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Viking

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  1. @StubbleJumper @MMM20 thanks for posting your thoughts on the odd lot opportunity. Given Fairfax’s very high share price 99 shares spread across a bunch of tax advantaged accounts (RRSP, TFSA, RESP) starts to add up to a pretty sizeable potential short term gain (especially considering most families have multiples of each type of account). A little more than just beer money PS: do you guys have any insight into currency transaction costs (what to elect to minimize them)? For investors who hold FFH in a Can$ account like an RESP (tax advantaged).
  2. @StubbleJumper i really do not understand why so many are in such a panic forFairfax to unload Resolute. Yes, it was a dog for Fairfax for many, many years. However, the company the past 3 or so years has made lots of money; and made lots of very good decisions with that money. The company has successfully pivoted to lumber and more: - it bought 3 lumber mills in the US South at the bottom of the cycle in 2020 - bought back a bunch of stock at crazy cheap prices - paid 2 large special dividends - paid back most of its debt; refinanced whats left at low rates The shares hardly look expensive. Especially if average lumber prices stay elevated (compared to historical norms) the next few years. Now i am not saying Resolute is some wonderful company. But i also do not think it is the terrible company it was 10 years ago. Yes, Resolute has been hit much harder with duties than most other Canadian lumber producers. Not sure why. They will shift and focus on selling their Canadian production in Canada. Other Canadian producers (with lower duties) will shift to selling more Canadian production into the US. Resolute does have three lumber mills producing in the US south. Bottom line, if lumber prices stay elevated Resolute will continue to earn very good money for shareholders. I think there is a good chance US housing starts will remain elevated for the next 5-10 years. If so, lumber prices will average much higher prices than in the past. I understand if Fairfax is patient with Resolute. Resolute is also sitting on more than $300 million in lumber duties (on deposit). I think the last time this happened (softwood lumber dispute) when it was finally resolved a big chunk of the duties actually went back to the lumber companies. Something to keep in mind.
  3. How should Fairfax be valued? Here is more detail (with numbers) on another one of the items i highlighted in my initial post. I am not doing my deep dives in numeric order (i am going to bounce around). ————— 6.) Interest Expense: total debt levels were steadily increasing at Fairfax from 2018-2020. So interest expense has also been steadily increasing. Not ideal. However, this has changed in a major way in 2021. Proceeds from the recent sales (Riverstone UK and 14% of Brit) were largely used to pay down a big chunk of debt (paid off its credit facility completely). And Fairfax has paid off an additional $85 million of debt in Oct (redeemed notes that were due in 2024). And the insurance and non-insurance subs have also been paying down debt in 2021. As a result, Fairfax is ending 2021 with lower debt levels and they are now once again at a reasonable level (especially considering the very large increase in equity we have seen this year). Fairfax has also been very active taking advantage of the exceptionally low interest rate environment. They have been able to reduce the interest rate they pay on their debt (higher cost debt has been redeemed and replaced with lower cost debt) and maturities have been extended (locking in low interest rates many years into the future). These moves came with a short term cost - hit to earnings - $46 million ‘loss on early redemption’ was the charge in 2021. Moving forward, lower total debt levels combined with lower interest rates paid will result in much lower interest expense for Fairfax starting in 2022. This is a good example of Fairfax running their business for the long term. Interest expense averaged about $475 million 2018 and 2019. It popped to $505 in 2021. And should fall to around $420 million in 2022. Interest expense will shift from being a modest headwind to earnings to a modest tailwind. Interest Expense 2018 $347 2019 $472 (change in lease accounting caused $68 increase) 2020 $476 2021 $504. ($394 Sept 30 YTD + $110 same as Q3) - includes $46 million loss on early redemption 2022 $420 est ($105 est x 4) ————— Borrowings (at Dec 31) Fairfax/ins/re-ins. Non insurance. Total 2018 $4.9. $1.6. $6.5 2019 $5.2. $2.1. $7.3 2020 $6.6. $2.2. $8.6 2021 Sept 30 $6.3. $1.7. $8.0 2022 Dec 31 est $6.2. $1.7. $7.9 ————— Also: “On June 29, 2021 the company amended and restated its $2.0 billion unsecured revolving credit facility with a syndicate of lenders which extended the term from December 21, 2022 to June 29, 2026.”
