Castlelake put forward a (fifth) offer at 690p / share which finally garnered enough support for the Board to recommend. The revised price represents a 23% improvement over their initial offer and a >70% premium to the unaffected price.

Castlelake’s initial statement of intent was met with scepticism (including from a large part of the Street, who put forward a litany of regulatory and shareholder related reasons as to why a transaction was unrealistic).

Our strong conviction was that the commercial rational was compelling enough for Castlelake to underwrite a significantly higher offer, and — as is usually the case in these situations — when there is a price there is a way.

Scepticism still seems to prevail however. At Monday’s closing price of 610p, the market is currently offering a merger arb spread of 13%.

While there is still theoretical bid-launch risk, our initial reaction is that the implied execution risk is mispriced and we wanted to share with you our quick take on execution risk, timeline and overall R/R from here.

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Execution Risk & Timeline

1) Non-binding nature: the agreement remains non-binding and subject to due diligence. A Rule 2.7 Offer is due by August 3rd.

We view this as being low risk. Castlelake is primarily underwriting the metal. Outside of refining their maintenance adjustment analysis on a bottom-up basis, they will be intimately familiar with the assets already with a fleshed out strategy around repositioning, operating or parting-out segments of the fleet.

There will be some corporate / operational components of course depending on how they intend to streamline the airline and maximise slot value (alongside partners), but nothing there that we would view as being headline risk.

Castlelake are hungry to deploy capital and did not raise the price 5 times just to walk away.

2) Shareholder approval: Scheme requires 75% approval.

Also low risk. (i) this is a cash offer and (ii) it is structured in a way which allows existing shareholders to rollover into the pro-forma entity.

From a price perspective we are very close to the 700p that was rumoured in the press as being a key threshold for major investors outside the Stelios family.

Yes, the family holds 15.3% but this does not constitute a blocking stake. We think there is a decent chance they choose to rollover, which would also help from a regulatory perspective.

All-in-all the Board would not be recommending the offer without some upstream consent.

3) Regulatory approval: EU ownership and control review is required.

Moderate risk, but mostly timeline related in our view. EU airline rules require an EU carrier to be majority owned and effectively controlled by EU nationals.

The workaround (used in post-Brexit structures) is to have a 51% EU sleeve held by EU nationals (in this case Peter Bellew and Mark Breen) so the BidCo is formally EU majority controlled.

There is a question of substance and effective control look-through. This will be nuanced and there is a list of tools which might be utilised to mitigate regulatory concerns (different share classes, governance undertakings, independent trustees, board quotas, ring-fenced subsidiaries). We think this is ultimately workable but as is often the case with airline mergers / takeovers the risk is on the timeline.

Finally, it is also worth mentioning that interloper upside risk is not out of the question given the strategic value of the slot portfolio. IAG would be a natural even though we think this is relatively low likelihood.

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R/R on the Merger Arb Set-Up

If we had to handicap the deal going through, we would assign a base case probability of 85%. Post bid-launch this probably rises to 95%.

As it stands, we view the outcome distribution as follows:

• 85.0% chance of a 13% spread

• 5.0% chance of an improved offer

• 7.5% chance the deal falls-through and we see 8-10% downside as we trade back to ~550p / share

• 5.0% chance we drop 15-18% (in-line with pre-SoH)

We would note that the downside-protected nature of the Company has been well highlighted throughout this process.

With the above assumptions we get to a probability adjusted spread of ~10%.

We would estimate the completion timeline to be in the 6-12 month range allowing for a base case underwrite of 13-28% IRR and an expected value underwrite in the 10-20% IRR range.

We can also see a 30-day spread-compression trade, capturing what is in our view the most heavily mispriced component (a Rule 2.7 Offer coming through).

Note: we are not assuming any ticking fee or break-up fee, which would help mitigate any downside and improve the above calculations.

While we are not typically drawn to the convexity of M&A arb trades, we view the R/R here as interesting, with a strong chance of being able to exit a position a few hundred basis points higher in short order without having to take on the risk of a prolonged regulatory back-and-forth.

Will keep you updated if anything material evolves in the above thought process!

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Welcome back!

It has been a busy week in spin-off land with both the HON→HONA and SPGI→MBGL transactions taking place. This brings us to a total of 11 spin-offs in H1’26, well on pace to exceed the 13 we saw in 2025.

We’ve covered names like Honeywell in idiosyncratic detail. Today we wanted to take a step back and take a look at the empirical data more broadly.

How have recent SpinCos performed? Do RemainCos get overlooked? Let’s dig into the numbers and see whether Greenblatt’s wisdom still holds true.

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Class of 2026 (So Far)

We have seen a eclectic mix of names. The sector spread runs from aerospace (Honeywell Aerospace), freight (FedEx Freight) and auto parts (Active’s Versigent) to cable media (Comcast’s Versant), industrial software (Hexagon’s Octave), maritime tech (Kongsberg Maritime), environmental services, auto data and a pair of biotech carve-outs:

Some of these were classic “shed the declining asset” spins (Comcast→VSNT) while others involved the crown-jewel (Honeywell→HONA). In between we had a reverse Morris Trust (BD’s Biosciences unit merged into Waters), a taxable 1:1 spin that leaves the parent as a royalty manager (AnaptysBio), a dual-listed carve-out that sent $625M back to the parent (Octave), a 19.9% retained stake (FedEx), and a pipeline spun out so Novartis could buy the rest (Avidity’s Atrium).

64% of these have had positive performance from their first regular-way and close and 6 of 11 outperformed the S&P over the same period.

This stands in contrast to RemainCo where only a third outpaced the S&P. In both cases, we did not not any particular correlation between volume (% traded since spin) and performance.

We can illustrate the head to head battle between RemainCo and SpinCo in the below chart (note that this excludes the pairs without a surviving listed Parent).

Here, we can see that SpinCo leads 6 of 9 pairs with only ANAB, KOG and SPGI coming out on top of the RemainCo side.

Overall, it is still early days with 7 SpinCos having less than 3 months of trading history. Out of curiosity, we ran the same analysis on the Class of 2025 and the results were even more convincing.

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Class of 2025: An Outstanding Vintage

For this class where the “youngest” spin is MICC (~7 months), we found the following:

• 85% of SpinCos have displayed positive performance and 8 of 13 outperformed the S&P over the same period

• The RemainCo performance was not as bad with a majority (7 of 13) also outperforming the S&P

• SpinCos still trounced RemainCos, leading 9 out of 13 pairs in the head to head

SNDK was the clear standout, and its performance alone would have made holding the entire spin-off basket worthwhile over the past 18 months.

Will we ever see anything like it again?

Greenblatt, 30 Years On

You Can Still Be a Stock Market Genius made its spin-off case in 1997 on three legs:

1. Forced selling (index funds and mandate-constrained holders dumping shares they never asked for)

2. Neglect (no coverage, no roadshow, no natural buyer on day one)

3. Incentives (management finally paid on their own stock, with option strikes set at the post-spin lows)

While market structures have certainly evolved (HONA integrating the S&P Index on first print, more flexible mandates) and pure undercovered neglect is rare, it remains true that spin-offs crystallise decision nodes, require analysis and create volatility. They remain a constant source of opportunity but there is no magic trick: you still need to do the work.

As we went through this analysis, one name in the 2026 batch caught our attention which we will write to you about over the coming days.

As always, thank you for your support!

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Catch-up on our reports from this week:

Solaria: Valuing this Powered Land Bank Platform in a Grid-Constrained Europe

[Flash] Klarna vs. Google Verdict is In: $1.97B

[Flash] Quick Thoughts on Honeywell Valuation Post Spin-Off

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With Solaria’s recent pullback, this is an excellent time to revisit our thesis, refine our valuation approach and highlight the key factors we are monitoring.

Solaria continues to transition from a paradigm of weakening solar generation capture prices to a holistic “plug-and-play” DC infrastructure model anchored by improving PPA terms and adjacent high margin income streams.

This creates an interesting push/pull dynamic between the pace of execution on the new strategy vs. negative legacy trends which could be source of recent weakness (we note that spot solar capture prices are particularly weak YTD).

