I learnt so much from him but chose to go a way that suited my personality better. However, sometimes something so “ick-y” and “cheap” saunters along that I can’t help but take a look.

Mike Burry was my hero for the better part of three years so this one goes out to him.

Shoe Zone plc is a ~£23m equity market capitalisation debt-free UK value footwear retailer. The business operates as the absolute pricing floor for essential everyday consumer footwear, serving as an inflation-insulated multi-channel provider across town centres, retail parks and digital marketplaces. By aggregating high-volume, direct-from-factory product sourcing and routing it through a lean, fully verticalised logistics network, SHOE commands unmatched structural cost advantages in the absolute value tier.

Perceived as an obsolete high-street retail relic vulnerable to secular decline, SHOE has undergone a comprehensive format modernisation. Following back-to-back punitive UK fiscal budgets, National Living Wage hikes and Middle East geopolitical supply chain shocks, the equity has experienced total capitulation. The current share price prices in severe structural distress rather than a well-capitalised, cash-generative business traversing a cyclical macro trough.

The business remains under the absolute stewardship of the founding Smith dynasty. Their structural focus is governed by an explicit “2027 Optimisation Plan” - a rigorous program designed to permanently eliminate low-margin legacy high-street branches, scale up larger-format “Big Box” and hybrid retail parks and optimise digital logistics to cement a highly defensive, cash-generative platform.

The Thesis

• The market’s aggressive sell-off following the April and May 2026 updates has thoroughly de-risked forward expectations. By guiding to a full-year adjusted loss before tax of £1.0m to £2.0m for FY26, management has entirely cleared out stale consensus assumptions, setting an incredibly low bar for a structural turnaround.

• In a governance move to maximise operational focus, CEO Anthony Smith stepped down from the listed PLC board to dedicate his absolute attention to the day-to-day retail engine via the operating subsidiary, Shoe Zone Retail Limited. PLC oversight is anchored by Chairman Charles Smith and FD Terry Boot.

• Rather than acting as passive corporate custodians during a cyclical downturn, the Smith family deployed substantial personal wealth into the equity. On May 19, 2026, Charles and Anthony Smith stepped into the open market, personally purchasing 2.76 million shares at a rock-bottom price of 50p, expanding the family’s controlling stake to 64.08%.

• Given an average lease profile that has been reduced to just 2.3 years, SHOE possesses a structural weapon unavailable to legacy peers. The group can walk away from underperforming town centers or extract aggressive rent concessions upon immediate renewal, eliminating long-term structural real estate risk.

Investment Recommendation

1) Dynasty Control & The Asymmetry of the Take-Private Option

The investment thesis requires looking past standard corporate governance frameworks to evaluate the structural implications of a high-insider-ownership model. The Smith brothers are asset-focused managers with deep industry expertise, maintaining a pathological aversion to corporate debt.

Regulatory filings from May 2026 reveal aggressive buying from the family at the cyclical floor:

• Charles Smith (jointly with Sian Smith) purchased 1,226,237 ordinary shares at 50p, expanding their holding to 13,159,931 shares (28.47%).

• Anthony Smith (jointly with Catherine Smith) purchased 1,533,693 ordinary shares at 50p, expanding their holding to 16,460,250 shares (35.61%).

While this coordinated purchase lifted the aggregate family holding to 64.08%, this concentration does not present a valuation floor. Under AIM regulations, the family only needs a small minority voting bloc to reach the 75% threshold required to voluntarily delist the company. Crucially, a founder who is honest, competent and heavily invested is not inherently aligned with minority shareholders. While public markets demand maximum share price appreciation and immediate yield, a dynasty-led management team frequently prioritises operational control, long-term private ownership and wealth preservation across generational successions. Consequently, the core risk is a lowball take-private bid made at the absolute absolute bottom of the cyclical trough, forcing institutional and retail minorities to lock in permanent capital losses.

2) Deconstructing the Balance Sheet & The Cash Cushion

The bear case relies on a surface-level screening of retail income statements during a macro contraction. A precise balance sheet audit completely dismantles any near-term solvency concerns:

• The group remains entirely debt-free with zero financial bank leverage or callable facilities.

• Despite printing a statutory loss before tax of £5.3m in H1 2026 due to transient operating leverage and fixed occupancy costs, SHOE’s net cash position actually increased to £7.5m (up from £1.7m in H1 2025 and ahead of the FY25 year-end close).

• This £7.5m net cash buffer represents nearly 32% of the entire equity market capitalisation, offering an exceptional operational buffer.

• Inventory has been aggressively rationalised, falling by £6.5m period-over-period to £28.0m as management aggressively matches inventory intake to current volume demand, freeing up working capital.

3) H1 2026 Operational Reality & Product Margin Resilience

A forensic analysis of the H1 2026 interim results exposes a resilient core engine masked by temporary macro disruptions:

• While H1 revenue compressed 12.0% to £62.9m (driven by a 14.1% decline in store revenues from trading out of 19 fewer stores and a 6.0% digital dip), underlying product margins actually expanded by 230 basis points to 61.7% (up from 59.4% in H1 2025).

• This core profitability expansion demonstrates that SHOE’s direct-sourcing engine from Asia remains intact, capitalising on normalising container freight rates and favorable FX pairings.

• The statutory losses are purely an artifact of fixed store occupancy costs clashing with lower temporary footfall. The moment consumer discretionary spend stabilises, the high operational gearing of the newly optimised 206 larger-format stores will drop straight to the bottom line.

The Post-2027 Normalised Financial Model

The primary vulnerability in any turnaround thesis is the assumption that “normal” historical earnings power will inevitably return. Retail history is littered with businesses that permanently collapsed during modernisation pivots. To isolate the financial model from arbitrary assumptions, we build a strict bottom-up bridge based entirely on the targeted store state of 260 optimised units by the end of 2027.

Rather than assuming a blanket revenue recovery, we model the structural step-down in the absolute physical footprint, offset by the higher average transaction value (ATV) profile of the hybrid and Big Box formats.

