Fairfax Africa

[elliott]

Third quarter interim report is now available in FAH website.

The book value per share at September 30, 2019 was $8.54 compared to $9.60 at December 31, 2018

I have recalculated the BVPS using updated market data (public stocks). Almost no change at all from the reported figure above. Shares closed yesterday at USD 5.90

There might be several reasons for the discount:

• the fees
• the dismal performance of the public stock investments
• the uncertainty related to the valuation of the private equity investments

In the first 9 months of the year the company has bought back and cancelled close to 5% of total outstanding shares at the end of fiscal year 2018.

[petec]

Updated valuation attached. My conclusions are:

- Valuation is 0.7x P/BV or 0.6x if you value ATMA at TBV.
- The holdco is hugely underlevered, with $170m of cash and only $8m of liability.
- ATMA is clearly undervalued and Nova Pioneer is exciting but neither really moves the needle.
- The rest is stodge: cash, loans with little upside optionality, and AGH, which hasn't performed in years.
- I don't really see where the performance comes from, at least until they have deployed more capital, and frankly their record on that isn't great.

[hobbit]

https://taarifa.rw/analysis-what-does-the-flopped-equity-bank-atlas-mara-deal-mean/

[elliott]

...not to mention that last november Equitys stock went up 50%. meaning, the 6-7% stake that Atlas Mara was to receive is much more valuable now than when the deal was initially disclosed - if my memory doest no fail. I wonder how the parties will deal with this.

[hobbit]

At $4.35 per share , common stocks worth 232 mil are being marked at zero and on top of that ATMA is trading at less than its stake in UBN which has been posting good results. can easily double from here

[Xerxes]

I was at the AGM last year, I recall the team had to do a lot of explaining for FAH performance
I am eager to see what they will say in AGM this year with share price down so much.

Incidentally the Letter is out this weekend

[hobbit]

Annual letter-


mistakes with ATMA ( significantly less value in holdings in countries apart from Nigeria) , UBN might turn out decent.

CIG - debt restructuring in place but do not be hopeful of turn around anytime soon. I would classify this as a mistake too.

No significant changes anywhere else.

My conclusion - extremely undervalued at these prices unless you put the value of their entire equity stake at zero which clearly does not seem to be the case. PT $8+

[petec]

Annual letter-


mistakes with ATMA ( significantly less value in holdings in countries apart from Nigeria) , UBN might turn out decent.

CIG - debt restructuring in place but do not be hopeful of turn around anytime soon. I would classify this as a mistake too.

No significant changes anywhere else.

My conclusion - extremely undervalued at these prices unless you put the value of their entire equity stake at zero which clearly does not seem to be the case. PT $8+

I read it more positively. UBN is going actively well, and ATMA is starting to receive dividends from UBN and ABCBotswana. CIG is in deep turnaround but got better in 2h, especially 4q, and liberalization of electricity in SA might be a boost.

I’m not invested but it’s looking deeply undervalued. How much of the ATMA stake is covered by UBN now? And Nova Pioneer is going to be a superb long term holding.

[jfan]

FAH seems to be trading quite below reasonable cash and cash equivalent values with no fund level debt.

At this stage, what are the risks associated with investing at this point in time? Here is a short list that I can see:
a) Sudden increasing inflation in the countries they are in
b) Default risk of their underlying loans and bonds especially with CIL
c) Poor future capital allocation of cash and cash equivalents
d) For us Canadians, US-Canadian exchange rates
e) Falling interest rates causing it to not be able to cover fund expenses

Anything else?

[petec]

Honestly I think at this price the “risk” is that something goes right.