Corner of Berkshire & Fairfax Message Board

General Category => Fairfax Financial => Topic started by: petec on January 13, 2019, 01:50:02 PM

Title: Fairfax stock positions
Post by: petec on January 13, 2019, 01:50:02 PM
There's been a lot of commentary about how Fairfax buy junk rather than owning great businesses for the long term. I decided to do a quick review to see whether the current holdings fit that assumption and also to see how they stack up. I did this for myself but I'm sharing it in case it is useful. It's not deeply researched and I have probably missed some important ones, but in rough order of size here the ones I have looked at are:

Eurobank/Grivalia. I'll deal with these together since they will soon merge. Eurobank is one of the last 4 banks standing in Greece. This could become a very profitable oligopoly when Greece exits its depression, which it seems to be doing: GDP is growing, the fiscal and current accounts are in good shape, labour has regained competitiveness, unemployment is falling, and real estate prices are finally rising. Eurobank's nonperforming loans are fairly fully covered by provisions and collateral and the bank is profitable and generating capital every quarter. Grivalia is a leading Greek real estate company which has been picking up top assets at the bottom of the cycle. Postmerger (which also involves spinning a lot of the nonperformers out to shareholders as a bond) the bank will be well capitalised, profitable and trading on under 50% of book value. It won't pay taxes for years. There's a decent chance this is a major winner over the next few years.

Recipe. Canadian casual dining restaurant chain created by Fairfax, who hand-picked management and look to be long term owners. There's debate about the quality of some of the brands but the business of franchising restaurant brands is a sound one and the stock's not expensive. The last couple of years have been spent building and professionalising the management platform and it will be interesting to see what they can do with it over time. M&A is a goal.

ICICI Lombard. Fairfax cofounded this business with ICICI in the early 2000's and it has been a huge winner. They bought more as regulation allowed but then decided to sell down when ICICI decided on an IPO: ICICI still wanted control, and you have to list 20%, and Fairfax wanted a greater stake than would have been possible. They're now at 9.9%, the largest stake they can have and still control another insurer. That other insurer is Digit, a startup they expect to grow rapidly.

Fairfax India. Holding company created by Fairfax to buy and build businesses in India. Fairfax will hold it forever. Buys, on balance, high quality franchises with great growth prospects (Bangalore Airport).

Quess. Fairfax initially bought this fast-growing staffing company through Thomas Cook India and it has been a hugely successful investment. TCIL will spin it out in 2019 so it will become a direct investment. It continues to grow rapidly.

Seaspan. Container ship leasing company of which FFH could eventually own 40%, purchased via warrants at crazy attractive prices. The first stock on the list that clearly isn't a high quality business, in the sense that it's in a cyclical industry with no barriers to entry and a reputation for capital ill-discipline. But it is cheap, on a c.30% free cash flow yield and the supply side of the industry is the best it's been in decades. Also, there's a new management team who are proven hard-asset capital allocators. FD: I am long Seaspan and expect to do very well from Sokol's decisions over the next decade.

Blackberry. This can't be thought of as anything other than a mistake but for better or for worse Fairfax have stuck with it. They hand-picked the CEO who has done a good job of getting the company back to growth and FCF generation. Might be a winner in automated cars and the recent acquisition of Cylance may be a positive too (see most recent BB call for some breathless comments from an analyst). Hard to know but if I had to guess I'd say this was past the worst and the valuation is starting to look vaguely reasonable (at least on EV/EBITDA). FFH have huge leverage to the upside if this works soon: their stake basically doubles when the stock goes through $10 due to a $500m convert due 2020.

Thomas Cook India. India's leading travel agency. Fairfax has controlled it since 2012 and has used it to buy a number of related businesses from Kuoni. One gets the sense they're building a long term platform here in a growing and profitable industry.

Commercial International Bank of Egypt. High quality bank in an incredibly underbanked country. Consistently earns 30% nominal ROEs and Fairfax commentary suggests to me they will hold for a long time. Political risk is meaningful.

Resolute Forest Products. The worst on the list, for me. Fairfax have been involved for 11 years and haven't done well.

Kennedy Wilson is an active real estate manager which invests its own money alongside third party money wherever it finds value, and recycles capital regularly. Fairfax has owned shares since 2010. Growth for the next few years should come from completing developments and growing third party AUM (the company has $2bn in third party AUM and aims to add $1bn a year for the next several years). As of early 2019 the share price is $19 and JPM estimate the NAV is $26 going to $30 in 2020. The dividend is 4.4% and rising, and a buyback is in place. The founder/CEO owns 9% and Stanley Zax (Zenith) and Richie Boucher (BKIR) are on the board. As well as owning shares Fairfax have invested $700m alongside KW since 2010 and done well. (As an aside the annual letters say FFH initially bought 11.5m shares at an average price of $11.90, mainly through convertible prefs; this stake went to 12.2m at an average cost of $11.37; and then 12.3m at an average cost of $11.10. This implies a cost of $2.66 for the second purchase and a negative cost for the third, yet the shares never traded below $16. Either there's an error or FFH had a bizarrely juicy option, or they're doing something naughty like subtracting the dividend from the cost.)

Fairfax Africa Holdings. Holding company created by Fairfax to buy and build businesses in Africa. Fairfax will hold it forever. Has made a slow start but has some promising investments.

IIFL Holdings. Long term holding in a fast-growing financial services provider. FFH holds a direct stake as well as one through Fairfax India. Has been a huge winner.

Stelco. Recent (and comically poorly timed) investment in Canadian steel company recently out of bankruptcy. Not a good industry but stock is unencumbered and very cheap on near term cash flows. It also has real estate optionality and management who claim to be countercyclical capital allocators and who want to build a much bigger company when asset prices are cheap.

---

For me a few common themes seem apparent:

1) Fairfax are long term, patient value investors. Beyond that they are not easy to characterise. Sometimes that value is in cheap junk (Stelco). Sometimes it's in quality growth (Quess).

2) Many of these holdings are long term M&A platforms. Fairfax like partnering with (what they see as) good management to build businesses over decades. I suspect in some cases this will last for decades (Recipe, FIH, FAH, TCIL, maybe SSW). In many cases they build the platforms and pick the managers.

3) Fairfax take huge positions. On the downside this means they can't exit losers (RFP, BB, Eurobank). Even if they they eventually turn a profit, it's hard to see how they earn a good IRR. On the upside, when it works they end up with big stakes in huge winners (ICICI Lombard, Quess, IIFL).

4) Fairfax often get good terms for their shares (e.g. the SSW, KW, and BB converts, and the FIH/FAH fee structures) which skews the risk/reward in their favour.

5) On balance, I am inclined to think there is a lot of value in the portfolio currently.
Title: Re: Fairfax stock positions
Post by: StubbleJumper on January 13, 2019, 02:16:21 PM
Pete,

Thanks for taking the time to put together such a thoughtful post.  I would offer a couple of pieces (of shit) that you might add to your list:


1) Torstar

2) Churchill Railway

3) Toys R US (is this a POS or not, time will tell)


The three above don't cause me too much consternation as only the first was a meaningful portion of FFH's capital when it was acquired.  I don't think I need to talk about position sizing or exit strategies in this post.   ;D


SJ
Title: Re: Fairfax stock positions
Post by: petec on January 13, 2019, 02:32:51 PM
Pete,

Thanks for taking the time to put together such a thoughtful post.  I would offer a couple of pieces (of shit) that you might add to your list:


1) Torstar

2) Churchill Railway

3) Toys R US (is this a POS or not, time will tell)


The three above don't cause me too much consternation as only the first was a meaningful portion of FFH's capital when it was acquired.  I don't think I need to talk about position sizing or exit strategies in this post.   ;D


SJ

I was aiming for the big public positions. These are either small (now) or private. I always think it’s pretty tough to analyse the private ones given we seldom know the deal terms or postdeal performance.
Title: Re: Fairfax stock positions
Post by: StubbleJumper on January 13, 2019, 03:13:10 PM
Pete,

Thanks for taking the time to put together such a thoughtful post.  I would offer a couple of pieces (of shit) that you might add to your list:


1) Torstar

2) Churchill Railway

3) Toys R US (is this a POS or not, time will tell)


The three above don't cause me too much consternation as only the first was a meaningful portion of FFH's capital when it was acquired.  I don't think I need to talk about position sizing or exit strategies in this post.   ;D


SJ

I was aiming for the big public positions. These are either small (now) or private. I always think it’s pretty tough to analyse the private ones given we seldom know the deal terms or postdeal performance.


Well, Torstar is public and it used to be a big position.   ::)  Seriously, I don't have the historical cost handy, but the position was acquired in several tranches of ~$10m each, and appear to own about 41% of the non-voting shares.  It looks like the investment thesis was ill-conceived and I have doubts about whether FFH will ever be able to repatriate that capital.  In the context of today's capital level, it's small-change.  But, tack on some sort of reasonable return and a "good" investment of that magnitude *should*  have been worth several hundred million.

Error of commission, but they weren't the only people who mis-estimated the future of newspapers (and Harlequin books!).


SJ
Title: Re: Fairfax stock positions
Post by: FairFacts on January 13, 2019, 06:31:59 PM
Don’t forget Kennedy Wilson Holdings....
Title: Re: Fairfax stock positions
Post by: petec on January 13, 2019, 09:38:17 PM


Well, Torstar is public and it used to be a big position.   ::)  Seriously, I don't have the historical cost handy, but the position was acquired in several tranches of ~$10m each, and appear to own about 41% of the non-voting shares.  It looks like the investment thesis was ill-conceived and I have doubts about whether FFH will ever be able to repatriate that capital.  In the context of today's capital level, it's small-change.  But, tack on some sort of reasonable return and a "good" investment of that magnitude *should*  have been worth several hundred million.

Error of commission, but they weren't the only people who mis-estimated the future of newspapers (and Harlequin books!).


SJ

Agreed! I just didn’t want to end up looking at every investment they’d ever made so I limited myself to current needle-movers!
Title: Re: Fairfax stock positions
Post by: petec on January 14, 2019, 01:27:55 AM
Don’t forget Kennedy Wilson Holdings....

Good point. I haven't read much on it for a while. Will do so and revert.

I've also reordered the stocks to reflect current size. In total this lot adds up to about $5.4bn (I may have some of the share counts wrong given how they are spread across subsidiaries).
Title: Re: Fairfax stock positions
Post by: wachtwoord on January 14, 2019, 05:25:33 AM
Thanks for sharing!
Title: Re: Fairfax stock positions
Post by: wondering on January 14, 2019, 09:25:27 AM
I would like to know more about the Digit investment.  I realize that they are probably years from profitability, but I would like to know how revenues are growing.

I guess I will have my chance to ask at the AGM.
Title: Re: Fairfax stock positions
Post by: petec on January 14, 2019, 09:33:09 AM
I would like to know more about the Digit investment.  I realize that they are probably years from profitability, but I would like to know how revenues are growing.

I guess I will have my chance to ask at the AGM.

Please feed back if you get an answer.

The CEO there has a very impressive background. As I have said elsewhere FFH does seem to be able to attract real talent to its projects.
Title: Re: Fairfax stock positions
Post by: petec on January 15, 2019, 02:48:03 AM
Don’t forget Kennedy Wilson Holdings....

Good point. I haven't read much on it for a while. Will do so and revert.

I've also reordered the stocks to reflect current size. In total this lot adds up to about $5.4bn (I may have some of the share counts wrong given how they are spread across subsidiaries).

