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I think this is a case of a highly undervalued stock realizing its potential.  It holds several very valuable and profitable companies, including nearly a 50% stake in BIAL.  EPS is growing, trading at low PE multiples and its aggressively expanding in a developing country.

 

Many already invested are wondering why its not going up faster.  ;D

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  • 4 weeks later...

Interesting article on IIFL, a very impressive home run for Fairfax

 

https://www.outlookbusiness.com/specials/the-outperformers_2017/prudent-financier-3679

 

"With that principled stance, the story can only get better going forward. IIFL’s strong and increasing retail presence already sets a robust foundation for future growth. With a collection infrastructure already in place, operating leverage will come into play, and as it has a bouquet of financial products to offer, there is tremendous scope to cross-sell to retail clients. Bank or non-bank, the next five years for IIFL may well be better than the past five. Prem Watsa, after all, is not playing for short-term gain."

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  • 3 weeks later...

To the Fairfax India Investors,

 

I just recently started doing work on this.  I wanted to get your opinion on something.

 

I really like the idea of buying into a company that has a strong board and good investors partaking in a really fast growing region of the world.  But why do they focus on change in book value as a proxy for their success?  You don't see Markel or Berkshire or others focus on change in book value for their private businesses.  I know in general they have focused on it for the insurance side and MKL still does for the insurance operations because the majority of it is still liquid and marked to market, but for the private pieces they do not really emphasize that.  Certainly you don't see them do a level 3 valuation for the private businesses.  You see them disclose earnings. 

 

Fairfax India do a subpar job of disclosing earnings trends for their private businesses, so you have to trust their internal valuation.  But the way they value stuff - at first glance - is so incredibly subjective and for them to reward themselves based on this is really odd.

 

As an example of why it could be goofy, Let's assume I bought 100% of GM stock at 6x earnings ($6.00 per share/ $36 dollar stock).  And then I turn around and say using a 10% discount rate , i value it at $60.  Well, that may be fair, but something seems a bit off about that to me. Isn't that some of what's going on at Fairfax India?  They're buying both public and private businesses, but then they're re-valuing upwards the private businesses..which may be justified by improved earnings power, increased capital retained and an increased business outlook, but it also may be a valuation arbitrage.

 

The stock is now trading at a 35-40% premium to book value, which already bakes in some of the upside from the private businesses because the investments are getting valued upwards on their books.  They may have great assets but it seems like not a great buy.

 

Just trying to get your food for thought.  Thank you.

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To the Fairfax India Investors,

 

I just recently started doing work on this.  I wanted to get your opinion on something.

 

I really like the idea of buying into a company that has a strong board and good investors partaking in a really fast growing region of the world.  But why do they focus on change in book value as a proxy for their success?  You don't see Markel or Berkshire or others focus on change in book value for their private businesses.  I know in general they have focused on it for the insurance side and MKL still does for the insurance operations because the majority of it is still liquid and marked to market, but for the private pieces they do not really emphasize that.  Certainly you don't see them do a level 3 valuation for the private businesses.  You see them disclose earnings. 

 

Fairfax India do a subpar job of disclosing earnings trends for their private businesses, so you have to trust their internal valuation.  But the way they value stuff - at first glance - is so incredibly subjective and for them to reward themselves based on this is really odd.

 

As an example of why it could be goofy, Let's assume I bought 100% of GM stock at 6x earnings ($6.00 per share/ $36 dollar stock).  And then I turn around and say using a 10% discount rate , i value it at $60.  Well, that may be fair, but something seems a bit off about that to me. Isn't that some of what's going on at Fairfax India?  They're buying both public and private businesses, but then they're re-valuing upwards the private businesses..which may be justified by improved earnings power, increased capital retained and an increased business outlook, but it also may be a valuation arbitrage.

 

The stock is now trading at a 35-40% premium to book value, which already bakes in some of the upside from the private businesses because the investments are getting valued upwards on their books.  They may have great assets but it seems like not a great buy.

