SafetyinNumbers

I didn’t see any news either. Maybe the IIFL Wealth sale is expected to close soon. It was supposed to close by the end of Q3. That would give them cash to pursue an SIB if they choose.

There is also a weekly block exemption which allows them to buy more than the daily limit but they need to find a block seller. Earlier this year that was Fidelity who I think are probably out of the name now. Last year they asked permission to buy 3.5m shares and they did buy back all 3.5m so I don’t understand Stubble’s comment about it bearing “no resemblance to reality”. From the NCIB PR: “Pursuant to its existing Normal Course Issuer Bid, Fairfax India sought and received approval from the TSX to purchase up to 3,500,000 Subordinate Voting Shares, and has purchased to date 3,500,000 Subordinate Voting Shares, which included Subordinate Voting Shares reserved for share-based payment awards, during the last twelve months through open market purchases on the TSX and other alternative Canadian trading systems at a volume weighted average price per share of US$12.40.”

It also seems like some free optionality on more share buybacks and potentially a going private by FFH.

Does anyone else wish there was a listed options for FFH on the Montreal Exchange? Apparently, the MX has a monthly listings meeting so maybe if they get enough requests they will list eventually list them so I sent them an email. If anyone else wants to it’s: info-mx@tmx.com I also asked a few of my brokers to request FFH listed options. I figure it doesn’t hurt to have a few participants also request listed options. I’m not sure if any of them will want to make a market though.

Agree that Viking does great work! There is a real distrust in Prem and I guess that works in our favour as he buys back stock. Has there been a time when Fairfax has issued stock at a discount to book value to buy something?

As Viking pointed out, FFH issues stock when it's at a big premium to book to buy other fairly or overvalued insurance companies. With the stock at a big discount to book and a fraction of float, it has to be a short list of what Prem could find interesting enough to buy with stock.

I think the end of the third performance fee period is a catalyst to close the discount. The VWAP settlement of the performance fee is a built-in incentive to close the discount to NAV before Dec 2023. Arguably that was more of an incentive before last quarter as the book value declined reversed more than half of the performance fee due (it also dampens qoq book value volatility when in the money). The first two incentive periods were less interesting because in the firstthere was no NAV discount and in the second the performance fee was so small, many more shares were bought back at lower prices. Also Prem’s been pretty active lately. For all we know, if FFH earnings are as strong as can be expected and it uses its own resources on buybacks, Prem could be in a position to issue 1.2-1.4x BV stock to buy out the FIH.U minority (ex OMERS) for stock at BV. Seems like a giant win for everybody.

I rather FFH owns ATCO forever and earn a 10-15% CAGR rather than having to find something else that does the same thing. I imagine, ATCO wouldn't be a favored counterparty for other shippers if ONE owned all of it.

Great points as always, Viking. A lot of investors bought in at high valuations and Prem used that paper to build/buy an extraordinary collection of float generating insurance businesses. He also didn't reach for yield which hurt ROE and operating earnings. I think those same investors are dumping their shares now as the stock tries to get back to all time highs. Maybe it takes buybacks for the shares to go up but as it's been highlighted before on this thread, the earnings power means there is a good chance, the company earns it share price in the next 5 years. Buybacks should help book value / share grow even faster.

To be fair, there isn't any deal to vote on yet. The consortium made an opening proposal that might be too low for most shareholders. Let's see what the special committee bankers comes back with and if they are able to negotiate a price that they feel comfortable recommending to shareholders.

Letter to Special Committee from ATCO shareholder, Charlie Frischer, asking for a bump to at least $16.50. It’s a good read for any Fairfax shareholders as well. Since Fairfax isn’t putting any new equity into the deal, a bump has no impact on Fairfax except to highlight ATCO’s value to FFH. https://www.newswire.com/news/lf-partners-charles-frischer-sends-letter-to-atlas-corporation-special-21796411

I think your view makes sense and explains the spread that has developed. It’s not surprising there is more supply than demand given the competition for capital. The risk adjusted return still seems worthwhile though depending on the odds of the various outcomes. Risk arb spreads in general are quite wide and there are more deals than capital available to invest in the strategy. Clearly not for everyone.

It’s all about the odds on the various outcomes isn’t it? What odds do you place on the consortium walking away with no deal, the proposed deal closing or the deal closing post the special committee extracting a bump?

Prem isn’t putting any new money up. Presumably he’s indifferent.

I do but I don’t understand the relevance to ATCO except Fairfax is a common shareholder.

Seems like a lot of ATCO sellers! I’m curious on your rationale. I have been buying some to play the arb and there seems to be endless supply.

