Fairfax India new issue

[SafetyinNumbers]

3 hours ago, Saluki said:

The airport is the center of gravity for the value of this stock, and airports are a toll road that lets you participate in the growth in the economy or tourism of a region. I was looking at CAAP recently and although it looks cheap, when I stepped back it had some issues.  I think part of the CAAO discount is that Argentina is a mess, and Brazil isn't exactly a success story either, so people are concerned about it even though a cheap currency makes Argentina more attractive to tourists and 85% of CAAP's revenue from the Buenos Aires airport is in dollars.  So if you think about the growth of latam vs asia, with CAAP you are getting a discounted dollar that may grow slowly, vs FFXDF where you are getting a discounted dollar that is growing rapidly.  If BIAL was a separate stock I think the discount to fair value would go away quickly. Part of me likes that it is wrapped up with other things because the value is hidden in plain sight and I can still add to it from time to time when it dips a bit and I don't have other ideas.  The airport is a long term compounder, so there is no hurry.  And if the price stays this price or lower for long enough, maybe we'll get another tender offer and buy back shares again and I get a bigger % ownership without opening my wallet. 

The optimistic part of me thinks that the recent BIAL add-on was to clean up the shareholder list before the long awaited Anchorage IPO. After two years of waiting it makes sense no one has to hurry to buy it but in theory, it could happen soon. 

[Luke]

https://www.woodlockhousefamilycapital.com/post/epictetus-india-and-patience

 

Chris Mayer talking about his Investment in Fairfax India. 

[nwoodman]

5 hours ago, Luca said:

https://www.woodlockhousefamilycapital.com/post/epictetus-india-and-patience

 

Chris Mayer talking about his Investment in Fairfax India. 

Not too difficult at all to make the case the Kempegowda Airport is mispriced. The recent small interest stakes valued the airport at $2.5 bn (Prem uses $3bn)  Not sure about 6-7x’s in a decade ($20bn) but easy to see a “runway”  to $10 bn or so by 2030.  A remarkable investment.

 

https://companiesmarketcap.com/airports/largest-airport-operating-companies-by-market-cap/

[Luke]

I only see @Saluki and @Viking buying Fairfax India in the past years. What does the rest here not like about FIH? Is it the fees? 

 

To me their assets seem pretty solid, as @nwoodman  pointed out, the airport will likely make a nice return, the stock exchange should be a homerun, rest of the assets should benefit of the india GDP tailwinds too. New restructuring should increase exposure to the other assets. 

[SafetyinNumbers]

2 hours ago, Luca said:

I only see @Saluki and @Viking buying Fairfax India in the past years. What does the rest here not like about FIH? Is it the fees? 

 

To me their assets seem pretty solid, as @nwoodman  pointed out, the airport will likely make a nice return, the stock exchange should be a homerun, rest of the assets should benefit of the india GDP tailwinds too. New restructuring should increase exposure to the other assets. 

 

I own Fairfax India too. Most of the push back I hear is related to fees and that FFH is cheap anyway so might as well own the parent.

 

Some of my other recent thoughts are here:

 

https://twitter.com/BrownMarubozu/status/1669853492108840962?s=20

[Luke]

3 minutes ago, SafetyinNumbers said:

 

I own Fairfax India too. Most of the push back I hear is related to fees and that FFH is cheap anyway so might as well own the parent.

 

Some of my other recent thoughts are here:

 

https://twitter.com/BrownMarubozu/status/1669853492108840962?s=20

Thanks a lot for sharing @SafetyinNumbers

[gfp]

3 minutes ago, SafetyinNumbers said:

Most of the push back I hear is related to fees and that FFH is cheap anyway so might as well own the parent.

 

In my experience, most people who say this fail to realize how small Fairfax India is within Fairfax Financial's investment portfolio.  You aren't getting much exposure to FIH.U by buying FFH.  You do get Digit when you buy the parent.  I own both.

[MMM20]

4 hours ago, Luca said:

I only see @Saluki and @Viking buying Fairfax India in the past years. What does the rest here not like about FIH? Is it the fees? 

 

To me their assets seem pretty solid, as @nwoodman  pointed out, the airport will likely make a nice return, the stock exchange should be a homerun, rest of the assets should benefit of the india GDP tailwinds too. New restructuring should increase exposure to the other assets. 

