dartmonkey
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Posts posted by dartmonkey
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4 hours ago, ICUMD said:
OTOH, their private Indian investments, no matter how strong they are (ie BIAL), are not translating into market price very well.
Anchorage seems like a pipedream to me years after their initial proposal.
I'm with TwoCities about the persistent discount - the important thing is that the investments are doing well, and if so, the share price will eventually follow, providing for some additional oomph in the meantime via repurchases. So the private investments have to be strong, but the translation into market price doesn't concern me.
Anchorage is the same sort of deal - is the airport doing well, or not? It seems that it is. At over 50% of assets, an IPO would be nice, just to take some cash off the table and to allow for other investments (IDBI?), but there are likely to be opportunities to do the same thing with private investors, so maybe we don't have to worry about whether an IPO happens or not.
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On 5/24/2024 at 9:54 AM, petec said:
I also own Ensign. Phenomenal levered exposure to the slow tightening of the north American land driller market (driven by wear and tear and rigs going overseas), trading at a 50% free cash flow yield.
Interesting. Do you care to expound, or say where one could read more anlaysis about this company?
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6 minutes ago, SafetyinNumbers said:
The actual ceremony was very dramatic! A few songs (including the Indian national anthem), lots of speeches and a candle lighting ceremony.
The replay is available in the link below.
That IS impressive, I love it!
I don't at all mind the ceremony, on the contrary, but the business end of it, it is the setting the price of the IPO that seems archaic to me. Does anyone think such a process wil be around when companies issue shares in a hundred years? It seems like a lot of work for nothing, not even getting the best price for the issuing company and not properly insuring that everyone has an equal access to buying the shares they might want to buy.
As woodman points out, what is important is how the company does in the next 3-5-10-20 years, not whether it came out at 250 rupees or 300, and whether it popped 10% the first day or the first month.
Anyway, file this away as a pointless gripe, it is what it is, and the company seems to have navigated through this complex landscape in a satisfactory way.
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7 hours ago, nwoodman said:
https://finance.yahoo.com/quote/GODIGIT.NS
First day of trade..for posterity. Ended at around 5x’s GWP
Some recent contemporaries, take it or leave it in terms of relevancy
My take (but really what a bunch of smart people who actually matter):
Fairfax (Digit) gets one chance to do this right and be accretive to all stakeholders. I think they have threaded the needle.
The whole process seems downright mediaeval to me, with its price bands, its GMP (grey market premium), its alotment dates, its public and private subscriptions, the 55 share block requirement (why on earth 55??), the concern about whether the IPO is 'successful' or not because it pops on day 1, etc. I know this is not so different from North American IPOs, but why so much drama? Why not just offer blocks of shares on the market, with a bid and an ask, and do it at the price that settles, like an auction? Does it have to be this complicated?
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think I can settle with the thought that prem really was just overweight and wants to have some eggs at the side lines which is fair.
Yes, according to his statement, he bought "482,600 subordinate voting shares of Fairfax at a price of US$308 per share, or approximately US$150 million in total."
Now he has sold 275,000 of these shares to the company (so they can be retired), at $US1,106.48. He continues to control 1,548,000 outstanding multiple voting shares and 519,828 subordinate voting shares of Fairfax, for a total of 2,067,828 shares, meaning that he had 2,342,828 shares before the sale, and has sold 11.7% of these. If the new stake is worth 90% of his net worth, that would mean that he previously had 101.9% of his net worth in Fairfax; if his current stake is higher than 90%, then his previous stake was even higher than 101.9%. That probably means he took out a loan to make the purchase back in 2020, when short term interest rates were still less than 1%.
So there's overweight and then there's really spectacularly overweight. We think we are overweight at 50%, but he was at over 100%. Taking that down to 90% can not reasonably be taken as evidence that he think the shares are fully valued, it's just elementary prudence. If he had reduced from a smaller percentage, like going from 10% to 9%, that would have been a different story. And the increased capital gains tax in July, while not mentioned, just adds another reason why it makes sense to pay off the loan now, even if he still think Fairfax's prospects are great.
