Author Topic: Fairfax 2020  (Read 206568 times)

Thrifty3000

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Re: Fairfax 2020
« Reply #370 on: May 28, 2020, 09:34:49 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

Retail Segment

-Golf Town/Sporting Life
-Toys R Us Canada
-Kitchen Stuff Plus
-William Ashley
-Praktiker (in Greece)

Other Segment

-AGT Foods
-Peak Performance (Bauer and Easton brands)
-Boat Rocker
-Rouge Media
-Davos Spirits
-Farmers Edge

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

My thoughts on the list of private investments:

-very heavily focus on retail
-none large enough to move the needle at the overall Fairfax level
-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings
-Praktikar (in Greece)---really---why bother?
-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide
-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?
-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

Thoughts/comments of others?

I agree.

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

That is an interesting take on what Fairfax is doing....and if accurate may prove beneficial to Fairfax's bottom line over the medium to longer term.

Sadly as a result of Covid many retail stores and restaurants will suffer and not be able to achieve a reasonable level of profitability in any reasonable period.

I am attaching an interview with Rivett from yesterday (for a retired guy he sures seems busy) where he addresses the difficulties at Recipe:

https://www.bnnbloomberg.ca/recipe-unlimited-chair-urges-landlords-to-play-ball-help-tenants-1.1441853

Industry difficulties create some of the best opportunity for long term capital allocators like Fairfax. If you’re a restaurant company flying solo then you are nothing but terrified right now. If you are a restaurant company backed by an insurance company with a $40 billion dollar portfolio printing $100 million of cash monthly, you call up Prem and say “hey we might have a cheap acquisition opportunity pretty soon. It will be a total dog during Covid, but after that your family will make a killing for as long as humans still like eating.”


bearprowler6

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Re: Fairfax 2020
« Reply #371 on: May 28, 2020, 09:43:34 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

Retail Segment

-Golf Town/Sporting Life
-Toys R Us Canada
-Kitchen Stuff Plus
-William Ashley
-Praktiker (in Greece)

Other Segment

-AGT Foods
-Peak Performance (Bauer and Easton brands)
-Boat Rocker
-Rouge Media
-Davos Spirits
-Farmers Edge

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

My thoughts on the list of private investments:

-very heavily focus on retail
-none large enough to move the needle at the overall Fairfax level
-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings
-Praktikar (in Greece)---really---why bother?
-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide
-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?
-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

Thoughts/comments of others?

I agree.

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

That is an interesting take on what Fairfax is doing....and if accurate may prove beneficial to Fairfax's bottom line over the medium to longer term.

Sadly as a result of Covid many retail stores and restaurants will suffer and not be able to achieve a reasonable level of profitability in any reasonable period.

I am attaching an interview with Rivett from yesterday (for a retired guy he sures seems busy) where he addresses the difficulties at Recipe:

https://www.bnnbloomberg.ca/recipe-unlimited-chair-urges-landlords-to-play-ball-help-tenants-1.1441853

Industry difficulties create some of the best opportunity for long term capital allocators like Fairfax. If you’re a restaurant company flying solo then you are nothing but terrified right now. If you are a restaurant company backed by an insurance company with a $40 billion dollar portfolio printing $100 million of cash monthly, you call up Prem and say “hey we might have a cheap acquisition opportunity pretty soon. It will be a total dog during Covid, but after that your family will make a killing for as long as humans still like eating.”

We will have to agree to disagree on the future for Recipe as a result of Covid......even if/when a vaccine is available the cost structure of dine in restaurants such as those offered under the Recipe umbrella are no longer economically viable as a result of the permanent changes imposed on the restaurants (and many retailers) as a result of Covid....

Restaurants, many retailers and numerous other businesses only make economic sense if they are crowded. The permanent social distancing including severe limits on crowd sizes simply make the fast casual restaurant segment uneconomical. It is for this reason that I believe landlords are not willing to provide rent relief or rent deferrals now.....they do not believe they will be repaid in the future. Just my take on things.


petec

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Re: Fairfax 2020
« Reply #372 on: May 28, 2020, 09:51:13 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

Retail Segment

-Golf Town/Sporting Life
-Toys R Us Canada
-Kitchen Stuff Plus
-William Ashley
-Praktiker (in Greece)

Other Segment

-AGT Foods
-Peak Performance (Bauer and Easton brands)
-Boat Rocker
-Rouge Media
-Davos Spirits
-Farmers Edge

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

My thoughts on the list of private investments:

-very heavily focus on retail
-none large enough to move the needle at the overall Fairfax level
-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings
-Praktikar (in Greece)---really---why bother?
-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide
-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?
-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

Thoughts/comments of others?

