Scunny Bunny

E72DT-Quarterly-Report-March-2024.pdf (east72.com.au) covers BIAL with how pricing works and notes issues from FY27 (plus DIE.BR and 45.HK)

Certainly agree the reason for the sell off plus India COVID fears I suspect. We agree it's excellent long term value. I do worry about the parent sometimes - I'm usually OK at dissecting complex structures but in the past these guys do so many post balance date things to put you off the scent.

Bit of reverse engineering here with no adjustments for future management fees and costs. Main interest to me is BIAL. So take the market capitalisation, deduct value of publicly listed stocks, deduct value of unlisteds using 30% discount, adjust for debt/liquids. At 31 December, at share price of $12.82, doing this calculation gave you an implied value of FIH share of BIAL at $962million, or a 33% discount to stated book - harsh but fair IMHO. At 14 April, at $7.08, taking the market value of listeds (down 32% in US$ terms), reducing unlisted exposures by 30% and still use a 30% discount - which values them at half BV - and adjusting for debt/liquids gives me an implied value of $520m for the stake in BIAL or a 64% discount to last stated BV, and a 46% reduction from the reverse engineered $962m at 31 December. Something like Sydney Airport has a share price off 36% from its high price ever in February - it's still open but one of its major airlines (Virgin) needs a Government bailout of will fail. Obvious fear that the "parent" is wobbling given its draw down of revolver (I would have done the same!) Starting to be worth putting on the watchlist perhaps.

This company is at the outer edge of complexity for me because of the fact much of the associated company equity (TCI apart) is held by the insurance subs and the statutory disclosure of some of the listed subsidiaries is different to FFH interpretation and carrying values at the consolidated level. I try to focus in on what I am paying for the insurance book relative to peers since in the past few years (ex-2017) it's been an excellent business. I did a valuation in May last year suggesting at the time the insurance business was valued at about 1.3x Tangible book. At that time the shares were just over C$600, everyone on this board was very downbeat. So we've had an 18%ish return & that's been fine. A few obvious things. The level of realised accounting profits in the past nine months is up there, especially since it mainly emanates from India - TCI deconsolidation of Quess, sale of First Capital etc. I suppose you can say it independently more than verifies the carrying values, but I would like to see a higher level of recurrent earnings, which of course is held back by investment performance. All care and no responsibility here. To get to an adjusted tangible book, we've obviously got to make a heap of adjustments. I reckon tangible book within insurance and run off is about US$9.5billion, excluding the associates held within the insurance funds. Revaluing the parent capital etc for changes in value of associates (I am not going through the work -it's pretty complicated), deducting these values from the share price to get a price for the insurance business, I reckon we are paying about US$488/share for something with TBV of $340/share (remember the consolidated TBV is only US$250/share at end March 2018). That's about 1.44x TBV, up from 1.3x about a year ago. I'm a holder, not a buyer. In comparative terms, RNR trades at 1.2x TBV and is down 7% over a year; RE trades at 1.12x TBV and is also down 7% - both being buried by the natural disasters of 2018. (no pointing out MKL thank you). So Fairfax has got relatively more expensive versus a couple of straight reinsurers. I also wonder about the Allied World deal. Please bear in mind I live in Australia where we have our own special global insurance take on lousy investing, crazed acquisition, under reserving and perennial earnings disappointment called QBE which trades at 1.8x TBV.

NZM posted separately. Forager are substantial in this stock.

The following non Australian stock pitches were made at the 2nd Sohn Conference Sydney today: Peter Cooper (Cooper Investors): TE Connectivity (NYSE: TEL). Peter "won" last years pitches with Brinks +105% from 10 Nov 16 to 20 Oct 17; David Prescott (Lanyon): NZME (NZM on ASX) - a Kiwi media company covering newspapers, digital and radio on very low multiples Steven Glass (Pengana): NASD: IAC - Interactive Corp the owners of Tinder, Home Advisor etc Michael Messara (Caledonia): NYSE: GRUB Grub Hub - the dominant online food delivery company. SHORTS: Rob Luciano (VGI) CPH: PNDORA - Pandora the Danish charm bracelet maker and marketer. Rob picked Hanesbrands (NYSE: HBI) as a short last year which has worked out pretty well to date. Phil King (Regel Funds) ASX: JBH - JB Hi Fi the Australian electrical goods retailer Not a pitch but a very unsubtle short suggestion on TSLA by Shane Finemore of Manakay Partners (smart bloke). FWIW the rather boring Australian stocks pitched were Macquarie Group, Virgin Australia Holdings, Speedcast, Reliance Worldwide, Next DC and the not so boring microcap Oventus. I have decent notes on some of these pitches so if anyone has a very special interest in one or other, will post it in a few days - all care, no responsibility as not my ideas. I did think the Pandora short story was pretty compelling.

