021.

Operating income has grown steadily. Operating income margin is projected to reach 16%, up from 14-15% level in previous year. At 2.3 billion USD, operating income growing quickly with a dominant market share of 53% - Samsung is #2 - and new business segments in car, drones and robots, this business is worth more than 20x operating income. or about 50B in my opinion.

Latest Q3 updates

Sony released on Feb. 6th their latest forecast for fiscal 2025. Sony is projecting to achieve an operating income of 1540 billion yen for fiscal 2025 or 10 billion USD, which represent a 20% increase over fiscal 2024. The majority of the increase is coming from Sony Game and Sonic Music.

Shareholder yields

Shareholder yields is define by the sum of buybacks, dividends and paying back debt.

Sony has bought back around 1.5% of shares per year in the last 2 years, and is planning to buyback another 90m shares in the first 5 months of this year. 25m shares was bought just in the last month.

The Sony Financial spin off has also significantly clean up the balance sheet resulting in a sharp drop in net long term debt by 20 billion USD in the last 12 month. Sony still owns 16% of Sony Financial and could sell more shares of Sony Financial to buy back more shares.

Sony also pays 22.5 yen per share in dividends or about 0.5% yield.

Historical valuation

Sony is currently trading at a significant discount to historical valuation - 12.5x EV/EBIT according to TIKR versus a mean of 16x.

Pros

Sony games business has seen a sharp increase in operating profit in the last 2 years (fiscal 2024 and fiscal 2025 ending March 2026), and should just accelerate in fiscal 2026 with some strong releases in 2026 including GTA6 release. At least for this cycle, the vast majority of AAA 3rd party consoles software sales ends up being PS5 Software Sales.

Sony balance sheet is now clean with no debt after the spin off of Sony Financial which should allow Sony to accelerate buybacks.

Sony Music has more sales in fiscal 2026 and has generated consistently higher operating income than Universal Music group in recent years. Currently projected to generate 40% to 45% more operating income than UMG in current fiscal year.

The image sensor business is dominant and operating income has accelerated in recent years at 20% CAGR.

Those 3 business Games, Music and image sensor represents 85% of the market value of Sony group, are dominant in their respective industry and are growing at double digits.

There are good synergies between Sony Music, Sony Pictures and Sony Gaming in terms of sharing IPs. There is some synergies between Sony entertainment and Sony Games (hardware).

Earnings over the next 2 years are expected to be considerably higher (GTA 6 effect on Sony Games, continued strength for Sony Music and Image sensor).

Currently trading at only 13x EV/EBIT, lower than historical average.

Cons

Sony entertainment is operating in a very competitive environment - consumer electronics.

There is little synergies between Sony Image sensor, a semiconductor pure play and the rest of the business.

Sony Games is cyclical - following a 8 year console cycle. Each console cycle can lead to market share gain or loss.

Earnings for fiscal 2028 and fiscal 2029 might be down due to the release of the PS6.

Memory price spike could lead to more operating losses from hardware than projected.

The USA is the most important market and tariff is causing a headwind to consumer electronics and hardware sales. Sony Music, Sony Pictures and SW sales are immune to tariff.

Sony management does not have skin in the game, and is not lead by a founder. We prefer founder led company or family own business.

The image sensor business is capex intensive although Sony has recently made a deal with TSMC.

It is currently plan to cover Bandai Namco and Square Enix in the next post.

All posts will remain public for a two-month window before moving to the archive. This provides ample time for our community to read and discuss the analysis while the thesis is fresh.

However, my research is proprietary. By limiting long-term public access, I am taking necessary steps to protect the content. I write for individual investors—not to provide free data for search engine scrapers, AI training models, or institutional funds.

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Bombardier - What a ride!

@Govro12 WinterGems Stocks — Sun, 22 Feb 2026 06:50:15 GMT

I am writing this down on a quiet Saturday night while getting over a cold for too many days that I got from running too often in the wet snow… But the latest result from Bombardier, the latest SCOTUS decision on IEEPA followed by the section 122 tariff counterattack was too good to pass. I am writing this in one shot without thinking too much solely based on my recollection, no fact checked take this with a grain of salt and enjoy my rumblings...

Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provied here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsible for their own investment decisions.

The Global 8000 was certified in December by FAA - The fastest and arguably the best private jet in the world

Tariff and the particular case of Aerospace

On March 4th 2025, Bombardier had a major drawdown (starting a few weeks before) and was trading at 78CAD on the threat of a 25% tariff from Trump to be imposed to Canada under the now illegal IEEPA tariff due to the fentanyl crisis!

USA is by far the largest market of private jets in the world and as such those now illegal tariff would have significantly impacted the Company - thus the drawdown.

That day and a few days afterwards, I put 10% of my portfolio on this stock on the belief that the tightly interconnected and critical aerospace industry will be eventually protected from these tariffs ! I actually swap Amazon for Bombardier on March 4th… got to sell something… Amazon did nothing since then so at least no regret.

The rationale behind my thinking that aerospace would be protected is still valid and you can have a look on the March4th 2025 post:

One area which I did not see coming is that under section 232, a 50% tariff will be imposed on Aluminum. I thought that Aluminum being so critical for USA manufacturers that this commodity would be preserved from section 232 tariff. This is plain stupid from the USA executives branch. Since the USA has limited domestic Aluminum producing capacity, USA manufacturers must pay their Aluminum 50% higher than the rest of the World - one of key reason that manufacturing jobs have actually decline in USA since the tariff war in my opinion. Quebec still provides the majority of the Aluminum to the USA and the tariff is just passed along to the consumers. This means that Gulfstream and Boeing need to pay up for that critical material while Bombardier or Airbus can avoid the 50% tariff for delivery outside the USA. For USA, my understanding it that the value in Aluminum on the plane must be tariffed by 50% since August 2025. This enhances Bombardier position relative to Gulfstream for sales in RoW.

I was right however that all aerospace components and planes build in Canada or Mexico would eventually be tariff free - except for the Aluminum content. Now that the IEEPA tariff is deem illegal by the Supreme Court, we need to turn to the brand new section 122 global tariff. You have to give credit to Trump’s minions… they do come up with creative - often on shaky ground - mechanism to come up with new tariff. Since section 122 was created to mitigate a situation of fundamental international payments problems which is likely not applicable to our current situation but hey ! This tariff will be dead in 150 days and congress nor the Senate will vote to renew it so who cares.

In any case, the brand new 15% global tariff under section 122 do contain a special protection related to the aerospace industry which are exempted and confirm my case that aerospace will be exempted from a tariff war in general. It also confirms that goods under USMCA are also exempted. So Bombardier is dual protected here for now…

As a sidenote, Canada is also the largest exporter to USA of energy products, fertilizer and gold bullions, so with aerospace, even if USMCA was not renewed, a very large portion of Canadian goods would be exempted anyway. Note that beef is also exempted, Trump was complaining that Canada is not selling enough beef to them… In fact, my gut feeling is the list of goods provided here is a wish list of product that the current administration wants in priority to be tariff exempt whatever happen to USMCA. Now it does say certain aerospace product, so there is a risk that private jets are not covered here. But again the administration wants to make sure no tariff war on aerospace happen so that aircraft engine from GE, P&W, aircraft and copters from Boeing and Textron enjoy a free trade. Textron makes most of the civil helicopter in Montreal.

The USMCA negotiation and aerospace product

USMCA is due for renewal on July 2026. The statu quo is not acceptable for Canada. For sure, Canada will request that Aluminum, copper, Steel, Lumber, cars will be covered by USMCA and thus exempt from any section 232 tariff. What is the point of signing a free trade agreement if those key products are outside of the USMCA. But Trump is obsessed with making steel and trucks domestically. A deal is very unlikely in the short term and negotiation will stall in my opinion. So there are 3 scenarios for USMCA in front of us:

Negotiation breaks down and Trump makes a big show and decides to officially retire from the USMCA. Congress will have to ratify this like they did on December 2019. After some time Congress decides not to ratify the retirement from the USMCA and the current USMCA remains in place with all the section 232 tariff. Bombardier is protected.
Negotiation breaks down and Trump makes a big show and decides to retire from the USMCA. Congress ratifies this - very unlikely - tariff on Canada is very unpopular. Maybe a lame duck Congress in December after mid terms would go for that. So we fall back to the section 122 exemptions including aerospace exemptions and all the products that USA really wants from Canada (energy, gold bullion, fertilizers, beef! ). There is a risk that private jets are not covered by this exemptions. Will know more about that over the next few weeks, when private jets or commercial plane from Airbus from France or Brazil will be delivered soon under the section 122.
Canada and USA agrees on a new USMCA whatever it is but for sure aerospace is included here. Bombardier is protected.

In conclusion, we have 12 months of tariff free in front of us and some risk if private jets is not covered by the aerospace exemption of section 122, for the very unlikely scenario that Congress ratifies Trump decision to retire from the USMCA. There is currently a 85% chance that after midterms the democrats take controls of Congress so even scenario 2 might be reversed or USMCA gets approved after midterms or even better that the president get impeached. The senate does not need to be controlled by the democrats to be trade friendly or tariff adverse.

Bombardier stock price action

Since the big March 4th drawdown, Bombardier had a hell of a run - a 3 bagger in 11 month.

Bombardier kept hitting on all cylinders - record booking, paying down debt, Global 8000 certified on time, record free cash flow of more than $1 billion, and adjusted EPS up 50%. Executive Management has executed perfectly on this turnaround all hands on deck. At the same time the tariff risk became non existent as the (now illegal!) 25% IEEPA tariff impacted only marginally Canadian exports - as only goods not compliant to USMCA were subjected to the 25% tariff.

