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21
Investment Ideas / Re: STLC.TO - Stelco
« Last post by Xerxes on February 24, 2021, 06:46:16 PM »
1 bird (FFH) in a hand is worth more than 2 birds (Stelco & Resolute) in the bushes.
That said, happy to own both through FFH.

A few bags ago on both names, i would have added them.

 
22
Fairfax Financial / Re: Fairfax 2021
« Last post by Xerxes on February 24, 2021, 06:42:51 PM »
Yes, i saw the same thing late in trading today. Bottom line, Fairfax has exposure to a little over 100 million BB shares. So every US$1 increase in BB share price = $100 million gain for FFH (pre-tax). This entire position is mark-to-market accounted; meaning it will also directly impact reported book value when Fairfax reports Q1 results. As a reminder, BB was trading at Dec 31 at US$6.63. So with shares trading $12.39 after hours = about $600 million gain = about $22-23 per share pre tax. Significant :-)


Great
we are going to have some "hot air" being marked-to-market on March 31.
As long as it stays hot, i am all good.
23
Fairfax Financial / Re: Fairfax 2021
« Last post by Xerxes on February 24, 2021, 06:41:30 PM »
Check this out: Fairfax Launches C$850 Million Senior Notes Offering
https://finance.yahoo.com/news/fairfax-launches-c-850-million-155300225.html

Great news!  FFH pushing back debt and lowering rates.


Yes, this is good.  They definitely needed to get some cash into the holdco and stop relying on revolving credit to fund the company's operations.  It is noteworthy that this is a relatively large debt issuance for FFH and the interest rate is considerably lower at 3.95%.  I have expressed misgivings in the past about FFH failing to deleverage, and this does not really change the fact that they are more leveraged than I would like and their risk management has been disappointing at times.  But, it's a positive step towards at least managing their maturities and reducing the routine reliance on that revolver.


SJ

i think the proceeds are going entirely to refinance old debt .. and not pay back the revolver.
i think Prem did mention that the revolve will be paid via proceeds from asset sale
24
Fairfax Financial / Re: Fairfax 2021
« Last post by Xerxes on February 24, 2021, 06:40:26 PM »
I would think they could begin locking in significantly before year 20. It obviously depends on starting yields/durations and how quickly rates are rising, but in prior bond bear markets you could recoup the principal losses from rising rates with higher income/higher reinvestment income by year ~4.

So even if you expect rates to rise, you can buy a 10-year bond today and still be ahead of short-term bonds by years 5-6 even if you're right about rates moving higher.

I don't mind Fairfax's move to short term bonds. It's certainly saved them from some pain. But I would hope that they'd start moving incrementally back to 10 year and longer bonds if rates exceeds 1.5 -2.0%.  Just in recognition that these things don't move in a straight line, roll down yield becomes more attractive as the curve gets steeper (short term still anchored @ 0%), and any unrealized losses from rising rates will likely be mitigated by year 4-5 of holding the bond anyways.

And given my ultimate views that we are NOT in a sustainable inflation environment, I would think this exposes them to potential gains from a disinflationary/deflationary environment that they missed in 2018, and again in 2020, when 10-year yields dropped from 3 25% all the way down to 0.5% over that 2.5-3 year period.

This is my view. I'm very heavy into commodity companies - but mostly because they're cheap and not because I'm expecting massive inflation.

I think we'll get a pop in 2021 due to the trillions pushed into circulation during 2020, but I do think at some point in 2022 we get back to disinflation as rates can never rise significantly with debt loads/equity markets where they're at.

Great discussion with J. Currie
https://www.bloomberg.com/news/videos/2020-12-17/goldman-s-currie-sees-tell-tale-signs-of-commodity-super-cycle-video

Going back to the reasons as to why we had such a long bull market in bonds, economist typically point to three major points:
1 - deflationary nature of technology
2 - changing in demographic, the baby-boomers hitting peak salary in the past few decades, therefore in aggregate creating a surplus of capital at about the time when the demand for capital was diminishing (point below)
3 - last couple of decades most of the investment has been in information technology sector that doesn't require as much capital as CAPEX heavy old economy. Therefore less capital was needed, putting downward pressure on rates.

I think going forward, (1) still is in play more than ever, but (2) will flip as old economy + infrastructure that have been starved for capital need major investment
25
Investment Ideas / Re: GME - Game Stop Corp
« Last post by lessthaniv on February 24, 2021, 06:16:40 PM »
Check out the activity today on the Feb 26,2021 , $800 deep otm Calls.
Just a cool 8600% one day return.

 :o

Crazy times.
 

26
Investment Ideas / Re: PEY.TO - Peyto Exploration & Development
« Last post by kevin4u2 on February 24, 2021, 06:13:24 PM »
And I think the Tech to Energy rotation is just getting underway.  The last 4 years will unwind. 
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Investment Ideas / Re: PEY.TO - Peyto Exploration & Development
« Last post by kevin4u2 on February 24, 2021, 06:07:18 PM »
Petec are you still holding?  The numbers have materially improve and it looks like PEY has miles to run. 

The polar vortex is showing some production challenges for NG (down 15bcf/d) and how unreliable wind power is in Texas.  Should be some record draws from storage tomorrow and next week.  We will end storage below the 5 year average. 

Plus the under-investment for the past two years along with LNG exports now running 10+bcf per day, the rest of this year looks interesting from a supply/demand perspective (along with 2022).  Berkshire just bought a bunch of NG pipelines assets, so they know gas will be in the mix for a long time.