Grounding the Assumptions:

• Physical Footprint: 260 stores fixed. Average revenue per optimised Big Box/hybrid unit is modeled at £438,500 based on historical mid-tier performance data, down from peak-cycle tracking to account for secular footfall erosion.

• SHOE accounts for fixed rents, business rates and store depreciation directly within Cost of Sales rather than operating overheads. Consequently, Gross Profit is a function of fixed cost dilution. At £150.0m of combined group revenue, fixed lease absorption normalises the Gross Margin at 18.0%, significantly lower than historic 20%+ peak-cycle metrics.

• Distribution costs settle at £5.5m, embedding structural savings from exiting 3 of the company’s 6 logistics leases, offset by persistent National Living Wage escalations.

Total Revenue: £150.0m

Gross Profit: £27.0m (18% Gross Margin reflecting normalised fixed occupancy absorption)

Administrative Expenses: £17.0m (Baseline corporate and administrative overhead)

Distribution Costs: £5.5m (Fully optimised logistics and halved fulfillment footprint)

Operating Profit: £4.5m (Normalised run-rate operating earnings)

Net Profit After Tax: £3.4m

Against the current 50p entry point, the equity trades at a forward P/E multiple of 6.8x under these adjusted parameters. This multiple represents a notable valuation discount for a cash-positive asset, but its realisation remains explicitly conditional on management successfully managing wage inflation and completing the logistics footprint consolidation without further volume degradation.

Risks

• Further unhedged shifts in UK payroll tax frameworks or minimum wage escalations could permanently compress the retail operating margin, preventing PBT from breaking above a structural ceiling of £2.5m.

• The high concentration of family ownership (64.08%) presents a structural hazard where the asset could be taken private at a steep discount to fair value during an extended macro contraction, locking in permanent losses for public market investors.

Catalysts

• The full-year cash statement confirming that net cash has remained highly resilient despite paper accounting losses, breaking the “retail insolvency” narrative.

• Breaking out of unprofitable legacy leases via the short 2.3-year average lease window, demonstrating immediate fixed-cost rationalisation.

• Further open-market accumulation by Charles and Anthony Smith, signalling the final operational window before a potential formal private buyout bid.

Historically, SIG has been a classic “value trap”: a sprawling, operationally bloated consolidator that struggled to unify its regional acquisitions. Following a brutal, protracted European construction slump, the company’s equity has been decimated to a cyclical floor. Sentiment is at a point of absolute capitulation, with the equity pricing in technical bankruptcy rather than its position as a foundational market consolidator.

The business is now under the control of an elite turnaround executive team: CEO Pim Vervaat (who added the Chair designate role) and CFO Simon Kesterton. Their strategic focus is explicitly defined by “Vision 2030” - an aggressive program designed to permanently rationalise costs, optimise the corporate portfolio, and package the asset as a clean, turn-key platform for a global strategic consolidator.

The Thesis

1. The Q1 2026 trading update has thoroughly cleaned the slate. By accounting for structural cyclical headwinds and severe winter weather anomalies, management has anchored consensus forward numbers at an exceptionally beatable trough.

2. CEO Pim Vervaat and CFO Simon Kesterton are seasoned corporate “fixers.” They previously worked together as CEO and CFO of RPC Group plc, where they engineered an extensive operational turnaround culminating in a £4.3 billion public-to-private sale to Berry Global.

3. Rather than acting as passive caretakers, both executives deployed substantial personal capital into the equity during May and June 2026 at rock-bottom prices, providing explicit alignment with public equity holders.

4. Following a structural execution that removed £39m in underlying annualised operating costs in 2025, fixed overhead is at a historical low. Given the intense operational gearing built into SIG’s branch network, even a marginal post-weather volume recovery translates directly into rapid operating margin expansion.

Investment Recommendation

1) Strategic Alignment & The Executive Exit Timeline

The investment thesis hinges on appreciating that Vervaat and Kesterton are short-term structural architects, not long-term steady-state managers.

• Upon appointment, Vervaat’s executive contract was structured around a distinct timeline: a short, intensive 18-month executive sprint to stabilise and restructure operations, followed by a scheduled transition into the role of Non-Executive Chair.

• Regulatory filings from mid-2026 reveal direct open-market buying from the top:

  • In May 2026, CEO Pim Vervaat purchased an additional 250,000 ordinary shares, bringing his total beneficial ownership to 3,750,000 shares.

  • On June 4, 2026, immediately upon taking the CFO office, Simon Kesterton purchased 59,565 ordinary shares, expanding his total personal beneficial stake to 2,223,082 shares.

2) Deconstructing the Capital Structure & The Covenant Bypass

The bear case rests on a surface-level screening of SIG’s £518.2 million net debt. A precise credit audit completely de-risks this leverage profile:

• Over 62% of this figure (£323.0m) consists entirely of capitalised IFRS 16 lease liabilities for branch warehouses and logistics fleets. These property contracts are entirely covenant-free, are not bank-callable, and carry no risk of technical default.

• Financial net debt sits beneath the £200m line, with senior financial bank debt operating at less than £100m.

• The maintenance covenants attached to the Group’s £90m Revolving Credit Facility (RCF) carry a soft check: they only trigger and are only tested if the facility is greater than 40% drawn (£36m) at a quarter-end reporting date.

• As verified in the late-Q1 2026 trading update, the £90m RCF remains entirely undrawn, with early-year cash flows tracking ahead of internal plans. By maintaining working capital control to keep drawings below 40%, management effectively bypasses covenant risk altogether. Furthermore, following comprehensive debt packaging, core maturities are pushed out safely to 2029, providing a multi-year operational runway.

3) Q1 2026 Operational Reality & Pricing Power

The April 2026 trading update sets a highly visible, de-risked run-rate for the back half of the year:

• Q1 LFL sales declined 5% to £614m, heavily depressed by cyclical macro lows compounded by unusually severe winter weather across mainland Europe (Germany down 10%, UK Interiors down 8%).

