EverySkin: At the start of this year, we invested in EverySkin, a leading aesthetics clinic chain in London. Since then, the business has continued to grow, opening new clinics in West Hampstead, Dulwich & Wembley, further strengthening its position as a high-quality leader in the aesthetics market. Moving into 2026 we expect further new openings in Kentish Town, Elephant & Castle and across central London. 

SushiDog: After a follow-on investment of £1.3m in June, SushiDog has continued to experience impressive growth, expanding from 9 sites to 12, with new locations at Warren Street, Brent Cross, and Kings Cross. SushiDog was also ranked number 57 in the FEBE Growth 100 List, which recognises the fastest growing founder-led private companies in the UK and is now moving national, with a new site in build in Birmingham’s Bullring, set to open in early 2026.

OneGym: OneGym has continued its rapid growth across the North-East this year,. The team successfully opened two new sites in Hartlepool and Consett with a further flagship in build in Newcastle city centre in early 2026. This will bring total sites to 14, edging closer to becoming the market leader in the region.  

Light Centre: Light Centre has also experience substantial growth this year, now operating five sites across London. Their most recent launch in Old Street further cements their place as the leading holistic well-being centres in London.

Upholstery2U: As of late 2025, U2U now operates 28 mobile workshops nationwide. They were also ranked 40 in the Febe Growth 100 list!

Alertacall: The founder of Alertacall, James Batchelor, was appointed an MBE for ‘Services to Technology for Older People’, recognising his and the Alertacall team’s incredible work. In addition, this spring the company deployed its core offering (Housing Proactive) to 100 retirement‑living schemes, run by Places for People nationwide, bringing the service to around 3,500 older customers. 

One Utility Bill: In April, One Utility Bill marked its tenth year in business. At that time, the company has grown significantly, employing 183 people at its Newcastle HQ. Alongisde SushiDog and U2u, OUB was also named on the FEBE Growth 100 list at number 58. 

Fatto a Mano: Fatto have successfully opened in Tower Bridge this year, with another new site opening in build for Soho. 

In addition to the above, 3 of our portfolio – SushiDog, One Utility Bill and OneGym – were ranked in the 2025 UK Fast Growth Index Top 200! This prestigious index identifies the fastest-growing companies across the nation, and we are proud to have multiple partners from our portfolio recognised. 

And as a final highlight, on average our Growth Capital portfolio companies have grown revenues at 29% and profits at 39% over the last 12 months. 

A big thank you to the entire Middleton Enterprises team for their continued dedication throughout the past year. We look forward to the opportunities and successes that 2026 has in store!

The post 2025 Growth Capital Portfolio Round-Up appeared first on Middleton Enterprises.

This venture will focus on acquiring profitable businesses with EBITDA in the range of £250,000 to £750,000. The strategy is to invest in and grow these businesses by supporting existing teams, retaining well-established brands, and helping them reach the next stage of development.

David brings 16 years of experience at Middleton Enterprises, during which he has made dozens of investments and worked closely with founders across a wide range of sectors. His track record includes involvement with our portfolio businesses such as OneGym Fitness, HBB Solutions, D-Line and OneUtilityBill. 

David Alprovich, Managing Director of Alpro Capital, said:
“There are many great businesses hidden away in business parks across the North East, businesses that have been built up by entrepreneurs over many years. Often, these owners don’t have a succession or exit plan, having been fully focused on running their business. We want to provide them with an exit opportunity while acting as a good custodian of the companies they’ve built.”

Jeremy Middleton, CEO of Middleton Enterprises, said:

“We are delighted to back David in this new venture. Over the years, he has demonstrated real skill in working with entrepreneurs to grow their businesses. Succession planning is a challenge for many SME owners, and Alpro Capital offers a responsible and practical solution that ensures the businesses they’ve built can continue to thrive.”

Middleton Enterprises will provide funding, strategic support, and guidance to Alpro Capital as it identifies acquisition opportunities and works alongside business owners through succession and growth.

To stay up to date on all of Middleton Enterprises investments, follow us on LinkedIn here.

The post Middleton Enterprises backs Alpro Capital to acquire and grow SMEs in the North East appeared first on Middleton Enterprises.

Mercado Libre operates the leading e-commerce marketplace in Latin America, supported by a payments & lending arm, a best-in-class shipping solution, and highly profitable advertising platform.

MELI was founded by Marcos Galperin in 1999. Galperin is currently President & CEO. He owns 7% of the equity. In 2026, Galperin will step down as CEO but remain Chairman, with Ariel Szarfsztejn appointed as the new CEO. Szarfsztejn joined MELI in 2017 and currently serves as President of Commerce

It is the market leader in both e-commerce and fintech across several Latam countries. Core geographies include Brazil, Mexico & Argentina (55%, 22% and 18% of sales respectively in 2024).

MELI has built a dominant position in several countries by effectively navigating Latin America’s diverse cultural, political, and regulatory landscapes.

MELI’s success in Latam can be attributed to its focus on building a comprehensive ecosystem that leverages technology, data, and a customer-centric culture. This approach has enabled the company to address key customer and seller challenges, attract a large user base, and create a strong competitive advantage in a rapidly growing market.

The company has focused on reducing customer friction. A consumer previously reliant on driving to a local store and paying in cash can now make purchases online through MELI’s marketplace and fund the payment through its MELI wallet.

Since its initial listing on the Nasdaq in 2007, the equity has delivered an annualized return of 31%, equivalent to 100x return. Group sales have compounded at 38% from 2007 to 2024.

[Source: Company Data]

THE BUSINESS

MELI’s business is split between two core parts – Commerce and Fintech. Both segments have delivered a 55% sales CAGR over the past five years.

