glider3834

+1 agree - thats why I prefer Fairfax over Berkshire

We could only wish - I am taking the view Berkshire could be a better investment when WB eventually makes his departure from this world which sounds a bit morbid but it may lessen investor appeal or cause a sell off, meanwhile they have a deep bench of talent. I wonder if Buffett do a TRS on Berkshire's stock if he could get it at 20% or greater discount to book value? He hasn't shied away from using derivatives in the past. Although given their cash position maybe unnecessary.

I think we should look at this substantial issuer bid from a liquidity perspective as well for institutional investors & not looking at it purely from a retail investor angle. If you are a large institutional investor who maybe has been holding onto Fairfax for a long period of time - the SIB provides an opportunity to divest - with the current avg daily trading volume just 50,000 shares - it makes it very difficult to sell a larger position & heavy volume selling will likely impact price negatively. Also if a institutional investor has made an internal decision to sell because they have fundamental reasons for not owning the company then tax considerations will be of secondary importance, their first consideration will be that they are stewards of their fund investors capital and they have other investments which they deem to be more attractive. Also they can tender their shares at US$500 a share - a decent premium to current price. We are also running into the end of the calendar year & for institutions that want to rebalance their portfolio this is the time they will want to do it - so the timing of this SIB is relevant IMO. Also from tax perspective institutions that are pension funds or running pension accounts may see it as more attractive, or if they are sitting on a capital loss then maybe they can minimise the tax impact. I wouldn't jump to the conclusion that this SIB won't succeed at least partially & if they soak up maybe 50% through the SIB & maybe another 50% using their NCIB over the next 3 months then that could still work - I have no doubt that Fairfax would have taken on feedback in the past from insitutional investors & would have done their own research internally prior to launching this - there is a cost associated with it as well.

+1 agree - the longer the time period the more expensive the TRS There are 3 discounts in the current FFH share price IMO - share price discount to BV and BV is understated because - insurance subs - fair value > carrying value - non-insurance subs - fair value > carrying value

SJ I think thats one reason why they wanted to keep $1.5 bil in holdco & 2 bil revolver undrawn - with the TRS it is around 2mil shares & 733 mil or so exposure - given their existing liquidity & other potential options to raise further liquidity- cash flow risk is well covered IMO with downside risk low given strike price - its a calculated risk but I wouldn't put it in the same category as their macro bet. long equity total return swaps on 1,964,155 Fairfax subordinate voting shares with an original notional amount of $732.5 million (Cdn$935.0 million) or approximately $372.96 (Cdn$476.03) per share.

I need to correct this post - Odyssey's book value at 31 Dec-20 was 4.8bil using stand alone US GAAP (see below) - so it looks like this transaction was probably more in the 1.6x BV area (estimate Odyssey Group 30 Sep shareholder equity at 5.64 bil or 17.5% increase) . Anyway I am sure we will get more info on this transaction in due course.

ok thanks SJ I will take a look I guess Fairfax can also continue their NCIB (at market) to mop up shares that don't get tendered via SIB

how would this impact non-Canadian resident shareholders?

Yep I was unsure about this but it looks like restricted shares may have vested in Q4 (it seems like a lot but it may be a a consequence of Fairfax's expected profit/BV growth for 2021 which is likely to be a record result). Alternatively could it also be due to Odyssey sale transaction - there maybe clause to effect if Odyssey is sold for $X figure or a certain multiple of book value, then management/employees will receive incentive bonuses in the form of stock compensation or something along those lines.

