Highwood Worth Companions H2 2025 Letter To Buyers

Expensive Buyers,

Within the second half of 2025, our portfolio was up 5.7% which brings our return to +10.2% for the calendar 12 months and +76% since inception in Canadian {dollars} web of charges¹. This compares to essentially the most related benchmark index, the MSCI Europe SMID Cap index, which is +68% because the date of our inception.

The desk under offers you the same old abstract of our efficiency and publicity by technique bucket for the second half of 2025 and the related durations since inception.

I’ve made a small change to the same old desk under to breakout realized features since inception. Under the Complete Return since inception metric (+76%), I’ve added the Realized Return since inception (+71.4%). Unrealized features are the distinction between whole and realized returns, or 4.6% as of December 31, 2025.

1. Returns offered are the returns of the Highwood Worth Companions Consumer Composite.

2. Inception on December 9, 2019

3. Common Return offered is the Annualized Complete Return of the Highwood Worth Companions Consumer Composite.

This letter has 4 sections. Within the first part, I’ll talk about our response to the fast-changing geopolitical panorama. Within the second part, I talk about the values on the core of Highwood and what these values imply for a way Wayne and I steward your capital. Within the third part I talk about adjustments to the portfolio within the second half of 2025, together with the sale of our longstanding positions in Protector (PSKRF), Ryanair (RYAAY) and Alimak. Within the fourth and remaining part I have a look at the drivers of worth creation within the portfolio going ahead by the use of assessing the funding thesis on our 5 largest investments. I contact on how the basics of every enterprise have progressed versus my preliminary expectations, why these alternatives probably exist and the catalysts on the horizon to drive the closing of the hole between value and worth over the following 12 months or two.

A touch upon Geopolitics and the chance set

We’re witnessing dramatic shifts in international geopolitics. I’m alert to those shifts and the developments in Synthetic Intelligence, US home politics, the White Home, Tariffs, NATO and the varied wars which can be sadly ongoing. I’m an avid reader of the identical information you might be studying. After I put my investing hat on, which is apolitical, what I see is plenty of change.

This alteration means the set of funding alternatives worthy of our focus is altering as nicely. Markets have gotten extra fragmented and regional, which has penalties for aggressive depth and market measurement. Regulation, incentives or in some instances, authorities stress is driving adjustments in demand for sure services and products (e.g. defence in Europe). The free buying and selling of products and providers and competitors on the premise of lowest price or highest high quality is more and more influenced by ‘nationwide curiosity’. The company technique and enterprise mannequin of ‘designed in California, made in China’ is challenged. This enterprise mannequin, sometimes called the ‘platform firm²’, was a significant driver of upper returns on capital in company America over the previous twenty years. Firms have been constructed with provide chains that have been quick and low-cost, not strong and diversified. The advantages of those decrease prices flowed to customers within the type of decrease costs, wider selection and to shareholders within the type of increased company earnings. Now, downward stress on returns on capital additionally places downward stress on the a number of of earnings shareholders ought to pay for possession of these firms. On the opposite facet of the ledger, Geopolitical change is decreasing competitors in some industries and areas and new markets are being born or are experiencing a renaissance following an extended interval of underinvestment through the earlier ‘globalist’ paradigm.

Whereas the chance set for basic worth buyers is altering, I don’t assume it’s shrinking. These of us who noticed the dotcom bubble (or learn a lot about it) can attest that there was an entire swath of wonderful companies which have been out of favour and buying and selling at single digit multiples of earnings in 1999-2000³. It was at the moment that lots of the nice worth buyers of our time made hay for his or her buyers⁴. Managers who have been captivated by the go-go shares of the time missed these alternatives and subsequently turned footnotes in historical past. Capital was sucked out of the broader economic system and competed to put money into a small group of extremely valued, fast-growing firms pushed by a strong narrative. The exuberance driving massive inflows into mutual funds with highest one- and two-year returns ended with disappointment and capital impairment for a lot of households and institutional buyers. I used to be a junior analyst at Putnam from 2002 and noticed the hangover of a agency that had bought web centered funds like sizzling desserts through the dotcom bubble.