I still own the vast majority of the shares I bought at the time, and I feel perfectly comfortable to own that level of concentration even though Bombardier now represents 27% of my portfolio. Trade carefully this is not a recommendation do your own research…

2025 Results

I read very carefully the latest annual report and I wanted to share a few aspects that I think is worth discussing.

“The results of our historical 5-year turnaround have drawn global attention and external recognition. I’m proud to note that our story is now the focus of two major case studies, at Harvard Business School and Columbia University.”

The following five-year summary demonstrates the radical turnaround that occurred in 5 years. If you look at the top line, since 2021, the CAGR was 12%. However adjusted EBIT margin went from a very low 3.6% and has climbed steadily to 11.5%.

I prefer to use adjusted EBIT or adjusted net income, since net income includes gains or loss related to derivatives related to call options on long-term debt or losses related to the partial repayment of certain Senior Note.

Charting the adjusted EPS for the last 5 years, you can visualize how steep and steady the EPS has improved. If we simply follow the trend, an EPS ranging from 10 to 11 USD should be probable for 2026. Those figures are in USD while Bombardier is trading in Canadian dollar. At 276 CAD, you can convert Bombardier price to 200 USD. So Bombardier is trading at 20x forward earnings based on the current trend.

Services revenue was a record of $2.3 billion for the year, which represents a growth of 13% compared to 2024. Service revenue has better margin than the private jets sales. Services revenue was only $1.2 billion in 2021, so it almost doubled in 4 years.

The following 5 year liquidity table is impressive. In 2021, Cash flow was negative 289m (including discontinued operation) and became 1225m in positive cash flow in 2025. Free cash flow was 1072m. Long term debt was reduced by 2.5B while net cash subtracting the current portion of long term debt was stable.

Aircraft deliveries is up sharply in 2025 from 146 to 157 aircrafts. In 2021, Bombardier had delivered only 120 aircraft. The order backlog is up also significantly by $3.1 billion.

This table shows the sales split by countries or continent.

On the plus side, the largest increases were in Canada, Turkey, Singapore, Africa, South America, Sweden (likely Globaleye related) and Central America.

USA did go down, as well as Germany, UK, Switzerland and Portugal. Interesting that Bombardier has no sales in France, probably due to French domestic competition from Dassault.

Canada’s Defence Industrial Strategy

Canada has published this week the Defence Industrial Strategy. The strategy has identified key sovereign capabilities. The following is an initial list of the sovereign capabilities for which the new DIA will be prioritizing build-in-Canada. Going forward, the Government’s designation of sovereign capabilities will not be static; it will evolve with the threat landscape, capability needs, technological change, and domestic industrial capacity.

Bombardier, as the leading (and only aircraft manufacturer in Canada) with leading edge design aerospace knowhow - they make the best wings in the industry - will play a central role in building in Canada a military aerospace platform (item 1) and likely - an uncrewed and Autonomous aerial systems (item 10). Bombardier will play a critical role in the domestic military development in Canada. I suspect Bombarder and SAAB will coordinate closely in making in Canada a substantial fleet of Gripen and possibly collaborate on a uncrewed and autonomous Aerial System. The modification of the Global 6500 to the Globaleye might also be done in collaboration.

There is a lot of upside here.

EPS growth

Bombardier is on a mission to reduce LT debt - after announcing to have paid back on Feb17th 500 000 000 USD on the 2028 Bond, they have announced 2 days later to that they will pay next month 250 000 000 USD to repay totally the 2028 BOND.

Here is the debt maturity of the Company Bonds. The last tranche of 2028 Bond will be paid next month. There is thus no bond due until 2029.

This should be acreditive to the net income for 45m annually or about 0.45USD on earnings in 2026… roughly. If Bombardier would repay its debt completely over the next 5 years as it could, they will save roughly 400m USD in interest of 4USD in EPS. This is a possible scenario in a low double digit growth scenario. Bombardier dont pay tax due to large accumulated loss.. 4USD is 5.50 CAD at current rate so Bombardier adjusted EPS would go from 10.57CAD today to 16CAD or 52% higher just by repaying debt.

I am modelling at least 10% sales growth and operating margin expansion on the business jet. This justified the current 25x PE of this duopoly or 20x PE on forward earnings in 2026. More on this later. In my opinion, adjusted PE (removing financing charge or gain from hedging, derivatives etc..) is the best metric to evaluate the company. Free cash flow is misleading since it depends or fluctuates based on orders - advanced payment.

Another scenario, is that the defence business accelerate, and Bombardier invest more of its cash flow into strategic defence opportunity or bolt-on defense acquisition with a steeper growth. In that scenario, debt is repaid more slowly, interest rate does not go down as quickly but the Defence business brings more growth and more organic earnings.

In the conservative scenario - limited growth in Defense, starting from a 10.50 CAD EPS

+50% due to sales growth or +5.25 CAD. So 15.75 CAD EPS in Year 5 due to sales growth.
Maintaining a +0.8% EBIT margin improvement per year or 400BP in Year 5. (based on historical trend of 2023 to 2025) so an improvement of 37% from current 11.5%. This would bring EPS to 20 CAD EPS.
+5.50 due interest expense reduction. Lets round this down to 25 CAD EPS. At 20x earnings we could get to 500 CAD or higher.

In the fast Defence expansion scenario, the interest expense reduction would be tone down to maybe 2$ EPS - less than half of debt repaid - as 3 billions would be invested in Defence investment. But after 5 years, these Defence investment will bring its share of profits. The strategic defence investment might bring some valuation premium - SAAB is trading at 50x earnings. So in this scenario, Bombardier might trade even higher than in the conservative scenario.

In any case it will be fun to watch..

Trade carefully and do your own due diligence

Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provied here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsible for their own investment decisions.

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Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provied here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsible for their own investment decisions.

Industry research on video games in Japan

@Govro12 WinterGems Stocks — Wed, 18 Feb 2026 15:07:33 GMT

Intro: Part 1 of video games Made in Japan will provide some KPIs for 5 companies in the video game industry, my perspective on the console wars, an analysis on Capcom and a review of Nintendo recent earnings. Subsequent post will cover a bit more Nintendo, plus Sony, Bandai Namco and Square Enix. The Japan video game industry is a fertile ground and have solid compounders currently trading at historical lows so it is a good spot to do some hunting right now.

Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provied here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsible for their own investment decisions.

Wintergems Mutations

Starting now, Wintergems is becoming an independent investment blog focused on industry-level deep dives. The current post will cover the video game sector made in Japan. This will be a multi-part industry deep dive.

Moving to industry-wide research in fertile ground allows to understand the battlefield before picking one or more soldiers. This approach enables broader commentaries on sectors and countries, while granting me the freedom to highlight specific, high-conviction data points without the fluff of a general company overview. This is also aligned with my industry centric investment philosophy. I invest in a handful of industries and pick the best companies if trading at an attractive price.

Consequently, I am moving away from the traditional single-stock pitch. It is a crowded space which often leads to unidimensional views. In my experience, the standard investment thesis pitch often reduces complex analysis to a binary ‘buy or sell’ decision, stifling the deeper discussion and reflection that actually drives long-term returns.

I am also discontinuing public portfolio updates and performance rankings. Portfolio construction is deeply personal and implies a specific risk tolerance that may not match yours. I want to avoid encouraging a ‘copycat’ mentality, which I believe is one of the most dangerous traps for an individual investor.

Going forward, all posts will remain public for a two-month window before moving to the archive. This provides ample time for our community to read and discuss the analysis while the thesis is fresh.

🇯🇵 Japan 🇯🇵

A classic live album in the seventies is Deep Purple Made in Japan which was recorded in 1972 in Osaka. This is the inspiration of doing a special Video games Made in Japan! Hoping to clear somewhat the smoke over the video game industry in a foreign country…

Japan has been a major fishing pond for me for years. Its not easy, small cap often only publishes result in Japanese and the culture is so different. Its been 12 years since I purchased my first shares of Shimano and Fanuq and some net net. I am starting to get some good traction. It takes some time, patience and curiosity.

The JPX-Nikkei 400 had a good year in 2025, having return 24.48% which is beater than the S&P500.

Japan Video Game Sector

The Japan video game industry is a fertile ground and have solid compounders currently trading at historical lows so it is a good spot to do some hunting right now. The two most important video game platforms are developed in Japan: Sony and Nintendo.

The following table covers solid compounders operating in the video game sector.

The table is is not exhaustive, but has been filtered based on having sales CAGR growth of at least 10% (or close to) since 2019 and sustainable or improving operating margin. If I miss one please provide a comment and I may add it in my analysis

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price based on Feb12th 2026

Looking quickly at the table, those companies not only have good growth, but are trading at a reasonable EV/EBIT mostly in the mid teens. They all have a good cushion of cash with no debt.

Square Enix with only 1.2% CAGR growth since 2019 does not satisfy the requirements. However, Square Enix has historically been growing steadily since 2011 - 125m yen sales in 2011 versus 291m yen sales in the latest 12mo. So only recently did sales stalled. Square Enix is going through a major restructuring and so I thought it would be interesting to investigate this one as stock as come down quite a bit. It also owns one of the best video game franchise - Final Fantasy so worth a look. This could be a turnaround story.

Console Wars

The Switch2 has finally been released in June 2025 so we can compare the technical specs and performance of the 3 major consoles:

In summary, the biggest gap between Switch 2 and PS5/Xbox is the CPU. Thus most "Next-Gen" ports on Switch 2 are locked to 30 FPS, whereas PS5/Xbox versions often offer a 60 FPS performance mode.

Very demanding game like the future GTA6 or Borderland4 may not be released on the Switch2. Cyberpunk 2077, a very demanding game, runs on the Switch2 but was framed down to 30FPS.