• The moment the weather cleared in March, volumes inflected instantly. LFL sales declines moderated sharply to a run-rate of 2-3% across March and April in aggregate. With year-over-year comparators easing significantly from May onward, H2 2026 is structurally positioned for positive surprises.

• Input cost inflation from elevated oil and gas prices is being passed through to trade contractors in a timely manner. With flat pricing established against a raw materials backdrop and £39m of permanent structural operating costs stripped out of the business, a lean fixed-overhead baseline has been set.

Financial Model

• FY25 underlying EBITDA tracked at £110.2m (inclusive of net lease cash costs). Given the Q1 weather drag, H1 2026 profit will land below H1 2025, heavily back-weighting the full-year delivery to a de-risked H2.

• We model an organic European construction volume recovery of 3% annually from 2027 to 2029. Backed by centralised procurement benefits and the elimination of underperforming regional units via the 2026 Strategic Portfolio Review, we project underlying operating margins expanding back to management’s targeted mid-term range of 3% to 5%.

• On normalised revenues of ~£2.75bn at a 4% underlying operating margin, the business generates an exit EBITDA of £160 million.

• Applying a conservative exit multiple of 6.5x EBITDA (reflecting a structural discount to US consolidators to account for European cyclicality) yields an Enterprise Value of £1,040 million. Subtracting lease liabilities and sweeping organic cash flows to reduce senior financial debt down to £120 million leaves an Implied Target Equity Value of £920 million. Against a compressed current equity market cap of ~£97m, this mechanical value transfer implies a ~9.5x return potential over a 3-year forecasting window.

Risks

• If European central banks hold interest rates elevated longer than anticipated, the structural inflection in residential new-build indices could slide into late 2027.

• Short-term gross margin compression could materialise if rapid, volatile adjustments in energy-intensive input costs face localised distributor resistance before pass-through pricing catches up.

Catalysts

• August 4, 2026: Interim H1 2026 financial results publication, exposing the exact operational progress of Kesterton’s first full quarter managing working capital.

• H2 2026: Definitive structural asset divestment or closure announcements resulting from the ongoing 2026 Strategic Portfolio Review under the Vision 2030 mandate.

• Quarterly RCF Disclosure: Consistent execution keeping RCF drawings below the 40% springing threshold, confirming total covenant insulation to the market.

Our choice for a deep fundamental look is none other than WH Smith PLC (LSE: SMWH). (Throughout this piece, WH Smith can be assumed to be an acronym for the company or its ticker.)

I found the company last year when casually reading the news and noticed the accounting scandal. At that point, with mirrors of Tesco, I left it untouched. Now, however, the stock is down more but the situation looks better.

There is some brief company history that is worth pointing out (for the sake of clarity). WH Smith has been around since 1792, starting as a small newsvendor in London before inventing the travel concession model at railway stations during the railway boom of the 19th century. For over a century, it was known as a sleepy, low-margin UK high-street staple. However, over the past decade, a quiet but massive structural shift occurred: the company systematically deprioritised its high-street division, carving out and divesting portions of it to entities like Modella (TG Jones), to become a pure-play global travel retailer.

Today, there are two main geographic components of WH Smith, the high-growth North American division (~40% of travel revenues) and the UK & Rest of the World (ROW) segments, both of which operate strictly inside airports, train stations and hospitals.

From an initial standpoint, the stock looks deeply impaired. In its interim results for the period ended 28 February 2026, WH Smith reported a headline profit before tax of just £3m, down from £21m the previous year and swung to a statutory pre-tax loss of £25m after absorbing heavy restructuring charges. To make matters worse, the balance sheet shows a massive net current liability position of £582m, driven by the technical reclassification of its £400m Revolving Credit Facility (RCF) into a current liability.

Unfortunately, it’s just not that simple. For lease-intensive concession businesses, traditional EV/EBITDA multiples can materially overstate economic cheapness because lease obligations function similarly to senior operating debt. Statutory accounting under IFRS 16 works wonders to confuse the income statement with non-cash asset depreciation and imputed lease interest. To understand the true underlying economics, analysts must move past this “lazy analysis” and isolate the clean cash flows alongside the rigid architecture of the lease liabilities.

Let’s delve deeper and calculate the real cash-earning power of the business from first principles.

WH Smith reports a trailing 12-month Headline EBITDA of £173m. Crucially for our modeling, management explicitly records this metric on a Headline, pre-IFRS 16 baseline , meaning the actual fixed rent paid to landlords has already been fully deducted as an operating cash expense. To arrive at a pure, pre-dividend Free Cash Flow, we only need to subtract vanilla net finance costs on bank debt (£28m), cash taxes (£10m) and management’s strictly enforced capital expenditure cap (£90m).

This hard math reveals a normalised, pre-dividend cash Free Cash Flow range of approximately £45m to £55m:

Pre-IFRS 16 EBITDA (£173m)−Vanilla Finance Costs (£28m)−Tax (£10m)−Capex (£90m)=£45m to £55m

Against a depressed equity market capitalisation of roughly £1.5bn, this yields a normalised cash FCF yield of around 3% to 3.5%.

Let’s be very clear: this is not a screamingly cheap valuation today. A 3% cash FCF yield is a full price to pay for a leveraged operator exposed to severe macro cyclicality, operational execution risks and ongoing governance remediation. Institutional investors should apply a permanent haircut to these “normalised” figures; the £27m remediation charge required to clean up historical supplier-income accounting errors in the North American Resorts/Las Vegas business may not be entirely a one-off. When a retail operator closes underperforming locations, shrinks footprints (like the current 20% to 30% consolidation of the InMotion brand) and rewrites internal compliance controls, those turnaround costs tend to cascade in adjacent forms for several fiscal years.

Therefore, the core thesis is not that WH Smith is cheap on current earnings. The thesis is that the stock could become substantially undervalued if aggressive balance sheet deleveraging and a corporate format rerate occur simultaneously.

The business is frequently described as “inflation-linked” because passenger spending rises over time and transit-hub pricing power allows operators to pass through price increases. However, gross margins face intense structural pressure from wage and logistics inflation , meaning pricing authority is a defensive shield rather than an expansion tool.

