dartmonkey
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Posts posted by dartmonkey
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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...
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Isn't it just tracking India market results and underperforming it too?
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I compared to IIF since that's the fund I know from way past. There might be better India funds currently.
Maybe not completely Fair ;) comparison since they had a bunch of cash in the beginning...
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
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http://brooklyninvestor.blogspot.ca/2017/05/fairfax-india-holdings-ffxdf.html
(Also about a lot of other things... FFH equity hedges, reflexivity, etc)
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.
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http://brooklyninvestor.blogspot.ca/2017/05/fairfax-india-holdings-ffxdf.html
(Also about a lot of other things... FFH equity hedges, reflexivity, etc)
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.
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Excuse my ignorance but what do EW and DW stand for in the Median Population Age - 2015 - Table?
Probably EW = emerging world, DW = developed world
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Some great points - its true, its hard to fully understand the value of the FIH holdings. I suppose the proof will be in the performance over the coming quarters.
Still, one of my more confident holdings.
R.
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.
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Given that book value is about $10, it is trading at or very close to book value minimizing downside risk. As far as I can tell, it is also carrying very little debt (although I am not certain of this). It will be interesting to see if FIH.U can match its parent's historic returns.
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.
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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
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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
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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.
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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.
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"Will Prem Watsa’s $650-million bet pay off? If it does, Fairfax makes $109 BILLION"
I hate these articles. I saw this exact same thing in Motley fool Canada that suggested Fairfax could make 109B too - the only way that happens is if the world ends and money means nothing....
Realistically, even in a very, very favorable scenario for Fairfax, they'd only make 15-20B over the course of several years. That's assuming we get the same amount of deflation that was seen over the decade following the Great Depression. No way he makes anywhere near $109B... I think what we'll see is that he makes WAY more money from the TRS hedges than he does from the deflation swaps, but the deflation swaps could still turn out to be great investments even if they only return 1-2B given the cost basis being $650M and a current carrying value half of that.
It just blows my mind how clear and open he's been with the details of these swaps and yet the media still misunderstands them years and years later.
Obviously the suggested $109B gain for Fairfax, in the event of deflation, is ridiculous, but I asked myself the same question: for a given level of inflation, how much will the notional $109B return? For instance, if we get a drop to the CPI level where the positions were opened (about 2-3% below today's levels), and then another 10% drop, can we assume that we will get 10% (pre-tax) of the $109B notional exposure? In other words, is the return linear? I would assume so, but I could not find anything in Fairfax's reports that actually estimate how these things work. Brooklyinvestor (https://www.google.ca/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahUKEwi84em8xf3KAhVovIMKHVO7CpwQFggkMAE&url=http%3A%2F%2Fbrooklyninvestor.blogspot.com%2F2015%2F01%2Fwatsas-massive-bet.html&usg=AFQjCNH7gf6kiJGUKy3Mt8ScoQ64ST4PIg&sig2=eoSYaTP3cOjT5v2el_7I3w&bvm=bv.114195076,d.amc) seems to be assuming it is linear, but doesn't say how he knows; does anyone have anything more definitive?
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Eurozone inflation eases, reviving deflation fears
Gio
Wouldn't deflation have to be "significant" for all these bets to pay off in a meaningful way? U.S. CPI is currently at 202
I think that depends on your view of what "meaningful" is. The current U.S. CPI index is in the mid-230s. It would take deflation of less than 2.5% over the next 8 years for us to break even on this position. Every % point beyond 2.5% nets $588M. Not an insignificant sum!
European figures are around 118. We need European deflation of about 6% over the next few years to breakeven. Every % past 6% nets $445M.
The 2015Q1 report says that US notional $46.2B has a weighted avg strike price of 231.32, and the index was at 236.12 on March 31st, so gains start with only a 2.0% drop in the index. Another $12.6B notional has a floor rate of 0.5% per annum, and a strike price of 238.30, with the index then at 236.12, so they are only 0.9% out of the money, and they make money if inflation is less than 0.5% beyond that strike price.
The other big chunk is on European inflation, with $39.5B notional at a strike price of 111.52, with the index now at 117.20, so in that case, we are 4.8% out of the money, meaning that we really would need a significant deflation before that part starts paying off.
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I'm no expert when it comes to deflation but I don't understand why you would bet on it happening to a great extent. The definition of deflation is if prices drop, people will stop buying, as they will see that prices will be lower in the future and thus delay purchases. But do consumers think this way? No. Who here has ever delayed a purchase because they think prices will be cheaper tomorrow?
