petec

I also have this. I ran a Latam fund for a decade so have some comfort with the region, ant they explained the opportunity well in their 2023 investor day (might have been 2022 actually).

Important to note that the first two of these are not mutually exclusive. If they retain earnings to grow insurance, they can ALSO invest those retained earnings in stocks and bonds. What they can't do is buy back shares and still retain the capital to grow insurance.

That makes sense. But the video's argument is that future drilling needs to be more tightly regulated, with implications for costs. That's really what I am interested in.

Sure, but if seismicity is rising, the increase may (may) be directly attributable to man's activities.

The increase in water cut is not the issue. If that video is right, the issues are: Storage capacity (in porous rocks) is finite, and they're mostly full in that area. The increase in pressure is causing increased seismicity. In other words it is a stock problem, not a flow problem. If so, I would think the only long term solution is piping the water elsewhere. Good luck getting that permitted. It means literally exporting the environmental problem, and in huge volume - the Permian produces 4x as much water as oil, according to the video.

I don't think that works. First, if the water is able to spread due to the porosity of the rock or fractures, then drilling more wells won't help spread the water out. Second, any given rock has a finite (and calculable) capacity, and I believe the video mentions that Texas is close to max. I have no idea whether the video is true though. There may be simple counterarguments, as you say.

I found this video really interesting and (although I have no specific knowledge on the issue) it feels well-researched and coherent. What do people think? Is there a clear counterargument? If true it would seem only a matter of time before the RRC has to regulate more, and I would think this is Bad for Permian producers. Bad for land drillers & servicecos Good for pretty much all other oil producers and offshore drillers/service. Good for gas producers and US thermal coal (due to reduced associated gas). Thoughts? Thanks Pete

Have they actually said this?

Exactly this. It is Aercap without the rational OEM suppliers. If you want a simple sector comparison then it is a specialist investment bank. It captures the spread between the capital it can raise and the capital it can lease out. Being a great operator and having a good platform matters but really, as in investment and insurance, the only real differentiator in the long term is management. It is definitely not a utility, since these tend to be characterised by local monopolies and regulated returns.

Why does it increase durability? I would have thought it was a straight financial decision (between buybacks vs buying back minorities) based on price and expected returns.

I should know this, but is the $4bn number the current combined dividend capacity of the subs or is it your own estimate? And what's the $2.5bn cover? Allied, Brit, Odyssey? It's a pity we don't know enough about the terms of each of these deals to assess whether buying in the subs is better than buying back shares.

I'm never sure what to think of East 72. They seem to do deep work, but taking this report as an example The first idea, Belron, looks super risky to me. Margins have tripled in a few short years and leverage has ballooned against this profitability. This happened after PE got involved. I don't see any real argument for pricing power so there's a distinct possibility that the business can't bear the debt long term. The second idea, FIH and specifically BIAL, looks fairly valued vs. most comps on 10-12x 2026 ebitda, which may be a near term peak. The only argument for undervaluation on the data E72 have provided is that a private buyer might pay 24x ebitda. I own FIH but didn't find this report particularly well-argued. The third idea is more obviously cheap, but looks very like an ego project to me, with sub-par capital allocation. I'm just not convinced by their thinking.

Not just intuitive - there's a direct mathematical relationship where R is the market's required return: ROE/R = P/BV. For example: 15%/10% = 1.5x This is perhaps more obvious when we remember that the E in ROE is the same as BV.

No way. Repaying debt is very additive here. Not only does market cap rise if EV stays the same, but ev/ebitda multiple will rise as debt comes down and risk reduces (all else equal). Dividend would be dumb here. Target is to repay $600m of debt 2023-2026; they are halfway through, and once that's done they've said they will consider returns to shareholders. But debt has to come first. Added today.

Pleasure. Good fun, in a weird way!

That makes sense re Eurolife - thanks!

Shareholding Structure – Cairo Mezz Might be out of date I guess, but Cairo was basically a spin, and FFH owned 33.5% of Eurobank, so FFH would have had to have bought more since the spin to get to 50% and I don't recall that.

Ha!