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1 hour ago, Luca said:
Exactly, next to China (in which I am very overweight), I can only find tempting value in coal/oil stocks. FFH is a huge part of my portfolio too and I am absolutely not selling anything as long as the idea universe is that small and very expensive.
I have the same problem, 50% in Fairfax after the big share price increase in the last few years, but nowhere too tempting to go if I sell my stake down to a more reasonable size. And 10% in coal/gas/oil which seem like the best alternative for the moment - Yancoal, Suncor, CNQ, Petrobras...
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3 hours ago, juniorr said:
If $BB can run back above $10 USD will like to see FFH off load it lol
Why wait? Here's hoping RoaringKitty was just waiting for Prem to get off the Blackberry board to give Fairfax one last chance to unload this, and maybe reap some tax losses to book against the Pet Insurance business.
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if once digit starts writing insurance at < 100% CR if it will start to invest its profits in equities
What about Odyssey or Brit or Allied? Should they also start to invest their profits in equities (both public and private) and slowly morph into conglomerates? Seems like a waste to replicate the Fairfax structure at the subsidiary level.
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Yesterday's close was 1562.45, with an intraday high of 1575.31. Closed today at a new high, 1,571.02, with a higher intra-day/all-time high of 1580.01.
Previous Close 1,562.45 Open 1,560.74 Bid 1,568.56 x 0 Ask 1,572.00 x 0 Day's Range 1,559.77 - 1,580.01 52 Week Range 932.00 - 1,580.01 With Fairfax very actively repurchasing in April, we should not be happy about this, but...
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2 hours ago, Hoodlum said:
We took investors feedback. Further, there is a value that we want to leave for the investor on the table,” he said during a pre-IPO meeting held in Mumbai.
The Prem Watsa’s Fairfax group-backed firm has fixed its price band in the range of Rs 258- 272 per share of the face value of Rs 10.Digit was valued at $3.58 billion (as of 2022-23) in the last private round. The issue price values the company at a little less than $3 billion.
The insurtech firm, which has downsized its issue by more than 40 percent, is seeking to raise primary capital of Rs 1,125 crore instead of the earlier planned Rs 1,250 crore.
The offer for sale (OFS) has also been slashed by almost 50% from 109.4 million shares to 54.8 million shares (worth Rs 1489.62 crore).
I guess this might make for a 'successful' IPO, successful for investors at least, even if selling shares to the public below what someone might have paid for them is not usually what the other shareholders would want. At least it's not too dilutive, given that it is only selling about 42m shares, out of 874m shares outstanding, or a little less than 5% of the company.
But if they are selling 40% less shares, at a lower per-share price, how can they expect to raise Rs 1125 instead of 1250 crore? If they sell at the middle of their target range, Rs 265/share, they would need to sell 42.45m shares to raise Rs 1,125 crore. If that represents a 40% cut in the number of shares, that would have been 70.75m shares they previously intended to issue. If they expected to raise Rs 1,250 crore, that means they intended to sell them at just Rs 177/share, which doesn't jive with the idea that they have marked down the price to get an IPO pop.
Anyways, most of these questions will be resolved in a week when we have a share price on the NSE and BSE.
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41 minutes ago, nwoodman said:
OK, so absolutely nothing offical to fill in the black dots. All I needed to know.
Apparently, they have announced the price range, today:
The company announced a price range of Rs 258-272 on Friday, May 10, 2024. Read more at: https://thearcweb.com/article/go-digit-ipo-valuation-fairfax-prem-watsa-fyeU0WSqN1fQY2G6
I don't know WHERE they announced it, but it doesn't seem to be just a rumour.
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Can someone explain to me how 49% of the equity is only worth $152m (carrying value)? Or only worth $476m ('fair value', according to the Q1 report.) It clearly can't be that $2.092b worth of preferreds will only convert to an addition 19% of the equity. Explain it to me like I'm an 8-year old.
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On 5/1/2024 at 6:20 PM, SafetyinNumbers said:
Another way to frame it is because of the profitable float leverage, the equity returns don’t have to be high to earn a 15% ROE but they could be and I’m betting they will be without having to pay for it.Maybe you get both equity AND fixed income exposure with Fairfax? I posted this to the Berkshire board, confusedly thinkiing I was talking to Fairfax shareholders. I'm copying it below because, while the comparison between Fairfax and Berkshire is only of moderate interest to most Berkshire shareholders, it is of great interest to Fairfax shareholders!