Edited for KW and with an additional observation at the bottom.
Title: Re: Fairfax stock positions
Post by: Dazel on January 19, 2019, 05:02:13 AM
https://ca.finance.yahoo.com/news/seaspan-announces-closing-second-500-000000115.html

This has been very profitable so far and has increased the investment portfolio’s yield on a billion dollars. I would imagine “any” sort of trade deal would be material to Seaspan and this investment.
Title: Re: Fairfax stock positions
Post by: petec on January 19, 2019, 06:15:02 AM
https://ca.finance.yahoo.com/news/seaspan-announces-closing-second-500-000000115.html

This has been very profitable so far and has increased the investment portfolio’s yield on a billion dollars. I would imagine “any” sort of trade deal would be material to Seaspan and this investment.

Trade deal?

Yes, the options were at phenomenal prices.
Title: Re: Fairfax stock positions
Post by: petec on March 29, 2019, 01:22:32 PM
Fairfax’s two biggest positions - Eurobank (proforma for the merger) and BlackBerry (assuming conversion) are on a tear this year. Eurobank produced good results with an excellent outlook; BlackBerry produced excellent results today.
Title: Re: Fairfax stock positions
Post by: investmd on March 31, 2019, 03:59:35 PM
Fairfax’s two biggest positions - Eurobank (proforma for the merger) and BlackBerry (assuming conversion) are on a tear this year. Eurobank produced good results with an excellent outlook; BlackBerry produced excellent results today.

Petec,
Thank you very much for sharing this analysis. Over past 5 years, insurance business operating results appear solid  but there has been essentially little change in market value of FFH. Going forward, hopefully Eurobank, Seaspan and Blackberry can drive equity investments results upwards and reflect in a substantial increase in market value. My expected outcome for investing is that FFH market value should increase AT LEAST 50% over MOST 5 year periods without including dividend payouts.

Doesn't seem like hope for significant stock buybacks will come to fruition. However, with good combo of insurance business and equity results, FFH should be in a position to deliver.
Title: Re: Fairfax stock positions
Post by: obtuse_investor on April 02, 2019, 02:08:21 PM
Just to normalize, 50% over a 5 year period is 8.44% annualized return.

I don't think anyone who owns FFH is expecting annual returns less than 10%. Maybe that is because of the 15% anchoring management has been doing.

Title: Re: Fairfax stock positions
Post by: shalab on April 02, 2019, 05:50:51 PM
People holding FRFHF have been very happy so far - it has essentially been flat for the past five years with a dividend yield of 2%/annum. As Biglari has shown, it is not the returns that matter, it is the ability to sell a story that does.

Just to normalize, 50% over a 5 year period is 8.44% annualized return.

I don't think anyone who owns FFH is expecting annual returns less than 10%. Maybe that is because of the 15% anchoring management has been doing.
Title: Re: Fairfax stock positions
Post by: petec on April 16, 2019, 05:46:37 AM
By my maths the top 4 positions are now:

$1bn Eurobank/Grivalia, which could have a long way yet to run.
$930m Blackberry (including the convertible at par) which seems to be gaining operating momentum.
$820m Seaspan (not including $500m of debt, but including the profit on the exercise of the third tranche of options, which are in the money).
$700m ICICI Lombard which has had a terrific run and which I suspect they might sell.
Title: Re: Fairfax stock positions
Post by: petec on April 27, 2019, 02:15:34 PM
Brief update on Resolute, which has slowly been sorting out its balance sheet:

FY18 ebitda: $570m.
FY18 FCF: $280m.
YE18 net debt: $340m.
Market cap: $700m.
FY19/20 consensus ebitda: $400m (ev/ebitda: 2.5x).
FY19/20 consensus FCF: $170m (FCF yield: 24%).

The glitch is that the pension liability is $1.25bn - if you include that the forecasted ev/ebitda is 5.5x.

Horrible industry and consensus is clearly forecasting that 2018's operating performance can't be sustained, but it feels like last year's $136m special dividend might not be a one-off. Fairfax owns an eyewatering 33.5%, worth $240m, and their share of the special was $45m.
Title: Re: Fairfax stock positions
Post by: petec on May 31, 2019, 08:41:37 AM
Eurobank (including Grivalia) is off to the races. $1.2bn position now and still very cheap.
Title: Re: Fairfax stock positions
Post by: petec on July 12, 2019, 11:14:22 PM
Quess just issued 9% of itself to Amazon at 676/share. The stock has been very weak this year and looks very cheap. It closed up 9% on the day at 480.

Also a pro-market won Greece’s general election last week, scoring an absolute majority in Parliament over the incumbent left-wing government.
Title: Re: Fairfax stock positions
Post by: wondering on July 15, 2019, 06:35:58 AM
petec, thanks for the continued updates on the FFH investments.  Sometimes, the investments that are outside of North American are harder to follow unless I make a conscious effect.
Title: Re: Fairfax stock positions
Post by: petec on August 22, 2019, 02:50:08 AM
Is anyone following Thomas Cook? I can't find a recent thread on it but it has halved over the last couple of months and was down 20% yesterday. Seems odd, even with the weakness in Quess.
Title: Re: Fairfax stock positions
Post by: wisdom on August 22, 2019, 04:34:06 PM
https://www.thomascook.in/press-release/statement-from-mr.-madhavan-menon-chairman-managing-director-of-thomas-cook-india-ltd./109
This may be a reason. Thomas cook plc going into bankruptcy.

Another Indian company king & Cox is also struggling in the travel industry.
Title: Re: Fairfax stock positions
Post by: cwericb on August 26, 2019, 11:42:30 AM
At least somebody still likes FFH...

https://seekingalpha.com/article/4287873-fairfax-market-yet-recognize-potential?dr=1
Title: Re: Fairfax stock positions
Post by: petec on August 27, 2019, 12:35:21 AM
https://www.thomascook.in/press-release/statement-from-mr.-madhavan-menon-chairman-managing-director-of-thomas-cook-india-ltd./109
This may be a reason. Thomas cook plc going into bankruptcy.

Shouldn't be. The two are unrelated apart from the use of the name. In fact the original TC going bankrupt might give TCIL the chance to buy the rights to use the name in India in perppetuity, which would be good.

Title: Re: Fairfax stock positions
Post by: wisdom on September 26, 2019, 08:01:24 PM
https://www.business-standard.com/article/companies/fairfax-financial-holdings-sells-5-in-icici-lombard-for-rs-2-562-crore-119092700048_1.html

$500 mil
Title: Re: Fairfax stock positions
Post by: JEast on October 18, 2019, 07:50:44 AM
Sold the last remaining 4.91% stake of ICICI Lombard for a slightly better price than the previous block.

https://www.business-standard.com/article/companies/fairfax-offloads-4-9-stake-in-icici-lombard-for-rs-2-627-crore-119101700048_1.html
Title: Re: Fairfax stock positions
Post by: bearprowler6 on October 18, 2019, 08:43:25 AM
Sold the last remaining 4.91% stake of ICICI Lombard for a slightly better price than the previous block.

https://www.business-standard.com/article/companies/fairfax-offloads-4-9-stake-in-icici-lombard-for-rs-2-627-crore-119101700048_1.html

JEast---any chance the team at Fairfax uses this to buy back their stock at its current levels? It would seem that a lasting benefit to all long suffering shareholders could be attained if the funds from the sale are used in this way?
Title: Re: Fairfax stock positions
Post by: JEast on October 18, 2019, 09:12:21 AM
Based on the recent short form notice, they have bought 65k since June 30.  Not anything like that have indicated that they would buy though, but with the caveat being that they needed the capital to buy more Brit/Allied.
Title: Re: Fairfax stock positions
Post by: valueinvesting101 on October 18, 2019, 11:01:55 AM
As per Fairfax India or Fairfax Financial annual report, Prem had indicated IIFL pre-demerger were trading at attractive valuation and now de-merged companies are even cheaper.  CSB Bank has also indicated that it is filing for IPO next month and some of the existing investors are also selling their holding in CSB.
Title: Re: Fairfax stock positions
Post by: investmd on October 19, 2019, 04:20:46 PM
By my maths the top 4 positions are now:

$1bn Eurobank/Grivalia, which could have a long way yet to run.
$930m Blackberry (including the convertible at par) which seems to be gaining operating momentum.
$820m Seaspan (not including $500m of debt, but including the profit on the exercise of the third tranche of options, which are in the money).
$700m ICICI Lombard which has had a terrific run and which I suspect they might sell.

Following up on results 6 months after this post on top 4 FFH positions:
Eurobank - UP 17%
Blackberry - DOWN 44%
Seaspan - UP 10%
ICICI Lombard - UP 16% (& recent FFH exit)

FFH share price over last 6 months - DOWN 11%

All of us are likely keen to see result of if/how FFH uses large cash position from recent ICICI Lombard sale to drive value for FFH.
Title: Re: Fairfax stock positions
Post by: Sombunall on October 20, 2019, 05:20:51 AM
Thanks for the summary. And yes, definitely keen to see what they'll do with the proceeds... I think anything less than more buybacks at this price would be a disappointment for most. We will see!
Title: Re: Fairfax stock positions
Post by: Viking on October 20, 2019, 11:53:19 PM
Thanks for the summary. And yes, definitely keen to see what they'll do with the proceeds... I think anything less than more buybacks at this price would be a disappointment for most. We will see!

I just listened to the WR Berkley Q2 call and Rob Berkely stated they feel pricing is firming. Fairfax said on the Q2 call that growing the business at their operations is a priority (to take advantage of the hard market that is developing) and you can see this in the growth they are posting. Fairfax also mentioned they are required to take out minority stakes in Brit and Eurolife in 2019. They also need to take out OMERS and their minority stake at Allied World at some point and this will be a big use of cash. So i am not expecting aggressive share repurchases until we get more clarity on how much new business they can write in the hard market and timing and cost on the minority buyouts.

They also appear focussed on harvesting some gains (ICICI Lombard) and also exiting some positions (Reitmans). If they do more of this then perhaps they will get more aggressive with share buybacks.
Title: Re: Fairfax stock positions
Post by: petec on October 21, 2019, 12:56:58 AM
Thanks for the summary. And yes, definitely keen to see what they'll do with the proceeds... I think anything less than more buybacks at this price would be a disappointment for most. We will see!

I just listened to the WR Berkley Q2 call and Rob Berkely stated they feel pricing is firming. Fairfax said on the Q2 call that growing the business at their operations is a priority (to take advantage of the hard market that is developing) and you can see this in the growth they are posting. Fairfax also mentioned they are required to take out minority stakes in Brit and Eurolife in 2019. They also need to take out OMERS and their minority stake at Allied World at some point and this will be a big use of cash. So i am not expecting aggressive share repurchases until we get more clarity on how much new business they can write in the hard market and timing and cost on the minority buyouts.


Exactly right, in my view. Pity.
Title: Re: Fairfax stock positions
Post by: Viking on November 03, 2019, 08:29:16 PM
Does anyone have an opinion of what positions Fairfax is looking to monetize next (stock holdings, affiliates etc)? This has the potential to be a nice short term catalyst for the shares. Here is what the company had to say on the Q3 conference call.

Paul Holden (CIBC): "...you referred to monetizations and process. I was wondering if we can kind of get a status update on that monetization and process and just a characterization of how far you think you're along in that process. Is there still a lot to potentially do there?"

