Thrifty3000

https://www.forbes.com/sites/simonmoore/2019/01/30/the-hidden-signal-in-delayed-earnings-announcements/#246097ad5750 The article explains that significantly delayed earnings are statistically a legit red flag. We already know Consolidated Infrastructure Group (CIG) is teetering on the brink of bankruptcy. Consolidated Infrastructure Group was already having to include a section in their reports explaining why the board believes the company can actually be considered a going concern - despite being all but bankrupt (I mean they're literally at the over-drafting their bank accounts level of bankrupt). Management claims that the problems are confined to their largest division, and that the other divisions can stand on their own. They use the health of the company's other divisions as justification for going concern. They say they can draw from the other divisions to cover costs of restructuring and right-sizing the problem division. I'm not so sure though. Someone should look into this, but I think they have a ton of short term liabilities guaranteed at the corporate level. I don't think the liabilities are isolated among the divisions. I think if the company defaults it will be a difficult restructuring. I have a hunch Fairfax Africa's CIG loan is subordinate to all the rest of the debt. CIG's value has plummeted from somewhere north of $500 million to less than $5 million in less than 4 years. It's a rotten company, and it's tied to some industries/geographies that are getting stomped on in Africa. We all know Prem is a master of smoothing things over during acquisition talks. However, poor earnings surprises is one of the primary reasons deals fall apart. And, I think it's possible Helios is watching CIG implode and realizing they are very likely going to have to oversee an ugly bankruptcy proceeding, AND they are going to have to write off the CIG loan (and maybe the PRG2 loan - I don't know what the loan was for, I just know it's collateralized with CIG equity, ouch). I assume the Helios deal was struck on the assumption each party is contributing around $400 million worth of value. Depending on CIG's performance in the 3rd quarter - when combined with other issues in the portfolio - it probably isn't hard to make a case that $100 million of Fairfax Africa's book value is at risk (that's not including ATMA equity or the ATMA Facility). But, here's the other psychological wrench. Helios almost certainly believes they are bringing at least $400 million of value to the table. They have the luxury of basing their value on future projections. By now the realization has sunk in that they are on the cusp of selling MAJORITY CONTROL of their $3 BILLION DOLLAR BABY to Prem Watsa's HEIRS. They are watching the Fairfax Africa dumpster fire burn and asking why they are exchanging CONTROL of their own lives (yes, control, for the next 30+ years they will have to convene the board and ask Prem Watsa's children for permission to invest in any insurance operation, or to make any investment over $50 million), all in exchange for a DUMPSTER FIRE that they fully believe is worth less than what they are bringing to the table. (At the very least they should be jockeying for majority control right now.) I know there's strong psychological bias not to re-trade a deal, etc. But, I think CIG is a deal breaker, and I have a hunch we're watching it play out in the form of: - delayed CIG report - delayed circular - deleted webinar access If the deal goes through I believe the stock is instantly worth 50% more. Easily! Which is why it's so hard to sit on the sidelines knowing it could bounce anytime now (on positive CIG news or more signs of deal confirmation). But, right now, given the red flags, I personally think the odds of the deal succeeding have tipped below 50% in recent days (I hope I'm wrong). And, without the deal going through I don't have high confidence Fairfax Africa's current leadership will right the ship.

Why’s 2099 shares a day the magic number? Are they limited (as the issuer would be for an NCIB)? That's probably the amount of daily volume they can purchase without overly impacting the price. So they're investing around $7,000 daily.

Good luck. I’ve sent emails to Atlas Mara’s investor relations in recent months. No response. I HATE when publicly traded companies with highly paid Chief Financial Officers miss reporting deadlines (for anything other than technical complications or reasons that can be easily explained in a press release). It’s your F-ing job to report financials to your OWNERS on time. And, EVERYTHING these days is digital - so it ain’t hard! There’s no good excuse. If they’re waiting on a well-worded chairman’s letter from an overcommitted chairman, then shame on them (they can release financials and announce a letter is forthcoming). If they’re trying to figure out how to “legally” window-dress receivables they’ll never collect in a million years then shame on them. If they’re trying to delay reporting until after the ink is dry on a Helios deal then shame on them (that’s neither fair nor friendly) - and if Helios actually falls for that, then shame on anyone who trusts Helios’s judgment. Reporting abnormally late is not a small issue! In my book the only things worse than disrespecting owners via unexplained reporting delays are major lawsuits and abrupt CEO/CFO resignations. I try to be the first to the exit in those situations. 2 out of 3 times it’s the right decision.

