glider3834

Moody's has upgraded Fairfax's senior debt

just for context, looks like they locked these rates in on around 9% of their fixed income portfolio

no worries - they would control 64% of BIAL but I think underlying ownership is then split FIH 59% (direct & via Anchorage) & OMERS 5%.

disclaimer - below figures could be wrong - this is not investment advice & always do your own due diligence So this is just a snapshot of top 5 holdings of Fairfax India representing 83% of their total assets vs their YE Mar 2023 net income If we ignore BIAL, the 2nd to 5th largest holdings, trading on a FY23 PE of 10.7 x (using avg exchange USD/INR rate of 80.31) but note I haven't looked deeply into operating earnings of these businesses. With BIAL I don't regard the earnings number below as meaningful as T2 was only just starting to open up in January & T2 is still not operating at capacity. But in 2019 the net earnings for BIAL was 68M (for T1 only). Also I have noted 52% economic ownership below for BIAL but assuming FIH buy another 7% from Zurich later this year, this should move to 59%.

thanks viking John Keells (JKH) convertibles - not a big investment but a very tidy one so far, with strike LKR 130 & current share price at 192.5, look like they are up around 48% plus Fairfax are getting interest at 3% p.a while they wait to exercise. This would probably make it close to top 20 position or $200M investment on a converted position basis. When you think of the enormous economic challenges Sri Lanka has faced over last year or so & still has a lot to work through - in that context JKH's USD results below are pretty remarkable. Assuming conversion, Fairfax would hold close to 24% of the business and would make Fairfax the largest shareholder which gives this investment real strategic value IMHO.

So just on your BV question re Digit, not a legal expert here but looks like Fairfax has recognised the fair value gain on the Compulsory Convertible Preferred Shares in Go Digit Infoworks (majority owner of Digit Insurance), not the fair value gain under IFRS they would receive on their equity shares on achieving majority ownership or control of Digit. On your Nationalisation question. My view is foreign Investment is critical to India's & Modi's current strategy to drive economic growth and strategic objectives (incl national security etc) - we have seen Modi flying all over the world in recent months meeting with world & businesses leaders eg Big Tech CEOs etc to encourage them to bring foreign investment to India. Any threat to nationalise here over this issue, would would undermine all this work & run counter to that strategy. And you have to look at Modi's economic track record as well which has been pro-business. So I think this is a low risk here IMHO.

https://www.theinsurer.com/reinsurancemonth/brit-shows-blueprint-on-how-apollo-may-exit-3-5bn-aspen/

So looks like Fairfax have taken a majority stake in Meadow Foods - looking at turnover and profit - I suspect this is a decent sized equity investment - but no transaction price disclosure https://globallegalchronicle.com/fairfax-financial-holdings-acquisition-of-a-majority-stake-in-meadow-foods/

just on the subject of the hard market & expectations around underwriting - not sure if this article has been posted https://www.insurancebusinessmag.com/asia/news/breaking-news/arch-ceo-compares-hard-insurance-market-to-tennis-final-454585.aspx?e=dXNlckBleGFtcGxlLmNvbQ&utm_content=&tu=&utm_campaign=Editorial-IBAP-NS&utm_medium=social&utm_source=twitter&hss_channel=tw-728383287090020352 'During the company’s latest earnings call, Grandisson – whose camp writes more business when the market is hard – said: “This hard P&C (property and casualty) market is proving to be one of the longest we’ve experienced, and we are in an enviable position as we look to 2024 and beyond. “We often refer to the insurance clock developed by Paul Ingrey to help illustrate the insurance cycle… For some time, we’ve been hovering at 11:00, which is when we expect most companies in the market to show good results as rate adequacy improves and loss trends stabilise. “Last year, a popular topic on earnings calls was whether rate increases were slowing or whether rates were even decreasing. These are classic signs of the clock hitting 12:00, when returns are still very good but conditions begin to soften. Yet here we are in mid-2023 and conditions in most markets remain at 11:00. We’ve even checked the batteries in the clock and they’re just fine. The clock isn’t broken; it’s just that the current environment dictates an extended period of rate hardening.”

just on corporate overhead 1. 2020-2022 avg was 317M - but first 6m23 was around 196M so I guess that would put us higher and closer to 400M annualised. 2. $92M or around 30% of the 2022 corporate overhead was amortization of customer & broker relationships - looks like a non-cash expense and purchase accounting requirement - given the premium and earnings growth in Fairfax's businesses post acquisition, it would be difficult to argue that this charge off reflects reality

yeh not sure whats driving this one - I can see there was higher than usual vol on Wed & Thu - stock dropped back 11% or so on Fri