In terms of market share, the following table provides a nice comparison:

Clearly, PS5 has the largest installed based with 92m. The Switch2 had a exceptional start with 17.3m units sold in 7 months. PS5 almost outsold the Switch2 in 2025 although being 5 year old. XBOX unit sold in 2025 was abysmal with 2.3m.

Another important KPI is the tie ratio. PS5 has an excellent tie ratio of 17.1 title sold per PS5 sold. So the 92m user base is very active. Nintendo had an expected tie ratio of 2.2 in less than 7 months. Xbox has a much lower tie ratio of 10.2 but a large portion of users have subscribed to the gamepass giving them access to a large set of games ( a la Netflix) via the gamepass.

In my opinion, The Switch2 being CPU and GPU limited and FPS constrained and more expansive than the 5 year old PS5) will likely not attract active gamers. Sony will continue to extend its lead to what is expected to be a very long console cycle. No new platform is expected to launch before 2029 due to the cost of memory due to AI. There is no competitive pressure from XBOX this time as well, as XBOX as become a marginal player. Only dire hard Nintendo fan - and they are numerous - will decide to purchase the Switch2. The very high cost of a gamer PC due to the memory price, may actually force certain PC games to move to PS5 or PS5 Pro over the next few years.

On top of that, the most popular game franchise in history, GTA6 will come out in the end of 2026, with more than 45m game to be sold in the first year. Expect a big jump for Sony PS5 when the game comes out. That game will not be available on Nintendo due to CPU limitations. Also, since PS5 has outsold Xbox 7.5 time in 2025, most of the GTA6 effect will be felt on the Sony platform. We should expect less sales on the PC due to the prohibitive cost of a PC gamer due to the recent memory price jump.

So clearly Sony has won the console war, this decade. Nintendo, protected by its proprietary IP will be fine. I still think they should have at least match the 5 year old PS5 platform on the CPU performance to attract gamers and 3rd party software. XBox is now a marginal player so Sony will reap the benefit.

Capcom

If you refer back to the table, Capcom has produced the best CAGR 12% sales and has improved steadily the operating margin. If you look back the last 10 years it is also true based on steady revenue and operating income. Capcom is a mid-cap of 8.3B USD.

The following chart is an extract of the latest 2025 annual report (ending March 2025).

Capcom was able to increase operating income every year since 2014, which is unique in this hit driven industry. 2015 was an exception with no new release, but operating income was fine as 2015 only relied on catalog titles. I am particularly impressed by the steady increase in unit sales which has quadrupled since 2015 from 13m units to 54m units projected. From 2015 to projected 2026, sales has tripled, and operating income has multiplied by 7. The digital distribution is key for Capcom operating income as catalog price is in the 20—30 USD range. For fiscal 2026, the average sales per units comes down to 24 USD.

As shown below, the reason for the steady income is the strong share of the catalog titles of the overall sales. A title is considered a catalog title once sales occur after the fiscal year when the title was first release. It can be a bit misleading since if a title is released on February 27th, all sales coming after March 31st are considered catalog sales which happens just 1 month after the release.

Resident Evil

Resident Evil is the oldest franchise and 2nd most important franchise after Monster Hunter franchise. It is fully owned and developed internally by Capcom and has sold more than 183m units. There were 12 different titles, so each title has sold around 15m units each.

If you look at the latest sales of the past 9 months, I am making the case that the Resident Evil franchise shows up in 5 of the top 10 sales for around 8m units. And no game were released for this franchise in the latest fiscal year. Resident Evil 4 was released in 2023 and Resident Evil Village in 2021.

On February 27th, Requiem, the latest Resident Evil game will be released. So sales should be strong for the last quarter and for the next few quarters.

Monster Hunter Franchise

The most important franchise is the Monster Hunter series. Monster Hunter Rise in particular, released in 2021 has sold for more than 18m units. The Monster Hunter World title released in 2018 has sold even more to 28m units. Those two titles are the company biggest release.

Monster Hunter Wild released in early 2025, has been a instant hit - strong pent up demand - but was running on a new 3D engine - which was too demanding for the regular PC and even for the PS5. As such, similar to Cyberpunk 2077, a lot of players were disappointed by the poor performance of the game. A patch has been released in January 2026 to provide better performance, but it may have been too late. Likely a new scenario or release will be required to get players interested again on the game. Monster Hunter Wild will release on the Switch2 in March 2026.

Valuation

Recent AI fear related to the video game industry and disappointment on the Monster Hunter Wild reception have put the stock in the bargain bin.

In the past 5 years, Capcom has traded at an average of 20 EV/EBIT, versus 16 right now based on forecasted earnings for fiscal 2026 (ending March 2026)..

Latest 9mo results

Last week, Capcom has reported its latest 9mo results and maintains its target of 190B Yen of sales (up 12%) and operating income of 73B (up 11%). Stocks trades at 16x EV/EBIT projected based on their latest forecast.

Although small compared to the main segment (video games), the amusement equipment segment seems to be having a great 9 months with already 10.5B of operating income ahead of the full year forecast.

Ownership

One good thing is that the founder Kenzo Tsujimoto is still heading the company and the Tsujimoto family owns 25% of the company. One of his sons is heading the Monster Hunter division. They don’t have full control but they have significant skin in the game. They have done some buybacks before (not recently) and are returning about 30% of profits in dividends. They are prudently accumulating cash, which is fine for me. Always good to have some buffer in case of a lackluster year.

Strong Internal R&D

All their game franchise are developed internally and in parallel. They have one division focus on movie like realistic game a la Resident Evil, one division for Street Fighter and one division for the Monster Hunter franchise. So they can release these games in parallel.

They also have developed their own 3D engine, the RE engine which is used accross all divisions. They have developed a new engine called REXT to support more open world game like Monster Hunter Wilds. It seems that they are having performance issues on this new Engine. This should get resolved in my opinion over the next few years through more optimization and the hardware (PC and PS5 Pro) catching up.

Nintendo

Nintendo is the 2nd largest game platform in terms of sales and operating profit closely behind the Sony Playstation platform. Sony game division operating income is projected to be 500B yen for fiscal 2025 versus Nintendo at 370B yen in the current fiscal year. Nintendo has release this week some excellent results, with the Switch 2 being an instant success with 17m units sold since the May launch- Nintendo is projecting to sell 19m units by the end of fiscal 2026 (ending March 2026). This is better than initially planned of 15m units. The stock has come down significantly in recent months from the 14000+yen high, now trading at a price of 8600 yen..

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Legal Disclaimer: All content published on Wintergems is intended for informational and entertainment purposes only. It is not intended to serve as a recommendation to buy or sell any security. The views expressed are my own and are subject to change without notice. The information provied here is proprietary. I make no representations or warranties as to the accuracy or completeness of the information provided and will not be liable for any losses, injuries, or damages from the display or use of this information. Readers are solely responsible for their own investment decisions.

The Danger Zone

@Govro12 WinterGems Stocks — Thu, 01 Jan 2026 17:09:16 GMT

Last year’s Danger Zone

Revvin’ up your engine
Listen to her howlin’ roar
Metal under tension
Beggin’ you to touch and go

Highway to the danger zone
Ride into the danger zone

The article constitutes my personal views and is for entertainment purposes only. The main goal of this article is to log my personal views. Nothing in this article or these posts in this blog should constitute an investment advice. The projections and estimates provided here should be considered as purely speculative. Do your own model and projections. Please refer to the disclaimer at the end of this article for more details.

Although some traders might like the adrenaline rush of investing in the danger zone, an investor tend to focus on staying out of the danger zone and avoid loosers. Often times, high growth and compounders get assigned a risen and risen valuation until some hiccups. Once they hit a hiccup, that valuation premium goes into reverse creating a sharp drawdown. A large portion of the outperformance is generated by reducing the number of loosers, not just picking the best winners. Great offense will lead you to the playoff but great defense will get you the Superbowl. Like a lucky pilot ejecting before the explosion, identifying which stocks are in the danger zone and which one belongs to that high valuation zone, is critical.

Every year, I do this exercise:

Identify the stocks in the danger zone
Carefully reviewing them and verify if expected forward earnings justifies the premium and if the state of the underlying industry.
Identify unfavorable industry forces and get out of the way

Last year, 3 stocks that were trading far into the danger zone were sold:

Trade desk was trading at a unbelievably high EV/EBIT of 200 and I sold all on January 2, 2025. I bought trade desk at a PE of 40 in 2018. The stock became a runaway 10 bagger. This year, the stock is down -67%. Tradedesk hit a big hiccup as it became clear that Amazon Prime is consolidating the streaming ads market place. It won a large share of Netflix ads in 2025. I do not pretend to have foreseen this. But what I could see is that there was a clear divergence between valuation and growth in recent years.

Intuitive surgical was trading in the top of the danger zone at a EV/EBIT of 80 and I sold all on January 2, 2025. I bought Intuitive in 2009 at 25 times earnings. This year the stock is up 9%, below market average and much below my average performance. So, considering all the capital gain cost, this might not have been the best move. However, I was able to reallocate the money in much better opportunities.

Amazon was trading at the middle of the range of the danger zone at a EV/EBIT of 35. The expected EBIT growth was around 15% so it was trading at a PEG of higher than 2, so I decided to cut down my holding by 90% in January and February 2025. I bought Amazon in 2016 and Amazon was my largest holding at the end of 2024 and could not risk to hold this large position at this valuation. There was fundamental reasons as well as I published earlier this year. This year the stock is up 5%, well below market average and much below my average performance. Most of the proceeds went to Bombardier and Google, so this was a great move. I will discuss Amazon hereafter.