Paul Rivett (Fairfax): "...So we're quite far along in the process. There -- we've got the whole Hamblin Watsa team from Prem right through working with us. A number of these things are close to fruition. A few that are more at the earlier stages. But as you can imagine, we can't give you specifics on it, but we're very happy that we're close to being able to get a few things across the line in the fourth quarter. ICICI Lombard was part of that. So you saw that we can act fairly quickly. But also, it's a -- we want to get best price and best execution, right? So we're working to -- we're getting -- we're working to do that for our shareholders."
Title: Re: Fairfax stock positions
Post by: petec on November 04, 2019, 02:42:09 AM
Does anyone have an opinion of what positions Fairfax is looking to monetize next (stock holdings, affiliates etc)? This has the potential to be a nice short term catalyst for the shares. Here is what the company had to say on the Q3 conference call.

Paul Holden (CIBC): "...you referred to monetizations and process. I was wondering if we can kind of get a status update on that monetization and process and just a characterization of how far you think you're along in that process. Is there still a lot to potentially do there?"

Paul Rivett (Fairfax): "...So we're quite far along in the process. There -- we've got the whole Hamblin Watsa team from Prem right through working with us. A number of these things are close to fruition. A few that are more at the earlier stages. But as you can imagine, we can't give you specifics on it, but we're very happy that we're close to being able to get a few things across the line in the fourth quarter. ICICI Lombard was part of that. So you saw that we can act fairly quickly. But also, it's a -- we want to get best price and best execution, right? So we're working to -- we're getting -- we're working to do that for our shareholders."

What I thought was even more interesting was the commentary later on about wanting a more diverse, more liquid portfolio, albeit still with a value/opportunistic bent. They were also quite explicit about not wanting positions over $1bn (although that would mean reducing Eurobank which I think is unlikely and a mistake at this point).

Short answer to your question is I have no idea what they will sell but the changes might go some way towards addressing a lot of the concerns raised here over the years.
Title: Re: Fairfax stock positions
Post by: bearprowler6 on November 04, 2019, 05:55:00 AM
Does anyone have an opinion of what positions Fairfax is looking to monetize next (stock holdings, affiliates etc)? This has the potential to be a nice short term catalyst for the shares. Here is what the company had to say on the Q3 conference call.

Paul Holden (CIBC): "...you referred to monetizations and process. I was wondering if we can kind of get a status update on that monetization and process and just a characterization of how far you think you're along in that process. Is there still a lot to potentially do there?"

Paul Rivett (Fairfax): "...So we're quite far along in the process. There -- we've got the whole Hamblin Watsa team from Prem right through working with us. A number of these things are close to fruition. A few that are more at the earlier stages. But as you can imagine, we can't give you specifics on it, but we're very happy that we're close to being able to get a few things across the line in the fourth quarter. ICICI Lombard was part of that. So you saw that we can act fairly quickly. But also, it's a -- we want to get best price and best execution, right? So we're working to -- we're getting -- we're working to do that for our shareholders."

What I thought was even more interesting was the commentary later on about wanting a more diverse, more liquid portfolio, albeit still with a value/opportunistic bent. They were also quite explicit about not wanting positions over $1bn (although that would mean reducing Eurobank which I think is unlikely and a mistake at this point).

Short answer to your question is I have no idea what they will sell but the changes might go some way towards addressing a lot of the concerns raised here over the years.

Given the comments made on the call related to a more liquid portfolio it would seem a number of existing private investments would be the initial candidates for monitization. The would also be consistent with the comment mae by Prem in his march/2019 letter to shareholders:

"We expect to monetize some of our remaining investments in private companies with similar results!"

Therefore the likely candidates would inlcude the following:

- APR Energy
-Davos
-Peak Performance (formerly Performance Sports)
-Farmers Edge
-Toys R US (land value which they continually say is the value of the investment made)
-Boat Rocker
-Sporting Life/Golf Town

Monitization could take several forms including IPOs and/or sale of a part  or whole of these investments to a private equity buyer.

The following from their public holdings are also possibilities:

-CIB (Egypt)
-Sterling Resorts (held through Thomas Cook)
-Thomas Cook itself
-Resolute Forest (take the hit and move on)


Title: Re: Fairfax stock positions
Post by: petec on November 04, 2019, 07:40:59 AM
    Does anyone have an opinion of what positions Fairfax is looking to monetize next (stock holdings, affiliates etc)? This has the potential to be a nice short term catalyst for the shares. Here is what the company had to say on the Q3 conference call.

    Paul Holden (CIBC): "...you referred to monetizations and process. I was wondering if we can kind of get a status update on that monetization and process and just a characterization of how far you think you're along in that process. Is there still a lot to potentially do there?"

    Paul Rivett (Fairfax): "...So we're quite far along in the process. There -- we've got the whole Hamblin Watsa team from Prem right through working with us. A number of these things are close to fruition. A few that are more at the earlier stages. But as you can imagine, we can't give you specifics on it, but we're very happy that we're close to being able to get a few things across the line in the fourth quarter. ICICI Lombard was part of that. So you saw that we can act fairly quickly. But also, it's a -- we want to get best price and best execution, right? So we're working to -- we're getting -- we're working to do that for our shareholders."

    What I thought was even more interesting was the commentary later on about wanting a more diverse, more liquid portfolio, albeit still with a value/opportunistic bent. They were also quite explicit about not wanting positions over $1bn (although that would mean reducing Eurobank which I think is unlikely and a mistake at this point).

    Short answer to your question is I have no idea what they will sell but the changes might go some way towards addressing a lot of the concerns raised here over the years.

    Given the comments made on the call related to a more liquid portfolio it would seem a number of existing private investments would be the initial candidates for monitization. The would also be consistent with the comment mae by Prem in his march/2019 letter to shareholders:

    "We expect to monetize some of our remaining investments in private companies with similar results!"

    Therefore the likely candidates would inlcude the following:

    - APR Energy
    -Davos
    -Peak Performance (formerly Performance Sports)
    -Farmers Edge
    -Toys R US (land value which they continually say is the value of the investment made)
    -Boat Rocker
    -Sporting Life/Golf Town

    Monitization could take several forms including IPOs and/or sale of a part  or whole of these investments to a private equity buyer.

    The following from their public holdings are also possibilities:

    -CIB (Egypt)
    -Sterling Resorts (held through Thomas Cook)
    -Thomas Cook itself
    -Resolute Forest (take the hit and move on)



    I believe they were considering Quess a while ago but I can't believe they would sell it at this price.

    I think CIB may be a very long term position given how profitable it is and how underbanked Egypt is. Maybe they'll merge it with ATMA one day ;)[/list]
    Title: Re: Fairfax stock positions
    Post by: Viking on November 06, 2019, 09:55:48 PM
    Petec, thanks again for getting this thread started and posting your summary :-) I have spend a couple of days of my life trying to figure out what the actual size of each of the various positions are (in $US). So I can understand magnitude and compare positions. I also want to be able to track them to understand how they will impact FFH results at quarter end. I have tried to determine the actual amount of shares Fairfax currently holds, what the share price is (local currency), total value of holding, currency conversion to $US etc. For those who like detail look at the attached Excel spreadsheet; hopefully it is not too confusing :-) Please let me know if you see and errors; for starters I am not sure if I have calculated Fairfax India and Africa correctly given what is reported on the Balance Sheet. And feel free to copy and use the spreadsheet to fit your needs. My plan is to try and get position sizes for as many holdings as possible, including private holdings (Toys 'R Us etc) so stay tuned. 

    Value (in millions) of Stock Holdings as of Nov 6 (all in $US). Percent = share of listed 15 holdings.
    1.) Eurobank =         $1,156  = 22% (C = common stock on balance sheet)
    2.) Seaspan =             $873  = 17% (A) (not including 25 million $8.06 warrants)
    3.) Blackberry =          $259  =   5% (C) (not including convert; it would be top 3 if included)
    4.) Recipe =                $467  =   9% (A = investment in associates)
    5.) Fairfax India =        $451  =   9% (A)
    6.) Thomas Cook India = $441 = 9% (A)
    7.) CIBank - Egypt =   $402  =    8%(C)
    8.) Quess =                $346  =    7% (A)
    9.) Kennedy Wilson =  $308  =    6% (C)
    10.) Fairfax Africa =     $155  =   3% (A)
    11.) Resolute =           $123  =    2% (A)
    12.) Stelco =                $99  =    2% (C)
    13.) IIFL Wealth =         $80  =    1% (A)
    14.) IIFL Finance =        $50  =    1% (A)
    15.) IIFL Securities =     $11  =    0% (A)             

    Total 15 positions =    $5,504 =  100%

    Some takeaways:
    - the big 3: Eurobank, Seaspan and Blackberry. All 3 have interesting stories with significant upside potential.
    - the India positions have been crushed over the past year (TCI, Quess, IIFL, FIH). If they are half as undervalued as FFH thinks there is big upside potential.
    - given its very small size we can put a pitchfork in Resolute = 2.4%. Bad purchase (happens). Time to move on
    - surprised with size of CIB; looks to be very well run. Chug chug holding (solid grower).
    - KW: another chug, chug holding (solid grower)
    Title: Re: Fairfax stock positions
    Post by: petec on November 07, 2019, 01:19:11 AM
    Thanks, Viking. This tallies with my version and you caught some CIB shares I had missed.

    Couple of thoughts:
    1) You're double counting Quess - it hasn't spun off from TCIL yet.
    2) I think you ought to subtract the cost of exercising the SSW warrants ($8.05 per share). So the value of the warrants is 25*(11.32-8.05).

    I see Exco has relisted. The stake is worth $10m. Another epic win :(
    Title: Re: Fairfax stock positions
    Post by: petec on November 07, 2019, 01:34:07 AM
    Incidentally I see that Recipe recently bought a decent chunk of its shares from FFH, who slightly more bought from the family; the net result is FFH owns slightly more shares and has an additional 4% of the equity, getting them to 48%. Recipe has also been adding to its stake in The Keg Income Fund and now have 29%.
    Title: Re: Fairfax stock positions
    Post by: petec on November 07, 2019, 11:10:28 PM
    Good set of results from SSW overnight. Accounting earnings were below expectations but operating results were superb (highest ever utilisation, costs down etc.) and cash flows continue to track towards $500m FCF to common excluding the big one off in q2. That puts the stock on a free cash flow yield of over 20%. Cash flows are growing as they pay down high cost debt/prefs and the company is highly liquid given the new debt facility they announced in q2, so expect them to ramp up acquisitions as they find targets that meet their requirements. Market remains tight and shipping rate commentary is positive.
    Title: Re: Fairfax stock positions
    Post by: thrifty on November 09, 2019, 12:41:03 PM
    Pete this thread is so useful. Thank you so much.

    Do you have more comments in SSW? What's their NAV for example in your calculation and what's your reason(s) to make it your biggest holding? How does it compare to cheaper names such as GSL in your opinion?

    Thanks again.
    Title: Re: Fairfax stock positions
    Post by: petec on November 18, 2019, 01:20:48 AM
    Pete this thread is so useful. Thank you so much.

    Pleasure, and glad you find it helpful.

    Do you have more comments in SSW? What's their NAV for example in your calculation and what's your reason(s) to make it your biggest holding? How does it compare to cheaper names such as GSL in your opinion?