Some thoughts I have been having on BIAL -bear in mind I have not been to visit BIAL yet- so its mostly a combination of reading & youtube videos. As with all my posts, below is not investment advice, don't rely on my numbers & always do your own due diligence. T2 effectively triples the size of the retail (duty free, fashion, cosmetics shopping etc) & food & beverage areas at BIAL .T2s retail & F&B areas are double T1's. Further from this week, all international passengers/flights are operating from T2 and international passengers are the highest spenders (vs domestic). this is an old survey from 2020 below but shows Bangalore traditionally lagged Mumbai & Delhi particularly in revenue from retail incl duty free shopping, thats where T2 expansion I think is important https://www.knightfrank.co.in/research/transit-retail-2020-think-india-think-retail-6990.aspx?search-id=859c257a-80c9-4678-8896-094896b8d359&report-id=1923&rank=1 T2 increases the terminal capacity of BIAL to 52.5M (note actual numbers which have been higher than capacity for T1) - what is important when we think about earnings margins is the capacity utilization projection which is forecast to run from from 70s% area range up to around 90-100% range by 2026. Bottom line, likely will take a few years to hit full capacity utilisation based on AERA paper forecast (bearing in mind actuals could differ , this is a forecast!). Head of Strategy at BIAL on a recent podcast indicated BIAL are expecting around 40M passengers from T1 & T2 in FY24 https://www.internationalairportreview.com/podcast/bangalore-airport-from-dream-to-reality-and-beyond over the FY17-FY19 period, BIAL ran a net profit margin in the 40% area - during this period BIAL averaged 32 employees per million.With lower capacity utilisation as T2 ramps up passenger numbers, BIAL expected to average 44-45 employees per million passengers. it is difficult to derive forecast on BIAL's expect net profit margin without the FY23 (ending Mar) financials - don't have their current financing costs & depreciation/amortisation expense - However, for FY17-FY19 period (for T1 only) it was around 40%. Deriving the new net profit margin for T1 & T2 & Airport City is a key question going forward. The revenue per passenger for FY23 was around US$6.34 (assuming exchange rate 80.3 & spend of INR 509 per passenger). The FY24 AERA forecasts appear to suggest increase of revenue per passenger into the US$7s range and increasing non-aero spend will be key. There is an excellent quote 'happy airports make more money' https://amadeus.com/en/insights/blog/happy-airports-make-money-satisfied-passengers-spend-45-airport-retail-purchases . The extensive investment that BIAL has made in art, gardens, design, technology etc of T2 along with upcoming reno on T1 has a real purpose here & the focus of customer experience front & centre - Hari discusses here On aero revenue - there should be a boost from higher UDF rates from Apr-23 https://bangaloremirror.indiatimes.com/bangalore/others/from-april-2022-flying-to-become-a-tad-pricier/articleshow/85964418.cms

agree - great interview & thanks for posting

the payout ratio Eurobank have indicated is 25%, I just wonder if they meant to say increase in payout ratio to 30%

https://www.bnnbloomberg.ca/investing/video/greece-will-stick-with-its-fiscal-targets-greek-pm-adviser~2764203

By my calcs in Q3 so far, FIH public equities are up by around USD$161M (pre-tax) , so potentially a $1 or so impact on BVPS - not sure what MTM will be on their private equities.

Greece credit rating raised to investment grade for first time since debt crisis https://www.ft.com/content/fc17f901-e219-4656-bb76-f088c84de3e7