The danger zone table

The following table shows my current holdings that are trading over a EV/EBIT of 30.

The EBIT number is based on the trailing 12 months. So for stocks reporting only twice a year - like Adyen, Hermes and ASML, this means from July 2024 to June 2025. I included the basic number of shares (not diluted), the implied market cap and the net cash level after subtracting the debt.

I have ranked all the stocks based on EV/EBIT. I used tax adjusted EV/EBIT to consider special cases like Bombardier or D-BOX who dont need to pay corporate taxes as they have accumulated a very large amount of tax loss over the years.

I then use the projected EBIT growth for next year based on official estimates if available to get the PEG. Analysts are quite good at estimating earnings in the short term. I do not trust long term guidance. A Price to EBIT to Growth ratio below 2 is fine. Below 1 is a good deal. Higher than 2 is risky.

AI Boom: The Unsustainibility and Unpredictability Factors

Numbers are not the only consideration. Some years I get to identify unfavorable industry forces and try to get out of the way. In my opinion, the current AI boom is unsustainable as the revenue and lack of profits generated by the largest consumers of GPUs (Open AI, Gemini, Anthropic) is an order of magnitude lower (revenue wise) than what is spent in Capex. Current AI funding is provided mostly by non AI earnings (Google search, Microsoft SAAS, Meta ads), debts (Amazon, Meta, Oracle), venture capital (OpenAI, Anthropic) and vendor financing (Nvidia, GPU leases back). I could be wrong and AI revenue might grow 10x again in the next year or 2, but this is not what I am seeing or project right now. Consumers are using chatbot less than 10min per day and only a few % are willing to pay for a subscription. On the business side, AI software coding generation has grown very fast and we have seen rapid wide adoption and but the type of growth seen in 2025 will likely decelerate. Software developers are quick adopters. Once all the excitement subsides, the industry will be faced with the reality of maintaining, adding and optimizing the software automatically generated by AI. This might be terrible. In this business, debugging or adding software that is not developed internally by the team is always a risky and time consuming endeavour. The gain from the code generation may all be lost in software maintenance. Also it is not the first time that SW generation was accelerated. Think of going from punch card to keyboards in the seventies. That move did not replace human programmers. I view this acceleration in coding generation similarly.

Secondly, chips made for LLM AI training and inference are evolving quickly and may not be compliant to future AI algorithms. We are seeing a rapid evolution in both hardware and software algorithm. A few years back all the focus was on LLM training. Now that LLM pre-training is saturated, chain-of-thoughts mimicking reasoning is increasing inference needs. Live search to complement training results is becoming essential. What come next is unpredictable. As such, it is misleading to pretend that chips that were purchase today will have a useful life of 5 years. In contrast, a CPU made in the 2010s is still useful. Both the algorithms and hardware did not evolve that quickly. This is the reason I believe that current depreciation expenses related to GPU are likely under-estimated and thus the AI cost structure is even higher. So both frontier model labs and AI infrastructure company have a much higher cost than reported.

My opinion could be wrong, and the AI industry might be rosier, but one thing for sure, our visibility into the future for this industry is not good.

As an investment theme entering towards 2026, I want to decouple as much as possible from the AI CAPEX boom for these unsustainability and unpredictability factor.

I will go over all 12 names one by one. Please go ahead and comment below if you have a question or a different view on one of those 12 names.

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Spotify

Spotify is trading at a very high EV/EBIT of 56. Everything over 50 makes my blood froze.

If you look at the last few quarters, premium subscribers are growing at 11% and related revenue 13%. Ads growth is endemic. The recent stock run-up was a story of margin expansion. I think that story has run its course. Gross margin and operating margin are pretty stable now, so the expected EBIT growth for 2026 should not be higher than 15%. The PEG is getting at a very uncomfortable level of 3.75.

I will thus reduce my holding of Spotify significantly. I believe Universal Music Group and possibly Sony, trading both at roughly 20x EV/EBIT and benefiting from the same industry trend are a better investment. I will therefore use the proceeds from Shopify to buy UMG. Reducing.

Coupang

Coupang is trading at a very high EV/EBIT of 48. Coupang is the leading e-commerce platform in South Korea and have expanded operating in Taiwan in 2021 and bought the Farfetch platform. Similar to Spotify, Coupang should see some margin expansion over the next few years, as both traditional and developing platform should exhibit better margin. This has been felt in the last quarter where operating income has improved by 50%. Analysts are expecting operating income to improve by 90%. I think by using a more conservative number of 50% based on the latest quarter, we still get a PEG of below 1.

Coupang stock price has come down due to a serious data breach in the last weeks.

As such, I have decided to increase my position at below 24$. Adding.

CD Projekt

CD Projekt is a major video game developer who has created in the last 10 years two exceptional franchises: Witcher 3 which has sold 60 millions copies ranking number 8th of the best selling video games and Cyberpunk2077 , which sold 35million copies. The company is in transition developing the next iterations of its 2 franchises but still able to make a profit using catalog sales. This year, the company sold around 5 million copies of cyberpunk 2077 in the last 12 months. In late 2027, the new iteration of Witcher 3 should come out and should drive more than 500m to 750m operating income per year in 2028, 2029 followed by the sequel of Cyberpunk2077 in late 2029-2030 also generating similar operating income in 2030, 2031. The company is currently valued at 6.5B USD.

If you look at TakeTwo, once Grand theft auto 6 will come out, the company should generate 2 billion USD of operating income per year for the next 3 years trading at little bit higher than 20x-25x operating income of 2026-2028 yearly operating income. My investment thesis is that once the new iteration of Witcher comes out, the company should also get valued at 20x or 25x yearly operating income achieved in 2028-2031. Adding.

Adyen

I have written extensively about Adyen. Current PEG is reasonable at 1.31. Holding.

Dollarama

Dollarama had a great run in the last few years, being up 3x since 2022.

Currently trading at a ratio of 34 EV/EBIT, the stock is trading at its high historical range with a PEG of 2.36. Purchase in 2009, Dollarama is a 50 bagger+ and thus I need to sell a small amount every year. Reducing.

Mercado Libre

Mercado Libre is one of the steadiest growth story in the stock market. MELI has grown 30% yearly in the past 22 years. The best growth story.

The stock has come down recently:

At a EV/EBIT of 34 and a PEG of 0.98, this stock is currently cheaper than historical range. The stock typically trades at 50x range. Adding.

Hermes

Dont have much to say here except that it trades at too high a premium for the kind of high single digit growth. This is a small position that I will remove first thing on January. Reducing.

Nintendo

Nintendo should reap the benefit of a full year of the new platform rollout in 2026. Analyst estimates that EBIT should raise by 40%. This should get us to a EV/EBIT based on forward 2026 (ending March 2027) to 23. We have a good visibility of earnings growth for the next half of cycle (2026-2030) on the Switch2. Stocks went down due to memory elevated pricing and impact on the switch 2.

If there is one product that is cyclical is memory. Not this time is not different. h/t @jukan05

So have been adding on weakness with a PEG at 0.75. Adding.

Netflix

Netflix has come down recently. So EV/EBIT is at a more reasonable 32.

Netflix is the dominant streamer. If the Warner Bros goes through, its game over. The HBO and Warner Bros library will be monetize like there is no tomorrow. Youtube is used as a decoy to allow Netflix to claim no domination. If the deal goes through, costly original content will be reduced significantly on a relative basis (subscribers unit cost). This acquisition makes perfect sense. Can’t wait to see it happen. Holding.

Amazon

Amazon is trading at a high 32x EV/EBIT. The market is expecting a 2026 YoY growth of 25%, so at first glance this looks okay. However, much of this growth is due to the re-acceleration of Amazon’s AWS business due to the AI buildout.

I believe there is a moderate to large probability that AWS should see eventually a sharp reduction of growth at some point in 2026-2028 timeframe as explained in the previous section. I also think they will return to a shorter depreciation duration as GPU specific hardware becomes a larger and larger portion of the cloud infrastructure leading to a compression in margins. AWS represents more than 66% of operating income and as such Amazon is particularly vulnerable to a AI bust.

As mention previously at the beginning of the post, as an investment theme entering towards 2026, I want to decouple as much as possible from the AI CAPEX boom due to the unsustainability and unpredictability factors.

As such: REDUCING significantly.

AeroEdge

The company is forecasting a sharp increase of the blades to be delivered in 2026 (+27%) and 2027 (+45 to +55%). This is explained not only by the increase number of aircraft deliveries towards 2027, but also by a new agreement with Safran to increase its share of the LP blade market from 40% to high 40%. This is likely capped to the 50% limit, which is the share of Safran in the CFM International joint venture. GE makes its own blades.

Finally, AeroEdge has internalize the production of the Titanium Aluminide raw material and will start using this raw material instead of relying on Safran.

So we have strong visibility for future profitable growth and as such the current EV/EBIT of 31 is justified and with a PEG of less than 1, we will slowly increasing on weakness. Adding.

ASML

ASML has a monopoly EUV lithography. We all know about the unique position of the company in semi cap. Current projection of growth next year is mid single digit. The fact that ASML cannot deliver to China is a pain point. Anyway, ASML is also quite dependent on the current AI CAPEX boom. As such, since it is trading a a PEG of 6 and as an investment theme entering towards 2026, I want to decouple as much as possible from the AI CAPEX boom due to the unsustainability and unpredictability factors. I will reduce significantly. Reducing Significantly.

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical” and that “past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

Laurent Perrier - Trading at below book value!

