petec

Okay, I will rise to the bait. YES, if BB were a wholly owned sub, you would have still seen plenty of emotions and reactions to the fact that it has been on the balance sheet for a DECADE and has barely provided any cashflows for the holdco or the insurance subs (the only cashflows have been the interest on the debs). What is more, it has been burning through cash for multiple years, writing down assets and generally languishing. Any wholly owned asset showing those characteristics would have raised the ire of shareholders, unless FFH could find a way to "hide" its poor performance by mixing it in with a bunch of other subs (eg, we never did get much disclosure about how well Toys R Us is doing, nor did we get much info about how the Port of Churchill was doing...they were not material, so that may be a reason for not having provided disclosure, but let us just say that it's nice to not need to provide a detailed report if the acquisitions are losers). The complaints about BB have rarely been about BB's strategy or even their execution. BB has always been a tech company and has always been subject to a rapidly changing operating environment, so that is what it is -- the lack of predictability has been present from Day 1. The complaints have mainly been about the amount of capital that FFH dedicated to a company which clearly is outside of their sphere of competence, and the fact that FFH continued to pile more and more capital into BB as the price declined. This is principally a question of decisions around position-sizing and risk management. That question of position-sizing remains an issue today because it limits FFH's range of potential exit strategies (as an "insider" on the BoD, they effectively cannot easily trim their position because of the requirement for regulatory disclosure for their trades). No comment on BB's transition away from smartphones towards software -- good luck to them. But, at a certain point, shareholders like FFH need to undertake their own valuation exercise. Understanding that there will be 600m shares outstanding after FFH converts the debs and that the prevailing price is US$13+ today, that gives you a basic market cap of US$8B. So, how much annual income do we eventually need to see to support a $8B market cap? My take is that you'd need more income than BB is capable of generating (I threw the question out a couple of days ago and nobody rose to the bait). But, I might be wrong. Trimming your position as the price rises is a very basic strategy to manage that risk. Given the rapid rise in price, I wouldn't even object to the full divestment of the position, but my concern about that is that BB YOLO might not last long enough for that... SJ Absolutely right. I don't think Fairfax will be able to capitalise on the current share price any time soon and I doubt it will last. Pity.

It's ex-dividend day. Over-reaction I know, but that's probably what's driving it.

I think FIH explicitly does not do insurance. That’s left to the mother ship. I think the article is wrong. Not 100% sure though.

V what is the based on ? The difference between the old valuation and the one just announced ;)

Well quite. Hence my question. It's always had significant opportunities.

I know the share price has changed. Do you really think the prospects have changed?

Would love to see them list 49% if they could get the same types of prices described as above. Not to cash out or support Fairfax business TBH, but to rapidly grow and take market share in the Indian markets. Given the hoops that Fairfax had to jump through before starting Digit (reduction of ICICI ownership), and given their stated focus and optimism of growth of the business in India, I'd honestly be surprised if they considered selling or listing Digit. Wouldn't this be a bit like "cutting the flowers and watering the weeds"? Then again, I suppose it wouldn't be the first time; the sale of First Capital a few years ago comes to mind. I understand the cash would be great for support of the hard market and buybacks, but I'm not so sure this is the best place to start. From the 2017 shareholders letter:: "ICICI Lombard is an Indian insurance company that we began in 2001 from scratch as a minority partner with ICICI Bank. Over the following 16 years, ICICI Lombard went on to become the largest non-government-owned property and casualty insurance company in India. Until fairly recently, our ownership interest was limited to 26% by government mandate. About three years ago, the government allowed the foreign ownership to go to 49%, which resulted in our going to 35% by buying 9% from ICICI Bank. Since then, given ICICI Lombard’s intent to go public, ICICI Bank wanting to control ICICI Lombard with at least 55% ownership, and Indian law requiring that the public own at least 25% of a public company, our ownership would be reduced to a mere 20%. As property and casualty insurance is our core business and we are very optimistic about the growth prospects in India, and as Indian law does not permit an ownership of 10% or more in more than one insurance company, we agreed with ICICI Bank that we would reduce our interest in ICICI Lombard to below 10% so that we could start our own property and casualty company in India, Digit. ICICI Lombard is a great company led by an exceptional leader, Bhargav Dasgupta, and we wish them much success in the years to come. We have thoroughly enjoyed our partnership with ICICI Bank and its CEO Chanda Kochhar and we wish them also much success in the future." Absolutely agree. They will own Digit for a long time, and rightly so. It might get listed though, to give the PE partners a way out. I don't think the sale of First Capital counts as selling a flower. I understand what you're saying, and it's a great business, but in the view of it's CEO Fairfax could not support its next phase of growth as well as Mitsui. Plus they got a great price and were able to keep a 25% profit share for no equity.

The nice thing about $600 is that 1.2x isn't even that rich. It's amusing to note that if Digit goes up 12x - and in unicorn world anything less would surely be considered a failure - Fairfax's stake will be worth its entire market cap ::) ::) The only thing I would note is that they have not yet monetised a single investment. They've rearranged them, but so far they've always been paid in shares not cash. The only thing they've received cash for is selling subsidiaries.

That's exactly my feeling, although I can't provide data back up my sense that Fairfax would do better than average.