    SSW isn't my biggest position and never had been, but it's a decent size. I've discussed it in some detail on the SSW thread but in short, what interests me is that I can buy 20c of free cash flow for every $1 I spend on the shares, and that FCF sits in the hands of an outstanding capital allocator. Clearly in an operationally and financially levered business, cash flows can be volatile. Two things give me some confidence here: the industry's record-low order book, and SSW's contracts, although I expect these to shorten over time. I don't look so much at NAV for various reasons and I haven't compared SSW to peers because I regard the management element as central to the thesis.

    I did lighten up the position at about $11.50, and would add to it if it fell sharply on e.g. macro concerns. They are running the business beautifully (safety rates, occupancy, innovative financing and contract structures - all matter because the customer base has consolidated and they want high quality providers). I think they have a great opportunity to consolidate their industry accretively and branch out into related industries. As a result the capacity to compound value per share at an attractive rate is immense, but the share price won't be a smooth ride and I hope to add rather than detract value by flexing the position size over time.


    Title: Re: Fairfax stock positions
    Post by: petec on November 18, 2019, 01:54:49 PM
    Fairfax appears to be reducing Eurobank. Bloomberg says that in an emailed statement the bank announced Fairfax’s voting rights had fallen below one third, to 1.160m. I assume that means they’re selling shares.
    Title: Re: Fairfax stock positions
    Post by: TwoCitiesCapital on November 18, 2019, 06:14:54 PM
    Fairfax appears to be reducing Eurobank. Bloomberg says that in an emailed statement the bank announced Fairfax’s voting rights had fallen below one third, to 1.160m. I assume that means they’re selling shares.

    Held for years. Diluted to Oblivion. Re-upped their capital commitment. Held for more years. And then they reduce right before the real money seems it's going to be made?

    Seems odd.
    Title: Re: Fairfax stock positions
    Post by: petec on November 18, 2019, 11:36:38 PM
    Fairfax appears to be reducing Eurobank. Bloomberg says that in an emailed statement the bank announced Fairfax’s voting rights had fallen below one third, to 1.160m. I assume that means they’re selling shares.

    Held for years. Diluted to Oblivion. Re-upped their capital commitment. Held for more years. And then they reduce right before the real money seems it's going to be made?

    Seems odd.

    It does. In reality it’s a tiny reduction but I agree it feels like they’re leaving a lot on the table.
    Title: Re: Fairfax stock positions
    Post by: petec on November 24, 2019, 12:07:20 AM
    For those not watching the Seaspan thread, Fairfax have sold their private holding APR to Seaspan. APR owns and leases rapid-deployment power generation units so this gives Seaspan an entirely new vertical. It also increases Fairfax's position in Seaspan still further. The deal appears to be done at Fairfax's current carrying value for APR (67.9% stake * $425m equity value = $298m APR valuation at YE18) so no gain for Fairfax, but it does boost dividend income (I don't think APR paid a divi as it needed all its cash flows to reduce debt; Seaspan shares do pay a dividend). I have not yet listened to the Seaspan investor day which was held on Friday but I believe they said they bought APR for less than 5x ebitda and gave reasons for why it would do better under Seaspan than Fairfax.

    Seaspan will convert to a holding company (Atlas) and aims to continue diversifying in hard asset asset management under Sokol. I think Seaspan, Recipe, FIH, and FIH can all be viewed as long term Fairfax partnerships in their respective niches.
    Title: Re: Fairfax stock positions
    Post by: petec on December 04, 2019, 08:00:52 AM
    I had a feeling this might happen: with Thomas Cook in bankruptcy, Thomas Cook India has bought the rights to the brand for about $2m. Previously their right to use the brand was set to expire in a few years.

    EDIT: Actually I think they only bought it in certain countries. They didn't buy it in India - someone else paid $13m, which suggests TCIL don't think the brand is very valuable.
    Title: Re: Fairfax stock positions
    Post by: gary17 on December 04, 2019, 08:11:48 AM
    SSW is doing well.
     8)
    Title: Re: Fairfax stock positions
    Post by: petec on December 05, 2019, 10:06:29 AM
    SSW is doing well.
     8)

    And I felt so smart (briefly) for lightening up at $11.50!

    Thankfully I still have most of my position. Seaspan is the next Brookfield*. You heard it here first.

    *This is a joke. Sort of.
    Title: Re: Fairfax stock positions
    Post by: FFHWatcher on December 06, 2019, 05:23:58 AM
    SSW is doing well.
     8)

    And I felt so smart (briefly) for lightening up at $11.50!

    Thankfully I still have most of my position. Seaspan is the next Brookfield*. You heard it here first.

    *This is a joke. Sort of.

    I heard it here 2nd...
       
    ieb4
    Comments288 | + Follow
    i am not in disbelief, management has been saying for some time that they will be diversifying the business while at the same time maintaining dominance in container space and expanding there as well. was the Swiber deal not a hint that this was a path forward? also, it is not as if they are abandoning shipping (witness their two deals in last few months to expand fleet).
    but it is clear they want a higher multiple for the stock, going the asset manager route is certainly one way if they execute and make smart, accretive acquisitions. i again point to brookfield asset management and brookfield infrastructure as entities for comparison (although brookfields are not maritime, more railroads, toll roads, data-center, communications etc)
    definite fork in the road here...i'm choosing to stay the course and go with management's vision of future, not selling any shares and reinvesting all dividends.
    good luck to all who sell.
    Title: Re: Fairfax stock positions
    Post by: petec on December 06, 2019, 06:11:09 AM
    Ha - where’s that from?
    Title: Re: Fairfax stock positions
    Post by: FFHWatcher on December 06, 2019, 07:34:15 AM
    Ha - where’s that from?

    It's from Seeking Alpha.  SA has quite a few SSW followers. J Mintzmyer is a contributor at SA and he seems to spend all or most of his time analyzing the shipping sector.  He seems to be a good resource and knows his stuff.
    Title: Re: Fairfax stock positions
    Post by: ValuePadawan on December 06, 2019, 02:00:29 PM
    I like Mintzmyer I like his sector analysis but he seems to have a bit of man with a hammer syndrome and when he talks about Seaspan he doesn't see the value in the new direction the management team is taking.
    Title: Re: Fairfax stock positions
    Post by: steph on December 09, 2019, 01:47:38 AM
    Thomas Cook was down 50% last week. Is that related to spin off of Guess?
    Title: Re: Fairfax stock positions
    Post by: petec on December 09, 2019, 03:00:23 AM
    Thomas Cook was down 50% last week. Is that related to spin off of Guess?

    Yes. Adjusted for that I believe it was actually up quite a bit, although I haven’t double checked that.
    Title: Re: Fairfax stock positions
    Post by: steph on December 09, 2019, 03:28:09 AM
    Thomas Cook was down 50% last week. Is that related to spin off of Guess?

    Yes. Adjusted for that I believe it was actually up quite a bit, although I haven’t double checked that.

    Thx! Momentum seems positive recently on some important positions
    Title: Re: Fairfax stock positions
    Post by: Viking on December 11, 2019, 05:17:18 PM
    Here is an article discussing Quess demerger from Thomas Cook India (written Dec 5) and what TC India looks like moving forward.

    After demerger of Quess Corp, the standalone business of Thomas Cook India looks interesting with a reasonable valuation- https://www.freepressjournal.in/business/thomas-cook-india-is-the-noise-hiding-an-undervalued-gem

    “What exactly is happening with Thomas Cook India? Thomas Cook India holds about 50% stake in Quess Corp. In order to simplify the corporate structure, the management decided to demerge the company’s holding in Quess Corp. Essentially, shareholders of Thomas Cook will receive shares of Quess after about 2 weeks. The ratio, which was announced about a year ago, stands such that for every 100 shares of Thomas Cook, shareholders will receive 18.89 shares of Quess Corp.
    Title: Re: Fairfax stock positions
    Post by: Viking on December 12, 2019, 10:30:33 AM
    Fairfax’s second largest investment is Eurobank. The recent election of a pro-business government (and the fact they secured a majority) is a big deal. For Eurobank, positive that ‘Hercules’ plan is moving forward (will remove a large chunk of non-performing loans from balance sheet of banks). Real estate prices are up 7% year over year; expected to increase at faster rate over next year; also very positive for banks (their main form of colateral). While Greece continues to have its share of issues, it does look to be improving with an improving outlook and this bodes well for Eurobank stock in the coming years.

    Dec.09 -- Alex Patelis, chief economic adviser to Greek Prime Minister Kyriakos Mitsotakis, discusses his expectations for Greece's economy and the Hercules plan. He speaks on "Bloomberg Markets: European Close."
    - https://www.msn.com/en-us/money/videos/greece-could-cut-np-stock-by-half-with-hercules-scheme-patelis-says/vi-BBY0t8W
    Title: Re: Fairfax stock positions
    Post by: Viking on December 16, 2019, 03:09:17 PM
    Here is an update of Fairfax’s Seaspan investment as of today:
    1.) $500 million / $6.50 per share = 77 million shares
    - $14 (share price today) - $6.50 (cost) = $7.50 = $578 million
    - investment was made in two stages; 1/2 in early 2018 and 1/2 in early 2019
    2.) 25 million warrants: $14 - $8.05 (exercise price) = $5.95 x 25 mill shares = $149 million
    - awarded early 2019
    - not sure how FFH values these as i dont think they have been exercised

    3.) APR Energy: $300 mill / $11.10 per share = 27 million shares
    - $14 (share price today) - $11.10 (cost) = $2.90 x 27 million shares = $78 million
    - my estimate of what FFH will get when deal closes in Q1 2020 (deal was announced Nov 2019)

    Bottom line, as of today FFH is up on its Seaspan investment (since inception) $578 + $149 + $78 = $805 million. Yes, it is a paper gain as Seaspan looks to be a long term hold. It does demonstrate how FFH swings for the fences when it invests. And when it connects the returns can be very good (in thiscase 24 months later).

    4.) senior notes 2023 = $500 million at 5.5% = $27.5 million interest income each year

    This part of their investment is icing on the cake.

    On Sept 30 Seaspan was trading at $10.63. Trading at about $14 today stock is up 32% in past 10 weeks.
    Title: Re: Fairfax stock positions
    Post by: petec on December 17, 2019, 12:41:01 AM
    Here is an update of Fairfax’s Seaspan investment as of today:
    1.) $500 million / $6.50 per share = 77 million shares
    - $14 (share price today) - $6.50 (cost) = $7.50 = $578 million
    - investment was made in two stages; 1/2 in early 2018 and 1/2 in early 2019
    2.) 25 million warrants: $14 - $8.05 (exercise price) = $5.95 x 25 mill shares = $149 million
    - awarded early 2019
    - not sure how FFH values these as i dont think they have been exercised

    3.) APR Energy: $300 mill / $11.10 per share = 27 million shares
    - $14 (share price today) - $11.10 (cost) = $2.90 x 27 million shares = $78 million
    - my estimate of what FFH will get when deal closes in Q1 2020 (deal was announced Nov 2019)

    Bottom line, as of today FFH is up on its Seaspan investment (since inception) $578 + $149 + $78 = $805 million. Yes, it is a paper gain as Seaspan looks to be a long term hold. It does demonstrate how FFH swings for the fences when it invests. And when it connects the returns can be very good (in thiscase 24 months later).

    4.) senior notes 2023 = $500 million at 5.5% = $27.5 million interest income each year

    This part of their investment is icing on the cake.

    On Sept 30 Seaspan was trading at $10.63. Trading at about $14 today stock is up 32% in past 10 weeks.

