petec

Good lord. What kind of a clown measures ebitda for an insurance company?

Jfan What would you like to see them spin out? Pete

Perhaps I misunderstood you. I thought you argued that Fairfax only occasionally achieved fair value as the result of momo trends, whereas the p/BV graph shows it trading at a reasonable multiple fairly consistently. That’s all I’m saying. Today it trades well below book despite having the greatest visibility on further book value growth that I can recall (hard market, 3q Digit mark, further Digit growth, good operating momentum in many of the big investments, buybacks).

Nwoodman's graphs upthread show FFH trading at or above BV for most of the time since 2013. Nothing to do with a trading move. Separately, it would not surprise me if FFH traded above book for a long period when the market cottons on to the fact that it's the only listed way to own Digit.

Mosaic confuses me. They originally invested $100m of senior preferreds and $50m of 7-year debentures. With the recent announcement, they seem to have swapped $11m of remaining debentures and warrants for $132m of 25 year debentures. In addition, Mosaic's financials show $82m of preferreds outstanding. I'm not sure whether Mosaic repaid some of the debs and prefs, or they got written off. Either way, $132m of new debs for $11m of old debs seems a good deal for Fairfax. And Mosaic might be a $200m position now (preferreds and debentures, no equity or warrants).

Fairfax has traded around fair value plenty of times in the past, as do other highly complex entities. Also, this board generally obsesses far too much about Blackberry and Resolute in my view. There are many other things that move the needle and as they grow Blackberry and Resolute get less and less relevant. There are two things that I can see lifting the p/bv to a fairer level: 1) reasonably good results over a reasonably long period of time. 2) higher interest rates.

Back on the share creep topic, my understanding from various sources including the 2020 annual report and the 1q18 call is that FFH issue very long dated (up to 15 year) restricted shares and equivalent to both insurance and investment staff. Vesting is at least partly performance based and part of the performance measure is whether the company meets the 15% BVPS cagr target. We can debate how effective these schemes are but I tend to think that, used in moderation, these schemes help align and retain employees. At 2q20 there were 1.53m dilutive share based payment awards outstanding and a further 1.25m that were antidilutive, for a total 2.78m or about 10.7% potential dilution if they all get exercised. Obviously more can be issued but my guess is this is not enormously different from most companies that use equity as part of compensation, especially when you consider that some of them vest over 15 years. Fairfax does not issue new equity to meet these obligations, but instead buys shares in the open market and keeps them in treasury. As of 2q20 there were 1.7m shares in treasury. Issuing these to employees would increase the share count but the cash to purchase them has already been laid out - effectively Fairfax have spent the last few years prefunding their share based awards at what they believe are cheap share prices. I have not gone back and added up how many shares FFH have reissued out of treasury over the last decade but they reissued 72,000 in 2019 and 147,000 in 2020 for a two year average of under one third of one percent of shares outstanding. On that evidence the pace of dilution is not egregious and the vast majority (possibly more than all) of the growth in share count over the last 12 years has been due to the acquisitions of Zenith, Brit, Allied, etc. What I do dislike is that Fairfax always refer to book value per basic share. To my knowledge they have never explained or been asked why they don't refer to book value per diluted share. Perhaps it is to remove the effect of share price moves on shares outstanding and give a purer measure of how the business has performed, but I think we as shareholders should always value the business using the diluted share count. Bottom line: 1) dilution to pay employees is not egregious and is being paid for cheaply. 2) most/all of the share count increase came from acquisitions, and Prem has been very clear that this phase of growth is over. 3) always recalculate BVPS for yourself using the diluted share count.

Has anyone figured out how RBC arrive at $57 per share? The table on p73 of the interim includes Fairfax India and gives the excess of fair over carrying as $754m or c.$29 per share.

When? Bearing in mind the nwoodman post above showing the p/BV when he bought Allied was very different to the p/BV today? For the record, I’d be astonished if he issued shares for a big acquisition today.

Their definition of monetisation is comical. I thought that when they referred to selling APR for shares as monetisation, and when they referred to IPOing companies without selling a share as montisation, but calling it monetisation when you buy something...that takes panache! Ref Blackberry, didn't we establish some time ago that when the thing spiked a second time FFH were in a blackout period? So why is no sale a surprise?

