S2E6: David Spiegelhalter on Risk and the Use of Statistics | Market Internals

October 19, 2021 in Audio, Podcast, This Week in Intelligent Investing

It’s a pleasure to share with you Season 2 Episode 6 of This Week in Intelligent Investing, co-hosted by

  • Phil Ordway of Anabatic Investment Partners in Chicago, Illinois;
  • Elliot Turner of RGA Investment Advisors in Stamford, Connecticut; and
  • John Mihaljevic of MOI Global in Zurich, Switzerland.

Enjoy the conversation!

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In this episode, co-hosts Phil Ordway, Elliot Turner, and John Mihaljevic discuss

  • an interview with Sir David Spiegelhalter on risk and the use (and misuse) of statistics, published in the Financial Times on April 16, 2021; and
  • a table from Morgan Stanley, showing that more than 90% of stocks have declined more than 10% from their YTD highs (>30% for Nasdaq and Russell 2000 stocks) even as the market indices remain only a few percentage points off their highs.

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About the Podcast Co-Hosts

Philip Ordway is Managing Principal and Portfolio Manager of Anabatic Fund, L.P. Previously, Philip was a partner at Chicago Fundamental Investment Partners (CFIP). At CFIP, which he joined in 2007, Philip was responsible for investments across the capital structure in various industries. Prior to joining CFIP, Philip was an analyst in structured corporate finance with Citigroup Global Markets, Inc. from 2002 to 2005. Philip earned his B.S. in Education & Social Policy and Economics from Northwestern University in 2002 and his M.B.A. from the Kellogg School of Management at Northwestern University in 2007, where he now serves as an Adjunct Professor in the Finance Department.

Elliot Turner is a co-founder and Managing Partner, CIO at RGA Investment Advisors, LLC. RGA Investment Advisors runs a long-term, low turnover, growth at a reasonable price investment strategy seeking out global opportunities. Elliot focuses on discovering and analyzing long-term, high quality investment opportunities and strategic portfolio management. Prior to joining RGA, Elliot managed portfolios at at AustinWeston Asset Management LLC, Chimera Securities and T3 Capital. Elliot holds the Chartered Financial Analyst (CFA) designation as well as a Juris Doctor from Brooklyn Law School.. He also holds a Bachelor of Arts degree from Emory University where he double majored in Political Science and Philosophy.

John Mihaljevic leads MOI Global and serves as managing editor of The Manual of Ideas. He managed a private partnership, Mihaljevic Partners LP, from 2005-2016. John is a winner of the Value Investors Club’s prize for best investment idea. He is a trained capital allocator, having studied under Yale University Chief Investment Officer David Swensen and served as Research Assistant to Nobel Laureate James Tobin. John holds a BA in Economics, summa cum laude, from Yale and is a CFA charterholder.

The content of this podcast is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this podcast. The podcast participants and their affiliates may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on this podcast.

WLTW: Event-Driven Opportunity in Attractive, Oligopolistic Industry

October 15, 2021 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2021, European Investing Summit 2021 Featured, Ideas, Member Podcasts

Daniel Gladiš of Vltava Fund presented his thesis on UK-based insurance broker Willis Towers Watson (US: WLTW) at European Investing Summit 2021.

Thesis summary:

Willis Towers Watson offers an event-driven investment in the attractive insurance brokerage industry, which is dominated by a few large players.

The event catalyst has already occurred, as a plan to merge with AON was terminated on July 26, 2021. This led to the unwinding of merger arbitrage positions, resulting in selling pressure on WLTW shares. After the deal fell apart due to lack of regulatory approval, WLTW received a breakup fee and has been repositioning the business under a new CEO.

The company has sold its Willis Re business for up to $4 billion and has formulated financial targets through 2024. For the fiscal year 2024, WLTW is targeting revenue of $10+ billion, adjusted operating margin of 24-25%, and adjusted EPS of $18-21. The company has embarked on a share repurchase that may amount to as much as $4 billion through FY2022.

WLTW shares trade at a discount to the peer group, which includes AON (US: AON), Arthur J. Gallagher & Co. (US: AJG), Brown & Brown (US: BRO), and Marsh & McLennan (US: MMC). Based on 2022 estimates, AON, AJG, BRO, MMC, and WLTW trade at P/E ratios of 23x, 29x, 27x, 24x, and 17x, respectively.

Assuming EPS of $20 in FY2024 and a price of $240 per share, WLTW’s P/E ratio would come down to 12x (if the stock price remains flat).

The full session is available exclusively to members of MOI Global.