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Posted to Berkshire board today:
"Both Fairfax and Berkshire are constrained by regulators and by common sense in what they can do with their float, equity obviously being preferable if you have enough surplus capital to do it. Undoubtedly, Fairfax is considerably more constrained, but it isn't just a question of surplus capital,, it's also a question of how much float they have, in relation to their equity. And Fairfax has way, way more. Quoting my post here 2 days ago:
With Fairfax, you have float of $33b* with $22b of equity (2023 year end numbers), whereas for Berkshire, you have float of $169b with equity of $561b. So $1 of equity is increased to $2.50* of investable assets with Fairfax, whereas with Berkshire, $1 of equity is increased to $1.23 of investable assets. Fairfax is twice as leveraged by investment float. So if you think the key to success of Berkshire was the float leverage, Fairfax is a much better setup.
Thinking about this further, the above way of framing the float actually understates the difference. Perhaps a better way of looking at it is that,, for each dollar of equity invested, Berkshire invests another $0.23 of float. For each dollar of equity invested by Fairfax, you get another $1.62* of float invested. It is unsurprising that Berkshire can invest a lot more of its 23c of float in equities, compared to Fairfax. Berkshire has $568b in book value plus $169b in float, and invests $383b in equity securities and equity method investments. Fairfax has $21.615b in book value plus $35.1b* in float, and invests $15.5b in equities (mark to market, equity accounted and consolidated).
So one way of looking at it that Fairfax has 15.5/21.615 = 72% of its book in equities and Berkshire has 383/568 = 67%. Yes, Fairfax has a way bigger bond portfolio, in proportion to its float, but this is just because its float is so much bigger. Fairfax actually has MORE of its book invested in equities than Berkshire, with the rest of its enormous float in fixed income because of regulatory requirements. So I am making the case that Fairfax is even more exposed to equities than Berkshire, and also gets the additional leveraged value of the much bigger fixed income portfolio. And as an investor paying 1.1x equity for Fairfax rather than 1.4x for Berkshire, this difference is further magnified.
Does this make sense? Thoughts? What would Bloomstram think of this argument?
*My number in the Wednesday quote was wrong, for some reason I said Fairfax had $33b in float, meaning $1.50 in float for every $1 in equity; the actual number is $35.1b in float, or $1.62 in float for every $1 in equity."
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It's funny, with Fairfax, nobody points to the bond portfolio and panics over the idle cash. They get busy calculating the spread between 95% combined ratio cost of capital and +4.5% investment yield. At Berkshire it sits in 3 month and 6 month bills and it's some huge problem. If Warren moved $150 billion to 3 and 5 year treasury notes would everybody stop worrying about the "cash problem" and call him a genius like Brian Bradstreet? Can we just call most of Berkshire's cash the "bond portfolio" and be done with the 'big cash problem' talk?
No one except for Bloomstran who thinks BRK’s surplus capital gives it a return advantage over FFH since it can invest more of its capital in equities which by definition have a higher return potential than fixed income. Of course, he ignores the leverage and one would think a quickly increasing surplus capital might be highly correlated to the multiple, but I digress.
My question is, how much surplus capital do you think FFH could deploy into quality equities if there was a giant dislocation that created a big opportunity.
Both Fairfax and Berkshire are constrained by regulators and by common sense in what they can do with their float, equity obviously being preferable if you have enough surplus capital to do it. Undoubtedly, Fairfax is considerably more constrained, but it isn't just a question of surplus capital,, it's also a question of how much float they have, in relation to their equity. And Fairfax has way, way more. Quoting my post here 2 days ago:
With Fairfax, you have float of $33b* with $22b of equity (2023 year end numbers), whereas for Berkshire, you have float of $169b with equity of $561b. So $1 of equity is increased to $2.50* of investable assets with Fairfax, whereas with Berkshire, $1 of equity is increased to $1.23 of investable assets. Fairfax is twice as leveraged by investment float. So if you think the key to success of Berkshire was the float leverage, Fairfax is a much better setup.
