Xerxes
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Just a quick comment since it was not mentioned.
On BNN it was alluded that the families prefer the Rivett bid because it was seen as more aligned with the political view that the newspaper has. Something along those lines.
In the grand scheme of things, peanuts for FFH but if there is a pattern than that is more problematic.
I suspect this wouldn’t be a huge issue if FFH overall return would have been spectacular in the past 10 years. Which says something about us as well. When the tide is high, we tend to look past these things. Well I should speak for myself I guess.
On the subs, you cannot blame FFH to prioritize FFH book value above FIH and FAH. We always said there is a permanent discount to BV on them for this very reason. Their discount to BV will widen and shrink but will never close. Even if it widens by huge margin, it is likely that the market is discounting a steep drop that is yet to come on the BV as oppose it to be a great opportunity.
At the end of the day, FIH return to its shareholder will be great as long as India massive long term potential holds and exceed despite “structural issues with the vehicle”. But for that you are getting a discount.
On OMERS, I like to fly on a wall in their internal meeting to how they really perceive their deals with FFH. Do they keep coming back because it is the devil that they know, or are they somehow perceive that they can get good and fair deals.
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I am no expert.
I think the marked down ought to happen.
But marked down is not as bad as impairment that is typically not reversed back with a mark up.
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It is no different than two different investors having a different opinion of a publicly traded stock, thereby moving the stock.
In illiquid assets samething happens but at a very slow speed paced by quarterly releases.
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Read this book eons ago.
i recall it was good.
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Agreed
Though I should clarify that I never had a position on FAH.
Only FFH and FIH. But the lessons applies to FIH as well.
I am just more comfortable with India and wrapping my head around the narrative. The governance concern is common though.
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They owe it to their minority investors to have a separate conference call walking through the merits of this transaction with Q&A session. That would be a right thing to do.
The related Q&A cannot be 5 min of the Q2 main FFH conference call that is couple of weeks or so.
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more on Toronto Star on BNN.
Interesting clip.
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Answering my own question.
Reuter’s reports 1.2% of the float.
Which I think was about the same last year.
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FWIW, I think FAH was earning maybe $20 million of interest annually. Though, I think much of it was paid in kind (or rolled into additional principle) in recent months. FAH had over $100 million of bonds, loans, and guarantees. Most earning double digit interest rates. (Much of the interest coming from ATMA.)
No doubt FAH’s Wilkerson has plenty of IQ. A Harvard MBA and a masters from Yale is ample evidence. I have a hunch his experience with CIG and ATMA will propel him to world-class turnaround expert status. And, I’m sure he is experiencing a lifetime’s worth of stress these days.
But, concentrating $500+ million into a falling knife bank holding company, a horrendously mismanaged infrastructure company, a startup education company, and a couple AGH spin offs was a terrible rookie mistake - fueled by impatience, lack of discipline, and unawareness of one’s circle of competence. (The blame can be shared by Wilkerson, FFH’s investment team, and FAH’s board.) The whole fiasco was a hope strategy that didn’t work out.
i don't know which extreme is worse:
- buying non profitable technology story companies (don't mean big tech) knowing that a greater fool will be buy it from you at a higher price and then the music stops, and you are left holding the bag
- worshipping at the alter of Deep Value; buying stuff 50 cent on the dollar and selling out at 25 cents on the dollar b/c the market forces your hand.
what's wrong with finding something in between these styles.
On Wilkerson, i was at the 2018 AGM in Toronto; seem like a nice guy. At the end of the Q&A session, two of the older gentlemen (who i believe were FFH shareholders from he crowd) give him a copy of what i believe was Buffet AGM letters in a book form. Hopefully he is reading those.
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My math for July 7th implied share count is the same as your math a few posts above. If 248,740.792 is 15.54% economic interest, then 100% of economic interest is going to be 1,600,648.597 A-share equivalents. I think you had the July share count correct a few posts ago. Not sure what changed your mind.
GPS,
approx. what percentage of the float do you have in mind in terms of buyback in Q2.
Something a like 3-4% ? or far less.
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Point is - there has to be a flexible and intelligent LONG TERM plan
If you had a $ today, to put into either a FAH or an ABX, where would you put it?
perhaps neither ABX nor FAH,
lets go with Jumia with a $600 million market cap. :-)
Fire and forget. See you in 2030.
i am not as knowledgeable as everybody else when it comes to FAH, but here some broad strokes from an average joe who has been watching the collapse of Fairfax Africa in slow motion; and lets call it what it is, a collapse:
- FFH with all its deep bench, simply didn't not have the needed overhead to support such a far flung operation. There is no shame into that. A lot of companies stay away from what they do not know. When was the last time, you saw a job opening on FFH looking for local talent in Africa to feed its investment vehicle.