Thrifty3000 where do you see that. i have been desperately searching for that. i can only see the event date on Sept 16 It WAS on their website last week on the Events and Webinars page. I found it on Thursday afternoon. The next morning it was gone! There was no messaging saying how long it would be made available.

I'm sensing some weird vibes on this deal. 1) The circular still hasn't been published. 2) Atlas Mara was late posting interim results due in September, and when they did post, their tangible book value had dropped from $2.84 per share a year ago to $2.05 now (that's a pretty big hit - thanks mostly to currency devaluation). And, I have a hunch the meltdown could be seen as a material risk by Helios, because even after Fairfax buys ATMA and guarantees the $40 million facility, Fairfax Africa will still hold something like $40 million of ATMA bonds, which are collateralized with an African country's government bonds and a bank subsidiary's equity (woohoo). I also don't think ATMA can afford to pay the interest yet. (#redflag) 3) CIG is also late posting interim results. They were also due in September, and CIG issued a press release announcing they would be late. Last I checked CIG's market cap was in the neighborhood of $0. Fairfax Africa holds about $40 million of CIG loans, which like ATMA, CIG is failing to pay interest on. (#redflag) 4) Last week I noticed Fairfax Africa posted a link on the Events & Webinars page to a replay of their webinar with Helios. I watched the webinar, and had the following impressions: - Helios's Tope Lawani is super impressive. He presents himself very well and communicates like an executive capable of managing billions of dollars. - In contrast, Fairfax's Michael Wilkerson seemed out of control. He nonchalantly admitted the ATMA investment was inappropriately over-sized for the portfolio (and didn't strongly defend the investment thesis - a pet peeve of mine). I felt/detected he was deferring to Prem or hesitating with answers to questions about decisions made on his watch. And, I couldn't help but be distracted by Michael's disheveled office and ill-fitting attire - especially for a guy that needs to instill confidence/control to get a vitally important deal across the finish line. (#redflags) After watching the webinar my first thought was, wow, Prem seriously nailed it with Helios - I can't wait to see what they bring to the table. But, my next thought was, why would Helios accept minority ownership of their life's work if in exchange they're being offered an illiquid dumpster fire? (I decided to sleep on it.) NOW, here's the kicker... I returned to the Fairfax Africa website the next morning to grab the webinar link and post it on this forum. BUT, the link was removed! Since the purpose of the webinar was to assure investors of the deal's merits, the sudden removal of the webinar before posting the circular seemed odd. (#redflag) I have to say, a late financial report by ATMA, no financial report from CIG, a late circular, a leader with an ungodly amount of responsibility appearing in over his head, and the deleted webinar has sufficiently shaken my confidence on this one. I had a small cigar butt position that I exited over the last 2 days at a whopping 6% annualized pre-tax gain. At this point I'll either wait for the deal to collapse to see if it presents another cigar butt opportunity, or wait for the ink to dry, and see if it can be purchased at a decent valuation based on the circular. Or, I'll throw it where it actually belongs, in the way too hard pile. Hopefully that circular is published and the deal finalized asap.

Here we go. Atlas Mara announced yesterday they sold a subsidiary bank for .8 times book value: https://otp.tools.investis.com/clients/uk/atlas_mara1/rns/regulatory-story.aspx?cid=744&newsid=1419246

Thanks, Petec! After reading your notes and what I’ve found about Helios on the internet this seems like an ideal pivot for the African strategy. Helios seems like it’s about as high quality of a partnership as you could hope to find in Africa. I liked the color on the currency and fx risk management. I’m looking forward to the circular.

Was anything interesting shared at the meeting today? https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Fairfax-Africa-to-Provide-Update-on-Strategic-Transaction/default.aspx

I've read Prem's letters and listened to him speak for years. I think he's a good man. I think he's a great promoter. I never feel like he's trying to mislead me. I always feel like he's trying to sell me, on Fairfax. Good for him. That's what I want from a CEO. Prem is a human billionaire. He will have good days and bad days. In the public eye he will have good performances and bad performances. He will experience a range of good and bad fortune. You can easily selectively build a case for or against a man like Prem. It's why we have to look at the data over time - at the per share earnings potential against the price per share. If you think Prem belongs anywhere near the same camp as someone like Biglari then by all means exit and don't look back - at least until he's no longer in control. As investors it's our job to evaluate the prospects of the business. A decade ago Prem was regarded as super-human, and the company was selling for something like 30 times its near-term earnings potential. That's Mr. Market's fault, not Prem's. (It was probably a good time to trim one's position and become an observer. I think plenty of investors did.) No matter how you slice it the earnings power of the business grew over the last 10 years. Now the company is a going concern selling for what could easily be less than 10 times its near-term earnings potential. So, the value has increased while the price has plummeted. I'm not sure that's the kind of scenario I'd advise others to "move on" from.