 

Just trying to get your food for thought.  Thank you.

 

http://s1.q4cdn.com/293822657/files/doc_presentations/2017/Fairfax-India-Annual-Meeting-4.20.2017.pdf

 

?

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To the Fairfax India Investors,

 

I just recently started doing work on this.  I wanted to get your opinion on something.

 

I really like the idea of buying into a company that has a strong board and good investors partaking in a really fast growing region of the world.  But why do they focus on change in book value as a proxy for their success?  You don't see Markel or Berkshire or others focus on change in book value for their private businesses.  I know in general they have focused on it for the insurance side and MKL still does for the insurance operations because the majority of it is still liquid and marked to market, but for the private pieces they do not really emphasize that.  Certainly you don't see them do a level 3 valuation for the private businesses.  You see them disclose earnings. 

 

Fairfax India do a subpar job of disclosing earnings trends for their private businesses, so you have to trust their internal valuation.  But the way they value stuff - at first glance - is so incredibly subjective and for them to reward themselves based on this is really odd.

 

As an example of why it could be goofy, Let's assume I bought 100% of GM stock at 6x earnings ($6.00 per share/ $36 dollar stock).  And then I turn around and say using a 10% discount rate , i value it at $60.  Well, that may be fair, but something seems a bit off about that to me. Isn't that some of what's going on at Fairfax India?  They're buying both public and private businesses, but then they're re-valuing upwards the private businesses..which may be justified by improved earnings power, increased capital retained and an increased business outlook, but it also may be a valuation arbitrage.

 

The stock is now trading at a 35-40% premium to book value, which already bakes in some of the upside from the private businesses because the investments are getting valued upwards on their books.  They may have great assets but it seems like not a great buy.

 

Just trying to get your food for thought.  Thank you.

 

I would actually say they are being too conservative in their valuation. for example, in case of BIAL their DCF assumes a growth of 3% or something like that. i think thats the case for almost all the private holdings where they have assumed such low single digit growth rates.

 

they may sound right in NA, but in india (where i invest), this way below par. inflation itself is 6-7%. on average 10% is the starting point and finding companies growing at 15%+ in not difficult. for example IIFL is growing 30%+ and thats not extra-ordinary ..par for the course in this sector for well managed companies.

 

BIAL has been growning passenger traffic at 20%+ and i have travelling via that airport for ages. that part of the city is expanding the land around airport is going to far more valuable in the future.

 

that does not mean the stock is fairly priced or something like that ..just that these companies have very good growth opportunities ahead of them

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To the Fairfax India Investors,

 

I just recently started doing work on this.  I wanted to get your opinion on something.

 

I really like the idea of buying into a company that has a strong board and good investors partaking in a really fast growing region of the world.  But why do they focus on change in book value as a proxy for their success?  You don't see Markel or Berkshire or others focus on change in book value for their private businesses.  I know in general they have focused on it for the insurance side and MKL still does for the insurance operations because the majority of it is still liquid and marked to market, but for the private pieces they do not really emphasize that.  Certainly you don't see them do a level 3 valuation for the private businesses.  You see them disclose earnings. 

 

Fairfax India do a subpar job of disclosing earnings trends for their private businesses, so you have to trust their internal valuation.  But the way they value stuff - at first glance - is so incredibly subjective and for them to reward themselves based on this is really odd.

 

As an example of why it could be goofy, Let's assume I bought 100% of GM stock at 6x earnings ($6.00 per share/ $36 dollar stock).  And then I turn around and say using a 10% discount rate , i value it at $60.  Well, that may be fair, but something seems a bit off about that to me. Isn't that some of what's going on at Fairfax India?  They're buying both public and private businesses, but then they're re-valuing upwards the private businesses..which may be justified by improved earnings power, increased capital retained and an increased business outlook, but it also may be a valuation arbitrage.

 

The stock is now trading at a 35-40% premium to book value, which already bakes in some of the upside from the private businesses because the investments are getting valued upwards on their books.  They may have great assets but it seems like not a great buy.