[Source: Company Data]

The Commerce and Fintech segments can be further broken down into a number of key revenue sections:

Commerce (55% of Group Sales)

E-commerce (40% of Group Sales)

Third Pary (3P) retail sales represent approximately 30% of Group sales and reflect marketplace commission revenue generated by MELI. This is a take rate business whereby independent, third-party sellers list their items on MELI’s marketplace and pay a final value fee based on the item sale price.

First Party (1P) sales represent c.10% of Group sales. These are sales made directly by MELI where they purchase stock & sell it to customers.

MELI over-indexes to 3P sales at c.90% of total GMV versus 1P at 10%. While 3P offers higher profitability, lower inventory risk and capital intensity, this comes at the cost of lower control.

[Source: Company Data]

1P is expected to grow in the mix over time as management look to enhance price competitiveness and assortment on the marketplace. 1P allows MELI to target specific product lines which it sees as underserved on the 3P network. This will increase the breadth of the retail offering. Management have materially improved profitability within 1P in recent years.

Latam e-commerce penetration as percent of total retail spend is currently 13% versus 29% in the UK. The market is underpenetrated.

Growth in the marketplace is supported & sustained by a two-sided network effect. The platform grows stronger as new users are onboarded on both the buyer and seller sides of the marketplace.

[Source: Company Presentation]

As the marketplace model scales it becomes increasingly more powerful. Sellers benefit from faster inventory turnover & access to a larger customer base, while buyers gain improved search engine optimization, a wider selection of products, & lower shipping costs. Higher demand encourages more sellers to join the platform, leading to a deeper pool of products that enhances the platform’s value proposition for customers & attracts more buyers.

Logistics Network (15% of Group Sales)

Mercado Envíos is the company’s logistics network which handles the end-to-end logistics process, including storage, picking, packing, & shipping.

In a model similar to FBA (Fulfilment by Amazon), sellers send their inventory to warehouses managed by MELI, and MELI takes care of order fulfilment once a sale is made. Envíos prioritizes fast and reliable delivery to improve customer satisfaction.

Shipping revenue under this model represents c.15% of Group sales, however, it is loss-making and therefore a drag on profitability. However, the shipping business is seen as a ‘lock-in lever’ that supports the profitability and growth of other business lines such as 3P, 1P and advertising, rather than as a standalone profit centre.

Expert Call (Apr-2025) – “Meli had never touched a package in their existence in 2016. Today, they are more efficient than FedEx, UPS, DHL. They deliver cheaper.”

– 95% of items are sent via MELI’s managed network.

– Over 52% of shipments are delivered within the same & next day.

– 74% of items are delivered within 48 hours.

Scale is a significant advantage in logistics. The volume Mercado Envíos manages through its network allows it to offer better prices to merchants on logistic services. Better logistics equals a better transaction experience, which leads to higher transaction frequency & dilution of last-mile delivery costs. The company continues to invest into its logistics network to further its competitive advantage & maintain a competitive edge.

Advertising (5% of Group Sales)

Advertising represents a low 5% share of Group sales, but a considerably higher share of Group operating profit.

Q3 2022 Earnings Call – “The advertising business is fairly consistent across geographies. It’s a very high margin business. I think we said EBIT margins in the high 70s, low 80s.”

Assuming a 75% margin, implies a contribution of c.30% to operating profit, with a 3-year compound annualized growth rate of 59%. This is a fast growing, highly profitable segment for MELI.

[Source: Company Data]

Consumers see advertisements throughout the ecosystem, on both the Mercado Libre and Mercado Pago platform.

The strength of MELI’s digital advertising business lies in the number of individuals it can advertise to & also the intent of those individuals. As the MELI ecosystem broadens out and gains more users, the value to advertisers increases.

Advertising is currently under 2% of GMV which points to a long runway for further monetization, Amazon is at 7% as a comparison.

Digital advertising is in its infancy in Latam with a 5% share, versus 75% in the US.

Fintech (45% of Group Sales)

MELI’s fintech business comprises payment acquiring, digital wallets, cards, credit and asset management. It is referred to as Mercado Pago with the credit/loan business being referred to as Mercado Credito.

While there is significant competition within the fintech space in Latam, MELI has a competitive edge derived from its strong brand, proprietary technology & data, relationships that span both consumers and merchants and high levels of engagement via the e-commerce platform.

Fintech Services (25% of Group Sales)

The majority of Fintech Services revenue relates to payments. Mercado Pago’s payment solution platform was launched in 2003 to facilitate transactions on MercadoLibre’s marketplace, providing a mechanism that allows customers to securely, easily and promptly send, receive and finance payments online.

In a region where cash was dominant and access to modern financial infrastructure was poor, Pago was a catalyst for driving greater financial inclusion.

[Source: Company Data]

“Through Mercado Pago, we brought trust to the merchant customer relationship, allowing online consumers to shop easily and safely, while giving them the confidence to share sensitive personal and financial data with us.” – Mercado Libre 10K 2023

Reduced friction in payments has driven increased engagement on the e-commerce platform. Over time, Mercado Pago has expanded to process volumes from merchants outside the marketplace.

Payment revenues are comprised mostly of transaction fees and prepayment revenues. Like the 3P marketplace model, this is a take-rate based business with low capital intensity which provides for significant inflation protection.

In recent years, Pago has expanded into insurance, asset management, digital wallets & pre-paid cards.

[Source: Company Data]

Credit (20% of Group Sales)

MELI launched its credit offering in Argentina in 2016 and in Brazil and Mexico a year later, initially offering loans to merchants on-platform. The company now offers credit to both merchants and consumers on & off-platform as well as credit cards.

Strength in the credit business comes from leveraging competitive advantages in underwriting and distribution. MELI’s cost to serve is less than $1[1], well below that of incumbent legacy banks. Similar to other neo-banks, this enables MELI to offer more competitive products and take market share.

MELI is uniquely positioned to provide credit given the data it has on both consumers and merchants provided through the e-commerce platform. This provides for a higher level of credit quality.[2]

Credit revenues come from gross interest earned on loans plus interchange rates from card transactions.