I agree.

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

I think this is exactly right.
FFH MSFT BRK BAM ATCO LNG TFG

Thrifty3000

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Re: Fairfax 2020
« Reply #373 on: May 28, 2020, 09:52:58 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

Retail Segment

-Golf Town/Sporting Life
-Toys R Us Canada
-Kitchen Stuff Plus
-William Ashley
-Praktiker (in Greece)

Other Segment

-AGT Foods
-Peak Performance (Bauer and Easton brands)
-Boat Rocker
-Rouge Media
-Davos Spirits
-Farmers Edge

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

My thoughts on the list of private investments:

-very heavily focus on retail
-none large enough to move the needle at the overall Fairfax level
-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings
-Praktikar (in Greece)---really---why bother?
-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide
-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?
-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

Thoughts/comments of others?

I agree.

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

That is an interesting take on what Fairfax is doing....and if accurate may prove beneficial to Fairfax's bottom line over the medium to longer term.

Sadly as a result of Covid many retail stores and restaurants will suffer and not be able to achieve a reasonable level of profitability in any reasonable period.

I am attaching an interview with Rivett from yesterday (for a retired guy he sures seems busy) where he addresses the difficulties at Recipe:

https://www.bnnbloomberg.ca/recipe-unlimited-chair-urges-landlords-to-play-ball-help-tenants-1.1441853

Industry difficulties create some of the best opportunity for long term capital allocators like Fairfax. If you’re a restaurant company flying solo then you are nothing but terrified right now. If you are a restaurant company backed by an insurance company with a $40 billion dollar portfolio printing $100 million of cash monthly, you call up Prem and say “hey we might have a cheap acquisition opportunity pretty soon. It will be a total dog during Covid, but after that your family will make a killing for as long as humans still like eating.”

We will have to agree to disagree on the future for Recipe as a result of Covid......even if/when a vaccine is available the cost structure of dine in restaurants such as those offered under the Recipe umbrella are no longer economically viable as a result of the permanent changes imposed on the restaurants (and many retailers) as a result of Covid....

Restaurants, many retailers and numerous other businesses only make economic sense if they are crowded. The permanent social distancing including severe limits on crowd sizes simply make the fast casual restaurant segment uneconomical. It is for this reason that I believe landlords are not willing to provide rent relief or rent deferrals now.....they do not believe they will be repaid in the future. Just my take on things.

Then the dine-in assets of Recipe will be starved of new capital and will dwindle. In the meantime they may find ways to capitalize on the continuing demand for food preparation. A capitalist with cash flow has options.

Thrifty3000

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Re: Fairfax 2020
« Reply #374 on: May 28, 2020, 09:53:54 AM »
We are talking about different things.

I agree about the overall record - that's why I'm a shareholder.

What I am criticising is their record in non-insurance private/control investing.

I think there is a difference in skillset between the various sources of value creation at Fairfax:
1) building and running (and sometimes selling) insurance companies
2) public market bond investing
3) public market equity investing
4) private/control equity investing

These are, roughly speaking, presented from best to worst in terms of what I think Fairfax are good at. By the time you get to (4), I don't think there is any evidence that they have created value in any real way, and I think the monetisation effort is an admission of that fact.

I think an examination of Fairfax's private/control equity investing activities would be a very worth while exercise. Performance in this segment of Fairfax's portfolio has been underwhelming at best. Why is that?

To answer this question I think we need to agree on the investments we are talking about. I assembled the following list after a quick review of the recent annual report----feel free to add names that I may have missed:

Retail Segment

-Golf Town/Sporting Life
-Toys R Us Canada
-Kitchen Stuff Plus
-William Ashley
-Praktiker (in Greece)

Other Segment

-AGT Foods
-Peak Performance (Bauer and Easton brands)
-Boat Rocker
-Rouge Media
-Davos Spirits
-Farmers Edge

Dexterra would have been listed under the Other segment however its recent merger with Horizons Logistics with Fairfax taking back shares of the resulting public company seems to take this one off the table.

My thoughts on the list of private investments:

-very heavily focus on retail
-none large enough to move the needle at the overall Fairfax level
-a number of them were decent turnaround/restructuring opportunities however do not make for very good long term cash generating holdings
-Praktikar (in Greece)---really---why bother?
-a number operate in industries requiring massive scale and investment (e.g., Boat Rocker) which Fairfax cannot provide
-Toys R Us Canada -- if the value was in the underlying real estate than steps should have been taken immediately upon completing the acquisition to realize on that valuu. One has to wonder why this was not done?
-Some offer good longer term value although the extent of that value is hard to assess: AGT, Farmers Edge

Overall I sense the private equity holdings are small, don't really offer much upside, are currently providing a poor return on invested capital, require considerable management time and attention and generally are operating in segments of the economy that have been hit very hard by Covid and will take years to recover.