 

Just trying to get your food for thought.  Thank you.

 

I would actually say they are being too conservative in their valuation. for example, in case of BIAL their DCF assumes a growth of 3% or something like that. i think thats the case for almost all the private holdings where they have assumed such low single digit growth rates.

 

they may sound right in NA, but in india (where i invest), this way below par. inflation itself is 6-7%. on average 10% is the starting point and finding companies growing at 15%+ in not difficult. for example IIFL is growing 30%+ and thats not extra-ordinary ..par for the course in this sector for well managed companies.

 

BIAL has been growning passenger traffic at 20%+ and i have travelling via that airport for ages. that part of the city is expanding the land around airport is going to far more valuable in the future.

 

that does not mean the stock is fairly priced or something like that ..just that these companies have very good growth opportunities ahead of them

 

ok that's helpful.  thank you.  Do you believe that at 1.35x book per share, that this stock is still worth kicking the tires on at this point? It has all the makings of a really good investment potentially...

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To the Fairfax India Investors,

 

I just recently started doing work on this.  I wanted to get your opinion on something.

 

I really like the idea of buying into a company that has a strong board and good investors partaking in a really fast growing region of the world.  But why do they focus on change in book value as a proxy for their success?  You don't see Markel or Berkshire or others focus on change in book value for their private businesses.  I know in general they have focused on it for the insurance side and MKL still does for the insurance operations because the majority of it is still liquid and marked to market, but for the private pieces they do not really emphasize that.  Certainly you don't see them do a level 3 valuation for the private businesses.  You see them disclose earnings. 

 

Fairfax India do a subpar job of disclosing earnings trends for their private businesses, so you have to trust their internal valuation.  But the way they value stuff - at first glance - is so incredibly subjective and for them to reward themselves based on this is really odd.

 

As an example of why it could be goofy, Let's assume I bought 100% of GM stock at 6x earnings ($6.00 per share/ $36 dollar stock).  And then I turn around and say using a 10% discount rate , i value it at $60.  Well, that may be fair, but something seems a bit off about that to me. Isn't that some of what's going on at Fairfax India?  They're buying both public and private businesses, but then they're re-valuing upwards the private businesses..which may be justified by improved earnings power, increased capital retained and an increased business outlook, but it also may be a valuation arbitrage.

 

The stock is now trading at a 35-40% premium to book value, which already bakes in some of the upside from the private businesses because the investments are getting valued upwards on their books.  They may have great assets but it seems like not a great buy.

 

Just trying to get your food for thought.  Thank you.

 

http://s1.q4cdn.com/293822657/files/doc_presentations/2017/Fairfax-India-Annual-Meeting-4.20.2017.pdf

 

?

 

thank you for the link!

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To the Fairfax India Investors,

 

I just recently started doing work on this.  I wanted to get your opinion on something.

 

I really like the idea of buying into a company that has a strong board and good investors partaking in a really fast growing region of the world.  But why do they focus on change in book value as a proxy for their success?  You don't see Markel or Berkshire or others focus on change in book value for their private businesses.  I know in general they have focused on it for the insurance side and MKL still does for the insurance operations because the majority of it is still liquid and marked to market, but for the private pieces they do not really emphasize that.  Certainly you don't see them do a level 3 valuation for the private businesses.  You see them disclose earnings. 

 

Fairfax India do a subpar job of disclosing earnings trends for their private businesses, so you have to trust their internal valuation.  But the way they value stuff - at first glance - is so incredibly subjective and for them to reward themselves based on this is really odd.

 

As an example of why it could be goofy, Let's assume I bought 100% of GM stock at 6x earnings ($6.00 per share/ $36 dollar stock).  And then I turn around and say using a 10% discount rate , i value it at $60.  Well, that may be fair, but something seems a bit off about that to me. Isn't that some of what's going on at Fairfax India?  They're buying both public and private businesses, but then they're re-valuing upwards the private businesses..which may be justified by improved earnings power, increased capital retained and an increased business outlook, but it also may be a valuation arbitrage.

