petec

There is a difference between Digit and BB. Digit is a FFH' brainchild in some ways. Just the fact they sold ICICI to grow Digit, shows how close Watsa is to those investments and how much he believes in it. But Blackberry is not. It is an orphan. It is a coincidence that he got himself into BB for different reasons ... and now BB is morphing into something much better. Not because of anything FFH did from a strategic guidance point of view. At the end of the day as a portfolio manager, he has a maximum allocation in his mind for a business that he may not be 100% comfortable with. Perhaps there is an in-between solution, where it keeps some upside. Agree the reasons for getting in were varied and wrong. But Prem has had a significant hand in reshaping BB and is on the board. He knows it well. I guess the point I’m making is I hope he bases his decision on a sensible long term forward looking valuation framework rather than “woo, it’s finally up, I must sell” which is kind of how the mood on this board feels right now. In other words, there may be very good reasons to sell, but the fact that it’s gone up isn’t (on it’s own) one of them.

Neither BKIR nor the swaps had the long term potential Blackberry has. I emphasise potential. I am not necessarily a bull. But I can see why one might hold. One could make the same argument for Digit. It's pretty obviously overvalued based on today's earnings. A lot is in the price for a future that might or might not happen. Should Prem sell? I doubt it. Prem is a value investor. He is also a long term incubator of amazing businesses (e.g. ICICI Lombard). Digit has the hallmarks of one. I will forgive him if he thinks Blackberry is another. None of this is to suggest he shouldn't do something clever with hedges if he can.

Scratch that. That error would go the other way.

They’ve had 47m plus the convert for a while I think. Not sure how you got to 60? Possibly dividing the CAD share price into a USD number for the position size?

My bad!

You'll feel differently when it hits $50 on Friday ;)

Ah - sure. But then if you allow yourself total freedom to pick securities and dates you'll almost always find something better. Also, simple price performance doesn't adjust for risk.

I'm in two minds. For several years here Blackberry has basically been an option on whether or not the company can build an automotive SAAS business with a big TAM. It just might be doing that, and if it is then it is too early to sell. Prem is somewhat damned if he does and damned if he doesn't. - If he sells and Blackberry succeeds then he will forego billions in gains that would be absolutely transformative for FFH, and I guarantee that this board will look back in 5 years and call him names for not having a crystal ball despite being on the board. - If he holds and Blackberry goes back to what it was, then he can't fund quite as much underwriting in a hard market, and I guarantee that this board will call him names for not locking in a billion dollar gain. I genuinely don't know which I would pick. I will be fascinated to see what he does!

So?

Congrats!

The question becomes....how will shareholders feel about Prem if he does not capitalize on this parabolic move up in Blackberry? What will you do if the Blackberry price retreats and we find out that Fairfax did not lock in any of the gains? As SJ correctly points out....a $1 billion unrealized gain on the convertible debs alone? Only of value to us if Prem acts to lock in those gains. Would you be okay if he does not act? If he lets this opportunity pass us by? I don't expect them to monetise. Sharp moves like this don't usually offer big shareholders the chance to liquidate. Normally you may not, but this is not a normal situation. The volume today is again HUGE. Fair point.

The question becomes....how will shareholders feel about Prem if he does not capitalize on this parabolic move up in Blackberry? What will you do if the Blackberry price retreats and we find out that Fairfax did not lock in any of the gains? As SJ correctly points out....a $1 billion unrealized gain on the convertible debs alone? Only of value to us if Prem acts to lock in those gains. Would you be okay if he does not act? If he lets this opportunity pass us by? I don't expect them to monetise. Sharp moves like this don't usually offer big shareholders the chance to liquidate.

The CFO must feel like an eejit :)

A side note, but an interesting one: Eurobank span out 75% of its Cairo mezzanine and junior NPE tranche in September. These are listed on the Athens exchange as Cairomez and Fairfax has about 30%. As of today this stake is currently worth approximately nothing. However, I believe the underlying portfolio has: - c. E12bn of credits. - c. E7.5bn of credits after provisions. - c. E4bn of real estate collateral, and this may be rising with Greek real estate prices which have turned the corner. - c. E2.4bn of senior debt. It's not impossible that Cairomez is worth the value of the real estate less the value of the senior tranche (the mezz get paid after the senior tranche has been repaid in full with interest, and after all admin and servicing fees). God knows what that's worth now: I have no idea how long it will take to work out, what the fees are, or what discount rate to use. But these notes are a potentially valuable option on the Greek economy reflating. It has basically been in a depression for a decade and has done a lot of hard policy homework in that time. There is evidence that it has turned (loan books growing despite covid, real estate prices rising). doValue, the servicer, owns 20% of the mezz/junior. Eurobank retained 5%.