Furthermore, travel retail is fundamentally cyclical and tied to high operational leverage. The single most critical long-term structural risk variable here is concession renewal economics and the pervasiveness of Minimum Annual Guarantees (MAGs). Transit authorities routinely rebid these contracts and lean heavily on MAG structures, forcing WH Smith to commit to fixed, baseline rent floors regardless of underlying passenger traffic. Passenger growth is not linear and aggressive deleveraging stories become structurally dangerous if traffic weakens due to macroeconomic or geopolitical shocks, like the current Middle East escalation, during key refinancing windows. If top-line terminal revenues soften, the rigid MAG floor remains completely flat, leading to rapid margin compression.

WH Smith currently carries £496m in bank net debt (£1,010m if you include the present value of IFRS 16 lease obligations). Because the board took the swift, aggressive action to completely suspend the dividend , 100% of the company’s generated free cash flow is going straight toward principal debt retirement , targeting a headline bank debt reduction down to £420m by the end of the year.

This is where the investment case becomes an elegant “equity transfer” play. When a company uses its cash earnings exclusively to pay down senior bank debt rather than paying out dividends, a mechanical transfer of corporate wealth occurs:

Enterprise Value (EV)=Market Capitalisation (Equity)+Net Bank Debt

Assuming the Enterprise Value remains entirely flat because the global travel market simply stabilises, every single pound of bank debt paid off shifts directly into an additional pound of value for the equity holder. If management drops bank net debt from £496m down to its structural target of £300m over the next 36 months, that £196m of debt reduction converts directly into capital appreciation for equity holders before a single multiple expands.

The operational lever backing this debt reduction is their aggressive pivot to an asset-light international franchise model. In the Rest of the World and secondary US terminals, WH Smith will no longer fund expensive store fit-outs out of its own pocket. Instead, local franchise partners deploy the capital, while WH Smith extracts predictable, high-margin cash royalty fees (typically 5% to 8% of top-line sales).

The near-term bear case remains clear: the ongoing conflict in the Middle East has introduced geopolitical headwinds, inflating jet fuel prices, disrupting flight paths and prompting management to issue a cautious outlook ahead of the peak summer trading period.

Mitigating these near-term friction points is the arrival of corporate turnaround veteran Leo Quinn, who assumed the role of Executive Chair on April 7, 2026. Mr. Quinn has a long precedent of establishing capital allocation discipline and maximising operational cash conversion at complex entities like De La Rue, QinetiQ and Balfour Beatty.

More importantly, look at the strict incentive alignment. Quinn is heavily incentivised via a massive £12.25m share option grant that requires him to double the company’s equity value, targeting a share price recovery back to 1,300p within five years to unlock an estimated £24.5m payout. His presence brings the capital discipline required to ensure that cash is prioritised for debt reduction rather than value-destructive retail expansions.

The single biggest liquidity headwind on the balance sheet- a looming £327m Convertible Bond maturing on May 7, 2026 - has already been managed. Post-balance-sheet disclosures show that management successfully secured £200m in US Private Placement (USPP) notes and extended a £120m term loan facility out to March 2029. The successful refinancing materially reduces immediate liquidity concerns and suggests lenders remain comfortable extending duration against the underlying asset base.

In conclusion, WH Smith is a structurally high-quality travel operator masquerading as a stressed, debt-laden high-street retailer. It is a cyclical turnaround with real lease friction, rigid MAG obligations and near-term margin compression. However, with a clear post-maturity refinancing runway , rigorous capital allocation guards in place and a management team tightly incentivised to prioritise bank debt paydown, the balance sheet evolution makes it worth some serious consideration from fundamentals-driven investors who can tolerate near-term volatility.

Best investing,

Harshu Vyas

Especially in the UK, where planning roadblocks and shifting tax policies make direct ownership a minefield. For most private investors, direct commercial property or traditional buy-to-let portfolios are structurally limited by a few major issues: your money is locked up, the debt is heavy, the management is exhausting and the final net yields rarely compensate for the headaches.

Yet, with equities trading at demanding prices, completely ignoring tangible, real-world assets feels short-sighted.

Toward the end of last year, I began looking closely at UK Real Estate Investment Trusts (REITs). London office REITs initially looked interesting because there is a genuine shortage of modern, green workspace. However, the sheer amount of cash required to build or upgrade them, combined with short lease terms and the constant threat of tenants moving out, made the risk-reward ratio uncompelling.

I looked into direct commercial development next - taking single-story warehouses on the edges of towns and building upward into mixed-use flats. But development eats capital, is highly exposed to local planning delays and gets hit hard by construction-cost inflation.

This led me to pivot to the institutional side of the market: searching for high-quality property assets that require zero day-to-day management while delivering a steady, growing stream of cash.

That is where I encountered LondonMetric Property plc (LSE: LMP).

The biggest hurdle for most REIT investors is transparency- knowing exactly what buildings you actually own. LondonMetric is a FTSE 100 company with a £7.6 billion portfolio generating over £450 million in rental income.

However, obsessing over Net Asset Value (NAV) misses the point. In a world of higher interest rates, UK REITs routinely trade at persistent discounts to their asset values. The quality of the income stream is what matters.

LondonMetric operates primarily as a Triple Net Lease (NNN) investor.

Under this model, the tenant signs a contract to pay for all property expenses, including insurance, structural repairs and local business rates, on top of their base rent. This structures the cash flows to mimic infrastructure bonds, allowing the company to retain 98.5% of its gross rental income as profit, entirely bypassing the maintenance costs that plague multi-tenant portfolios.

Instead of conventional commercial real estate, LondonMetric aligns its capital with long-term economic trends, avoiding traditional office space and high-street retail - a deliberate pivot over the years.

The strategy focuses on the following RE:

1. Logistics & Urban Distribution (54.0%)

2. Entertainment & Leisure (18.4%)

3. Convenience Retail (13.5%)

4. Healthcare (12.5%)

Logistics space has quietly shifted from basic storage into essential infrastructure. Because these hubs must be placed near major population centers and transport networks, they are incredibly difficult to replicate due to land scarcity and strict UK planning rules.