It follows that flexibility is a vital high quality to have at the moment. Flexibility permits your supervisor to maneuver with the chance set and to speculate counter-cyclically. Being a generalist throughout industries can be useful as that is simply flexibility throughout business and enterprise mannequin. As such, Highwood’s strategy – versatile throughout business and market cap, concentrated, and underwriting to a set hurdle – stays the best strategy for my part. If we see one thing outdoors Europe that’s extra compelling than what we’re discovering in Europe, we will even not hesitate.

In abstract, the substantial developments in geopolitics and the macro atmosphere you might be studying about change the chance set we’re in search of, however don’t essentially diminish it. The appropriate response to this variation just isn’t market timing and operating for the perceived security of money. The appropriate reply is making certain funding flexibility to capitalise on the brand new alternative set rising from change.

Our Values:

I wish to take a second at this level to assessment and re-iterate Highwood’s values. These are the rules that information how Wayne and I run Highwood, and by extension your hard-earned capital.

As I mentioned in my first letter to buyers six years in the past, Highwood was based on the 4 core values of diligence, humility, self-improvement and alignment of pursuits with our buyers. These values stem from the qualities I respect most within the nice buyers of our time⁵. These values are:

• Diligence. We need to have fractional possession in not more than 15 firms at anybody time and in every case, on the time of acquisition we count on to carry that funding for 5 years or extra. This strategy allows and facilitates a deal with the basics of every enterprise from the underside up: the qualities of the CEO and board, their incentives, the historical past of the enterprise, its unit economics, the variables that can drive the per share earnings in 5 or ten years and the dangers to these variables. It’s in advantage of this concentrated and long-term strategy that Wayne and I can apply ourselves in a fashion we require and luxuriate in.
• Humility. Our type of investing is about understanding the variables famous above backside up, case by case. Humility on this course of is about realizing what you don’t perceive as a lot as what you do perceive and being keen to simply accept or act on that information. The power to go on an funding or having the mental honesty to acknowledge when an present funding thesis is damaged are examples of this worth at work.
• Self-Enchancment. Placing collectively an excellent monitor report as outlined by the agency’s mission assertion⁶ is a marathon not a dash. There’s alternative in that ten 12 months marathon to be interested by and be taught from wins and losses, errors of omission or place sizing, room to broaden our circle of competence and take heed to the teachings of historical past. A dedication to self-improvement is the vitality to grab these studying alternatives and benefit from the course of slightly than fixate on an consequence.
• Alignment. Our alignment with you is each what brings these values to bear to your capital and what retains distractions at bay. Alignment implies that I’ve over 90% of my household’s capital invested alongside yours, that I can’t tackle further capital if I feel it should scale back the last word return we will obtain for our collective capital and why I’m not fascinated by managing a big workforce of analysts and advertising and marketing employees.

Adjustments within the Portfolio – Realized Good points and Focus

Within the second half of 2025, we bought our positions in Protector, Ryanair and Alimak. As such, we now have now exited each place I began the agency with in December 2019. With these gross sales, our said returns (+76% since inception) are virtually completely realized returns as famous within the desk on web page one⁷. I’ll take a second right here to supply the rating card on this cohort of investments.

I began the agency with investments within the shares of 5 firms – Protector, Ryanair, Alimak, Normal Drilling and Vestas Wind Techniques (VWDRY). We held these investments for 4.7 years on common and realized 2.0x cash and a 16% IRR on common throughout the group⁸. Extra pleasingly is that we didn’t lose cash on a single funding. Our lowest return funding was Normal Drilling ASA (1.2x cash/8% 2yr IRR) and our greatest consequence was in Protector Forsikring (3.6x cash/50% 6yr IRR).

Whereas our returns on Protector have been high of the category, we will be taught from our expertise with this funding as nicely. We achieved 3.6x cash on our funding whereas the shares have been up 7.9x together with dividends over the identical interval. That is the results of my determination to trim this holding at varied factors over the previous 5 years to suit the constraints on place sizing I set at inception. Hindsight is 20/20 and we should be cautious not to attract the fallacious conclusions from this expertise, nevertheless we now have taken learnings from this one and now carry that ahead.