Over the past three years to 2024, the credit portfolio has grown at annualized rate of 56%.

[Source: Company Data]

Facilitating credit enables the company to further strengthen the engagement & lock-in rate of its users within the overall ecosystem.

Credit is expected to be a strong growth driver which should be positive for Group margins given it tends to have much higher profitability than fee-based businesses like payments. That said, growth in credit comes with underwriting risk.

Management prioritizes asset quality above growth, maintaining strict underwriting standards to minimize risk of default.

– Provisioning for credit due over 15 days is >100% and is recognised up front.

– Management are pro-active in managing the risk, scaling back when there are signs of deterioration.

– Most credit is short duration which provides management with flexibility to adjust.

– MELI uses a proprietary underwriting model, supported by unique marketplace and payments data, to accurately assess risk.[3]

– There is a focus on moving credit exposure up-market which will drive the percentage of non-performing loans lower over time.

“We’re not looking to maximize the size of the credit portfolio over the next 2 or 3 quarters. We’re looking to build a very healthy & sustainable credit book and business over 10 years.” – CFO, Q3 2022

MARKET POSITION & GROWTH

MELI’s target markets have a combined population of over 650m and GDP of $5t. The Latam middle class is rapidly growing, leading to increased disposable income & greater propensity to spend online. It is the fastest-growing e-commerce market globally & a large part of the population has limited banking access.

[Source: Company Presentation]

E-commerce & digital finance remain underpenetrated in LATAM, providing a long runway for growth.

PROFITABILITY & BALANCE SHEET

MELI generates a gross margin of 46%, this has declined in recent years as a result of increased investment, and as the lower margin 1P and credit card segment have grown within the mix.

Management prioritizes share gains and above-market growth, explicitly stating that they do not manage the business to a short-term margin goal. This can lead to volatility in operating profit margins. During the period 2018-2019 period, management invested heavily in the logistics network and in sales & marketing leading to operating losses.

Cash conversion is very strong. Despite fluctuations in operating profit, the company has consistently generated positive cash flow since 2007.

Management approaches balance sheet risk with a disciplined and prudent attitude, maintaining a strong balance sheet with low net financial leverage and a tilt toward equity funding.

CUSTOMER FOCUS

A large part of MELI’s success derives from its intensive focus on the customer and on addressing the pain points of that customer.

The initial performance of the e-commerce business was held back by a lack of financial infrastructure. Most consumers were unbanked and unable to pay online. This led to the development of the Pago payments platform which accelerated growth on both sides of the business.

MELI’s decision to develop its own logistics network dramatically improved speed and quality of delivery. The infrastructure build-out reduced reliance on less reliable third parties and delivered a much better customer experience.

COMPETITIVE ADVANTAGE

Competitive barriers to entry come from network effects, physical infrastructure investment, data advantages, economies of scale and brand recognition.

On a stand-alone basis, each business unit has compelling strengths and significant growth potential in underserved markets. However, MELI’s true distinctiveness lies in its holistic ecosystem and the synergistic interplay of its components. These overlapping strengths within the ecosystem create a robust competitive edge and a dynamic growth engine. This is most evident in the symbiotic relationship between the payment’s platform and the marketplace, where each fuels the other’s growth.

[Source: Company Presentation]

Users engaged across more than one service within the Mercado ecosystem have significantly lower churn rates.

The growing ecosystem generates more & more data, enabling improved personalization, advertising and fintech services.

Scale economies shared

A shared economies of scale strategy has been successfully deployed at Amazon and Costco. Under this model, companies leverage economies of scale to reduce costs and, instead of keeping these savings as higher profit margins, pass them on to customers through lower prices or enhanced services. This creates a virtuous cycle that strengthens the business’s competitive position over time.

MELI utilises its scale efficiencies to fund consumer-centric initiatives, including complimentary shipping, improved logistics networks, greater product assortment, higher financial yields, and credit incentives.  This strategy serves to expand MELI’s market share and entrench its dominant position within the Latam e-commerce and fintech ecosystem.

CONCLUSION

The flywheel for growth at MELI is powerful and extends beyond the singular advantages afforded by any one division.  Each of MELI’s business units adds value and supports the other, reducing friction and driving increased engagement and greater opportunity for growth.

The extent to which MELI’s leading positioning is sustainable is largely a function of management’s strategy of continuing to invest back into the business under the shared economies of scale model with a real focus on the customer and enhancing the value proposition.

“We don’t like buying market share, we like building market share.” – Marcos Galperin.

Competitors currently don’t match the scope and quality of MELI’s offerings, and where they try to compete, they’re playing catch-up. They need to match the infrastructure, the brand awareness, the trust, the key relationships, all while MELI continues to invest and improve their ecosystem offering at a significant pace. The ability to replicate or disrupt MELI appears difficult.

“That’s what we’re trying to continue to be very consistent on, which is taking a long-term view and trying to capture as many opportunities as we can and continuing to maximize market share while delivering operational leverage over longer periods of time.” – Former CFO Pedro Arnt.

MELI’s future growth doesn’t rely on new products or significant feature expansion, the runway provided by existing segments is long. However, there are a number of opportunities available which provide for significant optionality and management has a habit of innovating and creating new products to sell into its growing merchant and consumer base.

[1] Legacy banks cost to serve can be as high as $10 /month

[2] 60% of credit is used off platform – Q3 2024 Earnings Call

[3] Models are upgraded approx. every 6 months

This document and all is contents remain the property of Middleton Enterprises Ltd and should not be copied or passed to any third party without prior permission. The contents of this document are for general information and use only and are not intended to address the particular investment or other requirements of any recipient. In particular, the information provided does not constitute any form of advice, representation or recommendation regarding any investments and does not constitute an offer to buy or sell the securities of any company. This document is confidential and is intended solely for the person or entity to which it was addressed. Further Middleton Enterprises Ltd does not warrant or guarantee the accuracy of the information provided and cannot be held responsible for any use of the document in whole or in part or the information it contains.