Thanks for the link! I hadn’t seen it. Looks like it’s a mix of what we thought. New issuance with a dividend up to Fairfax. ”The proceeds from the Odyssey Transaction will be paid by Odyssey to Fairfax by way of a dividend which will then be used by Fairfax to fund the purchase of Shares pursuant to the Offer. See Section 15 of this Circular, “Source of Funds”.”

Joining this thread late but most of the responses seem to assume that Fairfax sold some Odyssey. I don't think that's what happened. I think Odyssey issued new securities worth up to ~10% of the equity. The distinction is important because this is new equity. That frees up Fairfax holdco that was likely holding excess capital to fund Odyssey growth to use it for the SIB. I think the high valuation can be explained as a conversion option. FFH peers trade at 1.4x book so this transaction seemingly priced at 1.8x book likely reflects a conversion premium. It makes sense that the pension funds would want liquidation preference over Fairfax. Perhaps there is an interest component as well which would be tax effective for Odyssey. I think a mandatory convertible bond is probably the type of security that was issued. It probably would be treated as equity by regulators. Is the general consensus that FFH will get a full fill on the SIB and if so, is there a consensus on price?

Added some more to ACD.TO and to IOU.V. IOU Financial is a fast growing fintech asset light small business lender. Historically and unsurprisingly, loans growth is high and loans perform well coming out of a recession. I don’t think people are paying attention to the illiquid names because they are illiquid. Seems like a source of alpha to me.

Added to ACD.TO Accord Financial Its not a very liquid stock so the risk is if you buy it, it might go up. Reported $0.65 in H121, should be stronger in H222 and even stronger next year as they grow the balance sheet and pick up operating leverage. Management is targeting a 15% ROE vs 13.3% last quarter. Book value is $10.70 vs the stock price of $8.17.

I would have thought a lot of the bears who have been disappointed with perceived poor stock picking in the past would be pacified somewhat when an investment like Digit is in the stable. It's growing pretty fast. It seems like the stake in Digit could overtake the current market cap of FFH at some point.

Congrats. Really impressive execution. I have been looking to speculate on options more as I come across stocks that seem unreasonably cheap but also have liquidity. I normally trade in illiquid securities like ELF.TO and ATTO so I am perhaps out of my depth. I purchased RCII call spreads Dec 70-80 for a net debit of 75-90 cents. I think I am unusually bullish on the economy than most investors in consumer finance / retail but the stock seems unusually cheap. At $55 it trades at 8.5x 2022E consensus. They are paying down debt faster than expected from a large acquisition they did in February meaning they could announce share buybacks in August or November. I figure the December calls give good coverage. Breakeven would be about 11x 2022E estimates which is a far cry from 8.3x now but I think there is a view that the economy is rolling over which might be true but it's not in the numbers yet and doesn't fit my narrative. Management has a history of beating numbers and analysts have decent growth built in but they are hedging with their targets. The average target is is $70 or 12.4x 2021E EPS. Presumably, that will roll forward to 2022E EPS of $6.47 (which might be too low) by December and result in a target above $80. Will anyone care, I don't know for sure but buybacks would be real demand for the shares and systematic quants usually like price target and estimate increases. This is a good tweet thread: https://twitter.com/BreachInletCap/status/1409960007077175299?s=20 I'm only risking 0.1% of capital on this trade. A full investment position for me would be 2% so this strategy if it reaches it's maximum profit would provide a return equivalent to the shares going to $85 by December expiry. I haven't done these sorts of trades before but I'm short on capital and I'm trying to be creative! In all likelihood I will lose all of my premium but I like my odds.

ELF.TO is a better choice for exposure to a mostly quality stock portfolio vs FFH. Plus it trades at over a 50% discount to intrinsic value so very high margin of safety vs buying the S&P 500 (although ELF does own a bunch of VOO too). I own both but I only bought FFH recently (February 2021) because I like the pro-cyclical portfolio.

I added more ATTO on the post earnings sell off. I think intrinsic value ($80+) is higher post these results off of the strong sales but the market is selling ATTO off based on a perceived disappointment in margins in Q1. Full year EBITDA margin guidance is unchanged and with stronger sales, should end up higher than previously anticipated.

I added to MKO.V and FISH.V last week. Mako is a gold miner in Nicaragua and Sailfish has a royalty on Mako's mine along with some other assets. I also went on a podcast and talked about them along with ATTO and ELF.TO. Mako stuff starts at 34:30 https://twitter.com/BrownMarubozu/status/1378157840049782784?s=20