 

The stock is now trading at a 35-40% premium to book value, which already bakes in some of the upside from the private businesses because the investments are getting valued upwards on their books.  They may have great assets but it seems like not a great buy.

 

Just trying to get your food for thought.  Thank you.

 

I would actually say they are being too conservative in their valuation. for example, in case of BIAL their DCF assumes a growth of 3% or something like that. i think thats the case for almost all the private holdings where they have assumed such low single digit growth rates.

 

they may sound right in NA, but in india (where i invest), this way below par. inflation itself is 6-7%. on average 10% is the starting point and finding companies growing at 15%+ in not difficult. for example IIFL is growing 30%+ and thats not extra-ordinary ..par for the course in this sector for well managed companies.

 

BIAL has been growning passenger traffic at 20%+ and i have travelling via that airport for ages. that part of the city is expanding the land around airport is going to far more valuable in the future.

 

that does not mean the stock is fairly priced or something like that ..just that these companies have very good growth opportunities ahead of them

 

ok that's helpful.  thank you.  Do you believe that at 1.35x book per share, that this stock is still worth kicking the tires on at this point? It has all the makings of a really good investment potentially...

 

the stock is not undervalued for sure, but i think they do have some good assets on the book. there seems to be good upside in sanmar where the CPVC plant, once operational could work out well (lots of demand for CPVC piping in india). same is true for saurashtra too. in addition fairfax seems to have built a team which is getting access to good deals.

 

i think they should be able to compound at a good rate in the future ..i would not be surprised to see 20% compounding for some time.

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This is a leap of faith based on Prem Watsa's wonderful storytelling.

 

The fact that the region has such great demographics makes it believable.

 

I particularly like Bengaluru.

 

I don't so much care for the performance fees.

 

Wish I'd gotten more at a price close to what OMERS paid but it just keeps going up...

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I think the argument gets compelling if you believe the following:

1. Prem Watsa's track record and management.

2. Middle class growth in India > 20% (which will vastly outpace NA)

3. Ability to select early, but already highly profitable companies.

4. Disciplined approach:  backing away from deals when valuation is unrealistic - ie. Catholic Syrian Bank.

5. Highly respected in India - people seem to want to do business with them (and give up substantial equity to do so).

6. Diversification - holds many companies and the list is growing, diversity of industry.

7. Powerhouse Gems: IIFL, BIAL (incl 460 Ac of valuable land), and possibly now Infibeam.

8. Confidence/ collaboration of investment powerhouses:  OMERS and others.

 

I do not believe that it is possible to accurately value this company at this early stage.

OTH, I believe that this company is far more valuable than its share price currently.

Yes I am very bullish.  Yes, my valuation is very subjective an not necessarily based objective valuation.

Hopefully the rationale is sound.

 

In my experience, to be successful in investing you need a couple of home runs in a field of avg performers.

 

I think FIH.U magnifies that potential by levering the above 8 points through equity selection in India, where the market is still very young.

 

If FIH.U can manage a few home runs - the returns are potentially astounding. I believe they are already showing much promise.

 

The risk of waiting on this is like letting the horse leave the gate then trying to mount it and win the race.... While there is nothing wrong with that,

I've opted to get on now  ::)

 

 

 

 

 

 

 

 

 

 

 

 

 

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I think the argument gets compelling if you believe the following:

1. Prem Watsa's track record and management.

2. Middle class growth in India > 20% (which will vastly outpace NA)

3. Ability to select early, but already highly profitable companies.

4. Disciplined approach:  backing away from deals when valuation is unrealistic - ie. Catholic Syrian Bank.

5. Highly respected in India - people seem to want to do business with them (and give up substantial equity to do so).

6. Diversification - holds many companies and the list is growing, diversity of industry.

7. Powerhouse Gems: IIFL, BIAL (incl 460 Ac of valuable land), and possibly now Infibeam.

8. Confidence/ collaboration of investment powerhouses:  OMERS and others.

 

I do not believe that it is possible to accurately value this company at this early stage.