I commented on the rationale for the sale of Normal Drilling right here and Vestas right here. A quick phrase on the gross sales of our shares in Ryanair and Alimak now follows.

• Ryanair. Our authentic thesis on Ryanair in 2019, obtainable right here, might be boiled all the way down to the conviction that the enterprise was extremely prone to ship c.€2 of earnings per share within the medium time period, and exiting at 15x earnings would lead to a double within the share value. On my preliminary evaluation, which didn’t envision a conflict in Europe or a pandemic, this was almost definitely in 2023/2024. Ultimately, it took a bit longer, however Ryanair delivered €2 in earnings per share and the shares re-rated to c.15x earnings, leading to a share value of c.€30. We took that chance to crystallize our features. The thesis performed out and we exited on the premise of valuation. The corporate continues to show the qualities we worth as long run buyers, however the value for that financial productiveness is now not as engaging.
• Alimak. Our shares in Alimak have been a powerful performer over the previous two years, up 80% in native forex. We exited at 19x earnings, which was within the realm of honest worth. Just like Ryanair, the sale determination was the results of our valuation self-discipline slightly than something altering within the fundamentals that we didn’t like.

Our portfolio is now extra concentrated than at any level in its historical past. I’ve re-deployed a portion of the proceeds from the gross sales above into present positions the place (a) the thesis is taking part in out as anticipated, (b) the low cost to honest worth has widened and (c) catalysts for re-valuation are extra seen. As of the date of this letter, our three largest positions make up 37% of our capital and our 5 largest make up 57% of the portfolio. In the meantime, we now have vital dry powder to behave on new concepts within the pipeline.

Portfolio Overview

As such, I feel the very best use of the rest of this letter is to supply perception into “the large 5” investments. My intention is to provide you a extra centered evaluation of every funding case throughout just a few key variables slightly than a common replace on improvement of all our investments as I normally do. If you happen to want to know the developments at Trigano (TGNOF), Motorpoint (MTPTF) or JZ Capital (JZCLF), please get in contact and I’ll present these as nicely.

Under is the same old desk which summarizes key statistics on the portfolio as of December thirty first and former durations for comparability. To summarize, we’re 83% invested within the shares of 11 firms, we make use of no leverage and the businesses we personal are nicely capitalised (web money steadiness sheets on common). We personal their widespread inventory at 48 cents on the greenback of my estimate of honest worth and median P/E of seven.5x.

The Huge 5

On this part I’ll assess the funding instances for our 5 largest positions with respect to (a) how the company fundamentals are creating versus my preliminary thesis, (b) why the chance within the shares probably exists in a aggressive fairness market and (c) catalysts on the horizon to drive the closing of the hole between value and worth over the following 12 months or two.

1) Burford Capital (BUR) – Core Worth

Burford Capital is our UK listed international market chief in litigation finance. The corporate makes cash by funding choose business litigation claims in trade for a share of the settlement or courtroom awarded judgement and by producing charges on third social gathering capital. The unique thesis is right here and particulars of the judgement in opposition to Argentina in 2023 right here.

• Fundamentals vs thesis. Burford has compounded e-book worth per share and realized money proceeds from litigation issues settled and adjudicated forward of my authentic underwriting assumptions. The most effective measure of basic progress of the core enterprise ex YPF is the money “run-off” worth of the prevailing e-book of claims, which contains each realizations (money in) and deployments (money out) in addition to a charge of return assumption on these deployments. My estimate of that worth has elevated from c. $9 to c.$12.50 per share. In the meantime the share value is basically unchanged from our authentic buy value of $9.50. The opposite main asset we personal by means of Burford is a proportional share within the YPF declare. Right here, the progress to this point is in step with the very best case situation I had initially envisaged. After practically a decade of litigation, we now have a transparent judgement overwhelmingly in our favor and quantification of damages on the excessive finish of my estimate. As such, our evaluation of honest worth has elevated meaningfully over the previous 3 years.
• Why does this chance exist? First, Burford is the one listed enterprise of its type, which suggests analysts have little or no to match it with and little precedent for its enterprise mannequin and economics. Second, earnings are troublesome to forecast as a result of the timing of realizations relies on the courts not the enterprise cycle – a optimistic for my part. Lastly, the developments within the YPF case are usually taken out of context and draw consideration away from the progress within the core enterprise (together with the potential for different billion greenback instances to emerge from the e-book of c.250 litigation issues). The YPF case is a large success on any measure, which attracts event-driven consideration. On this approach, Burford is a sufferer of its personal success.
• Catalysts. My estimate of honest worth is about 3x the present value and I consider there are a variety of catalysts to slender the hole between value and worth on the horizon. In 2026, we’re prone to see the deposition on Argentinian state property held overseas, judgement on the core attraction by the 2nd circuit courtroom of appeals, oral arguments on the secondary turnover movement, continued enchancment in Argentina’s public funds and progress on re-integration into international capital markets, milestones on the Sysco vs Meat producers value fixing case and continued progress in realizations to clear the backlog.

