Fairfax India new issue

[hardcorevalue]

1 hour ago, juniorr said:

India stock market hits new all time highs

color me not surprised hah

[Junior R]

20 minutes ago, hardcorevalue said:

color me not surprised hah

lol just need that IPO

[dartmonkey]

5 hours ago, juniorr said:

lol just need that IPO

This is just generous Mr Market giving us one last chance (maybe) to buy FIH at 72% of book value ($1.9b market cap, $2.66b book value). And that is book value calculated with a fair value of $1.6b for FIH's 64% holding of the Bangalore Airport, giving the whole airport a fair value of $2.5b. If FIH is able to float this at anything like the $3.7b valuation they were hoping a year and a half ago, Going from $2.5b to $3.7b would take FIH's book up from $2.66 to $3.42, and at the current price, that would put them at 56% of book (or maybe a little more, since they would have to pay some of this out to Fairfax , since book gains would be substantially over the benchmark of 5% annual. 

 

If that happens, who knows when, something spectacular is going to happen to FIH, either to its price:book or, perhaps, to its share price.

[Cod Liver Oil]

I own some because I like the airport and the story but am well aware of the history of owning assets downstream of a fee collecting parent. Easy to get Flattened (Bruce Flattened). Downstream entities exist to be abused.

Edited June 3, 2024 by Cod Liver Oil

[dartmonkey]

32 minutes ago, Cod Liver Oil said:

I own some because I like the airport and the story but am well aware of the history of owning assets downstream of a fee collecting parent. Easy to get Flattened.

Well, in this case, Bangalore is 50% of book value, and that number might end up being a fair bit higher. Fairfax India pays Fairfax Holdings 20% of book gains over 5% a year, so if the Bangalore Airport ends up generating 20%/year returns, you would lose 3% of that to Fairfax (i.e. 3 out of 20), so you would only get 17%. I could live with a flattening like that.

 

Long and tedious addendum; skip to the last paragraph if this is TL;DR:

 

Here's the company's description of the benchmark:

 

You will recall that under the investment advisory agreement with Fairfax Financial, Fairfax Financial is entitled to a performance fee, calculated at the end of each three-year period, of 20% of any increase in Fairfax India’s BVPS (including distributions) above a non-compounded 5% increase each year from the BVPS at inception in 2015.

 

If book per share was $10 on January 30th, 2015 (see last year's annual report, p. 70), then the benchmark is presumably $10.50 after a year, $11.00 after 2 years, and $11.50 after 3 years, and so on, with the benchmark higher by 50c every year. This is, I think, what is meant by 'non-compounded' in the above quote.  I think this is borne out by my calculation for the fee paid after 3 years, when book value was $15.24 on Dec 31st, 2017, before fees. They probably adjusted for the fact that there were only 11 months in 2015, but roughly, we would expect them to have paid out 20% of book value growth beyond $11.50, which would be 0.2*(15.24-11.50)=0.2*$3.74=$0.75. $0.75 would represent 7.5% of those 52.4% in gains, meaning the gain after fees would be 52.4-7.5%=44.9%, and this corresponds quite closely with the $4.46 book value gain reported. FIH shareholders kept $4.46 out of the $5.24 in book value gains, or 85%. 

 

So I think this calculation is probably correct. But what it means is that, every year, the 5% benchmark means 5% of the original $10 per share book value, not a 5% return on the previous year's book value. This makes no difference in the first year, and only a tiny difference in the next few years, but presuming that FIH's book value continues increasing, it will eventually mean that the benchmark becomes a very small percentage of book. For instance, at 2023 year end, book value was $21.85 (after fees). At the end of 2024, if the book value has increased by 20% (let's be optimistic), it would be $26.22 before fees, a gain of $4.37. Fairfax Holdings would take its 20% fee on the gain minus the benchmark, i.e. $4.37-0.50 = $3.87, 20% of which is $0.77, leaving $4.37-$0.77 = $3.60 for shareholders like us. In other words, we would keep $3.60 our of the $4.37 in book value gains, i.e. 82% of gains, with Fairfax getting 18%.

 

Compare this to 2017, when we paid 15% of gains and paid . As the 50c annual benchmark becomes a smaller and smaller proportion of the book value per share, the performance fee will get closer and closer to 20%. For instance if book value grows by 15% a year over 20 years (it was 14.3% for the first 9 years), the book value per share would go from $164, a 15%  annual gain would $24.55, and we would be paying out 20% of $24.55-$0.50, i.e. essentially 20% of the whole book market gain, with the 50c benchmark, initially 5% of book value, now representing only 0.3% of book value.

 

TL;DR: The performance fee will get a bit worse, because compounding is making the non-compounded benchmark disappear. Eventually we will just pay 20% of all book value gains. It's not a deal-breaker for me, but it's a little worse than paying 20% of the annual gains beyond 5%.

[gfp]

Hmmmm....

https://www.fairfaxindia.ca/press-releases/fairfax-india-announces-management-succession-plan-june-3-2024/?utm_source=newsletter&utm_medium=email&utm_term=Mon+Jun+03+2024&utm_campaign=Fairfax+India+Announces+Management+Succession+Plan

[Junior R]

Quote

 Chandran Ratnaswami will become Executive Vice Chairman of Fairfax India effective July 1, 2024

Isn't this a downgrade?

