Author Topic: Fairfax Africa  (Read 21396 times)

petec

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Re: Fairfax Africa
« Reply #50 on: July 07, 2020, 10:56:18 AM »
Iím not sure it was ever FAHís crown jewel. They bought it distressed and fairly rapidly set about trying to dismantle it.

FFH MSFT BRK BAM ATCO LNG IHG TFG CGT DC/A


SharperDingaan

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Re: Fairfax Africa
« Reply #51 on: July 07, 2020, 01:31:49 PM »
Hate to say it, but FFH really needs to rethink this entire thing.
After FX devaluation, the investments will have to be stellar performers - just to break even.

Until Covid-19 has run its course -simply put the cash into more robust entities (Barrick, Anglo-American, etc) doing acquisitions in the space. They will be the first to recover, and their shares are liquid - allowing easy exit at any time. Reassess later once the survivors are evident, and everyone is looking for recapitalization investment.

Africa is not a place where the wealth is made by owning the capital stock.
It is made by selling the annual production at a profit abroad, and returning only enough capital for maintenance capex & modest growth. Capital assets routinely get nationalized, and African countries routinely devalue.

SD

Thrifty3000

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Re: Fairfax Africa
« Reply #52 on: July 07, 2020, 04:39:51 PM »
2016: Atlas Mara earned $9 million.

2017: FAH acquired 43% of Atlas Mara for $159 million. Atlas Mara earned $47 million. (Well played FAH.)

2018: Atlas Mara earned $42 million. FAH is looking pretty genius - despite Atlas Mara share price decline.

2019: Atlas Mara makes a strategic decision to focus on holdings with a dominant market position, and to divest several non-strategic banks in its portfolio. To do that it secures commitment from a buyer, and then has to reclassify the assets as held for sale, which requires a very large ($105.5 million) accounting write-down. The write-down flows through the P&L so it has to report a massive 2019 loss - but, Atlas Mara expected to sell the reclassified assets in early 2020.

2020: Covid = deal off. African securities lost more value than they did during the GFC. Atlas Mara is in Africa. Ouch.

Atlas Mara has $500 million of equity against $2 billion of liabilities. It can absorb a lot of losses.

It's largest asset, UBN (Nigeria), which shared $31 million of it's approximately $54 million of 2019 earnings with Atlas Mara, has been in business for over 100 years! So, it's at least some degree of proof banks can survive long term in Africa.

So, what if Atlas Mara goes bust and has to wipe out equity holders? FAH wouldn't walk away empty handed. It would likely recover at least some of its $36 million in Atlas Mara bonds. And, as a modest consolation prize, at the end of the first quarter 2020 FAH extended a $40 million debt facility to Atlas Mara collateralized by Atlas Mara's interest in it's second largest holding, Botswana Bank. Botswana Bank earned $14 million of pre-tax profit last year (ROE of 11.2%, ROA of 1.3%). So, FAH would likely still be in the banking business in Botswana (and also with a completely separate holding, Grobank).

Long story short. I'm not faulting FAH for this investment. If you have a mandate to invest in Africa, and you want to be a long term investor in the banking sector, then this looked like a flawlessly timed investment at a great price in 2017. And, I completely agree with the strategy they were pursuing to focus on their strongest assets.

I'm sure if Covid is damaging the well-capitalized Atlas Mara, then it is decimating Atlas Mara's competition. Hopefully Atlas Mara can capitalize on the opportunities, gain market share, and in a few years produce look through earnings of $25+ million for FAH. Hopefully FAH will still be selling then for less than $200 million. Haha.

Frankly, I'm more concerned about CIG than Atlas Mara, but that's a completely different story. And, all of CIG and Atlas Mara's risks appear to be priced into FAH.
« Last Edit: July 07, 2020, 05:38:08 PM by Thrifty3000 »

SharperDingaan

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Re: Fairfax Africa
« Reply #53 on: July 07, 2020, 07:22:54 PM »
There's is little doubt that over time, FAH could build a solid business in Africa.
But it is wealth in an isolated gilded cage, and only local - try to convert that wealth into hard currency, and most often - investors will be disappointed. Always a devaluation + liquidity discount, the size of which will vary according to money flow in/out of the MCSI index.

Colonialism has been much maligned across Africa, but the reality is that the business model was very successful. Colonialism 2.0, is even more effective - let the natives control the domestic assets (saving on upkeep), and control distribution/sale of the output instead (minerals, food, exports, etc.). China's Belt & Road initiative, in various african nations, a more recent example.

We may decry Colonialism 2.0 as a business model - but if you own a cottage/holiday property, you are practicing exactly that.
The municipality services the area as it sees fit, sets the taxes, you pay them. You take the benefits of the property/area, and sell/use them for as much you can get. If you don't believe - look at the seasonal towns, swamped by large numbers of long weekend 'outsiders' - some bearing covid-19. Who is doing the protesting? 

Point is, this might be an opportune time to rethink the approach.
Hopefully, they do well, no matter the decision.
 