OK I am in work-avoidance mode today so I did a shallow dive. Cairo Mezz owns mezz (euribor 3m+3%) and junior (euribor 3m+5%) notes due 2035, 2054, and 2062. These notes get paid when collections are made on part of Eurobank's old bad loan book. The notes trade on the Vienna exchange, but they are not active, so valuation is via DCF. The notes rank at the bottom of the payment waterfall for the relevant bad loans (7, 8, 9, and 10 out of 10 levels), so they have received no interest or principal repayments yet. However, in 2023 Cairo recorded a DCF valuation gain on the mezzanine notes, mainly because receipts for the senior notes came in ahead of expectations. (Cairo doesn't own the seniors but obviously improved senior receipts lifts the chance that the mezz and junior notes eventually receive something.) Another reason for the valuation increase was rising Greek real estate prices, which affects the collateral backing some or all of the defaulted loans. Basic financials: The mezz notes are valued at E179m using a discount rate of 17%. The junior notes are valued at 0. There are no material liabilities. The book value is E179m. The share price is E0.40, giving a market cap of E123m. The fun bit is that the nominal value of the notes is E2.7bn, of which E1.1bn is in the mezz and E1.6bn is in the juniors. Presumably the nominal value reflects what the notes would be worth if the underlying loans were money good. I assume there are filings for the individual notes somewhere with data on collateral etc. but I can't find them. So, for Fairfax: FFH owns 50% of Cairo, worth E61m today. Carrying value is probably E56m, which was the market value at the end of 2q (I am not sure because a quick word search of the FFH annual report returns no hits). Lookthrough share of nominal value of the mezz: 50% x E1.1bn = E550m. Lookthrough share of total nominal value: 50% x E2.7bn = E1.45bn. Conclusion: in theory Cairo could be worth E1.45bn to FFH, but in reality E550m (full value for the mezz and nothing for the junior) would be an excellent result. No guarantees, but if the Greek economy continues to perform, and cash starts to trickle in, and underlying collateral values continue to rise, and the discount rate comes down (which it should if all the other factors fall into line), it's possible Cairo contributes a couple of hundred million dollars to FFH's book value over the next few years. NB I have edited this to correct the error I made regarding FFH's % ownership.

Deflation swaps?

Perfect, that's what I needed, thanks.

I believe the share price is an absolutely tiny fraction of the gross value of the underlying loans, but for good reason - they've been non-performing for a decade! Very low probability of an immense win here, I suspect.

Them and me both. Couple of questions. First, I think they've bought more than they announced here - why would this be? Source: Second: is this disclosure normal in an announcement like this? The Common Shares are being acquired by Fairfax for investment purposes and in the future, it may discuss with management and/or the board of directors any of the transactions listed in clauses (a) to (k) of item 5 of Form F1 of National Instrument 62-103 – The Early Warning System and Related Take-over Bid and Insider Reporting Issues. I ask because I could see FFH leading an MBO. FFH and management already own ~50% of the shares between them. Free cash flow yield to equity is nearly 50%. There's a lot of debt, but it would obviously be non-recourse to FFH (like Poseidon) and it is being paid down fast. There are too many rigs in North America but the market is slowly, inexorably tightening driven by 4 factors: ROCE at current dayrates is well below replacement cost so nobody is building new land rigs (except Saudi). Current drilling techniques are very wear-intensive so rigs are slowly being eliminated from the fleet. International drilling is starting to demand higher spec rigs so rigs are leaving North America. LNG will spur more drilling for gas. All these factors are offset by continued gains in efficiency (fewer rigs can do more work) but as long as rigs are not being built the net movement has to be towards a tighter market, I think. That means FCF is more likely to rise than fall over FFH's long term time horizon. And an MBO would get them into bed with Murray Edwards, Ensign's Chairman and the founder of CNQ, arguably one of the greatest Canadian entrepreneurs and capital allocators of them all. So, that bit of disclosure caught my eye. Or is it boilerplate? Thanks, P

Interesting! This is basically an option on dead Greek loans coming back to life, IIRC.

+1 - I think they are optimising for value to be reflected in book value, and for cash flows, not volatility of earnings.