Once a tenant spends millions integrating an automated sorting setup into its supply chain, moving out becomes expensive and operationally disruptive, which keeps tenant retention high.

LondonMetric recognised this years ago and began concentrating in this area.

The operational data backs up this structural positioning. Occupancy is near full capacity, organic income growth is tracked at 4.2% (demonstrating steady rent growth independent of new acquisitions) and recent rent reviews achieved average uplifts of 18%, driven primarily by open-market urban logistics reviews.

This leaves the logistics segment with an estimated 16% gap between current rents and market rates, which should translate to natural income growth as leases hit their scheduled review dates.

This means LondonMetric does not need the property market to boom any further to grow its income. Even if the UK economy completely flattens out and warehouse rents stop rising nationwide, LondonMetric has a contractually guaranteed path to growth. As the clock ticks and individual leases hit their scheduled 5-year review dates over the next few years, those rents will automatically step up to match that higher market reality, driving “natural” income growth directly into the dividend.

The public market frequently values real estate based on macro factors like interest rates. In reality, the speed of capital allocation and the quality of property underwriting depend entirely on the internal management team.

Andrew Jones - a self-proclaimed Warren Buffett fan - co-founded Metric Property Investments plc in 2010 and took the helm as CEO of LondonMetric following its merger with London & Stamford Property in 2013. He previously served as an Executive Director on the board of British Land, entering the institutional tier via the acquisition of Pillar Property plc in 2005. His strategy focused the portfolio away from cyclical central London offices and secondary retail toward logistics and convenience infrastructure before those shifts were fully priced by the wider market.

Evaluating the operational architecture reveals distinct characteristics that the market routinely under-appreciates:

While major competing REITs maintain large property management teams, LondonMetric runs its entire multi-billion-pound portfolio with a corporate headcount of 54 employees. For context, their recent acquisition of LXi REIT roughly doubled the size of total assets, but internal staff size only grew by roughly a third. This lean management structure results in a sector-lowest operating cost ratio of 7.7%.

Secondly, non-Executive Director Nick Leslau brings a successful background from his decades helming Secure Income REIT. Leslau maintains direct personal alignment with shareholders, controlling a stake of 26.4 million ordinary shares (representing approx. 1.28% of total issued share capital), held primarily via co-owned corporate vehicles like Prestbury Investment Holdings.

Under Jones, LondonMetric has operated as a consolidator within the fragmented UK listed property sector. Seeking scale to increase share liquidity and lower the cost of capital, management has completed five major M&A transactions since 2019, including the takeovers of A&J Mucklow plc, CT Property Trust, LXi REIT and Urban Logistics REIT.

In May 2026, LondonMetric formed a consortium with Schroder Real Estate Investment Trust (SREIT) to acquire Picton Property Income Limited for £403.4 million. This all-share merger allows LondonMetric to acquire 46% of Picton’s asset base at an implied property discount of approximately 9.2%, aiming to expand earnings per share by absorbing these assets into its existing low-cost management framework.

As a UK REIT, LondonMetric is exempt from corporation tax on property rental profits but must distribute at least 90% of those tax-exempt profits to investors via Property Income Distributions (PIDs).

The company has an 11-year track record of progressive dividend growth, with a current annualised dividend guidance of 12.45p per share. Based on a market entry price of 185p, this represents a prospective yield of 6.7%.

The distribution profile appears supported by underlying cash flows rather than aggressive capital recycling:

• Dividend Coverage: Full-year core earnings per share stand at 13.1p, representing a coverage ratio of 105.2%.

• Income Durability: The portfolio features a Weighted Average Unexpired Lease Term (WAULT) of 17 years, offering highly visible cash-flow projections.

• Inflation Linkage: 67% of rental contracts feature built-in contractual uplifts tied directly to inflation indices (RPI/CPI) or fixed review steps, providing an organic hedge against shifting economic cycles.

The balance sheet reflects a disciplined capital structure. The company holds an investment-grade Fitch credit rating of A- with a Loan-to-Value (LTV) ratio of 35%. The blended cost of debt stands at 4.1% with an average drawn maturity of 4.4 years. Over 80% of total debt liabilities are fixed or interest-rate hedged, shielding the near-term payout from debt market volatility.

Despite these defensive characteristics, structural risks remain part of the investment thesis:

1. Macroeconomic Rate Sensitivity: Property valuations are highly sensitive to monetary policy. If structural inflation keeps interest rates elevated, property yields will face upward pressure, keeping equity valuations compressed as they compete with high-yielding government debt.

2. Refinancing Dynamics: While debt is largely insulated from near-term rate movements, the 4.4-year average maturity means that as older, low-cost interest rate caps gradually expire, refinancing into higher-rate environments will incrementally push up the blended 4.1% cost of debt, creating a minor drag on future earnings.

3. M&A Integration and Capital Recycling: The speed of the acquisition strategy introduces execution risks. When absorbing diversified portfolios via all-share mergers, management must rapidly divest non-core or secondary assets to protect portfolio quality. A frozen or illiquid transaction market can slow down this asset-recycling engine.

4. Capped Upside during Economic Expansions: The 17-year long-income WAULT and fixed inflation caps protect the portfolio during downturns, but they prevent LondonMetric from capturing immediate open-market rental surges during rapid economic spikes. This causes them to underperform shorter-lease, more cyclical operators during boom periods.

To evaluate the compounding capacity of this model within a tax-free wrapper like a UK Stocks and Shares ISA, where dividends are paid gross with 0% withholding tax deducted at source, we analyse a £10,000 initial investment (purchasing 5,405 shares at a baseline entry price of 185p).

Here, we assume market valuation multiples remain entirely frozen at 185p for a decade, meaning dividend cash flow does all the mechanical work and every distribution purchases subsequent shares at the same entry yield. Furthermore, we assume corporate M&A halts completely. Growth is driven entirely by internal lease reviews minus minor interest drag from refinancing.

