Rome Capital 2025 Interim Report

Rome Capital 2025 Interim Report

Letter of Chief Investment Officer

September 2025

Dear friends,

The first half of 2025 has already proven to be an eventful and turbulent year. Some uncertainties persist, such as the ongoing war in Ukraine. Others have emerged unexpectedly, with the United States launching a broad tariff offensive that threatens to upend the global order established since the fall of the USSR.

In our 2024 letter, I described our work as a journey to uncharted waters. Few expected those waters to turn so rough so quickly. Yet, while the storm has left its marks, it has not sunk our ship. In fact, amid the waves we’ve been able to execute some graceful maneuvers.

Periods of turbulence reinforce what we already know: special situations and small-to-mid cap growth companies in developed markets continue to offer compelling opportunities. Our in-depth, bottom-up approach allows us to uncover attractive investments. Equally important, this year has taught us valuable lessons about where we can sharpen our process. I’ll share more about those reflections in the “Lessons Learned” section later in this letter.

Looking ahead, we expect uncertainty to remain the defining feature of the second half. In the U.S., market valuations are elevated and, in our view, more likely to decline than to climb further, especially as tariffs begin to flow through to consumer prices and corporate costs. Meanwhile in China, optimism about a “new bull market” contrasts starkly with the growing despair we hear from many entrepreneurs. We do not believe such a disconnect between fundamentals and sentiment can last.

When the macro picture is cloudy, it becomes even more important to focus on certainties: careful bottom-up research, disciplined portfolio management, and conviction-driven decision making. We are working diligently on new ideas with an enhanced approach and remain confident in our ability to deliver strong long-term results for our investors.

Alex Feng

Chief Investment Officer

Lessons Learned with Selected Portfolio Discussion

In our last letter, we noted that many of our investments would take a year or more to play out. Reviewing results now, what stands out is their binary nature — some clear wins, some costly lessons. Taken together, they form a valuable casebook for us to learn from and improve. In this section, we’d like to share a few of those lessons through specific case studies, both positive and negative, as “rules of engagement” we keep pinned on the walls of our office.

Lesson One: Invest in businesses you truly understand — and the simpler, the better

“Build and stay within your circle of competence.” This was one of the three core principles of value investing highlighted in the Intro chapter of The Essays of Warren Buffett. It sounds basic, but the temptation to stretch beyond it is real — especially when a “genius” special situation lands on your desk.

A good example: Cake Box (CBOX LN)

Cake Box has delivered exactly what we anticipated. The company accelerated store openings (from 20 to 26) and improved its underlying EBITDA margin (from 19.7% to 20.6%). EPS grew 19% in FY2025, and the stock price rose to over 200p from 140p since we commenced our research.

We were able to capture this opportunity because we are consumers ourselves — we know what makes a cake shop good or bad, and we could apply that understanding to the business. That simple, firsthand knowledge provided the foundation for a differentiated view, allowing us to invest when the market was skeptical.

We remain optimistic about Cake Box’s core UK business. At the same time, the company has taken bold steps this year: acquiring Ambala, a well-known Indian snack brand in the UK, and opening its first international store in Paris. These initiatives naturally add uncertainty and risks, but we believe their potential upside is not reflected in the current valuation, with the stock still offering a 5% dividend yield. We are monitoring closely as the story develops.

A cautionary example: Gentoo Media (G2M OB)

We invested in Gentoo Media ahead of the GiG spinoff, attracted by its exceptional growth, industry leadership, and the potential value creation from the restructuring. What we underestimated was our lack of deep understanding of the business. As someone who have never rolled a dice, we didn’t fully grasp how its products created value for users. The business was also overly complex — spread across multiple geographies and reliant on Google’s ranking algorithms, which remain a black box even to insiders of the industry.

In the first half, Gentoo was hit by a perfect storm: sweeping regulatory changes in Brazil and unfavorable Google updates. Growth turned to decline almost overnight, and together with peers, the stock fell ~70%.

This mistake gave us clarity. Gentoo’s management is not worse than its peers; rather, the business is heavily exposed to external factors outside their control. With valuations across the industry now very depressed and peers suggesting the worst is behind them, we are re-evaluating whether this may present a turnaround opportunity.

Lesson Two: Find out what the market is missing or mistaken about

Back when I was an analyst, the toughest question I got from PMs was: “What’s the market missing?” (or, in different words, “What’s your differentiated view?”). At the time, I found it confusing — who exactly is “the market,” and how could I possibly know what’s in its collective mind?

