The bulk of our capital now sits squarely in Alberta—and in the vast, stubbornly profitable rock beneath it.

While others declared hydrocarbons a dying franchise, we reached the opposite conclusion. The Western Canadian Sedimentary Basin—with roughly 170 billion barrels of proven reserves—looked to us less like a stranded asset and more like one of the planet’s great vaults of intrinsic value. A storehouse, not a sunset.

Despite already heavy exposure, we added modestly over the past twelve months: a few more shares of Peyto Exploration & Development, which continues to flourish under the crisp, disciplined hand of chief executive JP Lachance; a doubled position in Petrus Resources after a field trip to Ferrier this summer; and, in October, a new holding in pipeline operator South Bow.

Peyto and Petrus have featured in past letters. This year, Petrus—easily one of the most entrepreneurial bets we’ve made—has turned a corner. After a pandemic-era restructuring, it completed a crucial pipeline, generated respectable free cash flow despite brutal natural gas prices, and began returning hefty dividends.

South Bow, recently carved out of TC Energy, owns one of North America’s most irreplaceable arteries: the Keystone liquids pipeline and its surrounding network—nearly 5,000 kilometers connecting the WCSB and Cushing hub to the refineries of the Midwest and Gulf Coast. As special situations go, this one was from central casting. On debut, the stock yielded nearly double digits—a staggering, and in our view unwarranted, discount to peers.

We bought the moment the forced index sellers had shot their last round. The gap closed almost immediately. What remains is a durable income stream we expect to hum along for decades.

The past year also marked a homecoming of sorts. Western Europe—and France in particular—slid into an economic funk that strongly recalls the post-GFC hangover of fifteen years ago. Back then, we could buy stout, growing, often family-run businesses for five to eight times earnings. That is, fire-sale valuations on high-grade merchandise.

This cycle feels déjà-vu, and while we don’t wish hardship on anyone, we refuse to let it go to waste. So we initiated two long-watched positions: Alten and Samse.

Alten—founded and still run by industry veteran Simon Azoulay—has tripled revenue and earnings over the last decade. Yet Europe’s recession dragged its multiple below eight times operating income. For a cash-rich engineering group with a resilient model and a sharp M&A instinct, this was precisely the window we had been waiting for. True to form, the firm used the downturn to acquire Worldgrid, a vital software provider to the nuclear industry.

Samse came from the same shortlist. We have admired it for more than ten years. With France’s construction sector now faring even worse than in 2008—a vivid indictment of the country’s wider malaise—Samse’s valuation sank to barely five times earnings. This was wildly out of step with its decade-long tripling of profits, rock-solid balance sheet, and enviable culture. After a transformative market-expanding acquisition this year, we expect the payoff to stretch beyond the cycle.

Elsewhere, stasis ruled our next three largest holdings. Richelieu Hardware notched its second straight year of soft organic growth, salvaged mainly through acquisitions. But momentum in the U.S. remains real, and in Richard Lord we continue to back one of Québec’s finest operators.

Knight Therapeutics is living a similar story. Since buying GBT and its Latin American footprint, the company has expanded at full tilt under Samira Sakhia and Jonathan Goodman: revenues up sevenfold, operating earnings up twentyfold, share count down by a quarter—and yet the stock fell. As Mr. Goodman once remarked of his last venture, Paladin Labs: “We had nineteen years of record revenues, but for twelve of those years the stock did nothing. It took nineteen years to become an overnight success.” 

Tessenderlo, meanwhile, wrestled with snarled supply chains, soaring input costs in its agro unit, and a rare loss in biovalorization. Management responded with heavy buybacks as the stock languishes at all-time low valuations. This, too, will turn—eventually.

Our chief frustration this year has been Idorsia. When Chairman Jean-Paul Clozel called the biotech a “20-year-old startup,” he wasn’t embellishing. Actelion—which he and his wife Martine built from scratch—sold two decades later for $30 billion. Idorsia was born from that sale, inheriting the pipeline and the promise of a sequel.

It started with all the advantages: elite leadership, deep research talent, four potential blockbusters approaching late-stage trials, ample cash, and a market enthralled by biotech. But eight years on, management’s misjudgments have caught up. The flagship insomnia drug has yet to scale. Cash burn soared. Two critical programs faltered. Profitability—once within sight—evaporated.

The consequences have been unforgiving. Idorsia sold crown-jewel assets to keep the lights on, laid off most of its R&D staff, and reworked its convertible debt on punishing terms. The stock collapsed. Bankruptcy is no longer a remote scenario. Idorsia is a harsh reminder that you can have brains, stamina, integrity and a head start, and still fail spectacularly. That lesson hasn’t gone unnoticed. 

Our standout this year was Daily Journal Corporation, bought in late 2022 when its valuation was essentially covered by its legacy businesses, marketable securities, and real estate—leaving only a modest premium for its growing court-software division spanning the U.S., Canada, and Australia.