Digit

[gfp]

The 49% ownership of Go Digit Infoworks (the 73.6% owner of Digit Insurance) does not include the CCPS.

 

I believe the CCPS convert into shares of Go Digit Infoworks and not shares of Digit Insurance.  I would imagine they will not be converted until there is dilution in Digit Insurance that would cause Fairfax to indirectly own less than the current 50.05%.  

[dartmonkey]

21 minutes ago, gfp said:

I believe the CCPS convert into shares of Go Digit Infoworks and not shares of Digit Insurance.

Yes, when Fairfax refers to "Digit", they mean Go Digit Infoworks; for instance here, where they make it clear:

 

during the second quarter of 2024 the company's investment in Digit compulsory convertible preferred shares ("CCPS") was transferred from preferred stocks classified as Level 3 in the fair value hierarchy to Level 2 as the fair value of the CCPS is now principally determined through the traded market price of Digit's general insurance subsidiary, Digit Insurance, whereas the fair value was previously principally determined through an industry accepted discounted cash flow model.

https://www.fairfax.ca/wp-content/uploads/2024_08_August_01-FFH-2024-Q2-Interim-Report-Final.pdf

 

26 minutes ago, gfp said:

I would imagine they will not be converted until there is dilution in Digit Insurance that would cause Fairfax to indirectly own less than the current 50.05%.  

 

Given the fact that Fairfax has convertible shares that would take them to 68% of Digit (i.e. Go Digit Infoworks!), and since Digit's stake in Digit Insurance is currently 73.6%, Fairfax would own 68%*73.6%=50.06%, so your objective would already be achieved by the IPO dilution.

 

[Viking]

Thanks to everyone for wading in. Below is my current attempt to value Fairfax's ownership in Go Digit General Insurance. It doesn't seem to square with how Fairfax values its stake in 'Digit' so I view my summary as a work in progress (it likely contains errors).

 

Part of the challenge is Digit can mean many different things - Go Digit General Insurance, Go Digit Infoworks. And then we have the CCPS. And other businesses like life insurance part of 'Digit'. Bottom line, as I learn more (from Fairfax and others on this board) I will keep updating my model (like everything else I do related to Fairfax). 

 

So please take my summary below with the usual 'grain of salt.' And please continue to point out errors (with corrections, if you have them).

 

 

[nwoodman]

7 hours ago, dartmonkey said:

The number you quote is very close to the post-IPO count listed here: https://www.chittorgarh.com/ipo/go-digit-general-insurance-ipo/1727/, but the pre-IPO count should be 41m lower:

 

Thanks that makes sense

[nwoodman]

16 hours ago, Viking said:

 

 

Part of the challenge is Digit can mean many different things - Go Digit General Insurance, Go Digit Infoworks. And then we have the CCPS. And other businesses like life insurance part of 'Digit'.

 

Ain’t that the truth.  +1 in terms of thanks to all.  Btw hope you find time to give us your thoughts on Atlas, I have a view but a gross error check is always appreciated.  

[dartmonkey]

20 hours ago, Viking said:

Part of the challenge is Digit can mean many different things - Go Digit General Insurance, Go Digit Infoworks. And then we have the CCPS. And other businesses like life insurance part of 'Digit'

Yes. Fairfax actually has a pretty consistent presentation:

 

Go Digit Infoworks = "Digit"

Go Digit General Insurance (GODIGIT.NS) = "Digit Insurance"

 

Since the IPO, Digit owns 73.6% of Digit Insurance.

And Fairfax owns 49% of Digit, and has the CCPS convertibles to take its ownership to 68% if that is approved by regulators.

So they own or have convertibles to eventually own 68%*73.6% = 50.05% of Digit Insurance, but also 50.05% of the other assets that Digit owns, including Digit Life Insurance which may actually be worth more than we think. 

 

Here is why we may be seriously underestimating the value of Digit outside of the public Digit Insurance. Note that on p.13 of the Q2 report, they mention that private company preferred shares worth $1787m were transferred from Level 3 to Level 2, and in the note (3), they explain that this was because of the Digit Insurance IPO. Since the preferred shares (CCPS) only represent 19% of Digit, logically that would mean that Digit is worth $1787m/.19 = $9.4b, or even more, $10.7b, now that Digit shares have gone from 338 on June 30 to 383.7 at last night's close. That would mean that Fairfax's stake, 68%, would be worth $7.3b??

 

Could it be that the preferred shares get marked to market because they are less than 20% of Digit, while the equity shares have to be treated as an investment in associates because they are 20-50% of Digit?

[gfp]

4 minutes ago, dartmonkey said:

but also 50.05% of the other assets that Digit owns, including Digit Life Insurance which may actually be worth more than we think. 

 

I don't know the specifics but the Fairfax Annual Report seems to indicate they only hold a 24.2% interest in Digit Life - maybe that percentage increases by the same proportion as the Digit Insurance ownership if the CCPS are fully converted.  Either way - I don't think Fairfax's stake being worth $7.3 Billion (today) is anywhere close to the truth.  The quarterly marks on FFH's books are going to be close enough.  We can watch the share price of Go Digit Insurance and keep up on the market value

[dartmonkey]

1 hour ago, gfp said:

Either way - I don't think Fairfax's stake being worth $7.3 Billion (today) is anywhere close to the truth.  The quarterly marks on FFH's books are going to be close enough.

What do you make of the fact that the CCSP's alone are valued at $1.8b in Fairfax's Q2 report?

 

Specifically, the transfer out of category line, and the accompanying Note 3:

 

 

 

Edited August 30, 2024 by dartmonkey

[nwoodman]

Morgan Stanley recently initialed coverage on Go Digit.  A couple of notes attached

• PT Rs 345
• Summary of discussions with  Kamesh Goyal at their Asia Pacific Summit

GODIGIT_20241120_1635.pdf GODIGIT_20241111_1813.pdf

[UK]

14 minutes ago, Haryana said:

What's up with it, jumped over 10% today, or it's just volatility.

Do not forget, that according to MW it is almost worthless:))