Wow massive news Odyssey's carrying value which was 3.9 bil at 31 Dec-20 - they haven't reported 30 Sep-21 carrying value but lets assume around 17.5% increase in Fairfax's book value then its probably sitting around the 4.5 bil area - so sale price is around 2 x book value at 9 bil valuation by my estimate

yep

hidden value at Eurobank? https://www.businessdaily.gr/epimonos-kipoyros/52739_oi-kryfes-yperaxies-tis-eurobank-oi-nees-tis-dei-kai-i-episkepsi-psalti-sti The news of the acquisition in Bulgaria of Raiffeisenbank (Bulgaria) by the Belgian KBC caused a lot of smiles in Eurobank , news that in Greece went to the "fine". KBC acquired 100% of the shares of the Bulgarian Raiffeisenbank for 1.015 billion euros, a price that corresponds to 13 times the P / E based on the expected profits of 2022 and 1.64 times the book value (also tangible book value, also of 2022) . And why are they smiling at Eurobank? Because, based on the size of Postbank, a subsidiary of Eurobank in Bulgaria, its respective valuation is set at 1.5 billion euros, when the market value of Eurobank on the Athens Stock Exchange is set at 3.5 billion. euro. And the forgotten value of the subsidiary in Bulgaria is not the only unrecognized value of the group.

AGT foods https://globalnews.ca/news/8035707/saskatchewan-commodity-trader-rail-network/

Media report that NSE IPO could happen soon The bourse is likely to be valued at over ₹2-lakh crore The much-awaited initial public offering of the National Stock Exchange (NSE) could be rolled out in the next few weeks since market regulator SEBI is all set to allow the bourse to re-file its prospectus for the share sale. https://www.thehindubusinessline.com/markets/stock-markets/nses-big-ticket-ipo-set-to-get-clearance-from-sebi/article37493243.ece

https://www.bloomberg.com/news/articles/2021-11-15/softbank-backed-policybazaar-jumps-in-mumbai-trading-debut PB Fintech Ltd., the operator of online insurance marketplace Policybazaar, surged as much as 23% in Mumbai, joining a flurry of Indian companies that recently jumped on their first day of trading. The startup climbed as high as 1,205 rupees as of 10:04 a.m. local time, after pricing shares in the initial public offering at 980 rupees apiece, the top of an indicative range. It raised about 57 billion rupees ($761 million) in the IPO that saw almost 17 times demand for shares on sale.

I just had a listen to the Farmer's Edge Q3 conference call - they expecting to be cash flow positive on annualised basis in 2024 - expect their cash burn to reduce going forward - they believe they have enough cash on hand until they become cash flow positive (so hopefully no further funding needed from Fairfax ) - expect Digital Agronomy revenues to be 33% higher in Q421 (over Q420) which should reduce their cash burn to b/w 5-10 mil in Q4. - they have largely a fixed cost structure so path to break even & beyond comes down to acquiring new acres & selling related services. - they are continuing to develop financial services products & insurance products in conjunction with Fairfax such as yield prediction feature (used by lender & insurers to manage underwriting risk) - expect revenue growth from carbon offsets

Here is a chart I put together to show Fairfax's investments per share multiple versus peers. What you do notice straight away is that insurers with lower combined ratios (higher levels of underwriting profitability) tend to trade on lower investments per share multiples. And this makes intuitive sense - the less profitable the underwriting, the higher the investment returns need to be for investors (ie you would require more investments for each $1 invested to earn an attractive return). I estimate Fairfax had an average combined ratio (excl covid loss) over 2018-2020 of 96. By my calcs, Fairfax's peers that have average combined ratios between 95 & 97, over same period, are trading on investments per share multiples of 1.5 to 2.3x . However, Fairfax's investments per share multiple looks to be 3.5x - much higher!

yes viking I think 96-97 sounds reasonable - I have done some calcs below as well Worth noting too that while Q4 is usually cat heavy, it looks like this US hurricane season will likely a bit lighter in Q4 https://www.local10.com/weather/2021/11/12/hurricane-season-is-likely-over-yet-again/ Underlying CR (excluding covid, cats, favourable develop) looks to be on a downward trend on back of this higher net earned premium - so I think could potentially hit 88s region in Q4. Q420 90.5 Q121 90.3 Q221 89.9 Q321 89.0 Q421 (88s??) I would expect covid to have minimal impact based on Q3. So remaining impact on CR will come from fav development and catastrophes. Fav development has averaged 1.2% over last 3 quarters & was 5% in Q420. So for favourable development I would estimate around 1-2% in Q4. Lets say 1.5% slightly more than quarterly as would expect them to be conservative around releases pending the Q4 audit. On the flipside, I think economic inflation is something which will probably encourage them to be more restrained on any Q4 release. For catastrophe losses, 6.6% in Q420 & 8.9% in Q419. Lets estimate catastrophes at the mid-point at 7.7% although noting that a lighter hurricane season could reduce this further. Underlying CR 88.5 (lets estimate) + Fav devopment -1.5CR points + Catastrophes 7.7CR points = 94.7 CR estimate for Q4. That would give an annualised CR of around 96.4 Of course, this is all guesswork as we are at the mercy of the weather