The position scales to 11,701 shares, establishing a portfolio value of £21,646 and an annual dividend output of £1,827.65 (an 18.3% yield on original cost). Over a decade, that’s a pretty cool return.

Especially when we consider management are seeking to acquire new properties at less than intrinsic value which creates more optionality for shareholders.

Inconclusion, the core investment thesis relies on whether management are able to keep adding to the portfolio they already have (and increase rents faster than inflation!). Eventually, the market will appreciate and recognise the quality of this REIT.

REITs are definitely unpopular and boring for now. But real estate will certainly have its day. Possibly after a flight out of equities… (or a pro-growth government).

In the meantime, for an ISA wrapper, the asset behaves less like traditional property speculation and more like inflation-hedged infrastructure: run on low corporate overhead, structurally insulated from property-level operating expenses and positioned to compound real cash flows while public property sentiment remains weak.

I own shares :)

Best investing,

Harshu Vyas

The signs are generally fairly similar: a differentiated business, management I can believe in, assets of real quality, some plausible route back to growth and, most importantly, enough liquidity to survive if things take longer than expected.

I have a strong preference for businesses that can fund their own future. Growth matters, but growth without cash discipline is not worth much. Before a company looks too far afield for new opportunities, I want to know that it is extracting as much value as possible from the assets, customers and capabilities it already owns.

That means taking capital allocation seriously. Every pound spent - on working capital, operating expenses, product development or acquisitions - is an investment made on behalf of owners. It should have a clear expected return, a sensible payback and a place within a broader plan for compounding cash over time.

This is why balance sheets matter so much to me. Cash is not valuable merely because it exists. It is valuable because it provides resilience when things go wrong and optionality when opportunities arise. The best management teams preserve that optionality, then deploy it only when the expected return is attractive.

I do not invest for liquidation. I invest because retained earnings, properly reinvested, should make the future balance sheet stronger than the present one. If growth opportunities are not attractive, I would rather management conserve cash and eventually return it than pursue activity for its own sake.

That framework naturally draws me toward smaller businesses. They are often easier to understand, easier to influence and more likely to be mispriced when temporarily unfashionable. Illiquidity does not bother me much. Leverage, persistent losses and sharp revenue deterioration do.

Touchstar is the latest company where I have decided to swing hard.

Touchstar provides specialist software, rugged mobile devices and managed services for businesses that need to track, control, secure or prove the movement of people and products.

That sounds vague. It is not.

In practice, Touchstar sells the nervous system for certain awkward, physical workflows.

• Has this delivery actually been made?

• What was loaded?

• Who delivered it?

• What did the meter say?

• Has proof of delivery been captured?

• Who entered the building?

• Are staff movements being recorded?

• Can the depot, driver, back office and customer all see the same thing at the same time?

The historic jewel is FuelStar. In bulk fuel, LPG, biomass and similar delivery workflows, Touchstar connects depot planning, drivers, vehicles, meters, delivery quantities, proof of delivery, invoicing and customers in real time. Orders are sent to an in-cab device; the driver follows a digital workflow; meter data, stock movements, signatures, photographs and exceptions are sent back to the office; proof of delivery can be emailed immediately; and the system can integrate with existing back-office software.

The value proposition is not “nice software.” It is fewer errors, less paperwork, faster invoicing, fewer credit notes, better visibility, tighter compliance and lower working capital needs for the customer. In other words, Touchstar is not merely trying to make customers’ IT departments happy. It is trying to improve the customer’s cash conversion cycle.

The hardware matters too. Touchstar supplies rugged handhelds, tablets and specialist in-cab devices, including ATEX-approved mobile computers for hazardous environments. A generic iPad is fine until it needs to survive in a tanker cab, connect to a meter, guide a regulated workflow and keep working in poor conditions. Touchstar’s pitch is not one product. It is the whole stack: device, software, integration, installation and support.

Outside fuel, the same basic skillset shows up in adjacent products. PODStar does similar proof-of-delivery work for non-fuel fleets. Evolution controls who can enter a site and records workforce access. Fire & Security adds the more conventional layer of alarms, CCTV, fire detection and monitoring for depots, warehouses and industrial premises. Different products, yes, but the unifying theme is not really fuel, warehouses or retail.

It is securing the logistics of people and product.

That matters because the investment case is not that Touchstar becomes a giant horizontal software company. It is that Touchstar becomes a better-run specialist in awkward workflows where switching is painful and customers pay because operational failure is more expensive than the software.

The business earns money in two ways.

First, it sells project revenue: devices, implementation, integration, installations and customer-specific deployments. This is the lumpy part. Customers hesitate, installations slip, revenue misses. That happened in FY25.

Second, it earns recurring revenue: software licences, support contracts, hosting, managed services, maintenance and multi-year arrangements. This is the better bit. In FY25, recurring revenue rose 5.2% to £3.21m and reached 47% of group revenue. Point-in-time/project revenue, by contrast, fell from £3.84m to £3.61m. The company is therefore already half-way through a quality shift: the weaker revenue stream shrank, the better one still grew.

The model they want is simple enough: sell the system once, keep the customer for years, migrate them to newer software, add modules, support it and widen the relationship over time. Land, embed, expand. But unlike many fashionable SaaS businesses, Touchstar is attached to the physical world. Its customers are not buying another dashboard. They are buying fewer operational mistakes.

The problem is that the company has historically been run too softly.

Revenue growth became too slow. The business remained too reliant on upgrade cycles and large project orders. Sales forecasting became poor. Salespeople were dragged into project delivery. Development became reactive. The backlog was a mixture of defects, enhancements, technical requirements and internal ambitions, which is often what happens when a business has enough good ideas to stay busy but not enough discipline to make money from them.

The old accounting flattered the picture too. Touchstar historically capitalised a lot of software development spend and amortised it over four years. That is not illegal. It is also not the same thing as economic reality. In FY25, the new management team impaired £1.18m of development assets and said future development work will generally be expensed unless it clearly relates to new products or defined enhancements. They went further and explicitly admitted that historic EBITDA had been inflated by high capitalisation and amortisation add-backs.

