SafetyinNumbers

I think you are willing to make a forecast while the more pessimistic holders are basing their decision on historical valuation.

They don’t need the equity capital to grow BIAL so it doesn’t make sense to use political capital to get the IPO done faster.

John, What do you base your outlook for Fairfax on? What’s your expected return and why?

2029 potentially

Doesn’t make sense from capital treatment perspective. I assume they think very long term. There are other ways to add value with a public vehicle. I think return expectations are very high because the market is particularly inefficient.

I think the odds are low of this but it’s possible. I think more than likely the discount persists but they will be able to sell some Anchorage to buy stock. I also think BIAL will start paying out dividends at some point which will provide capital as well for growth or buybacks.

Intrinsic value is likely in the $35-45 range so probably closer to 13% CAGR vs 10%.

Actual fees have been 1.9%. I think we all agree that IV is significantly higher than BV so is there a benefit from deferring fees that should be included in the analysis? Also, is there any mitigation to fees from the benefit of cheap leverage in part due to the relationship with Fairfax? What fee would be fair? Also, if you own Fairfax are you frustrated they pay fees to outside managers?

They have bought shares back in the past. I suspect when they have more capital they will buy more.

Fairfax owns ~77.5% of WEF III and WEF III has increased its stake in Greenfire (GFR) ahead of a rights issue that went ex today to 71%. Fairfax will be effectively increasing its position by another ~80% when WEF III exercises their rights. The shares are trading very well so far but the rights haven’t started trading yet despite being listed. I can see the shares rerating post rights issue given it trades cheap, won’t need any new capital and will be debt free. https://www.businesswire.com/news/home/20251114867395/en/Waterous-Energy-Fund-Acquires-Shares-of-Greenfire-Resources-Ltd.

I think this one from RBC is better because it has financing costs and head office expenses built in. I like breaking out returns on each asset class but that can easily be incorporated below.

I think he’s friends with Prem, they both invest for absolute returns and the Dhando Investor is a great book. I like it.

My understanding is that FIH is considered a listed stock on the TSX so has different capital treatment. I’m not making an argument, just explaining why it’s not something I am concerned about. On a side note, FFH happily pays fees to other money managers like WEF, BDT, Shawkwei and others so I find it amusing that it’s such a hang up for retail investors who pass on FIH.

This is terrific. Pre 2011, investments made up for underwriting losses and post 2011 underwriting made up for poor investments (hedges) and low rates. Now that both are clicking, 20% ROE seems more likely than 15% ROE.

Another way, FFH understates earnings is by giving the preferred return shareholders who purchase the minority interest so many rights that they are deemed common shares by the accountants which understates operating earnings until they are brought back in. The issuance Ki made in 2022 as noted above are also these types of common shares. The preferred return is 8% and they get paid back in cash on the IPO at the IPO price. It’s why FFH’s economic interest in Ki is closer to 40% vs 20% as it appears.

i have about the same as you @giulio. If we are right @Txvestor, FFH just got $100/sh cheaper for you.

How do you calculate that?

Strathcona has a poor reputation too. It hasn’t hurt the returns.

Are you familiar with the financials? They contributed $38.8m in profit in Q3 but maybe that’s not repeatable?

The US$108m included the regular dividends and the special distribution. The regular dividends would be income. The special distribution will reduce the cost basis from US$129m to ~US$35m.

The exchange rate is ~1.40 so ~C$130m distribution is closer to ~US$90m not US$70m. I don’t agree with you that they will elect as a dividend and choose to pay tax now as opposed to defer it and I’m not sure if we’ll find out. The ongoing dividend is C$1.20/yr which is closer to US$11m per year not US$75m. It’s supposed to go up with production but that was before they sold the Montney. I suspect they still might do it though.

No question. With the regular dividend they will have taken out ~US$108m by the end the year. Also SCR should be going into the S&P/TSX in December which might help the mark.

Strathcona is part of limited partnerships. Based on the disclosure, Fairfax owns ~13.1m shares of SCR. The C$10 distribution can be elected as a return of capital so unlikely to contribute to income in Q4 for FFH.

Currently this investment is all Greenfire Resources (GFR). It’s doing a rights issue in December so this investment is going up in Q4. Post rights issue I expect this investment to do well assuming they execute well on the capital program and oil prices can stay around here or better. I assume they will also look to do acquisitions which may result in more capital being called from Fairfax.

That all makes sense but Berkshire and Markel aren’t making venture investments like this so to ignore it in the returns calculations seems unfair.