- it is fine that FAH is permanent capital, therefore not exposed to the same pull as say PE would be when client start to pull in their money, before the investment plays out. But even permanent capital is not immune, when it is trading on the market as an investment vehicle and the message that it sends when the stock takes a massive hit. What was wrong planting these seeds in Africa as part of FFH (and I believe in Africa), rather a separate permanent capital vehicle.
- there was no reason for FFH to create FAH and FIH at the same time when it did. I understand FIH, given their historic exposure in India. They could have kept FAH within FFH for a while longer.
- i have said this in the FIH thread, the FIH/FAH needed to have some management fee stream that gives their respective management ammunition to deploy. in absence of that the only other two source of cash is either selling a crown jewel at the wrong time or issuing stock at the wrong time. i think issuing debt without having a cash inflow to pay the interest not feasible either.
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I listened to 3 of his clips about FFH, BABA and Shopfiy in the same interview.
He just doesn’t like anything.
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It’s amazing, the worry about the cash sloshing around in a world that is living on borrowed money of epic proportions!
We’ll see how this all ends
Agreed.
Technically speaking though the money created by Fed is not borrowed money.
They are an investor in US Gov debt. It is US Gov that is borrowing on an epic proportions from various investors (China, Japan, US public, and the including Fed).
BRK cash is also partially borrowed money (float)
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I ll propose a different perspective:
What if BRK trading low is not due to the investment portfolio dropping in Q1 nor Buffet not deploying the cash significantly not operating businesses underperforming But rather the drop is due to drop in the value of its “cash”.
Sounds weird but hear me out.
Central bank balance sheet pre-COVID was at around $4 trillion.
Post COVID Fed balance sheet had expanded by several trillions.
In this giant sea of cash slushing around, the intrinsic value of BRK “cash” must go down, no ?
With it the value of optionality.
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Not sure if this was already posted about Ensign Energy Services Inc. and FFH's swap contract on it.
I guess by mid-June, when FFH entered this agreement the broader market was at all time high, so FFH went back to picking the weird apples.
Q2 results should be interesting not only for FFH, but also for the triple-Bs: Brookfield, Berkshire and Blackstone.
You get to see what this class of institutional investors actually did in terms of market participation in Q2, yes they all talked about it in April and hinted their views.
But the "walk" ought to be more interesting than the "talk".
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Another article (this time from FT) to be added to the repository of has-buffet-lost-his-touch articles.
https://business.financialpost.com/investing/warren-buffett-lost-his-touch
“If Berkshire is to have the prospects of generating the value it has in the past, it has to adapt by buying these companies that will generate significant value over the next 25 years,” said Christopher Rossbach, chief investment officer of J Stern & Co. J Stern manages money for the Stern family, which has held Berkshire shares for decades, as well as other investors.
“Both Warren and Charlie (Munger, Berkshire’s vice-chairman) have acknowledged that they have missed Amazon and that they should be looking at these companies but they have also said they don’t understand them,” Rossbach said. “They have kept them in the box that Warren has on his desk that says ‘Too hard’. What will it take for them to take these stocks out of the box?”
“Berkshire Hathaway remains designed to reward investors over time but not on time,” said Thomas Russo, a managing member of Gardner Russo & Gardner, which owns Berkshire stock.
“It is one of the reasons we say to people, ‘Don’t be in a hurry to spend that money’,” referring to Buffett’s US$137-billion cash pile. “If you rush it, he could make a mistake.”
“I am nervous that he may have missed this whole rally,” said James Shanahan, an analyst with Edward Jones. “If the rally started in late March and he was a net seller in April, it seems like . . . he missed it all. That’s frustrating. A lot of retail investors were ploughing money into the market and doing better than professional investors. I think you can include Buffett in that.”
“Those two things, I believe, have really tarnished Berkshire’s reputation for dealmaking,” Seifert said of the two investments. The Occidental deal “was an unmitigated disaster.”
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AWS
I read that point of view also on Semptus Augustus news letter about Coke peaking in BRk portfolio and Gen Re purchase.
What is really weird is that the writer of Semptus asserts that it was a stroke of genius issuing shares when it was 3x book to buy Gen Re. One would agree, yet Buffet complained about the equity that he has to issue and the dilution that took place even if it was at several time book value.
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Blackstone seems to go to where the puck will eventually be. They've also seemed to do a pretty good job managing their reputation. In the PE world, IMO, BX is in a league of its own. Visa and MasterCard style.
Brookfield is no doubt impressive in its own right, but much like Discover, again IMO, it has its limitations, does a poor job managing its reputation(or doesnt care) and probably extends itself at times, in terms of taking on unnecessary risks.
