petec

Separately, does anyone have a handle on valuing the Android and Sarea investments?

Is there any way of getting this thread into the investment ideas section? It faintly irritates the pedant in me that it's under general discussion!

Of course they're worth something. The question is, are they worth much more than the debt. I played with some ebitda and multiple scenarios and decided not to value it at more than they have invested - I hope I am being conservative but we don't have a lot of info.

Okay. From a risk management perspective, do you have a view point about the appropriate position size? I have certainly made my views clear about the difference between ploughing $1b into RIM vs ploughing $1B into JNJ....as well as the difference between investing $500m in Bank of Ireland and having it grow to $1B+ vs investing increasing amounts of capital into a posiiton. So, does $1b in seaspan make sense, or should they bump it to $2B (basically full ownership)? Is this a prudent investment at its current sizing and does it ever become imprudent? SJ To me the structure is more important than the size. They have $1bn in Blackberry with full equity upside, but $500m of that has practically no downside (company is net cash and will generate FCF from this year, bond matures in 3 years). So, you're massively levered to anything positive happening but downside is 4% of shareholder's equity (andf 1.25% of the whole portfolio, which overall is very conservatively invested). Seaspan is structured the same way (and I would argue there is very little risk in the bonds, despite the headline leverage, due to the phenomenal amount of contracted free cash flow the company will generate now that is has no capex). The other thing that has changed is that Fairfax is a much bigger company due to both equity issues and realisation of value via asset sales. So while Blackberry might have been too big when it was made, I don't think either is now.

Many thanks.

The gravy is at the bottom of the article - not only do they get a quick gain on the warrants but they get gifted another 25m warrants at $8.05 - massively in the money - for exercising the first batch early. Sokol must be on the FFH payroll!

Does anyone have notes or a copy of the presentation?

On Union, the impairment was made in the 4q and in the 1q call they simply noted that ICC's share price had risen and so they'd moved the value up marginally. Whether they have any way of extracting the value of ICC, I don't know. On Blue Goose, the land was damaged in the fire but as of the 4q call they could not assess the extent due to snow cover (ironic) and this was not updated on the 1q call. My uninformed guess given that this is grazing land (not, for example, standing timber) is that the value should not be permanently impaired by a fire. Grass grows back fast and fires can be part of the regenerative process. Correct me if I am wildly wrong (which is quite possible). Does anyone know what's happened to Canadian grazing land and rights prices since 2006?

Blue Goose and its subsidiaries have entered into several borrowing arrangements, pursuant to which Blue Goose had borrowed an aggregate of $60,015,000 at December 31, 2017 (2016 – $55,130,000). Outstanding. Thanks. I should have spotted that.

I believe the Blue Goose land was valued at $100m in 2006. a) does that sound right and b) does anyone know what debt Blue goose has? Thanks.

Out of interest, what should they prioritise selling in your view? The obvious assets (DPM, Parq, and the Chad royalty) aren't at a point where they could be sold for full value. And the others, well, who knows if there is much value there at all? I know I wasn't asked, but my 2 cents: I think they'll be a bit aggressive with Parq. I'm not basing this on anything more scientific than "reading between the lines", but I think they've realize the ramp-up will take longer than expected, the results won't be as rosy as predicted, and they can't keep putting more into it. So I expect they'll transact even if at a non-opportune time. The easiest thing for them to sell would be DPM. But given Jon Goodman's predisposition toward mining, and his statements to the effect that DPM is a labour of love, and that it's undervalued etc., I'm guessing they'll try to hold on to that one. The quickest way to raise cash would be to sell the $70m they have invested in Ecobalt and other small listed stakes, plus $30m in debt. I trust the valuations on those and I imagine a decent chunk of those will be sold as part of the portfolio review and just a few will be kept and nurtured. I'm not including the value of DST here which looks like an option worth keeping to me. For me the second most obvious asset is to sell is Parq. I agree the language around Parq is only going in one direction. My guess is they'll get back something around what they put in but at least it will improve the liquidity profile. I don't think it makes sense to sell DPM until the new mine is up and running. Then you get into the harder stuff, where I find it very hard to know if there is meaningful realisable value: roughly $100m BV in other private equity (excluding Parq prefs) + TauRx + Android + Sarea which could be worth anything from $0 upwards. And Union - could be worth $50m or nothing (they have it on the books at the value of ICC but I don't know if they have the power to force a sale of ICC and distribution of cash so it may be meaningless). Finally Agrimarine and Dream 360. All of these could go but one has to assume it would take time and a haircut. P

Out of interest, what should they prioritise selling in your view? The obvious assets (DPM, Parq, and the Chad royalty) aren't at a point where they could be sold for full value. And the others, well, who knows if there is much value there at all?

It might not tank the stock. All the liquidity issues and some of the leverage would go away, and I suspect there is also a dilution discount in the price now which would also go; plus you'd still only end up at about 0.3x book!

