petec

Go back over the calls. I think you'll find that's not what they thought, not what they said, and not how they acted. They said Trump would kick start animal spirits in the US economy, which reduced the global depression risk for which they were hedged. So they took the hedges off. They were quite explicit that they were not bullish on equities as a whole, and they acted accordingly, keeping vast amounts of cash. Instead, they said they thought it would be a good stockpicker's market, with good individual stock opportunities. I took this to mean they expected more volatile internals. I'd argue they've been more or less spot on so far, but the point is their major action was to take off the hedges, not to go all-in on stocks generally.

Do we know the warrant exercise price?

It might have touched 4.44 but it's retraced to 4.20 now.

My notes on the recent CIG deal, if anyone's interested: FAH agreed to recap CIG in 2018/2019 in three stages: a $21m loan (2.5% fee, prime+4%, 1 year), $51m in a rights issue at R4/sh (underwritten by FAH for 2.5% fee. Uptake was only 10.5% because the share price was below the offer price, so FAH got most of the shares which I imagine was the intention), and then conversion of the loan into equity at R5.20. After the conversion FAH will have 56% of the stock at an average price of R4.14. As of Feb 2019 CIG trades at R3.10 but the company's own SOTP (p17 here: http://www.ciglimited.co.za/wp-content/uploads/2018/08/Project-Wakanda-Shareholder-meeting-re-convert_13August2018_vF.pdf), which looks reasonably conservative at first glance, says it's worth R7.10. CIG is a pan-African diversified energy infrastructure holding company exposed to growing investment in power generation & grids etc. The problem is that the construction arm got into classic construction trouble with cost overruns etc. This caused the holdco to breach covenants on its long term debt, triggering a holders call clause and the need for a rights issue. There seems to be value in the other subsidiaries, so with a better debt structure this opportunity might never have arisen. The major assets are Conco and Conlog. Conco builds substations and high voltage electrification projects including wind parks and solar farms across Africa and the Middle East. This is the business that got the holdco into trouble. It has been restructured and reorganised to improve execution and project selection, management have been given CFops incentives for the next 3 years, and CIG believes it will return to profitability over the next 12-18 months. Conlog makes prepaid and smart electric meters. These can be sold or leased or bundled as a service (e.g. revenue management and load management for utilities and municipalities). Conlog will receive an equity injection to accelerate the buildout of the lease/service annuity streams at an anticipated 20-25% ROE. Other assets include AES (Angola Environmental Services - does waste disposal for the oil and gas industry in Angola, debt free), CIGenCo (develops mid-sized generation projects, made its first profit in 2018, targets a 20-25% ROE, and has 6 out of 14 projects coming online soon), CPM (maintains renewables and transmission sites), Tractionel (electrifies railways), and CBM (Consolidated Building Materials, consisting of Drift Supersand which mines aggregates and West End Claybrick which manufactures clay bricks and concrete roof tiles). A number of these businesses are currently depressed either due to the oil price (Angola rig count is at historic lows) or the South African economy (construction has been in a recession for some time). In summary FAH seem to have got reasonable value, there's a clear reason why that opportunity existed, and there's a decent platform for future growth.

IIFL down 60% over 6 months to below 10x forward earnings. Anyone following it? I know there were liquidity concerns last year but I thought they’d passed.

There’s a lot of good info on CIG on their website. Only glitch I can see is investors didn’t exercise their rights, but it would have been a non-event/disappointing for FAH if they had. At first glance FAH have bought half the company at a big discount to book, and it was healthily profitable before one of the divisions got into trouble. Edit: not such a big discount to book; didn’t see how much they lost in 2018!

I think you meant this link: http://grocapitalholdings.com/ By the looks of it it might have been part of AFGRI, which might be why you don't know of it separately. It's the holding company for the South African Bank of Athens, bought from National Bank of Greece last year.

Yes, but that's at least partly political given slow NGTL expansion approvals etc. Thanks for the input.

Ha - I assume that's more a personal wish list than a probable reality? ;)

I am new to Alberta politics and hoping some of you can help me out. There's an election soon and the Conservatives are in the lead from the polls I have seen. Implications? I am specifically coming at this from a Peyto shareholder's perspective but also interested in wider ramifications.

If that was the case presumably it would have been included in the book value. They recorded this at a discount to the lookthrough value of Aurora because they couldn’t sell it. They didn’t mention any debt that should be set against it.

In fairness this isn't massively away from book in absolute terms. It's just disappointing they couldn't have got a better deal. They must have had almost no exit rights, which suggests a badly written deal.

More worryingly, if this is the discount they have to accept for holdings with a visible (albeit lookthrough) market value, what on earth are they going to have to accept for junk like TauRx and Android? All the stuff where the value is really questionable is still on the balance sheet. As a common shareholder I'm now praying that: 1) they use some of their recent $40m cash inflow to tender for lots of prefs at a silly discount. 2) they convert the S5 pref at $2. Conversion is highly accretive to my bear case (so removes a lot of risk), somewhat accretive to my base case, and still leaves a lot of upside to my bull. 3) They find a Spindletop in Chad!

Ugh. That’s about the only holding (bar DPM) that’s been having good news (the ICC sale to Aurora and the Peru sale to Polaris). IIRC the last balance sheet value was at a liquidity discount to the value of the ICC stake only, with nothing for any other assets, so this sale is at a big discount. Ouch. Still, more cash in the bank and a harder NAV.

Yes, I’m aware of this but what I meant was how do you value it? P/earnings power? P/BV? P/TBV? I’m interested in how you think about this. Also, you say Thomas Cook was a home run. Was it? Or was it just Quess?

Sanjeev do you plan on sharing your notes & thoughts on the investments? It would be greatly appreciated if you can.

Trade deal? Yes, the options were at phenomenal prices.

Dazel, how do you value Fairfax?

May I ask why?

Good point. I haven't read much on it for a while. Will do so and revert. I've also reordered the stocks to reflect current size. In total this lot adds up to about $5.4bn (I may have some of the share counts wrong given how they are spread across subsidiaries). Edited for KW and with an additional observation at the bottom.

Please feed back if you get an answer. The CEO there has a very impressive background. As I have said elsewhere FFH does seem to be able to attract real talent to its projects.

Good point. I haven't read much on it for a while. Will do so and revert. I've also reordered the stocks to reflect current size. In total this lot adds up to about $5.4bn (I may have some of the share counts wrong given how they are spread across subsidiaries).

Agreed! I just didn’t want to end up looking at every investment they’d ever made so I limited myself to current needle-movers!

I was aiming for the big public positions. These are either small (now) or private. I always think it’s pretty tough to analyse the private ones given we seldom know the deal terms or postdeal performance.