That is a very unusual thing for management to tell shareholders. Most companies ask investors to ignore the ugly bit. Touchstar explained why the prettier old metric was less useful than it looked.

The result is that FY25 looks dreadful on first reading: statutory pre-tax loss of £1.34m, adjusted EBITDA down 34% to £759k, underlying operating profit before exceptionals of just £2k. But the ugliness is not all bad news. The balance sheet is cleaner, intangible assets are down from £1.29m to £204k and future EBITDA should sit closer to actual operating economics.

More importantly, the business did not fall apart while this happened. Revenue was only down 1%. Recurring revenue grew. Operating cash flow was £792k. Net cash at year end was still £2.34m after £264k of dividends, £215k of buybacks and £749k of investment spending. That is not a high-quality cash machine yet. But it is also not a distressed AIM story pretending to be one quarter away from salvation.

Unsurprisingly, the balance sheet is more interesting than the P&L.

Touchstar is not a software company with a few laptops and some goodwill. It still carries physical inventory because it sells real systems into the real world. In FY24, stock consisted of £708k of raw materials and consumables, £357k of finished goods and goods for resale, offset by a £73k provision. The accounting policy is revealing: inventory is mainly purchased materials and hardware; even WIP and finished goods exclude direct labour and production overhead because management considers those immaterial. This is software wrapped around physical products, not software floating in the cloud.

That matters because the cash-flow statement in FY25 is better than the income statement, but not by magic. Inventory fell by £284k. Receivables fell by £483k. Payables and contract liabilities fell by £581k. Net-net, working capital released £186k. Operating cash flow after interest was £792k, but after £659k of intangible additions and £90k of physical capex, free cash before dividends, buybacks and leases was only about £43k.

This is not yet a cash machine. It is a business being cleaned up.

The most attractive line on the balance sheet is contract liabilities. At the end of FY24, Touchstar had £2.17m of revenue already invoiced but not yet recognised, relating to maintenance and software-licensing contracts. In plain English, customers had paid before Touchstar had delivered all the service. That is customer financing.

FY25 contract liabilities fell to £1.83m, which needs explaining, but not panicking over: recurring revenue still rose from £3.05m to £3.21m and the company already allows both annual upfront payment and monthly direct debit. A customer shifting from annual billing to monthly SaaS billing reduces deferred revenue without reducing the quality of the customer relationship.

There is another small but important wrinkle. The headline order book fell from £1.27m to £876k. But in the FY24 annual report, Touchstar also disclosed an order book including recurring revenue due in the following year of £4.04m. Using the same rough construction for FY25 gives £3.21m of recurring revenue plus £876k of orders, or about £4.09m. The lumpy non-recurring book fell whilst the recurring annuity grew enough that the total forward revenue picture may have been broadly stable. That does not prove the turnaround. But it does show why reading the headline number alone is too crude.

The business still has things to prove. But the financial anatomy is not ugly. It has negative operating working capital, a customer-funded recurring-revenue base, no bad-debt problem visible in the prior-year accounts and £2m of net cash after a difficult year. The task now is not survival. It is turning those assets into more cash than management has historically extracted from them.

Of course, this is still a tiny AIM company with a history of under-delivery. There are plenty of ways I can be wrong.

The first is that FuelStar really is a legacy fuel product rather than a transferable bulk-logistics platform. I think the better interpretation is that Touchstar’s expertise is in regulated, metered, proof-heavy delivery workflows, not petrol itself. But that has to be proved. If electrification slowly erodes the core market and management cannot migrate the product into LPG, chemicals, gases, biomass and other adjacencies, then the “jewel in the crown” may be more melting ice cube.

The second is that the recurring revenue may be less valuable than it looks. £3.21m of recurring revenue is attractive, but I do not yet know the split between SaaS licences, support, hosting, maintenance and more hardware-adjacent service income. Nor do I know the gross margin, churn, price elasticity or net retention by product line. “Recurring” is a useful word. It is not magic.

Third, the reset may simply fail. Every underperforming small company can write a convincing paragraph about sharpened commercial focus, improved accountability and better sales discipline. What matters is whether order intake converts into revenue, cash and higher margins. Q1 2026 order intake being ahead of every comparable first quarter since 2021 is encouraging. It is not proof.

Fourth, Lynden Jones is both a reason to believe and a reason to ask questions. He has spent most of his career inside Touchstar and appears to have done good work at ATC. That gives him far more credibility than a random outsider arriving with a glossy turnaround deck. But it also raises the obvious question: if the problems were this fixable, why were they not fixed earlier? Perhaps he lacked the mandate. Perhaps the old culture would not allow it. Perhaps divisional success does not transfer to group leadership. I am willing to hear him out. I am not willing to suspend disbelief.

Fifth, the balance sheet can be wasted. Cash is only protection if management treats it like owners’ capital. The company spent £479k on dividends and buybacks during a year in which underlying operating profit was essentially zero, order intake fell and the business was being restructured. That is not ruinous. But it is not obviously the best use of cash either. Acquisitions are also mentioned as part of the strategy. Good. But only if they are small, adjacent, cash-generative and bought on paybacks, not PowerPoint.

Sixth, some of the FY25 cash generation may not repeat. Inventory and receivables came down materially, while contract liabilities also fell. That is not sinister, but it means one cannot simply annualise £792k of operating cash flow and declare victory. After investment spend, free cash before shareholder returns was only about £43k. The clean-up is real. The cash machine is still aspirational.

Finally, this is still illiquid, under-covered and tiny. If management disappoints, there may be no natural buyer. I do not mind illiquidity when I am right. It becomes less charming when I am wrong.

None of these risks make the investment case disappear. They just tell me what I have to watch: recurring revenue quality, price increases, order conversion, product adjacency wins, capital allocation and actual cash generation. If those improve, the thesis strengthens. If they do not, the cheapness is deserved.

Helpfully, the new CEO, Lynden Jones, has now reset the business around four fairly boring, but necessary, things.