At €19.9/share, Solaria is currently trading at a 17% discount to the April rights issue which was >6x oversubscribed. An interesting spot to consider adding ahead of what should be a catalyst heavy Q3/Q4.

We detail our thought process at the end of the article after walking through all the key valuation drivers and swing factors.

Before getting into the weeds, let’s recap the big picture thesis here:

Spain is emerging as a prime DC hub

• FLAP-D markets are grid connection constrained (8 year + queues)

• Spain has world class solar resources, cheap land and low population density

• Strategically located with subsea cables landing in Spain (low latency gateway between the Americas, and Latin America)

• Confirmation: Amazon, Microsoft and others investing heavily in the region

Solaria offers a fully de-risked value proposition to hyperscalers

• In Spain, Solaria sits on >1 GW of “true” full-service powered land

• Existing grid demand connection access as a prime beneficiary of Article 6.9

• Land and electrical infrastructure access (1,000 km of private power lines and 100 substations directly adjacent to generation assets)

• Ability to bundle long-term renewable energy supply through Solar PPAs

• Hybrid BESS for optimised self-consumption + grid fallback

• Material savings in distribution charges / electricity tariffs

This bet partially hinges on the management team’s ability to execute on a transformative business plan and we appreciate the fact that we are dealing with an ambitious owner operator with significant skin in the game.

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This article is for informational purposes only and does not constitute financial advice. Origo Research may hold positions in the securities discussed.

The Transition Story

Solaria is at an inflection point with an ambitious €2.5B capex program. Management’s goal is to re-rate the business model away from one-dimensional solar generation player → diversified energy infrastructure platform with a higher quality mix of income streams.

This entails leveraging its existing infrastructure both as a monetisation vehicle (selling grid access rights) and as a means to negotiate improved economics.

The Pull Factor: Spanish Datacenter Story Taking Shape

Solaria’s capacity straddles both the Madrid region as well as Northern Spain, which Morgan Stanley recently highlighted as a key growth market:

“Northern Spain has emerged as perhaps the most exciting secondary DC market in Europe (along with the North of France).

AWS, Microsoft, Blackstone/QTS and Vantage have all announced large-scale projects in the region […] In terms of our core forecasts for Spain:

• Spanish DC capacity (Madrid, North of Spain, other areas) will increase 11x, from ~400 MW (Dec-25) to 4,300 MW (by 2035e)

• Our 2035 forecasts for Spain rise by +55%, from 2.8 GW to 4.3 GW;

• We believe that the North of Spain can ultimately reach 3 GW of capacity”

While Europe is largely a co-location market today (~75%), Hyperscaler capacity is set to accelerate (notably as they pursue their “Made in Europe” credentials) with new / secondary markets set to disproportionally benefit – chief among them Spain as evidenced by Amazon’s recent €40B commitment to the region:

For Solaria, proof of concept has already been established with the Merlin 1 (225MW) and Merlin 2 (213 MW) deals. Importantly Solaria is selling grid access in conjunction with Solar and BESS PPA terms that are above market.

Merlin is the leading REIT in Iberia and their own DC lease-up performance provides positive read-across to Solaria. Solaria maintains significant optionality with its uncontracted capacity and is in ongoing negotiations with multiple hyperscalers and PropCo platforms.

One question for Solaria is whether they seek to go up the value chain: core & shell or even full-fit. The JVs they have set-up with Stonepeak (Generia LandCo JV) and Stoneshield (Gravyx BESS JV) are indicative of management thinking through the gamut of funding channels and we wouldn’t be surprised to see some differences in how they structure the remaining capacity.

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Push Factor: Persistently Weak Solar Capture Prices

Spanish power prices remain subdued, and solar capture rates continue to decline as the number of negative price hours rises. Unlike in Italy, where the marginal price is set by gas, Spanish solar project economics depend heavily on securing fixed-price PPAs (typically 60–70% of volumes) to limit merchant exposure. Project returns are further supported by falling capex per MW and the increasing use of battery storage (BESS).

In today’s environment, management expects projects to deliver ~14% IRR in a low price scenario with ~250bps impact up or down for every €10/MWh delta. Still reasonable but nothing to write home about.

BESS in Spain is emerging as a potential mitigating factor. The intra-day arbitrage opportunity is particularly pronounced and management is claiming ~3 year paybacks on early BESS installations, with up to 500 bps IRR uplift in project economics:

Overtime, electrification, datacenter demand, hydrogen and improving BESS technology should help stabilise the market. In the meanwhile, the standalone Solar story in Spain remains a hard sell given price and curtailment volatility. This is the key argument for bears but also a source of tension which creates opportunity in the name (as we are perhaps seeing now).

While low capture prices are certainly a drag on in-place capacity, 70% of Solaria’s production remains under long-term contracts.

As management further looks to minimise the exposure we note the following:

1. Incremental Solar additions in Spain are DC-linked (pricing power)

2. Solaria is pioneering large-scale BESS including hybrid PPAs

3. Company is diversifying into wind (better economics) + additional geographies (notably Italy) + JVs across the value chain

Paradoxically low prices only serves Spain’s competitive position as a DC hub. In the US, DC demand was its own catalyst for significantly higher PPA prices – not something we are underwriting at all (nor is it required for the story to work as we will see) but worth keeping in mind.

Solaria Valuation Building Blocks

We can think of Solaria’s value drivers as follows:

1. Legacy solar generation

• Existing + secured capacity coming online

• Mix of contracted (regulated or PPA) and merchant cashflow streams (65/35% split)

• Remaining useful life: 25-30 years (most capacity was added post 2019)

2. Powered land bank

• Monetisation of land, grid connection capacity and electrical infrastructure

• Payment per MW spread over 4-5 years (what we can infer from mgmt.)

3. Growth strategy

• Hybrid BESS / Solar + Wind across multiple geographies

• Solar dedicated capacity for datacenters with better PPA terms

• €2.5B capex plan funded out of debt (~65%) and equity (€300M rights issue + asset rotation + cashflow)

In the following sections, we break each of these down in detail. We establish a valuation framework that includes base, downside, and upside cases. This allows us to frame the R/R profile from current levels and outline our thinking ahead of potential upcoming catalysts.

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The headline figure is very close to our probability-weighted forecast of $1.7B and places us somewhere in between the “stand-alone partial” and “substantial” scenarios which we had discussed:

The Klarna press release clarifies that the $1.97B is the gross amount prior to any leakage (we assume for confidentiality reasons). Based on our waterfall assessment of the claim this equates to 3$ / share on a net basis or ~17% of Klarna’s unaffected share price.

Going through the case has been a fun exercise which we hope you enjoyed!

This catalyst was nowhere to be seen in sell-side reports and the reason why we are here: to provide thoughtful analysis on undercovered, idiosyncratic themes.

We have removed the paywall on the original report which free subscribers can now access here.

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As a reminder the spin-off distributed 1 share of HONA for every 2 shares of HON held at the record date (June 15th). HON simultaneously effected a 1-for-2 reverse stock split.

Yesterday’s closing prices ($220.2 for HONA and 227.8 for HON) equate to a share price of $224 for Honeywell on an ex-ante basis, a slight premium to our purchases in the $208-210 range.

We discussed previously how we did not necessarily expect HONA to initially underperform HON per “traditional” Greenblatt spin-off dynamics and that RemainCo could end up being the more interesting relative opportunity. Interestingly, both tickers sold-off and HON underperformed HONA going into the close.

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Relative Valuation

We take a look at the implied 27E EBITDA multiples for both HON/HONA post spin-off. This includes adjustments for the deconsolidation of Quantinuum post IPO and re-allocation of Holdco costs.

Based on our numbers, RemainCo is trading at an implied 12.5x 27E EBITDA once you strip out the QNT stake at market (+ non-core disposals) while HONA is trading at an implied 15.2x 27E EBITDA.

We’ve included some sensitivities so that you can monitor the relative attractiveness as the shares trade over the next couple of days. We will post some further thoughts but our initial take is that we would be happy owning both businesses at the current implied valuations and we will be monitoring both HON and HONA for potential incremental buys over the coming days / weeks.

