dartmonkey

Does anyone know when they are scheduled to be published? Last year's report came on February 16.

Just to come back to the share repurchase, the NCIB was announced on Oct 4, with the shares at about $18, presumably indicating that management was confident that it was undervalued there. Since then, we had the Qe report (Nov 2nd) indicating holding that were about half public and half private. On the public side, 2 holdings: IIFL (85m shares, worth $787m on Sep 30th), and Fairchem (19m shares, worth $113m). Then there is the private side, with Sanmar bonds ($323m), BIAL (very conservatively valued at $592m), NCML ($184m, Saurashtra ($34m), NSE ($40m) and Sanmar equity ($1m) for a private company total of $1173m. I just looked at the 2 public holdings, and if my calculations are right, they were at the same value on Dec 31st (for the purposes of the Q4 report, due next week I think), but they have gone up over 20% since then, mostly because of IIFL. Meanwhile, the other big holding, BIAL, is very likely worth substantially more, at least FIH thinks so, since the price they paid for the latest 10% stake gives their whole stake an implied valuation of close to $1b. It will be interesting to see if they took advantage of the Nov/Dec price dip in FIH shares to buy back some of their 3.5 million share NCIB (4% of the public float). I certainly bought some - now my #3 position.

This is clearly true in tax law, but while checking this, I noticed that there has been a problem in the past with some brokers, notably Interactive Brokers (my broker) incorrectly withholding US tax on USD dividends. I presume this has now been cleared up, since I see no such withholding tax in my account statements in the past couple of years. Can anyone confirm? Automatic conversion at disadvantageous rates (the worst being my other broker, TDW, it seems) is really a big deal for a lot of people. Losing 1.5% on a few thousand dollars of dividends is bad enough, and can be avoided by journalling over the shares into a US account. But then, you still have to be careful not to forget about this issue, because if you sell your shares, now denominated in dollars, without first journalling those shares back to the Canadian side. You don't want to save $50 on the dividends every year for a few years and then get robbed by your broker for $1000. Of course, the simple thing to do would be for brokers to just provide a decent rate on the forex trade (as Interactive Brokers does for instance), but don't hold your breath.

They follow IFRS rules in their valuation of BIAL, using a DCF model, giving a calculated value $1.2b, but that does not mean that is what they really think the thing is really worth. It is not their style to buy at almost twice the price they really think its worth, even if they have to call this 'fair value' in their verbiage: "The cash consideration paid for the additional 10.0% equity interest in BIAL exceeded the fair value of those additional shares acquired, as a result $74,202 (approximately 4.8 billion Indian rupees) of the cash consideration paid was attributable to the costs incurred to (i) motivate GVK to sell its remaining 10.0% equity interest in BIAL, (ii) increase the company's holdings in BIAL to enhance the company's investment returns, and (iii) accelerate the development of a second runway and terminal, and make improvements to the existing runway". I would call this legalese verbiage. Yes, they paid more because they really wanted it, and a high price is often what is required to get the owner of a good asset to sell, but that is all perfectly obvious. I have been able to obtain their first draft, nixed by the lawyers, which said: "We bought 38% in March, for an implied value of $1.01b, IFRS rules force us to apply crazily conservative DCF parameters like 10-13% discount rates, 3% growth rates even though is is growing like a weed, over 20% growth in traffic in recent years, not counting the value of commercial development on sited. Using those estimates, the value comes out at $1.23b - garbage in, garbage out. On the other hand, we love it so much, we were happy to buy another 10% of this fantastic asset at an implied valuation of over $2b in July. You be the judge of whether it is worth $1.2b or $2b or much more."

Page 18, he means, using the page numbers in the document - Allied World's balance sheet history.

FFXDF is the over-the-counter ticker in US markets; FIH.U is the ticker on the Toronto exchange (TSE). In both cases, they are in US dollars, but the FFXDF trades very infrequently and you can get some wonky prices. In principle, they should have the same value. But you are probably better off to buy the shares on the Toronto exchange if that is possible with your broker, and if not, perhaps put in a limit order for FFXDF with a price that closely matches the value you see for FIH.U.

