Tactile Fund commentary for the second quarter ended June 30, 2025.
Dear Partners,
In its second quarter of its short existence, Tactile Fund enjoyed strong appreciation, rising 10.5% and bringing our year-to-date return to 11.2%. Volatility was this quarter’s theme, with April’s “Liberation Day” causing global equities to plunge and a reprieve from the punitive tariffs allowing a broad recovery. Confidence in the US Dollar remains subdued, and international stock markets continue to outperform the domestic stock market. Inflation is proving to be tenacious. Together, these factors are creating a favorable environment for our collection of quality global businesses with extraordinary physical assets.
M&A Update
Last quarter saw the surprise buyout of Svitzer A/S. Bon voyage to our Danish tug operator. In June, our portfolio experienced another value-catalyzing event when Australian brick producer and property owner Brickworks Ltd. agreed to merge with its parent company. Soul Patts, or “Washington H. Soul Pattinson and Company Limited” if you are feeling formal, offered a fair premium to Brickworks’ trading price, and the agreement was signed. Soul Patts is the epitome of a Blue-Chip company, paying dividends every year since its listing in 1903 and increasing distributions 25 years running. Post-merger, the combination of the two companies’ industrial operations and high-quality real estate assets make Soul Patts suitable as a continuing holding in the Tactile portfolio.
It is unlikely that our portfolio will continue to experience buyouts and mergers on a quarterly basis, but I do take these transactions as indicators of the desirable characteristics of our portfolio companies. If the stock market will not recognize their value on its own, other companies will eventually take the initiative.
Holding Profile: Boston Sand & Gravel
Fireworks, cookouts, and swimming pools are all typical July pleasures, but the highlight of my July may be the day that the Boston Sand & Gravel Company annual report arrives in my mailbox. Boston Sand & Gravel is a growing holding in the Tactile Fund portfolio, exactly the type of company I am excited to own for many, many years to come. For anyone unfamiliar with the company, Boston Sand & Gravel is situated within the city limits of Boston, sidled up next to I-93 just north of the Charles River. Since 1914, Boston Sand & Gravel has provided the Boston metro area and surrounding environs with cement and aggregates. The company owns quarries in New Hampshire and a 43-mile rail line that connects these quarries with New Hampshire and Boston markets. Boston Sand & Gravel has been owned and skillfully managed by the Doyle family for generations. The company maintains a cash-heavy balance sheet and carries little debt. In most years, the company earns a healthy profit and regularly rewards shareholders with dividends and share repurchases.
Still, not every year is a banner one for Boston Sand & Gravel. 2024 wasn’t. The company was hindered by a wet spring that delayed construction projects. Higher interest rates also cooled activity. Perhaps worst of all, Boston’s vaunted life sciences industry is in a deep slump, resulting in high office vacancies and slowing the pace of development in the office and laboratory sectors. As a result, the firm’s operating profit declined from $5.4 million in 2023 to just $1.3 million in 2024. Management’s commentary provides little hope for a quick recovery. That’s all right, because Tactile Fund doesn’t own Boston Sand & Gravel shares for next year’s earnings, or the year after that. We own the company because its physical footprint is irreplaceable, and its products are essential inputs in a major American city’s continued development and prosperity.
On my desk in front of me I have the last five years of Boston Sand & Gravel annual reports. The 2020 edition cover even has some custom marker art done by my then two-year-old daughter. From 2019 to 2024, the company’s operating income averaged $5.9 million and its EBITDA averaged $10.4 million. Recent trading around $855 gives the company an enterprise value of $55.8 million, or 5.4 times the company’s 6-year average EBITDA. Try as I might, I cannot find a cheaper cement company anywhere, let alone one of Boston Sand & Gravel’s quality and financial strength. I would also note that this enterprise value excludes the company’s substantial excess real estate holding, much of which is being marketed for sale. These properties are recorded on the company’s balance at a cost of $10.4 million, with their market value likely to be far, far higher.
In Closing
Tactile Fund LP is now a $25 million fund. I greatly appreciate the enthusiastic response we have received from early investors. I continue to believe this backdrop of rising sovereign debt, persistent inflation, and renewed interest in global stock markets is an auspicious one for investors in companies with truly world class physical assets.
We have ample capacity to accept new partners and capital and would be grateful for your thoughtful referrals. The “Founder’s Class” with a preferential fee structure remains open. I welcome your inquiries about the Tactile portfolio and strategy. Thank you for reading!
Best Regards,
Dave Waters, CFA
Alluvial Capital Management, LLC
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