2025 Annual Letter

Performance Analysis, Small-Cap Valuation Arbitrage, and 2026 Operational Catalysts

2025 Annual Letter

The first year of sharing my model portfolio has concluded. This portfolio is an exact replica of my personal holdings, including the same companies, transaction timing, and weightings. For the purpose of analytical clarity, I have excluded the influence of external bank transfers and specific margin plays, such as odd-lot tender offers. These trades often distort returns based on account size—frequently to my advantage—and their removal provides a more transparent view of how the core business selection is compounding.

In 2025, the portfolio generated a return of 17.07%. This performance is satisfactory, particularly considering the absence of exposure to the technology and Artificial Intelligence sectors and the portfolio's concentration in small-cap equities.

S&P 500: Return in USD: +17.90% Return in EUR: +3.92%.

NASDAQ-100: Return in USD: +21.20% Return in EUR: +6.83%

MSCI World: Return in USD: +22.30% Return in EUR: +7.80%.

Russell 2000: Return in USD: +12.80% Return in EUR: -0.58%.

Considering the lack of exposure to the technology and AI sectors, as well as the fact that it is mainly a portfolio of small caps, the results have been satisfactory.

Actual broker performance (Note: Includes cash inflows/outflows and size-dependent trades excluded from the model portfolio for analytical clarity).

Portfolio composition and changes:

Portfolio as of January 1, 2025:

Portfolio as of December 31, 2025

Portfolio Dynamics: Winners and Losers

The year was characterized by high turnover. Of the 13 stocks we started the year with, only seven remain in the portfolio.

Winners

Zegona: Purchased in Q1 at an average price of 530 GBX. I closed the position at 1,325 GBX, achieving a bagger in less than twelve months.

We.Connect: +42%, Toya: +34%,McBride: +28%. Despite these gains, We.Connect, Toya, and McBride remain among the top five largest positions in the portfolio.

Losers

B&M: -30% from average purchase price and Macfarlane: -28% from average purchase price.

Verallia A Profitable Mistake

While the trade in Verallia was closed for a profit, I categorize it as my primary mistake of the year. I initiated the position at an average cost of €24.52 and exited in three separate lots at prices of $29.24, $28.26, and $28.26.

The "Why" The error was not a misjudgment of the company's moat—Verallia remains a dominant player in a rational oligopoly. Instead, I failed to anticipate the magnitude of price deflation following the massive, energy-driven price increases of previous periods.

Lessons Learned

1. Normalization: I must be cautious after a significant increase in margins or prices driven by external macro shocks.

2. Margin of Safety: The preservation of capital and even gain in this instance was due entirely to the entry price.

2026 Outlook: Opportunities in the UK and Small Caps

As we enter 2026, two themes dominate the portfolio: Small-cap and UK concentration (43.4%).

Small-cap stocks are currently trading at historic valuation lows relative to large-cap stocks. My positioning is not an attempt at "macro tourism" or timing a rotation; it is a disciplined response to value. If the valuation gap narrows, the portfolio will benefit from a significant structural tailwind.

In the UK, the GfK Consumer Confidence Index sits at -17. The panic has subsided, but a thick layer of pessimism remains. Retail surveys suggest half of UK consumers are still cutting discretionary spend. This climate of "bad news" has created the entry points for our holdings in Warpaint, Macfarlane, and B&M.

The B&M Thesis: A Return to Basics

B&M has recently struggled with management instability and an identity crisis. The new CEO has initiated a "Back to B&M Basics" strategy designed to restore the brand's original value proposition.

• The Bear Case: Market analysts are skeptical of a turnaround, projecting that operating margins will compress from 10.9% to a permanent level of 7.5%. At current prices, the stock is already valued for this pessimistic outcome, trading at a 7.5x P/E based on consensus estimates.

• The Bull Case: The strategy succeeds, and B&M returns to historical profitability levels while expanding its footprint to 1,200 stores. Should the strategic plan materialize over the next 12 to 18 months, the company would be trading at less than 5x 2027 P/E.

Notably, the new CEO purchased over £1.6 million in shares during his first months.

“Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise.” — Peter Lynch

Top Pick for 2026: Auto Partner (APR)

If I had to choose one company from the portfolio based on timing, it would be Auto Partner.

Auto Partner is a high-quality, family-managed compounder that achieved a 24.7% CAGR from 2016 to 2024. However, growth has decelerated, falling to 12.6% in 2024 and an expected 7.4% for 2025.

Operational Analysis Profits are expected to remain flat despite revenue growth due to margin compression. In previous years, the company benefited from a FIFO inventory tailwind as industry prices rose. It is currently facing the inverse: a headwind caused by manufacturer price declines.

The Catalyst The opening of the Zgorzelec Logistics Center in early 2026 is the primary driver for the coming year. This facility increases storage capacity by 30%, optimizing APR for international expansion and reduced delivery times. For several periods, this center contributed only to fixed costs without generating revenue. As it becomes operational, we expect an immediate positive impact on both the top line and operating margins.

Acknowledgments

As this publication remains a small, independent project, I would like to express my sincere gratitude to those who subscribe and follow my research. Your interest and engagement are fundamental to the continuity of this analysis. Thank you for your continued support as we move into 2026.