petec

Straw poll, where does the common bottom as convert holders panic sell? At 84 today I am tempted to think that process has started, but not ended.

Quess just issued 9% of itself to Amazon at 676/share. The stock has been very weak this year and looks very cheap. It closed up 9% on the day at 480. Also a pro-market won Greece’s general election last week, scoring an absolute majority in Parliament over the incumbent left-wing government.

You’re right it’s a risk. The remaining unlisted asset is ABCZimbabwe. Any debt not associated with that is holdco debt and needs to be factored against the assets. Same goes for holdco costs. Those aren’t easy to break out (although it may become easier once the EGH deal is done) so it’s not a perfect valuation method. But I’ll be surprised if the holdco debt and costs account for the whole difference. Mind you if you think ATMA is cheap you can just buy it. The reason I’m in FAH is a) I like the concept of investing in places with great potential where others aren’t looking and b) on balance I think Fairfax’s record, although far from perfect, of building and turning around businesses will play out well over time.

I agree, but to be clear I wasn’t referring to book value. I was referring to the value of the listed stakes in UBN, ABCBotswana, and (soon) Equity Group Holdings.

Fairfax (as in the parent) are value investors with a long history of low p/bv and arguably distressed investing. Sometimes it's worked, sometimes it hasn't. In fairness to them they also have a history of attracting very good people to build impressive businesses over the long run, and one thing I'd pay attention to is who they've hired or appointed to the board of their companies since taking control. Another thing I think will be intriguing long term is the ability to share knowledge across group companies. They've mentioned doing this in agriculture (where they have assets in Canada, Ukraine, Africa, and India) and digital insurance. I suspect it will also happen in banking now they control ATMA and Catholic Syrian. In ATMA's case the value is fairly apparent since it trades at a big discount to the value of the three listed stakes it owns (I'm including EGH, although that deal has not yet closed). It has been buying back shares steadily in 2019. FAH have taken over the chairmanship of the board and also appointed Richie Boucher (who led the turnaround of BKIR which Fairfax was heavily involved in, and who sits on the board of Eurobank, another Fairfax investment) and Hisham Ezz al-Arab (MD of CIB in Egypt, a phenomenal bank and also a Fairfax investment). CIG has several segments. Only one is distressed. Others are variously at the bottom of their cycles, or about to move from an investment phase into a harvesting phase, or have huge potential with a bit of growth capex. The distressed one is the E&C business and its problems provided with Fairfax with the opportunity to control the whole firm at a decent price. They've already revamped management and last I heard the turnaround was on track although I haven't looked for a couple of months. My sense is that CIG will do well, but I could be wrong. I suspect the best business in FAH, although it's a small stake, is Nova Pioneer. One thing I personally wouldn't pay a lot of attention to is short term market moves. Fairfax tend to take advantage of distress when they see it rather than try to time the bottom. FD: I hold FFH, FAH, and FIH. I am a fan of the group, but they have made plenty of mistakes. If you buy this go in with your eyes open. EDIT: Hisham Ezz al-Arab left the ATMA board when FAH revamped it in Feb 2019, but he is on the board of FAH itself.

I think it’s fair to say that the share price performance is after fees and expenses! Poor performance to date is part of the attraction for me. I think one can argue both are attractively valued. The other part is it makes sense to me to partner with good investors in growing economies. That said the vast majority of my liquid net wealth is in things that are more akin to the S&P, so we are not that far apart. Whether the S&P can reproduce its performance of the last decade, though, remains to be seen.

Yes, it’s triple leveraged through Fairfax itself, but it’s also a fairly small exposure with an attractive upside skew due to the fees. I won’t be surprised if this is a $10bn entity in 5 years and the fees then will be significant. In fact, if you’re worried about how the fees incentivise Fairfax, I’d worry more about equity issuances than leverage. Agree re S&P vs INDU. Not so sure vs Fairfax India, but it’s hard to know. HWIC have a spectacular record in India but I worry the FIH holdings are skewed too much towards cheap but fundamentally low quality assets. But then BIAL and IIFL are superb. We will see. As you say, there’s value in the S/Midcap space and that’s where FIH is playing. Arguably there’s even more value in the private markets and they’re playing there too. FD: I am building positions in FIH and FAH and I expect both to be VERY long term positions.

Actually, the obvious explanation is that they think the holdings are likely to go up. Also, let's look at the incentives around each fee stream: 1) Levering up can only reduce the management fee in any given year. They charge 1.5% on shareholder's equity less undeployed capital, plus 0.5% on undeployed capital. Levering up and deploying the capital doesn't grow the fee, because it doesn't increase shareholder's equity (but it does reduce the fee as a % over assets*). Levering up and not deploying the capital actually reduces the fee, because the undeployed capital is subtracted from shareholder's equity. 2) Levering up increases performance fees if the fund does well, but if the fund does badly it will kill the 1.5% management fee and Fairfax Holdings' $500m worth of invested capital, which you omitted to mention. Overall it is not at all clear that the fee structure incentivises leverage at this point. It could do if, at some point in the future, Fairfax owns much less of the fund. Re: BIAL, have I missed something here? BIAL is levered (as it should be). Fairfax India is levered (like many holding companies). That's two levels of leverage. What's the third? Fairfax Holdings? That's not relevant for a Fairfax India shareholder. I wouldn't own INDA with a bargepole - 68bp fee on assets* for index exposure to one of the most expensive emerging markets globally? No thanks. *NB calculated over assets, Fairfax India's maximum management fee of 150bps of shareholder's equity is currently 117bps. As always, time will tell!

Ha - exactly.

Sadly I don't need to use a calculator ;)

Eurobank (including Grivalia) is off to the races. $1.2bn position now and still very cheap.