@Govro12 WinterGems Stocks — Fri, 28 Nov 2025 13:39:41 GMT

As mentioned in my champagne supernova post, I have build up recently a good position around 91-92 euros on Laurent Perrier as Champagne is the only brightspot in the spirits LALA LAND. The family Nonancourt owns 65% of the company. A widow, Marie-Louise de Nonancourt bought the estate at the start of the WWII. First Eagle, another long term investor has 10% of the stocks. We are in good company. They won’t do anything stupid to impress the shareholders.

Today, November 29th, Laurent Perrier has published first half results (April to September) and as expected, the company was able to increase Champagne sales by 3.5% in Euro. considering that

If you refer to the results published by LVMH, Champagne (&Wines) sales reached 1482m euros in the same period versus 1463m or up 1.2% in Euros.

LVMH claimed an organic growth of 7% or a tailwind of close to 6% due to the Euro strength. So, Laurent Perrier is likely facing a similar currency tailwind as 87% of its sales is in the export market. So organic sales is likely to be in the 9-10% range. The fact that LPE is taking market share against the formidable LVMH is impressive. LVMH is in a league of its own with Moët & Chandon, Veuve Clicquot, Dom Pérignon, Krug, but Laurent-Perrier brand is slowly rising.

There are 5.93m shares. The current book value has risen to 640m. So book value is 108 euro per share. At 94$ today, the stock is trading at 0.87 P/B. Most of the book is in inventory which is valued at cost. The market value of this inventory is much larger than that since operating margin are 28% and 58% gross margin. I believe such a company with positive growth should not trade below book value.

Historically, LPE has traded at an average of P/B of 1.5 in avearge. The last time it traded at this price was in 2009, during the GFC.

The long term Champagne market is growing slowly but steadily.

This is mostly driven by price increase as the market as shipped about that same amount of bottles in 2024 than in 1998. It is subject to cyclicality but down years cycle are abrupt but short (2000 and 2001), 2009, 2020.

Summary

LPE is trading at its lowest ratio in terms of P/B of 0.87 versus historical average of 1.5, while sales is rebounding. As similar 50% discount versus historical is also present based on PE ratio. I think the market has thrown the baby with the water (Spirits industry). It is a victim by association (Spirits industry). I am not making the same association.

Cheers

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical” and that “past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

Cuervo - the #1 Tequila company at discount

@Govro12 WinterGems Stocks — Wed, 29 Oct 2025 01:58:57 GMT

This stock has about only 500m USD of float (14% of total capitalization) and is trading mainly on the Mexican stock exchange, as such I decided to post this only on wintergems.com without sending an email abroad nor link it to social platform. Only avid readers monitoring wintergems.com will caught this post.

Disclosure: I started to accumulate into Cuervo a few weeks ago buying at 19.5 pesos. This was the lowest lows (besides April 2025 Liberation day) since Cuervo started to trade in circa 2017. Since the 3Q release last week, the stock has jumped a bit and I…

Spirits Landslide and Champagne Supernova:

@Govro12 WinterGems Stocks — Sat, 18 Oct 2025 23:32:11 GMT

In Part II, will cover

Champagne Supernova!
My personal notes on Q1 results for Pernod Ricard
Competitive Landscape: top brands sales from Diageo which are not disclosed by the company
Other Rumblings on Spirits

Champagne Supernova

How many special people change?
How many lives are livin’ strange?
Where were you while we were gettin’ high?
Slowly walkin’ down the hall
Faster than a cannonball
Where were you while we were gettin’ high?

Someday you will find me
Caught beneath the landslide
In a champagne supernova in the sky
Someday you will find me
Caught beneath the landslide
In a champagne supernova
A champagne supernova in the sky

The Spirit business seems like a landslide. Supernova is a little bit too strong but Champagne is rebounding from weak 2024 numbers. LVMH has stated this week that Champagne and Wines (Rosé) have improve significantly in Q3 - up 7% organically. For 9months, it is organically up 3%.

In the call, LVMH is stating that Champagne is seeing a real improvement in USA. This constrasts drastically from the rest of the Spirit industry in USA. I cannot explain this dichotomy except that Moet Chandon and Veuve Cliquot, Dom Perignon are real luxury product and the bullmarket, AI frenzy and the millionaires are not impacted by the middle class loss of discretionary spending in U.S.

Initially I thought this might be related to some market share gains from LVMH or something specific to USA. But Pernod Ricard also has reported that Perrier-Jouet Champagne was one of the bright spot in Europe sales. Champagne is a luxury and is a lot more resilient that I thought.

Maybe time to get a few shares of Laurent Perrier before they announce their 6 month sales - April to September 2025. They should report some upward trends, unless its only the super luxury brands that are getting the bump. Will see.

This Champagne Supernova seems to have put some life on our holdings $RI and LVMH - will take any 5-10% jump anytime - but again this rerating will unfold on a 3-5 years timeframe:

Cognac Landslide

In contrast, the cognac spirits segment - Hennessy represents the vast majority of LVMH Cognac Spirits segment - saw a decline of 12% organically for the first 9 months and 6% in the latest quarter. Cognac is faced with a sharper decline than the Spirits market overall.

The figure below shows the quarterly sales of these 2 segments for the last 11 quarters.

Looking at the last 11 quarters, we see that cognac has gone through a landslide:

Q3 historically is better than Q2 historically (see 2023) so I am not sure that we have hit the bottom yet on cognac. For Champagne, we see that the last 2 quarters have seen an increase in sales.

Personal notes on Q1 Pernod Ricard

I will go through market by market starting from the largest.

U.S. (19%)

In 2024-25, U.S. represented 19% of sales. In Q1, organic sales was down an depressing 16%. If you consider sales in sales out, we are at 6%. So 10% of the drop is due to inventory adjustment. I suspect that U.S. distributors over ordered in Q4 to avoid the tariff. Europe and UK are subject to a 15% and 10% tariff to U.S. respectively since July 2025.

Jameson, Absolut and Kahlua are the top 3 brands for Pernod Ricard in the U.S. and performed well. Although I suspect strong headwind from inventory adjustment. Note that Kahlua is not longer considered a strategic international brand bucket since mid 2010s. It is part of the strategic local brands. They are pushing Martell into U.S. and Glenlivet is the #1 single malt brand in U.S. so these brands should go well. I suspect weakness for blended scotch brands (Ballantine, Chivas). RTD portfolio is strong.

Big marketing push on the following 4 brands Kahlua, Jameson, Glenlivet and Redbreast. Redbreast is the #5 Irish whiskeys. U.S. consumes almost half the Irish whiskeys, 10x more than in Ireland. Irish whiskeys is the highest growing spirits with Tequila in U.S. in the past 10 years.

India (13% of Sales)

India organic sales is up 3%. Price of alcool increased 35% in the state of Maharashtra due to a 50% increase in excise tax. Mumbai has 20m people.

Again Royal Stag, the #2 indian whiskey, and Jameson were growing.

China (was 9% of sales - likely 7% now)

Okay 27% decline is crazy. Management is explaining that Mid-Autumn festival was moved from mid September to October, but a few weeks shifting should not explain such a decline. I think this cognac market is going dead. The good news is that China is probably less than 7% now.

Remy Martin has not reporting yet their Q1 numbers, but considering the sharp decline in China and that Asia represents 50% of sales of cognac for $RCO I personally decided to sell my small line in Remy until October 28th results.

Other Markets

Europe is -4%.

Canada is strong, especially the RTD they bought recently, Jameson and Absolut.

So on a brand basis, it reinforces my belief that both Jameson and Absolut are growing organically across multiple markets (Canada, India, Europe, Turkey, South Africa, probably holding market share in U.S.).

Martel is suffering even more than what I thought in China. They might be loosing market share there versus Remy and Hennessy. This is something to worry and to be monitored.

Pernod Ricard is still guiding for a pickup in second half - January to June 2026.

On the strategic local brands -4%, things are looking better with strength with Olmeca, Kahlúa and Royal Stag in growth.

RTD is up 10% so this might become an important growth driver.

On the limitation of linear interpolation

In my previous post (see below), I used 16 years of data to detect if linear interpolation could be appropriate to project into the future. I understand that brands can be somewhat fashionable and spirits in general are subject to economical cycle. For more linear projection done in previous post click to the link below.

In my previous post, I took the top 5 brands in terms of growth contributor and for these brands at least, I thought that it was appropriate to use linear interpolation.

Here are 2 examples:

For Glenlivet, except some acceleration years (2013, 2022) and deceleration years (2016, 2024) the linear trend over 16 years is intact.

For Jameson, besides the economical cycle impact of 2020 (COVID shock) and 2022 (post COVID euphoria), the linear trend is highly predictable.

Now, linear interpolation works until won’t… But the probability of a breakout of a trend is small if a stable trend has been detected for the past 16 years.

The goal of this projection is not be exact about a particular year, but to project out volumes in 5 years, which is my investment time horizon. The result of my analysis is that volumes are pretty predictable in general and follows historical trends for those top 5 brands at least.

However it cannot be said the same for all brands.

If you take Martell for example, using linear interpolation and 16 years of data, clearly we see a problem:

We have a 9 years uptrend (with up and down) followed by a down trend that has been lasting 3 to 4 years. What will happen it 5 years, I have no clue. Will cognac sales continue to decline for another 5 years, will it stabilize or will it go up and resume the 2009 to 2025 red line - I doubt. So definetely, my confidence level of predicting what volume we will see in 2030 is very small. Probably a range between 1.3m and 2.2m.

Rumblings about Diageo

Diageo doesn’t disclose the volume nor sales of their top brands in contrast to Pernod Ricard. However I did look for estimates through independent market research source. Here are some numbers:

The following are the 2023 volumes ranked for the top 13 brands:

If you exclude Guinness which is a beer, Smirnoff, Johnnie walker and Captain Morgan represents two thirds of the top 13 brands. So I decided to focus on these 3 brands to understand the historical trends.