    It's been a spectacular investment.

    I posted an updated valuation on the SSW thread yesterday, if that's of interest.
    Title: Re: Fairfax stock positions
    Post by: Xerxes on January 06, 2020, 08:19:36 PM
    Howdy folks,
    My new year resolution has been to join this board and stop being cheap (the $29 fee) and start to contribute to a great forum that I have been over-learning from.
    So I joined:

    I will add this company as well to this list of FFH's holding: AGT Food and Ingredients.
    It was taken private a while back. Here is an article from earlier this year on how the likes of Beyond Meat are creating more demand for AGT Foods. Unrelated to peas, the podcast talks also about how their (AGT/FFH) control of railway to the Port of Churchill present them with a nice long-term play real option (as Arctic recedes) as that is the only major railway heading that way, and IIRC Churchill is the only Arctic port on the Canadian side .. vs .. several or so on the Russian side.

    https://business.financialpost.com/commodities/agriculture/peas

    Here is the CEO on podcast with the Canadian Club of Toronto that I had found to be super interesting. You will find many other interesting podcasts well.
     
    https://player.fm/series/series-2416203/murad-al-katib-president-and-ceo-agt-food-and-ingredients-inc

    Title: Re: Fairfax stock positions
    Post by: Sombunall on January 07, 2020, 04:59:35 AM
    Welcome Xerxes. And thank you for this. I look forward to your future contributions!
    Title: Re: Fairfax stock positions
    Post by: Viking on February 07, 2020, 08:39:53 PM
    Question. At Dec 31, 2018 what was Fairfax's 2nd largest equity holding? My guess is most board members would get this question wrong (even if given multiple guesses).

    Answer: BDT Capital Partners (Oak Fund) = $443 million
    Source: Fairfax 2018 Annual Meeting presentation
    Currently, after Seaspan and Eurobank, BDT Capital Partners is likely Fairfax's third largest equity holding.
    A year earlier (Dec 31, 2017) its value was $355 million (#5 in equity holding that year)
    Given Fairfax has about $10-$11 billion in equity holdings this one represents about a 4% position.

    I tried to find information on the fund in Fairfax quarterly and annual reports but am striking out. So I am assuming they still hold their position :-). Interesting holding. Not domiciled in India. Not in a declining industry... Looks like a quality holding with well regarded management. Byron Trott (founder and CEO) used to work at Goldman Sacks where he was Warren Buffett's private banker. Anyone have any information on the company and/or the Oak Fund (what it owns)?

    Who are they? "BDT Capital Partners, LLC is a private equity arm of BDT & Company, LLC, specializing in investments in family-owned and entrepreneurial businesses. It also co-invests. BDT Capital Partners, LLC was founded in 2009 and is based in Chicago, Illinois."

    Here is an article: https://heavy.com/news/2019/06/bdt-capital-partners/
    Title: Re: Fairfax stock positions
    Post by: petec on February 08, 2020, 12:20:51 AM
    Question. At Dec 31, 2018 what was Fairfax's 2nd largest equity holding? My guess is most board members would get this question wrong (even if given multiple guesses).

    Answer: BDT Capital Partners (Oak Fund) = $443 million
    Source: Fairfax 2018 Annual Meeting presentation
    Currently, after Seaspan and Eurobank, BDT Capital Partners is likely Fairfax's third largest equity holding.
    A year earlier (Dec 31, 2017) its value was $355 million (#5 in equity holding that year)
    Given Fairfax has about $10-$11 billion in equity holdings this one represents about a 4% position.

    I tried to find information on the fund in Fairfax quarterly and annual reports but am striking out. So I am assuming they still hold their position :-). Interesting holding. Not domiciled in India. Not in a declining industry... Looks like a quality holding with well regarded management. Byron Trott (founder and CEO) used to work at Goldman Sacks where he was Warren Buffett's private banker. Anyone have any information on the company and/or the Oak Fund (what it owns)?

    Who are they? "BDT Capital Partners, LLC is a private equity arm of BDT & Company, LLC, specializing in investments in family-owned and entrepreneurial businesses. It also co-invests. BDT Capital Partners, LLC was founded in 2009 and is based in Chicago, Illinois."

    Here is an article: https://heavy.com/news/2019/06/bdt-capital-partners/

    3rd largest, not 2nd! You had me confused for a sec!
    Title: Re: Fairfax stock positions
    Post by: Xerxes on February 08, 2020, 05:46:29 PM
    Toys R us was bought for $300 million in early 2018.
    2-3 years later, i imagine that at the very least this might have gained some value, given that it was bought at distress price.

    i think that would make it contender for 3rd spot as illiquid as it is.
    Title: Re: Fairfax stock positions
    Post by: petec on February 09, 2020, 02:01:39 AM
    Toys R us was bought for $300 million in early 2018.
    2-3 years later, i imagine that at the very least this might have gained some value, given that it was bought at distress price.

    i think that would make it contender for 3rd spot as illiquid as it is.

    I think the best that comes from TrU is that they extract cash while it still generates some and then sell the real estate for more than the price the paid. I don’t think it’s getting marked up.
    Title: Re: Fairfax stock positions
    Post by: Viking on February 09, 2020, 11:29:59 AM
    Here is my guess for Fairfax’s largest equity holdings (US$) at Dec 31, 2019. Fairfax has a total of $10 to $11 billion in equity investments. Please point out any errors you see :-) or values that look incorrect.
    1.) Eurobank              $1,255 - MTM
    2.) Seaspan               $1,096 - MTM (not included: APR = $381; warrants = $355)
    3.) BDT Capital Partners $500 - Guess (Dec 31, 2018 = $443)
    4.) Recipe                     $404 - MTM
    5.) Commerce International Bank $395 - MTM
    6.) Quess                     $324 - MTM
    7.) Blackberry               $300 - MTM (not include: convertible bonds which doubles share count)
    8.) Kennedy Wilson       $297 - MTM
    9.) Toys R Us              $234 - Guess (purchase price = US$234)
    10.) Thomas Cook India  $222 - MTM

    Seaspan and Quess are not captured mark-to-market in Fairfax’s financials. Quess MTM value is considerably less than where it is carried on FFH financial statements (carried at $1 billion which i think is pre-demerger from 67% owned Thomas Cook and their 71 million shares) and Seaspan is the opposite. In Q3 fair value of Investment in Associates was $600 million below carried value; this should shrink considerably when the Q4 report comes out.

    Not included:
    Fairfax India                 $660 - MTM (largest investment Bangalore Airport)
    Fairfax Africa                $208 - MTM

    Others to research/watch (a few of these would likely make it in to the top 10 if we knew their current value).
    Digit: Fairfax’s stake may be worth $400 million
    AGT: Fairfax owns 59.6%
    Peak Achievement (Bauer/Easton)
    Dexterra (formerly Carillion)
    Farmers Edge: Fairfax has invested $159 million
    KWF Real Estate LP’s
    KWF Ireland
    Exco Resources   $221 fair value (42.8% equity ownership); June 8 ‘19 emerged from bankruptcy protection
    Title: Re: Fairfax stock positions
    Post by: wondering on February 10, 2020, 06:44:44 AM
    Perhaps you missed Resolute.  Although the stock has fallen quite a bit, so it might be grouped in the "misc" category
    Title: Re: Fairfax stock positions
    Post by: Viking on February 10, 2020, 10:07:41 AM
    Wondering, i was trying to list only the largest holdings (over $200 million). Yes, these are a bunch more (values at Dec 31):
    - Resolute         $128
    - Stelco            $102
    - IIFL Finance     $55 (the three IIFL co’s are also held in Fairfax India)
    - IIFL Securities  $16
    - IIFL Wealth      $70
    .... and more smaller holdings
    Title: Re: Fairfax stock positions
    Post by: Xerxes on February 10, 2020, 04:47:52 PM
    One interesting thing to note about FFH' equity portfolio is that it has very low cross asset correlation between its major tent poles.
    What does Blackberry, Eurobank, Toys R Us and Seaspan have in common (aside their common shareholder) ?  .. nothing, in fact serving very different industries and often very focused geographical location in some cases.
    Title: Re: Fairfax stock positions
    Post by: Viking on February 10, 2020, 05:43:26 PM
    One interesting thing to note about FFH' equity portfolio is that it has very low cross asset correlation between its major tent poles.
    What does Blackberry, Eurobank, Toys R Us and Seaspan have in common (aside their common shareholder) ?  .. nothing, in fact serving very different industries and often very focused geographical location in some cases.

    A large chunk of Fairfax’s equity holdings are being negatively impacted by the Coronavirus risk off environment: Eurobank, Seaspan, Emerging Markets equities (Fairfax India, Fairfax Africa, Thomas Cook India).
    Title: Re: Fairfax stock positions
    Post by: omagh on February 11, 2020, 06:33:36 AM
    A large chunk of Fairfax’s equity holdings are being negatively impacted by the Coronavirus risk off environment: Eurobank, Seaspan, Emerging Markets equities (Fairfax India, Fairfax Africa, Thomas Cook India).
    Coronavirus is looking increasingly contained.  Logarithmic scale shows the rate of increase is tailing off.
    https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

    At most, coronavirus could impact the 1st quarter of 2020 for just about any global business as a fraction of sales.  Will it really harm any business models?  Of course not.
    Title: Re: Fairfax stock positions
    Post by: mcliu on February 11, 2020, 12:41:35 PM
    A large chunk of Fairfax’s equity holdings are being negatively impacted by the Coronavirus risk off environment: Eurobank, Seaspan, Emerging Markets equities (Fairfax India, Fairfax Africa, Thomas Cook India).
    Coronavirus is looking increasingly contained.  Logarithmic scale shows the rate of increase is tailing off.
    https://gisanddata.maps.arcgis.com/apps/opsdashboard/index.html#/bda7594740fd40299423467b48e9ecf6

    At most, coronavirus could impact the 1st quarter of 2020 for just about any global business as a fraction of sales.  Will it really harm any business models?  Of course not.

    Hopefully that's the case and not because of the definition change.

    https://www.taiwannews.com.tw/en/news/3874490
    "China changes counting scheme to lower Wuhan virus numbers"
    China stops counting confirmed asymptomatic patients in Wuhan virus statistics
    Title: Re: Fairfax stock positions
    Post by: Kaegi2011 on February 12, 2020, 11:50:37 AM
    Anyone have any information on the company and/or the Oak Fund (what it owns)?


    They're pretty secretive and they're probably the most under the radar PE firm out there.  And the model is fairly unique - they basically source deals from their own network of high net worth individuals who own businesses and promise to hold them for a long time.  Not forever, but also not flipping it three years down the road.  Very Buffettesque way of doing business (e.g., proprietary sourcing, stable capital, etc.) and it seems to be working.  Whether the deals are good or not I have no clue as they don't seem to be targeting institutional money (at least any that I could find), so no disclosure on performance at places like Calpers, etc. 
    Title: Re: Fairfax stock positions
    Post by: Viking on February 12, 2020, 04:13:08 PM
    Anyone have any information on the company and/or the Oak Fund (what it owns)?


    They're pretty secretive and they're probably the most under the radar PE firm out there.  And the model is fairly unique - they basically source deals from their own network of high net worth individuals who own businesses and promise to hold them for a long time.  Not forever, but also not flipping it three years down the road.  Very Buffettesque way of doing business (e.g., proprietary sourcing, stable capital, etc.) and it seems to be working.  Whether the deals are good or not I have no clue as they don't seem to be targeting institutional money (at least any that I could find), so no disclosure on performance at places like Calpers, etc.