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. 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.) I get the sense FFH’s buying back ATMA was a deal concession. I look at it as a $40 to $80 million dollar pot sweetener. Neither FFH nor Helios needed any more risky financials on their books - they both have plenty. And, you know ATMA is risky because Wilkerson is the chairman of ATMA’s board. Wilkerson has COMPLETE visibility into ATMA. I’m talking daily updates on loan losses/forbearance. If ATMA was a guaranteed success Wilkerson could have convinced Helios to take it. But, he didn’t, which means ATMA is a big question mark. I guarantee there are tons of bad debts piling up. And, the prognosis goes something like this... if energy demand, travel, and life in general return to normal in the next 6 to 12 months then ATMA will probably work out ok, but if it doesn’t then we’re probably impairing this sucker big time. Remember, ATMA was already a red flag when it asked to defer interest payments back in December - even before Covid emerged as a threat. 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. From what I’ve gathered in a few hours of digging, Helios is much more in line with the type of investment manager you would expect of a partnership with a reputable billionaire like Prem. Being the largest, fastest growing, savviest Private Equity group in Africa comes with plenty of competitive advantages. (I’m intrigued by the little I’ve learned so far about their growth, telecom business, and dollar denominated credit operation.) My gut says Helios got wind that Prem was looking for a new investment manager for FAH. I suspect Helios has plenty of investment opportunities that could thrive with more access to dollar bills. I suspect Helios was aware of FAH’s large cash position, and skillfully and compellingly made Prem aware of what Helios could do with a couple hundred million of extra US dollars (remember, Africa does not have access to the Federal Reserve’s dollar swap lines. There has been a run on dollars, and African business is a fish out of water without dollars.) I suspect Helios said to Prem something along the lines of “if you not only give us control of FAH’s $140 million of cash & equivs, but also kick in an extra $40 mil while taking ATMA’s risk off the table, we already have the breadth of opportunities and knowledge (aka more ideas than capital) to immediately deploy US dollars so incredibly profitably that investing in Africa during its 40% off sale will feel even easier than investing in US equities in the 1970’s.” Prem says “where do I sign the check?” I do not know if you were on the call for AGM 2020 and heard Prem and Michael's comments when they were asked point blank if there is any stress in any of the businesses including ATMA or CIG...their response was basically that their internal tests indicated that businesses will be able to manage on their own apart from the 40mil to ATMA . Prem called the share price at 3$ an absolute joke . They basically cannot sell at ATMA for 40 mil to a related party without marketing the business independently to the market. UBN stake alone could have easily fetched 80-100mil . I hear what you're saying on ATMA. I think if the ATMA transaction was done in isolation (not as part of a broader deal with Helios), without additional explanation, it would raise red flags - and maybe even spark some legal activity. But, it's clearly a deal concession. Fairfax and Helios both well know the importance of speed when it comes to doing deals. I suspect that during the diligence process Helios couldn't pinpoint the value of ATMA (especially with recent devaluations, and with so much of the equity stakes collateralizing debt). Helios probably considered selling it post-transaction, and realized it could be a nightmare, especially since the recent deal had collapsed. I have a hunch Helios had conversations with the parties involved in the prior deal that fell through (I feel like Fairfax would allow those types of discussions), and probably with other potential buyers, none of which alleviated concerns related to ATMA. My guess is Helios raised ATMA as a deal breaker. Fairfax wanted to salvage the deal, had to think quickly, probably considered multiple solutions, and proposed taking most of the ATMA risk off the balance sheet by buying it at ATMA's public market value. There were alternative solutions; - Fairfax could have offered to infuse more cash by buying more shares of FAH at around $3.00 per share - they could have offered to loan FAH money - they could have offered Helios more equity in the deal, etc. I think Fairfax recognized the value of a partnership with Helios, knew they needed a quick solution specific to ATMA, and probably did the right thing to salvage the deal. I think this deal de-risks FAH big time. I think it's win win for Fairfax and Helios. I think Helios will leverage this relationship to launch a few $3 to $5 billion funds over the next decade, which will gush cash into the new FAH (Helios Fairfax Partners - HFP). I think HFP will provide a lot of visibility into how Helios performs, which will be reviewed by potential investors in their PE deals, so Helios will have plenty of incentive to assure HFP performs very well. Assuming Helios can continue drumming up value in Africa for years to come this deal should create a virtuous cycle for HFP owners and for Helios's partners. If it turns out Helios is more skilled at raising funds than investing profitably, then at some point HFP will languish. If that happens Fairfax still has control. So, at the current price, over the next decade, I see this as landing somewhere between an investment that languishes (but, doesn't go to zero unless we see crazy leverage introduced), and maaaaybe a 10 bagger if Helios rides a wave of strong African economic growth, strong investment performance, and strong fund raising.