2) Borr Drilling (BORR) – Particular Scenario

Borr Drilling is our mid-cap, Norwegian listed proprietor of shallow water drilling rigs and is certainly one of 4 particular conditions investments for Highwood. The preliminary thesis is obtainable right here and I reviewed the thesis in additional element right here.

• Fundamentals vs Thesis. Borr’s fundamentals initially improved sooner than my expectations, then fell again and at the moment are in step with my preliminary underwriting of the case9. After we purchased the shares, the enterprise was doing run-rate EBITDA of c.$100mn. It’s now doing run-rate EBITDA of $500mn. Borr additionally efficiently re-financed its debt, which was one other key plank of the thesis. The share value is up a bit however has lagged these developments for my part.
• Why does this chance exist? Borr is a capital cycle funding – by definition we invested into an business the place there had been oversupply and poor economics. This meant a poor expertise for buyers and a bent towards apathy and anchoring bias. Nonetheless, the opposite hallmark of this type of funding is that oversupply works its approach by means of and business returns on capital come again into steadiness. It’s micro-economics at work. Nonetheless, this takes persistence. Second, most buyers are centered on the demand facet of the equation and pay much less consideration to the provision facet. The retirement of previous rigs and boundaries to the provision of recent builds is as essential a variable in getting the market again into steadiness as rising demand for rig days, and extra essential than absolutely the value of oil. Developments on the provision facet are likely to happen away from the attention of most buyers.
• Catalysts. My estimate of honest worth is about 3x the present value. The catalyst to getting nearer to honest worth is rig charges rising again to the long term common, which is meaningfully above the place they’re at the moment (in nominal phrases, extra so in actual phrases). That is prone to be achieved by means of some mixture of declining provide – extremely probably given the variety of 40yr previous rigs up for re- certification – and secure or rising capex budgets on the main builders. I count on to see extra proof of this in 2026.

3) GetBusy PLC (GETBF) – Particular Scenario

GetBusy is our small-cap, UK listed productiveness software program enterprise which is run like a non-public firm. Our final return on this funding would be the results of administration’s capability to extract worth from their US asset (SmartVault) from massive, nicely capitalized consumers. Administration and the board’s expectations of worth and extra importantly, agreed transaction multiples for comparable companies, counsel honest worth in a unique zip code to the present share value.

• Fundamentals vs Thesis. The US enterprise, which is the important thing worth driver, has grown income organically at a 15% CAGR over the previous 4 years, barely higher than my preliminary expectations. Administration have additionally achieved an amazing job with integrations into Intuit’s tax prep software program, which will increase the worth of every buyer for each GetBusy and Intuit. Extra vital for my part is that the board’s intentions to promote this enterprise have develop into clear and the likelihood of such a transaction has elevated. The board and administration should not ready for the general public fairness market to acknowledge the worth of the US enterprise. Up up to now, the progress of the corporate has been higher than my preliminary thesis, the share value is little modified so the low cost to honest worth has widened.
• Why does this chance exist? Fairly straightforwardly, it is a small firm with restricted liquidity and nicely under the radar of bigger funds. There’s little or no value discovery at this stage of market cap and liquidity – it has a public itemizing however it would possibly as nicely be personal, which is how it’s run.
• Catalysts. My estimate of honest worth is 2-4x the present value. Over the following 12 months, I count on the US enterprise to indicate materials revenue progress as working leverage comes by means of. I additionally count on the US enterprise to succeed in the size administration view as splendid to realize honest worth in a transaction, which after all opens the door to the sale of the US enterprise and money returns to shareholders as per administration’s incentive bundle. The catalysts on this case are hardening. 2026 will probably be an essential 12 months. In fact, there are a number of outcomes right here, not all excellent, however the return profile is uneven and the timeline to realization is seen.