If you take the largest brand in terms of volume, Smirnoff, the 2015 volume was actually slightly higher than the most recent numbers (2024). It is unlikely that this brand will grow significantly over times. In comparison, Absolut has half the volume but is a more premium vodka brand, often priced almost twice the price of Smirnoff. Absolut’s has risen by 2 million cases since 2010. A bit cyclical but with long term growth.

#1 in Scotch

Johnnie Walker was flat until 2019, then dropped and rise up in 2022 sharply to decline in 2023 and 2024. 2024 is still up versus 2019, so I would think that it will rise up slowly. In contrast to Smirnoff, Johnnie Walker is one of the best blended scotch. The black label is a great balance of dark fruits, vanilla, and smoke and is very high end. Johnnie Walker is worth a lot more than Smirnoff in terms of overall sales. If you look at the top 13 brands, there are 2 major scotch brand: Johnnie Walker, Buchanan for about 25m cases. This represents 22% of sales for Diageo.

In comparison, Pernod Ricard has 15.5m cases spread over 4 brands.

Ballantine 9.1m
Chivas Regal 4.8m
Glenlivet 1.4m
Royal Salut 0.2m

Captain Morgan is slightly up versus 2015, but down versus 2019. So I would suspect flat numbers ahead.

In summary, Johnnie Walker is a strong brand with good prospect of rising slowly over the next 5 years, Captain Morgan and Smirnoff are mainstream brands with less prospect for growth.

The following is the only information that Diageo disclose in terms of brands.

Scotch represents over 22% of sales. Tequila comes next to 13%, then vodka 8%. If you look at the recent year, we have organic growth in tequila and Canadian whisky, and Indian Whisky. This confirms the data from the independent market research where we see decline in Johnnie Walker & Scotch overall, Smirnoff &Vodka, and Captain Morgan & Rum.

Diageo - one the sideline for now.

In summary, I am still on the sideline for Diageo. I want to see the next shoe that will drop when they report Q1 sales on Nov7th. USA numbers will be ugly in my opinion. There is still some inventory adjustment expected in this summer as some shipment was pull forward to avoid tariff from Europe and UK. This was reported by Pernod Ricard this week.

Deportation

Furthermore, about 2 million immigrants were deported (400k forced) in 2025 in U.S., the majority of Spanish culture, creating a real economic impact on goods consumed especially by Spanish culture (ex. Corona, Modelo, Tequila). Some weakness on tequila should be expected. Cuervo, the leading Tequila company in the August release, reported some weak numbers in USA with some inventory adjustment again, in contrast Mexico numbers were up. Constellation brands also reported some very weak numbers on the Modelo and Corona sales.

The tariff imposed by the Trump administration is creating a supply shock in U.S. that will only be aggravated with time, as suppliers passes more and more the tariff cost to the consumers.

For Diageo, U.S. represents a much larger component (40%) of sales than Pernod Ricard (40% versus 19%).

Cuervo is reporting Q3 numbers this week, so this will be interesting to get an updated view of the immigration deportation impact on the Tequila market. This might influence my decision to initiate a position with Diageo before or after the Nov7 update.

I hope this update was helpful to clarify some aspects to concentrate on Pernod Ricard (and LVMH) and avoid Remy Martin and Diageo for now.

Cheers! let me know what you think!

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical” and that “past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

Dollarama - 1 year later

@Govro12 WinterGems Stocks — Wed, 11 Jun 2025 19:50:29 GMT

Before you continue glancing into the latest post, I would strongly encourage you to first review my analysis publish last year in June on this amazing dollar store company based in Canada :

In a nutshell, Dollarama operates very efficient dollar stores across Canada with a dominant market share of around 65% to 75% (based on my own analysis) of the dollar stores segment.

Today (June 11th. 2025), Dollarama released some very strong results as shown below for the last quarter:

EPS is up 28% on sales up by 8.2%.

The stock reacted quite favourably on these strong results and the stock is up 53% since I last published on the company a year ago. I hope some of you joined the rank of shareholders at that time.

Comps sales is at a healthy and sustainable 4.9%. GM is within long term range at 44.2% (as shown below),

and operating margin has kept improving over the recent years now at 25.6% (historical. chart below) which is almost 3% higher than last year.

As I disclosure, Dollarama is part of my 2009 cohort- found this stock “a la” Peter Lynch, realizing that new Dollarama stores were popping up left and right in my area, replacing mom and pop dollar stores and started to investigate.

Now in recent years, there are 2 development that gets me excited for future growth: Dollarcity and international expansion via acquisition.

Dollarcity

Dollarcity had a total of 644 stores, with 377 locations in Colombia, 109 in Guatemala, 77 in El Salvador and 81 in Peru. This compares to 632 stores as at December 31, 2024. Dollarcity stores are very similar to Dollarama stores in Canada and there is strong synergies in terms of type of goods sold and operational systems. In June last year, Dollarama has increased its stake in Dollarcity to 60.1% (by about 10%) and has the option to further increase its stake to 70%. As of March 31, 2025, sales were up by 12.6% YoY.

The Corporation’s 60.1% share of Dollarcity’s net earnings for the period from January 1, 2025 to March 31, 2025 amounted to $40.3 million, compared to $22.1 million for the Corporation’s 50.1% share during the same period last year. This represents a 82.4% increase. As such, the net income of Dollarcity represents already a bit more than 10% of the overall operating income of the Company.

Some colours on how Dollarcity is performing: ie. operating margin gain, SSS positive, still quite new in Columbia and Peru. So Guatemala and El Salvador are the orignal countries.

Mexico expansion of Dollarcity

Dollarama and the Dollarcity founding stockholders have also agreed on governance terms providing for the future expansion of the business to a new country, Mexico. Dollarama and the Dollarcity founding stockholders will indirectly have an 80.05% and 19.95% equity interest, respectively, in the Mexico portion of the business. Based on comments yesterday from the CEO, Neil Rossy, a first pilot store in Mexico will open this Summer.

The merchandise should be very similar than the one you can find in other Latin America countries:

Australia expansion

Dollarama in March 2025, has reached a definitive agreement to buy the Reject Shop. Headquartered in Melbourne, The Reject Shop is Australia's largest discount retailer with a store network of more than 390 locations across the country. Its offering includes private-label and national brand products. The Reject Shop generated consolidated sales of A$866 million (C$779 million¹) for the last twelve-month period ended December 29, 2024, and employs over 5,000 people.

Once the acquisition is consumed, this will represent an increase of almost C$800m in sales, adding close to 12.5% of sales. It will allow Dollarama to apply its operational knowhow to the Australian market. There are a lot of synergies between Dollarama and The Reject Shop in terms of merchandising. The Australian company should also benefit from the buying power of Dollarama since Dollarama has 8x more volume. It will be quite interesting to analyse the operating margin evolution of the Australian operation over the years.

The acquisition need to be accepted by shareholders this month. I will keep you posted.

Free cash Flow machine

Another aspect I like is that although Dollarama is expanding in Canada at a rapid pace, it is able to generate a very healthy free cash flow, matching almost the net income. This allows the company to make buyback when the stock is undervalued. I mentioned in more detail that aspect in my previous post.

To summarize, Dollarama is a beast in the retailer space, compounding at an impressive level with no down year since it became public in 2009 as shown below. It is not well known, but I am surprised that it has not yet achieved a cult status in the stock market. If you include today’s result, which is not shown in TIKR yet, the 12 mo EPS is now 4.39$.

The valuation is quite high at 43x trailing earnings, but put it in your watchlist, and next time Mr Mussolini south of the border derails the stock market, you may get a chance to get a few shares. Dollarama is totally immune to the tariff shitshow in my opinion.

Leave a comment - doubts and questions are welcome

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

Google by numbers

@Govro12 WinterGems Stocks — Fri, 25 Apr 2025 23:36:00 GMT

Hope you find my personal notes useful - read the disclosure below. Do your own research.

Users

AI Overviews is shown to 1.5 billion unique users per month. AI overview was deployed for mobile in late 2024 in USA.

Q1 marked our largest expansion to date for AI Overviews, both in terms of launching to new users and providing responses for more questions. The feature is now available in more than 15 languages across 140 countries. For AI Overviews, overall, we continue to see monetization at approximately the same rate, which gives us a strong base in which we can innovate even more.

Google One: 145 million subscribers. AI Gemini Advanced and storage.

YouTube Music and Premium over 125 million subscribers

2 billion people use Search every day

5 trillion searches on Google annually

YouTube now has over 1 billion monthly active podcast users which has overtaken Spotify and Apple in terms of active podcast users.

Financials

Revenues up 12%, Expenses 8%, Operating income 20%.

12mo Free cash flow steady at 75B

Quarterly CAPEX up 43% YoY to 17.5B

We still expect to invest approximately $75 billion in CapEx this year.

Google Cloud:

Google cloud is capacity constrained and thus Cloud revenue may fluctuate based on the actual delivery of new capacity over the year.

Ironwood, 7th generation TPU: 10x improvement in compute power and nearly twice as power efficient

Vertex AI platform: Gemini 2.5 Pro, 2.5 Flash, Imagen 3, Veo 2, Chirp and Lyria, plus Llama 4 and Anthropic.

Product

2.5 Pro is #1 on the chatbot arena by a significant margin. 2.5 Pro offers reasoning, coding, science and math capabilities. Active users in AI studio and Gemini API have grown over 200% since the beginning of the year.

AlphaFold has now been used by over 2.5 million researchers.