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. 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.) I get the sense FFH’s buying back ATMA was a deal concession. I look at it as a $40 to $80 million dollar pot sweetener. Neither FFH nor Helios needed any more risky financials on their books - they both have plenty. And, you know ATMA is risky because Wilkerson is the chairman of ATMA’s board. Wilkerson has COMPLETE visibility into ATMA. I’m talking daily updates on loan losses/forbearance. If ATMA was a guaranteed success Wilkerson could have convinced Helios to take it. But, he didn’t, which means ATMA is a big question mark. I guarantee there are tons of bad debts piling up. And, the prognosis goes something like this... if energy demand, travel, and life in general return to normal in the next 6 to 12 months then ATMA will probably work out ok, but if it doesn’t then we’re probably impairing this sucker big time. Remember, ATMA was already a red flag when it asked to defer interest payments back in December - even before Covid emerged as a threat. 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. From what I’ve gathered in a few hours of digging, Helios is much more in line with the type of investment manager you would expect of a partnership with a reputable billionaire like Prem. Being the largest, fastest growing, savviest Private Equity group in Africa comes with plenty of competitive advantages. (I’m intrigued by the little I’ve learned so far about their growth, telecom business, and dollar denominated credit operation.) My gut says Helios got wind that Prem was looking for a new investment manager for FAH. I suspect Helios has plenty of investment opportunities that could thrive with more access to dollar bills. I suspect Helios was aware of FAH’s large cash position, and skillfully and compellingly made Prem aware of what Helios could do with a couple hundred million of extra US dollars (remember, Africa does not have access to the Federal Reserve’s dollar swap lines. There has been a run on dollars, and African business is a fish out of water without dollars.) I suspect Helios said to Prem something along the lines of “if you not only give us control of FAH’s $140 million of cash & equivs, but also kick in an extra $40 mil while taking ATMA’s risk off the table, we already have the breadth of opportunities and knowledge (aka more ideas than capital) to immediately deploy US dollars so incredibly profitably that investing in Africa during its 40% off sale will feel even easier than investing in US equities in the 1970’s.” Prem says “where do I sign the check?”

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds. I haven't found any info on Helios's historical fee earnings yet. Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward. Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax. FAH will benefit from being managed by leading, proven, investors in Africa. what does not seem right is selling ATMA for 40mil to Fairfax when Fairfax africa themselves have calculated the tangible book value around 280 mil and were selling business in 4 countries to Equity group for 105mil + u have UBN and Botswana... If helios contribute 20mil in earnings and u put multiple of 10 to that ..it implies that FAH is valued at 400mil right now? I somehow doubt helios will contribute in excess of 10 mil right now but then there is no way to be sure until we see more data...they should have released these numbers alongwith press release I 100% agree there should have been more information. At the very least there should have been some historical information about Helios’s fees. I’m sure all the major shareholders, like Omers, are aware of this information. But, my first impression when reading the press release was “wow, this announcement shows zero regard/respect for minority equity holders.” My assumption is Prem would not appreciate being treated the way this announcement treated smaller shareholders if roles were reversed. My guess is he believes the smart money has already bailed. I also think this is a pretty good/brilliant solution to what everyone knows was a serious eff-up. And they probably expect the smart money to recognize the solution’s “brilliance.” At this point the worst case is along the lines of what SharperD has been warning about... that equity investors simply cannot outrun currency devaluation, corruption, and poor business performance in Africa. If so, this deal only prolongs the slow, painful, death. On the other hand, we could be looking at a scenario where a decade from now: - $450 million of existing assets doubles in value to $900 million - Helios contributes $400 million of fees, which is invested and grows to a total value of, say, 600 million - Helios increases their PE assets under management from $3.6 billion to, say, $10 to $12 billion, which will contribute $80 or $100 million of annual fee income to FAH. If you slap an 18 multiple on that and add it to the prior two items you get a fair value over $3 billion, and a 5 to 10 bagger from today’s price. I have a hunch the optimistic scenario is where Prem is leaning, and probably thinks no further explanation is needed. With that said, without more color on expected fees this is highly speculative. at 3$ per share the market cap is around 180mil out of which 140 is cash( minus 40 mil they lent to ATMA which Fairfax is now guaranteeing) . Even after this deal the fair value is probably around 5.50 assuming no new impact on investmetns from COVID-19 since Mar 31. What really bothers me is the sale of ATMA for 40mil when UBN stake alone is worth north of 100mil and UBN itself is on much firmer footing now than a couple of years ago. This is likely going to open up FAH mgmt to potential litigation if there is isn't more to the deal. As it is it seems like Fairfax Financial is trying to make up for its loss in FAH by getting ATMA for pennies. I suspect Helios needs/wants US dollars. And, I think ATMA was probably too risky for Helios. Helios already has a focus on financials, so they probably didn’t want any more in the portfolio. UBN is in Nigeria. Nigeria is extremely oil dependent. It costs $23 per barrel to extract oil in Nigeria. There’s much cheaper oil in nearby regions (aka Middle East). So, with reduced global demand Nigeria isn’t exporting as much, which means their US dollar supply is running low. They already had to devalue their currency once to slow the USD depletion. And, when they did it hit the value of UBN hard. Also, approx 30% of UBN loans are to the oil & gas industry. Additionally, ATMA’s other major bank is in Botswana, which is heavily dependent on the travel and leisure industry. Ouch. Another one of their banks is in a hyperinflation country. And, they’re still stuck holding the non-strategic banks, which aren’t profitable. So, there’s plenty of pain at ATMA. Between the loan losses, currency devaluation, and interest rate fluctuations, it’s next to impossible to forecast what will remain of ATMA post Covid.