Thinking about this further, the above way of framing the float actually understates the difference. Perhaps a better way of looking at it is that,, for each dollar of equity invested, Berkshire invests another $0.23 of float. For each dollar of equity invested by Fairfax, you get another $1.62* of float invested. It is unsurprising that Berkshire can invest a lot more of its 23c of float in equities, compared to Fairfax. Berkshire has $568b in book value plus $169b in float, and invests $383b in equity securities and equity method investments. Fairfax has $21.615b in book value plus $35.1b* in float, and invests $15.5b in equities (mark to market, equity accounted and consolidated).
So one way of looking at it that Fairfax has 15.5/21.615 = 72% of its book in equities and Berkshire has 383/568 = 67%. Yes, Fairfax has a way bigger bond portfolio, in proportion to its float, but this is just because its float is so much bigger. Fairfax actually has MORE of its book invested in equities than Berkshire, with the rest of its enormous float in fixed income because of regulatory requirements. So I am making the case that Fairfax is even more exposed to equities than Berkshire, and also gets the additional leveraged value of the much bigger fixed income portfolio. And as an investor paying 1.1x equity for Fairfax rather than 1.4x for Berkshire, this difference is further magnified.
Does this make sense? Thoughts? What would Bloomstram think of this argument?
*My number in the Wednesday quote was wrong, for some reason I said Fairfax had $33b in float, meaning $1.50 in float for every $1 in equity; the actual number is $35.1b in float, or $1.62 in float for every $1 in equity.
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18 hours ago, SafetyinNumbers said:
Fairfax’s float grew to $33-billion by the end of 2023, while the company’s market capitalization recently reached nearly $26-billion. By comparison, Berkshire had an insurance float of US$3-billion versus a US$26-billion market capitalization in early 1995, before Mr. Buffett used Berkshire’s shares to acquire Geico and Gen Re to materially increase Berkshire’s float. Today, Berkshire has a float of US$169-billion and a market capitalization of US$856-billion.
This is the key to the argument, I think. With Fairfax, you have float of $33b with $22b of equity (2023 year end numbers), whereas for Berkshire, you have float of $169b with equity of $561b. So $1 of equity is increased to $2.50 of investable assets with Fairfax, whereas with Berkshire, $1 of equity is increased to $1.23 of investable assets. Fairfax is twice as leveraged by investment float. So if you think the key to success of Berkshire was the float leverage, Fairfax is a much better setup. If you think the key to Berkshire's success was investment savvy (an argument that it would be hard to support from the last 20 years of performance), then it's less clear that Fairfax is a good investment.
Since I favour the view that it is Berkshire's structure that has been the key to its success, at least in the last 30 years, I really like how Fairfax is positioned right now.
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On 4/22/2024 at 10:25 PM, nwoodman said:
MS just released their India Macro chart pack. Always interesting, but one chart in particular caught my eye. I wonder if this is a partial "Apple/Foxcon Effect"
Apple Reportedly Doubles iPhone Production in India, while Foxconn Holds 67% Share
MS remain optimistic about future growth prospects as follows:
Outlook: On growth, we remain constructive on the growth outlook, given support from domestic demand, as reflected in the robust trend in high-frequency growth data. As such, we expect GDP growth at 6.8% in F2025 and 6.5% in F2026. With regard to macro-stability, we anticipate headline inflation to remain supported by favourable base effects and thus remain in a range around 5% YoY in 2Q24, while it softens to 4.1% YoY in 2H24. We expect CPI to average at 4.5% YoY in F2025-26. Similarly, current account deficit is likely to remain benign, supported by strength in services exports, and remain within the policymakers comfort zone at ~1-1.5% of GDP in F2025-26. On monetary policy, we expect policy rates to remain steady at 6.5% in our forecast horizon. This is on the back of a shallower and deferred rate cut cycle for Fed on the global front and improving productivity growth, rising investment rate and inflation tracking above the target of 4% on the domestic front.