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The UK seems to be fertile ground for takeover bids, as US firms in particular seek to exploit a valuation gap with the FTSE – a persistent differential exacerbated by political uncertainty and widening relative to the rest of Europe.

This month, British food mainstay Tate & Lyle agreed a £2.7B sale to Ingredion and earlier this year US-based Nuveen reached a deal to acquire Schroders for close to £9.9B. Private Equity is also chomping at the bit: EQT agreed to take product-testing and certification company Intertek private for £10.9B after four rounds of bids (40% premium to the unaffected price).

We recently covered the Castlelake bid for easyJet in our piece put-up or shut-up where we highlighted a realistic bid-range well north of the mandatory minimum (403p) and prevailing share price post initial announcement of intent (440-470p). easyJet currently trades at 583p (+46.5% in the past month) which is still below the latest 625p level Castlelake publicly announced.

This week, SEGRO disclosed a letter from US REIT Prologis setting out the terms of an indicative all-share proposal.

Under the proposed terms, Prologis would acquire 100% of the equity at an exchange ratio implying a value of 925p / share (in-line with SEGRO’s reported FY2025 NAV and a 32% premium to the 3 month VWAP).

Let’s take a closer look at how to think about the scope for potential upside from here.

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[Post publication note: the verdict date has now been rescheduled to July 1st]

In late 2014, a newly hired CFO sat down to build his first budget for a Swedish price comparison company called PriceRunner.

The Swedish business looked fine, with decent margins and steady traffic.

He then turned his attention to the UK and, in his words to a Stockholm court 11 years later: “the numbers made ZERO sense”. At the time, the UK was the largest and fastest growing e-commerce market in Europe – yet PriceRunner UK was flatlining on life support.

So he went through the historical data. PriceRunner had installed Google Analytics in the Spring of 2012. Traffic had climbed throughout that year and into the Christmas shopping peak – perfectly normal seasonality patterns so far, right until all the metrics suddenly dropped off a cliff:

“In the middle of December, 80% of all organic traffic just vanished overnight. It looked like an execution. Nothing had changed – the product, the consumer, nothing..…

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Michael Saylor went on record this week talking about how he designed STRC using AI. We can picture the prompt:

“Help me structure an instrument that can be widely marketed to retail. Like, high passive income but also liquid and redeemable at par anytime. Very important though: no obligations for Strategy. In fact, we never want to be in a situation where we are forced to make any payment. Perpetual sounds good. I also like the idea of adjustable and deferrable dividends. Make no mistakes.”

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Strategy has been on a $60B bitcoin buying spree over the past 3 years funded through common stock ATM offerings (exploiting the NAV premium) and turbocharged by a layer cake of structured instruments.

This started out in the convertible debt space, servicing hedge fund arb desks. As realised volatility compressed and inflows diminished, Saylor needed a more consistent source of demand – retail being the obvious white space which he sought to entice with elevated headline dividends.

Strategy has now issued $15B in pref shares. This truly accelerated with the creation of STRC and the concept of a pref share being “pegged to par” through a variable rate adjustment mechanism.

The STRC chart took an interesting turn this week:

Saylor has no brakes. He will raise as much capital as the market will give him.

The more proceeds raised through STRC, the riskier STRC becomes in a downside scenario.

Saylor was probably counting on sparking a bitcoin rally through positive reflexivity as traders sought to front-run elevated STRC demand.

For a short while this looked like it might work. Now, BTC has dropped back down to $63k.

Where does this leave Strategy today?

In our view, the STRC “de-peg” is a red-herring and is only relevant in the sense that it temporarily closes access to this funding channel.

If BTC recovers within the next 1-3 years, then no issues.

If BTC goes sideways / trends lower, Strategy has a real funding gap to deal with which may be exacerbated through negative reflexivity.

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Strategy’s $11B Funding Gap

Saylor has a $11B liquidity shortfall to address over the coming 36 months.

At current Bitcoin prices, the $6.7B convertible debt stack is deeply OTM. These are all puttable through June 2029.

Strategy also has to fund $5.0B in preferred dividends over that timeframe (assuming they don’t decide to play hardball, which is an option).

On the asset side, the Company holds 847k BTC and $1.1B of cash reserves. The FCF from the software business is now insignificant.

Strategy Capital Structure:

$11B equals 20% of its BTC stack at current levels. Of course, the lower BTC goes the higher % he has to sell to meet the same $ requirement:

• 28% @ $50k

• 35% @ $40k

• 46% @ $30k

While $25k per BTC is the level at which equity NAV is a zero today, that level widens if they are forced to selldown BTC at lower levels.

Pro-Forma Capital Structure: 3 years from now

We can take a look at what the pro-forma capital structure looks like in 3 years time assuming the BTC price trends lower and stays there:

if BTC remains at the $30-35k mark for an extended period of time this would destroy almost all equity value.

Of course, this is a worst case scenario where (i) BTC stays in a prolonged downturn and (ii) Saylor does nothing about it.

Let’s remember – Saylor’s incentives are aligned to the MSTR common. MSTR first, BTC second, STRC a distant third.

Michael Saylor’s Options:

Firstly, the most obvious source of funding would be through continued ATM common offerings. This is becoming a more dilutive proposition by the day however as the NAV premium compresses:

Secondly, Saylor could decide to play hardball with the pref stack. The Board has discretion to gradually lower the dividend (SOFR floor) and indefinitely defer any payment. He could do this until BTC recovers and / or use this leverage to renegotiate better terms. There are many permutations here:

• Any dividend deferral would tank the STRC price

• Could seek to crystallise the discount (open market or exchange offering)

• Implement a BTC linked dividend and / or swap for equity upside share

Thirdly, Saylor has options to push back the convertible debt payments and further extend his runway. Currently, the debt stack is unsecured with weak protections. Even if BTC were to hit $40k he should be able to raise secured debt to refinance out the $6.7B of converts (~20% LTV). This would heavily compromise Strategy’s flexibility going forward however and would likely only be a measure of last resort.

In Summary:

• Saylor has enough tools in the toolkit to withstand a cycle downturn and avoid being a “forced seller”

• While a liquidation-style scenario is not on the cards, MSTR equity value could easily decline 50-80% from here if NAV premium evaporates and BTC flatlines at $50k

• Dilution and compromises would limit any future flexibility

Perhaps the most important takeaway is that it will be difficult for Saylor to raise capital beyond the current funding gap for incremental BTC purchases.

This means that the $60B of buying pressure we had from Strategy over the past 3 years will no longer be there – which increases the probability of a downside case (???)

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FCC 113 AWS-3 Spectrum Auction + Implications for SATS

This week we reached Round 60 in the FCC’s re-auction of AWS-3 spectrum (originally won by EchoStar related entities in 2014) which began on June 2.

Auction 113 involves 200 licenses in the 1695-1710 MHz, 1755-1780 MHz, and 2155-2180 MHz bands and uses an ascending clock format, with one license available in each market/category combination.

There are two reasons why this is important to SATS:

• EchoStar is subject to a contingent liability if the auction does not clear $2.9B

• EchoStar has remaining unsold spectrum on balance sheet (including comparable / higher value paired AWS-3 licenses)

As it stands, the auction has already cleared $3.5B in gross proceeds:

while bidding for 80 licenses is still ongoing, we are nearing the end ($3.35B of value across 120 stopped licenses, including all the major markets).

If the auction were to stop here, this would already mean that EchoStar is no longer subject to any contingent liability.

In addition, we think the current $2.49 MHz-pop result puts a floor on the value of EchoStar’s remaining unsold spectrum and that the $8.6B of remaining value we have been assuming is conservative.

While the remaining AWS-3 spectrum is G-heavy, it forms part of a larger contiguous portfolio (rather than disconnected items) and there are very few near-term opportunities to buy licensed mid-band at scale. Verizon is the natural buyer here and have been rumoured $2-3B higher vs. our current assumptions. We also likely overly conservative on the 700 MHz lower-band as well and would expect to be surprised to the upside.

While all the attention on SATS is as a proxy to SPCX, we increasingly believe near-term catalysts will come from SATS simply outperforming incredibly low-expectations on the non-SPCX related portion of its NAV.