I never have. For example, if you're hungry and in a grocery store and want to buy a sandwich, would you say, I'm not buying this because it will be cheaper tomorrow? Nobody would do that.
People buy cars, washing machines, refrigerators, computers, iphones, clothing, shoes because their existing ones have worn out. They don't sit around like economists and make predictions about the prices of products.
50cent
Maybe you should wait and see how you feel as a consumer when you have actually experienced deflation, instead of basing your opinion on how consumers behave when their whole life has been in times of inflation.
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You mean risen so much
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We don't know what kind of arrangement Fairfax has made with OMERS, but there is no reason to assume that Fairfax will have to pay more for the last 30%. This looks more like a loan than a sale.
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Dartmonkey,
I am curious as to why you find the FIH attractive, when we are already owning a shares of indirectly via FFH ownership. Particularly, I did not understand what you mean by "The fund seems attractive to me from both sides". do you mind sharing your thesis on FIH, Please?
Roughlyright
I have about 25% of my portfolio in FFH (that number is a fair bit higher today than it was last week) so I indirectly have about 0.5% in FIH as you say. It is easy to see why getting 1.5 and 20 is attractive from the FFH side, since it immediately adds a minimum of $15 million going straight to FFH (albeit 30% of that is going from one FFH pocket to another).
Why do I find it attractive from the FIH side? There can not be a more pure jockey play than investing in a billion dollar fund that is as yet entirely undeployed. So the only possible explanation is my high regard for Watsa in general and for Fairfax's Indian operations in particular, and the chance that a small, highly regarded fund with extensive local connections may be able to find good opportunities for investing capital in India, particularly with a business-friendly regime in place and a lot of catching up to do with other less developed countries. Combining that with the complete absence of Indian investments in my portfolio (apart from FFH), and my concerns that equity markets in North America may be overvalued, I added 2% of directly held FIH to my indirect 0.5% stake via FFH.
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I had a follow-up question regarding investing in FIH. Indian equity markets have generated ~15% return over the last 15 years or so. Because of the hefty fee structure, FIH has to generate an alpha of 5% just to get market return. Because of the large fund size of FIH, I think it is fairly difficult to do that. How have you guys gotten comfortable with the fee structure?
Remember the 15% is local fx, including inflation. The real numbers are going to be different.
Exactly. Indian rates have exceeded US rates by about 6-7% in the last 15 years, and by 8-9% in the last 5-6 years, so a 15% nominal return would get FIH only about 6-7% in USD.
Of course, there's still the 1.5% management fee. Investing in FIH is tantamount to expecting at least 2.5% alpha. If FIH gets 17.5% in INR instead of 15% in the SENSEX, that might be 9.5% in USD, and FIH would pay FFH 1.5% + (9.5-5)*20% = 2.4%, and FIH would break even with the Indian market index; higher alpha is gravy.
Assuming, of course, that the Indian market continues to do what it's done before ;)
Admittedly, there are a lot of assumptions here, but the assumption that the Indian market might go up 15% a year, or 6-7% in real terms, is not a heroic one. This is almost exactly the average real total stock market return, according to Siegel.
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I had a follow-up question regarding investing in FIH. Indian equity markets have generated ~15% return over the last 15 years or so. Because of the hefty fee structure, FIH has to generate an alpha of 5% just to get market return. Because of the large fund size of FIH, I think it is fairly difficult to do that. How have you guys gotten comfortable with the fee structure?
Remember the 15% is local fx, including inflation. The real numbers are going to be different.
Exactly. Indian rates have exceeded US rates by about 6-7% in the last 15 years, and by 8-9% in the last 5-6 years, so a 15% nominal return would get FIH only about 6-7% in USD.
Of course, there's still the 1.5% management fee. Investing in FIH is tantamount to expecting at least 2.5% alpha. If FIH gets 17.5% in INR instead of 15% in the SENSEX, that might be 9.5% in USD, and FIH would pay FFH 1.5% + (9.5-5)*20% = 2.4%, and FIH would break even with the Indian market index; higher alpha is gravy.
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Does anybody understand the way the high water mark is calculated?! P90?
Look at pp 90-91 of the final prospectus, available on sesar.ca. Basically, the starting highwater mark is the NAV at the IPO, i.e. About $9.63 per share. Then NAV + total distributions in the just completed 3-yr period is calculated, the first calculation date being Dec 31, 2017 and then every 3 yrs. The difference between that amount and the current highwater mark is the appreciation. If that appreciation is positive, a performance fee of 20% of the amount exceeding 5% per annum goes to FFH, and the current NAV becomes the new highwater amount. If the NAV + distributions is not higher than the highwater mark, then there is no performance fee and no modification of the highwater mark.