It is amazing to me that they don't mention, in this outlook summary, what jumps out at me in their numbers, which is the fiscal deficit. Combining federal and state deficits, this was 9.2% of GDP in 2023 and is expected to come down slightly to 8.9% in 2024 and 7.9% this year. In the USA, federal deficit was 6.3% of GDP in 2023, or $1.7T, with another $1.2T from state and local governements, so the number is comparable. Both are unsustainable, and it would seem worth mentioning that this stimulus can not go on forever.
In India's case, there is some consolation from the fact that accumulated debt is not as high as the levels typical in Europe and North America. For the USA, this is 121% at the federal, with another 14% from state and local governments, for a total of 135%. In India, fortunately, debt levels are lower, 61% at the federal level and 30% at the state level, for a total of 91%. In addition, the 9% or so combined deficit is not far from the real GDP growth rate of about 8%, compared to the USA's growth rate of less than 2%, so India's real indebtedness as a percentage of GDP may at least remain at about the same level as a proportion of GDP.
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1 hour ago, SafetyinNumbers said:
fixed income book yield = 4.2% (excluding Argentina transaction) and new money rate is currently 5.25% to 5.5%.Does anyone know what this ‘Argentina transaction‘ is?
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2 hours ago, Dinar said:
There may be a tax nuance with the swap. If Fairfax takes delivery there might not be tax implications while if it cash settles it, then there will be a large taxable gain? This in turn will likely affect the decision making of the company of when to terminate the swap.
gfp: The profits have been cash settled periodically the entire holding period. There is no lump sum gain at the "end." What we don't know is if these gains are taxable at all. In the United States, "profits" in an issuers own stock are not taxed.
There are differences between the TRS position and a share repurchase, like taxes (FFH may pay taxes every year on the gains from the TRS, unless they get an exemption; on the other hand, there’s only a small repurchase tax up front for a share repurchase) and timing of the cash outflows. The latter is probably their reason for putting on the position and holding on to it now. But if they had the cash, I suspect they’d pay less taxes overall by doing the repurchase sooner rather than later, and using the proceeds from share price appreciation to buy back shares at much higher prices.
I say it’s a wash because the higher the price goes, the more they gain from the TRS but the more they will have to pay to repurchase the shares. For instance, they put on the trade at $373/share for the equivalent of 1.96m shares . A share repurchase of 1.96m shares would have cost $732.5m. If shares hit $1372, they would have made $1.96b, yippee, but at that new share price, they would have to pay 1.96*1372=$2.69b, which is, not coincidentally, $1.96b more than the repurchase would have cost when shares were at $373. It’s like Alice running in Through the Looking Glass: as fast as the TRSs run, they can never gain ground on the share repurchase that they could have done.
It’s a great trade either way, but whatever happens, it’s 1.96m shares they can retire with the returns, minus whatever tax applies.
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25 minutes ago, SafetyinNumbers said:
FFH is long the swaps, Canadian banks are short the swaps and long FFH. I think that’s the whole picture.Yes, it’s pretty unlikely they found counterparties that wanted 2 million shares’ worth of short exposure, when the shares were trading at US$373, so this explanation makes sense. In other words, FFH is long 2m shares and the banks are neutral. It’s basically just a dressed up share repurchase. Which also suggests that counting it as a long position and tracking its returns is a bit odd, since you wouldn’t do that with repurchased shares, if they had structured the transaction that way.
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13 hours ago, SafetyinNumbers said:
I think long term holders should prefer a much higher multiple because the optionality of raising money at a low cost of capital if it’s needed because of a shock or an opportunity comes along is worth more than buying shares at 1.2x BV. If the goal is a higher ROE and BVPS, a higher multiple helps a lot more.I see your point about raising money - if shares were at 2x BV they could issue shares rather than selling bonds at 8% or selling preferred shares to OMERS and paying them 8%.
But I don’t see how the company’s share price has much to do with ROE (except marginally, by decreasing interest cost.) Say the share price rose to $2000, or 2x book, how will that help them increase book more quickly?
I guess the ideal would be to get the best of both worlds: low share price for a while to repurchase shares cheaply, then a high price to issue shares profitably. I’m just stating the obvious, buy cheap and sell dear, but it would be good to get a little bit of the "sell dear" part for a while.