Fairfax’s best investment in India so far seems to be Digit. It was made by Fairfax itself and not Fairfax India because Digit is an insurance company. Fairfax’s clearest circle of competence is insurance. Fairfax itself is trading at ~5-6x earnings.

 

That said, until recently to @gfppoint I was one of those who thought FIH was ~15% of the value in FFH b/c I misunderstood the minority interest…it’s really ~3%, while Digit is ~15-20% at this point, incredibly. So I think it’s still a fair point that you get a lot of India exposure within Fairfax itself and FFH shareholders with big positions might not want more. 
 

Anyway…I get the case for owning both but I think the unfolding Digit case (and clearer alignment with Prem) is the gist of why many stick with FFH. 
 

Edited June 19, 2023 by MMM20

[This2ShallPass]

3 hours ago, Luca said:

I only see @Saluki and @Viking buying Fairfax India in the past years. What does the rest here not like about FIH? Is it the fees? 

I have owned it almost from the start, has been a terrible investment so far.

 

BIAL is the crown jewel and the main reason I'm still holding. As many have pointed out, the runway for BIAL is so good and it'll be a homerun investment. Once the IPO happens, you will see a rerating (discount stays same / widens, but market value of BIAL will likely be higher than $2.5B).

 

I'll revisit my Fairfax India holding after the Anchorage IPO. I have questions about their strategy, last year bought 2 small companies for $30M and $50M, this year trying to buy multi-billion dollar IDBI..

 

[hobbit]

Skeletons in closet... FIH mgmt has been pitching IIFL securities as incredibly undervalued in the annual letters but market knows better

 

https://www.moneycontrol.com/news/business/markets/sebi-stops-iifl-from-onboarding-new-clients-for-two-years-10821761.html

Edited June 19, 2023 by hobbit

[Haryana]

7 hours ago, hobbit said:

Skeletons in closet... FIH mgmt has been pitching IIFL securities as incredibly undervalued in the annual letters but market knows better

 

https://www.moneycontrol.com/news/business/markets/sebi-stops-iifl-from-onboarding-new-clients-for-two-years-10821761.html

 

This is so miniscule compared to Wells Fargo that it may be ignored.

 

Buffett, for decades, sang praises of Wells Fargo, was his "Big Four".

 

Our Buffett, the Prophet/Oracle, brainwash makes it difficult to see.

 

1.

https://money.cnn.com/2016/09/21/investing/wells-fargo-fired-workers-retaliation-fake-accounts/index.html

 

2.

https://www.cnn.com/2022/12/20/investing/wells-fargo-cfpb-foreclosure-fine/index.html

 

"
The Consumer Financial Protection Bureau said Wells Fargo’s “illegal activity” included repeatedly misapplying loan payments, wrongfully foreclosing on homes, illegally repossessing vehicles, incorrectly assessing fees and interest and charging surprise overdraft fees.

The CFPB ordered Wells Fargo (WFC) to pay the $1.7 billion civil penalty in addition to more than $2 billion to compensate consumers for a range of “illegal activity.” CFPB officials say this is the largest penalty imposed by the agency.

The misconduct described by the CFPB echoes previously reported revelations that have emerged about Wells Fargo since 2016 when the bank’s fake-accounts scandal created a national firestorm.

“Wells Fargo’s rinse-repeat cycle of violating the law has harmed millions of American families,” Rohit Chopra, the CFPB’s director, said in a statement.

Officials also made clear on Tuesday that Wells Fargo is not nearly out of the penalty box with regulators.
‘Repeat offender’

Chopra described Wells Fargo as a “repeat offender” and a “corporate recidivist,” adding that Tuesday’s fine is just an “initial step” towards holding the bank accountable.

During a call with reporters, Chopra said the new settlement should not be read as a signal that “Wells Fargo has moved past its long-standing problems or that the CFPB’s work is done here.”

For instance, Chopra noted that the settlement does not provide immunity for individuals at Wells Fargo, and the agency recognizes the $3.7 billion in fines and restitution will not fix the bank’s problems.
"

 

3.

https://www.nytimes.com/2023/03/15/business/wells-fargo-carrie-tolstedt-jail.html

 

 

[TwoCitiesCapital]

On 6/19/2023 at 6:44 AM, Luca said:

I only see @Saluki and @Viking buying Fairfax India in the past years. What does the rest here not like about FIH? Is it the fees? 