  4. Yes, i will make that change i also just edited the Dividend and Interest post to match how Fairfax reports in their short form press releases. I am using their Feb releases for most of my YE numbers and the Nov press release for my Q3 numbers. This will keep all the various posts i do consistent in terms of my source material. And will also make future updates easy (using future Fairfax press releases).
  5. @Thrifty3000 that is a great question and the short answer is no. And i am not planning on doing that right now. i am thinking about how to capture all the equity holdings and i am likely going to focus on the individual holdings share price. So lets assume Atlas is trading at $14 at year end. Cheap. Given Atlas’ outstanding prospects i think it is a reasonable to expect the share price to increase 15% in 2022 to $16.10. Fairfax owns 126 million shares. $2.10 x 126 = $265 million in value creation for Fairfax. I am likely going to ignore exactly how this value flows through the financials. I don’t really care. My guess is Fairfax eventually will sell ALL of its equity holdings at some point in the future (i just don’t know when) so shareholders will see all of the value of a higher share price at some point in the future. i am simply trying to come up with some estimates that make sense and allow me to come up with an earnings number that is close to being accurate. I have said this many times… but the historical numbers for Fairfax are so messed up (full of noise) i don’t think many people understand what Fairfax might earn in 2022. We will see in about another week (i should be done my first take). And it will be great to hear what others think
  6. How should Fairfax be valued? Here is more detail (with numbers) on another of the items i highlighted in my initial post. ————— 2.) Interest and dividend income -insurance and reinsurance. Please note, i decided to edit the post to capture the numbers consistent with how Fairfax reports results in their short form press releases. So i am using their Feb press releases to source my YE numbers and the Nov press release for Q3 (in case you are wondering). I also want to be able to take my individual posts and sum them to come up with an 2022 earning estimate for Fairfax. As interest rates have fallen significantly in recent years (especially since the start of the the pandemic) this item has come down significantly even as the size of the total investment portfolio has increased. This item is falling for all insurers and is one of the key drivers of the current hard market in pricing (so there is a silver lining). The drop for Fairfax in 2021 is about $100 million versus 2020 and $200 million versus 2019. Pretty significant. The good news is interest and dividend income likely has bottomed out in 2021. After earning about $445 million in 2021, My guess is Fairfax will earn about $460 million in 2022 and $500 million in 2023. Summary: Interest and dividend income will transition from a headwind to neutral in 2022 and become a modest tailwind in 2023. My estimates may prove to be too conservative. Wild card: inflation is currently running much hotter for longer than most observers expected. If this continues into 2022 we could see bond yields pop. Some former Fed officials think we could see US 10 year treasuries move to +3% over the next 24 months. If this happens and Fairfax is able to redeploy their massive cash/short term holdings we will see interest and dividend income spike and this item would become a big tailwind to earnings. I&D Amount. Per Share 2018. $544 2019. $657 2020. $561. $21.60 2021 est $455 ($341 Sept 30) $17.50 2022 est. $460. $19.20