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About the instructor:

Daniel Gladiš, based in the Czech Republic, has amassed a market-beating track record since starting VLTAVA Fund in 2004. VLTAVA Fund is a value-oriented, research-driven investment fund focused on investing in good companies run by quality management. Previously, Daniel was Director and Chairman of the Board of Directors of ABN AMRO Asset Management (Czech) from 1999–2004. He was also Director and founder of Atlantik finanční trhy, a.s., a member of the Prague Stock Exchange. Daniel is a graduate of VUT Brno and has authored the best-selling books Naučte se investovat (Learn to Invest) and Akciové investice (Stock Investments).

Read Daniel’s recent article on central banks.

PBKM / Vita 34: In Process of Forming Largest Global Cord Blood Bank

October 15, 2021 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2021, European Investing Summit 2021 Featured, Ideas, Member Podcasts

Nils Herzing of Active Ownership Capital presented his investment thesis on Vita 34 AG (Germany: V3V) and Polski Bank Komórek Macierzystych S.A. (“PBKM”) (Poland: BKM) at European Investing Summit 2021.

Thesis summary:

Vita 34 AG and PBKM are the #1 (~39% of newly acquired samples) and #3 (~8% of newly acquired samples) players in the European cord blood market. This market is attractive given the increasing awareness of the benefits of cord blood storage and attractive economics from long-term customer contracts and high gross margins (>90%).

PBKM and Vita seek to combine their operations to form not only the undisputed leader in the European cord blood banking market but the world’s largest player in this space. The areas of synergies from such a combination are manifold and include (i) the ability to focus on market growth instead of starting to compete in the same region, (ii) cost and process optimisation, (iii) the ability to cross-sell the entire portfolio to a much larger customer base, and (iv) the ability to benefit from the growth of new adjacent businesses as both companies are extending their business models.

The merged company will have an attractive financial profile:

  • pro-forma revenue of EUR ~65 million (LTM as of 3Q20) at normalized cash EBITDA margins of 20-22% before benefits from synergies and the identified improvement potential within both companies
  • ~65% FCF conversion (based on a pro-forma average of the last three years) and a post-peak capex cash flow profile as PBKM just completed a large growth investment program
  • the ability to grow the headline in the double-digit range annually until 2025, driven by (i) investments into organic expansion via penetration rate increases, market share gains, and venturing into adjacent businesses, as well as (ii) bolt-on acquisitions; considering the synergies, potential exists for the joint business to increase margins toward ~30% in the medium term
  • a globally leading consulting firm has drafted a joint business plan that sees revenue more than double through 2025 while reaching EBITDA margins of 22-25% (excluding improvement potential and synergies other than revenue synergies in Germany)

The full session is available exclusively to members of MOI Global.

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About the instructor:

Nils Herzing is a Partner at Active Ownership Capital (AOC). Prior to joining AOC as its first employee, Nils was the manager of a Family Office located in Regensburg, Germany. In 2013, he graduated with a B.A. in Management, Philosophy & Art. In the same year he founded the Herzing Value Investment GmbH. Afterwards, he earned an MSc in Finance from the EBS Business School and EDHEC Business School during which he passed the first two levels of the CFA Program. Since 2016, he has been a CFA Charterholder. In 2017, Nils co-founded ForkOn GmbH, the first vendor neutral SaaS forklift fleet management solution. Since December 2018, he has servered as a board member of the supervisory board of PBKM (Polski Bank Komórek Macierzystych) S.A.

Lanxess: Specialty Chemicals Leader, With Far More Profitable Future

October 15, 2021 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2021, European Investing Summit 2021 Featured, Ideas, Member Podcasts

Independent wealth manager Samuel Weber presented his investment thesis on Lanxess (Germany: LXS) at European Investing Summit 2021.

Thesis summary:

Lanxess is a leading specialty chemicals company with sales of EUR 6.1 billion in 2020. The company has 14,800 employees in 33 countries. The core business of Lanxess is the development, manufacturing and marketing of chemical intermediates, additives, specialty chemicals, and plastics.

The company is in the middle of a multi-year transformation and should in a few years generate around EUR 1.5 billion in EBITDA from highly attractive segments that are characterized by significant barriers to entry, high returns on capital, and long-term growth potential. Furthermore, side projects may create significant value in the future.

Mr. Market values the company based on its past economic profile and systematically ignores its far more profitable future. Lanxess can be bought at around 4x 2025 EBITDA, excluding any value from the aforementioned projects. The management team is capable, honest, and shareholder-oriented and may create far more value than is envisaged even by optimistic market observers.

The full session is available exclusively to members of MOI Global.

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About the instructor:

Samuel S. Weber is an independent wealth manager based in Zug, Switzerland. He is a passionate value investor, who is focused on generating long-term, market beating returns by investing in high-quality opportunities in the stock market (samuelsweber.com). Samuel holds a master’s degree in strategy and international management from the University of St. Gallen and is a member of the Board of Trustees of HBM Fondation.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Do & Co: Airline Catering Leader, Likely to Keep Gaining Market Share

October 15, 2021 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2021, European Investing Summit 2021 Featured, Ideas, Member Podcasts

José Antonio Larraz of Equam Capital presented his investment thesis on Do & Co (Austria: DOC) at European Investing Summit 2021.