The post Investment Insights: MERCADO LIBRE (‘MELI’) appeared first on Middleton Enterprises.

To celebrate the opening of this beautiful new centre near Old Street tube station, Light Centre are inviting therapists to get 50% OFF their therapy room hire for 2 whole months. For more information on click offer visit: https://lightcentre.com/old-street/

With the addition of this new East-London site, Light Centre now operates 5 sites across London.

Light Centre have also recently added 6 new therapy rooms to their Belgravia Centre – all with skylights! Plus 8 new therapy rooms at their flagship centre in Marylebone.

We look forward to continuing our support for Light Centre, assisting them to solidify themselves as London’s top destination for medical, therapeutic and wellbeing services.

To stay up to date on all of Middleton Enterprises investments, follow us on LinkedIn here.

The post Light Centre to open a new site in Old Street, London appeared first on Middleton Enterprises.

Alice Sagnier, Co-Founder of EverySkin, said: “We had always intended to scale the business to meet demand. Middleton Enterprises has given us the security we need to do that. Their experience in financing the expansion of consumer rollout businesses like Sushidog and OneGym appealed to us, as did the opportunity of working with the CEO and Founder, Jeremy Middleton, who has firsthand experience of scaling successful businesses.” 

With the addition of the new South-East London site, EverySkin now operates 8 clinics across London, bringing their mission of making advanced, high-quality skincare and aesthetic treatments accessible to even more communities.

To stay up to date on all of Middleton Enterprises investments, follow us on LinkedIn here.

The post EverySkin launches a brand new site in Dulwich appeared first on Middleton Enterprises.

The FEBE Growth 100 annual list recognises the most outstanding and rapidly growing privately owned businesses in the UK, led by founders who remain actively involved.

There are 4.2m private companies in the UK, with just 1% of these considered to be high growth, therefore we are extremely proud that 3 of our portfolio companies have it onto the list this year.

At number 40 is Upholstery2U – a B2B mobile upholstery service founded in 2021 by brothers Danny and Michael. Since then, they have shown rapid growth and expanded their operational capacity to meet rising demand.

At number 57 is SushiDog – a quick service sushi restaurant chain founded in 2017 by Greg Ilsen and Nick Goldstein. Since our investment they have opened 6 new sites, now totalling 10 across London, with plans to expand nationally.

And finally, at number 58 is One Utility Bill – a utility consolidation platform founded in 2014 by Chris Dawson and Dale Knight. As of 2025, the firm has around 98 employees, serves about 35,000 customers, and partners with major names like Sky, Virgin Media, and Octopus Energy.

Congratulations to everyone involved and to all the fantastic companies on the FEBE Growth 100 list this year!

The post Our Portfolio Shines in the FEBE Growth 100 Awards appeared first on Middleton Enterprises.

The £1.3 million investment cements a relationship that began when Middleton Enterprises led a funding round of £612,000 in 2023, followed by a direct £800,000 investment in 2024. This investment helped to finance the opening of new sites in central London, including SushiDog’s tenth, and largest store, on Warren Street, that opened in April in 2025. SushiDog has consistently delivered repeatable growth, leading to this longer-term commitment.

SushiDog’s Co-Founder, Greg Ilsen, said: “Middleton Enterprises provided the stability and finance we needed to scale quickly, to the extent that we are on track to generate over £8 million this financial year and now employ around 130 people. We’re in a good position and the latest round of funding will help us speed up our rate of growth. Middleton Enterprises have an entrepreneurial spirit and they’ve always been very supportive. When they came on board we had four sites in London, we’ve recently opened our tenth store and now we’re looking to expand nationally, perhaps even internationally further down the line”.

James Middleton, Investment Manager at Middleton Enterprises, said: “This is our third investment into SushiDog. We made the decision to invest in the business again because it has a proven rollout model, based on predictable, repeatable growth. They have constantly raised the bar, innovating and evolving with each new store, which gives us confidence in the next stage of growth that will see new sites appearing up and down the country. We have a great relationship with the founders, who know that we’re willing to invest in a longer-term project, providing the necessary finance to help them with each phase of development.”

The post Middleton Enterprises invest a further £1.3m into SushiDog appeared first on Middleton Enterprises.

ASML designs, assembles and sells machines used in the semiconductor (chip) manufacturing process.

The core part of ASML’s business is selling lithography machines & other systems equipment. The remaining services part, c.20% of sales, relates to maintenance, customer support & upgrades.

The service’s business is subscription-like and given that 95% of lithography machines are still in service, maintenance & repair represents a 20+ year annuity.

[Source: ASML]

Key customers for ASML include TSMC, Samsung & Intel. They use ASML’s machines to manufacture chips which are subsequently assembled & packaged into smartphones, PCs, servers & other products.

The below chart, produced annually by ASML management, provides a top-down view of the semiconductor ecosystem and the major players  within it. Each box represents an individual company and the box’s scale represents the dollar of operating profit generated by that company in 2023.

[Source: ASML 2024 Investor Day]

The thin slice of blue at the top of the graphic represents the Semi Equipment companies, including ASML. These companies generate a small share of the overall ecosystem operating profit, however, they are the critical enablers for all of the growth that sits below them.

In 1984, Philips and Advanced Semiconductor Materials International created a new company, ASM Lithography (‘ASML’). ASML would develop lithography systems for the semiconductor market.

In 1995, ASML listed on both the Amsterdam & New York stock exchanges. Since IPO, the equity has delivered a compound annual price return of 23%. Over the same period, the company has grown sales at a 19% CAGR and EPS at a 24% CAGR.