  7. Nice to see. Just like other regions, being the leader in technology is a big deal.
  8. How should Fairfax be valued? Here is more detail (with numbers) on one of the items i highlighted in my initial post. —————- 1.) Underwriting Profit: after Investment Gains (Losses) this is the most important item impacting earnings for Fairfax. Why do i think it will be a big tailwind for Fairfax in 2022 and after? Fairfax has earned an underwriting profit of about $335 million per year on average from 2018-2020. My guess is they will earn about $500 million in 2021 (97CR) and $750 million in 2022 (96CR). Pretax Underwriting Profit Per share. YOY Inc/share 2018-2020. $335 million avg. $13.00 2021 est $500 million. $19.25. 48% (26 m sh) 2022 est $750 million. $31.25. 62% (24 m sh) Net premiums earned are growing at a 20% clip in 2021. Expectations are now (post Q3 earnings update) that the hard market will continue into 2022. Estimating that Fairfax delivers a 96CR in 2022 (= over $30 per share) is NOT an aggressive call. And if, heaven forbid, Fairfax delivers a 95CR in 2022 it will earn close to $40 per share in underwriting profit. A significant increase. (Reducing the share count from 26 to 24 million is a big deal for all the per share numbers.) So underwriting profit could be $18 per share higher than the average from 2018-2020 = 140% increase. And Fairfax shares are currently trading near their historic low price band (going all the way back to 2014) at US $455/ share. And this is just one of the tailwinds coming in 2022… Makes complete sense! ——————— Net premiums. YOY earned growth. CR. Underwriting profits 2018 $11.91 - 97.3 $318 $12/share 2019 $12.54 5%. 96.9 $395 $15 2020. $13.86 11%. 97.8 $308 $12 2021 est $16.63 20% Est 97 $500 $19 2022 est $18.63 12%. Est 96 $750 $31 On this same thread i posted a longer more detailed note on this topic on Sat Nov 13.
  9. How should Fairfax be valued? There are many ways to value an insurance company like Fairfax. One thing I try and understand is what, if anything, is changing? At both the company and industry level. And are the changes good, neutral or bad for earnings. Changes likely to lead to higher future earnings i call ‘tailwinds’. Changes likely to lead to lower future earnings I call a ‘headwinds’. A scorecard can be developed for a company where change in the various items can be captured. And when tabulated this earnings scorecard can provide a pretty good estimates for the future trajectory of earnings. And higher earnings usually = higher stock price. Important: an item changing from a headwind to neutral is actually a win for shareholders. And an item going from a mild tailwind to a big tailwind is another win for shareholders. The reason i am so positive on Fairfax today is because of all the tailwinds to so many of the items that sum to net earnings. This tells me that earnings should be higher in 2022 and future years . And with Fairfax shares trading at US$455 this increase in earnings is NOT yet reflected in the share price. So what has been changing at Fairfax the past couple of years? Below is a summary. I will dig into the individual items in more detail in the coming days. 1.) Underwriting Profit: big tailwind (from modest tailwind) 2.) Interest & Dividend Income: neutral (from modest headwind) 3.) Share of Profit of Associates: modest tailwind (from modest headwind) Total Operating Income 4.) Runoff Expense: neutral (from modest headwind) 5.) Non-insurance Companies: TBA 6.) Interest Expense: modest tailwind (from modest headwind) 7.) Corporate Overhead Expense: neutral (from neutral) 8.) Net Gains (Losses) on Investments: TBA Pre-tax Income 9.) Taxes and Non-controlling Interest: modest headwind (from modest tailwind) Net Earnings Attributable to Shareholders of Fairfax Shares outstanding: big tailwind ————— P&C insurance companies are valued mostly off Operating Income. Analysts love predicability. This part of Fairfax earnings should increase nicely in 2022.
  10. IIFL is but one of many recent examples of where Fairfax has simply been hitting the ball out of the park. Smart initial purchase. Split into 4 separate companies that are all thriving. Delivering significant value creation for shareholders. With solid future prospects. Smarts. Vision. Execution. Patience. Well managed. The positions are owned primarily through Fairfax India with smaller positions also owned directly by Fairfax. My rough math for Fairfax India only owned positions has the 4 companies worth about $750 million (Sept 30) with a cost of about $300 million. Initial investment was made in Dec 2015. But i know, i know. It doesn’t matter what is actually going on under the hood at Fairfax today. What matters is that shitty Abitibi purchase in 2008. Or that shitty RIM purchase in 2010. What a bunch of dummies… Woof! —————— From 2020AR: “Under the exceptional leadership of Nirmal Jain and R. Venkataraman, IIFL, another important Fairfax India (and Fairfax Financial) investment, has established a leading national financial services company serving over 6 million customers from over 2,400 branches in India. You will recall that in 2018, IIFL announced its intention to divide its three business groups into three separate companies, with each to be listed on the Indian stock exchanges, as IIFL believed that this was the best structure for its business and would further enhance value. In May 2019 IIFL Holdings, the company that Fairfax and Fairfax India had originally invested in, was, as planned, divided into three separate companies: IIFL Finance (the non-bank financial corporation), IIFL Wealth (the wealth and asset management company) and IIFL Securities (the retail and institutional broker, financial products distribution and investment banking company). Prior to this, 5paisa, which literally means ‘‘5 cents’’, was spun off from IIFL Holdings in 2017, and Fairfax and Fairfax India own a 36% equity interest in it. It is one of India’s fastest growing technology-led financial services companies and offers an array of financial products and services through a digital platform and mobile application. All of these companies are well established with excellent management teams and we expect each of them to do very well as independent listed companies under the IIFL brand umbrella.”
