petec

I'm not sure it's rational to differentiate between the common and the converts at this point. I'd view it as one equity position and expect them to sell the entire position at the right price. But my guess is they won't get the chance, in which case the only way to benefit is by having BB issue shares into the rally (while warning everyone not to buy them like AMC!).

It might be time for me to concede defeat in my long-running debate with SJ about whether Prem being a director would be an issue in offloading Fairfax’s shares. I always assumed the company would be sold or that the share price would be moderately stable at around the exit price!

You couldn’t make this up

Mine too! I’m just saying, he could be desperate at $20 and not at $11 so let’s not get our hopes up!

Oh come on. The prices are totally different. You can’t infer anything from that comment about how he feels at these levels.

+1, and I would add that there might be a good chunk more revenue backlog added as Seaspan contracts its small/short term ships onto 3-5y contracts at current levels. This was discussed on the last call and gives them the opportunity to raise finance against these new contracts to finance the newbuilds.

3.3bn EV. Highest est on the street $900m ebitda in peak year. Highest est FCF $430m vs 1.3bn market cap. Both estimates *way* above where reasonable long term estimates lie. Pulp and lumber prices already seem to have rolled over unless I’m looking at the wrong things. Can’t say it excites me. Parsad, what makes you confident they can sell, and in particular time the sale well, given the liquidity issue?

I am not nearly smart enough to know whether this will work out but it's a cool idea with serious long term potential: https://www.heliosinvestment.com/uploads/files/HFP-NBA-Forms-New-Africa-Entity-and-Partners-with-Strategic-Investors-May-24-2021.pdf News reports suggest various investors including HFP have taken an 8% stake at a $1bn valuation.

$100m investment into Foran Mining alongside Pierre Lassonde: fom_nr_-_fairfax_strategic_investment_-_final_may_25-_2021.pdf (foranmining.com)

Possible, but more likely it’s a TRS. Remember they offer the total return, so dividends count. Prem is a somewhat vague communicator in my view, but usually doesn’t get things outright wrong, and I suspect they’d have had to issue a clarifying statement if he’d done that. Plus specifying the yield to a decimal point suggests knowledge of the stockS

Or they used TRS’s?

Totally agree, and I don't expect the bond portfolio to contribute much in the next few years. But that applies to all insurers and the industry as a whole needs to earn a return. So lower bond earnings drive underwriting discipline and contributes to the hard market. I think of it as two sides of the same coin. Also, FFH do have deflation protection - they have the swaps. It's not perfect, and won't pay out under a mild deflation, but they do have good protection against more extreme outcomes in both directions (inflation and rising rates, deflation and falling rates).

The key thing will be how steep the curve gets, more than the absolute rate. No point buying 10y if you’re not paid to take the risk vs 2y.

This is very wise advice.

Agree.

Ignorant question, because I haven’t actually checked, but do we know the TRS’s are held at the holdco, or could they be at the subs?

Understood. So we can’t tell much from the data we have, in short.

I thought he was talking about TRS positions on stocks other than Fairfax, and he was saying that while the Fairfax ones are long term, the others weren’t and have been partly unwound.

Yes. Fat fingers on my part. But I’m still wondering if that’s actually how it works. Or could the overall average be impacted by rewriting older, expiring swaps at higher prices? I just don’t know how these things work.

Couple of things I thought were interesting on the call. First, $2bn of TRS on their own stock at an average price of $372 vs $1.4bn at $343 in the 4q. By my maths that means they added $600m at $460 per share. Is that how it works? Second, re: being restricted on Blackberry, "we checked it ten times if we checked it once". I infer they really wanted to sell. Third: it's taken years but they have swung fully from being worried about deflation to being worried about inflation. I am not sure whether to congratulate them for chancing their minds or criticise them for taking so long, but it's notable.

The other point is they’ve repeatedly said they intend to raise more capital in the vehicle. I think the long term plan here is a huge fee stream, not a short term bump to book value.

Exactly. I suspect Stelco’s EV has actually gone down this year given how much cash they will generate. I don’t know the maths for Resolute. But I wouldn’t jump to the conclusion that just because the stocks are up, Fairfax should sell. I’m also somewhat sceptical Fairfax *can* sell Resolute in the market. They own too much. I wonder if they don’t end up controlling RFP through buybacks and just dividending cash to themselves.

1.9x TBV.

I don't think this has anything to do with whether I hold the shares. What I care about is what *I* think Fairfax can achieve, and whether this is in the price. My guess is they can do around 15% in this hard market and given current investment positioning, and more like 10% through the cycle given current bond yields. I don't think the stock is dirt cheap any more, especially on tangible book value. My view on the goodwill is that it is money good (i.e. if FFH sold any of the insurance subs, they would be able to do so at a price that justified the goodwill) but that it distorts comparisons. If you're comparing with a basket of peers, I think it is probably best to use tbv. That said, 15% ROE drives a spectacular ROTE, so tbv is going to grow very fast over the next few years if we are right about the hard market and investment potential.

Actually I suspect what it tells you is that the market is slowly catching up to how good this year is going to be, but hasn’t got there yet, and is also smart enough not to rerate the franchise for a short term phenomenon. Either way the point stands: the franchises haven’t rerated so the higher price isn’t necessarily a reason to sell.