[Source: Company Data]

During the 1990’s ASML was a small player, competing against the more established Japanese lithography companies, Nikon & Canon. ASML improved its offering and at the turn of the century it was taking significant market share from its Japanese peers. In 2002 it was the clear market leader with 54% share. Today, ASML’s lithography market share is over 90%.[1]

ASML’s ultimate dominance was qualified in 2019 with the first use of an extreme ultraviolet (‘EUV’) lithography machine in high volume production.

EUV machines are advanced lithography machines. They are used to make the most advanced semiconductors for use in the latest smartphones, PCs and data centres.

ASML is the only company able to supply & maintain these machines globally. This provides it with unique access to the growth in leading edge semiconductor adoption.

“The Dutch company ASML builds 100 percent of the world’s extreme ultraviolet lithography machines, without which cutting-edge chips are simply impossible to make. OPEC’s 40 percent share of world oil production looks unimpressive by comparison.” – Chip War by Chris Miller

LITHOGRAPHY

Semiconductors are manufactured by layering complex patterns of transistors on a silicon wafer.

[Source: ASML Investor Relations]

Lithography is one of the critical steps required to manufacture semiconductors. It describes the process by which light is projected onto a wafer through a reticle or mask. Optics shrink and focus the reticle pattern. This pattern is then printed onto the wafer when a resist layer is exposed to light. This creates a chip or die, a rectangular pattern on a wafer that contains circuitry for a specific function.

ASML’s technology is pivotal to chip production because lithography is the only stage where the wafer is processed die by die. Lithography therefore has a greater impact on performance (yield) than any other stage in the manufacturing process.

The lithography process is repeated to build up the layers of a chip. Modern chips can have more than 100 layers which are aligned with extreme precision.

The size of the features to be printed varies depending on the layer. Different types of lithography systems are used for different layers.

The latest-generation EUV (‘extreme ultraviolet’) systems are used for the most critical layers with the smallest features. DUV (‘deep ultraviolet’) systems are used for the less critical layers with larger features. EUV machines can cost over $150m.[2]

The next generation of lithography tool, high-NA EUV, is in the early stages of development. All major customers are placing initial orders for these tools. The timing of high-volume production for high-NA EUV is unclear, although early signs remain positive.

The risk of not investing at the leading edge is borderline existential for ASML’s customers. For example, Intel’s decision to delay the adoption of EUV lithography severely impacted its competitive position in the industry and allowed peer TSMC to take significant market share.

WAFER FABRICATION EQUIPMENT (‘WFE’)

The Wafer Fabrication Equipment market has consolidated around a handful of companies with each one dominating a particular niche.

[Source: Compounding Capital]

The level of technological complexity required at each process step has created a concentrated WFE sector. The high level of innovation required has seen the sector cluster around a few firms in each vertical.

[Source: Compounding Capital]

The overall ecosystem has attractive fundamentals with the majority of the value accruing to a select number of companies which dominate their respective niches.

Consolidation has allowed incumbent players to become more dominant within their niches, providing for attractive & durable return profiles.

GROWTH

The underlying market growth for ASML is driven by ever increasing demand for semiconductors globally.

The industry’s historical market compound annual growth rate from 2013 to 2023 was 6%. In 2023, almost 1 trillion chips were shipped around the world.[3]

Market estimates point to the semiconductor market continuing to grow at a 9% CAGR from 2025 to 2030 and surpass $1 trillion by 2030.

[Source: Applied Materials]

The lithography segment is expected to outpace the overall growth in the semiconductor market driven by higher complexity & lithography intensity.

Furthermore, increased focus on technological sovereignty is likely to boost capital intensity in the industry.

Technological sovereignty has become a global imperative, driving nations to bolster their domestic semiconductor capabilities as a hedge against supply chain vulnerabilities and geopolitical tensions.

From the US with its CHIPS Act, to the EU’s European Chips Act, and China’s Made in China 2025 initiative, governments are funnelling billions into subsidies, R&D, and infrastructure to secure chip production. These programmes will lead to major investments in wafer capacity & higher spending on lithography equipment.

[Source: ASML 2024 Investor Day]

CYCLICALITY

The WFE players are susceptible to short-term cyclicality deriving from inventory-led corrections and capital investment cycles which are non-linear. This can lead to heightened equity price volatility. 40% plus drawdowns are commonplace.

That said, the long-term trajectory of the sector is supported by the global shift towards a digitally connected society & economy. For the long-term investor, semi-cycle downturns have previously provided attractive opportunities to purchase ASML.

[Source: Company Data]

Over time, ASML has become more resilient[4]. The business model has improved to better deal with periodic semi downturns. An assembly-type business model provides cost flexibility during periods of lower demand.

COMPETITIVE ADVANTAGE

Technological disruption is a key risk for ASML. However, there are numerous factors which point to the possibility of disruption as low:

– Customer & supplier relationships are built upon a partnership model which confers a significant advantage to the incumbent players given that they are closely aligned in terms of product roadmaps.

Technological roadmaps are planned years in advance, and while nothing is ever set in stone, the long-term, co-operative strategy between vendor and supplier make it very difficult for new entrants to gain traction.

EUV was only made possible through a customer co-investment programme. Intel, TSMC & Samsung jointly committed to provide ASML with the necessary capital for its development. There are not many industries where competitors invest together.

– Proprietary know-how, data & positive feedback loops create a virtuous circle that deepens ASML’s moat over time. The process to develop EUV took over 3 decades. ASML has 30 years of data & learning that it uses to continuously improve its product & service offering.

– The complexity involved in terms of the hardware, software and supply chain management sets a high bar for competitors & increases switching costs for the existing customer base. Here are a few examples:

EUV mirrors have a surface so flat that the imperfections are measured in picometers, or a trillionth of a meter. This is equivalent to keeping an area the size of California as flat as a human hair.