That's because they're puttable, which in effect means they rank senior to the other prefs. The YTM would be sky high if they traded much below par! Interestingly they are also convertible at the company's option into common at the current price, which enhances the value of the other prefs IMHO and is potentially very dilutive to the common given the current market cap. Actually the E shares are convertible into common at the current price or $2, whichever is greater. You might think the E holders would be a little worried about that with the common currently below $2. Given that they're sitting on a bunch of liquid investments, I find it hard to believe that they'd dilute their own holdings in the common to pay off the E's. I'm sure they don't want to sell off much DPM, but if it's a choice between that and diluting the hell out themselves, I think they would sell. I haven't read the E prospectus lately: can they do a hybrid thing, part cash part equity? I can't remember but that's effective what they did with the D's I think, so where there's a will there's a way. This may link into the buyback discussion in that they won't want to use any liquidity on un-necessary buybacks until the dilution risk is gone.

Does anyone know much about TauRx? I am struck by the carrying valuation - both in that it is significant, suggesting real value is present (despite poor trials results) and in that it is discounted by 50%, suggesting rapid potential upside if the discount is removed. Could be a zero, could be a hero, and I have no idea which. Does anyone?

That's because they're puttable, which in effect means they rank senior to the other prefs. The YTM would be sky high if they traded much below par! Interestingly they are also convertible at the company's option into common at the current price, which enhances the value of the other prefs IMHO and is potentially very dilutive to the common given the current market cap.

CTL & DC/A.

SSW. Wanted it in March at lower prices but couldn't buy. Still think it's cheap but obviously less than it was. Will add if it drops lots.

Seems dangerous! I live in Mexico and we are about to elect a new president and part of congress. The candidate that’s leading (by a lot!) is clearly socialist and against market systems. This doesn’t mean that if he wins he is going to nationalize private companies or move against industry, nor that congress will approve such decisions, but he may control an important part of congress and indeed make some moves against free markets. The peso is reflecting some of these fears and if I were to bet (I’m not), I would bet against the peso! I base my investment decisions on facts, not on news or emotions. But hey, that makes a market. Maybe i am wrong. Currency speculation is precisely that, speculation. And facts tend to be deceiving when dealing in an speculating environment, but seems you are comfortable and convinced of what you are doing. I was just trying to point you in the direction of some “facts” you consider news or emotions, so be my guest! Well, I mostly agree with that. But, if the currency position is underpinned by PPP (purchasing power parity) analysis, it becomes a value investment. Essentially PPP is fundamental analysis performing a relative valuation of two currencies. My vague recollection of the PPP literature is that currency valuation gaps revert, but this can typically take 6 or 7 years. So, a ~35% valuation gap is great, but the returns could quite possibly be disappointing if the reversion takes too long (ie, 35% in 7 years would generally be a disappointment, even if you also had a 3% annual coupon). Personally, I usually place currency into the "too hard pile" with the exception of the CAD/USD trade. That latter trade is so important that it needs to at least be part of any Canadian investor's thought process, even if getting it right can only be done at the extremes of PPP. SJ That's why you leverage the currency trade using futures OR the currency isn't the investment. I use opportunities like this to pick up foreign assets on the cheap. Typically when the currencies are cheap, it's due to capital flight, which means risk assets are cheap as well. So don't buy pesos - go on hunt for risk assets denominated in pesos. Using $ to buy cheap assets means you get the same typical appreciation when the recovery occurs, but also the 20-30% currency kicker compounding the gains on top of that. There were some large, recongizable names in Brazil/Russia that returned 300-600% in USD terms in the 12-18 months following early 2016 due to the dramatic revaluation in earnings multiples AND currencies. Yep. I do that for CAD/USD. Try to find something cheap to buy using the currency that's also cheap. Easier said than done, but if you can find something cheap, it's nice to not be taken out behind the wood pile when the currency reverts. SJ MXN is indeed very cheap here. The bull case is that the outgoing government has done deep pro-business reforms that AMLO (if he wins) could find hard to reverse; that NAFTA will probably be renegotiated and if it’s not trade will continue under WTO rules which are not that much worse for Mexico (plus, Mexico is super-competitive at the moment given the currency and what’s happened to wages in China); and that AMLO doesn’t talk about running big deficits or interfering with the independence of the central bank (he’s left of centre but he’s moderated his views over the years and did a pretty good job as mayor of Mexico City). The bear case for me is that presidential terms are 6 years. AMLO can start being fiscally conservative but social programs have a habit of mission creep so by the end of 6 years the situation can be very different. And presidents are limited to one term so what’s the incentive to keep things under control latterly? MXN is undervalued but it might well stay that way, if AMLO wins.

Would you mind elaborating on your thesis? I know Mexico quite well so I would be interested. Also, what currency system do you use and how have you structured the bet?

From where would they take $3-4B? Last I looked, there wasn't a whole lot left in the 5+ year maturity range. I guess they could liquidate that last little bit and move it to short-term, but my sense was that the job was pretty much done. I was a bit surprised about how fast they were. SJ Cash/equivalents? I'm assuming most of that is much shorter than 24 months.

$225M is their conservative estimate of the worth. $300M is the realistic/optimistic view given real estate markets and the global economy humming along. Wow. This is a steal. I believe KW had a hand in checking the RE valuation.

Hear hear Dazel and props to you for your drumbeat of positivity when sentiment was at the bottom.

Right--he said cash flow, but I don't think it was explicitly clear that all the current cash was off the table. You’re right. I inferred that from the amount needed to buy in the minorities, and the repeated references to Singleton. It was implicit but not explicit.

I guess that means they have enough current cash for the minorities they want to buy out, so we're relying on current/future cash flow to the holding company for buybacks? This is also what was communicated in the annual letter and meetings with shareholders. It’s not news.