Ironically, now that I’m on the other side of the table, I find myself asking my analysts — and myself — the very same question. Not because I want to sound authoritative, but because I’ve come to realize two things:

1. Big money is often made through multiple re-ratings, driven by discoveries or shifts in market perception.

2. While you can’t pin down an exact “market consensus,” you can often get a broadly right sense of it — and in some cases, it’s easier than others.

A good example: NCR Atleos (NATL US)

NCR Atleos has been one of the most successful spinoffs in recent memory. We spent significant time speaking with stakeholders, but in truth, what we did was not to reinvent the wheel, but simply to verify the company’s plan and capabilities. Much of the thesis was already laid out in the company’s own presentations.

The real opportunity came from recognizing what many others refused to see. In conversations with North American and European investors, we repeatedly saw them shut down at the mention of “cash” and “ATM,” or dismiss the story because of painful prior experiences with NCR. Few were willing to listen to the fact that a pivot toward ATM-as-a-Service (ATMaaS) would significantly expand its TAM even if overall ATM demand is going to decline, and the new management team has delivered much better results in the recent years.

That collective reluctance was the opening. As Atleos began to execute and, later, as a highly respected investor published a detailed bullish report, the stock nearly doubled from where we first discovered it. We believe its re-rating journey is still in the early innings — many investors are only now beginning their research. We look forward to seeing management continue to deliver and the market gradually assign the multiple this business deserves.

Lesson Three: Use derivatives to profit from uncertainty

Most investors crave certainty — and markets tend to punish uncertainty harshly. Yet in special situations, uncertainty is sometimes unavoidable. Last year, for instance, we were caught on the wrong side of the Capri/Tapestry antitrust ruling. This year, however, we found a way to turn uncertainty into an opportunity — with the help of derivatives.

A good example: Sable Offshore (SOC US)

Sable Offshore is a California-based oil company that acquired suspended assets from Exxon Mobil and has been trying to restart oil production. Its efforts were repeatedly delayed by a Cease & Desist order from a local authority - CCC (the California Coastal Commission). In our view, the legal outcome was essentially binary: either the stock would be worthless if the ruling went against Sable, or it could trade above $40 if production restarted, based on peer valuations. At the time, the stock traded around $20 — roughly a 50/50 probability priced in.

We are not experts in oil and gas operations or in California’s regulatory law. What we did know, however, was that the CCC order was set to expire in early February, which meant a clear resolution was imminent. To position for either outcome, we implemented a strangle strategy in December and January — buying both call and put options expiring in March and April. This gave us exposure to a large move in either direction, with limited downside.

On February 12, the local government announced that Sable did not, in fact, need CCC approval to proceed with its assets. The stock quickly surged into the $30s. While our puts expired worthless, the calls more than doubled, producing a strong net gain.

This experience reinforced for us that derivatives, used selectively, can be powerful tools to navigate binary outcomes in special situations — not just to hedge risk, but also to profit from uncertainty itself.

Lesson Four: Business trends matter as much as the special situation itself

After the success of SharkNinja, we leaned into several spinoffs, operating on the logic that forced selling creates attractive entry points and that multiple expansion would follow over time. On paper, the strategy made perfect sense. But our experience has taught us that it’s not that simple. Forced sales do exist and can indeed create opportunities. However, multiple expansion is never guaranteed. For a spinoff to truly work, the underlying business must also benefit from favorable trends and sustainable growth drivers — just as with any other growth investment.

In short: the special situation may give us a good entry point, but it takes strong business fundamentals for the thesis to play out.

A good example: REVG Group (REVG US)

REVG has been a successful special situation investment: the management sold and closed non-core businesses, capitalized on the upcycle in fire trucks and ambulances, and executed a turnaround plan materially better than expected. By fiscal Q2 2025, the Specialty Vehicle segment achieved an adjusted EBITDA margin of 12.4% — way ahead of consensus. We believe segment margins can expand into the mid-teens, consistent with best-in-class peers. This reflects both a cyclical tailwind and structural improvements in operations.

While the stock has appreciated meaningfully, risks remain. A potential recession could further pressure the already soft RV market. New tariffs already add some cost headwinds, and a resurgence of inflation could erode margins, particularly given the company’s three-year fixed price backlog. To mitigate these risks, we implemented a collar option strategy to protect the downside while maintaining exposure to further upside. With valuation now hitting our target, we plan to adjust the position in the future as more attractive investment opportunities arise.