To create the highly specialised EUV light, a ball of tin, a few microns wide, is dropped into a vacuum at about 250 miles per hour.  It is pulverized by two shots from a laser, generating plasma with a temperature of 220,000°C, 30 to 40 times hotter than temperatures on the surface of the sun. This plasma emits EUV light at exactly the right wavelength of 13.5 nanometre.[5]

An EUV system requires the assembly & integration of thousands of specialised parts from 5,100 suppliers. ASML acts as the integrator & assembler.

– Pricing power is strong. Customer willingness & ability to pay for the equipment is high. The high price for a machine is justified by the value-add to the customer in terms of a high ROI. ASML’s machines provide value to customers by lowering the cost per wafer through increased productivity.

PREDICTABILITY

An appealing characteristic of any business is its ability to provide some form of predictability. For ASML, near-term predictability comes from an order backlog which provides coverage beyond a year’s worth of system sales.

Lengthy customer roadmaps also provide for a level of predictability as customers think on a 5-year plus time horizon. Key customer TSMC guides to a revenue CAGR of close to 20% over the next several years with c.30% of sales to be spent on capex. Given ASML’s unique position, TSMC’s capex is closely tied to ASML’s revenue line.

At its 2024 Investor Day, ASML pointed to a 11% sales CAGR from 2024 to 2030 when taking the mid-point of their guidance. Applying management’s guidance for gross margins and operating expenditure provides for a profit CAGR of close to 19%. This excludes the consideration of any additional growth on a per share basis generated by the active share repurchase programme.

CONCLUSION

Picking long-term winners in attractive sectors will always be difficult because the characteristics that make a sector attractive tend to spur high levels of competition. The attractive attributes are eroded away over time as new competition enters a market and dilutes the benefits. However, in the case of ASML, significant barriers to entry protect the attractive returns & growth profile.

The complexity of the technology, the customer relationships, the knowledge, data and trust that has been built over decades is not something a competitor can build overnight.

The digital transformation is a multi-faceted global trend that has a long runway for growth. Semiconductors represent the building blocks of that secular growth, and ASML represents a uniquely critical part of the value chain.

ASML is pivotal in enabling a number of major growth trends: Gen-AI, Edge Computing, Industrial Automation, Cloud, 5G, IoT & Energy Transition.

“Without ASML, the world would be a different place. Based in the quiet town of Veldhoven, this offshoot of Philips Electronics designs the gigantic and extremely complex machines that produce increasingly advanced computer chips. It’s Europe’s most valuable tech company: ninety percent of the world’s chips are manufactured using ASML machines, powering our phones, cars and the AI revolution.” – Focus: The ASML Way by Marc Hijink.

If you would like to know more about our investment strategy and investee companies, please don’t hesitate to contact us.

Written by Archie Tulloch, Senior Investment Analyst.

[1] Over the last five years, 92% of immersion wafer capacity additions were ASML supplied – 2024 Investor Day.

[2] EUV machines weigh approximately 180 tons and require several Boeing 747s to deliver them to the end customer.

[3] ASML Annual Report 2024

[4] The company operates with a conservative mindset, holding a net cash position on the balance sheet.

[5] https://www.trumpf.com/en_GB/newsroom/stories/euv-techology-beakthrough-thanks-to-master-laser-builder/

This document and all is contents remain the property of Middleton Enterprises Ltd and should not be copied or passed to any third party without prior permission. The contents of this document are for general information and use only and are not intended to address the particular investment or other requirements of any recipient. In particular, the information provided does not constitute any form of advice, representation or recommendation regarding any investments and does not constitute an offer to buy or sell the securities of any company. This document is confidential and is intended solely for the person or entity to which it was addressed. Further Middleton Enterprises Ltd does not warrant or guarantee the accuracy of the information provided and cannot be held responsible for any use of the document in whole or in part or the information it contains

The post Investment Insights: ASML appeared first on Middleton Enterprises.

Moody’s Corporation is a credit rating, research & risk analysis firm. The company was founded in 1909 by John Moody, the inventor of modern bond credit ratings. It was bought by Dun & Bradstreet in 1962, spun-out in September 2000 and subsequently listed on the NYSE.

Over the 25 years since listing, it has delivered an annualized return of 15% (16% including reinvested dividends). Over the same period, the company achieved a compound annual growth rate of 11% in sales and 14% in free cash flow per share.

Ratings & Analytics

Moody’s stated mission “is to be the leading source of relevant insights on exponential risk.”

Moody’s reports across two main segments:

1. Moody’s Investors Service (‘MIS’); and
2. Moody’s Analytics (‘MA’).

MIS is the credit rating agency arm of Moody’s Corporation. It generates revenue by charging issuers (borrowers) for assigning credit ratings to specific debt instruments (loans) or entities. The MA business segment then leverages this same information to cross-sell its analytics and risk monitoring products & services to institutional investors & other users.

External estimates suggest that half of the revenue generated within the Analytics segment is connected to the core MIS ratings business.

Revenue is split approximately 50:50 between the two segments. However, MIS delivers over two-thirds of the Group’s operating profit given it enjoys an operating margin almost 30% higher than MA at close to 60%.

Moody’s Investor Services (‘MIS’)

MIS is an independent provider of credit rating opinions & related information.

Credit ratings are an assessment of creditworthiness. They provide a measure of the likelihood that a debt issuer (borrower) will repay their debt obligations.

Credit ratings are crucial for investors as they provide a standardized measure of credit risk. Credit ratings influence borrowing costs & market access for issuers.

The global credit ratings market is highly concentrated with Moody’s, S&P Global (‘S&P’) and Fitch controlling close to 95% of the global market.

Market shares can vary by region, and it is common for bonds to be rated by more than one issuer. In the US, Moody’s and S&P often have over 90% of the market for new bond ratings.

Moody’s and S&P have maintained relatively consistent market shares over time, indicative of a durable competitive advantage. The level of industry disruption has historically been low.

