Dear Partners,
Our partnership rose 11.6% in Q3, bringing year-to-date performance to 39.8%. For comparison, the S&P 500 Total Return Index gained 8.1% for the quarter and is up 14.8% year-to-date.
These results are encouraging; they reflect years of positioning in undervalued businesses that quietly compound value. That compounding is now showing through in performance, enabling us to harvest gains and redeploy them in other places where the gap between price and intrinsic value is widest.
Like gardening, investing requires time: preparing soil, planting seeds, clearing weeds, and staggering harvests over time. Some crops yield quickly, others more slowly, but rotation keeps the ground fertile for the next season.
Portfolio rotation: trimming and replanting
During the quarter, we trimmed some long-held positions. These businesses remain exceptional compounders, but their share prices have significantly increased since our initial investments years ago, which has narrowed our margin of safety:
- goeasy shares have appreciated 4.6x in about seven years (averaging ~25% return per year)
- Mader Group shares have appreciated 3.6x in about four years (averaging ~38% return per year)
- Dino Polska shares have appreciated 3.0x in about six years (averaging ~21% return per year)
By realizing gains, we freed capital and redeployed it where future returns are greater.
We increased our investments in Ashtead Technology, Globus Spirits, Kri-Kri Milk Industry, and Auto Partner. In each case, temporary share price weakness provided an opportunity to deepen ownership in resilient businesses with long growth runways.
Two new investments have been added. In last quarter's letter, we noted that we were in the process of underwriting these opportunities. Having now completed that work, we are pleased to confirm their inclusion in the portfolio.
RS Technologies (Japan: 3445.T)
The global leader in wafer reclamation, a counter-cyclical business that the market currently undervalues. The company is led by a Japanese founder of Chinese origin, with the rare ability to bridge Japanese technology expertise with Chinese scale.
What is wafer reclamation?
Wafer reclamation is the process of taking used silicon wafers from the semiconductor manufacturing process and restoring them so they can be reused. RS Technologies cleans and polishes these wafers, so they perform almost as well as new, but at just 15–20% of the cost.
Why is it important?
Factories use thousands of wafers monthly to test their processes or equipment, and normally, new wafers would be used for testing and then they would be discarded. Reclamation allows factories to reuse their materials, save on operating costs, and it is more environmentally friendly.
RS Technologies has recently been shifting capital from this highly profitable core business into two major projects in China that are not yet profitable: prime wafer production and solar energy storage. While this diversification has increased risk and led to the stock's discount, it also created an opportunity for us to acquire valuable assets for far less than they are worth.
Synektik Spółka Akcyjna (Poland: SNT.WA)
A distributor of advanced medical technologies to hospitals. The core problem for hospitals in Central and Eastern Europe is a persistent technology gap compared to their Western European counterparts. This isn't just about prestige; it's about patient outcomes, attracting top surgical talent, and fulfilling public health mandates.
What does Synektik do?
Synektik connects clinics and hospitals with the latest equipment for surgery and medical imaging. Their exclusive rights to distribute da Vinci surgical robots in the region position them as a key partner for both manufacturers and healthcare providers.
Why is the company valuable?
Synektik operates on a "razor-and-blades" model: first selling the expensive robot (the "razor"), then after the robot is installed, hospitals regularly buy high-margin consumable items, such as replacement parts, disposable tools, and specialized cleaning kits, and pay for ongoing maintenance (the "blades"). This creates recurring, profitable revenue streams as installed robots drive steady demand for supplies and support.
We believe the market is mispricing Synektik as a hardware distributor with inherently volatile revenues, typical of sellers of high-cost equipment. In reality, recurring revenues now account for more than half of total sales, reflecting the company's evolution into a more predictable, service-oriented business that merits a valuation more in line with intrinsic value.
Compounders at work
While rotation defined this quarter, our core long-term holdings kept compounding:
- ASA International (+130.1% YTD)
- Puuilo (+45.2% YTD)
- Inter & Co (+118.7% YTD)
- China Sunsine (+75.3% YTD)
These long-undervalued companies illustrate the value of staying invested in durable businesses where compounding steadily works in our favor.
Looking ahead
The portfolio is stronger today, balancing established high-quality holdings with new positions initiated at attractive valuations. Realized gains have been redeployed into founder-led, cash-generative businesses in the early stages of growth, leaving the portfolio well positioned for strong returns in the period ahead.
As we enter the final quarter, we are underwriting additional opportunities that align closely with our investment criteria: businesses with clear pricing power led by high-caliber founders with a proven track record in capital allocation.
With Phoenician Intelligence™, we now evaluate dozens of companies across markets each quarter, accelerating pattern recognition and anomaly detection that once took months of manual work. By combining this analytical capability with our time-horizon arbitrage approach, where we deliberately adopt longer-term perspectives than the market, we can capitalize on short-term inefficiencies. This advantage allows us to identify mispriced opportunities and hold them until market noise settles.
At Phoenician we are privileged to partner with investors who embody patience, discipline, and conviction. Your enduring trust enables us to pursue opportunities free from short-term pressures. This shared alignment of temperament and time horizon is rare among investors and remains one of Phoenician's hallmark strengths.
Thank you, as always, for your continued trust and partnership. I look forward to updating you again at year-end.
Cordially,
John G. Khabbaz