15 of our products with 0.5 billion users now use Gemini models

Circle to Search (multimodal queries) is available on more than 250 million devices (android) with usage increasing nearly 40% this quarter

Google's network: 2 million miles of fiber and 33 subsea cables

Google workspace: 2 billion AI assists monthly, including summarizing Gmail and refining Docs

YouTube has been #1 in streaming watch time in the U.S. for the last 2 years.

20 billion videos on YouTube

Waymo is now safely serving over 0.25 million paid passenger trips each week. That's up 5x from a year ago.

Valuation

(based on 12mo trailing)

Operating income: 119B

Free cash Flow: 74.8B

EV: 1 880B

EV/EBIT: 15.8x

Historical Average EV/EBIT: 20.8x

Free cash Flow Yield: 4%

Cheers!

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

LVMH mhmm...

@Govro12 WinterGems Stocks — Tue, 15 Apr 2025 11:58:29 GMT

Q1 2025

tariff

Market cap: 245B

Net Debt: 25B

12mo Operating income: 19.6B

12mo Net income: 13B

12 mo Free cash flow: 14.2

Free cash flow yield: 5.7%

EV/EBIT: 13.77 (10y mean 19.5)

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

A timely post! Bombardier - Leading Private Jet Vendor in a Duopoly caught in a Tariff Storm

@Govro12 WinterGems Stocks — Tue, 04 Mar 2025 11:32:09 GMT

Warning: 25% Tariff Update

I decided to hold in publishing this post until today - Tuesday morning- to see if Trump would proceed or not on the broad 25% tariff to Canada and Mexico imports. It seems that Trump is going ahead on this at the time of publishing. Before the close yesterday, Bombardier shares crashed at 78 CAD or 54 USD. It reached a similar level early February before the tariff was postpone. The post was written assuming a price of 83 CAD in terms of PE ratio etc..

Canada and USA manufacturing in aerospace and automobile are highly intertwined and I suspect that most USA companies operating in the aerospace industry (GE Aviation, Textron, Boeing, Alcoa*, Gulfstream, Lockheed Martin, Pratt & Whitney) will request that the aerospace industry be exempted from the broad tariff.

The aerospace industry is highly regulated and capacity constraint and as such parts manufacturing cannot be replaced.

* Alcoa makes the latest and greatest in terms of AL-Li alloy used in Boeing 787, Airbus 350, Global 7500, Gulfstream 650). Alcoa has three aluminum smelters in Canada, located in Baie-Comeau, Bécancour, and Deschambault.

Canada and in particular the Province of Quebec makes critical aerospace parts which are sold to USA.

Most of the Aluminium (AL) consumed in USA are made in one of the 8 mega smelter plants in Quebec and one smelter in BC. AL smelter requires a lot of energy. All aircrafts are made of AL alloy. USA relies totally on the AL produced in Quebec. In 2024 alone, U.S. primary aluminum imports from Canada totaled nearly 2.7 million metric tons. This represents over half of the U.S.'s aluminum consumption. USA does not have the energy available to produce AL and smelter would take years to be build and get the proper authorization and there is no energy availability. A smelter cannot rely on solar plant! If a smelter stop due to energy blackout, it looses weeks of production.
GE aviation relies on GE Bromont to produce critical parts of the most popular engine in the world the CF56. The CF56 is used in the narrow body Airbus 320 and Boeing 737, the two most popular plane in the world. The CF56 is already supply constrained.
Pratt & Whitney Quebec produced engine for Textron and Gulfstream. The whole line of G400, G500 and G600 uses engine from P&W. The G650 uses engines from Roll Royce.
A majority of Helicopters are assembled in Quebec for Textron. Both the Cesna and Helicopter business of Textron will be totally disrupted.
Quebec aerospace industry makes a lot of other critical parts like landing gear and so on.
Lockheed Martin sells the F35 to Canada.

Here is what the conference board of Canada has to say about the 25% tariff:

I strongly believe that once cars and planes price increases by 10-20% - rough guess - Trump will pullback after a few months from this broad tariff. This is my investment thesis.

Finally, 66% of Bombardier customers are wealthy individuals or private companies. I do not see any reason for these customers not to take delivery of their private jet in Bermudes or some other tax haven location or even in Canada to avoid the tariff. This previous statement is speculative from my part and will need to be clarified over the next few months if this is the case.

Overview (original post starting here)

The medium and large size private jet market is dominated by Bombardier and Gulfstream (Gulfstream is #1 in sales, Bombardier is #1 in delivery). Falcon maker Dassault is far behind as #3 with only 26 deliveries in 2023 (Bombardier delivered 5.3 times more planes in 2023 with 138 deliveries). So Bombardier and Gulftream are operating in an almost private jet duopoly with Dassault, Textron (Cesna maker) and Embraer far away as #3, #4 and #5 respectively.

Bombardier has a very broad offering in both the large cabin and medium cabin private jet segment with the Global aircraft and the Challenger aircraft. If you include the light cabin Learjet which was discontinued, there are more than 5000 Bombardier private jets in operation today.

Having sold their train business to Alstom in 2021 and the CSERIES to Airbus in 2020, Bombardier was finally able to focus all its creativity and innovation to its most valuable market, the private jet market. Since 2020, the private jet segment has improved significantly and Bombardier was able to significantly improve its financial situation which was in dire condition in 2020.

I took a significant position in this Canadian stock recently, as the stock price has come down due to fear of the Trump tariff on Canadian export. Bombardier is currently trading at a very attractive ratio. It made 5.16 USD of adjusted EPS or 11x earnings. Bombardier currently trades at 83$ CAD, or 57USD. Through a combination of continuous increase of delivery of private jet planes, increase in aftermarket sales, significant repayment of long term debt, increase in sales to defense market, I believe Bombardier can double its EPS over the next 5 years and with a PE upward rerating, which should be able to achieve a very good return over the next 5 years (PE expansion and EPS growth). I will go over these 4 aspects in the next sections:

Historical increase of delivery vs competition
Debt level
Aftermarket sales
Defense spending

Some history mostly on private jet development

I am going by memory here, so some dates might be off and so on but this is a company that I have tracked and owned (on and off) since 1992.

Bombardier was founded by Armand Bombardier in 1930s, who patented the first snowmobile. Bombardier has a very long history of inventions and innovations. The company invented the small size snowmobile in the 1950s (initial snowmobile in the 1930s was a 2-8 passengers car on ski) and also invented the noisy but fun jet ski in the 1980s. They started their foray in the airplane business by buying Learjet and De Haviland in early 1990s. They also got access to the Challenger aircraft program this way.

They invented the Regional Jets in the 1990s, which really transformed the commercial airplane industry. In the 1990s, in parallel to the RJ jet development, they developed from scratch the Global Express which was launched in 1999. The Global Express was the longest range private jet at the time. It was a very ambitious program internally developed on the heel of the Challenger program. It was Bombardier first foray in the large cabin private jet market. The Global Express is the original design of the currently sold Global 5500 and Global 6500. The even longer range Global 5500/6500 are powered by new Rolls-Royce Pearl engines with lower fuel burn and were unveiled in May 2018. Rolls-Royce is another turnaround story that I hold share in. I provided a quick overview on Rolls-Royce here: 7 european

They also developed from a clean sheet of paper the Global 7500. The development started in 2010. The Bombardier Global 7500 and Global 8000 are ultra long-range business jets and remain the largest business jets in the world. The Global 7500, originally named the Global 7000, made its first flight on November 4, 2016 and entered service on 20 December 2018. The Bombardier Global 7500 uses the latest and greatest in terms of alloy with the new Aluminium-Lithium alloy which provides 10% weight reduction compared to composites, leading to up to 20% better fuel efficiency, at a lower cost than titanium or composites. Al–Li alloys is used on aircraft such as the Airbus A380 and A350, Boeing 787 and the C Series. It also is used on the Gulfstream G650.

So within 2 years (circa 2019) they completely revamped its private jet offering with the Global 5500, the Global 6500 and the ultra long range Global 7500. So no wonder that margin was at its lowest in the year of 2020 as we will see in the next section.

One final thing, Bombardier was split into 2 companies around 2001, Bombardier Recreational Product (Snowmobile, jetski), and Bombardier (Aircraft and Trains) $BBD.b . Both are still traded in the Toronto stock exchange but there is no cross-ownership.

Historical increase of delivery

Since 2020, the number of delivery per year has increased steadily going from 114 delivery in 2020 to 146 delivery in 2024. If you look on a segment level, the number of medium cabin private jet has increased steadily going from 44 Challenger deliveries to 73 deliveries in the latest year. The number of Global jets delivered has also increased slowly but steadily from 59 aircraft to 73 aircrafts. Note that Bombardier discontinued the delivery of Learjet aircraft in the light cabin segment.

Bombardier midterm plan was to get to 150 jets delivery by 2025, so we are close to this objective.

If we look at the delivery numbers of Dassault Falcon and Gulfstream, we do not see the same level of steady increase. Dassault is more or less delivering the same amount of private jets year after year at low 30s (except 2023 which saw a drop to 26 deliveries.

Gulfstream has been stable at around 127 deliveries in 2020, and 132 deliveries in 2024.

If you compare the deliveries of Gulfstream versus Bombardier, you can observe that clearly Bombardier is gaining market share since 2020 versus Gulfstream. Bombardier overtook Gulfstream in terms of delivery in 2022.

If you look at the different industry segment historical sales, we understand why Bombarder exited from the light segment. The light segment is been flat and represents less than 15% of the total market. In contrast the large and medium segments is expected to grow significantly in 2024 and the following year.

Bombardier large cabin delivery went from 59 to 73 in 4 years, or an increase of more than 5.4% per year. Medium cabin delivery went from 44 to 73, or 13.5%.

The positive trend in delivery should continue over the next 5 years. Will delivery increase by 5% per year or 10% per year, this is hard to say, but we should expect this to continue in my opinion in this range.