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds. I haven't found any info on Helios's historical fee earnings yet. Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward. Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax. FAH will benefit from being managed by leading, proven, investors in Africa. what does not seem right is selling ATMA for 40mil to Fairfax when Fairfax africa themselves have calculated the tangible book value around 280 mil and were selling business in 4 countries to Equity group for 105mil + u have UBN and Botswana... If helios contribute 20mil in earnings and u put multiple of 10 to that ..it implies that FAH is valued at 400mil right now? I somehow doubt helios will contribute in excess of 10 mil right now but then there is no way to be sure until we see more data...they should have released these numbers alongwith press release I 100% agree there should have been more information. At the very least there should have been some historical information about Helios’s fees. I’m sure all the major shareholders, like Omers, are aware of this information. But, my first impression when reading the press release was “wow, this announcement shows zero regard/respect for minority equity holders.” My assumption is Prem would not appreciate being treated the way this announcement treated smaller shareholders if roles were reversed. My guess is he believes the smart money has already bailed. I also think this is a pretty good/brilliant solution to what everyone knows was a serious eff-up. And they probably expect the smart money to recognize the solution’s “brilliance.” At this point the worst case is along the lines of what SharperD has been warning about... that equity investors simply cannot outrun currency devaluation, corruption, and poor business performance in Africa. If so, this deal only prolongs the slow, painful, death. On the other hand, we could be looking at a scenario where a decade from now: - $450 million of existing assets doubles in value to $900 million - Helios contributes $400 million of fees, which is invested and grows to a total value of, say, 600 million - Helios increases their PE assets under management from $3.6 billion to, say, $10 to $12 billion, which will contribute $80 or $100 million of annual fee income to FAH. If you slap an 18 multiple on that and add it to the prior two items you get a fair value over $3 billion, and a 5 to 10 bagger from today’s price. I have a hunch the optimistic scenario is where Prem is leaning, and probably thinks no further explanation is needed. With that said, without more color on expected fees this is highly speculative.

It doesn't look like Helios is paying anything up front. In exchange for the 46% stake Helios is committing a percentage of all future fees from its private equity funds. I haven't found any info on Helios's historical fee earnings yet. Helios manages around $3.6 billion. For now I'm assuming the deal is structured where Helios will start out contributing maybe $15 to $25 million annually. I also assume they will continue increasing their assets under management, which should generate additional fee revenue going forward. Helios will benefit from having a liquid, publicly traded, investment vehicle backed by the credibility and network that comes with Fairfax. FAH will benefit from being managed by leading, proven, investors in Africa.

Not sure why this wasn't posted in the press section of CIG's website. It's definitely material information (assuming it's true): https://www.businesslive.co.za/bd/companies/industrials/2020-03-09-consolidated-infrastructure-group-restructures-debt/ I'm sure they discussed it during the AGM, but I wasn't looking at FAH back then so I didn't dial in (would love to see a transcript/notes). From what I gather the situation at CIG isn't pretty. Odds of survival were zero without a debt restructure. And, even with the restructure I still think things are grim. (It seems Mr. Market has written off CIG anyway.) CIG has several business lines. Half the revenue comes from large scale project management. The other half comes from diverse businesses that are on solid footing from a profitability standpoint, and a couple have especially exciting growth prospects. The problem is CIG royally SUCKED at project management, for years, and lost insane amounts of money. FAH had no idea how bad things were when they invested. It was clearly WAY out of FAH's circle of competence, because the issues were in plain sight. The good news is FAH appears capable of leading a solid turnaround effort, as long as it's not too little too late. If covid hadn't come along it sounded like CIG had a decent shot of returning to profitability in 2020. Now, who knows? It comes down to whether they can right size the project business, and whether they can continue servicing the debt. I'm rooting for FAH on this one. I think if CIG starts showing signs of life it will be at least a $50 million boost to FAH's valuation, with what should be plenty of opportunity for long term growth. Not holding my breath.