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SK Square: 30% intra-week swing, trimming at new ATH

• Did not pullback enough for us to compound back in and within days we were at a new ATH (KRW 1.41M)

• Trimmed another ~8% at close to ATH levels at ~3x MOIC on our March buys

• NAV discount compressed back to 43.6% by the end of the week after reaching pre-IBKR levels of ~48% on Monday

Honeywell: accumulation ahead of the spin-off

• dipped back within our target range (<$210) and we are able to add between $206-209 ahead of the ONA spin-off in less than 2 weeks

• At our target levels we believe we are creating Automation + Aero at <13x 27E EBITDA

• Still leaving some room for lower + potential post-spin dislocations however we have already bounced back to >$220 / share

  

Klarna: adding more ahead of 26th of June litigation verdict

• On we added to our position in the $15-16 range

• We like these levels independently of the impending litigation event

We have now received the full court filings from the Stockholm courts and are building conviction around a decent sized expected value payout as a % of market cap. Will be releasing our full findings ahead of the event, so stay tuned.

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EchoStar Rollercoaster

With the IPO this week, was all over the place!

We discussed our revised thought process last week going into the event: a revised bias towards maintaining exposure with some opportunistic sell-orders in the >$130 range if we got there.

While we did get triggered on some additional sales mid-week, we did not anticipate the level of dislocation on Friday and at some point the levels got too juicy to pass up.

With most of our original buys from late 2025 in the $75-$85 range, we set the bar high on any new purchases. At $108-112 we found ourselves in a situation where:

• We were post FCC approval on the spectrum sale transaction

• was trading live at a valuation well in excess of our original underwrite

On an intraday basis, we actually had a good 20-30 minutes where bounced back from ~$155 to >$168 while remained below $110. This made very little sense to us and finally decided to compound back in while simultaneously placing a small hedge (~20%) on HL.

So where does this leave us? Here is a quick breakdown of where we are:

• At closing price of $161, the attributable value per share EchoStar’s stake is $136 (gross) or $114 (net of CGT)

• In other words, at the closing price of $114 EchoStar is trading at exactly the value of its SpaceX holdings net of CGT

• Of course, EchoStar has significant other assets on balance sheet – even if we zero out any OpCo equity value, there is $42B of spectrum asset value of which 78% is in the form of cash receivables)

• Net of HoldCo liabilities, this equates to an incremental $73 / share

At peak intraday dislocation we calculate that the (pre-CGT) NAV discount reached close to 50% after settling at 45.4% by CoB.

On NAV spread trades, we’ve discussed our approach in the past. We like to be opportunistic and exploit the move from completely egregious to only moderately egregious rather than strive for the perfect structural discount which can often be an elusive game. We think Friday represented excessive dislocation and were more than happy to reload in that range.

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Post-Catalyst Investing?

Sometimes taking a position after a news-driven move can be highly +EV over a short time frame if assessed properly. There is a natural tendency to assume that big news gets priced close to perfection very fast.

Most recently, we covered easyJet and highlighted how there was a lot of room to run post the original announcement. In this scenario, it was clear that the Company was trading at a steep discount to break-up value. The Castlelake news shined light on the discount but even then it took over a week for the market to digest fully as it became clearer that there was a real commercial case to be made at a significantly higher level with workarounds for and legal / regulatory hurdles.

We hypothesised that Castlelake would have enough room to bid well north of 500p / share – and after 4 days of publishing we are now already there. While we annoyingly did not participate despite paying close attention to the situation, this was a relatively straightforward >20% trade opportunity (and perhaps more) over a 1 week time horizon.

We had a similar situation on EchoStar, where even AFTER the Spectrum sale to SpaceX shares languished in the $75-85 range after an initial move higher. There can be many reasons for such “delayed market efficiency” – in the case of EchoStar there was a large credit / special sits oriented stakeholder base happy to get out on the initial move. Lack of natural long-term holders + the lack of research coverage on a name that was stressed/distressed meant that it took a few more months to overcome that initial technical sell pressure.

Something to keep in mind as similar situations pop up in the future!

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easyJet is currently in an offer period following Castlelake’s recent takeover overtures. Under the UK Takeover Code, Castlelake now has until 5:00pm on June 26th to either put-up or shut-up.

Specifically, this means announcing a firm (binding) intention to make a formal offer within 28 days, taking us to a July 24th Offer Date (at the latest) and from there kickstarting the official takeover timetable.

Having already acquired a >2% stake in the open market, Castlelake is subject to a mandatory minimum price for any offer at 403p / share (highest recent purchase), a level which is 32% below easyJet’s 52Wh.

easyJet’s Board (as one might expect) dismissed Castlelake’s initial approach as being highly opportunistic following the Iran crisis and the knock-on effect on jet fuel prices and potential demand, while also questioning the deliverability of a transaction (alluding to foreign ownership rules).

And so the dance begins. As at the time of writing, easyJet is trading at 469p / share.

While the analyst community agrees that 469p represents a discount to metal value, we take a look at the incremental swing factors that they are missing and why Castlelake likely has more room left in the tank.

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The Middle Child

A competitive European LCC market has kept a lid on performance even ahead of the the Iran crisis. While historically profitable, easyJet has mostly traded at a discount to peers in recent years due to its hybrid market positioning and tougher unit economics.

easyJet is at the high-end of the LCC market when it comes to its opex per passenger (ex-fuel). This is in part due to higher labour costs & disruptions, but also due to the fact that – while valuable – it operates in more primary, slot-constrained airports with higher associated airport and handling costs.

As a result, easyJet also charges higher fares vs. the ULCCs and tends to suffer from lower load factors.

On the other side of the spectrum, flag carriers such as IAG / Lufthansa operate under a fundamentally different model offsetting their higher cost base with business class seating and long-haul flights.

In other words, easyJet in a somewhat awkward middling position within an already competitive market in need of further consolidation.

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A Balance Sheet Story with a Ton of Optionality

Despite this, easyJet’s balance sheet is very healthy. They own a majority of their fleet and have a £1.4B financial net cash position.

Additionally, they control a valuable slot portfolio with grandfathered landing rights in a number of core European airports, including 90k slots in Gatwick (~123 daily pairs). While historically marked at £155m within intangibles, the market value of these rights is likely materially higher with the value of prime daily slot pairs being potentially worth well north of >£2M each.

The owned fleet is carried on the books at a depreciated cost basis of £4.9B (which includes £626M related to advanced orderbook payments).

Again, the owned fleet value is likely understated here given the continued increase in engine values and downside protected part-out nature of the portfolio.

easyJet’s fleet is 100% narrowbody and 100% CFM engines which is as liquid as it gets. You may be familiar with CFM (Chris Hohn’s number one exposure via TCI’s holdings in GE Aerospace and Safran) – a great business which holds a quasi-monopolistic market position in narrowbody engines (P&W being the charitable competitor) with supply constrained escalation rates and pricing power. Labour shortages and MRO bottlenecks underpin valuation floors as engines represent an increasingly material % of ageing aircraft values.

In particular, their older generation A319/A320s are likely understated on an accounting depreciation basis vs. market value.

While we do not have the line-by-line breakdown of the mx adjustments by MSN, we can get to a reasonable half-life value ballpark range for the fleet.

Now let’s dig into how Castlelake might be looking at this, our assessment of a break-up value range including potential leakage & areas for optimisation. From there we reverse-engineer a potential range Castlelake may come in at.

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As we touched upon last week, markets have been in a hybrid state of euphoria and paranoia – dancing with one foot towards the exit, as evidenced by SoftBank’s equity and CDS simultaneously reaching ATHs.

Friday’s move was symptomatic of this. While the tendency will be to look for underlying triggers (jobs report, UST yields, Broadcom), the reality is that the market was reaching a point of local exhaustion and looking for any excuse to trade lower as it hunts out pockets of increasing leverage and exuberance. A healthy and perhaps overdue sell-off.

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State of the IPO market

The competition for attention and capital has been intensifying. Hold periods have been trending lower with participants keen to front-run narratives and “new shiny toy” syndrome dominating the timeline.

