The largest share of our assets is now concentrated in the Canadian province of Alberta—and in its prolific sedimentary basin.

Unlike others, we did not regard fossil fuels as a sunset industry—quite the opposite—and came to view the Western Canadian Sedimentary Basin and its 170 billion barrels of oil equivalent in proven reserves as perhaps one of the top five most valuable assets in the world; in essence, as a formidable store of value.

Despite our already high exposure, over the last twelve months we increased our investment in the region, acquiring a very small number of additional shares in Peyto Exploration & Development, our largest holding, which has been thriving under the splendid stewardship of chief executive officer JP Lachance; doubling down on our investment in Petrus Resources following a field visit in Ferrier this summer; and initiating a new position in common shares of pipeline company South Bow in October.

Both Peyto and Petrus were discussed at length in the past. As for the latter, undoubtedly one of our most enterprising investments to date, much has changed this year. Having undergone a successful restructuring during the pandemic, Petrus completed a key infrastructure project, managed to generate satisfactory free cash flow in the face of severely depressed natural gas prices, and began to distribute generous dividends to its shareholders.

Spun off from TC Energy, our new holding South Bow owns and operates one of the most strategic, vital and irreplaceable infrastructure in North America: The Keystone liquids pipeline and its adjacent network of assets, spanning 4,900 kilometers across the continent and connecting the steady heavy oil production from the Western Canadian Sedimentary Basin—as well as the Cushing market hub—to the refineries of the Midwest and the Gulf Coast.

A textbook special situation, South Bow’s shares initially traded near a double-digit dividend yield following its separation as an independent entity—reflecting a steep, yet in our view unjustified discount to its peers. Confident that a rerating would promptly follow the end of forced selling by index funds and the upcoming listing of South Bow’s shares on the U.S. exchange, we seized the opportunity to buy right after their Canadian debut. The investment proved timely, as the discount closed almost immediately. We now expect it to provide a reliable income stream for decades to come.

Importantly, the past year has been defined by a pivot of our geographic focus towards our home turf—France. The country, like the rest of Western Europe, entered a period of economic turmoil in every aspect reminiscent of what it went through fifteen years ago in the wake of the great financial crisis. At that time, all across the old country and its neighbors, we could snap shares in scores of solid, growing family-controlled companies valued at about five to eight times earnings; in other words, high-quality merchandise marked down at fire sale prices.

This time is no different and, as 2024 unfolded, the same sequence repeated itself; déjà-vu all over again for folks who, like us, were bargain hunters and active shoppers back then. While we do not cheer for bad news, especially when it hits close to home, we certainly intend to use it to our advantage rather than letting it take its toll on morale. As such, the year saw us undertaking two new investments in France: the first in Alten, the second in Samse.

Founded and led by industry veteran Simon Azoulay, French engineering and IT consulting group Alten tripled its earnings and revenue over the past decade. Notwithstanding its resilient business model, fortress-like balance sheet and fertile M&A strategy, its stock market valuation bore the full force of the severe recession that started in Europe in 2023 as it plummeted to less than eight times operating earnings.

This is precisely the opportunity we had been waiting for to start acquiring shares in late 2024, for Alten, a company we have long followed, weathered many similar downturns in the past, only to emerge stronger when the economy recovered. Indeed, and as always, this time again the company capitalized on the challenging environment to make the opportunistic acquisition of Worldgrid, a mission-critical provider of software for nuclear power plant management.

Our investment in Samse was cut from the same cloth. Like Alten, this is a company we have followed and admired for well over a decade. Confronted with a construction sector in even worse shape than during the 2008 crisis—an unmistakable sign of the extreme distress weighing on the French economy—the country’s second largest distributor of building materials saw its valuation collapse to just five times earnings.

This sharp decline stands in stark contrast to the company’s impressive track record, solid financial footing and first-rate culture. Samse, too, has tripled its profits over the past ten-years cycle and, throughout its long history, has consistently remained profitable, even during the harshest recessions. In 2024, it completed a transformative acquisition that not only consolidated but also significantly expanded its market share. The best is yet to come.

In other news, it has been a year of prolonged stasis for our next three largest holdings. Richelieu Hardware faced its second consecutive year of sluggish organic growth, with this lackluster performance barely compensated by a series of acquisitions. Nevertheless, the company made robust progress in the United States, where expansion prospects remain alluring. Richard Lord lost none of his magic and we’re thrilled to ride along one of the finest entrepreneurs in the province of Québec.

The situation is not unlike the one experienced by Montréal-based Knight Therapeutics. Since acquiring GBT and its first-class footprint in Latin America, Knight has continued in full expansion mode under the superb leadership of Samira Sakhia and Jonathan Goodman. Over the past five years, it has grown revenues sevenfold and operating earnings twentyfold. Meanwhile, it has reduced its outstanding shares by a quarter. And yet the stock price declined.

Belgian group Tessenderlo, for its part, continued to grapple with supply chain disruptions and soaring input costs in its agro division, while its biovalorization unit printed red ink for the first time in many years. Against this backdrop, management did all the right things and launched a series of agressive share buybacks as valuation languishes at historic lows. Much patience is needed, but eventually it should be rewarded.

In all three cases, we are confident that brighter days lie ahead, and think it’s worth reflecting on Jonathan Goodman’s comments about his previous venture, the outrageously successful Paladin Labs: « We had nineteen years of record revenues, but for twelve of those years, our stock was flat. It took us nineteen years to become an overnight success. »

Our primary concern and disappointment this year has been with Idorsia. When Chairman Jean-Paul Clozel described the Swiss biotech he founded as a 20-year-old startup, the cardiologist turned researcher and entrepreneur was not speaking in hyperbole. Actelion, which Jean-Paul and his wife Martine started as a garage business, got sold two decades later for $30 billion to Johnson & Johnson. As a prerequisite for the deal, its R&D pipeline had to be spun off into a new vehicle—enter Idorsia—which, by all rights, could then be seen as Actelion 2.0.

The 20-year-old startup seemed poised for success. It sported an elite management, first-class research capabilities, a rich pipeline that included at least four blockbuster materials in or nearing phase 3 trials, as well as a sizable cash reserve; interest rates were low, and excitement for promising biotech ventures was culminating to new heights. Such was the promising genesis of Idorsia.

Eight years later, however, it is clear that its management badly miscalculated. Idorsia’s flagship insomnia treatment has yet to gain traction, yielding only modest revenues this year. While cash-burn accelerated, the company suffered setbacks in two pivotal R&D programs, forcing it to abandon the goal of achieving profitability which was set at the time of its IPO.

Consequences have been dreadful. Starting from a position of strength, Idorsia now negotiates from a position of weakness. It had to divest valuable assets—burning the furniture to keep the lights on—and lay off the majority of its R&D teams; it also renegotiated the terms of its convertible bond issuance, causing an initial wave of shareholder dilution. As a result, the stock price collapsed and bankruptcy looms around the corner.

This misadventure is further proof that, in business, you can be high integrity, high talent and high energy, all while sporting excellent credentials and being dealt an advantageous hand, and yet fail in spectacular fashion. There are lessons to be drawn from this, and naturally those have not escaped us.

Our top performer this year has been Daily Journal Corporation, whose shares we bought in late 2022 because its legacy business, portfolio of marketable securities and real estate properties covered its entire valuation at the time—leaving just a modest multiple on its burgeoning SaaS business Journal Technologies that serves courts in the United States, Canada and Australia.