petec

I think this was below BV though. They also sold $2.5m of DPM, ceasing to be a control person so that DPM has better fundraising options (apparently). They timed this sale beautifully from what I can see.

My understanding is that Ned was brilliant, and then shot himself in the foot buying a lot of crap after the crisis, motivated (I think) by the belief that money printing would lead to runaway inflation. I am not sure to what extent Mark contributed to that but he certainly started to unwind it. Then he fell ill and Jonathan took over. I believe Jonathan had an important role in building DPM, which is undeniably a success, and he has made good decisions since taking over Dundee. So I think we are in OK hands and I certainly don't view the fact that Ned is no longer in charge as a negative. If I am wrong, someone please correct me.

Thanks Dazel. I agree, FWIW. Which do you think are the undervalued investments that will be monetised?

I agree they are motivated to do all three. But as you imply, they are not capitalised to do all three. The excess underwriting capacity is not in the subs that are seeing the most market hardening, so they are having to inject capital into the subs to grow. That's limiting the buyback, which is frustrating but probably the right decision because float is generally sticky once you've got it. My guess is we will not see much in the way of buybacks while the market is hardening* and they are buying in minorities, which is clearly a priority. I didn't mind that because I felt buying in minorities was, in effect, a buyback. But here they are selling a minority, which makes little sense to me unless there's truth in the assertion that Riverside UK can lever more and grow more with two owners than it can with one. But I can't think why that would be true. *Unless reinsurance hardens, in which case they can grow *and* generate cash flow to buy back, because Odyssey is overcapitalised.

You're assuming the proceeds go to FFH and aren't a capital increase at RSUK. I suspect you're right but the release isn't totally clear. If so, the proceeds are to support premium growth - the release does seem to indicate that.

About Riverside specifically? Source?

Also, they mention having the right to buy this back. That makes it sound like the Brit, Allied, and Eurolife deals. IIRC the way those deals worked, OMERS basically got a fixed return if Fairfax exercised their buyback option. The risk:reward was very skewed in Fairfax’s favour. I wonder if what’s happening here is Fairfax needs capital to fund other subs and has basically done a repo deal with OMERS.

Agreed, although this makes a LOT of sense if a) Fairfax think they can pump proceeds into other subs at higher rates of return and b) RSUK can for some reason lever and grow in a way they couldn’t before. Then, it’s a win-win.

Also, reading it carefully: 1) seems to me Riverstone wants capital Fairfax can’t provide because it’s pouring money into the underwriting subs to support premium growth (the excess capacity they’ve long touted is concentrated in one or two subs, and not the ones in the hardest markets). 2) the release twice suggests that having OMERS on board will allow RiverStone UK to raise debt capital at low rates. Why couldn’t they do that anyway? This strikes me as very odd.

I wonder why this only covers the UK bit of Riverstone.

Updated valuation attached. My conclusions are: - Valuation is 0.7x P/BV or 0.6x if you value ATMA at TBV. - The holdco is hugely underlevered, with $170m of cash and only $8m of liability. - ATMA is clearly undervalued and Nova Pioneer is exciting but neither really moves the needle. - The rest is stodge: cash, loans with little upside optionality, and AGH, which hasn't performed in years. - I don't really see where the performance comes from, at least until they have deployed more capital, and frankly their record on that isn't great. FAH.emf

It's been a spectacular investment. I posted an updated valuation on the SSW thread yesterday, if that's of interest.

Agreed. In an ideal world (given the stated intent to bid on other airports) the investor is an established airport operator, but if that was the case I imagine both sides would want that fact publicised.

By my maths that implies that 43.5% of Bial has been transferred to Anchorage and 10.5% remains at FIH. That sound right? My thinking is that 5% of BIAL must equal 11.5% of Anchorage.

I'm not 100% sure what you're getting at here, but if I am reading it right this is neither obvious nor possible. It certainly isn't on the table. The way I understand the situation, Mr. Johnson still needs to plane a knob off by a [new] agreement with EU before end of January 2020, ref. what Ms. May did. How will that activity [properly considering also the hollidays in front of us] fare on a timely basis? We have a withdrawal agreement, which parliament will approve this week. It allows 2020 to negotiate an FTA. We will see how that goes. My bet is it goes down to the wire but will be done. Unlike most FTA negotiations, this one is urgent, and nobody benefits from delays because if andeal is not done then we leave on WTO terms. That will focus the mind on both sides. The risk is Boris softens. Showing that he was willing to leave without a deal was key this summer and he must not dilute that rhetoric, although he will be under great pressure to do so.

I'm not 100% sure what you're getting at here, but if I am reading it right this is neither obvious nor possible. It certainly isn't on the table.

Scottish split unlikely. Scotttish Nats did well winning seats but polls don’t show majority support for independence. And they don’t have a majority at Westminster to call a referendum anyway. Scottish budget deficit is 7%, funded by England. They’re fucked if they leave. Also there is an issue of currency: they would not be allowed to keep the pound, but could not join the Euro immediately for various reasons including that deficit - this was an issue the Nats didn’t have an answer for at the last referendum.

It’s because the Labour Party, which is now hard left and was promising vast amounts of new borrowing to pay for public services and nationalisations, has been badly defeated.

Yes. Adjusted for that I believe it was actually up quite a bit, although I haven’t double checked that.

That’s easily the best article on Boris that I’ve read. Captures the bar and the good. My view is that he is not to be underestimated, but will eventually disappoint.

Management change happened approx. 2 years ago. As Petec says, the NAV has objectively been hardening. The risk lies in their pivot back toward the resource sector and their ultimate reliance on commodity prices. Are you sure? Maybe something changed but Ned Goodman stepped down 5 years ago. This was from 2015. Which Mr Goodman does that refer to? Mark handed over to Jonathan c. 2 years ago.

Ha - where’s that from?

I fact, I would go so far as to say that management hasn’t put a foot wrong since Jonathan took over. They’ve started clearing out the junk without panicking; they’ve reduced liabilities including taking tough decisions to dilute equity; they’ve shaped a future direction that makes sense (although it requires excellent execution); they’ve brought partners into assets that needed them (Parq); and they’ve cut costs.

It may well be value destructive. But, resources is where they made their money before father got ego and spread into a lot of other junk. (The 2014 annual letter is an epic ego trip that put me off investing then.) If they’re right (see latest call) that they have an edge on deep due diligence in a sector (junior miners) that is totally bombed out, then it *might* not be value destructive. But also, they’re not putting a lot of capital there. They’re recycling capital within that space. But they’re also buying back prefs. And from these levels they may also be able to write up assets like Parq and Android.

If you think the management change will mean that shareholders realize anything close to NAV (ie things are different this time) then this is absolutely a great deal. I think it is fairly clear that NAV is hardening. I looked at this years ago and found it unfathomable. I came back to it 18 months ago and have followed in some detail since. My confidence that the core assets are fairly- or under-valued on the balance sheet is rising, which underpins the downside. If NAVPS stops shrinking there is a decent chance of a rerating. If it grows there is an excellent chance. And then there’s the blue-sky option on Chad working out. Risk/reward seems sound to me. My hope is a few more assets get sold and the pref buyback is substantial.