Fairfax 2020

[TwoCitiesCapital]

First time I'm doing a deep dive on Fairfax. Have not previously been a shareholder. I saw that Prem invested with David Sokol a couple of years ago. He was speculated to be heir apparent at BRK before implied questions of integrity (I do not have a strong view on the situation, but on the face of it, it did seem what David did was inappropriate in the spirit of highest integrity). Any thoughts on Prem's decision to invest with David Sokol?
I'm looking at it from the perspective of BRK tries to measure themselves with the highest integrity. There were some questions about Prem's practices several years ago, which I am comfortable with. Prem is a big admirer of BRK. Was his decision to work with David Sokol questioned?

Definitely questioned. If you do a search for Sokol on this site, you'll probably get a few threads where this is discussed outside of the ATCO thread.

[wondering]

https://www.enthusiastgaming.com/enthusiast-gaming-announces-acquisition-of-omnia-media-forming-largest-gaming-media-esports-and-entertainment-platform-in-north-america/

Blue Ant (a small FFH investment) sells Omnia to Enthusiast Gaming (TSX:EGLX) for $11 million Cdn plus 18 million shares of Enthusiast.

Links about these companies

https://blueantmedia.com/portfolio/omnia-media/

https://www.enthusiastgaming.com/about-us/

interesting.  I wonder if FFH had a hand valuing the transaction?

[Pedro]

This could use a tender offer or some sort of action to get this back to BV.  0.71X BV seems like something that should be taken advantage of via tendering or big buybacks.

Wouldn't Tempteton do that?

[petec]

This could use a tender offer or some sort of action to get this back to BV.  0.71X BV seems like something that should be taken advantage of via tendering or big buybacks.

Wouldn't Tempteton do that?

They don’t have the capital.

[StubbleJumper]

This could use a tender offer or some sort of action to get this back to BV.  0.71X BV seems like something that should be taken advantage of via tendering or big buybacks.

Wouldn't Tempteton do that?

They don’t have the capital.

I was surprised that they even bought back a few shares last Q.  Given their situation where they are a bit reliant on that revolver, I would have thought that they'd be doing everything possible to keep the ratios that are used for the covenants as low as possible.


SJ

[TwoCitiesCapital]

This could use a tender offer or some sort of action to get this back to BV.  0.71X BV seems like something that should be taken advantage of via tendering or big buybacks.

Wouldn't Tempteton do that?

Prem's decision is to grow the insurance companies instead. If they can do so profitably, the additional float is worth more in the long-term than a one-time repurchase would be. The gains from float are compounded returns with attractive economics and the flexibility to do buybacks later, if still attractive, where the gain from the buyback is a one-off return with no flexibility to increase economic return of the company beyond that. 

Also, the increased profitability could be the catalyst to rerate the share where a buyback isn't guaranteed to cause any re-rating. The "guaranteed" return is just the increase in BV/share which the market may, or may not, take notice of.

I'm ok with the limited buyback approach if they can capitalize on a hardening insurance market and expand float by 30-50% instead - I just feel it was disingenuous of them to use Templeton as the comparison if they're not going to act at the scale that would imply.

[Xerxes]

Prem talked about Singleton few years ago hinting at that buyback narrative.

I for one am glad that he had the steady hand and clear mind not to devour its own shares substantially in the past few years. Folks forget that the very steep discount of 0.7 is very recent. For years (before covid), investors here and on conference calls (I listen to all of them) have been begging him to buy back his shares. Imagine all the value that would have been send to the gutters had he bought back shares substantially at book value or 0.9 book value ... and then you had hardening of the insurance market and covid-19, and FFH had no dry powder left to take advantage and invest and its actual 'core' business.

On a different thread, I use the example of Boeing and General Electric, both led by manager-operators. Both nearly crashed as they spent years doing buyback and hollowing out their balance sheet all in the name of shareholder supremacy.

I yearn for long-term shareholder supremacy. .. not front-loaded shareholder supremacy.

Prem might not be a good stock picker in the Age of FANGS, but thankfully equities are one component of the entire business. FFH may have lost 30% or so but has a good chance for a comeback. I rather be a FFH shareholder (any day) than a General Electric that seen its shares plunge from $35 to $7.

[petec]

I’d also point out that Prem was clear (in writing, and in person) that the Singleton comparison was meant to be very long term. He never said that buybacks would be the priority at any specific point in time - merely that the age of issuing to do big deals was over, and that over time the count would fall.

It would be nice if the company had more capital and could grow in a hard market while buying back shares. But if that was the case, it wouldn’t be at 0.6x book.

[ander]

When looking at book value per share, wouldn't it be fair to adjust the Investments in Associates to Fair Value. ($4,684.7 carrying value - $3,669.0 fair value = $1,087 impact to Common Equity ... $11,458.7 common equity - $1,087 = $10,371.7 adjust common equity divided by 26.487 shares outstanding = $391 adjusted BV per share ... $313 share price / $391 is 0.8x book value). Still cheap at 0.8x but not as cheap. Thoughts?

[StubbleJumper]

When looking at book value per share, wouldn't it be fair to adjust the Investments in Associates to Fair Value. ($4,684.7 carrying value - $3,669.0 fair value = $1,087 impact to Common Equity ... $11,458.7 common equity - $1,087 = $10,371.7 adjust common equity divided by 26.487 shares outstanding = $391 adjusted BV per share ... $313 share price / $391 is 0.8x book value). Still cheap at 0.8x but not as cheap. Thoughts?

Yes, to the extent that it is possible, it is a worthwhile exercise to adjust the BV to reflect fair value, and you probably should also attempt to build a pro-forma income statement that strips out the non-recurring gains/losses and the extraordinary non-recurring cats (cats are a fact of life, but some years they are ridiculous).


SJ