Ratings revenue can be divided into two categories:

1. Transaction revenue which relates mostly to initial ratings of a new debt issuance and refinancing.
2. Non-transaction / recurring revenue which comes from annual fees for frequent debt issuers and debt monitoring fees.

Approximately 30-40% of MIS sales are recurring in nature, the remainder is transactional.

Strong pricing power in MIS is derived from a durable & dominant market position, alongside a service proposition that delivers significantly more value to the customer than it costs.

According to Morningstar, a rating costs an issuer c.8bps of the debt value but can lower the interest rate by c.30-50bps (annual savings). The value Moody’s provides to a credit issuer is significantly higher than the cost it extracts. This is a win-win for both customer and supplier.

The MIS segment is guided to grow sales at high single to low double digits over the medium-term.

Moody’s Analytics (‘MA’)

Moody’s Analytics generates revenue through subscriptions to its data, software, and research products. Clients include banks, investment firms, insurance companies, and corporations seeking risk management solutions.

MA was established in 2007 and split out as a separate operating segment in 2008. It has achieved a 12% revenue CAGR over the past 17 years, driven two thirds by organic growth and one-third though acquisitions.

MA provides a meaningful base of recurring, high retention, subscription revenue which mitigates against the more volatile cyclicality typically seen within the MIS business segment.

The MA segment is guided to grow high single to low double digits over the medium-term.

Quality

Moody’s benefits from significant network effects:

• The company has been providing credit data & analysis for over a century, iterating & improving its database and knowledge expertise over time.
• The ratings applied by Moody’s are internationally recognised and well-understood. Universal acceptance expands the market on a global scale.
• Credit ratings provide value to both issuers and investors. The more debt that is rated by Moody’s, the more valuable its ratings are to the end users.

“All else equal, the larger the ‘installed base’ of ratings from a given CRA, the greater the value to investors.” – OECD report on CRA competition in 2010.

Switching costs increase customer stickiness. An issuer rarely switches to another agency because of the sunk costs involved in starting a rating process with a new agency.

A multi-decade period of providing independent credit rating opinions raises Moody’s brand and reputational credibility.

Key Risks

The business cyclicality derives predominantly from the fact that there are periods of low volume issuance. A tougher economic environment in the form of higher interest rates & wider credit spreads can lead to a decline in companies issuing debt which can weigh the on the ratings business, as seen in 2008/09 and more recently in 2022.

Although debt issuance is volatile during the short-term, over the longer-term and through a cycle, it correlates well with economic activity and global nominal GDP growth.

The threat of increased regulation represents a key risk factor which could lead to pricing pressure from increased competition and/or alternative risk assessment products entering the market.

Competition stems predominantly from S&P Global and Fitch, the other two major rating agencies. There are other smaller players but together they make up for approximately 5% of global rated debt issuance. Critically, the industry dynamics have remained relatively stable for decades and, as noted previously, in many cases issuers acquire ratings from more than just the one agency.

Brand or reputational damage could inhibit the long-term earnings power of the business model. A failure to appropriately assess credit risk, especially in the event of widespread defaults could permanently damage the brand and the lead issuer and user to place less reliance on Moody’s products and services in the future.

The Great Financial Crisis of 2008/09 was the ultimate test for Moody’s. Moody’s reputation took a blow due to the widespread perception that it failed to accurately assess risk. Lehman Brothers was rated ‘A’ by all three major rating agencies prior to its bankruptcy.

Despite the damage, the Moody’s brand and business model proved resilient. It retained its dominant market position (alongside S&P and Fitch) due to the lack of viable alternatives and the entrenched role of ratings in global finance. By 2010, Moody’s financial performance had largely recovered, with revenues rebounding as markets stabilized.

Fundamentals

Over the past seven-years, Moody’s has achieved a compound annual growth rate of 18% in Group Sales and 27% in Diluted EPS.

Group operating margins will fluctuate depending on the level of bond issuance given that MIS has a higher operating margin. Prior to the 2022 rate hiking cycle, the company achieved 50% operating margins, versus 41% in 2010.

Moody’s management guides to high single to low double digit revenue growth in the medium term and targets an adjusted operating margin in the low 50%.

The subscription nature of Moody’s, particularly in MA, combined with its asset-light business model helps drive strong FCF conversion, enabling the company to return capital to shareholders, invest through the cycle, and execute M&A.

Moody’s targets a dividend payout ratio of 25-30%, and it has delivered a 27% CAGR on dividends over the past 7 years, in line with EPS growth. Moody’s share repurchases have meaningfully benefited earnings per share. In 2023, Moody’s had average diluted shares of 183m, down 23% from 237m in 2010.

Ownership & Management

This is not an owner-operator business, however, senior management have been working within the business for a long period of time. Internal hires are preferred over external hires.

Robert Fauber was appointed as CEO in January 2021. He previously served as COO and President of MIS and has been with the company since September 2005.

Senior management’s compensation is predominantly performance related with the CEO’s base salary representing only 7% of total compensation. 93% of remuneration is geared toward company & equity performance. The interests of shareholders and senior management are closely aligned. Moody’s equity is backed by a number of highly reputable & successful fund managers all of whom focus on finding the highest quality businesses with sustainable competitive advantages. Warren Buffett’s Berkshire Hathaway, Chris Hohn’s TCI Fund.

Moody’s equity is backed by a number of highly reputable & successful fund managers all of whom focus on finding the highest quality businesses with sustainable competitive advantages. Warren Buffett’s Berkshire Hathaway, Chris Hohn’s TCI Fund,

Akre Capital and AKO Capital all hold positions in Moody’s[1].

Conclusion

Positioned as a toll collector on the flow of global debt, Moody’s is a high-quality business with a strong & durable competitive position, significant pricing power and a high level of capital efficiency.