This sums it up pretty well. The problem with paying rooftop solar customers average electricty rates for their mid-day solar production is that electricity is worth very different amounts at different times of day. In some of the southern states where there is a lot of sun and a lot of solar panels, market rates for electricity are very low at mid-day, and they are high in the evening when there is no more sun and people still want to use their appliances, heat their water, watch TV, charge their cars, etc. NVE is basically saying that if the utility is forced by the government to buy 3c power for 10c, and then sell 20c power back to that customer for 10c in the evening, then fine, but it is the other rate-payers without solar panels who are basically paying for this crazy scheme. No-one cared when it was 0.1% of rate-payers with solar panels, but as the cost of the panels came down, companies like SolarCity could offer a great deal to homeowners- we install panels on your house for free, we send you a check every month, and after 10 years or so, you own the panels free and clear. Someone has to pay for this, and that is other rate-payers. The NV government made the sensible decision to close down the scheme to new users (grandfathering in, for 20 years, 32,000 homeowners who had already installed rooftop panels). Of course the big bad utility takes the blame for being anti-solar, but that is nonsense: NVE is happy to build out utility-scale solar power, at less than half the cost of rooftop, but they should be able to buy homeowners' power at market rates and they should also get fair reimbursement for providing the connection (transportation, administration, and especially the costly backup power for when there is no sun). So I would remove NVE from the list of Berkshirean wrongdoings. But I would propose a new addition to the list of questionable deals: Flying J Pilot Centers, with what appears to be ethically challenged administration that will be sticking around at least for the next 5 years.

Please write in understandable English.

Quebec gets about 5% of its electricity from windpower, paying about 10c/kWh when it could have paid 5-6c with gas - it was a decision to start developing know-how in an industry that may have a future. It costs a little more than it needed to, because of a policy requiring sourcing half of the components from the Gaspe region, and has contributed to lowering unemployment significantly there. Closing the one aging nuclear plant, instead of spending billions on prolonging its life (see Point Lepreau for an egregious example of this) probably saved more money, with one decision, than the whole cost of the wind program. Quebec occasionally gets it right.

Operating income was $1.4B in 2015, up from $1.1B the year before. So maybe your numbers are a bit low. Not as big as an elephant, but bigger than varmint - a deer, say, or maybe a moose.

I know little about the industry but read that for the same volume, train cost is 100$ vs. trucking 130$ (though trucks have the door-to-door advantage). If the driverless convoy eliminates both fuel and personnel costs, a 30%-50% reduction in expenses seems reasonable, which means cost advantage can flip. The general rule of thumb, often cited by Buffett, is that it costs 3 times as much fuel to move a ton by truck compared to the costs of moving it by train. Treehugger says the same: https://www.treehugger.com/cars/rail-versus-trucking-whos-the-greenest-freight-carrier.html However, double-stacking trucks, or having them run in convoys, can make up for some of that difference. Not all of it: trains have much less rolling resistance, and require less human resources too, in addition to the fact that trucks on the roads contribute to a lot of the congestion. So it is hard to see how the cost advantage could flip, except for relatively short distances. But if trucks can narrow the gap, they could still take some business away from trains.

So a guy takes advantage of the system and tries to drive a number of companies into the ground using naked short-selling, and you're telling me I'm the one that seems like an ass? Cohodes has done a lot more good than harm, and this 'naked-short selling = driving a firm into the ground' theory does you no credit. Look at the list of companies that he has publicly attacked: Lernout and Haupsie, NovaStar Financial, Fairfax, Overstock, AaiPharma, Valeant, Concordia, Home Capital Group, the list goes on and on, and most are bankrupt or shadows of their former selves. Do I like that Fairfax is in the list? No, that was a mistake, but a guy does not deserve so much spite just because of one or two bad calls. As for Byrne, he says this: “I have a strange affection for Marc as one sometimes develops for an opponent,” Byrne says of Cohodes now. “At the end of the day we sort of put it behind us.” Maybe you should think about doing the same.

Cohodes still seems like an ass! Cheers! Well Parsad, since you always say 'No man is a failure who has friends', and Cohodes has become friends with one of the people he attacked, and in general has a pretty good record of attacking real corporate villains, and not legitimate companies, his Fairfax mistake notwithstanding, who is it that seems like an ass for being so unforgiving?

does anybody have the final share count after Allied World deal is done? About half of the $54 per Allied World share is being paid for with cash. The original offer was: $10 in cash, of which $5 is a cash dividend from Allied just prior to closing $14 in FFH shares, at a fixed exchange ratio $30 in FFH shares, with Fairfax retaining the option to replace this part on a dollar-for-dollar basis with cash from debt or from other partners. Subsequently, OMERS, AIMCo and others agreed to cough up $18 per Allied share, so per Allied share it is now $28 cash, $26 in FFH shares; the company has said that that the $18 per share cash infusion means that 3.5 million FFH shares will not need to be issued. So a rough calculation would be that FFH will be issuing 3.5*(28/18)=5.44 million shares. Actually, it will be a bit more than that, since the 3.5 million share calculation was based on the March 9 closing price, which was $464.99; shares are now $432.46. If FFH is still trading at or below $435.65 at closing, that would mean approx. 5.44*(464.99/435.65)=5.81 million new shares, which would give us a share count of 23.86+5.81=29.67 million shares, a bit less if the FFH share price ends up above the US$435.65 lower collar.