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11 hours ago, This2ShallPass said:
100% risk was yours and made more money in FEES than you were able to make in PROFITS!! Their promise is you'll eventually make the money at some future time, but couldn't wait for such future time to collect their fees. Think about that.
It's an investment fund, of course the risk is with investors, not the fund managers. If you think they will do a good job getting you a good return, then you invest and pay the fees.
What seems to bother you is that the fees are not determined based on the share price, but based on the book value. It is true that this is not the norm in the investment industry, and I wonder how they justified this choice. To me, it seems more fair, since it is a value that can not be influenced by short term movements of the share price. On the other hand, it is something the manager has some control over (Muddy Waters would have something to say about that), and if the share price trails book value at the end of a given calculation period, I can see how it would seem neither fair nor friendly.
I haven't been able to find any discussion about this fee structure (that is, the fact that it is based on book value), from 2014 when the structure was set up.
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2 hours ago, This2ShallPass said:
Ignore Fairfax for a minute, would you be ok with any inv manager making more money from you than you can realize in profits?
Yes, I think that's fine, because in the long run, it makes no difference, especially if Fairfax starts taking its performance fee in cash.
It is probably true that they didn't anticipate every possible combination of book value, intrinsic value and share price, and now that book value has done well but the share price has not, taking performance fees on the basis of book value makes it seem that Fairfax has taken advantage of FIH investors, but in the long run, the weighing scale aspect of the stock market will prevail, and the share price will track book value as it did in the beginning, and the fees paid on the basis of book value will end up being about the same as if they were paid on the basis of share price.
Of course, it's not much fun if you want to sell your shares before that convergence happens, but as an investor, knowing that fees were based on book value, you took that risk.
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21 minutes ago, gfp said:
Any misconception that helps the stock trade cheaply is a help, not a hindrance. I hope for many misconceptions like "blackberry is material to fairfax" in my investments.
Yes, you have a point - although I myself am unlikely to add to my hugely oversized Fairfax position, the company is still repurchasing shares so I suppose we should rejoice in these misconceptions. And along the same line of thinking, there is no reason for us to wish for Fairfax to be included in the TSX 30, either. We get more shares repurchased for the same number of dollars, the longer the share price languishes.
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15 hours ago, glider3834 said:
looks like they put most of their position on Q3'22 , Q1'23 https://www.dataroma.com/m/m_activity.php?m=FFH&typ=b
not sure their avg cost but Micron was trading in a band from low 50s to low 60s - so if we assume high 50s cost & their position in MU unchanged since Q4'23, would be 2x based on AH pricing
Blackberry 46.725m shares, trading at $2.74, so it's a $128m position
Micron 3.912m shares, trading at $111.85, so it's a $438m position
Fairfax got all it's money back on its $500m in convertible shares, plus $200m in interest, roughly a 4% annual return in an era of low interest rates, so that is not so bad. But the huge loss on the common ($802m now worth $128m) has to be Watsa's worst ever investment, with a $674m loss. At least this quick $220m gain on the Micron position takes some of the sting out of the BB losses.
Still, I would love to see that Blackberry line gone from the Dataroma list, especially since many investors think that these $1.5b in US and Canadian public company holdings accurately represents their $6.9b in total mark to market public equity or their $16.5b in total public equity, or their $92b in total assets. The unfortunate $128m Blackberry position stills looks like a big deal given that it is almost 10% of that $1.5b, but looking at it as context of the $92b in assets, it is only 0.14%, and is fading out of relevance.
But the easiest way for that appearance to be corrected would be to just sell the stake and be done with it. Hopefully, now that the convertibles have been sold, Chen is gone and Watsa has left the board, that is something they may do soon.
Fairfax India new issue
in Fairfax Financial
Posted
Yes. Ultimately, it is alpha that matters; but whatever Greek letter it might be, some volatility around price:value is a bonus, ultimately, for anyone who is prepared to take advantage of dips (this one has been a long one!) and lighten up on climbs. And even for long-term holders who do neither, if the company does it for them. But that would work better if there were a bit more high points…