This obviously manifests itself most clearly through new IPOs, but only for select companies. The current reality is that the IPO market is incredibly bifurcated and late-stage / top-heavy. Many processes have been downsized, postponed or withdrawn as the list of sectors perceived to be prone to AI disruption grows. Just ask anyone in Private Equity how their DPI is going!

Overall, $34B has been raised to date across a limited amount of deals. We are FAR from the craziness of 2021 (which feels odd to say given shared similarities with that time period).

The Meta is evolving

When it comes to the select “hot” IPOs, there seems to have been a shift in Meta over the past week. Hyperliquid originally influenced the game, creating a shadow-book for opening trades at listing. With Cerebras the pre-IPO market was spot on, anticipating a >80% uplift on the first trade.

This established a confirmed yardstick for upcoming IPOs, reinforcing a >40% delta between guidance and pre-IPO markets on Hyperliquid.

The actual performance of Cerebras since then (almost all the way back to the $185 offer), however, has now inflected this paradigm.

Quantinuum was a clear victim of this trend-shift this week as the “IPO pop” failed to materialise to the extent initially anticipated on Hyperliquid.

Naturally, this creates a cascading effect and SpaceX is currently trading at $172, a more modest implied uplift of +27.5% vs. the ~50% implied a week ago.

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What does it mean to be oversubscribed?

Seeing a lot of commentary around SpaceX “only” being ~2x oversubscribed.

$SPCX book-build is obviously unique given the sheer quantum being raised and with the number of channels they are pursuing, it also makes sense to settle on a single, properly pre-sounded price target rather than play the usual iterative game on guidance & subscription amounts.

What is important is that the offering is already de-risked at that level. Whether this was done at 2/3/4x doesn’t “fundamentally” make a difference.

Is 10x better? Yes and no. In truth, subscription multiples are not a clear indication of how a stock will trade post-listing, only of how high the offer price can be/was pushed. We just saw this on of course (20x oversubscribed, initial pop and down back to offer) as well as .

What matters is the mix of holders. If there is a lot of fast-money in the books, they (i) tend to oversize orders in anticipation of reduced allocations and (ii) typically “flip” the stock immediately, taking advantage of the initial pop + greenshoe stabilisation mechanism and thus intensifying any sell pressure.

Tactical considerations

As always volatility should be embraced. Having been reasonably disciplined with our buy/sells so far this year, we have dry powder to put to work.

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This week we saw and announce a monster $36B TPU deal involving Google, Anthropic and Broadcom. While the deal is still fluid, our understanding of the transaction based on various news reports is as follows:

• SPV to be funded via $35.5B of private debt and $0.5B of equity (est.)

• Debt is split between

  • Senior debt of $31B (A1 = $6B and A2 = $25B)

  • Junior piece of $4.5B

• SPV acquires Google TPUs (on a delayed draw basis as and when delivered) and subsequently leases these to Anthropic

• Anthropic lease cashflows is utilised towards debt service

• Senior tranche benefits from a Broadcom residual value guarantee (thus achieving investment grade status) while the junior/equity is more exposed to TPU chip RV risk

This type of transaction is very much in keeping with the multiple case studies we covered when looking at Athene:

• Apollo asset management originates the transaction

• Anthropic gets chips without having to use its balance sheet

• Google/Broadcom get a large deal done

• Athene leans on Broadcom RV guarantee for IG-rating (and in turn the RV-guarantee is off-balance sheet debt from Broadcom’s perspective)

• Apollo / BX place a vertical slice of the cap stack between its own funds + insurance vehicles while incrementally getting syndication fees

• Post syndication Apollo will facilitate trading which in turn improves capital efficiency at Athene

We will see how the final deal looks like but expect many more similar transactions over the coming quarters.

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Klarna: unexpected catalyst?

Our position has been working out well so far and is up ~22% since our May 16th write-up. While price action is king, it is a common ego mistake to assume 100% thesis correlation when things move your way.

Hence we will attribute initial performance as follows: 1/3 = identifying when it was technically oversold, 1/3 = broader market strength and 1/3 = initial thesis validation as Q1 results got digested.

The good news being that we actually think this has a lot more room to run as the thesis component strengthens over the next 2-3 quarters and we move beyond the name being merely a dead-cat-bounce.

Now, there is one other factor which could explain some of the price action, although for the moment we would be in the camp that this is purely a free option given the lack of sell-side / broader coverage (unless someone, somewhere, knows something).

On June 10th we should receive a verdict on the Klarna vs. Google $8.3B anti-trust lawsuit (yes, 140% of Klarna’s market cap).

This is a lawsuit that stems from the European Commission’s 2017 ruling where they fined Google for €2.4B in the Google shopping case.

PriceRunner filed for follow-on damages in the Swedish courts (with an initial claim of ~€2.2B).

Klarna inherited the case via its acquisition of PriceRunner in 2022 and subsequently updated the damages claim to $8.3B once the full trial was underway in late 2025. The court was supposed to deliver judgement on April 10th but extended the verdict date to June 10th.

A couple of things to note:

• PriceRunner / Klarna are using a litigation funder (share a % of the ups)

• PriceRunner legacy shareholders will likely have negotiated an earn-out

• $8.3B is likely a “kitchen sink” type of number

Notwithstanding the above, there is a very real chance that Google is found liable since the basis of the suit, the 2017 ruling, was upheld by the European Court Justice in 2024 – and there have been succesful comparable follow-on cases including:

• Idealo vs. Google (Germany): German price-comparison site Idealo filed in 2019, claim was originally €500M, expanded to >€3.3M after the ECJ ruling. On 13/14 November 2025, the Berlin Regional Court ruled Google liable and awarded €465M (€374M in lost profits + €91M interest).

• Twenga vs. Google (France): Paris Commercial Court ruled in November 2025 ordering Google to pay €51.5M

The Idealo case is particularly interesting given damages awarded were more or less inline with the initial claim.

A potentially realistic outcome would be a ~€1-3B award in which receives ~50%, which would be ~15% of market cap at the mid-point.

While court records are publicly available in Sweden, you have to make a formal request (which we have done) to receive any documents related to a case. We will share any potential incremental updates that come from that. Of course, caveating all the above with the fact that we are are not lawyers (just applying reasoning to known facts + some background experience in litigation claims).

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Honeywell | Quantinuum IPO

Quantinuum is set to IPO this coming week and will be listed under the ticker $QNT. The indicative price range is $45-50 and the book currently ~2x oversubscribed.

As is now a habit with pre-IPO names, we can refer to trade.xyz markets on Hyperliquid to catch a glimpse on valuation expectations post trading.

Based on these markets, $QNT is trading at $100 or ~$25B implied valuation which would be worth ~$19/share for Honeywell.

We would also note that many analysts are currently fully consolidating opex burn (run-rate ~$330M) and capitalising that number at over 17x (i.e. negative ~$9/share) – they will be switching to equity method ex-post so we may see further uplifts in SOTP / price targets coming from that.

You can refer to our original Honeywell write-up here (+ access to excel for paid subscribers).

Have a great end to the weekend!

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Introduction

Markets have felt manic lately. Even with the S&P 500 at all-time highs, paranoia still reigns as AI threatens to redraw terminal values across large swaths of the market.

SaaS giants of yesteryear have been demoted to melting-ice-cube status, obscure bottleneck stocks are mooning, and the hot ball of money is already sniffing out the next rotation play (did you listen, anon?).

AI is widening outcome distributions like never before.

Ergo, the value of long-term assets with multi-decade visibility is going up.

With this backdrop, we believe few set-ups are as inevitable as the $6T required to upgrade grid infrastructure in the coming decade.

Europe is the most obvious manifestation of this: a grid reaching the end of its useful life, unable to cope with the energy transition let alone incremental load from 280 GW of datacenter connection requests.

While there are obvious ways of playing this – regulated networks being one (which we expect to perform well) – readers know we are laser-focused on differentiated security selection and uncovering idiosyncratic convexity.