4) Fever-Tree Drinks PLC – Core Worth

Fever-Tree is our founder-led UK listed mid-cap drinks firm which dominates the premium mixer class globally. In January 2025, Fever-Tree signed a three way partnership settlement for the commercialization of Fever-Tree manufacturers within the USA by Molson Coors, which is prone to speed up the commercialization of those manufacturers. A abstract of my thesis behind this funding is obtainable right here with an replace right here.

• Fundamentals vs Thesis. We acquired our Fever-Tree shares in late 2024, partly on the premise that present administration would resolve latest margin stress or discover itself within the fingers of a bigger acquirer. The JV settlement with Molson Coors and their acquisition of a 9% stake within the firm in January 2025 was, I consider, a powerful endorsement of this side of the thesis. The corporate has reported two units of outcomes since our acquisition, each of which confirmed robust progress recovering misplaced margin. EBITDA margins have been up 5.3% in 2024 and have continued to enhance, in step with my thesis.
• Why does this chance exist? The primary motive for this mispricing for my part is that Fever-Tree shares have been a serial underperformer over the previous 5 years – the shares are down c.70% over this era. That is motive in itself for the “purchase something that’s going up no matter value” strategy of momentum buyers to keep away from its shares, and that’s the technique which has attracted a lot capital up to now 5 years. It is very important observe at this level that Fever-Tree just isn’t a damaged enterprise – it’s rising, taking market share and is the accomplice of selection for Moson Coors, who’re no dummies. Second, with that type of underperformance on the inventory market, it now has to draw a brand new investor base. It has gone from a £3bn market cap progress firm to a £1bn market cap worth thought.
• Catalysts. The Fever-Tree funding case has suffered from a type of data vacuum over the previous 12 months. Little or no in regards to the form of the US enterprise, which is the important thing revenue driver, might be disclosed within the early a part of the partnership. That is coming to an finish and I count on the large ranging alternative from this partnership and contractually assured income within the close to time period to return into focus in 2026.

5) Bolloré (BOIVF) and Compagnie de L’Odet (FCODF)– Particular Scenario

Bolloré and Compagnie de L’Odet are the Paris listed mid-cap holding firms managed by Vincent Bolloré (VB) and household. We acquired our shares in H1 2024, and the thesis is predicated on regular compounding of the underlying property (UMG & Vivendi), worth inventive makes use of of the big money steadiness and a simplification of the complicated household holding construction over our funding horizon.

• Fundamentals vs Thesis. On my math, the low cost to the market worth of the holdings, primarily UMG, is little modified over our holding interval however the market value of UMG shares has declined 25% to €22 every. However, there was stable progress towards simplification of the holding construction with a number of mergers of subsidiaries of Bollore SE which maintain treasury shares and the varied holdcos above Bollore shopping for again shares in Odet and Bollore to monetize the low cost on supply. Odet now owns 71% of Bollore, up from 67% once we initiated the place. There have been some setbacks with the French regulator (AMF) blocking the buyout of listed minorities in a number of the Bollore SE subs that personal treasury shares. However, this does signify intent to simplify the construction, which after all would scale back the shares excellent by the stroke of a pen. The shares are down 25% and now commerce under the worth of the money on steadiness sheet, not to mention its stake in UMG and Vivendi entities.
• Why does this chance exist? Unravelling Bollore and its holdcos and subsidiaries is complicated, which can put some off, however my view is that the chance actually exists as a result of it requires affected person capital. The simplification just isn’t significantly noticeable on a short while scale – it’s one simplification right here and one there. Judged over an extended time period, these developments point out a transparent course of journey, however for shorter time period buyers, the query is at all times ‘will he collapse the construction this 12 months?’. To place it one other approach, I consider that is one the place we might get up tomorrow and some packing containers of the construction have been collapsed. Or, nothing could occur for a 12 months or two after which all of it occurs without delay in three years from now. To that I say, ‘positive’ – the wealth creation from simplification greater than compensates us even when it takes 10 yrs. A lumpy 5 12 months 20% IRR is preferable to a easy 15% IRR.
• Catalysts. This one is harder to evaluate as nearly all of the worth creation will come from the levers Vincent Bollore and his household pull. When they pull them is tough to find out. I used to be not anticipating VB to direct Bollore SE to purchase out the remaining minorities within the ex-Rivaud entities which might convey their treasury shares immediately and 100% into Bollore SE. The course of journey is evident, the levers to create worth are many and I consider the upside from doing so is value our wait.