    Thanks for the info. BDT Capital looks like a quality operation which is nice to see especially given its large size in Fairfax’s equity portfolio. The position increased nicely in size from $355 at Dec 31, 2017 to $443 million at Dec 31,2018. No idea if they added capital to the position or if the increase was all gains. Hopefully they once again do the same disclosure (top equity positions) at the AGM this year.
    Title: Re: Fairfax stock positions
    Post by: steph on March 17, 2020, 07:41:45 AM
    How far can the equity positions go down, before FFH is in danger?
    Title: Re: Fairfax stock positions
    Post by: StubbleJumper on March 17, 2020, 09:55:11 AM
    How far can the equity positions go down, before FFH is in danger?


    Your question might require a bit more explanation.  There are a number of potentially bad/dangerous outcomes of a collapse in equity prices:

    1) Reduced underwriting capacity in the subs: if equities are held in the insurance subs, lower equity prices are marked to market and that increases the premiums:statutory capital ratio.  This would fall under the category of a "bad" outcome rather than dangerous.

    2) Line of credit covenants: FFH holdco and several of the subs maintain lines of credit, some of which are partially drawn.  Each of those revolvers likely has a lengthy list of covenants.  The holdco covenants require a maximum debt:capital ratio and a minimum shareholders equity total.  My rough math suggests that FFH holdco could take about a $5b haircut on its equity before violating its covenants, but what are the other covenants that have not been disclosed?  What covenants are present in the subs' revolvers?  It would be highly inconvenient if the credit lines were pulled...this might be a "dangerous" outcome.

    3) Bond/notes indentures: FFH and the subs have floated dozens of debt instruments, all of which have indentures.  Presumable these are far less restrictive than the credit line covenants?  Do falling equity prices constitute a risk?  This might be a "dangerous" outcome, but from the outside it's hard to estimate the risk.

    4) Management fees: one of the ways that the holdco finances its operations is through management fees related to Fairfax India, Africa, and Hamblin Watsa's management of the subs' portfolios.  A smaller portfolio means smaller management fees, and perhaps a cashflow challenge for the holdco.  This would probably be a "bad" outcome but not dangerous.

    5) Refinancing risk: either by good management or by good luck, FFH holdco doesn't have any bullet maturities during 2020.  However, holdco must continuously float new debt to replace maturing debt, with about US$300m needing to be refinanced by May 2021.  A collapse in the equity portfolio would not be helpful for credit availability or terms.  Similarly, if the need to issue shares arises, it is virtually certain that the price that FFH could obtain for a share issuance would be considerably lower after a collapse of the equity portfolio.  This is merely "bad" rather than dangerous.



    At this point, I'd say that equity prices are not really a "danger" for FFH, but they do constitute yet one more trip to the woodshed for shareholders.



    SJ
    Title: Re: Fairfax stock positions
    Post by: Xerxes on March 17, 2020, 11:18:05 AM
    Not to pile on Prem W. as I respect the man.

    But I would just note that in his annual letter he made a comment about high fliers tech companies and how expensive they are. Yet, the NASDAQ leadership “I.e FANGS” although down are no where near down as value is. 
    Title: Re: Fairfax stock positions
    Post by: steph on March 17, 2020, 01:27:03 PM
    How far can the equity positions go down, before FFH is in danger?


    Your question might require a bit more explanation.  There are a number of potentially bad/dangerous outcomes of a collapse in equity prices:

    1) Reduced underwriting capacity in the subs: if equities are held in the insurance subs, lower equity prices are marked to market and that increases the premiums:statutory capital ratio.  This would fall under the category of a "bad" outcome rather than dangerous.

    2) Line of credit covenants: FFH holdco and several of the subs maintain lines of credit, some of which are partially drawn.  Each of those revolvers likely has a lengthy list of covenants.  The holdco covenants require a maximum debt:capital ratio and a minimum shareholders equity total.  My rough math suggests that FFH holdco could take about a $5b haircut on its equity before violating its covenants, but what are the other covenants that have not been disclosed?  What covenants are present in the subs' revolvers?  It would be highly inconvenient if the credit lines were pulled...this might be a "dangerous" outcome.

    3) Bond/notes indentures: FFH and the subs have floated dozens of debt instruments, all of which have indentures.  Presumable these are far less restrictive than the credit line covenants?  Do falling equity prices constitute a risk?  This might be a "dangerous" outcome, but from the outside it's hard to estimate the risk.

    4) Management fees: one of the ways that the holdco finances its operations is through management fees related to Fairfax India, Africa, and Hamblin Watsa's management of the subs' portfolios.  A smaller portfolio means smaller management fees, and perhaps a cashflow challenge for the holdco.  This would probably be a "bad" outcome but not dangerous.

    5) Refinancing risk: either by good management or by good luck, FFH holdco doesn't have any bullet maturities during 2020.  However, holdco must continuously float new debt to replace maturing debt, with about US$300m needing to be refinanced by May 2021.  A collapse in the equity portfolio would not be helpful for credit availability or terms.  Similarly, if the need to issue shares arises, it is virtually certain that the price that FFH could obtain for a share issuance would be considerably lower after a collapse of the equity portfolio.  This is merely "bad" rather than dangerous.



    At this point, I'd say that equity prices are not really a "danger" for FFH, but they do constitute yet one more trip to the woodshed for shareholders.



    SJ


    Thank you for this very complete answer. Very interesting!
    Title: Re: Fairfax stock positions
    Post by: petec on March 30, 2020, 03:50:15 AM
    The Eurobank 4q19 and 2020-22 business update makes for interesting reading. It is pre-COVID19 which will screw over 2020 but management does not expect it to change the long term outlook much. Bottom line is that the NPL restructuring is complete (only took a decade!) and growth is now the focus, partly in loans (loan/deposit ratio only 83% and deposits have been growing) but especially in fees and investment income.

    They project 12c of EPS in 2020 and 16c in 2022. They have TBVPS at E1.44 in 2020 going to E1.70 in 2022. Adjust that however you want for COVID-19. Share price currently E0.41.

    Greece is emerging from a depression with a pro-business government and Eurobank is heading towards making a 10% return on tangible equity. It is not unreasonable to think that it might trade on 10x earnings/1x TBVPS in a few years. If reaching E1.70 of TBVPS is delayed by a year by COVID-19, Fairfax's stake could be worth E2bn in 2023.

    https://www.eurobankholdings.gr/-/media/holding/omilos/enimerosi-ependuton/enimerosi-metoxon-eurobank/oikonomika-apotelesmata-part-01/2020/fy-2019/4q2019-results-presentation.pdf
    Title: Re: Fairfax stock positions
    Post by: petec on April 22, 2020, 01:46:11 AM
    I have been meaning to have a look at CIB for a while. I am a big fan of well-run EM banks, which often have high returns and spectacular growth potential. Here are my notes FWIW.

    Genuinely impressive. Very focussed on governance. More awards than you can count. Simplest balance sheet ever. 53% of assets are in government bonds. 29% are in loans, split 78% corporate, 22% consumer/SME. Substantially all of the rest is cash and due from banks. Govt bonds attract a low capital weighting so RWA/A is 50%, but RWA/loans is 170%. CAR is 27%. Nearly all capital is equity. All equity is tangible. 94% of liabilities are deposits. The loan to deposit ratio is 43%. Assets/equity is 8x. NIM 6.3% and efficiency ratio 23%. NPLs are 5.3% and coverage is 190%. 10y ROE range 21%-33%; excluding a one off dip during the uprising, the range is 26%-33%. The Egyptian economy grows. Reforms started in 2006/7 and slowest growth since was 2% for three years after the uprising. Liberalisation continues. Inflation seems to average about 10% but spiked to 30% in 2017 before falling to 3% in late 2019. Potential for growth is huge. GDP per capita is $3,000 and 80% of GDP is private consumption. Bank lending/GDP is 34% and household debt/GDP is 7%. 80% of the adult population is unbanked. In a population of 100m there are only 16m debit cards and 3m credit cards. Mortgages barely exist. Two oddities: they seem to be the largest bank with 7% market share, and I can't understand how such a fragmented system is so profitable; and I can't see which currency the government bonds are in (they may have a portion in US treasuries backed by dollar deposits, or it may be all Egyptian pounds).

    I think a good shorthand measure for long term dollar returns in EM bank stocks is ROE minus inflation, which suggests something in the high teens.

    EDIT: I forgot to say that the CEO here, Hisham Ezz al-Arab, is on the Fairfax Africa board.
    Title: Re: Fairfax stock positions
    Post by: Bryggen on April 22, 2020, 12:07:58 PM
    When would FFH new stock purchases be disclosed?
    Thanks.
    Title: Re: Fairfax stock positions
    Post by: Xerxes on April 22, 2020, 12:56:39 PM
    I checked on the net, Q4 was on Feb 14th

    Using the same lead time, it ought to be around May 14th for Q1.
    Or around there.

    I think for BRK the F13 also is mid-May after the 03rd May AGM.
    Title: Re: Fairfax stock positions
    Post by: petec on May 05, 2020, 02:11:32 AM
    Stelco did an interesting deal a couple of days ago for a) iron ore supply for 8 years and b) an option to buy a 25% take in a low cost iron ore mine at a price they describe as being well in the money based on their scenario analysis.

    The deal presentation is worth a look for anyone interested.

    Stelco may not be a great business, but I am inclined to agree with Prem that it is well managed. Capital allocation has been strong. And it will generate a lot of cash over the years (in bursts). The only thing I don't like about it is the employee liabilities. These are fixed, which is good, but they're understated on the balance sheet because they're discounted at a high rate. I can't make up my mind whether to capitalise this liability at the balance sheet value or the undiscounted value.
    Title: Re: Fairfax stock positions
    Post by: Xerxes on May 05, 2020, 07:06:43 AM
    I had increased my FFH holding by 30% (share quantity wise) late in March.
    Only to see the whole meltdown … again.

    Further increased this morning by another 30% (share quantity wise).

    In my case, it takes me years to build up a position, so I have the latitude to average up or average down.
    Sadly, it has been average down for FFH case.

    If it goes down another 20% in the coming weeks, you know who is getting irritated :)
    Title: Re: Fairfax stock positions
    Post by: Bryggen on May 05, 2020, 07:23:03 AM
    I had increased my FFH holding by 30% (share quantity wise) late in March.
    Only to see the whole meltdown … again.

    Further increased this morning by another 30% (share quantity wise).

    In my case, it takes me years to build up a position, so I have the latitude to average up or average down.
    Sadly, it has been average down for FFH case.

    If it goes down another 20% in the coming weeks, you know who is getting irritated :)

    I am on the same boat and feel your pain and frustration ! Built my position over the last 3-4 years, so you already guessed that my average price is way above current level.... I could sell other stocks to purchase more FFH at those prices, but now I am like '' screw it''. Let's just handle this slide and, in the meantime, I keep repeating myself Prem's word '' It will come back'' ;)

    What encourages me is the ''what appears to be new'' management approach on the investment side.

    Let's see.