Thanks. I think that's broadly sensible as a "semi-bull" case. Certainly the capital that's been "created" in the last 6 months is very useful in a hard market and could kick-start something special. And I think we could see several of the big investments liquidated at a premium to their carrying values over the next 5 years. EDIT: the major coutnerargument is lower rates on float but I tend to think this ought to be offset by higher gearing as float grows in a hard market, and lower discount rates for equity leading (all else equal) to a higher p/bv. I totally agree re: people enjoy working with him and that's half the battle. In fact probably the main thing that has kept me in this dog for the last decade is his ability to attract talent. It's astonishing to think that Digit, started only three years ago, is now a meaningful part of the market cap of Fairfax. That said this focus on "roll your own" is not new. Most notably Fairfax did it with ICICI Lombard and First Capital, now both sold. I would argue they basically also did it with Recipe, FIH, and FAH. They have a long record of starting companies and building platforms.

Xerxes this comment intrigued me. I actually think many of Fairfax's investments could do 2-3x or more from these levels. Very rudimentary analysis on my behalf but Iam estimating FFH could be trading at $USD1000/share in 2025. The caveat as always is that they have to do sensible not "clever" things. Guess it also depends what we call a multi-bagger, in this day and age the expectation is set by Tesla so 20% compounding is pretty mediocre ;) “What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.” Mark Twain cheers nwoodman Not disagreeing, but what's your back of the envelope route to $1000? And which currency are you talking, USD?

I'm not sure I follow this logic. In my experience blocks tend to happen when there is a big seller, not a big buyer. You might be right but my guess is a couple of big holders sold through 2020, pressuring the shares to the valuation levels that got us all excited, and we are seeing the last few trades now. Hence the blocks, and the fact that the share price is rising as overall selling pressure eases. Just a guess.

They still Own the same shares and prefs, as far as I know, but a lower % since they’ve just been diluted a bit. Yes it should flow to book value.

Eventually yes, but what really matters now is that the stock price sticks. I think it is true to say that equity gains = capital = more underwriting in a hard market = more subsidiary profit = more dividend capacity to holdco = holdco deleverage etc. If so, the simple fact that their holdings are going up unlocks a lot of good things.

Aren’t you conflating two entirely different things? And why take a German view on how prepared Britain is, out of interest? Not that I have a particularly strong view... The BBC is not the German view. However, I am German and have relatives living there. I have been following this since Brexit 2016 using a variety of sources and it looks like a train wreck to me. The BBC article isn’t about Brexit. I agree the two can compound. But I feel we are better prepared than some realise. This won’t be obvious because the press will focus on the problems (as is their job). But I much will continue as normal, whatever that means these days.

Aren’t you conflating two entirely different things? And why take a German view on how prepared Britain is, out of interest? Not that I have a particularly strong view...

Yes, except I don't think there's necessarily or always a fixed coupon. From what I understand, the coupon is built into certain preferential dividend rights and into the price at which Fairfax pays if it chooses to buy the minority.

I would caution that, as far as I am aware, Fairfax does not have to buy out the minorities in Eurolife or Allied. I am pretty sure the buyout of Eurolife could already have happened and has been deferred. This is a little odd, because I seem to remember that Eurolife could have financed the buyout itself, but my point is that if Fairfax prefers to focus on capitalising wholly owned subs or even buying back shares, they can.

There’s no comparison and I’m glad Prem isn’t deluded enough to think there is! It will be interesting to see what they can do with CSB over the next decade, though.

I’d love to see Blackberry sold at a decent price. But I wouldn’t mind if they kept resolute and just took the dividends over the years.

They have been injecting capital in their insurance before the pandemic started and ever since. Prem will have his "slug" of FFH shares, funded by some of the asset sales from the company's balance sheets. We just wont know when it will happen, but it will be sooner than we think (IMHO), for the simple fact that going-forward, as the recovery unfolds (while 2nd wave is playing 2 steps forward 1 step back), FFH's book value will pull the market value up in an absolute sense (simply said taking more investment $ for buyback), even if on a relative sense the discount remains there say 6 months from now. I’m sure Prem would love to buy back shares at this price. And he will. But I wouldn’t bet on it being big. The only way to sort out the holdco’s sources and uses issue is to increase dividend capacity from the subs, and the smartest way to do that is to put capital into them at the start of a hard market. I can’t really be bothered to debate this but I’ve seen people on here make buyback predictions based on relatively little information before, and then get annoyed with Prem when those predictions didn’t come to pass. The fact is that without insider info on the opportunities the subs have to write premia, you can’t know what Prem will do with the cash.

I’d listen to every call going back to the IPO in 2017 and maybe read the financials. Prem has no obligation to explain his investments in detail, and there is plenty of public information if you want to research it yourself. I don’t differentiate between an X% IRR achieved by traditional compounding or an X% IRR achieved by (say) special dividends coming out of a cyclical. I think we will do well from Stelco over the long term because of the relationship between the going in price and long term cash flows, and the quality of capital allocation. Time will tell.

Deal complete. The future will be very interesting.

What a quarter. After the 2/3q statements about how FFH’s equity holdings have always bounced back after bad periods, the crowing in 4q is going to be deafening!

I will be astonished, and actually a bit disappointed, if they do a large buyback. They have consistently communicated that supporting the subs to take advantage of the hard market is the priority. And that's exactly the right decision. Buybacks are an excellent use of spare capital when shares are cheap, but reinvesting to grow at high returns on capital should always come first. Building per share value via growth has many advantages over doing it via buybacks. For example it can augment competitive positions and impact morale in a way that buybacks can't. They can buy back shares all they like in the next soft market. But despite all the positive moves made recently, they still don't have spare capital, so for now they should allocate what they have to growth. I might think differently if the stock traded at 0.4x or 0.5x book, but it doesn't.