It is odd that they would buy 38% in March, for $25.22B INR, valuing the total company (BIAL) at 66.37B INR, and now they are buying another 10% for 12.9B INR, valuing the whole company at 129B INR!! But in fact, the deal was first announced in March 2016, at 2149 crore for 33% of BIAL, so 6512 crore for the whole thing. Then 1 month later, another 5%, at an undisclosed price. Then in March 2018, the 38% gets government approval, and we find out the price was 2522 crore, suggesting that the additional 5% stake was 373 crore, valuing BIAL at 7460 crore. So the timeline of sales is: March 2016: 33% stake of BIAL valued at 6512 crore, from GVK Group April 2016: 5% stake of BIAL valued at 7460 crore, from Flughafen Zurich June 2017: 10% stake of BIAL valued at 12900 crore, from GVK Group again This suggests (someone check my math) that FIH is prepared to pay more than twice the price, a year later. Either they got a great deal a year ago, or things are looking a lot better in the past 15 months. In any case, their initial stake of 2522 crore for 38% (about $390M US) would be worth almost the double now. No wonder the shares of FIH are up...

No, I don't think that's a fair comparison: as you say, there's the cash position, and there's the fact that they started earlier than that chart, in 2015, and the Indian market was actually down in 2015. https://www.bloomberg.com/quote/NIFTY:IND Plus, I think it is better to look at how their investments are doing, than where FFI shares are trading. Here is the simple version of their story so far: Nov 2014 company founded Jan 2015 $1b IPO Jul 2015 $202m purchase IIFL ($75m more in Feb 2017) (The date is when the transaction is announced, the price is in USD at the value when it closed) Jul 2015 $149m Natl Collateral Mgmt Nov 2015 $19m Fairchem ($55m more in Jul 2016, via Privi which merged w Fairchem) Mar 2016 $386m Bangalore Intl Airport Apr 2016 $300m mostly bonds in Sanmar Chemicals 3q2016 $27 m Natl Stock Exchange of India Sep 2016 $225m credit facility (they had run out of $ to invest!) Oct 2016 $40m buyback authorization (!?), not used yet; shares were at $11 Jan 2017 $493m cash raise @$11.75/share Shares now at $13.85 (all $ values, including share price, in USD, even though shares trade on Toronto Stock Exchange); mkt cap $2.04b; book value $1.80b, so trading at a 13% premium to book. So if you take their word for the fair value of their holdings, they have basically accumulated $300m from their $1.5b capital invested, even after performance fees. And a third of that capital has only been invested 4 months, with the other 2/3 invested from about mid-2015 to mid-2016. Might as well ignore the $500m from this Jan, and that would give them a 30% return on the initial $1b, which doesn't seem crazy when you read the descriptions of the companies they bought. Eyeballing the Nifty, it is up probably less than 10% from its average value over the same 2015-2016 period. I think the premium is justified. D

sorry for the disappointment. Not your fault, and still interesting. I was just hoping for some specifics about the businesses. But as you say, it was more a stream of consciousness thing than an analysis thing.

It would have been even better if he had actually gotten around to talking about, you know, Fairfax India a bit. Ok, he mentioned HWIC's good track record in India, and the highish fees, and the fact that India may be a promising place to invest in general, but that's about it. I think he might have also usefully mentioned that the fund is tiny ($1.5b of capital invested, now $1.8b book value) in a big market and their small size means they can invest in quite small things if they want. And that that they quite quickly invested most of that in ventures of about $200m each, at what seem like pretty good prices typically with P/E multiples in the low teens) for companies with rapid growth and what seem like good prospects. And that their initial results have been impressive, to the point that the performance fees to FFH just last quarter were $45m. I think this is a very promising fund in itself, but from Fairfax's point of view, it really has the potential to be a home run. Like Brookfield's asset management business, they get paid twice - once with a good return on their own investment (half the FFI capital is from FFH), and then again from the fees on the other half of the capital. Seems like a much more promising venture than the Ashley/Sporting Life/Cara kind of ventures where the return is likely to be ordinary, with no real track record of operating excellence. More Brookfield, less Berkshire.