  11. The really interesting thing to me is how the narrative changes when it is completely wrong. Pretty much impossible to predict the catalyst or the timing. So the problem for investors is trying to time things too cutely. PS: i added to my Atlas position today at $13.94. Cheap. Solid prospects. Well managed. What not to like?
  12. @bluedevil , Atlas is making the case that it is no longer a cyclical type holding. But the market clearly is not agreeing (yet). The problem Atlas has in the short term is it is still being valued like a cyclical. Except it is not currently earning the windfall profits its competitors are (who are doing business the old way). So its shares are lagging. And my guess is when shipping rates come down and the industry gets hammered Atlas will also get taken out behind the woodshed. Even though its business will be much more resilient. So investors don’t see the upside today but they do experience the downside tomorrow (look what happened to the share price in 2020 even though earnings barely budged). As we are learning with Fairfax, narratives once established are VERY hard to change. Even when they are flat out wrong The good news is Atlas’ earnings should pop every quarter from here moving forward for the next couple of years. At some point, as the earnings continue to roll in, Mr Market will start to pay enough attention that the ‘narrative’ will finally get updated. And then the stock will pop (higher earnings + higher multiple = stock price heaven). But this process could well take another year or even two. Patience will be needed.
  13. @glider3834, great overview of Fairfax’s various investments. Here are some additional thoughts: 1.) people who want to invest in Fairfax need to deal in reality. Fairfax is NOT Berkshire. And never will be. Fairfax IS Fairfax. (Glider, this comment is not directed at you but jumped out at me after reading your post.) They invest in resource plays (recent purchases of Stelco and Foran Mining). And cyclicals (recent purchase of Atlas). They are very international, with a heavy focus on emerging markets, especially India (recent investment was Digit). And they are creative sometimes pushing the envelope (recent TRS on FFH). 2.) What really matters for investors is future results. Earnings. Growth in BV. Now that the straightjacket ($500 million per year in losses due to shorting) and other shackles from the past have largely been removed we are starting to see in 2021 what this company is capable of doing. And 2021 is shaping up to be a transformative year for Fairfax. +$100 in EPS. BV growth +20%. Net premiums earned +20%. Debt levels dramatically reduced. 7.5% share buyback. Additional $37/share Digit gain coming. Not too shabby. Looking forward to seeing what they can do in 2022. (My early guess is improved cash generation and lots more share buybacks…)
  14. @jfan great summary. Fairfax Africa / Helios Fairfax provides a great example of the transformation that has been underway for years at Fairfax from ‘old Fairfax’ to ‘new Fairfax’. Old Fairfax: Fairfax Africa. They took what they were doing in India (where they have a proven competitive advantage) and thought they could copy it to Africa (where they had no proven competitive advantage). Prem has said that this was Paul Rivette’s idea and he was responsible for managing it. And boy what a catastrophe. Paul is no longer with Fairfax (retired, i think ). Bad decision after bad decision year after year. One of Fairfax’s strengths (at least in recent years) is recognizing mistakes/problems. And then finding a creative solution. New Fairfax: the solution was the sale/merger of Fairfax Africa into Helios creating Helios Fairfax Africa. Helios Fairfax is now managed by Helios (please correct me if i am wrong). It will take Helios many years to right the ship. They have a very good track record and we will see what they can do in the coming years. The other important piece is Helios Fairfax is now a VERY small investment for Fairfax with a market value of US$130 million or so… (based on where shares are trading today)… it is less than 1% of their equity portfolio. Perhaps there will be another write down coming; so be it (bad past decisions have consequences). So it is now a lottery ticket type investment with a 5 to 10 year time horizon. If Helios works their magic it might bloom and Fairfax makes good money many years down the road. Or it goes to zero. Bottom line, we can all move on from the debacle that was Fairfax Africa. A very welcome development for Fairfax shareholders.