A cautionary example: Seaport Entertainment (SEG US)

Seaport is another special situation investment underway: it combines the spin-off with rights offering, a large asset sale on the horizon, and a bold turnaround plan under new leadership. Seaport’s execution has been consistent with management’s guidance. The team has attracted strategically aligned tenants to Pier 17 and the Historic District, including Meow Wolf, Gitano, Willett’s NYC, and more; finalized plans for legacy tenants such as ESPN and Nike; taken control of the Tin Building with a new management structure; and, most importantly, completed the sale of the 250 Water Street parcel for $150.5 million.

Despite these achievements, the stock has been very volatile year-to-date — falling into the $17s in Q2 before recovering to the $25s after the land sale. We attribute this to ongoing cash bleeding, an unfavorable macro and political backdrop, and our own overestimation of the near-term cash flow breakeven timeline. Even with the right team and a sound plan, turning around a cash-bleeding portfolio takes more time and patience.

We acted proactively to take advantage of the 250 Water Street land sale, an asset-sale special situation, to recover a portion of losses. While we remain confident in Seaport’s long-term turnaround, we will look to expand our position when there is a more attractive entry point.

Another cautionary example: Samsonite (1910 HK)

We initially believed Samsonite would benefit from a U.S. dual listing, where the market typically awards higher multiples than in Hong Kong. While that logic still holds, the reality is that potential multiple expansion cannot outweigh a cyclical business decline in a macro downturn.

In hindsight, Samsonite was more of an “okay business” than a compelling compounder. It rode the wave of post-COVID pent-up demand in 2023 and H1 2024, but luggage demand is unlikely to accelerate in today’s environment, especially with added uncertainties from the tariff war. Moreover, management has made it clear they will not pursue a U.S. listing until business trends improve, leaving few catalysts in the near term.

Given the combination of weak fundamentals, macro headwinds, and management’s stance, we chose to close our position. This reinforced for us that even when a special situation setup looks attractive, it cannot compensate for a business facing deteriorating trends. We also learned that management attitude is critical in special situations. In this case, the dual listing was driven more by shareholder pressure than by management initiative, resulting in slower execution than we expected.

Company Update

General operations

We were honored to be invited as guest speakers at the Columbia Business School Greater China Society conference, where we shared our perspectives alongside distinguished CBS alumni Jing Chang, COO of Himalaya Capital, and Amy Zhang, Portfolio Manager at Alger. In addition, our team hosted two speaker events: one with the Babson Analyst Initiative at Babson College, and another with CSIMA at Columbia Business School. We are passionate about sharing our stories, ideas, and experiences with students who are interested in investment management, and we plan to continue engaging with top business schools in both the U.S. and China.

Alex Feng at Columbia Business School Greater China Society Conference

On April 19th, we proudly sponsored Rome Capital’s 2025 Stock Pitch Competition at Columbia Business School. As CBS MBA alumni, Alex and Jason founded this competition to encourage more students to engage in value investing and to highlight opportunities in special situations and SMID-cap stocks — areas often overlooked by large institutions but capable of generating significant alpha.

Judges, organizers, and student finalists at Rome Capital Competition

We were especially proud that the winning student went on to present the same idea at Himalaya’s PKU Value Investing Class Research Showcase in Omaha, NE on May 4th. Our goal is to make this a recurring event at CBS and to continue giving back to both the CBS and the broader value investing community.

Recruiting

Through our Research Analyst Mentorship Program, we have been fortunate to train more than 10 talented students in the past 12 months, and we are proud that several former interns have since been admitted to the Value Investing Program at Columbia Business School — in our view, the best program for investment management. We are also happy to see that several of our internship alumni have subsequently secured summer positions at leading investment management firms. We will continue recruiting and mentoring motivated students, and welcome applications with a resume and stock pitch.

Media exposure

In March, we had the pleasure of sharing our investment philosophy and case studies with Capital Employed, a respected publication on Substack and X (formerly Twitter).

At the same time, we continue to share our research and insights through our official channels on WeChat, Substack, and X. We are encouraged to see our follower base steadily grow, and cases like NCR Atleos have helped strengthen our credibility with a wider audience base.

Conclusion

Through the lessons shared in this letter, we hope you can sense how much we are learning and evolving as a firm. By building on our strengths and avoiding past mistakes, we believe we can generate much stronger long-term results.

We are grateful for your continued support and for the dedication of our team. We look forward to sharing our progress and insights with you in the next letter.

For more information about Rome Capital, please contact us at afeng@romecapital.ltd or jquan@romecapital.ltd.

Alex Feng

Chief Investment Officer

Jason Quan

Head of Research

Disclaimer

The information in this report is Rome Capital’s opinion and may be subjected to errors. We may change our opinion without notice. We hold some of the stocks mentioned in the report. Our opinion is not investment advice. Please do your own due diligence and consult your advisors before making any investment decisions.