A Reduction in interest expenses

Since 2021, Bombardier was able to concentrate on its core business (private jet) and sell its loosing money or breakeven business (Trains, Light cabin jets and CSERIES). As such since then, Bombardier was able to reduce its net debt by 1100M in US Dollar. I selected the end of 2021, as the benefits of selling the other business with its debt was captured in 2020 and 2021. In other words, from the end of 2021, all the debts repayment is related to operational cash flow. We can assume a similar repayment trend for the next 5 years.

The other benefits of paying down the debt is that the bonds issued by the company are now at lower interest rates. I provided for each year the average interest rate of long term debt. The major credit firms have rerated positively Bombardier credit rating in 2024. Moodys Bombardier's credit rating from B2 to B1 on May 2, 2024 and S&P credit rating from B to B+ on June 4, 2024. Average interest rate went from almost 9% to 7% in 3 years. The trend should continue.

This resulted in the interest cost from LT debt to reduce steadily since 2021 as shown below (from 633M to 389M). I am expecting that interest cost may be around 200M in 4 years if we follow the current trend. 200m translates to a 2$ USD per share of EPS. Analysts are estimating an even more accelerated pace of repayment of the debt. But I prefer to believe in recent trend than management guidance to analysts.

Still we should get a 40% increase in EPS from this level by assuming a conservative repayment of debt and small reduction in interest rate as currently trending.

Please note that operating income translates directly into net income since Bombardier has more than 12B in tax deductible from previous loss.

Trend on Revenue

In 2020, the business jet revenue was 5600M (discontinued business in 2020 was removed from this number) and it increased to 8665M in less than 4 years or 11.1% per year. This is a combination of a higher level of delivery (as shown in previous section) plus an higher increase in aftermarket services. Services revenue was 1200m in 2021 or 20% of total revenue and it increased to 2036m in 2024 or 23% of total revenue. So services increased at a faster rate than aircraft sales. Management has been investing in service centers all over the world in recent years, enabling Bombardier to increase its share of the aftermarket and maintenance market.

Based on the information provided by management, if Bombardier maintains its current market share of the aftermarket (50%), the services component should increase by 800M in 2030. If it increase market share to 70%, then the aftermarket sales would increase by 1900M. Market share went from 36% (in 2020) to 50% (in 2024) in less than 4 years. So we should expect some increase in market share. An increase of 3% per year should be achievable based on historical trend. This should get us to 65% market share by 2029 or 3600M in revenue or an increase of 1600M from 2024 level.

Assuming that the Bombardier increase aircraft sales based on industry trend of 3%, aircraft sales should be 16% higher than 2024 level. Aircraft sales was 6650M in 2024. A 16% increase would represent an increase of 1060M. Bombardier has increase market share over the last 4 years, so this is a conservative estimate.

This result in projecting sales in 2029 at 11330M.

Another way to look at this is to simply interpolate current historical sales.

Looking at the current trend, Bombardier sales would reach around 10 Billion USD by 2027 and 11 Billion USD by 2029. So both approaches leads us to a 11300M revenue in 2029.

Operating Margin Trend

I believe operating income less LT debt interest is the best way to track Bombardier profitability since net income is often impacted by currency hedges, price fluctuation between the Canadian dollar and US dollar and LT debt repayment before expiration.

The following is the historical operating income margin over the last 4 years.

As we can see, the operating income is improving rapidly. This is due to 2 factors: Bombardier launch 3 new aircraft (Global 7500, Challenger 3500, Challenger 650) around 2018-2020. As the program is maturing and more planes are produced, margin improves significantly. 2022 investor day presentation illustrate the cost improvement of the Global 7500 as more plane are produced. There is a 40% reduction from Aircraft #1 to Aircraft #50 and another cost improvement of 20% after the next 50 aircraft. Bombardier has shipped 200 Global 7500 in December 2024. So we should expect a further decrease in cost per plane.

Management has targeted an EBITDA margin of 18% for 2025. In 2024, Bombardier has achieved an EBITDA of 15.7%. This should translate to a corresponding EBIT margin of around 12%. Let’s assume a EBIT margin of 2029 for 2029 as well to stay conservative.

2029 Net income Projection

Hera are the baseline assumption for 2029:

Revenue of 11300M
EBIT margin of 12%
Reduction of 200M in LT Debt payment
This result in operating income of 1350M - less 200M in interest income should get us to a net income of 1150M. EPS would be 11.50 USD in 2029 or 2.2 times current adjusted EPS. If Bombardier rerates to 15x earnings, this could be a 4 bagger in 5 years and trade at 240 CAD.

Risks and factors

North America sales (including Canada) represents 55% of aircraft sales for Bombardier. I suspect Canada represents 10% of sales. So 45% of sales targets USA customers. Some of the sales originally targeted to USA customers could be moved to offshore or Canada but this need to be verified. But still a prolonged tariff war will seriously impact sales in USA.

A prolonged tariff war will impact Canadian currency which should help reduce the cost of aircraft labor done in Canada in relative US dollar.

23% of sales are aftermarket so this part will be protected.

Some critical parts for Bombardier aircraft are made in USA. The GE engine in the Global 7500 for example. Canada has not yet imposed broad tariff to USA import. Canada is smart about imposing tariff. It only imposed tariff on parts that Canada also produce or can get elsewhere. Mainly food, wine, alcohol, electrical appliance. Here is the complete list: https://www.canada.ca/en/department-finance/news/2025/02/list-of-products-from-the-united-states-subject-to-25-per-cent-tariffs-effective-february-4-2025.html

As such, Canada will not impose tariff from Bombardier critical parts made in USA. My thesis is that USA will do the same eventually.

I am doing this analysis mainly for me and some friends that also are interested by this stock. Still the main goal is to get comments and different views to strengthen my investment thesis. If you agree or disagree with the thesis please provide your comments. If you enjoy the post let it me know by putting a comment. My dream would be that a strong discussion thread on this company will get started here. Not in X!

As a final note, I feel that the combo Bombardier - Pernod Ricard is the perfect risk combo! You can drink your way out of this world insanity and cheering for that chaotic president to go away for the next 4 years while enjoying a 5% dividend and some amazing Scotch and cognac.

Have a nice day !

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

The Dismantling of Amazon Canada and selling Amazon

@Govro12 WinterGems Stocks — Sat, 01 Mar 2025 17:20:02 GMT

All 7 Amazon warehouses were close down in Montreal and Amazon Prime customers (the few remaining one) are getting 1 week delivery. Amazon Canada has decided to close all warehouses in the East Canada, serving 8 million people. As seen below Prime customers have to wait 1 week to get their goods in Montreal. Amazon is now totally uncompetitive as I can get my goods from Costco or Walmart within 2 days - COSTCO warehouse employees are unionized and they can still deliver. This is also a massive boycott of Amazon across the country for this reason.

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When Amazon decided to shut down operation in my region my gut reaction was to not renew my Amazon Prime membership ending this month - I was a customer since 1997 and a Prime since 2003. As a shareholder, it got also me thinking how Amazon is fragile to any threat of syndicalization - the decision to shut down Amazon operation in Quebec was not officially claimed by the company to the fact that one warehouse decided to unionized of course! - but we all know what is the real cause. As a shareholder, it got me thinking however of the fragility of Amazon business model in retail. I think warehouse employees work conditions are so rough that the threat of having a union is forcing the management to make some very drastic decision. More importantly for sure Amazon has lost its customer centric culture. Amazon under Andy Jassy is a number crunching company.

The other threat for Amazon is the commodization of the hyperscalers in AI. For AI, in contrast to the classic computing and storage service, the value has moved from the hyperscaler to the solution/chip provider (i.e TSM/NVIDIA). So Amazon is competing head to head with Microsoft, Google, Oracle or even NVIDIA cloud. Large AI vendors such as Open AI are building their own cloud infrastructure (Stargate).

Anyway, Amazon seems weak, it is trading at 40x trailing earnings, most of the margin expansion is in the past, revenue is growing at 10% clip and I am out. Amazon was a 5 bagger for a late 2016 investment and there are other opportunities elsewhere. Do not fall in love with a stock we are here to make money.

Time to move on for me and time to move one also for you Andy Jassy..

I will be 15-20% cash

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Disclaimer: The above article constitutes my or the authors’ personal views and is for entertainment purposes only. It is not to be construed as financial advice in any shape or form. Please do your own research and seek your own advice from a qualified financial advisor. I / The authors may from time to time hold positions in the aforementioned stocks consistent with the views and opinions expressed in this article. The information provided in this article is not making promises, or guarantees regarding the accuracy of information supplied, nor that you guarantee for the completeness of the information here. The information in this article is opinion-based and that these opinions do not reflect the ideas, ideologies, or points of view of any organization the authors may be potentially affiliated with. The authors reserve the right to change the content of this blog or the above article. The performance represented is historical" and that "past performance is not a reliable indicator of future results and investors may not recover the full amount invested.

WinterGems: Industry Research

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Champagne Supernova

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Recent result: Solid Sales & soft rebound in earnings - Relief!

4 segments with strong contrast in operating income

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Energie

Normalized earnings

A Lolopolooza lineup of quality GARP stocks trading at a PE of 12 to 19

Forward PE ranking:

Earnings quality ranking:

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2. Kimuka Kohki

3. Teikoku

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5. Fukui Computer

6. Robertet

7. Sony

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Bombardier stock price action

2025 Results

Canada’s Defence Industrial Strategy

EPS growth

Industry research on video games in Japan

Wintergems Mutations

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Last year’s Danger Zone

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AI Boom: The Unsustainibility and Unpredictability Factors

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