In the near-to-medium-term management has relatively good line of sight on the upcoming level of debt maturities given the concentrated nature of the market. The presence of significant debt maturity walls in the coming years points to continued demand for refinancing. Long-term growth is underpinned by the global expansion of debt capital.

Despite cyclical business risks tied to market sentiment and bond issuance volumes, the long-term drivers for Moody’s are strong. As with many high-quality businesses, the opportunity to invest in the equity at a reasonable price is rare. The most attractive opportunities will most often appear when sentiment is at its lowest and expected performance is temporarily weakened.

[1]Based on 13F Filings at the time of writing.

If you would like to know more about our investment strategy and investee companies, please don’t hesitate to contact us.

Written by Archie Tulloch, Senior Investment Analyst, Middleton Enterprises

This document and all is contents remain the property of Middleton Enterprises Ltd and should not be copied or passed to any third party without prior permission. The contents of this document are for general information and use only and are not intended to address the particular investment or other requirements of any recipient. In particular, the information provided does not constitute any form of advice, representation or recommendation regarding any investments and does not constitute an offer to buy or sell the securities of any company. This document is confidential and is intended solely for the person or entity to which it was addressed. Further Middleton Enterprises Ltd does not warrant or guarantee the accuracy of the information provided and cannot be held responsible for any use of the document in whole or in part or the information it contains.

The post Investment Insights: Moody’s Corporation appeared first on Middleton Enterprises.

With that in mind, it might seem like there isn’t much space for a new venture. But SushiDog would disagree.

Greg Ilsen and Nick Goldstein founded SushiDog in 2018. The two had been friends since school and even went to university together, so it seemed a natural next step to see if they could come up with a business idea that meant they could work together as well.

They brainstormed several concepts, but the one that stood out was customisable sushi rolls, made fresh daily. This trend was gaining popularity in Australia, where the rolls were eaten like a hot dog – a detail that inspired the name Sushidog. “We hadn’t heard of anything similar in the UK, but we thought it was something that could really suit this market,” Goldstein recalls.

The business started with a small investment and a test of the concept at a pop-up in Westfield White City, in west London. It did well, not just among the shoppers and tourists it expected it to, but office workers as well.

With a proof-of-concept, Ilsen and Goldstein were able to open their first shop in Covent Garden – a location that was popular with both the general public and office workers. It opened three more locations across London to test if the concept translated – and when they found it did, they knew they needed to build on the momentum.

“We knew the brand was popular, but to scale more quickly we needed external investment,” says Ilsen. “For us, it was about bringing on the right investor to really speed up our rate of store openings. Without investment, we might only have been able to open one or two.”

The two founders then brought on Middleton Enterprises as an investor. Since doing so, SushiDog has opened a further five stores, bringing the total to nine across London. And the plan is to open between four and six a year.

“Middleton’s investment has enabled us to speed up that growth,” says Ilsen.

As a family office, Middleton’s approach to investing focuses on backing growing UK businesses in their early stages. It likes companies that have a proven formula and profitable model and want to go on a scale-up journey.

The people are also important. Investment manager James Middleton says they are looking for “ambitious and driven entrepreneurs” who understand and are passionate about their market.

“We like businesses with a blueprint to scale,” says Middleton. “But we are also looking for entrepreneurs we can get along with because this is a potentially long-term journey.

“We seek to add value to all the businesses we invest in. We aren’t looking to control what the founders do or impact the day-to-day operations of the business. But we do understand that there are some areas in business where the founders may be less familiar and we aim to help them with that – whether it’s raising bank financing, doing data analytics, helping to find business sites or bringing in top talent.”

SushiDog gave careful consideration to the investors it brought on board. While they wanted to speed up the company’s growth, both Ilsen and Goldstein were keen to find the right partner – one that believed in them and trusted their decision-making.

“With Middleton, we have never felt like we’ve been told that we need to go down a certain path or that we don’t still have control of the business,” says Goldstein. “It means that our relationship with Middleton has always been one where we’re working together with one common goal and we’re growing the business in a way that both of us feel is most appropriate and best for the company’s long-term success.”

That is one of the ways in which an investor like Middleton Enterprises is different. The company is investing its own capital and has a long investment horizon, meaning it can invest in businesses that might not be as attractive to a private equity fund.

“We can go on a much longer journey,” says Middleton. “I think we offer funding in a place where there’s a bit of a funding gap in the UK.”

Since taking on the investment, Ilsen says they have “never felt more confident about the growth potential of the business”. Revenues and profits have both more than doubled since the investment, with revenue on track for more than £8m this year.

“They have obviously given us some money to grow, but they’ve also given us that structure and confidence to do it,” he says. “We are now at the point where we feel like there are a lot of different growth avenues.”

Those include opening more sites in London, while they have also begun talking about opening “a bit further afield”. Middleton is bolder, suggesting the possibility for “lots of” stores across London, nationally and – if the founders have the appetite – internationally.

“I think they’re doing something really special,” he says. “They’re in a big market in QSR [quick-service restaurant]. They’ve got a differentiated product and then once I met Greg and Nick, I saw their passion and drive. That’s when we thought, ‘this is a business we need to get involved in’.”

That growth has also meant the founders’ role has changed. Where at the start Ilsen and Goldstein were involved in serving customers and ordering ingredients, they are now more focused on operations and ensuring they are efficiently and effectively running a business with more than 100 employees.

They have also split those responsibilities, so Ilsen focuses on brand, marketing and menu development, while Goldstein looks after the operational and financial side of the business.

“As founders, when you start the business, you wear every single hat,” says Ilsen. “The good thing about growing is you can bring on people who are ultimately better at doing certain things than you are. Now we have a really strong team around us who do the jobs that we used to do better than we used to do them.”

A big thank you to Business Leader for featuring SushiDog’s incredible growth story!

The post SushiDog Growth Journey: A Business Leader Feature appeared first on Middleton Enterprises.