[Daphne]

Sounds like a step toward retirement

[Viking]

2 hours ago, gfp said:

Hmmmm....

https://www.fairfaxindia.ca/press-releases/fairfax-india-announces-management-succession-plan-june-3-2024/?utm_source=newsletter&utm_medium=email&utm_term=Mon+Jun+03+2024&utm_campaign=Fairfax+India+Announces+Management+Succession+Plan

 

Given Ben's critical role at Fairfax in the coming years this likely makes a lot of sense (as an interim step). Given Prem's age, time for Ben to get more responsibilities. Ben has been pretty focussed on India (based on his comments the past year). 

 

Importantly, Prem and Chandran will still be at Fairfax India and will be able to mentor Ben.

 

----------

From the Corporate Governance Institute

• https://www.thecorporategovernanceinstitute.com/insights/lexicon/what-is-the-role-of-the-chair-of-the-board/

A good chair provides leadership to the board rather than the company.

 

The chair’s primary role is to ensure that the board is effective in setting and implementing an organisation’s direction and strategy.

 

Therefore, the chair is responsible for leading the board and focusing it on strategic matters, overseeing the company’s business, and setting high governance standards.

 

The chair plays a pivotal role in fostering the effectiveness of the board and individual directors, both inside and outside the board room.

Edited June 3, 2024 by Viking

[StubbleJumper]

31 minutes ago, Viking said:

Given Ben's critical role at Fairfax in the coming years this likely makes a lot of sense (as an interim step). Given Prem's age, time for Ben to get more responsibilities. Ben has been pretty focussed on India (based on his comments the past year). 

 

Time for Ben to earn his stripes.  If you wonder why FFH trades at a discount to some of its comparables, this is an example of the company's ongoing governance issues.

 

 

SJ

[nwoodman]

59 minutes ago, StubbleJumper said:

 

this is an example of the company's ongoing governance issues.

 

 

SJ

Unfortunately I think this is the case.  Ben comes across as a pretty sharp cookie.  If he gets on the front foot and cements his place as a competent chair and an articulate advocate for the company then there could be upside to both FIH and FFH. I was probably a little naive in my thinking about India a few years back, it is a tough nut to crack and you have some seriously entrenched players….Adani I am looking at you.  
 

On the flip side, I wonder if Prem can sniff some upside post election, you would hardly put your son in a position to fail.

[Xerxes]

2 hours ago, juniorr said:

Isn't this a downgrade?

not at all. 
 

in the AGM, Prem sang his praises. 
I actually thought he was going to announce his retirement at the AGM 

[Xerxes]

Wouldn’t there be a conflict of interest between Ben’ own Marval business and FIH where he would be chair. 
 

Both outfit invest in India. 

[glider3834]

41 minutes ago, Xerxes said:

Wouldn’t there be a conflict of interest between Ben’ own Marval business and FIH where he would be chair. 
 

Both outfit invest in India. 

I think BW sets out in his tweet that they will be each fishing in different ponds but yes both in India. 

 

https://x.com/benwatsa/status/1797745797280170441

Edited June 4, 2024 by glider3834

[Crip1]

For those without a full position in FFI, looks like we're being given a buying opportunity today.

 

-Crip

[alpha]

On 5/31/2024 at 1:09 PM, ICUMD said:

Has anyone done this?  How does it work and what was the offer?  When I call to Fairfax India contact  number, I get a generic mailbox.

 

Curious if anyone has done this recently too?

[TwoCitiesCapital]

5 hours ago, Crip1 said:

For those without a full position in FFI, looks like we're being given a buying opportunity today.

 

-Crip

 

+1

 

Increased my position by ~6%. 

[Junior R]

any thoughts on if the new election results would impact the IPO

[whatstheofficerproblem]

11 minutes ago, juniorr said:

any thoughts on if the new election results would impact the IPO

 

It will all be back to normal in a few months, I doubt there will be any significant impact. Coalition governments have always been the ones to bring the biggest changes in India (Nuclear Test), the people who have formed an alliance with BJP to form the govt, regional parties (TDP etc) have vested interest in India moving forward as it would trickle down to their states. FWIW, we will now see an even more aggressive version of Modi.

[ICUMD]

Hopeful that Ben Watsa will be a catalyst for getting things going at Fairfax India.

 

Since he's young, and hopefully 'hungry' to make a name for himself outside his father's shadows, Fairfax India might be the vehicle for him.  It seems that Marvel has a market cap of about 300M.  

Much better prospect with Fairfax India at ~2 B.

 

Also, Fairfax India needs cash. 

So, now that elections are over, they better start aggressively looking to get an Anchorage listing or start selling some of their non core businesses.

 

Without cash, this company is dead in the water.

 

[gfp]

A bit of volatility in share prices -

Edited June 7, 2024 by gfp

[gfp]

Also saw this on reuters -

https://www.reuters.com/business/aerospace-defense/india-airport-industrys-pre-tax-profit-grow-35-fy25-capa-india-says-2024-06-07/

[ICUMD]

Reason for the volatility:

 

 

https://www.business-standard.com/finance/news/rbi-appointed-auditor-completes-the-special-audit-of-iifl-finance-124060601086_1.html

[gfp]

25 minutes ago, ICUMD said:

Reason for the volatility:

 

 

https://www.business-standard.com/finance/news/rbi-appointed-auditor-completes-the-special-audit-of-iifl-finance-124060601086_1.html

 

So news about an audit being completed at IIFL Finance results in a 20% move up in IIFL Securities?

[ICUMD]

Never said markets are rationale!