I just saw this report AXIA who have increased their PT for Eurobank as a result of this deal - here are some comments - they are estimating a 13% increase in EPS from Hellenic deal which is lower than 20% I thought might be possible, but they are assuming 100bp reduction in interest rates by ECB in this estimate so they are calling their model estimate 'rather conservative' - here is the article link below which I have translated to English from Greek https://www.insider.gr/epiheiriseis/289381/axia-ti-fernei-sti-eurobank-i-elliniki-trapeza-oi-kryfes-axies-poy-agnoei-i In the further strengthening of Eurobank 's position in Hellenic Bank , through the acquisition of an additional percentage of 7.2% (29,710,012 shares), thus reaching 55.3% and pending the approval of the regulatory authorities that will make it as a subsidiary of the group, turns AXIA , revealing the hidden values for the domestic systemic bank . To the surprise of the analysts, the stock did not react to these developments and despite the size of the acquisition which is expected to further strengthen profitability, as well as its strategic position. AXIA estimates that through these moves Eurobank will boost pro forma EPS by 13%, bringing its return on equity ratio, ROTE, to 15.5% by the end of 2024, 100 basis points higher than analysts' previous estimates. The transaction is expected to reduce the CET1 ratio by 120 basis points, which is negligible given the bank's enhanced profitability generation capacity and current CET1 base. The Eurobank - National "battle" on the board of the Stock Exchange and the Hellenic "game changer" In fact, AXIA considers its estimation model to be rather conservative as it assumes a reduction in interest rates by the European Central Bank by 100 basis points, without synergies of reducing costs in Cyprus and without any additional enhancement of net income through the bank's investment portfolio ( NII), despite excess liquidity. From a strategic point of view , through the acquisition Eurobank: a) further diversifies its profitability "mix" outside the domestic market (domestic banking base will cover only 56% of net profitability by the end of 2024, from 65% in previous estimates ), b) creates the second largest player in the Cypriot market with a complementary loan portfolio, c) increases excess liquidity at the right time and d) acts as a basis for a further opening to other international markets, which include Middle Eastern countries , but also India , which is the home country of Fairfax CEO (Prem Watsa), the largest shareholder of Eurobank. Clearly, even a small percentage of the market in them could be a "game changer" , as AXIA claims. At the same time, Eurobank offers a high quality, with a stable and diversified profitability base, while the acquisition of Hellenic Bank - which at the moment has gone rather unsought by the market and has not passed through valuations - offers the short-term "catalyst" for a further re-rating of the stock. The group's expanded base is expected to lead to the highest ROTE ratio among the rest, reaching 15.5% 2024, which explains a P/TBV ratio of 1x or €2.4 that AXIA sets as a target price, up from €2 previously (51% upside), with a firm 'buy' recommendation. For 2024, the more "open" and new Eurobank will have: - Higher net profits of €1.268bn, up 13% for adjusted ROTE to 15.5%, which is 100 basis points higher than Eurobank's previous base. - The CET1 ratio will decrease by 120 basis points due to the consolidation of Hellenic Bank's higher risk assets. - EPS (earnings per share) will increase by 13% to €0.35 (2024 P/E ratio at 4.5x from 5.1x) and the dividend will also increase to €0.30 (+25%) ), as AXIA estimates that the group will be able to increase the distribution rate on earnings.

Yep they have secured 55.3%, subject to customary approvals, and you are right it will take time to get regulatory approvals https://cyprus-mail.com/2023/08/24/cysec-chairman-eurobank-mandated-to-bid-for-100-per-cent-of-hellenic-hank/

Just looking at this Hellenic Bank deal (I have re-edited this post) Eurobank now owns around 55% of Hellenic Bank https://www.ekathimerini.com/economy/1219382/hfsf-divestment-from-eurobank-is-put-off/ Eurobank reported €111M of negative goodwill gain in 2Q23 on the initial 29.2% stake acquired. Assuming remaining 70.8% of Hellenic (estimate around 293M more shares - float is 413M approx) can be acquired at €2.35 per share & TBV was €3.02 at 30 Jun-23, I estimate Eurobank will have additional negative goodwill/bargain purchase gain of around €196M still to come. Fitch has viewed the acquisition positively “If completed, the acquisition will enhance Eurobank’s business model, increase geographical diversification, and result in a better balance between retail and corporate banking activities,” Fitch noted. https://cyprus-mail.com/2023/08/28/hellenic-bank-acquisition-by-eurobank-viewed-positively-by-fitch/ Hellenic had a 1H23 profit from continuing ops of €141M & has revised its FY23 forecast to €300M pre-tax (Assuming 13% (rounded) cyprus corp tax rate , thats around €260M profit after tax) Eurobank had adjusted net profit of €599M in 1H23, so assuming around €1.2-1.3B annualised - this Hellenic transaction could potentially add around 20% increase to Eurobank's EPS & Fairfax's share of Eurobank profit. Plus Eurobank's expected repurchase of 1.4% of its shares held by HFSF will add to EPS. Both Eurobank and Hellenic are benefiting from higher interest rate environment - a lot of their interest income floating so a key risk is that a drop in rates brings down their profitability. The path & duration of rates is a question mark https://www.reuters.com/breakingviews/europe-faces-dirtier-inflation-fight-than-us-2023-09-06/ Other risks - deal integration risks, persistent inflation/cost of living pressures, financial impact from recent wildfires & flooding in Greece, ongoing war in Ukraine, uncertainty around upgrade of Greece's credit rating to investment grade.

https://www.routesonline.com/airports/2360/athens-international-airport-sa-eleftherios-venizelos/news/299661933/strong-first-half-of-2023-places-athens-airport-in-the-lead-in-europe-and-beyond/

I think Idalia will be a test for Brit which has been de-risking its US prop cat exposure this year - remember half of Ian's cat loss came from Brit. Also it appears Idalia will impact insurers more than reinsurers https://www.reinsurancene.ws/hurricane-idalia-expected-to-be-earnings-event-reinsurers-to-be-minimally-impacted-am-best/

thanks for posting

Eurobank, currently holds 29.2% in Hellenic Bank, therefore after the completion of the Transaction, its total holding in Hellenic Bank will amount to 46.5%. Consequently, in accordance with the provisions of the Takeover Bids Law of 2007 in Cyprus, Eurobank will proceed, following the completion of the Transaction, to a mandatory tender offer for all the outstanding securities of Hellenic Bank not already held by it at the time.