Our preferred expression is a <€4B mkt. cap owner operated platform that is capitalising on Europe’s structural grid deficit through a regulatory advantage built over two decades. We are in Y1 of a high-visibility, multi-year re-rate in which the sell-side will be playing catch-up.

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Must-have, not nice-to-have

While ageing infrastructure is certainly a factor and a catalyst towards mandatory if not pro-active investment, the theme runs much deeper than that.

For Europe, the issue is particularly acute. After decades of incentivising renewables, the energy transition has been mired by stranded generation capacity with curtailment hitting record highs in 2025. In Germany, there were 576 hours of negative electricity prices last year, while Spain suffered through a blackout of unprecedented scale and duration.

Grid reliability over the next decades means managing electrification, distributed systems, and more volatile two-way flows. T&D, transformers, interconnectors, offshore cables, BESS, co-location, substations, automation and more will all need to be part of the solution as Europe plays catch-up.

This is all happening at a time when energy security is top of mind following multiple crises in the past 5 years alone – Covid, Russia, Strait of Hormuz.

While grid-related capex is a global necessity with $6T required through 2036, the scale and urgency of the situation is most pronounced in Europe.

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European power demand is inflecting

Renewables integration and supply-side volatility is being met with increasing peaks on the demand side as well.

After decades of declining power demand, Europe has reached an inflection point which is only set to accelerate with electrification and datacenters.

Incremental datacenter load alone is expected to represent a meaningful % of current power demand. According to numbers from Barclays / Datacenter Dynamics, there is >55 GW of committed datacenter pipeline in Europe:

Based on this, assuming a 70% utilisation rate, we calculate incremental datacenter load would translate into approximately 15% of existing demand for the core European markets – and north of 20% for Spain and the UK. For some of the more saturated markets such as Ireland, datacenter already represents >20% of overall consumption.

Of course, given the state of the grid, not all this capacity will be able to come online and there is an ongoing race as to who gets there first.

The Datacenter Grid Connection Wars

The demand is not the issue. The paradox of Europe has been its inability to harness lower power prices after decades of investment in renewables, which all comes back to grid infrastructure.

“the timeline for getting a grid connection had become one of the biggest deciding factors in the company’s data center investments. Connecting to the transmission network in Europe can take up to seven years, versus the roughly two years it can take to develop a data center.”

Pamela MacDougall, Amazon Web Services’ (AWS) head of energy markets and regulation in EMEA

If we look at earlier stage pipeline, utilities in the EU have apparently received 280 GW in connection requests from new datacenters – equivalent to 90% of EU power demand! (granted, a large portion of this is likely testing/low-intention).

In the US, where market structure has allowed for a much more accelerated datacenter build-out (at least until recent permitting issues), we saw what happened to initially low prices as PPA $/MWh doubled in 4 years.

Not all markets in Europe are created equal. As we saw earlier, the first mover markets are now completely saturated to the point where Ireland has imposed a de facto moratorium on new datacenters in Dublin until 2028, while the Netherlands and Frankfurt have effectively banned new connections until at least 2030.

The ability to obtain accelerated access over the coming years has tremendous value and we would expect upward PPA price pressure as incremental load ramps-up. In the rest of this write-up we will discuss how we are playing this.

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The HONA spin-off is fast approaching (expected June 29th) with investor days lined up on June 3rd (Aero) and June 11th (Automation).

We are curious to observe how HONA and HON will trade relative to each other. While we initiated a position in the consolidated entity ahead of the events, we are keeping powder dry to take advantage of any dislocation.

The classic Greenblatt take would be to assume increased sell-pressure on SpinCo. We think there is a chance it goes the other way:

1. Institutional mandate constraints have changed

2. Aero is widely viewed as the crown jewel

As a result it wouldn’t be surprising to see existing holders swap out their RemainCo exposure in addition to sidelined investors bidding up HONA.

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Automation

We think the Automation segment is currently under appreciated relative to the multi-year capex budgets underway in a number of its end-markets and the opportunity for a step-up in installed base / high margin recurring revenue streams.

The most obvious one is in datacenters which is an incrementally growing driver for its Building Automation segment. While this was called out by management as a recent performance driver, information remains limited.

HON should be well positioned to gain incremental market share in the space as power management systems become more complex (hybrid off/on grid solutions, BESS systems, thermal cooling solutions). While not a direct comp (as they also participate in the hardware/cooling stack), Johnson Controls offers an interesting read across with organic orders (+30%) / backlog (+26%) seemingly reaching a major inflection point in its last two quarters.

In addition there are a number of other capex trends which should benefit HON, including its PA&T segment which was temporarily weakened in Q1 due to supply chain / conflict issues (we would note that orders were still up +6%). To cite a few:

1. $46B of energy infrastructure spend to fix conflict related damages alone, most of which is downstream / LNG related (Rystad)

2. Energy security: Morgan Stanley estimates Asia will need to spend $5.5T in capex through 2030

3. Grid / power: close to $6T of grid-related capex required through 2035 (UBS)

Quantinuum

Quantum was in the news this week following the funding grants announcements. We don’t have too much to say here other than an Italian spaghetti sounding company (Rigetti) is +48% of the week and trading at a market cap of $8.8B.

If that’s the case, where should the technological leader in the space be trading?

We will be paying close to attention to the Automation investor day in particular and would be interested buyers of RemainCo on any weakness.

We also uploaded our SOTP this week for paid subs wishing to play around with the assumptions.

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Sharing the accompanying excel underpinning our Honeywell write-up

Enjoy!

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was up +20% on Thursday following its first Q1 beat as a public company before coming off a few points with the broader market on Friday. At $5.7B market cap vs. $15B at IPO, is the rally just getting started?

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Be water

We were a vocal critic of at the time of its IPO back in September 2025. The market was frothy (with better sector breadth than today) and it seemed clear that their bankers were looking to maximise valuation by inviting “fast money” accounts in order to drive oversubscription.

Employees also had the unusual right to sell stock from Day 1. Add to this the large VC overhang with unlocks around the corner and you had a recipe for challenged near term technicals.

In parallel, broader macro concerns and an increased scrutiny around Private Credit did not help the equity story. Surely, if there are systemic credit issues, consumer lending must be cooked?

Directionally, yes, we were absolutely correct. Admittedly though, we had spent less than 10 minutes understanding the business.

For us it was a clear case of bad technicals + bad narrative. Irrespective of fundamentals, as an equity investor, you just never want to get in front of that.

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Turning the corner

Its important to always keep an open mind – after all, we are here to make money. Oversold stocks are generally worth a look and we were now past the lock-up expiry sitting at a <$5B market cap and net cash, which big picture started to sound cheap given they had spent decades building this two-sided network and were clearly tapping into evolving consumer habits.

Given our initial bias, we knew many other investors probably thought the same as us initially: Klarna is an asset heavy, cyclically exposed consumer finance business with capped upside.

Question was: is this a mere dead cat bounce opportunity or something more? Our interest was piqued when we started seeing forward flow agreements on consumer receivables, the growth of Klarna card and delinquency figures that were contained and at levels well below anything subprime.

Situations where market participants are heavily anchored to preconceived notions NOT backed by research are interesting because they offer the opportunity for an early non-consensus view to those who do the work

Variant perception

As we dug in, it was clear that on top a botched IPO and poor technicals, Klarna had been plagued with growing pains as a recently listed Company in a nascent sector – including disclosures that have lacked granularity and management shooting themselves in the foot with guidance – muddying the true trajectory of the business.

We will walk through why we think the market misunderstands both the balance sheet risk profile as well as the growth/profitability runway of the business.

A ~2x from here does not require heroic assumptions beyond a maturation of the existing business.

We also think that there is the opportunity for a much larger re-rate as the market realises that Klarna is:

• A difficult to replicate two-sided network, with 119m active customers and 1m merchants, compounding at >25%

• A capital efficient credit origination platform

• A profitable BNPL business that also acts as a trojan horse towards higher margin, recurring revenue streams

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This article is for informational purposes only and does not constitute financial advice. Origo Research may hold positions in securities discussed.

Part 1: Klarna as a BNPL business

The cynical take on Klarna is that they have been growing through aggressive underwriting and over exposing its balance sheet.