yes agree @Viking not every investment is going to work & its the overall bottom line result at the end of the day - on that point Fairfax's equity portfolio is continuing to do well & still looks to be up by over $500 mil since 30 Sep (including common stocks & consolidated/equity accounted positions) - Boat Rocker & Dexterra on track & some of Fairfax's largest holdings have also seen solid Q3 results Atlas Corp, Stelco, Recipe, Kennedy Wilson - Eurobanks results still to come...

sorry should clarify its being carried at around 303 mil (at 31 Dec) & mkt value around 94 mil - I think high probability of impairment on this holding in Q4.

Well in stark contrast to Stelco & Atlas Corp, the Q3 results from Farmers Edge are out - results look terrible with a very high cash burn - fortunately this is not a major position for Fairfax (circa 100 mil now) - cost structure 23.1 mil for Q3 looks ridiculous against the revenue number of 6.8 mil . What I can't understand is how their annual recurring revenue has increased from 53 mil (Q420) to 64 mil in latest quarter - but they are only generating 6.8mil in quarterly revenue - maybe its a timing issue?? I am going to check out the Q3 analyst call which might provide some insight & expectations around Q4 ^& Fy22. https://www.farmersedge.ca/wp-content/uploads/2021/11/Third-Quarter-2021-Results.pdf

1.8% I believe thats a record market share for them - we have to take IRDAI numbers with pinch of salt I think because they are not audited & 3rd party but still I think it does indicate Digit are continuing to generate premium at very strong growth rate - so they look to be on track

Well hopefully Fairfax will be able to start deploying their cash/st investments into higher yielding fixed income but given their continued cash/st investments build over Q3 (to 44% of their total portfolio) I suspect they are not ready to move just yet - I think interest rates probably need to go higher but I also think that move will be tempered to a degree as there are still covid related 'temporary' drivers which are impacting the recent inflation numbers https://www.cnbc.com/2021/11/10/us-bonds-treasury-yields-climb-as-investors-eye-key-inflation-test.html At September 30, 2021 the company's insurance and reinsurance companies held portfolio investments of $48.1 billion (excluding Fairfax India's portfolio of $2.1 billion), of which approximately $21.2 billion was in cash and short dated investments representing approximately 44.1% of those portfolio investments.

Atlas's results are out & they look great on an underlying basis - Fairfax's largest equity holding so important that Atlas does well Atlas Corp. Third Quarter 2021 Financial Performance Compared to Third Quarter 2020 Revenue growth of 17.0% to $451.9 million Adjusted EBITDA(4) growth of 29.0% to $322.2 million Funds From Operations ("FFO")(1) growth of 42.9% to $248.0 million and FFO Per Share(1) growth of 36.8% to $0.93 Earnings per diluted share of $0.30 Adjusted diluted EPS(1) of $0.56, representing growth of 107.4%, excluding $70.9 million non-cash charge, or $0.26 per diluted share, related to loss on debt extinguishment https://ir.atlascorporation.com/2021-11-08-Atlas-Reports-Third-Quarter-2021-Results

https://www.moneycontrol.com/news/business/startup/what-is-driving-optimism-in-the-indian-insurtech-space-7688641.html At least 30 percent of first-time insurance buyers over the next few years will be the younger population in the age bracket of 16 to 21 years. They are digital natives and their buying experience and expectations around their experience will be completely digital,” says Jaikrishnan. He expects insurtech aggregators and brokers to grow five-fold over the next few years. Back-end service providers and pure tech insurance service provider companies are likely to see year-on-year growth of around 50 percent as capabilities will have to be added to cater to growing demand