2016: Atlas Mara earned $9 million. 2017: FAH acquired 43% of Atlas Mara for $159 million. Atlas Mara earned $47 million. (Well played FAH.) 2018: Atlas Mara earned $42 million. FAH is looking pretty genius - despite Atlas Mara share price decline. 2019: Atlas Mara makes a strategic decision to focus on holdings with a dominant market position, and to divest several non-strategic banks in its portfolio. To do that it secures commitment from a buyer, and then has to reclassify the assets as held for sale, which requires a very large ($105.5 million) accounting write-down. The write-down flows through the P&L so it has to report a massive 2019 loss - but, Atlas Mara expected to sell the reclassified assets in early 2020. 2020: Covid = deal off. African securities lost more value than they did during the GFC. Atlas Mara is in Africa. Ouch. Atlas Mara has $500 million of equity against $2 billion of liabilities. It can absorb a lot of losses. It's largest asset, UBN (Nigeria), which shared $31 million of it's approximately $54 million of 2019 earnings with Atlas Mara, has been in business for over 100 years! So, it's at least some degree of proof banks can survive long term in Africa. So, what if Atlas Mara goes bust and has to wipe out equity holders? FAH wouldn't walk away empty handed. It would likely recover at least some of its $36 million in Atlas Mara bonds. And, as a modest consolation prize, at the end of the first quarter 2020 FAH extended a $40 million debt facility to Atlas Mara collateralized by Atlas Mara's interest in it's second largest holding, Botswana Bank. Botswana Bank earned $14 million of pre-tax profit last year (ROE of 11.2%, ROA of 1.3%). So, FAH would likely still be in the banking business in Botswana (and also with a completely separate holding, Grobank). Long story short. I'm not faulting FAH for this investment. If you have a mandate to invest in Africa, and you want to be a long term investor in the banking sector, then this looked like a flawlessly timed investment at a great price in 2017. And, I completely agree with the strategy they were pursuing to focus on their strongest assets. I'm sure if Covid is damaging the well-capitalized Atlas Mara, then it is decimating Atlas Mara's competition. Hopefully Atlas Mara can capitalize on the opportunities, gain market share, and in a few years produce look through earnings of $25+ million for FAH. Hopefully FAH will still be selling then for less than $200 million. Haha. Frankly, I'm more concerned about CIG than Atlas Mara, but that's a completely different story. And, all of CIG and Atlas Mara's risks appear to be priced into FAH.

https://www.fairfaxafrica.ca/News/Press-Releases/Press-Release-Details/2020/Fairfax-Africa-Enters-Into-Automatic-Share-Purchase-Plan-and-Announces-Intention-to-Make-Normal-Course-Issuer-Bid-for-Subordinate-Voting-Shares/default.aspx Looks like they're going to continue buying up 25% of the daily trading volume. They repurchased 1,476,096 shares on the open market in the last 12 months for an average price of $6.18.

Yeah, I think you're on to something with the recession mental model point... Imagine being Buffett in March. His operations and suppliers in China have already gone dark. The US is just starting to work through a shutdown - averting what was already happening in Italy. He already sees the cash drain on Dairy Queen China, suppliers delaying deliveries, orders being canceled, plummeting rail car loads, a massive drop in daily auto insurance claims, planes not flying, assembly lines halting, and employees being furloughed. His buddy Billy G. advised a vaccine is 18 months away at best, and that the first iterations may not protect the at-risk population (so buckle up for prolonged behavior changes). He's surely talked to his top managers about downside risk scenarios, and about the parental support potentially needed to survive 18, 24, or even 36 months. He's likely urged them to look out for good competitors in financial trouble. In other words he's handicapped Berkshire's risk, so he can more fully focus on opportunity. He knows there's an unprecedented amount of corporate debt sitting one notch above junk. He knows financial markets are gumming up, and companies like AIG are at the mercy of commercial paper. He knows full well the lock down can only subsist about 45 days before businesses globally start dropping like flies. There could soon be opportunities aplenty. He has no idea how the government will respond to this crisis, or how the economy will respond to the government. (The CARES act was introduced to the Senate floor on March 19, at least 9 days after Buffett's last Q1 share repurchase - for $214 per B share.) He does know the Warren Buffett help line is starting to ring... My conclusion: It makes perfect sense for those events to trigger a "recession mental model." Therefore, it makes perfect sense for Buffett to halt repurchases at that time, as the option value of cash was potentially worth FAR more than a moderately discounted share of Berkshire Hathaway. In fact, now that we've talked it out, I'd be scratching my head a bit if he HAD kept buying back shares. So, to that I say well played, Buffett.