 

To me their assets seem pretty solid, as @nwoodman  pointed out, the airport will likely make a nice return, the stock exchange should be a homerun, rest of the assets should benefit of the india GDP tailwinds too. New restructuring should increase exposure to the other assets. 

 

I've been a slow accumulator given the discount to NAV, but mostly was looking elsewhere on materials/energy etc for forward opportunity as I have already purchased a significant slug of FIH AND FFH over the last 3-years. 

 

I do periodically make small additions to the it when it's trading low in it's recent -history range.

[Xerxes]

On 6/19/2023 at 10:34 AM, MMM20 said:

Fairfax’s best investment in India so far seems to be Digit. It was made by Fairfax itself and not Fairfax India because Digit is an insurance company. Fairfax’s clearest circle of competence is insurance. Fairfax itself is trading at ~5-6x earnings.

 

That said, until recently to @gfppoint I was one of those who thought FIH was ~15% of the value in FFH b/c I misunderstood the minority interest…it’s really ~3%, while Digit is ~15-20% at this point, incredibly. So I think it’s still a fair point that you get a lot of India exposure within Fairfax itself and FFH shareholders with big positions might not want more. 
 

Anyway…I get the case for owning both but I think the unfolding Digit case (and clearer alignment with Prem) is the gist of why many stick with FFH. 
 

Minority aside I think it really depends if you are comparing it vs. FFH’ rather large +$50 billion portfolio or versus its $20 billion market cap or equity value. 
 

 

 

[MMM20]

5 hours ago, Xerxes said:

Minority aside I think it really depends if you are comparing it vs. FFH’ rather large +$50 billion portfolio or versus its $20 billion market cap or equity value. 
 

 

 

I think it’s similar to an investment fund with ~250-300% gross exposure and ~100% net exposure. The key difference is that (most of) the leverage is (structurally far superior) insurance float instead of margin loans. So I think it’s most informative to compare each individual investment to the 100% net NAV when I am thinking about the underlying exposures. Digit can really move the needle relative vs FFH market cap — like +20% to FFH if Digit executes and its valuation doubles. The same is not really true right now for the FIH investments within FFH, so I get the argument for owning both…especially if you think the airport is a crown jewel asset about to pop on IPO…

 

Edited June 20, 2023 by MMM20

[Crip1]

On 6/19/2023 at 6:44 AM, Luca said:

I only see @Saluki and @Viking buying Fairfax India in the past years. What does the rest here not like about FIH? Is it the fees? 

 

To me their assets seem pretty solid, as @nwoodman  pointed out, the airport will likely make a nice return, the stock exchange should be a homerun, rest of the assets should benefit of the india GDP tailwinds too. New restructuring should increase exposure to the other assets. 

I had FFHI as a moderate holding until spring of 2022 when I went overweight. Since then I’ve bought and sold a portion of holdings a few times to lower the average cost. The ping-ponging from below US$12 to around US$14 has allowed for this.

 

I am still overweight as this is my #2 holding as a little over 10% of total assets. As it gets closer to NAV, I’ll pare back the position to get it to normal weight (5%).

 

-Crip

[modiva]

I have 30% weight in Fairfax India with an average cost of $11.5 and an average duration of 18 months.  I intend to hold for long as long as the book value is growing every year and no major change in thesis. 

[glider3834]

National Stock Exchange of India (NSE) - unlisted market transactions are suggesting valuation around US$20B - on that basis Fairfax India 1% stake would be worth around US$200M - timing of IPO still unclear

 

https://www.livemint.com/market/ipo/nse-ipo-creates-buzz-in-unlisted-market-shows-the-investor-interest-in-issue-11687254813352.html

 

'The current share price in the unlisted market values the bourse at around ₹1,65,825 crore.'

“At this price, the PE Ratio of the bourse stands at roughly 22 times on historical basis versus BSE Ltd at 37 times and MCX at 50 times and international exchanges trading between 30x to 40x," the brokerage report said.

[This2ShallPass]

On 6/19/2023 at 9:40 AM, hobbit said:

Skeletons in closet... FIH mgmt has been pitching IIFL securities as incredibly undervalued in the annual letters but market knows better

Isn't this a big deal? Looks like some serious errors by IIFL securities...poor quality management, not sure how FIH didn't see the signs before.