I am, although funnily enough I was wondering whether I should lighten up here. What’s your thesis behind “miles to run”?

Darren Gee was just on BNN the other day and stated that they will double CF in 2021.  That will put them at north of $440m this year.  From my post above, because of the low decline rate, FCF will be very strong (>$200m).  Back in 2014, they generated $662m in CF and FCF was $232m.  Needed $429m in CAPEX then compared to $200m now.  Big difference.  They will invest most of their FCF this year to grow production by 16k boe/d (+20%).  Should exit the year over 100k boe/d.
 
I'm sure you saw the recent reserve release.  Their all in gas cost is now $2 CAD/mcf.  They can make a 40% profit margin at $2.50 AECO and $55US WTI (slide 48). 

Their H2 2020 results were also very strong.  Made an acquisition near Sundance for $35m in Q1 adding 2,900 boe/d.  Mostly I liked this:

The outlook for commodity prices in 2021 has significantly improved over the last six months which drives higher
forecast cashflows, beyond the required funding for Peyto’s capital program. In addition, there have been extreme
natural gas prices being realized at certain trading hubs over the last week due to record cold temperatures across
much of the United States. As an example, Peyto was fortunate to have 20,000 MMBTU/d of unhedged gas sales
exposed to the Ventura hub that averaged over $160/MMBTU for the last 5 days.
As these superior commodity
prices are realized, Peyto will look to use the free cashflow to reduce indebtedness and strengthen its balance
sheet, while evaluating the ability to increase dividends to shareholders. Based on strip pricing, Peyto currently
projects it will exit debt covenant relief during the second quarter of this year.
While the 2021 drilling program is
budgeted to be greater than 2020, Peyto currently has the team and resources to do much more and eagerly looks
forward to 2022 and beyond.
 

They made $16m in 5 days at Ventura.  I have debt to EBITDA at 2.3x by year end, paying down $200m in debt over next 2 years, and will exit 2022 with debt to EBITDA at 1.8x or better at strip pricing & their hedges.   

Their strategy appears to be fill their gas plants (~100k boe/d), and milk the FCF/profits.  TD analyst just came out with 95,300boe/d for 2021 and 104,500boe/d in 2022.  My calculations have them with slightly lower production rates.  They will also have 3rd party processing revenue this year. 

Regarding the gas demand, the polar vortex will bring end of winter storage to well below the 5 year normal.  Look for a record draw tomorrow.  LNG exports are running 10-11 bcf/d (have already recovered to 10bcf/d).  Propane prices are currently very good.  In Alberta, coal to NG power plant conversions will drive demand, and LNG Canada exports in 2024.  Peyto will begin directly supplying Cascade power plant in 2023 (60k-120k GJ/d).  The US big gas players have forecasted flat production this year.  All this points to a struggle to fill storage to an adequate level by next winter.  NYMEX should wake up in Q2 and realize prices are not adequate for next winter.  Buy now and enjoy the ride for the next 2 years.   

At the average EV/DACF for the past 4 years we are are conservatively talking $11/shr this year and $15/shr next year.  Upside includes higher gas prices, higher oil prices, or an increase in EV/DACF valuation to historical norms.  It is definitely not out of the range of probabilities to see a >$20/share price in 2022. 

I made a fortune back in 2001 when Peyto was just starting out.  They were the best performing stock on the TSX after their first 15 years in business (1999-2014).  They have paid out close to $20/share in dividends.  I think this run might be just as good, time will tell.     

 

28
General Discussion / Re: Movies and TV shows (general recommendation thread)
« Last post by boilermaker75 on February 24, 2021, 06:03:26 PM »
A thumbs up for "The Head" -- a series on HBOMax.   Its short - just six episodes.   I'm through four episodes and its very good if you like suspense/mysteries.

  If this was an American show, everyone would speak English all the time.

Anyway - this TV reviewer gives this one a big thumbs up!

wabuffo

But they would use accents!
29
Fairfax Financial / Re: Fairfax 2021
« Last post by Viking on February 24, 2021, 05:55:49 PM »
Maybe Fairfax will get another shot at locking in some Blackberry gains? Gamestop is up by over 100% today, and has almost doubled again after hours, to about $170. Looking at the other usual suspects, Koss is up about 200%, AMC is only up about 30%. BB is tamer: up about $1 today and another $1 after hours, to $12.40.

Fairfax owns 1.833 BB shares for every share of Fairfax (46.7 million BB shares, for 25.5 million FFH shares), so if you own 1000 FFH shares, you're along for the ride with you 1833 BB shares, up by $2/share today. If you don't like Watsa hanging onto them, you could short them out in your own account, but that would be swapping one form of excitement for another...

I believe they also have $330 million worth of debentures that are convertible into BB shares at $6, so in other words they own the upside on another 55 million shares  stake is actually double the above. Someone correct me if I'm wrong.

Yes, i saw the same thing late in trading today. Bottom line, Fairfax has exposure to a little over 100 million BB shares. So every US$1 increase in BB share price = $100 million gain for FFH (pre-tax). This entire position is mark-to-market accounted; meaning it will also directly impact reported book value when Fairfax reports Q1 results. As a reminder, BB was trading at Dec 31 at US$6.63. So with shares trading $12.39 after hours = about $600 million gain = about $22-23 per share pre tax. Significant :-)
30
Investment Ideas / Re: PWE - Penn West Petroleum
« Last post by SharperDingaan on February 24, 2021, 05:46:28 PM »
They are just being smart.

SD
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