The consensus seems to be that the value of the float liability is less than dollar for dollar because maybe it never needs to be paid back. If you invert that, what's the value of a cash asset that earns ~0 and may never be put to productive use? Possibly less than dollar for dollar is appropriate there as well. BRK sentiment is just far too negative right now, which is part of the reason I am buying LEAPS. The option prices say it all, such a low amount of volatility priced in. But we have seen BRK move huge amounts in short periods of time in the past and we will see it again. Not to mention the ridiculously low Price/Book ratio. I agree with this entire post, but especially the part about sentiment. I converted a big chunk of my BRK position from shares to LEAPs on Friday. 2:1 ratio of deep ITM calls to shares. If it continues to drop I'll do more. Biggest reasoning is I think risk of permanent impairment at the current price is very low. Man, I hope you guys are right. I invested a small fortune in March thanks to trade triggers that were based on a pre-covid view of the world. If you take the pre-covid look through earnings of $31 billion, and then add a $5 billion upward adjustment for the cash holdings, you get normal earnings of $36 billion, or $15 per B share (close to the Semper Augustus expectation of normal earnings). If you slap an 18 multiple on it you get a fair value of $270 per B share. If the value doubles over the next 7 to 10 years and you pay today's price of $175 then you'll earn your spot in value investor heaven. Hopefully investing turns out to be that easy. But why did one of the greatest investment minds in history... who knows the salient financial details of thousands of businesses, the interworking of global supply chains, the price history of commodities and their impact on the raw material costs of his dozens of investments (including the price of sugar's impact on the profitability of an 8 ounce serving of coke), whose best friend Bill Gates is also a founder of one of the most valuable companies on the planet and who predicted the enormous global economic pain of a pandemic years before it happened, who together with Gates jointly funds a foundation with its finger on the pulse of the highest probability solutions to covid, who has any world leader and several of the world's greatest risk handicappers - like Ajit Jain - on speed dial... stop buying back shares in March? It wasn't because he's ill-informed.

Awesome question. Pretty sure BRK would have had to pay taxes on the S&P 500 dividends, which would have reduced relative outperformance pretty significantly over the long rung. Whereas with an operating business like GEICO BRK could just throw the advertising spend into hyperdrive and gobble up market share (even a caveman could do it).

I agree. Lumping together cash and investments is a gummed up way of evaluating BRK. I only pointed out the high PE of those two items because another poster mentioned the Rational Walk's grouping of cash and investments when making their point that the rest of BRK is cheap. I personally Love investments with multiple earnings streams, and I feel like I run into the argument that "you get the rest for free" All The Time. In fact, I've been plenty guilty of wanting to use that phrase when evaluating things like Altius, or FFH, or FFH Africa/India, or even something like St. Joe back in the day. IMHO (and talking to myself too) it's probably best if that phrase is deleted from the value investor lexicon. 9 times out of 10, if I keep pushing myself to uncover what the true look through earnings potential of each earnings stream is, I come to find that if you're getting "part of an investment for free" in a highly liquid, highly informed, free market system it's because you're paying too much for the other parts. In the case of Berkshire, we know we're paying too much for Apple, etc. In fact, another COBF thread is currently discussing the merits of shorting Apple if you hold BRK. (Maybe worth exploring if you'd normally sell an equity for a 40% premium to fair value.) For me, the biggest curve balls in recent months are how to think about Covid and the deployment of cash. And, one of the biggest surprises of my investing life is that Buffett was fearful when all others were fearful. I'm sure for very good reason, which only time will tell, but that wasn't supposed to be in his DNA (especially with $100+ billion of cash). I'm confident that if Berkshire deploys cash into equities - including share buybacks - it is with an expectation of high single digit or low double digit returns over time (see Buffett's recent commentary on airline investment justification - there was a double digit return expectation). For that reason I don't think you look at the value of cash as worth less than $1 for each $1 of cash held (despite any inflation-induced decline in near-term purchasing power). Theoretically, $100 billion of cash could be deployed tomorrow at a 10% after tax return. Or, more likely, it could be deployed in chunks over several years (while more cash is piling up). So, you can do what Semper Augustus does and pick the "normalized" long term earnings power you're comfortable with for the $100 billion, and tack it on to your "normal" look through earnings estimate. It's probably not conservative enough to say the $100 billion represents $10 billion of after tax earnings potential, but it's probably perfectly safe to estimate $4 to $6 billion. If look through earnings in 2018 and 2019 were around $31 billion, then after whatever covid impairments you choose to make, you could reasonably add $4 to $6 billion to represent the normal long-term earnings potential of the cash. I already own plenty of BRK, so I'm not currently making an upward earnings adjustment for the cash. But, I have in the past, I probably would now if I had seen at least a few billion deployed in March, and who knows, I could change my mind tomorrow.