[Saluki]

I have a midsize position in FF India.  FFH is still my 4th largest position but I sold the shares in my retirement account and redeployed them to FF India. I still like them both, but FFH is a compounder trading at book value and FF India is a compounder trading below book, so I like the odds here. 

 

I need to program to myself to look for more compounders like this and not get sucked into commodity shitcos that are cheap and I have to watch like a hawk for signs of trouble.  Problem is that once you've made money a few times at those, it's hard to pass up when you see it again. 

 

A Canadian insurer managing a company that invests in India, and is traded in Toronto (and thinly with another ticker in the US), but reports earnings in USD, and has an unusual compensation structure and conglomerate discount, with assets that don't seem to have a lot in common (Airport, chemicals, food, banking) seems like a textbook mispricing scenario. And it's a way to participate in that economy without overpaying for the nifty fifty. 

[ICUMD]

1 hour ago, Saluki said:

A Canadian insurer managing a company that invests in India, and is traded in Toronto (and thinly with another ticker in the US), but reports earnings in USD, and has an unusual compensation structure and conglomerate discount, with assets that don't seem to have a lot in common (Airport, chemicals, food, banking) seems like a textbook mispricing scenario. And it's a way to participate in that economy without overpaying for the nifty fifty. 

I agree with this thesis.

 

I'd add that BIAL seems to be experiencing torrid growth with a growing contribution of non aero income which is not regulated like aero income.  On track for 40 million passengers this year.

 

India itself is also coming into itself with Modis pro development stance and friendly relationship with American companies.

 

Daily price of FIH is being set by low petty traders judging from the low volumes.  Large swaths of stock are being held and bought up by long term investors. 

 

We should see gradual repricing of the company closer to book value over time.

[brk64311]

Not a concern with the current portfolio holdings, but can FIH become a PFIC somehow? For example, I'd love to continue to own EXOR, but became concerned about its PFIC status as a US investor, after Exor sold PartnerRe. 

[MMM20]

2 hours ago, brk64311 said:

Not a concern with the current portfolio holdings, but can FIH become a PFIC somehow? For example, I'd love to continue to own EXOR, but became concerned about its PFIC status as a US investor, after Exor sold PartnerRe. 

can’t you just own in an IRA to avoid all that?

[brk64311]

Yes, but the holding size will be limited, since my understanding is that  it needs to be a non-rollover IRA for the PFIC to be a non-issue.

[MMM20]

Oof, I hope you're wrong about that @brk64311 b/c that's where I own Exor (and would own FIH). I thought the IRS instructions were clear that individual retirement plans are not taxed as shareholders of PFICs, but I am not a tax guy or lawyer...

 

 

https://www.irs.gov/instructions/i8621

However, a U.S. person that owns stock of a PFIC through a tax-exempt organization or account described in the list below is not treated as a shareholder of the PFIC.

• An organization or an account that is exempt from tax under section 501(a) because it is described in section 501(c), 501(d), or 401(a).

• A state college or university described in section 511(a)(2)(B).

• A plan described in section 403(b) or 457(b).

• An individual retirement plan or annuity as defined in section 7701(a)(37).

• A qualified tuition program described in section 529 or 530.

• A qualified ABLE program described in section 529A.

 

https://www.bogleheads.org/wiki/Passive_foreign_investment_company

"First, the Final Regulations modify the definition of shareholder as announced by the US Treasury and the IRS in Notice 2014-28, whereby a United States (US) person shall not be treated as a shareholder of a PFIC to the extent such person owns PFIC stock through a tax-exempt organization or account. This effectively extends the exemption that was already afforded to the tax exempt organization under the temporary and proposed regulations to the US shareholder(s) of such organization, and expands the exemption to encompass tax exempt accounts as well. As a result, for instance, a US person owning stock of a PFIC through an individual retirement account (IRA) described in Section 408(a) will not be treated as the shareholder of the PFIC stock, and in turn, is not subject to the PFIC rules. Because Notice 2014-28 originally provided for the aforementioned exemption, it will be effective for the taxable years of US persons who own stock of a PFIC through a tax-exempt organization or account ending on or after December 31, 2013."

 

 

Edited June 22, 2023 by MMM20

[alpha]

 

FT had a piece on the Indian markets this week, surprised there hasn't been more demand for FIH shares:

 

https://www.ft.com/content/b8d901f4-7306-4b8d-8ce2-4589f7e3f3f1