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.

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.