The implication being: (i) a saturated market in which Klarna is pursuing the marginal customer with limited edge and (ii) a Damocles sword of credit losses over its head.

Let’s examine that.

Klarna has grown into a two-sided network comprising 119M customers and >1M merchants, facilitating $136B of GMV globally (21% US / 79% non-US).

The network exists for two main reasons:

• up to 20% increase in check-out conversion for merchants

• Trusted brand for consumers: flexible payments with no hidden fees

Over the years Klarna has partnered with all the major PSPs (Worldpay, Stripe etc.). It is integrated with Google & Apple Pay and is increasingly a default option at check-out. In Europe, Klarna has dominant market share and brand recognition (particularly in the Nordics and DACH region) while in the US consumer habits are transitioning fast. These are compounding network effects that are difficult to replicate.

Importantly, Klarna’s penetration (and BNPL in general) remains low. Even in its most mature mature market, Sweden, where 85% of adults used Klarna in 2025, the share of wallet was only <7%. There is a very long runway in both consumer adoption (particularly in the US) as well as increased wallet share.

Through March LTM, Klarna GMV grew 29.5% yoy while its revenue grew 33.1% as take-rate increased to 2.8%. Without even getting into additional revenue levers (more on that later), we believe BNPL is a structural growth story and that accelerated US adoption is only a matter of time.

Looking at the balance sheet

While investors generally associate Klarna with an over-extended consumer, the actual risk profile tends to be misunderstood.

Let’s break down the product offering and what it means for Klarna.

Klarna offers 3 types of products:

• Pay later (80% of GMV): this is your charge card equivalent. The customer pays in full within weeks if approved. Klarna pays the merchant at the time of sale with an embedded fee that crystallises on customer repayment (e.g Klarna pays the merchant $97.5 for a $100 ticket)

• Fair financing (9% of GMV): customer pays over an extended period (109 days WAL) with a fixed payment date (no rollover or compounding balance). Klarna books both interest income on top of the merchant fee. Klarna only ramps this segment-up based on Pay Later track record.

• Pay in full (11% of GMV): customer pays in full at time of sale, Klarna books a merchant fee

Klarna’s model is built on high-frequency, short-duration lending. The average balance per customer is $124. The average duration is 39 days and the book turns over 10x per year. This is very different from a revolving credit card balance (typically ~$7k) or the multi-year tenors associated with bank loans.

From an underwriting perspective:

• Klarna has a very fast feedback loop of <60 days to modify standards

• The churn amounts to 3.4m transactions / day and $0.5T of cumulative underwritten volume on which to draw from

Klarna leans on 30/60 day DPD (as a % of originated volume) as a leading indicator. Pay later 60+ DPDs have remained <1% in Pay Later and <2.7% for fair financing. Note that the numbers below are on a global, blended basis and so there are some mix effects at play.

Because of the longer duration, fair financing is the key segment to watch here.

Net charge-off rates have been stable but what is important to note is that the US carries a different economic profile vs. Global ex-US. Net charge-off rates tend to be <4% whereas Global ex-US is much lower at ~1.5%. This works because the US comes with much higher take-rates. As we will see later, given the growing mix towards both US and fair financing, the blended effects have been source of (unwarranted) confusion and concern for the market, particularly given the lack of geographical disclosure data which only improved as of Thursday this week (Q1 results).

Capital efficiency

Klarna has an EU banking license and a deposit funded balance sheet:

• $12.3B deposits

• 2.48% cost of funds

• Fixed-term deposits: 270 average duration (vs. ~39 day loan duration)

This compares with gross receivables as at Mar-26 stand at $9.6B or $9.2B net of allowance (43% being fair financing).

Additionally, Klarna engages both in forward flow transactions on its US fair financing business as well as SRT or other back-book receivable sales transactions in order to manage its balance sheet.

It recently completed a $1.7B SRT (in Europe) with Varde and has facilities in place with Nelnet and Elliot to scale forward flow sales on its US fair financing business.

The US forward flow business is very new having completed a first transaction in Q4’25 ($1.6B) and a second in Q1’26 ($1.2B).

Klarna’s main US competitor Affirm (who predominantly underwrites longer duration loans) has also successfully tapped in to the ABS market at very tight spreads and this could be an option for Klarna as well down the line.

Klarna is a relative newcomer to public markets and we believe its runway and balance sheet management to be under appreciated if not misunderstood.

This has been exacerbated by accelerated growth in new products / market with the resulting mix masking the profitability profile and longer-term trajectory of the business.

In the rest of this article we go through Klarna’s masked profitability profile, valuation considerations and why we think there is significant re-rate potential.

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The FCC has finally given the green light for SpaceX’s purchase of EchoStar’s spectrum (all 65 MHz). This is welcome news as we did not necessarily anticipate that this would happen ahead of the IPO.

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In addition, the FCC imposed a $2.4B escrow on EchoStar for potential Tower lease termination claims. $2.4B was in line with our base case and now becomes the max. More importantly this removes yet another overhang.

All these catalysts are now linking up on the same time frame, as the SpaceX news flow also ramps up (we already saw the Claude announcement – expect more).

Maximum attention, all at once – which is what we want.

And this is happening with the short interest looking like this:

Strategy and target levels

We have updated the excel for the revised lease termination costs and included a small module where you can play around with target levels.

On the assumptions below, we think >$175/share is a reasonable target and a level at which it makes sense to start taking money off the table. This would imply a $2T SpaceX valuation BUT note that we are assuming both (i) CGT on SpaceX shares and (ii) an incremental HoldCo discount. The NAV pre-tax is closer to $212 so at $176 we are assuming a 17% discount to that number.

For illustrative purposes, the current share price of ~$134 implies a $1.5T valuation, full CGT and an incremental HoldCo discount of 15%.

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Given the news developments, we are leaning towards being more aggressive with sales ahead of the IPO.

While we are cautiously optimistic we will get the target outcome, we will likely look to trim some exposure within that timeframe no matter what. Two main reasons:

• If we do not re-rate now, why would we do so post-IPO – with no real incremental catalyst?

• We are concerned about the level of ownership in SpaceX stock pre-IPO and the potential selling pressure post-IPO

Ultimately we remain fluid depending on how things develop, but we encourage you to have a plan. Should be an exciting few weeks ahead.

Update on SK Square

As expected, we saw some continued hype going into the second week of post-IBKR access in the Korean market. Western retail was certainly chomping at the bit during the extended weekend and on the 4th of May we certainly opened up with a bang and SK Square printing +18% on the day and the NAV discount printing an intraday tight at ~38% (closing the day at 39.3%).

Overall since the 26th of April, SK Square is up +51% and we saw 830 bps of NAV discount compression peak-to-trough.

We are now ~2x up on our SK Square buys and were lucky enough to catch the local lows on the NAV discount when we started trimming:

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We sold some further shares later in the week with a view to potentially compound on pullbacks as well as rotate capital elsewhere. We’ve taken in excess of our cost basis out now and happy to let the rest ride for a while, noting that SK Square is less of a “slam dunk” vs. when we originally underwrote the name earlier this year.

We now require more “aggressive” assumptions in terms of SK Hynix growth/multiple re-rate alongside continued NAV discount compression

SK Inc.

We also took a brief look at SK Inc. earlier this week

While the discount is even steeper (60% post cancellation of treasury shares), we are cautious about taking exposure when the memory (SK Square) share of GAV is only 53%. Having said that, we were curious to take a deeper look notably at their stake in SK Telecom, an early investor in Anthropic.

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“You guys have to listen to me because I am president of this company. In five years, profits have to be 10 billion yen, then in ten years 50 billion. Eventually I want to count profit in trillions of yen!”

– Masayoshi Son in 1981 to his only two (part-time) employees

As a barometer of financial markets, SoftBank’s $370B capital structure spanning equity, CDS, $/€/¥ bonds and hybrids is well worth knowing.

In Part 1 of this series, we peel the onion on SBG’s NAV composition to understand its key drivers. Part 2 will take a closer look at how we think about the various instruments in the capital structure, including potential trade set-ups to express either idiosyncratic views on SBG’s NAV components such as Arm/OpenAI or as a vehicle for broader macro takes through the cycle.