My hesitation is that it values cash and equities at 27 times peak-cycle cash/equity earnings of approx $14 billion. A 3.7% peak-cycle earnings yield. how does that value cash and equities at 27x p/e? I dont follow ... fine - apply a 50% discount and its still cheap. I'm just saying this is one of several interesting ways to value BRK Assume cash and equities are worth approx $382 billion. In 2019 the cash and equities had look through earnings of around $14 billion. That's a multiple of 27 and change. At year end 2019 the top 10 equity positions consisted of a credit card company, 5 banks, and an airline. Enough said. I think the value of BRK will ultimately correlate with earnings potential. Putting a multiple on earnings on the cash is a bit strange, no? Top equity position by miles at year end was Apple, which is up 21%. Apple Diluted Earnings Per Share 2018: $11.91 Apple Diluted Earnings Per Share 2019: $11.89 Growth: Negative Apple Share Price: $353.63 Multiple of 2019 Earnings: 29.74 FWIW Morningstar puts Apple's fair value at $240 per share. No matter how you swing it $353 feels a bit sporty.

My hesitation is that it values cash and equities at 27 times peak-cycle cash/equity earnings of approx $14 billion. A 3.7% peak-cycle earnings yield. how does that value cash and equities at 27x p/e? I dont follow ... fine - apply a 50% discount and its still cheap. I'm just saying this is one of several interesting ways to value BRK Assume cash and equities are worth approx $382 billion. In 2019 the cash and equities had look through earnings of around $14 billion. That's a multiple of 27 and change. At year end 2019 the top 10 equity positions consisted of a credit card company, 5 banks, and an airline. Enough said. I think the value of BRK will ultimately correlate with earnings potential.

So, above we have the breakdown of 2019 look through earnings. Now let's take a look at 2018 look through earnings laid out in the same form. But, first try to guess the look through earnings growth rate for the final year of the longest economic expansion in history. Was it 8.5%? 6%? Less than 6%? Drum roll please... Based on 2018 Earnings (In Billions USD except per share info) Non-Insurance Business Earnings: $16.8 Less CapEx Adjustment (Maintenance CapEx less Depreciation): $3 Plus Acquisition-related Amortization: $1.4 TOTAL ADJUSTED NON-INSURANCE BUSINESS EARNINGS: $15.2 ————————————————————————————————— Equities Dividends: $3.8 Estimated Equity Retained Earnings: $8 TOTAL EQUITIES LOOK THROUGH EARNINGS: $11.8 ————————————————————————————————— TOTAL SHARED HOLDINGS EARNINGS (Kraft-Heinz, Berkadia, Flying J): $1.3 EARNINGS FROM TREASURIES & CASH EQUIVS (Assume 1% yield. #lazy): $1.32 INSURANCE COMPANIES (After tax operating profit - I think Buffett ignores this): $1.58 TOTAL LOOK THROUGH EARNINGS: $31 BILLION Average Equivalent B Shares Outstanding (3/31/2020): 2,434,333,367 LOOK THROUGH EARNINGS PER B SHARE: $12.82 So, what was the year over year look through earnings growth rate? A spectacular, breathtaking, hair raising, jaw dropping, 1.2%! Are we going to set a new look through earnings record this year? Spoiler alert... nope. Next year? Maaaaybe, IF we get a vaccine AND if BRK converts $50 to $80 billion of cash/treasuries into something that actually earns money. (WARNING: When I did this analysis after the annual report was published I did it quickly with zero expectation of voluntarily sharing it with hundreds or thousands of people. It's probably flawed (I'd love to know where - preferably without insult). And, don't forget you get what you pay for.)

My hesitation is that it values cash and equities at 27 times peak-cycle cash/equity earnings of approx $14 billion. A 3.7% peak-cycle earnings yield.