Isn't the underline a function how things are perceive in a given snapshot in the timeline. The bet that BX made on industrial warehouse seems to be right on the money now, but if we go back to the genesis of that bet, which was probably a decade ago in a much smaller magnitude would have had folks scratching their heads. The obvious bet 15 years ago was to be long office building & malls.
Meaning that the malls that BAM is making a bet today, could be perceived differently another 10-15 years from now. After all they are in business of re-purposing them and as long as BAM has enough imagination to see the real estate can be far more than just a mall or can be completely different, than I think we can call that a contrarian bet in the making, which you can participate by using a 10-feet pole, through BAM itself as oppose to BYP.
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Apple’ stake now supposedly 20% of BRK.
Not to get all hedgie, but I think if one went long BRK and short AAPL (proportionate to the stake size) one can make the bet that Apple has peaked within BRK (I.e. BRK valuation would move to value other pieces that have been ignores).
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On elections, i don't think it will be a factor, in the "pivot" back to great power competition.
U.S. national security is far less concerned with the Persian Gulf, now that U.S. is the top oil producer.
The long term trend will be that of dis-engagement from the Gulf region, and subcontracting Saudi and Israel to do their bidding.
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I don't mean to derail, those interested in the "muddiness" of the central Asian countries borders would be interested in this book.
It is a favorite of mine.
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Spekulatius,
Looks like we have the same background more or less.
Agreed that the gems in the A&D are the rollups that happen in the shadow of the giants with the headlines.
I recommend you add this Podcast to your roster, if not there already. There is wealth of info there. I have been reading Aviation Week for 10 years+.
I love the magazine and get the hardcopy at my door. Podcast => https://aviationweek.com/check6
Specifically, on Northrop Grumman and GBDS, here is the title. Great stuff to listen to while jogging.
https://aviationweek.com/defense-space/podcast-nuclear-modernization-point-no-return
On L3, itself it was a minor spinoff from Lockheed, with "L" from the Lockheed being one of the three "L"s in L3. The other two "L"s being individuals/management when L3 was created. If you are interested, one of the other "L" started his second investment vehicle, doing roll-ups in electronic/defense (i.e. C4ISR) etc.
Here is the related Podcast => https://aviationweek.com/air-transport/podcast-challenges-southwest-spacex-c4isr
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Listening to quarterly results now.
BB confirmed that they are redeeming the convertible when it comes due.
Cash released for FFH, i guess ...
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I listend to Blackberry AGM today.
They did a good job to capture the size of the market for s/w security. Unfortunately, but funny enough, they screwed up their Q&A session by getting only one question, some system issue about the work-from-home-AGM or whatever. I didn't like the optics. A software company shouldn't screw up the AGM by not getting the system right.
Interestingly enough, the one question that did get through was about Fairfax, where someone asked if a low-ball bid by FFH can be prevented by a poison pill.
To me that tells me that there is a interest from BB shareholder base in the long term potential of BB, and that there would be push back on any low-ball bid that would undervalue that potential.
Quarterly results are tomorrow, so perhaps we can get more on the Q&A session that didn't happen today.
BlackBerry Fiscal Year 2021 First Quarter Results Conference Call
Date: Wednesday, June 24, 2020
Time: 05:30 PM Eastern Daylight Time
Defense contractors
in General Discussion
Posted
Spekulatius,
probably you will find this interview with the L3 boss interesting.
https://aviationweek.com/ad-week/video-interviews/l3harris-eyes-foreign-defense-expansion-shakes-commercial-dip
On the overall A&D sector, my view is that in the short term, while defense might to better than commercial, in the long term, the defense budget will be very much impacted due to the massive spending governments around the world have undertaken to re-build their economies. Also defense is not immune, as their supply chain did get impacted. Lockheed Martin for instance for the first time in 10 years its F-35 production deliveries is not growing y-o-y.
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L3Harris Eyes Foreign Defense Expansion, Shakes Off Commercial Dip
Michael Bruno July 16, 2020
L3Harris executives
L3Harris Chairman and CEO Bill Brown (left) and Vice Chairman and Chief Operating Officer Chris Kubasik.
Credit: L3Harris
L3Harris Technologies is celebrating its first anniversary as a combined company after predecessors L3 Technologies and Harris Corp. came together in the summer of 2019. The merger created a so-called “sixth prime” defense contractor that enjoyed growing civil aerospace work through pilot training, simulation, avionics, FAA support and NASA work. But the merger was envisioned long before COVID-19 upended the aerospace and defense marketplace. Like other companies, Melbourne, Florida-based L3Harris is adapting. Chairman and CEO Bill Brown and Vice Chairman, Chief Operating Officer and President Chris Kubasik talked with Senior Business Editor Michael Bruno about the past year and looking ahead.