    Cheers,

    Bry

    Title: Re: Fairfax stock positions
    Post by: Viking on May 10, 2020, 05:14:04 PM
    Dexterra aquisition by Horizon North Logisitcs; Fairfax to get 49% of new company (close expected in Q2)

    I missed this announcement back in early March. Fairfax looks to be trimming down the number of small private investments that it holds. It recently sold APR Energy to Atlas/Seaspan in return for shares in Atlas. As more private investments migrate to publicly traded companies it does make it easier to follow and value the various businesses/equities that Fairfax holds. More importantly, it hopefully gets the holdings into a better situation to grow their business. That looks to be the case with APR and hopefully happens with this and future transactions.

    From Fairfax's Q1 Report (page 51):
    "On March 9, 2020 Horizon North Logistics Inc. ("Horizon North") entered into an agreement with Dexterra whereby Horizon North will legally acquire Dexterra by issuing common shares to the company representing an approximate 49% fully-diluted equity interest in Horizon North. Upon closing the company expects to obtain de facto control as the largest shareholder and will consolidate Horizon North. The transaction is anticipated to close in the second quarter of 2020, subject to approval by Horizon North shareholders and the satisfaction of customary closing conditions. Horizon North, based in the province of Alberta, is a publicly listed corporation providing a range of industrial services and modular construction solutions."

    By way of background, Fairfax purchased Carillion Canada out of bankruptcy in March 2018 (at 5x free cash flow) and renamed Dexterra (not sure what the total purchase price was).

    Market cap of Horizon North is $98 million, with shares trading at $0.59 (May 8). While Covid 19 is impacting the business of both companies greatly, the deal will happen under the terms announced March 9.

    2019      Revenue   EBITDA                 
    HN           $458       $31 (has debt)
    Dexterra   $261       $17 (no debt)

    - http://www.horizonnorth.ca/wp-content/uploads/2020/03/InvestorPresentation-2020-03-26.pdf
    - http://www.horizonnorth.ca/investors/
    - https://dexterra.com/about/
    Title: Re: Fairfax stock positions
    Post by: petec on May 10, 2020, 11:12:19 PM
    The deal was worth $100m in HN shares when it was announced. Less now, and as you say we don’t know what was paid for Carillion so it’s hard to judge success. Also, at the time we were told Quess advised on the deal but didn’t have the cash to do it themselves, so it’s a bit odd they’ve now sold it to an entirely different operator.

    Prem said (on the AGM call I think) that there is $1bn more to come in monetisations, which suggests to me they’re basically getting out of the entire private non-insurance portfolio.
    Title: Re: Fairfax stock positions
    Post by: spin on May 12, 2020, 06:57:54 PM
    I would like to know more about the Digit investment.  I realize that they are probably years from profitability, but I would like to know how revenues are growing.

    I guess I will have my chance to ask at the AGM.

    Please feed back if you get an answer.

    The CEO there has a very impressive background. As I have said elsewhere FFH does seem to be able to attract real talent to its projects.

    Thanks for the thread.

    Looks like an impressive start for Go Digit

    https://www.irdai.gov.in/ADMINCMS/cms/frmGeneral_Layout.aspx?page=PageNo4097&flag=1
    Title: Re: Fairfax stock positions
    Post by: petec on May 13, 2020, 12:43:57 AM
    One holding I think is very well positioned here is Kennedy Wilson. They have been net sellers for several years while growing institutional relationships, so they have significant investment capacity for the coming cycle. And they're trading at about 50% of conservatively-calculated SOTP value. I rather hope Fairfax buy more - in fact, it would be a great franchise to have in-house - but I doubt they will.
    Title: Re: Fairfax stock positions
    Post by: Xerxes on May 15, 2020, 05:29:39 AM
    13F
    https://fintel.io/i13f/fairfax-financial-holdings-ltd-can/2020-03-31-0

    Not easy to read with the format. I see a minoooor position in Alphabet.
    I don't see Exxon; must have been post-March.
    Looks like at the AGM throwing in Alphabet and Exxon was more about "marketing".

    Two things stand out: sold half of J&J and added more to Micron.
     
    Title: Re: Fairfax stock positions
    Post by: Xerxes on May 15, 2020, 05:32:24 AM
    Here is a better link
    https://www.holdingschannel.com/13f/fairfax-financial-holdings-ltd-can-top-holdings/

    odd, there is -500 next to Blackberry !
    Title: Re: Fairfax stock positions
    Post by: petec on May 15, 2020, 05:37:12 AM
    Some very odd looking outputs there. Might be worth going to the source.

    The Blackberry thing might be something to do with the $500m convert but I can't imagine what.

    The Seaspan numbers just look wrong. (EDIT - no they don't I misread them. Sorry.)
    Title: Re: Fairfax stock positions
    Post by: petec on May 15, 2020, 05:44:22 AM
    Also - there are some known holdings missing, like Stelco, Eurobank. I don't spend a lot of time with 13F's. Does this include all the subsidiary holdings? Because if not it's basically useless.
    Title: Re: Fairfax stock positions
    Post by: Xerxes on May 15, 2020, 05:50:29 AM
    Also - there are some known holdings missing, like Stelco, Eurobank. I don't spend a lot of time with 13F's. Does this include all the subsidiary holdings? Because if not it's basically useless.

    Funny thing, off memory I don't ever recall seeing Recipe, Stelco or Eurobank on 13Fs prior to this one.
    Though I could be wrong.
    Title: Re: Fairfax stock positions
    Post by: petec on May 15, 2020, 06:35:04 AM
    Yeah - their holdings are scattered across multiple subs, and I have never found a single source that gives the whole picture. So they may well have bought more Google (for example) than this.

    Then again I don't think the big news is in the equity portfolio. We already knew they were pretty much maxed out on equities and I think we can assume they're not going to sell any of the big positions here, so they are limited in what they can do and the impactful decisions will be on the bond side. So far we know they have redeployed or have plans to redeploy $5bn ($2.9bn into corporates, and $2bn into mortgages with Kennedy Wilson). That's where the news is, in my view. That and any sign of lasting deflation.
    Title: Re: Fairfax stock positions
    Post by: Cigarbutt on May 15, 2020, 06:36:13 AM
    ^They have a small arbitrage position in Tiffany & Co.
    These arbitrage operations (small versus the size of their portfolios) have appeared for a very long time.
    i wonder who is in charge of these investments and what kind of return they've achieved over the long term.
    Title: Re: Fairfax stock positions
    Post by: bearprowler6 on May 15, 2020, 06:48:49 AM
    Information on 13F filings can be found below:

    https://www.sec.gov/divisions/investment/13ffaq.htm

    From Questions 7:

    "The Official List of Section 13(f) Securities primarily includes U.S. exchange-traded stocks (e.g., NYSE, AMEX, NASDAQ), shares of closed-end investment companies, and shares of exchange-traded funds (ETFs). Certain convertible debt securities, equity options, and warrants are on the Official List and may be reported. But see Section 13(f)(4) (referring to equity securities of a class referred to in Exchange Act section 13(d)(1)) and exemptive rules 12a-4 and 12a-9 under the Exchange Act."

    Non US securities are excluded from the 13F filing so  for an international entity/manager such as Fairfax it is essentially useless as a source of information on their overall holdings.
    Title: Re: Fairfax stock positions
    Post by: Xerxes on May 15, 2020, 07:25:07 AM
    ^They have a small arbitrage position in Tiffany & Co.
    These arbitrage operations (small versus the size of their portfolios) have appeared for a very long time.
    i wonder who is in charge of these investments and what kind of return they've achieved over the long term.


    I also recall Red Hat and IBM merge arb from way back when.
    They got to do more of those, lever to the hilt, but not screw up as bad as Long Term Capital
    Title: Re: Fairfax stock positions
    Post by: petec on May 15, 2020, 07:42:44 AM
    Information on 13F filings can be found below:

    https://www.sec.gov/divisions/investment/13ffaq.htm

    From Questions 7:

    "The Official List of Section 13(f) Securities primarily includes U.S. exchange-traded stocks (e.g., NYSE, AMEX, NASDAQ), shares of closed-end investment companies, and shares of exchange-traded funds (ETFs). Certain convertible debt securities, equity options, and warrants are on the Official List and may be reported. But see Section 13(f)(4) (referring to equity securities of a class referred to in Exchange Act section 13(d)(1)) and exemptive rules 12a-4 and 12a-9 under the Exchange Act."

    Non US securities are excluded from the 13F filing so  for an international entity/manager such as Fairfax it is essentially useless as a source of information on their overall holdings.

    Thanks!
    Title: Re: Fairfax stock positions
    Post by: TwoCitiesCapital on May 15, 2020, 08:32:54 AM
    Also - there are some known holdings missing, like Stelco, Eurobank. I don't spend a lot of time with 13F's. Does this include all the subsidiary holdings? Because if not it's basically useless.

    I don't think you have to disclose foreign positions on a 13F.
    Title: Re: Fairfax stock positions
    Post by: Xerxes on May 15, 2020, 08:37:26 AM
    you guys are absolutely right.

    I recall at one point Buffet saying that he is not disclosing his foreign holding because he doesn't have to and that those names are Berkshire's internal information not available for public disclosure. i am paraphrasing.

    and that if SEC didn't require him to disclose U.S. holdings, he wouldn't.
    Title: Re: Fairfax stock positions
    Post by: petec on June 02, 2020, 01:41:25 AM
    Some comments from the Eurobank Q1 call:
    1) Core PPI won't be affected much, with cost cuts nearly offsetting revenue declines (vs prior guidance).
    2) Provisions likely to go from 90bps to 160bps which is manageable (but it is early days).
    3) only c.20% of mortgage and corporate clients have taken the offered payment moratoria, and 50% of small businesses. This is lower than they expected, possibly because "these people have been tested under very severe conditions over the last four, five, six years. They remain performing. They have a payment culture that is quite strong."
    4) the Cairo NPL reduction transaction has passed all hurdles. The sale of the FPS closes in the next few days and the spinout of the SPV shares will happen in August or Sept. Losses related to this deal will be booked in 2q but it sets them on a much better footing.
    Title: Re: Fairfax stock positions
    Post by: jondoug on June 02, 2020, 08:16:55 AM
    Another attempt at buying all of Blackberry

    https://www.thestreet.com/investing/stocks/blackberry-rises-on-fairfax-talks-to-acquire-remaining-shares
    Title: Re: Fairfax stock positions
    Post by: TwoCitiesCapital on June 02, 2020, 09:43:46 AM
    Another attempt at buying all of Blackberry

    https://www.thestreet.com/investing/stocks/blackberry-rises-on-fairfax-talks-to-acquire-remaining-shares

    Was refuted by Fairfax this AM. Who knows what is going on here....
    Title: Re: Fairfax stock positions
    Post by: StubbleJumper on June 02, 2020, 10:17:41 AM
    Another attempt at buying all of Blackberry

    https://www.thestreet.com/investing/stocks/blackberry-rises-on-fairfax-talks-to-acquire-remaining-shares

    Was refuted by Fairfax this AM. Who knows what is going on here....


    If I had to guess, this is likely being driven by BB's convertible debs that FFH holds.  Working from memory, ~$600m of those debs come due in November-ish, so having a conversation about them 5 or 6 months in advance would be a natural thing to do.  Given the current situation with BB, if FFH were to roll the debs, it is likely that FFH would demand some sort of improvement in the coupon rate, the conversion privilege, or both.  If their demands about the conversion privilege were too outrageous, it wouldn't surprise me at all if BB didn't suggest that FFH take look at a complete acquisition.

    Or maybe the converts have nothing to do with this, and BB will simply write a large cheque to FFH later this fall...