Thesis summary:

Do & Co is a gourmet entertainment company specializing in airline catering. The company operates in three business units: airline catering (74% of revenue), event catering (14%), and restaurants, lounges and hotels (12%).

Despite the great impact of the Covid situation on the business, the company has been able to demonstrate the flexibility of the business to adapt to different market environments (revenue dropped by more than 70% in FY20 but the company maintained a healthy 7% EBITDA margin and breakeven operating cash flow). By focusing on the premium segment and despite the difficult environment, the company has gained important contract awards with major airlines (representing >50% of pre-Covid revenue), and prospects appear solid for continuing to gain business in the coming quarters.

Assuming conservative airline traffic recovery scenarios, José estimates 70-100% upside potential for the shares over a three- to four-year timeframe.

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About the instructor:

José Antonio Larraz is a founding partner of Equam Capital. Jose has 12 years of experience as a partner in Capital Alianza Private Equity, investing in Spanish private companies in the middle market. He has investment experience in chemical, food, retail, outsourcing and telecommunications sectors, having participated in the board of directors of six different companies. Jose has 4 years of experience in financial advisory, corporate finance and M&A at Lehman Brothers in London and New York and He is a Professor at Instituto de Empresa since 2008. Jose holds a degree in Law and Business Administration from ICADE University and MBA from Insead.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

GlaxoSmithKline: Recent Laggard; Prospects Improving Under New CEO

October 15, 2021 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2021, European Investing Summit 2021 Featured, Ideas, Member Podcasts

Stuart Mitchell of S. W. Mitchell Capital presented his investment thesis on GlaxoSmithKline (US: GSK) at European Investing Summit 2021.

Thesis summary:

GlaxoSmithKline has underperformed the pharma sector by almost 20% over the last three years. The strategic direction of the group has been somewhat unclear following the sale of the oncology business to Novartis for $16 billion in 2015 and the subsequent purchase of Tesaro (also oncology related) for $5 billion in 2018.

The outlook is starting to improve. The company, since 2017 led by Emma Walmsley, plans to split the group into two separate consumer health and biopharma divisions. Both businesses seem to be recovering strongly. The consumer health division, which accounts for 30% of revenue, is a world leader in oral health (Sensodyne), pain relief (Voltaren, Advil, Theraflu), and vitamins (Otrivin and Robitussin). The business should be able to grow by at least 2% per annum, driven by strong growth in these – and other – global brands. GSK foresees an increase in the profitability of the division from 21% in 2020 to the “mid to high 20s” by 2025.

The new biopharma division (70% of sales), of which just over a quarter encompasses vaccines; ViiV Healthcare (HIV therapies) just under a quarter; and one-half other pharmaceuticals. The business has been thoroughly restructured since the arrival of CEO Walmsley. The vaccines business should continue to grow at 6% per annum as the roll-out proceeds of Shingrix (shingles vaccine) in Europe and Japan. ViiV should also grow at some 6% per annum with the introduction of new, less toxic, double-dose regimes.

All in all, GSK expects biopharma revenue and operating profit to grow by more than 5% and 10%, respectively, from 2021 to 2026. The biopharma margin is also expected to expand from 20% in 2021 to 30+% by 2026. Costs are expected to be cut by a further £1 billion by 2023.

GSK shares recently traded on a rather modest 13x 2022E earnings and a 10% FCF yield. With the group about to be split up, one may regard a sum-of-the-parts valuation as more than a theoretical exercise. Stuart believes that the group could be worth at least £20 per share.

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About the instructor:

Stuart Mitchell is the Managing Partner and CIO of S. W. Mitchell Capital and the Investment Manager of the SWMC European Fund, as well as a number of managed accounts. Prior to founding SWMC in 2005 Stuart was a Principal, Director and Head of Specialist Equities at JO Hambro Investment Management (JOHIM, now Waverton Investment Management). At JOHIM he set up and managed the Charlemagne Fund, a long/short European fund, and the JOHIM European Fund, a long only European fund. The JOHIM European Fund rose by 133% since inception in December 1998 until March 2005 compared with 8% for the benchmark index and was number 1 rated by Micropal within its sector and three star ranked by S&P. Upon leaving university in 1987 Stuart joined Morgan Grenfell Asset Management (MGAM) and soon afterwards assumed responsibility for managing the continental European equity assets for MGAM’s British pension fund clients. Stuart was appointed a director of MGAM in 1996. He was then made Head of European Equities and was responsible for $27 billion of equity assets. Whilst at MGAM he managed the Morgan Grenfell European Fund which rose by 123% from January 1990 to June 1996 compared with 85% for the benchmark index and was awarded 1st place by Micropal (5 year awards) in 1996. Stuart was born in Scotland and educated at Fettes College and St. Andrews University where he read Medieval History. He is also a graduate of the Owner/President Management programme from the Harvard Business School. Stuart speaks English and French.