Thoughts/comments of others?

I agree.

You missed Quantum, the McEwan Group, Blue Ant, Arctic Gateway (partly in AGT). I am sure I have missed some too.

Also, minor point but I think Peak Performance is the Bauer/Easton unit and Peak Achievement is the name for the merged Sporting Life and Golf Town. I may be wrong.

It looks to me like they’re implementing a pretty clear strategy to improve overall ROI from their private companies and associates. They seem to be picking a leader in a given industry/region, and then seeking to merge like-companies under that leader to better manage/allocate the capital. Look at all the brands under Recipe now, Eurobank’s acquisition of Grivalia, and Seaspan/APR under Sokol. They’re basically using their influence to create mini-holding companies, with specialist managers that can recommend the best use of capital among the brands in their domain. I think the strategy was already starting to work at Recipe. Despite industry headwinds Recipe was shuttering failing locations, sharing best practices with lower performers, and reallocating capital to the winning concepts.

I think the whole purpose of this strategy is to get lots of business experiments into the hands of several different, proven, managers, so they can more quickly ramp up the winners while letting the losers dwindle. Theoretically these managers will have their ear closer to the ground in their various industries and be able to make acquisition recommendations, etc.

In a way, they’re taking the model they used to allocate capital among insurance subsidiaries, and expanding it to how they will manage private companies and associates going forward. (They did the same thing with investment management teams too.) It might be kind of brilliant.

I think this is exactly right.

High five!

Viking

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Re: Fairfax 2020
« Reply #375 on: May 28, 2020, 10:35:10 AM »
Pre covid, restaurants in Canada were facing the perfect storm:
1.) rising minimum wage (here in BC it was going up almost $1 per hour for each year for many years)
2.) rising property taxes, as high as 6% in some municipalities
3.) increase in usage of delivery apps (Ubereats etc) resulting in less dine-in; Ubereats take results in very poor margins on these sales

Restaurant stocks, especially large table count/dine in, were in a bear market pre-covid. None of the three trends listed above have gone away.

And then you add covid and you have a business model that is now completely broken (especially the dine in). Establishments with take out windows are best positioned but that is not the majority of Recipe’s establishments (i.e. Keg)

And recessions typically hit food away from home segment harder than food at home.

The restaurant business is extraordinarily difficult even in good times to make money. Fairfax clearly did not understand this basic fact when they started on their journey into restaurant ownership. And they kept adding completely new concepts which added more complexity and resulted in few synergies (each concept has to make it on its own). We discovered over time there was no wizard behind the screen (although the various wizards did get very rich). The bigger Recipe got the greater the chance it would fail. Individual brands lacked leadership and got stale; ‘synergies’ (great word) never materialized.

Having said all the above, there is a good chance that we could see in the next 6 months a devastating number of bankruptcies in this industry. There are lots of mom and pop operators who may not make it. The companies who can make it to the other side might be in good shape. Or perhaps we see a continuation of the long term trend: the industry muddles along and continues to destroy investor capital.

Fairfax might be tempted to double down with Recipe. There will likely be lots of opportunities to pick up other restaurant chains for a song. Or expand existing concepts (as better locations come on the market). But do you give Recipe more $ when they have not demonstrated the pre-covid model even worked? Would there not be lots of ‘synergies’?

They might need to go in the opposite direction. Start to sell off some of their concepts to other operators who are more focussed, passionate, motivated, nimble and better able to execute in covid world.
« Last Edit: May 28, 2020, 10:52:20 AM by Viking »

bearprowler6

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Re: Fairfax 2020
« Reply #376 on: May 28, 2020, 11:36:04 AM »
Pre covid, restaurants in Canada were facing the perfect storm:
1.) rising minimum wage (here in BC it was going up almost $1 per hour for each year for many years)
2.) rising property taxes, as high as 6% in some municipalities
3.) increase in usage of delivery apps (Ubereats etc) resulting in less dine-in; Ubereats take results in very poor margins on these sales

Restaurant stocks, especially large table count/dine in, were in a bear market pre-covid. None of the three trends listed above have gone away.

And then you add covid and you have a business model that is now completely broken (especially the dine in). Establishments with take out windows are best positioned but that is not the majority of Recipe’s establishments (i.e. Keg)

And recessions typically hit food away from home segment harder than food at home.