In abstract, at the very least 4 out of 5 of those investments have seen fundamentals progress in step with preliminary underwriting, but the share value has lagged and the low cost has widened. There are clear the reason why the chance of their shares exist and catalysts on the horizon to shut the hole with honest worth. As such, I consider the rational factor to do is selectively purchase extra and that is what we now have achieved, significantly with Burford and GetBusy PLC.

Enterprise Replace

We have now taken on just a few new buyers who we expect share our values. Our use of AI is streamlining the enterprise and offering us with perception into how AI is prone to change the economic system (and the chance set). We have now additionally taken on a brand new pet who spends time within the workplace and will get us out strolling and speaking.

Anna is obtainable for any requests you’ll have and Wayne and I can be found to satisfy over zoom or in particular person if you end up in Whistler.

As at all times, I thanks to your belief and welcome your questions and feedback.

Sincerely,

Desmond Kingsford

1 Returns offered are these of the Highwood Worth Companions Consumer Composite, web of all charges and taxes in CAD. Previous efficiency just isn’t a assure of future outcomes. Particular person shopper returns will fluctuate. Please see the disclosures on the finish of this letter. 2 As coined by Gavekal, See ‘Our Courageous New World’, downloadable free right here for element. 3 For instance, client staples within the US and Europe have been buying and selling at 7-12x earnings. This group went on to ship excellent returns over the following 10 years. 4 For instance, Seth Klarman’s Baupost, delivered a c.17% 10yr CAGR from 2000 to 2010 whereas the broad fairness indices skilled a ‘misplaced decade’ of zero returns. 5 Warren Buffett, Charlie Munger, Seth Klarman and Nick Sleep all exude these qualities. 6 5x cash over 10 years with out taking undue threat. 7 Complete returns since inception of +76% are comprised of realized features of +71.6% and unrealized features on present holdings of +4.6% as of December thirty first. 8 Particular person buyers realized returns will differ from this relying on after they invested with Highwood. 9 Shortly after our buy of the shares in February 2022, the jack up market tightened which brought about a doubling of rig charges in brief order over the following 18 months to $180,000/day. At that time, Saudi Aramco, by far the biggest buyer within the business, lower their manufacturing progress targets and cancelled 36 rig contracts throughout the business (together with 3 at Borr), which took a number of the stress out of the market. Rig charges fell again to $120,000/day. Over the previous 18 months, these cancelled rigs have all been re-contracted with different clients. In H2 2025, Aramco began re-tendering for the rigs it beforehand cancelled. Day charges have picked up once more and Borr is contracting its rigs at c.$140,000 day and the market continues to tighten. Appendix 1: Underlying Forex Publicity Cut up This isn’t a breakdown of the itemizing forex of our holdings. It’s the break up of the currencies our portfolio firms earn their revenues in. As such, it’s the underlying publicity to currencies you’ve by means of your partial possession of those companies. As buyers can select whether or not to have their account in USD or CAD and therefore their money steadiness could also be in both USD or CAD, I’ve expressed the forex publicity as a p.c of invested capital.

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Unique Put up

Editor’s Observe: The abstract bullets for this text have been chosen by Looking for Alpha editors.