Read a recent article by Stuart on European banks.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Euronav: Tanker Giant Positioned to Take Advantage of Industry Cycle

October 15, 2021 in Audio, Diary, Discover Great Ideas Podcast, Equities, Europe, European Investing Summit 2021, European Investing Summit 2021 Featured, Ideas, Member Podcasts

Alirio Sendrea of Invexcel presented his investment thesis on Euronav (Belgium: EURN) at European Investing Summit 2021.

Thesis summary:

Euronav is the world’s largest publicly listed crude oil tanker operator. The company owns a quality fleet of large crude carriers (VLCCs and Suezmaxes), operated by an experienced management team focused on value creation.

In this presentation, Alirio walks us through the tanker industry’s supply-demand dynamics and explains why Euronav is well-positioned to take advantage of the industry cycle.

For additional background, see Alirio’s article on oil tankers, dated October 2019.

Also, see Alirio’s recent article on areas of concern in a speculative market.

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About the instructor:

Alirio Sendrea, CFA is Head of Research at Invexcel, a multi‐family office based in Spain. He is a generalist investor in European Equities with 17-years of experience in Financial Services, Shipping, Information Services, Alcoholic Beverages and Business Services, working with entrepreneurial families and leading global companies.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

MTU: Leading Supplier of Aero-Engine Sub-Systems With Strong Order Book

October 15, 2021 in Audio, Diary, Equities, Europe, European Investing Summit 2021, European Investing Summit 2021 Featured, Ideas

Katerina Kosmopoulou of J. Stern & Co. presented her investment thesis on MTU Aero Engines (Germany: MTX) at European Investing Summit 2021.

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About the instructor:

Katerina Kosmopoulou is a Partner of J. Stern & Co.. She is a senior investment analyst, portfolio manager as well as leading the firm’s ESG efforts. Katerina is the deputy portfolio manager for the firm’s World Stars investment strategy.

Prior to joining J. Stern & Co. in 2013, Katerina was a Senior Equities Fund Manager at RCM, Allianz Global Investors in London, Frankfurt and Munich. She was part of the firm’s Global Equities team, managing various fundamental, bottom-up driven strategies. She has over 20 years of equity investment experience and has previously covered the Global Consumer Discretionary and Staples, Energy as well as the Industrials and Materials sectors.

Katerina is a Greek national and is fluent in English, Greek, German and French. She holds a BSc in Business Administration from the University of Bath and a MSc in International Securities, Investment & Banking from the University of Reading. Katerina is a CFA Charterholder and a member of the Board of Directors of the CFA Society of the UK.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Gregor Rudolph-Dengel on the Opportunity in “Re-Opening” Stocks

October 15, 2021 in Audio, Equities, Europe, European Investing Summit 2021, Ideas

Gregor Rudolph-Dengel of Allianz Global Investors presented his thesis on post-COVID re-opening stocks at European Investing Summit 2021.

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About the instructor:

Gregor Rudolph-Dengel joined Allianz Global Investors in September 2007 through the graduate programme. Having completed the programme in April 2009, he joined the European Equity team within the Investment Style Team Value. He recently took over responsibility for Allianz European Value. He has been a member of the Dividend team since January 2013 and became the Co-PM of the Allianz European Equity Dividend about two years ago. Before his career at Allianz Global Investor, he graduated with a combined Diploma and Bachelor’s degree in European business (Diplom-Betriebswirt) from the European School of Business in Reutlingen and Dublin City University in 2007. He has also been a CFA charter holder since 2011.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Barco: Attractively Valued Projection and Visualization Systems Leader

October 15, 2021 in Audio, Equities, Europe, European Investing Summit 2021, Ideas

Sebastien Lemonnier of INOCAP Gestion presented his investment thesis on Barco (Belgium: BAR) at European Investing Summit 2021.

For additional background, see Sebastien’s original session on Barco, dated 2017.

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About the instructor:

Sebastien Lemonnier started his carreer in 2003 as financial analyst at Tocqueville Finance. He was promoted as european fund manager in 2006 running the UCIT fund Tocqueville Value Europe and pursued his carreer for Mansartis, a Paris based multi family-office in 2012. He joined INOCAP Gestion in 2017, managing the UCIT fund Quadrige Europe Midcaps that is currently 5 Stars rated by Quantalys. Sebastien holds a Masters Degree in Financial Management from Panthéon-Sorbonne Paris. He is married and got one daughter born last November 2020. As a hobby, he plays tennis that he was used to play in competition when teenager and is currently supporting with a President responsability the French tennis academy CDHN that train of the best French young tennis players.

Read an article in which Sebastien highlights his timeless investment principles.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.