Probably EW = emerging world, DW = developed world

Don't get. wrong, I am also quite confident and think they have made some great investments. I am just saying there is nothing stopping those investments from dropping in price quite a bit, and this would almost certainly result in a steep drop in FIH's share price.

I'm not so sure that trading near book value is very much protection. Book value just means the stuff they bought (mostly minority stakes in Indian firms) is trading at about the price where FIH bought it. There is nothing stopping those holdings from going much lower; THOSE HOLDINGS are not trading at book value, i.e. they could not be liquidating for anything close to their market value. The riskiness of FIH is largely a function of the riskiness of the stuff they have bought, and that can not be gauged by a comparison of FIH's share price with FIH's book value.

That's an easy one. FFH (market cap $14B US) is a safe bet, reasonably priced, long track record, depends mostly on the performance of its insurance businesses which have been doing quite well in the last 10 years or so. FIH is a comparatively tiny ($1.5B) India-specific fund that hopes to profit from Fairfax's good business connections in India and the improving economic prospects there. It has next to no track record, even if its managers have experience in India. The fund consists mostly of $1b in investments they have made there in the past year, plus $500m in cash that they just raised. It has a much higher potential for higher returns, but is also far more risky. It pays a 1.5% commission to FFH, plus a fifth of capital gains beyond 5%, so this is a potentially lucrative side business for Fairfax, if they can convince investors that they are good capital managers in India. If you are not familiar with the company, I suggest you start with last year's annual report: http://s1.q4cdn.com/293822657/files/doc_financials/annual_reports/Final-2015-Annual-Report.pdf. I have a big position in FFH and a small one in FIH, bought at $10; I have enough at $11.25, but I think it is a fair price today, and it might be a good fit for someone who, like me, thinks they have a good chance to do well in India and wants to add some exposure there without the trouble of purchasing individual securities and becoming familiar with rupees, lakhs and crores. Regards, DTB

I like how the deal is structured in a way that lets FFH pay cash if they discover that they've bought a plum or pay in shares if they discover that they've bought a lemon. Prem's a pretty slick operator. SJ It doesn't make much difference how you pay for it - if you've overpaid, you've overpaid, whether you decide to use cash or your own shares to finance the purchase. The flexibility that I like is that it gives Watsa the opportunity to use FFH shares if their value rebounds a bit, or if raising more cash suddenly becomes more difficult, or he can use cash if FFH shares stay at low prices or if he has no worries about Fairfax's balance sheet. dm

Everyone should agree that it makes no difference which you own, FFH.to or FRFHF otc, since in both cases, you own one share of Fairfax. The major difference, apart from the much more limited liquidity of FRFHF and the wider spread, and the fact that FRFHF is not marginable, is that FFH is denominated in CAD and FRFHF in USD. Any difference in past returns is a result of the ever-changing exchange rate -currently, USD$1=CAD$1.35, which is higher than it has been in a couple of years, resulting in a higher Fairfax price in CAD$ (i.e.FFH) than in USD$ (i.e. FRFHF). If the CAD were to rise to par with the USD again, FRFHF would far outpace FFH, just as it has underperformed in the last few years, but this would make no difference to the returns you make as an investor.

It really is pretty amazing. Yesterday, before this TERRIBLE news hit the wire, shares were at $765, and market cap was $16.99B, let's say $17B CDN. Now they announce they are raising $735M, maybe $845M if overallotments are exercised, at $735/share. Now I don't like to have my shares diluted any more than the next guy, and I don't much like new shareholders getting $30 off the price the market was assigning to my shares, but I presume this bought deal, arranged in the last few weeks, could have happened at $735 even if shares had recently dropped to $700, so that's just the luck of the draw, good luck for people who signed up for the share issue, bad luck for ongoing shareholders. But how bad is it? The new shares amount to a little under 5% of the capitilization, pre-issue, to the value of my shares does drop, by about 5% of the difference, in other words, $1. When I saw the share price this morning, I wondered what terrible thing had happened to my shares. Now I see that all that has happened is that they are worth $1 less, plus whatever credibility Watsa and his team have lost. Which is zero, for me, since I trust his judgment about the fact that acquisitions in process and perhaps future acquisitions require a bit more cash than what is on hand and available. If anything, it shows great timing, since he could have raised cash a couple of months ago when the acquisitions were announced, ICICI Lombardi on Oct 30 (shares closed at $644) and Eurolife on Dec 22 (shares closed at $659). So he seems to have done a great job minimizing dilution by issuing at a historic high price. Good grief, what a temper tantrum! At least I was able to get 10% more, at $717.