SafetyinNumbers

I like how the spread to the 30 year keeps tightening. Two years ago they issued at ~190bp spread, last year ~165bp and this year was ~135bp. I think Allied World is the logical place for this money. Extending the option would have been more expensive and buying Allied World minority boosts the borrowing base,

How low do you think the multiple can go? What do you think the odds are?

We see the world so differently. The discount is due to the market structure. Their actions are because their timeline is forever. I know you think I’m wrong but you may be able to see it if you change your framing.

You think they will choose to defer after trying to get it done for 5 years? I assume it’s because they want to make other investments like IIFL Capital. We have discussed this previously.

I own a core position and will probably trade around it. I expect when announced we’ll trade at a small premium to book value and then once the IPO happens at a bigger discount to BV then we are now. I agree it’s probably a mistake to sell any depending on return expectations. The airport could be a 10x in 10 years.

Return expectations feel high to me if 15% is average. Versus other Indian equity exposure available its done about average.

They did unwind some in Dec 2024 and bought the stock back. I don’t think it has anything to do with why the stock is down. The TRS are a really useful tool to maintain investments:equity leverage near 3:1 as they can wait to close them out when the stock is expensive while buying in the open market when the stock is cheap. It’s a big reason why a 20% CAGR in BVPS over the next 5 years is way more achievable than most investors think.

I see it as a real positive. It allows the company to buy stock back cheaper which boosts forward ROE. Their cost of capital on the TRS is prob less than 3%. Anyone long presumably think the stock will do better than that over the medium term.

They filed they went under 5% in May. My bet is they are out.

FFH was trading around 1.2x BV when the Muddy Waters report came out which is not that different from now. The dip took it closer to 1x but it didn’t last long. I think it’s a better opportunity now because fair value over carrying value is significantly higher. My own position has increased considerably since then as I think I understand where the returns come from much better than I did back then.

There are only two estimates in consensus and they are essentially $60 and $90. Poseidon earnings come in on a quarterly lag so Q1 results should still help Q2 earnings. The tax rate should be lower because gains are taxed at a lower rate.

They have stated that they don’t need to do any large insurance acquisitions. They can’t use their stock for insurance acquisitions like they did when they bought Allied because they trade much cheaper than peers. Whatever they do, I’m sure it will make sense at the time.

KW buyout probably happens at the insurance subsidiaries level. About $400m of Poseidon was held at the holdco so that money is presumably available for buybacks if they decided to sell that piece.

We need to change the title to ‘Fairfax Stock - New 52-week Low’

We’ll check back in two years!

They were at $374m last year so I’m surprised you think it will take two years to get to $400m. Presumably inflation offsets a lot of the rupee decline. I do think the war and the problems with IndiGo probably hurt near term growth. Although post war, BLR might take some international slots away from the Gulf.

A friend of mine (and very good analyst) thinks BIAL hits $500m in EBITDA as early as calendar 2027 and should hit it by 2028. On that basis fair value for the airport would be $10-15b. Assuming $2b in debt, that’s an equity value north of $50/share for FIH’s stake 12-18 months from now assuming a realistic multiple. Anyone have a different view on EBITDA? The multiple of 20-30x can be debated but it seems fair given comps and growth expectations.

Any reason in particular for the heavy volume today? I started a small position after the investor presentation because it seems like BVPS growth has turned the corner.

Equitg accounted for investments have grown significantly as a percentage of total equity investments. Essentially, as their balance sheet got bigger it allowed them to take bigger stakes and truly partner with management teams.

What size do you think they could do? Personally, I don’t think they will do another SIB b/c it means taking a break from the regular buyback and paying a premium. They have shown they can put over $300m for to work a month (March) and I think they have $2-2.4b to spend without getting creative. Maybe if the stock is a lot lower over the summer, they could defer the Allied World minority interest option that expires in September and buy even more back.

I think there is confusion between capital gains and earnings. The increase in the carrying value to fair value would be capital gains which is separate from Fairfax’s share of earnings. This only happens on the portion of equity accounted for or consolidated investments that are sold in which case the associated future earnings stream goes with it.

I prefer using the earnings and book value together. If all of Fairfax’s assets were marked at fair value, post adjustment forward ROE would be materially lower. That’s why a high ROE should fetch a higher P/B multiple. The relationship is exponential because of the compounding. I have four different methods to calculate intrinsic value. Two of them use book value. P/B (I use a conservative 2.5x) and the Buffett method, BV + insurance float.

At the AGM I came away thinking small and soon and it looks like that’s what we got. This suggests ~$1.6m for 13% so shouldn’t FIH’s share be bigger than $3.6m?

Allied World is marked at 6.4x P/E. With FFH’s P/B multiple of ~1.25x its 8x earnings which is about the same as Fairfax as a whole.

I think when Buffett says BVPS is not as relevant, I think he means that it’s not an indicator of intrinsic value on its own. It has to be taken in conjunction with ROE to determine a fair P/B multiple all else being equal. Fairfax has the benefit of turning over its equity portfolio which along with reserve releases means that BVPS lags IVPS. It’s why an investor should be willing to pay a premium as Fairfax is when it buys stock back.