For Green King: All care, no responsibility and will be mistakes, hopefully not double counted or omitted too much, but here goes. All figs in US$ and I haven't left in every piece of individual detail. I reckon the current share price values the core insurance business - and that is really what you are buying given the recent bizarre changes in investment thinking - at about 1.3x tangible BV. That compares to something like Everest Re (NYSE:RE - I own) which has fabulous LT track record and is currently at about 1.2x and Allied World at a similar multiple. How do I get there? Based on the 31 December 2016 balance sheet, I strip the affiliates and associates from the insurance business together with goodwill, and +/- to the parent and get a tangible book value of ~US$7.048bn for the insurance component (all the figures are on p128 of 2016 annual report). With the common equity priced at $10.2bn, load in the preferred, net debt in the parent and capitalised remaining corporate expenses to give an "enterprise value" of ~$14.7BN. From that we need to take out the value of the associates (at fair value - p58 Annual report), value the affiliates (CARA, other restaurants, FIH, Thomas Cook India etc) at the PW valuation on the AGM slides or share price. On my estimation, that leaves you paying ~$9.1-$9.2BN for the insurance businesses (inc run off). Hence, 1.3x NTA. Any big addition to the value of ICICI Lombard (say +$500m uplift) would just reduce the price paid for insurance by that amount. Fully loaded with corporate overhead, interest deductions, and removing associate company earnings, insurance made pretax OPERATING profit of $751M in 2016 and $835M in 2015 (p106/p107 annual report). Take the average of the two years and tax at 26.5% gives you net of just over $550m or a taxed P/E of 15.7x. Don't forget you should get uplifts from higher yields, a lower P/E from some of the additions to value, which can be channeled to the parent and reduce my "enterprise value" numerator, and have the free option of a massive uplift if CPI breaks out. On that basis, the shares look pretty reasonable (not dirt cheap) to me for a quality large insurer, and are way cheaper than BRK on a similar basis. I haven't factored in Allied World, or updated for Q1 as the detail is not there. I have recently initiated a small position, and have been encouraged by the more NEGATIVE comments on here and folks giving up. I understand the distress of seeing hedges on equity markets which were not crazy expensive & then removing them when valuations really started to get out of hand, all because of Trump. But as someone who has not had to hold and watch the shares trade back to levels of 2.5years ago, these events are to my benefit. The biggest issue is Prem tells you the shares are below intrinsic value but is giving away 5.2m of them as part of the Allied World deal, albeit at a similar multiple of BV that my numbers suggest.

All care, no responsibility and will be mistakes, hopefully not double counted or omitted too much, but here goes. All figs in US$ and I haven't left in every piece of individual detail. I reckon the current share price values the core insurance business - and that is really what you are buying given the recent bizarre changes in investment thinking - at about 1.3x tangible BV. That compares to something like Everest Re (NYSE:RE - I own) which has fabulous LT track record and is currently at about 1.2x and Allied World at a similar multiple. How do I get there? Based on the 31 December 2016 balance sheet, I strip the affiliates and associates from the insurance business together with goodwill, and +/- to the parent and get a tangible book value of ~US$7.048bn for the insurance component (all the figures are on p128 of 2016 annual report). With the common equity priced at $10.2bn, load in the preferred, net debt in the parent and capitalised remaining corporate expenses to give an "enterprise value" of ~$14.7BN. From that we need to take out the value of the associates (at fair value - p58 Annual report), value the affiliates (CARA, other restaurants, FIH, Thomas Cook India etc) at the PW valuation on the AGM slides or share price. On my estimation, that leaves you paying ~$9.1-$9.2BN for the insurance businesses (inc run off). Hence, 1.3x NTA. Any big addition to the value of ICICI Lombard (say +$500m uplift) would just reduce the price paid for insurance by that amount. Fully loaded with corporate overhead, interest deductions, and removing associate company earnings, insurance made pretax OPERATING profit of $751M in 2016 and $835M in 2015 (p106/p107 annual report). Take the average of the two years and tax at 26.5% gives you net of just over $550m or a taxed P/E of 15.7x. Don't forget you should get uplifts from higher yields, a lower P/E from some of the additions to value, which can be channeled to the parent and reduce my "enterprise value" numerator, and have the free option of a massive uplift if CPI breaks out. On that basis, the shares look pretty reasonable (not dirt cheap) to me for a quality large insurer, and are way cheaper than BRK on a similar basis. I haven't factored in Allied World, or updated for Q1 as the detail is not there. I have recently initiated a small position, and have been encouraged by the more NEGATIVE comments on here and folks giving up. I understand the distress of seeing hedges on equity markets which were not crazy expensive & then removing them when valuations really started to get out of hand, all because of Trump. But as someone who has not had to hold and watch the shares trade back to levels of 2.5years ago, these events are to my benefit. The biggest issue is Prem tells you the shares are below intrinsic value but is giving away 5.2m of them as part of the Allied World deal, albeit at a similar multiple of BV that my numbers suggest.