SD


« Last Edit: July 07, 2020, 07:25:54 PM by SharperDingaan »

Thrifty3000

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Re: Fairfax Africa
« Reply #54 on: July 09, 2020, 06:46:51 PM »
Not sure why this wasn't posted in the press section of CIG's website. It's definitely material information (assuming it's true):

https://www.businesslive.co.za/bd/companies/industrials/2020-03-09-consolidated-infrastructure-group-restructures-debt/

I'm sure they discussed it during the AGM, but I wasn't looking at FAH back then so I didn't dial in (would love to see a transcript/notes).

From what I gather the situation at CIG isn't pretty. Odds of survival were zero without a debt restructure. And, even with the restructure I still think things are grim. (It seems Mr. Market has written off CIG anyway.)

CIG has several business lines. Half the revenue comes from large scale project management. The other half comes from diverse businesses that are on solid footing from a profitability standpoint, and a couple have especially exciting growth prospects.

The problem is CIG royally SUCKED at project management, for years, and lost insane amounts of money. FAH had no idea how bad things were when they invested. It was clearly WAY out of FAH's circle of competence, because the issues were in plain sight. The good news is FAH appears capable of leading a solid turnaround effort, as long as it's not too little too late. If covid hadn't come along it sounded like CIG had a decent shot of returning to profitability in 2020. Now, who knows? It comes down to whether they can right size the project business, and whether they can continue servicing the debt.

I'm rooting for FAH on this one. I think if CIG starts showing signs of life it will be at least a $50 million boost to FAH's valuation, with what should be plenty of opportunity for long term growth. Not holding my breath.

« Last Edit: July 09, 2020, 06:49:56 PM by Thrifty3000 »

SharperDingaan

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Re: Fairfax Africa
« Reply #55 on: July 09, 2020, 08:38:53 PM »
Just to give an indication of the FX headwind.

07/09/2019 the ZAR/CAD FX rate was 10.791:1. One year later, 07/09/2020 the ZAR/CAD FX rate was 12.4363:1.
ZAR had devalued by 15.25% ((12.4363-10.7910)/10.7910) x 100. The Atlas Mara and CIG investments were made when the ZAR/CAD was stronger. Their cumulative FX devaluation is a lot worse.

The FAH books are denominated in USD. Balance Sheet revalues every quarter-end, reducing equity.
To maintain the BS ratio's requires fresh capital every year, in addition to the maintenance capex. Not a problem while they are rolling in the investments, but after it's done?

Not to say that it cannot work, but it's a lot of work - just to break even.
Hopefully, it works out for them.

SD


https://www.bankofcanada.ca/rates/exchange/daily-exchange-rates-lookup/?series%5B%5D=FXZARCAD&lookupPage=lookup_daily_exchange_rates_2017.php&startRange=2010-07-09&rangeType=range&rangeValue=1.y&dFrom=&dTo=&submit_button=Submit


elliott

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Re: Fairfax Africa
« Reply #56 on: July 10, 2020, 09:25:34 AM »
FAH enters into an strategic transaction with an African investment firm, Helios, "for the combination of their complementary businesses on one unified platform."
FAH will become HFP, and "Helios will be appointed sole investment adviser to HFP"

oh, and towards the end of the announcement... news about the "crown jewel"
acquisition by Fairfax Financial of Atlas Mara "for an aggregate purchase price of US$40 million"

https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Proposed-Strategic-Transaction-Between-Helios-Holdings-Limited-and-Fairfax-Africa-Holdings-Corporation/default.aspx


hobbit

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Re: Fairfax Africa
« Reply #57 on: July 10, 2020, 12:23:07 PM »
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR
« Last Edit: July 10, 2020, 12:33:46 PM by hobbit »

Thrifty3000

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Re: Fairfax Africa
« Reply #58 on: July 10, 2020, 03:31:40 PM »
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds.

I haven't found any info on Helios's historical fee earnings yet.

Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward.

Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax.

FAH will benefit from being managed by leading, proven, investors in Africa.

hobbit

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Re: Fairfax Africa
« Reply #59 on: July 10, 2020, 08:28:45 PM »
Can fairfax africa sell ATMA to fairfax as a related party transaction without independently marketing it?  what is the valuation helios paid for 46% stake or FAH paid for helios in shares? no color on helios revenue either...Fairfax really struggles with IR

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds.

I haven't found any info on Helios's historical fee earnings yet.

Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward.

Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax.

FAH will benefit from being managed by leading, proven, investors in Africa.

what does not seem right is selling ATMA for 40mil to Fairfax when Fairfax africa themselves have calculated the tangible book value around 280 mil and were selling business in 4 countries to Equity group for 105mil + u have  UBN and Botswana...

If helios contribute 20mil in earnings and u put multiple of 10 to that ..it implies that FAH is valued at 400mil right now? I somehow doubt helios will contribute in excess of 10 mil right now but then there is no way to be sure until we see more data...they should have released these numbers alongwith press release
« Last Edit: July 10, 2020, 08:32:43 PM by hobbit »