  15. Glider, FYI, the estimate in the summary you linked to for RBC looks wrong. It says RBC has a price target CAN$550 (i clicked on your link and scrolled down). RBC’s actual current target for Fairfax is US$600. RBC has not done an update post share buyback announcement. RBC summary after Q3 results: “Strong top-line and book value growth, remains an outstanding value”
  16. Glider, do you (or anyone else) have any visibility on how GIG paid for the AXA acquisition? I see Fairfax maintained their same ownership stake so it doesn’t look like it was via a big equity raise (unless Fairfax bought more shares and i missed it). Regardless, the AXA acquisition is transformative for GIG and their market share position in many of the countries in MENA. After many years of largely being a dormant investment for Fairfax, GIG has certainly thrust itself into the spotlight. It will be interesting to see how GIG does moving forward. - https://www.gulfinsgroup.com/Renderers/Showmedia.ashx?Id=57b75643-d12b-4ef9-a1ea-759ac43c8863&download=false
  17. Yes, Glider, thanks for all the updates. Lots of good things going on at many of the companies Fairfax owns. Leon’s certainly has been a big winner during the pandemic. People are staying at home more and they are upgrading their furnishings. Record earnings is a beautiful thing. The stock is up about 40% from its pre-pandemic price range. 3 months ago they announced a C$1.25 special dividend. And now a massive buyback. Interesting it is another dutch auction. A few Fairfax owned companies have been very aggressive this year with share repurchases: Stelco, Fairfax India and Leons. And of course, Fairfax. RFP as well but more so last year (i think). Great to see.
  18. +1 (you and i have got to stop agreeing all the time… board members are going to think we are actually the same person posting under two different names)
  19. @Gregmal yes, i have a thesis on Fairfax. But i try and stay inquisitive and open minded. i post in detail because i want other posters to point out the flaws in my analysis. With facts. The more detail the better. Why am i wrong? I post to learn (both in writing a detailed post and then reading and debating thoughtful responses). i have never said that i think Fairfax’s portfolio of equity holdings is the same quality as Ackman/Buffett. With my question to you I was simply trying to learn what specific holdings you disliked and why? Your answer taught me lots about where you are coming from. Thank you. Now did your answers change my thesis on Fairfax… tempting, but no
  20. @Gregmal In terms of actually answering my specific questions here is what i got out of your post: 1.) “The only exception I'd make here is Atlas” 2.) “Resolute is a piece of junk. The guy has owned it forever. I remember in 2013 hearing how Prem leadership and direction there was a bull case and the stock was at $16” Now I totally get why you think Fairfax’s equity holdings are dog shit. Learned tons. Thanks! ——————- This comment was especially insightful: “but I dont want to get into arguing individual names one by one because that misses the point” Got it! Wink, wink… —————— PS: and the Gamestop name drop was epic!