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Rolling the dice

Masa has always had a penchant for “running it up.” He makes big, bold bets fuelled by a 50-year personal plan he drafted as a student. Perhaps as a tribute to his Korean ethnicity, Masa only cares about making investments that have the potential to truly move the needle.

Leverage + technological change

Masa realised early on that his best chance for exponential gains was to ride the technological waves of disruption. He also quickly developed an appetite for leveraging OPM (Other People’s Money), getting a first taste for financial engineering when he was an undergraduate student at UC Berkeley importing used arcade machines from Japan funded with supplier financing.

“Masa saw things differently. If you are born in a slum with nothing, losing everything is relative. You just go back to square one. Then, like the Korean slum dwellers in Tosu, you build back up.”

Gambling Man: The Wild Ride of Japan’s Masayoshi Son (Lionel Barber)

In the multiverse of timelines where his bets might have flamed out, we are living in the one where he knocked it out of the part – not once, but multiple times. His early internet plays with Yahoo/Yahoo Japan compounded by his legendary $20m investment in Alibaba (which rescued SoftBank after the Dotcom crash wiped out 99% of its value) laid the foundation for his empire.

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Masa’s appetite for size and willingness to embrace volatility has often led the public to label him as halfway between genius and crazy. When he raised the first Vision Fund in 2017 at $100B (again, leveraging OPM through Saudi Arabia’s PIF), some Silicon Valley elites would even refer to him as “dumb money” behind closed doors, blaming (or thanking) him for inflating valuations of late-stage companies.

It looked like everything would come crashing down for him during the COVID-crisis – the poster child for market excess, amplified by misplaced bets in WeWork and others. Not one to lack confidence though as SoftBank’s NAV suffered a 50% drawdown, he published this legendary slide about unicorns jumping over the “Valley of Coronavirus”.

While many counted him out or even mocked him, just like the Dotcom bubble, he did in fact make it out on the other side having successfully recycled his capital base. Despite selling NVIDIA too early (his stake would be worth close to the current market cap of SBG), his NAV today sits close to ATH with levered bets on chipmaker Arm as well as OpenAI.

With his new bets in play, are we in store for the next growth spurt in Masa’s Empire? Or will we see yet another 50% drawdown on his path to glory?

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Infinite outcomes

What makes SoftBank so fascinating is its wide range of potential outcomes.

SoftBank Group’s share price was up 16% this week and is +40% YTD, in reach of its ATH. In seemingly contradictory fashion, SoftBank’s 5Y CDS has widened to 342 bps implying a non-trivial probability of default.

This may not be so counterintuitive since a barbell approach may make sense when both right and left tail events are in play (more on this in Part 2).

For now, let’s take a look at what sits inside SoftBank and what makes it so swingy as we look to establish a lower and upper bound range on its NAV.

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Inside SBG: unpacking the black box

SoftBank Group (“SBG”) is a pure HoldCo (since spinning off its telecom subsidiary, SoftBank, in 2015). Today, there is approximately $345B of GAV (gross asset value) that flows to the HoldCo (net of OpCo debt or other margin loans). Additionally there is $74B of HoldCo level debt and $27B of cash which ultimately feed into the NAV calculation.

SBG value flow chart

There are two primary components to SBG’s $345B GAV: direct stakes it holds in listed companies ($202B) and its interest in the Vision Funds ($114B). In addition, there is $29B of value which flows through through from its NAV share in SB Northstar (its investment vehicle / asset management subsidiary) including various other miscellaneous listed/unlisted stakes.

Side note for any budding investment analyst reading this: no matter how complex a conglomerate / company appears, you should be able to breakdown and visualise the value flow on a single page like this. Consolidated figures in the case of SoftBank are misleading and do not properly tell the story.

Let’s now go through the underlying drivers in detail.

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Honey, well I bought the dip

After patiently waiting around, we are excited to finally initiate a position in Honeywell (HON), taking advantage of the recent pull-back (-15% off the highs) on temporary Aero supply-chain related volume concerns, which we view as immaterial to the longer term thesis.

While we are keeping some powder dry for lower, we were keen to acquire a toehold ahead of a now compressed timeline with imminent catalysts ahead.

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Wait, you’re excited to buy refrigerators?

Not quite. Honeywell has a storied history, from early thermostat innovations in the late 1800s to a critical role in the Space race, supplying controllers for America’s first satellite Explorer 1 and over 16,000 parts for Apollo 11. Like many large industrial companies of its era, HON’s footprint morphed through organic initiatives and M&A into a sprawling conglomerate.

The Company embarked on an initial transformation in 2017, spinning-off its residential & consumer operations and shifting its focus towards “software-industrial” B2B.

This accelerated under the new CEO Vimal Kapur who in 2023 sought to further realign Honeywell across three megatrends: automation, the future of aviation, and energy transition.

Following a portfolio review in 2024 the Board agreed to embark on a series of spin-offs and we are now in the final phases of this transformation.

The GE blueprint

The set-up is reminiscent of General Electric when they decided to split the business in three in late 2022 – after stagnating sideways for years the strategy unlocked the following share price performance:

• Spin-off: GE Vernova: +909%

• Spin-off: GEHC: flat

• StubCo: GE (Aerospace): +535%

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GE Aerospace is an incredible business and also Chris Hohn’s (TCI) top holding, helping him drive the biggest annual gain ever recorded by a hedge fund last year (+$28B). The crown jewel of GE is CFM, its JV with Safran which dominates the engine market for narrowbody commercial aircrafts: large installed base with highly visible (>30 year) cashflow profile through new equipment and after market services.

Prior to the spin-off, Chris Hohn was already very familiar with the business through his investment in Safran (the other side of the CFM JV) which he had held for >13 years. Safran shares have compounded at 20% IRR for him over that time frame (!) In other words, the type of business you are more than happy holding for the long-term even at a fair price.

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So what about Honeywell?

HON has recently reorganised its reporting lines across (i) Aero Technologies and (ii) Automation which together generate close to $40B in sales across diverse industrial end-markets. This is post spinning-off its Advanced Materials division (SOLS) at the end of last year (SOLS is +60% already).

The Aero Technologies business, on the aircraft side, specialises in avionics and auxiliary power units (APUs) amongst others. While not 100% comparable to engines, HON’s market position in APUs is very similar, with an effective monopoly on legacy and current generation commercial narrowbody platforms.

In addition, HON is entrenched in Defence where it equips 70% of military aircraft worldwide and in the Satellite market where its hardware flies on ~80% of satellites currently in orbit.

Automation comprises (i) Building (safety & sustainability solutions for fire prevention, energy management etc.) (ii) Industrial (sensors, logistics automation etc.) and (iii) Process (emissions reduction, cybersecurity etc.).

Overall, Honeywell benefits from large installed bases and a growing aftermarket sales component (currently ~30%) with high incremental margins.

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Catalysts, timeline, and the cherry on top

HON is in the final stages of its transformation and looking to execute on two important milestones in very the near-term:

1. Spin-off of Aerospace division June 29th

2. Divesting non-core (lower margin) assets PPS and WWS (H2 closing)

This is not all, however.

Honeywell is the majority owner (54%) of Quantinuum, widely perceived to the THE leader in quantum computing. Back in 2021, HON combined Honeywell Quantum Computing (trapped-ion hardware pioneer) with Cambridge Quantum Computing (quantum software). In September 2025 it raised capital at a $10B pre-money valuation from the likes of NVIDIA and JP Morgan (who lead prior rounds). Quantinuum was the first hardware provider to integrate NVIDIA’s CUDA-Q platform and in November 2025 they launched Helios, the first commercial quantum computer, leaps ahead of its competition (yes even IONQ despite recent progress).

Quantinuum confidentially filed its S-1 in February and is slated for an IPO later this year.

We love free options that can go “ballistic” and Quantinuum represents an exciting “swing factor” to an already attractive set-up.

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The rest of the post is for paid subscribers. Now that we’ve provided the background, let’s dig into valuation, target levels and our overall thought process on the trade.

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