    SJ
    Title: Re: Fairfax stock positions
    Post by: petec on June 02, 2020, 10:24:44 AM
    Prem made a comment, either on the q1 call or the AGM call, which made me think he expected to get the money back. Personally I’d have no issue with rolling at a very good strike, but not otherwise.
    Title: Re: Fairfax stock positions
    Post by: StubbleJumper on June 02, 2020, 10:28:51 AM
    Prem made a comment, either on the q1 call or the AGM call, which made me think he expected to get the money back. Personally I’d have no issue with rolling at a very good strike, but not otherwise.


    Just for reference, the last financial report put BB's cash and short-term investments at about ~$900m and the debentures are ~$600m, so that could leave things a bit tight for BB.  I am guessing that they would want to refinance the debentures in some fashion, but I'm not convinced that there would be many takers other than FFH.


    SJ
    Title: Re: Fairfax stock positions
    Post by: Xerxes on June 02, 2020, 11:01:42 AM
    But why BB would not want to get rid of the expensive converts.
    Would it not be beneficial for BB to have on the right hand side of B/S, newly issued corporate debt at lower rate than the expensive convert.
    Title: Re: Fairfax stock positions
    Post by: StubbleJumper on June 02, 2020, 11:17:00 AM
    But why BB would not want to get rid of the expensive converts.
    Would it not be beneficial for BB to have on the right hand side of B/S, newly issued corporate debt at lower rate than the expensive convert.


    Expensive converts?  The current coupon is 3.75% and the conversion price is $10/sh.  That's not what I would describe as expensive for a company that is barely generating any positive cash from operations.

    Let's invert this: if FFH were to roll the debentures in November, what would be the terms that should be demanded, understanding that there is a considerable probability that BB could continue to burn through cash and might not have $600m in cash to repay a rolled deb by the time November 2023 hits (ie, return of capital is a risk on a going-forward basis).  So what would be fair?  For a 3-year extension, would 4.25% coupon and a $5/sh conversion be fair?  For a 5-year extension, maybe 4.25% and a $4/sh conversion?  Seriously, this is a company with $900m cash, they owe $600m on the debs, their cash from ops minus capex was negative last year and barely positive the prior year, and they operate in a fickle industry (software).  Your capital is at considerable risk, so what do you demand for a return and for an upside?


    SJ
    Title: Re: Fairfax stock positions
    Post by: Xerxes on June 02, 2020, 07:28:19 PM
    I figured since a cruise line can get debt at +6%, a company like BB that is not impaired can do better that.
    Even debt raised in the market for the same rate as the FFH convert (3.75%), but without the call option embedded within, is worth more than the FFH convert.
    Title: Re: Fairfax stock positions
    Post by: StubbleJumper on June 03, 2020, 07:07:19 AM
    I figured since a cruise line can get debt at +6%, a company like BB that is not impaired can do better that.
    Even debt raised in the market for the same rate as the FFH convert (3.75%), but without the call option embedded within, is worth more than the FFH convert.


    The cruise lines are an interesting counter-example.  Both RCL and CCL have issued senior secured notes with double-digit coupons over the past few months.  That's junk territory, and for good reason -- we have no idea how much cash they will burn before they come through to the other side of this pandemic.  The senior secured debt holders might ultimately be end up having to petition them into bankruptcy if this drags out for years and years (which it might), but at least they have some prospect of recovering a healthy portion of their capital through a bankruptcy process because presumably they are secured against cruise ships that originally cost $1B could be sold for $200m in a liquidation process.  The convertible debt issuance to which you made reference have a coupon of 5.75% and appear to be senior unsecured, with a $10/sh conversion -- on the day that those converts closed, the closing CCL share price was $12/sh, so they were in-the-money right from the start.

    So what about BB?  Well, we are hoping that BB will turn the corner and rack up some meaningful cash from operations, but so far it's been unconvincing. BB currently has about $300m of its own cash and about $600m of cash from its deb holders.  At the end of a 3 year or 5 year renewal term for the debs, it is not at all clear that they will have $600m to make a repayment.  As long as they don't burn down their cash balance too deeply, it would likely be possible to petition them into bankruptcy, have a firesale for their intangible assets (what would be the proceeds from a fire sale of intangible assets that are booked at $2B?  Would you get $200m?), and FFH could get its capital back.  But, if BB makes even a modest $400m acquisition in the next couple of years, all bets are off about getting all of your money back.

    So, how do you price their debt?  I really don't know.  FFH's last debt offering was 10 year notes at 4.625%.  All things being equal, would you prefer to lend money to FFH or to BB?  Without a conversion privilege, what would you ask of BB if FFH is paying 4 5/8%?  Would 7% be good enough?  Maybe even higher (RCL and CCL were double-digit for senior secured)?  It would need to be a hell of a lot higher than 3.75% if there is no conversion privilege.  So, you can drop the coupon a bit if you include a conversion privilege, but what should be your conversion price?  Well, $5/sh is a premium to the average share price over the past month, but it's a slight discount to the price of the past few days, so it's probably a valuable OTM option at that price.  At a conversion price of $4/sh, it's a very valuable ITM option.  So what combination of coupon, conversion privileges and duration would make sense today?  I will confess that I don't really know -- all I do know is that there needs to be a considerable improvement in the debenture terms over the current 3.75% and $10/sh conversion.


    SJ
    Title: Re: Fairfax stock positions
    Post by: Xerxes on June 03, 2020, 04:57:51 PM
    If BB is not going anywhere, then John Chen got good terms for the covert.
    He sold the call option to FFH, that isn't worth much.

    From 2013 shareholder return below. What I underlined still have some value and is applicable today. The rest of paragraph changed so much that what you read below cannot be reconcile to the blackberry story today. I am still positive that BB has merits post-phone era, and you are paying only 3 times sales for it.


    Markets fluctuate – and very often in extreme directions. Remember the tech boom, when companies with no sales were valued at tens of billions of dollars? In 2000, Northern Telecom accounted for 36.5% of the Toronto Stock Exchange index and was worth almost Cdn$400 billion; by 2009, it was bankrupt! Well, last year the opposite happened to Research in Motion (now known as BlackBerry). At its low of approximately $61⁄2 per share, it sold at 1⁄3 of book value per share and a little above cash per share (it has no debt). The stock price had declined 95% from its high! The company produces the BlackBerry which for years was synonymous with the smart phone. The BlackBerry brand name is perhaps one of the more recognizable brand names in the world and the company has 79 million subscribers worldwide. Revenues went from essentially zero to $20 billion in about 15 years – and then it hit an air pocket! The company got complacent, perhaps overconfident, and did not respond quickly enough to Apple and Android. Mike Lazaridis, the founder and a technological genius – and a good friend – asked me to join the Board, which I did after meeting Thorsten Heins, whom Mike recommended as the next CEO of the firm. Thorsten’s 27 years of experience in all types of leadership jobs in small and large divisions at Siemens, combined with his five years at BlackBerry, were exactly what was needed. Thorsten hired a very capable management team and then focused on producing a high quality BB10 – the next generation of BlackBerries. The brand name, a security system second to none, a distribution network across 650 telecom carriers worldwide, a 79 million subscriber base, enterprise customers accounting for 90% of the Fortune 500, almost exclusive usage by governments in Canada, the U.S. and the U.K., a huge original patent portfolio, an outstanding new operating system developed by QNX and $2.9 billion in cash with no debt, are all formidable strengths as BlackBerry makes its comeback! The stock price recently moved as high as $18 per share, a far cry from the $140 per share it sold at a few years ago. And please note, 1.8 billion cell phones are sold worldwide annually, and of the 6 billion cell phones in the world, only 1 billion are smart phones. Lots of opportunity for Canada’s greatest technology company! What is striking, even for a person like me who has seen many bull and bear markets, is that at $61⁄2 per share, all the Wall Street and Bay Street analysts were uniformly negative – just as they were uniformly positive only a few years ago at prices north of $100 per share. John Templeton’s advice to us: “Buy at the point of maximum pessimism”, still rings in our ears!! We own approximately 10% of the company at an average cost of $17 per share and we are excited about its prospects under Thorsten’s leadership and Mike’s technical genius. 

    Title: Re: Fairfax stock positions
    Post by: StubbleJumper on June 04, 2020, 10:46:32 AM
    If BB is not going anywhere, then John Chen got good terms for the covert.
    He sold the call option to FFH, that isn't worth much.


    I don't think that's quite the right way to evaluate it.  John Chen paid an appropriate interest rate and granted an appropriate call option at the time the notes were last negotiated. 

    The interest rate of 3.75% strikes me as bat-shit crazy for renewal in November 2020, but it wasn't all that bat-shit crazy when the notes were negotiated.  At that time, BB already had a large pile of cash, and FFH's money simply served to make that pile even larger.  In fact, BB at the time was doing something similar to what FFH is doing today -- that is, BB borrowed FFH's money to effectively hold marketable investments (I don't know what BB's net cost was, but I don't think it was very high).  FFH is doing the very same thing today in that it is holding commercial paper in the holdco using bank-money from the revolver (FFH claims to have a favourable spread).  From a creditor's perspective, the problem with BB is that they burned an enormous portion of their cash on the Cylance acquisition last winter, which qualitatively changed the risk of the debentures.  That shift in risk is not such a problem for 2020 as they still have adequate cash to repay the debs, but it does demand more favourable terms for a potential extension to 2023 or 2025.

    Similarly, the fact that the call option embedded in the converts looks as if it will be worthless upon expiration in November, does not mean that it was worthless when it was sold.  In Sept 2016, when the debs were negotiated, BB traded between US$7-8/share and the conversion privilege was priced at US$10/sh for a 4 year term.  That was a valuable option at the time.  Clearly, if the same option were offered in November 2020, it would be almost worthless because the underlying share price is so much lower.  But, a conversion price of $5/sh (or even $6) would be a valuable option.


    SJ
    Title: Re: Fairfax stock positions
    Post by: Xerxes on June 04, 2020, 06:04:56 PM
    100% agreed.

    I should have added to my comment, "in hindsight"
    J Chen naturally was and I am guessing continuing to be upbeat (eventhough it is uphill).
    Not an easy job and the reputational opportunity cost is enormous.

    It takes a rare talent to be able to land a crashing business without totally crashing it. When he took over, revenues (dominated by h/w) were coming off the cliff, and whatever s/w seeds he planted were nothing compared to hardware sales that continue to command such large portion of its topline. It was a multi-year crash in slow motion and I don't think many people understood and appreciate what a difficult job that probably was. Today, those h/w sales are zero. It has landed without crashing, now it needs jet fuel to propel its s/w engines that keep the ship afloat and re-growing the topline, now dominated by s/w. Whether this new phase is successful or not remains to be seen. I cannot see how this new environment will not be a tailwind for his cybersecurity business. Even its QNX business that has some exposure to the car industry is bound to bounce back with a resurgence to individual ownership.

    He has the tailwinds now, and no longer has the headwinds of declining h/w sales overshadowing its nascent s/w business. it is time to capitalize.
    On Cyient, I have no clue. I am not in the cyber security business so cannot comment if it was a good purchase or not. And I think whatever various generalist investors know about Cyient is based on business articles that they read which either tends to say bad things when things go bad in the short term or say good things when things go good in the short term.

    It is like listening to CNBC or Bloomberg, when the market is crashing, they build narrative around the crash and when the market is shooting up they build a narrative around the rising market.