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Or, if you're extra bullish on India, own both. Whatever FIH pays to FFH will accrue to Fairfax shareholders, will it not? So if you own both you're kind of paying yourself 1.5 and 20...
ok thanks everyone. that 1.5% and 20 goes watsa not shareholders i thought?...
Or, if you're extra bullish on India, own both. Whatever FIH pays to FFH will accrue to Fairfax shareholders, will it not? So if you own both you're kind of paying yourself 1.5 and 20...
ok thanks everyone. that 1.5% and 20 goes watsa not shareholders i thought?...
The fees go to Fairfax, of course, not Watsa.
Fairfax owns 30 million shares in the fund, so for every share of FFH you own, you indirectly own 1.5 shares of FIH. So if you own 1000 shares of FFH, you already own 1500 shares of FIH, and you are paying yourself somewhere between 1.5% (if FIH gets a return of 5% or less) and 4.5% (if FIH gets a 20% return). If you buy more FIH, you will pay more fees to FFH shareholders, but you will not get any more of them as a FFH shareholder. So no, buying FIH shares is not paying from one pocket to the other, and you should be concerned about the fees.
Not that that stopped me from quadrupling my FIH stake. The fund seems attractive to me from both sides.
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Is it just me, or does it seem like everything Fairfax invests in lately seems to be a miss.
Am I looking into recent declines to much? Is this a far criticism?
I am long Fairfax and have never sold a share. I don't plan on selling any shares. Just wondering what the group thinks.
It's not just you. That's the way it is. If you want clean stuff, with no craziness, things like Wells Fargo,and Walmart , Procter and Gamble and Coke, then try Berkshire - it's fully priced, but it will likely give you a steady return with no palpitations.
If you don't mind scruffy Irish and Greek banks, failed smartphone and pulp and paper companies, retailers that are borderline (The Brick) or outright kooky (Overstock), along with outrageous macro bets on market valuation and inflation, then we might have something for you here, along with lots of Sturm und Drang.
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frommi, I have a list I maintain / update and just went through it last month, I still have around $2b in undisclosed stock positions that I can't find. Here is the big stuff from my list (estimated values are mostly 9/30/14, some stuff isn't quite right, and I have my assumptions in my spreadsheet, but this list is probably at least decent). To be clear, this is "equities" at defined by Fairfax, which excludes insurance subs. I'm guessing their book value is flat to slightly up for Q4... bonds+insurance offset stocks:
Equities & Converts
Undislcosed Common Stock
Bank of Ireland
Blackberry Debt+Warrants
Eurobank
Blackberry Common
RFP
Various Conv. Preferred Stocks
Thomas Cook India
KW Funds / LP
Eurobank Properties
Vairous Derivatives (Long)
Ridley
IBM
Cara / Prime Restaurants
Interfor
SD
India Infoline Common (Synthetic)
$1,243.52
$1,043.20
$722.00
$524.80
$464.00
$454.50
$445.00
$444.35
$351.40
$291.90
$250.00
$214.29
$202.80
$150.00
$144.20
$138.90
$102.00Great list, ben. I was just looking through the Q3 report and didn't see alll that detail - where are you finding it, if you don't mind sharing? And what is the distinction between Eurobank and Eurobank properties?
One thing about the Greek and Irish exposure, it makes the Blackberry investment seem positively mundane! BBRY looks a lot less scary now in any case, but do you or anyone else have some more detail about Eurobank and how badly it may have been hurt by the recent events in Greece (i.e. elections, 30% drop in stockmarket, 10-yr bond rates going from 6% to 10%? Here's what Watsa said in May 2014: “We believe that markets have already begun realizing the significant opportunities existing in the Greek market and the positive outlook of the country, on the precondition of a stable course of implementing a reform program”. I guess we'll know more about that 'stable course' in 10 days...
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How much is their land worth? Probably a good fraction of that $150m...
Do they own land? They seem to have leases on the One Yonge Street building, the Harlequin HQ and the Waterloo paper HQ.
Last I checked, they own a big parcel in Vaughn.
They only have $6.4 mn on the books for property plant and equipment, but book value rules are stupid for land, it never gets priced up to market, so I suppose they could have bought the land for $5 million and have it worth $50 million now. You would think that would be worth a mention somewhere in the company's financial statements - especially now taht the company is worth about $150 mn ex-Harlequin. Maybe it's there, but I haven't found anything.
FFH share price
in Fairfax Financial
Posted
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.