The restaurant business is extraordinarily difficult even in good times to make money. Fairfax clearly did not understand this basic fact when they started on their journey into restaurant ownership. And they kept adding completely new concepts which added more complexity and resulted in few synergies (each concept has to make it on its own). We discovered over time there was no wizard behind the screen (although the various wizards did get very rich). The bigger Recipe got the greater the chance it would fail. Individual brands lacked leadership and got stale; ‘synergies’ (great word) never materialized.

Having said all the above, there is a good chance that we could see in the next 6 months a devastating number of bankruptcies in this industry. There are lots of mom and pop operators who may not make it. The companies who can make it to the other side might be in good shape. Or perhaps we see a continuation of the long term trend: the industry muddles along and continues to destroy investor capital.

Fairfax might be tempted to double down with Recipe. There will likely be lots of opportunities to pick up other restaurant chains for a song. Or expand existing concepts (as better locations come on the market). But do you give Recipe more $ when they have not demonstrated the pre-covid model even worked? Would there not be lots of ‘synergies’?

They might need to go in the opposite direction. Start to sell off some of their concepts to other operators who are more focussed, passionate, motivated, nimble and better able to execute in covid world.

Amen...very well stated!

My vote....don't give Recipe another dime and begin to look at ways of getting out as much of your investment as possible before it is completely wiped out!

P.s. I have spoken with a lot of restaurant owners---both mom/pop types and those attached to major chains since Covid became a reality. bottom line---restaurants are not a segment where you want to deploy new capital going forward.

Xerxes

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Re: Fairfax 2020
« Reply #377 on: May 28, 2020, 12:41:35 PM »
Having said all the above, there is a good chance that we could see in the next 6 months a devastating number of bankruptcies in this industry. There are lots of mom and pop operators who may not make it. The companies who can make it to the other side might be in good shape. Or perhaps we see a continuation of the long term trend: the industry muddles along and continues to destroy investor capital.

Fairfax might be tempted to double down with Recipe. There will likely be lots of opportunities to pick up other restaurant chains for a song. Or expand existing concepts (as better locations come on the market). But do you give Recipe more $ when they have not demonstrated the pre-covid model even worked? Would there not be lots of ‘synergies’?

They might need to go in the opposite direction. Start to sell off some of their concepts to other operators who are more focussed, passionate, motivated, nimble and better able to execute in covid world.

I think the above makes it clear, how time consuming are these "FFH platforms" from capital allocation point of view. Not even the operating aspect of it, which you can leave it in the hands of a great operator, if you find one. So good thing that they didn't keep Torstar. Less bandwidth on the collective brain trust. 

Folks, lets move up from the weeds and trenches to a nice cruising altitude of 50,000 feet.
I have listened to many interviews (well few) with Prem Watsa, and my takeaway has been always on the following two statements that he always repeat, (1) he very often talks about John Templeton and is obviously very much fond of him, I believe he once stated on BNN that he even has a Templeton bust in his office (2) he very strongly believes in one outperformance going a long away to compensate a few laggards and then some

On (1), on this board we often compare Buffet and Watsa, shouldn't we compare Watsa to his own idol, which is John Templeton. Not saying if it is going to better, but just to have the right baseline
On (2) while the statement sounds obvious, maybe all FFH needs is a Seaspan going right

Hopefully, with the value of his holding shaved off 40-45%, he has the right incentives now ...

Xerxes

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Thrifty3000

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Re: Fairfax 2020
« Reply #379 on: May 28, 2020, 01:00:31 PM »
Common equity is around $12 billion USD.

The company is selling right now for $7.5 billion - a $4.5 billion haircut off of book value. Ouch.

Investments in associates, India and Africa are marked to model (generously) and on the books for $7 billion.

If Mr. Market was optimistic about those assets then Fairfax would easily trade at a premium to book value (ie. for more than $12 billion). But, Mr. Market is so down on them that he's basically written them off.

It seems like at the current price you're getting a first-rate insurance operator for cheap (even if it has to pair back underwriting or renegotiate some debt covenants near term), and you're getting Recipe, Eurobank, the retailers, Thomas Cook, Bangalor Airport, etc, etc, etc for free (aka really really cheap).

On top of that you have restructured, global, investment and operations management teams better able to grow whatever's left standing post-covid. (For example, even if Recipe loses half its locations in the next two years, the remaining locations could face a third the competition and twice the profitability after that - who knows. Eurobank could be the last bank standing in Greece. The retailers could band together and unseat Amazon - ok ok the retailers are dead.) Chances are there will be at least something left to work with in the portfolio a few years from now.

In short, there's not even a hint of confidence, let alone optimism, priced into this stock right now.