The other huge issue is that Brexit may be one of those situations where one of the extremes is better than a compromise - but because neither side has a majority, compromise is what we are likely to get. Not that it matters but I don't think infighting is making them more extreme. I think it's because both have given the membership, rather than MPs, the power to choose the leader. By definition the membership is the most ideological/hardcore part of the support base, so you get leaders from the extremes. Infighting is the result of that, not the cause.

Yes, but who invests for survival? If he wins it will take bear market bottom multiples to tempt me, and only in sectors where he doesn't plan expropriations or interventions. The only good thing that can be said for Corbyn is his policies likely lead to elevated inflation so that Britain has a chance of emerging from the inevitable crisis with less debt. Mind you British politics is fragmenting, and I think the process might accelerate. That may make it less likely that a Corbyn government wins power. The logical consequence of electing a man like Corbyn your leader in a centrist country is that the party gets marginalised. That takes time to play out but it may have started. The same may happen to the Tories if Johnson is the new leader. I wonder if we are heading for a three-bloc parliament: 1) BoJo Tories + Brexit Party (hard Brexit, economically right) 2) Lib Dems + Change UK (hard Remain, economically centrist) 3) Labour (confused on Brexit, nutjob left). The biggest bloc could well be (1), but it probably won't have a majority. 2+3 would likely govern in coalition, but that dilutes Corbyn's idiocy. Many commentators here are in despair. Personally I think it's fascinating and actually quite uplifting to watch a democracy reshaping itself as the will of its people shifts. It looks chaotic in close focus, but I think in time the big picture will look clearer. The big parties need to adapt or be replaced, and it will be interesting to see which happens.

As an investment, I don't have one, other than to say I'd rather have bank investment in emerging markets where growth is higher, penetration is lower, capital is higher, etc etc.

Less good if he nationalises your utility after the price has dropped!

30% off would not tempt me if Corbyn looked likely to take power.

Noted, thanks. Mind you, the price of gold has traded in a $60 range since the start of the year and is well above DPM's cost base. Seems a bit overdramatic for DPM to have run from $3.50 to $4.80 and back to $3.90 on the back of that. I wonder if there's also some overhang from the parent - concerns over a forced sale etc.

Anyone watching DPM closely? Any reason for the recent collapse? I haven't seen anything negative and was hoping the stock would start reflecting something closer to fair value.

Outstanding comment but I doubt it. Professionals know the value of what they possess. I suspect that only those who think they're above selling their bodies give their bodies away free for music. Funny old world!

Screw my previous goals, i’m all in on this one. Seriously?! Surely you can think of better things to do if you're ever in a whorehouse ;)

The bull case is that the NAVPS is slowly hardening at a number above the current share price. This is happening because they're selling assets and giving a little more info on why one should trust the BV in some of the others. It's also helped by their largest equity position, Dundee Precious, seeing its share price rise after a well-executed expansion. There is also optionality on the Chad oil royalty paying out. If Delonex discover oil there you'll make a multiple of your money regardless of what happens to the other assets. The issue is there are many assets and not much information on each, but it's relatively easy to go through the FS and MD&A and piece together what they own. Once you've done that you can calculate a range for NAVPS. My NAVPS ranges between $0.43 (listed equities plus half their cash, with prefs at par) and $7.24 (most but not all of assets are worth BV, with prefs at market). I regard the bear case as unrealistically bearish but I could be wrong. My base case is around $2. I think the selling pressure from the pref conversion could create a really good opportunity here.

Just updated my NAV and although some big things are yet to be delivered (sale of BG), a lot has been done and if the pref conversion drives real selling pressure the upside/downside on the common could become very compelling. Here's what I learned from Q1, FWIW: - holdco cost including pref divs heading to $20-22.5m, which is a transformation but still isn't covered by any regular incomes. Could begin to change with a DPM dividend or Chad oil. - D360 is roughly half sold (Sotheby's and some RE assets in Croatia) with more to go. - eCobalt is to be part of a bigger (but still tiny) player with more shots on goal. - Parq is looking intriguing again. We obviously don't have a lot of data but it shouldn't need more cash, so the downside is limited, and the rate on the new debt actually allows for a surprising amount of equity upside in some scenarios. Only on the books for $10m. - Android and Sarea values seem to have stabilised and Android may have potential. The negative for me was the guide to up to $40m of sales in the next six months - previously they were discussing $100m+, IIRC. My personal preference is for them to start buying in the prefs at market. Continues to derisk the common and a cheap way to add to NAVPS.

. I agree deflation wins over inflation - until the next bout of QE. The choice between the two is ultimately a political one and inflation is politically preferable when there’s tons of debt about. (Minor correction - they didn’t say they were bullish on stock markets, but individual stocks.)

I can't remember the wording but it seemed to me that their language on the call made it pretty certain the new Parq partner is private. I feel pretty strongly now that the series 2 & 3 dividends should not be taken for granted. They've cut G&A, but they're still burning through plenty of cash and there's no signs they'll be generating any in the next few years. They're not going to sell DPM to pay dividends. After they sell off the crap assets, I think it would be an easy decision for them to preserve liquidity (and their salaries) by turning off the divvies. After listening to the call, I'm also very skeptical of any type of meaningful issuer bid materializing. They're very noncommittal and it sounds like they won't even make a decision until after getting a decision on their outstanding CRA issue. The partner is definitely private. On the issuer bid - I am inclined to agree but why on earth talk about it if there isn't some intent?

Do any of the DPM followers have a view on whether it might begin paying a dividend? It’s trading on a fat 2020 FCF yield with little debt, but I don’t know about it’s capex plans.