OTH, I believe that this company is far more valuable than its share price currently.

Yes I am very bullish.  Yes, my valuation is very subjective an not necessarily based objective valuation.

Hopefully the rationale is sound.

 

In my experience, to be successful in investing you need a couple of home runs in a field of avg performers.

 

I think FIH.U magnifies that potential by levering the above 8 points through equity selection in India, where the market is still very young.

 

If FIH.U can manage a few home runs - the returns are potentially astounding. I believe they are already showing much promise.

 

The risk of waiting on this is like letting the horse leave the gate then trying to mount it and win the race.... While there is nothing wrong with that,

I've opted to get on now  ::)

 

I've searched & can't find the exact location of the extra acreage (can you point me 2 it?)

 

I Google mapped around & found a lot of high tech industrial going on in the area.

 

FFXDF is at the mercy of its underlying & the markets willingness to price above NAV.

 

I don't see any urgency to add but might if it were back around a 10% premium.

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Re BIAL Land:

 

See Chairman's Letter 2017

http://www.fairfaxindia.ca/investors/Chairmans-Letters-to-Shareholders/default.aspx

 

Scroll down to the section on BIAL.

 

I highly recommend reading the whole of the Chairman's letter to understand the direction of the company.

 

I guess the property is contiguous with the airport.

 

I'd already read the letter but missed that part.

 

Yeah, the letter is spellbinding but I'm anchored to what I paid already & refuse to buy more here...

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thank you everyone for your responses.  I need to do more work on it. They do have great assets. 

 

My thinking is that I wouldn't pay 1.3x or 1.4x NAV to buy in a mutual fund or an ETF for example unless I thought the book was very conservatively stated and/or I thought the upside was far higher in spite of the 40% premium.

 

I would for Berkshire or Markel because I'm valuing their earnings separately and adding it to their liquid investments. 

 

The book value also accrues for the ultimate performance fee so that's a plus from the point of view of a new buyer.

 

 

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thank you everyone for your responses.  I need to do more work on it. They do have great assets. 

 

My thinking is that I wouldn't pay 1.3x or 1.4x NAV to buy in a mutual fund or an ETF for example unless I thought the book was very conservatively stated and/or I thought the upside was far higher in spite of the 40% premium.

 

I would for Berkshire or Markel because I'm valuing their earnings separately and adding it to their liquid investments. 

 

The book value also accrues for the ultimate performance fee so that's a plus from the point of view of a new buyer.

Actually their true BV is north of 16.50 ..in the most recent transaction they paid 200 million for another 10% stake of BIAL but on their books they value BIAL at 1.1 Bn

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I don't so much care for the performance fees.

 

 

 

What are the "performance fees"? If it's a publicly traded stock can it have performance fees? Is it not set up like FFH where management has equity and is payed a salary for the day to day work?

Thanks,

 

This is not a stock, it's a group of stocks (basically a hedge fund without the huge buy in...)

 

http://www.uglymule.com/images/performance-fees.png

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Thank you DooDiligence for kindly sharing info on performance fee structure of FIH. Its an interesting setup. Would the performance fee be paid to FFH, thus benefitting FFH shareholders? or is it paid to management? What % of FIH.UN stock is owned by FFH? roughly 20%?

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Thank you DooDiligence for kindly sharing info on performance fee structure of FIH. Its an interesting setup. Would the performance fee be paid to FFH, thus benefitting FFH shareholders? or is it paid to management? What % of FIH.UN stock is owned by FFH? roughly 20%?

 

Yes & as stated in the letter the p fee will be paid in sub voting shares of the company unless PB is over 2.0, in which event Fairfax may elect to take cash.

 

Also, CEO, CFO & corp secretary compensation will be borne by Faifax.

 

Someone smarter than me (or more motivated) should try & figure out if the performance fees cover comp costs for Fairfax.

 

Prob should own both but I don't really understand what Fairfax is/does/will be (will read thru the threads today...)

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