First, management. Jones has spent most of his career inside Touchstar and previously ran ATC, where revenue grew 29% over two years and the business moved further towards recurring revenue. That is not proof he can fix the whole group, but it is more evidence than shareholders usually get when a stranger arrives promising transformation.

Second, structure. The business has been reorganised into two clearer divisions: IQ Logistics and Fire & Security. In a tiny company, clarity is not cosmetic. It is how you stop everyone being vaguely responsible and nobody being truly accountable.

Third, sales. A dedicated project delivery team has been added so salespeople can spend more time selling rather than shepherding installations. That sounds basic. It is basic. It is also exactly the sort of basic thing underperforming companies often fail to do for years.

Fourth, development. They are cataloguing and prioritising the backlog, reducing reactive work, improving release quality, slowing release frequency and moving customers away from legacy versions. Again, boring. Again, probably valuable. If successful, the same development budget produces more saleable product, fewer defects, less support drag and better customer retention. That is ROIC, even if no one calls it that.

The early sign is encouraging rather than conclusive: Q1 2026 order intake was ahead of every comparable first quarter since 2021. I would rather management had disclosed the number. But the point is not that proof has arrived. The point is that the mechanics are beginning to rhyme: new CEO, sharper commercial focus, repair work inside the business, balance-sheet runway and at least one early sign that the new approach may be working.

The upside does not require Touchstar to become Microsoft. At the current scale, small improvements matter a lot. FY25 revenue was £6.82m. Gross profit was £3.93m. Underlying operating profit was basically nil. If recurring revenue can grow from £3.21m to, say, £4.5m–£5m over time and if that revenue carries materially better gross margins than project work, much of the incremental gross profit could drop through a cost base that is already built. If project execution improves at the same time, profits can move far faster than revenue.

That is the core attraction. Touchstar does not need a miracle. It needs better use of assets it already owns: cash, customers, products, domain knowledge and people.

The bull case is not “fuel software forever.” In fact, that would be a weak thesis. Over a decade, road fuel demand may well decline. The better thesis is that Touchstar takes what it learned in fuel - regulated, metered, safety-critical, proof-heavy field workflows - and applies it to adjacent bulk logistics: LPG, chemicals, gases, biomass and other industrial deliveries where paper, spreadsheets and legacy systems still exist. Fuel may be the proving ground rather than the ceiling.

There is also room for acquisitions, but only after the engine is fixed. If management can first prove organic cash generation, then small bolt-ons in access control, fire/security, logistics software or recurring maintenance could be sensible. But this should not become another AIM roll-up where revenue is worshipped and returns are hand-waved. The correct question is always: how much cash do we put in, how quickly does it come back and what risks are attached?

That is why the cash matters so much. The £2.34m balance sheet is not just downside protection. It is strategic optionality. It means Touchstar can invest, wait, buy, or simply survive while others cannot. But cash is only valuable if management treats it like owners’ capital rather than free money.

So the investment case is fairly simple.

Valuation is where things get awkward, because Touchstar is not yet a high-quality compounder and no longer deserves to be valued off the old EBITDA either.

At a market capitalisation of roughly £5.4m and FY25 net cash of £2.34m, the market is valuing the operating business at only about £3.1m. That is less than one times recurring revenue and around four times FY25 adjusted EBITDA. On the face of it, that looks very cheap. But there is a reason I do not simply slap a software multiple on top and declare victory: FY25 adjusted EBITDA was £759k, yet free cash before dividends, buybacks and leases was only about £43k after £749k of investment spend. The business has to earn its multiple again.

There are three ways I think about the valuation.

The first is the current business valuation. Suppose nothing special happens.

Revenue remains around £7m, recurring revenue grows slowly and the company settles into being a modestly profitable niche operator. In that case, I would still struggle to value the operating business below roughly £3m–£4m, given the installed base, recurring income, products and customer relationships. Add back the cash and one gets an equity value around £5.5m–£6.5m. That is not exciting. It is also not much below today’s valuation. The downside, barring real operational deterioration, appears less awful than most AIM small-caps.

The second is the earnings-recovery valuation. If the reset works, Touchstar does not need heroic growth. Gross profit in FY25 was £3.93m and underlying operating profit was basically zero. That means modest improvements matter enormously. If recurring revenue rises from £3.21m to £4.5m–£5m over time, if project delivery improves, and if the cost base grows more slowly than sales, then clean operating profit could move far faster than revenue. A business doing £1m–£1.5m of genuine owner earnings would be worth far more than £5m. Even on a miserly 8–10x multiple, that is £8m–£15m of operating value before considering excess cash.

The third is the platform valuation. This is the optionality the market is assigning almost nothing to today. If Touchstar becomes a disciplined acquirer of tiny adjacent businesses - access control, recurring fire/security maintenance, niche logistics software, small service books - while using its own installed base to cross-sell and its cash generation to fund more growth, then the ceiling is not £10m of value. But this only works if management thinks like owners: paybacks, ROIC, cash generation, integration risk and no vanity purchases. I would rather they never buy anything than buy one bad thing.

The market is not being irrational by refusing to value that upside yet. It is simply asking to see evidence. I think the evidence is beginning to appear, but not enough to call it proven. That is precisely why the stock is interesting.

At today’s price, I am not paying for a successful turnaround. I am paying roughly asset value plus a small amount for a still-under-earning operating business. If management merely stabilises it, I probably do okay. If they genuinely improve the commercial engine, the upside becomes much larger than the downside. And if they can eventually compound cash intelligently, then the current valuation will look silly in hindsight.

You have a £6.8m revenue business with £3.2m of recurring revenue, £2.3m of net cash, a cleaner balance sheet, products that sit inside workflows, a new CEO who has at least one internal success behind him and an operating business valued by the market at barely £3m. That valuation does not require perfection. It barely requires improvement.

Maybe Touchstar also stays a sleepy little company forever.

But these things rarely look obvious before they work. The interesting situations are the ones where the business has not yet proven itself, but the conditions for improvement are visible before the income statement catches up.

Disclosure: I own 35k shares. Most of which were bought post-earnings :)

Best investing,

Harshu Vyas