Does anyone know what happened to the investment in Quantum? I seem to remember it was going to become the Vanguard of India but I am guessing that didn't happen. Is there a story here? Quantum Mutual Fund - Online Mutual Fund Investment (quantumamc.com)

Where are you getting this from? Bloomberg shows 5 bank analyst targets, ranging from C$650-780.

Agree. Not inconceivable Eurobank pays a mid teens dividend from 2023 onwards.

And the monster ATCO position executing beautifully but stock going nowhere…

Deleveraging already happening as equity grows. They don’t need this to close.

Superb q 540bv plus 29 excess of market over carrying plus 46 coming from digit = 615! 94CR, 27% premium growth.

Yes!!!

Quite.

You didn't have to. I remember running scenarios where they just cut some R&D and put the business into runoff and the share was still OK value. No good outcome was priced in, yet plenty were possible.

Value investors like Prem should have been all over it. Ballmer's MSFT had an image problem, but it was an incredible company. The market thought Google Docs would kill Office, iThings would kill Windows, and the cloud would kill servers. The problem is, MSFT sells to enterprises, where Office and Windows were deeply embedded (I lived in Office at the time, and still do, and so did my colleagues, yet the company I worked for in 2010 spent more on milk for the office fridge than on Office subscriptions). And MSFT was spending 3x more on R&D than Apple and Google combined, and 90% of it was in the cloud. So it wasn't *that* hard to look past the sweaty man at the top and say: this is an incredible company and there is a good chance the market is wrong. The damned thing got as cheap as 6.5x fwd EV/FCF if I recall correctly. I can understand why growth investors avoided it, but I cannot for the life of me understand why value investors did. Temporarily challenged or misunderstood earnings power should be a value investor's bread and butter. Instead we got Resolute. I could stomach the criticism of current tech valuations better if Prem had a record of loading up when great tech companies are cheap. He doesn't - although I think he tried with BB. The only reason I can think that he bought it when he did is if he totally underestimated the impact of the iPhone. I don't buy the argument that he did it out of misplaced loyalty to Canadian business - I think when one reads the letters etc. one has to remember they're not just aimed at shareholders and there is some PR going on. Anyway my underlying point is one I have made before. I have no issue with the kinds of investments Prem buys. In fact, I don't think he is easy to categorise - sometimes value, sometimes growth, sometimes startup - and I also think hindsight bias drives a lot of the criticism of his "value" style. in my view the real problem was simply that Prem was wrong too often, which suggests that many of the investments were badly underwritten. (Example: I remember Prem justifying Quess on 30x earnings by pointing out how fast the PE comes down when a company is growing at 30% - but he couldn't buy Microsoft, a far higher quality company, when it got to 12x. Unsurprisingly Quess didn't stay at 30x for long.) What makes me more positive is that I think the ship is turning. I think more due diligence is being done and Prem is listening more. I cannot prove this but when I look at where the bulk of the money is now, I like it. And I seem to be able to buy what will almost certainly be $600+ of fully adjusted year-end 2021 BVPS for $410. Suits me. BTW: I have held FFH since 2008 and been wrong. Once I thought I would never sell. Now, I view selling at some point as a fundamental test of my discipline as an investor. I owe that to many of the naysayers on the board. Thanks, Cassandras! EDIT: I didn't read the whole thread before writing this and I realise I have repeated some things. Sorry!

Great post and I agree the work on this started years ago, when we all thought Prem didn’t see the issues and was doing nothing.

Interesting about Fairfax Ventures. Makes me wonder whether Rivett was pushed, and his departure is part of and key in Fairfax’s investment revival.

Quite. Prem is actually remarkably difficult to characterize as an investor. I think he has both succeeded and failed in multiple different types of investing. Years ago he said to a colleague of mine that out of every ten investments, two would fail, six would do ok, and two would be spectacular. That’s the only description of his investment style that I’ve found useful over the years.

Viking for once I disagree. With the exception of BlackBerry, on which I have no informed opinion, none of their holdings seem overvalued to me. Also, there is a mountain of evidence that market timing is hard to do. And finally, if Fairfax proved anything last year it’s that they can find clever ways to benefit from sell-offs even when they don’t have cash.

https://www.globenewswire.com/news-release/2021/06/30/2256112/0/en/Helios-Fairfax-Enters-Into-Automatic-Share-Purchase-Plan-and-Announces-Intention-to-Make-Normal-Course-Issuer-Bid-for-Subordinate-Voting-Shares.html