I know projected is the key word, but 4x is quite amusing in today's context. You could apply that to revenues and it would look "cheap".

Anything’s possible. But that’s not a basis for valuing a company. It’s the basis for valuing an option. I agree BlackBerry has options. 100/car is at the absolute outer edge of IVY blue sky when you consider they’re targeting high teens. I think the bigger upside is finding a way to move QNX and/or IVY to a subscription model so they get say 10/car/year rather than just 10/car when it’s made.

They’re roughly breakeven today. 400m in earnings probably needs 500m more in revenue. Give it take. That’s 50m cars a year with $10 of BB software per car. Very possible, but also a LONG way from where they are now.

I guess that question was already answered. This deal seems like it’s all about aligning incentives. New management did not want to underwrite legacy investments and Fairfax gets more leverage to the upside on the whole portfolio. Better for Helios shareholders but good for both. I think that’s right although new management’s scepticism about these investments didn’t stop them closing the deal.

That is legal wording about a possibility. It doesn’t justify your presumption. Plus, the Helios fees go to HFP so success in other funds is a good thing.

This makes a lot of sense, as a way to hedge risks waiting for a sale. Meantime I am having some fun playing with the TAM on a revenue per car x installed fleet basis. I've decided it's almost certainly a 10-bagger from here ;)

What makes you think this?

Also interesting: https://uk.finance.yahoo.com/news/atlas-mara-mulls-nigerian-bank-141929345.html

Latest twist: https://www.heliosinvestment.com/uploads/files/HFP-Portfolio-Insurance-Arrangement-Jan-21-2021.pdf The interesting bit is that Fairfax has underwritten a bunch of the investments that Helios inherited.

I should clarify something. I'm not questioning the option value embedded in Blackberry possibly becoming a central player in the new automotive world. I can easily imagine it producing great compounded returns over the next 10 years if things play out. What I am questioning is whether the current spike is justified by fundamentals or whether one needs a lot of "faith". Because if it is faith, I can easily see a few more tough years for Fairfax in this investment.

If their average cost was $12.30 for 95m shares, and 50m of those cost $10 (conversion of the old debt), then the other 45m cost $14.86. If we simply replace the old debt in this calculation with the new debt (55m shares for $330m, or $6 apiece) then their average cost today is $9.99. That said I don't trust the numbers in the letters. They adjust their cost for dividends paid (e.g. with Resolute) and may well have done so for debt interest too in this case. And if they have sold Blackberry shares at a loss and then bought some back, which I think may have happened, I doubt they include the loss on the shares sold in their calculation. I hate to agree with SJ, but the discussion about what Blackberry is worth is starting to get a little silly. Perhaps it was a little undervalued before the recent move. Certainly I think cash flows from QNX's design wins over the last few years could have been a positive driver over the next few years. And perhaps their new security products with Cylance embedded were about to take off (in fact speculating that they had a period of slow growth while they merged products is the only way to make the Cylance deal look good). Bottom line, nobody seemed to be excited about "$20 or a lot more" until three recent events: the patent sale to Huawei, the Facebook settlement, and Ivey. Two of these are unquantified, so we can't do anything other than speculate on their impact on intrinsic value. One of them (Ivey) is basically just an idea in code form and doesn't have any customers. It's attracted attention because it is in two hot sectors (cloud and cars) and has a powerful sponsor (Amazon). But the great attraction of cloud platforms is how fast they can scale. I think Ivey has a fundamental issue here. Yes QNX is in 175m cars and props to Blackberry for achieving that. If that existing fleet could just be plugged into Ivey the potential for rapid scaling would be electric, if you'll pardon the pun. But very very few of those cars are connected cars that remit data to their manufacturers. Ivey can't scale faster than connected cars are purchased by consumers. And plenty of competitors have time to get started before that really takes off. So, can someone do the maths for me as to how Blackberry is worth "$20 or a lot more"? BTW, Is Fairfax actually precluded from selling its Blackberry stake because Prem is on the board? I know it would look weird but as far as I know board members can personally sell shares, so presumably their companies can too? And if they are precluded from selling shares, does the same apply to the converts? Because that would be a very nice way to reduce the stake if they can find a buyer. I am only asking hypothetically. My guess is the exit has to be a sale, possibly piecemeal.