AW&ST: You just completed the first year of a three-year plan to integrate L3Harris Technologies. How is it going? Brown: Chris and I couldn’t be prouder of the broader leadership team and all the employees for all that we’ve accomplished over the last year to make this merger successful. And it has been a success in an environment that is truly unprecedented in many ways. Strategically, if you remember a year ago, we set out to leverage our broader scale and complementary technologies to create sort of a new agile, innovative mission solutions prime that goes across all of the domains. I think we have proven that out through a lot of the revenue synergies we’ve already started to capture in the big pipeline ahead of us operationally, and we’re making really good progress. We’re also building a strong culture of operational excellence within the company to sustain our performance beyond the integration period.
More international defense work targeted
Cost-takeout from operations could increase
Commercial aerospace drop not alarming
Many financial analysts have named L3Harris a favorite stock pick. You have a $300 million goal for cost takeout from the merger, and you just accelerated that by a year to 2021. Do you feel pressure to do even more? Brown: I think maybe what people are excited about is that we were underpenetrated internationally. So we have opportunities to grow there. We’re going after broader end-to-end mission solutions and we’re starting to capture synergy.
So we believe we have an opportunity to gain share in a defense market, in a global market. But we also have really good execution on the cost side to allow earnings per share to grow and margins to expand, regardless of what happens on the top line. I think that’s what investors are excited about—just that execution on the fundamentals. If we hit $300 million next year and we keep running it into that third year—calendar 2022—it should be better than we first expected.
The merger was marketed in part about becoming a sixth prime defense contractor with accompanying heft. Did it work? How are you growing? Kubasik: We see a lot of opportunities in the classified environment dealing with command and control, with integrating capabilities from both legacy companies. We put in 41 proposals—neither one of us would have primed or put these bids in had we not merged. That gives you an idea of volume. A lot of these start out relatively small, whether they’re with DARPA or other agencies where you’re downselected as one of three, and then a year from now you get another opportunity and keep going. We’re pretty pleased. We’ve had eight awards so far.
About 20% of annual revenue comes from international sales. Can you still grow there? Kubasik: There is a couple of billion dollars of opportunity on the international front. We have a pretty big presence in Australia, Canada and the UK. We haven’t seen any budget pressures for 2020. Do we expect many for 2021? That will be something we watch. Most of these countries fund defense as a percent of GDP, so if GDP drops, maybe there’s an impact there in the out years. But we continue to see a lot of interest in the Pacific region. And, of course, the Mideast is somewhere that both companies had worked in historically and continue to work.
Since the merger was announced in October 2018, you have been busy with divestitures. Are you interested in more acquisitions, especially as prices may drop for some targets due to COVID-19? Brown: It’s early to talk about it, frankly. We’re busy; we’ve got a lot of stuff going on just integrating the companies, stabilizing it, taking costs out, improving systems, capturing revenue opportunities and dealing with the COVID pandemic. We believe we’re adding a lot of value by focusing on building fundamentals, building a strong foundation upon which to grow over time, and [acquisitions] will play a role. It’s not on the near-term horizon. We’ve got our hands full just executing our game plan as we see it today.
Your commercial aerospace businesses took a hit from COVID-19 along with the rest of the marketplace. How much of a setback is that to the business model? Brown: That business might be evolving in the future, but it’s not a big part of the company. Commercial aerospace, which is all the pilot training and academy work plus avionics, is less than 5% of the company. Roughly speaking, it’s about $500 million of revenue this year—down 30-40%, about $300 million. We do see that business under pressure, and we see that also in the pilot training side. It’s very difficult to train new pilots when you can’t have them come to your academies, or have airline pilots that aren’t flying. They’re not going to be in the training systems. So that does slow pretty dramatically.
Both of you are veteran leaders and have seen downturns before, but how does COVID-19 differ? Kubasik: This is clearly one of the more significant declines. You look at all the different events over history that have caused commercial aerospace to hit a bump, and most of those have bounced back relatively quickly from events like 9/11 or SARS. This one is global in nature, and I think the whole discussion is going to be about the recovery. Ultimately, I think people are going to get back on planes and fly, clearly.
We’ve found some ways to be a little more efficient with Zoom and Skype, and maybe there are fewer business trips. If everything gets back to the same way we were pre-COVID-19, we will have missed an opportunity to reimagine the future of the workplace and productivity.
Brown: There are implications for the overall supply base, on both the aerospace and defense sides. Clearly we need more resilience. This has a great impact on some of the smallest suppliers on which we’re leaning to survive. This is not a temporary situation where you advance cash and things get better in three months. This is going to be a longer-term downturn, and we have to make sure that those precious small suppliers who are very vulnerable can see their way through this crisis. Larger companies can; the concern is really the smallest ones.