  21. Greg, when you say ‘tons of garbage’ what specific positions are you referring to? And what makes the position ‘garbage’ in your eyes? Where its performance is going to suck big time in 2022 and 2023? Below are Fairfax’s top 5 ‘equity’ positions representing close to 40% of the equity bucket. What companies on the list are going to perform like garbage in 2022 and 2023? For sure at least 3 of the 5 positions must be complete dogs in your eyes… Because its the big dogs that will make or break Fairfax’s equity performance (not the tiny positions). 1.) Atlas (13%) is their largest position by far. Piece of shit? Sokol is an idiot. Terrible prospects. Sell it yesterday! 2.) Eurobank? Sell it now! Right when the business is fixed, and the Greek economy is coming out of a decade long depression and the bank is poised to do exceptionally well! Got it! 3.) Blackberry: well ok; you have a point here… but this is one position. And I will readily admit that I really have no idea about its future prospects... So my uninformed view on this company is pretty much useless for others 4.) Fairfax TRS. Unwind that position NOW! Really? 5.) Fairfax India. Punt it! Trading at .63xBV? Forget that the management team there is hitting the ball out of the park. The 5 to 10 positions are only about 16% of the total equity portfolio (small): 6.) BDT Capital Partners: solid long term performing holding. Sell! 7.) Quess: home run, long term holding, up +100% last 12 months. Woof! 8.) Stelco: sitting on $1billion in cash; star CEO. Punt that puppy! 9.) RFP: US new home construction starting secular bull market. Sell this lumber stock now! 10.) Recipe: Sell! Right before Canada reopens and restaurant sales take off!
  22. And if my guess of 2022YE BV = US$700 is close to being right Prem is offering to buy the shares at 0.7x2022YE BV. Lots of people feel Fairfax underpaid for ORH buyout in 2009 (there was an information asymmetry as insiders knew ORH was poised to deliver MUCH better earnings post acquisition - which is exactly what happened). In hindsight it appears Fairfax got a steal of a deal when they bought out Odyssey Re. Prem/Fairfax management has the best visibility of all of us as to what Fairfax is currently worth and what the company will likely earn in the coming years. Perhaps the reason for the current transaction is that they KNOW their shares a dirt cheap and they are unlikely to stay this cheap for long. So what do you do if you are Fairfax? You find $1 billion and do a dutch auction to take the maximum number of shares out as quickly as possible. Simple. Opportunistic. i can’t wait for people to post in a few years how they were taken to the cleaners by Fairfax Deja vu? PS: Right now Prem must feel like a fox who has just been let into the henhouse.
  23. A poker player has to play with the hand they are dealt. Regardless, Fairfax is not Berkshire and never will be. I love the fact that Fairfax is aggressively and quickly trying to buy back +2 million shares at a VERY attractive price of US$500 or better. And if not enough shares are tendered will they not simply use the remaining proceeds on maxing out the NCIB? Bottom line, the dutch auction is a great way to take out a bunch of shares quickly. Giddy up! Prem’s communication is not always the best (to say it charitably). However, Teledyne was used as an example for a reason. Prem has been saying for years that share buybacks are a priority. This is just the start. Fairfax’s insurance and investments are positioned the best they have been for the past 10 years. I think Fairfax earnings will improve moving forward. Excess cash is coming As a result i expect them to stay aggressive with buybacks for the next couple of years especially if shares continue to trade well below BV. And as a shareholder i love the move. Like i said on another post, my guess is BV will be in the US$700 range at 2022YE. That is 12 short months away. Buying back a significant number of shares at $500 or less will be hugely accretive for shareholders. ————— i have said in the past that growing earnings and higher multiple is a beautiful thing for shareholders. But there is an even better set up: growing earnings, materially lower share count and higher multiple. When all three happen together a 50-100% gain in the stock price is not unusual over a couple of years. And that is where we are (finally) with Fairfax.
  24. Given the proceeds will be used to buy back stock do we subtract the $10/share dividend Fairfax saves (each and every year moving forward) from the cost it will be paying to the pension funds? Does this not effectively reduce Fairfax’s ‘cost’ on this deal by about 2.5% per year?
  25. Most of my holdings are in TFSA, RRSP and RESP so what you are saying is music to my ears (as i am way overweight and would love to sell a chunk of Fairfax close to US$500, lock in some nice tax free gains, and ideally shift some $ into Atlas around $14 and Fairfax India around $13).
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