petec

No idea. I have a gut feeling that I ought to own this but I am glad I don't!

My interpretation is more that the Ukraine conflict unexpectedly made a lot of Russian gas available cheaply and they're enjoying that. What they're decoupling from is growth. I'd focus more on that in terms of oil demand.

Fair points, especially if we are hoping for say 2x not 4x.

Directionally fair, but the returns hurdle is key, and the IRR on an imminent IPO is huge.

Thank you!

Oh I’m sure there will be a decent sized mark, and growth thereafter. But I don’t think Siemens are stupid. If IPO is a 2025 affair, they’ve no need to leave *that much* on the table.

Thanks. Where’s the disclosure on this structure? I absolutely agree 5x is more believable.

Well, for an stake to be worth $100 per share in gains potential, the gain has to be about $2.2bn. Both companies would need to IPO at $10bn or higher to produce such a gain, and that's before tax. Maths below - mostly from memory so apologies if I have made a stupid mistake. Fairfax owns 20% of Ki. Even assuming it is carried at zero, to generate a $2.2bn gain it needs to IPO at a valuation over $10bn. That's over 10x GWP on the platform and strikes me as an optimistic number unless we have a very strong thesis that Ki has a deep competitive moat. FFH owns 29% of BIAL (42% of FIH which owns 69% of BIAL after the recent addition). FIH carried 59% of BIAL at $1.6bn in q3 and the recent 10% addition cost $255m, so the threshold for gains on FIH's 69% is $1.85bn. That implies $2.7bn for all of BIAL and $770m for FFH's 29% (excluding any impact on performance fees). To produce a $2.2bn gain to FFH BIAL has to IPO at $770m + $2.2bn = $3bn for 29%, or just over $10bn overall, or 4x the valuation that Siemens have just realised. As I said - seems high to me. But if you have evidence that I am wrong, I'll be delighted.

Absolutely and I did not mean to be critical. Just find it interesting. To me, 4 years ago, Fairfax was priced for nothing to go right, and I liked that because there were many ways for things to go right (even if I wasn't sure when). Today I find it harder (but it is still my largest position). This seems rather high to me. What are the underlying assumptions? (Sorry if it has been discussed upthread - I may have missed stuff over the last few weeks.)

Just incredible when you think back.

My thinking also. I do wish they'd move to quarterly though.

I don't really understand this logic now vs 4 years ago when FFH was a nested egg of value. Today buybacks are worth far less and several of the right tail options have happened. What's the right tail at Eurobank, for example? Are our stakes in Ki (or even BIAL) really big enough to make a difference? 4 years ago FFH was fairly easy to identify as a massive value opportunity. Today it looks more like a very attractive compounder to me.

I have a simpler answer: Ensign! Mainly because I am a sucker for free cash yield, but I also like the inside ownership (>50% is in the hands of management and Fairfax) and economics well below the incentive price for new supply.

I think the fact they're paying dividends tells you they're not capital constrained - the people involved are too rational and long term to make any other decision, but I could be wrong. I agree they're super smart, but I do think they got caught with their pants down somewhat when rates rose and I wonder why they didn't fix more of their liabilities, especially given that their contracts are not inflation-linked which I have always thought was a huge weakness of their model/the industry. I see it as a kind of levered option, but I like your point that FFH overall benefits more if rates rise than fall - I hadn't really considered this aspect of their Atlas investment.

It's a while since I looked closely at Atlas, but I used to own it and followed it closely, and the sense I had was that they always optimised for IRR and meeting customer needs rather than type of ownership. So it may well be that they just got a good IRR from this deal. I was always slightly sceptical about this because IRR is only relevant if you can immediately redeploy the capital.