petec Posted March 29, 2018 Share Posted March 29, 2018 Dazel: Eurolife is an exceptional asset (as you seem to have realised in your second post) and they bought it for nothing. It would be crazy to sell it - I imagine there would be a big tax hit and the economy is on the verge of reflation. Also, the won't get a better price on Brit or AWH due to last year's cats. As I explained at length in my earlier posts, the price they pay to OMERS is based on OMERS' cost plus a hurdle, not on the current book value of the subsidiary. They don't have to exercise the option, but if they do that's the price they will pay. If anything the one they will get a great deal on is Eurolife, if the deal structure is the same. And they don't have the option to buy AWH until 2020 I don't think. SJ: Eurolife does not trade on 3x. Dazel is saying it trades on 3x at FFH's cost, but I am not sure where he got that from because Eurolife is not listed (last I checked it was 40/40/20 FFH/OMERS/Eurobank). What I do know is that Eurolife was loaded with Greek government bonds when they bought it which promptly went up a lot so it has been an absolute home run. I don't really understand the obsession with buybacks here. Sure the price is nice but the stock isn't liquid enough to do anything meaningful, and they have other good uses for the cash buying in minorities. They've clearly communicated that they will use the cash to buy in the minorities and that they will buy back with free cash flow over time, which is what the liquidity of the stock will bear. Link to comment Share on other sites More sharing options...
ourkid8 Posted March 29, 2018 Share Posted March 29, 2018 Why would they swap assets with Canadian Pension Plan? I assume that's who you are referring to. Do you mean with OMERS who has a 40% equity position in Eurolife? Fairfax got Eurolife for an amazing price and the business continues to kick-ass. (Please see the thread below) What I would like to see is a consolidation of their numerous insurance companies under the Fairfax umbrella and Andy should be able to significantly take costs out of the system. That would create significant value however I do not see Prem agreeing to do so due to their fair and friendly culture he continues to talk about. http://www.cornerofberkshireandfairfax.ca/forum/fairfax-financial/fairfax-to-acquire-80-interest-in-eurolife/ Actually if was Prem i would just swap assets with CPP...Eurolife is more the kind of asset that they would rather hold...steady. They would not have the disaster risk of BrIt and AWH....hint premium for Eurolife! Link to comment Share on other sites More sharing options...
chrispy Posted March 29, 2018 Share Posted March 29, 2018 I have learned a lot from reading all of these great posts. Thank you. Prem mentioned in this year's letter that while they sold First Capital, none of the other businesses we're for sale. Assuming that applies to Eurolife. Link to comment Share on other sites More sharing options...
petec Posted March 29, 2018 Share Posted March 29, 2018 Why would they swap assets with Canadian Pension Plan? I assume that's who you are referring to. Do you mean with OMERS who has a 40% equity position in Eurolife? Fairfax got Eurolife for an amazing price and the business continues to kick-ass. (Please see the thread below) What I would like to see is a consolidation of their numerous insurance companies under the Fairfax umbrella and Andy should be able to significantly take costs out of the system. That would create significant value however I do not see Prem agreeing to do so due to their fair and friendly culture he continues to talk about. That would be a gigantic error. They have a lot of talented people beyond Andy Barnard and the reason they stay is because they can run their own businesses under Fairfax’s decentralised system. Centralise, and not only do you lose them all but you send a signal that no-one who wants to keep building their business should ever sell to them again. Plus, the insurance business are not a homogenous mass that can be run together. They’re a massively diverse group of niches that need focussed management. Fairfax and Andy Barnard’s influence is already felt across the group - for example in the changes they plan to make regarding cat tolerance at AWH. He couldn’t do a lot more, but the downside would be enormous. Link to comment Share on other sites More sharing options...
Dazel Posted March 29, 2018 Share Posted March 29, 2018 Yes Omers! Thanks that’s what happens when you rush! Petec...I know the numbers...don’t have to be public to count. Pg 60 annual report Cost $298 share of profit $117m that’s a price earnings multiple of 2.54!!!! They own 43.3% of Eurolife... Agreed swap and sale is a bad idea. Why buy back shares? Because the investment in associates are undervalued by at least $2b because they are being carried at cost. (Eurolife and Thomas Cooke alone are $2b)The insurance businesses are not being valued and everyone thinks Prem is a washed up bum who is stealing the company for his family. That’s why! It’s a 40% discount!! Buyout the haters...enough already....before the stock appreciates to where it should be. Link to comment Share on other sites More sharing options...
petec Posted March 29, 2018 Share Posted March 29, 2018 Yes Omers! Thanks that’s what happens when you rush! Petec...I know the numbers...don’t have to be public to count. Pg 60 annual report Cost $298 share of profit $117m that’s a price earnings multiple of 2.54!!!! They own 43.3% of Eurolife... Agreed swap and sale is a bad idea. Why buy back shares? Because the investment in associates are undervalued by at least $2b because they are being carried at cost. (Eurolife and Thomas Cooke alone are $2b)The insurance businesses are not being valued and everyone thinks Prem is a washed up bum who is stealing the company for his family. That’s why! It’s a 40% discount!! Buyout the haters...enough already....before the stock appreciates to where it should be. That Eurolife profit includes the Greek bond gains I think - not likely a sustainable rate nor one you’d put 9-12x on, but wonderful nonetheless! I understand the valuation argument. It just seems to me there’s a danger of getting excited about a big buyback because we want it to happen rather than because the company shows any signs of doing it-which they don’t. Link to comment Share on other sites More sharing options...
Dazel Posted March 29, 2018 Share Posted March 29, 2018 Bond gains make sense for Eurolife....they are not going to sell it so valuation only matters on whether they acquire the other 37% from OMERS...book value will continue to be understated as with Thomas Cook India. Buy backs makes sense I will be disappointed if Prem does no take advantage of steady buybacks under $700 as I have said...their buy backs so far in 2018 are sadly inadequate and downright depressing. Hopefully they have taken advantage of this latest blip (volumes are up but I do not see any block trades)if it continues at the pace it was at in early March we all should be pissed off! Link to comment Share on other sites More sharing options...
petec Posted March 30, 2018 Share Posted March 30, 2018 Bond gains make sense for Eurolife....they are not going to sell it so valuation only matters on whether they acquire the other 37% from OMERS...book value will continue to be understated as with Thomas Cook India. Agreed. Buy backs makes sense I will be disappointed if Prem does no take advantage of steady buybacks under $700 as I have said...their buy backs so far in 2018 are sadly inadequate and downright depressing. Hopefully they have taken advantage of this latest blip (volumes are up but I do not see any block trades)if it continues at the pace it was at in early March we all should be pissed off! I'm fairly sanguine. I agree they make sense. But given that they make sense, and given that FFH are clearly thinking about them, if they are not doing them yet then they clearly have what they think is a better use for the cash. That works for me. Also, incidentally, if you're looking for a rerating then a sustained buyback with FCF is better than cheap one-offs. The market, in its madness, does love consistency. Link to comment Share on other sites More sharing options...
chrispy Posted March 30, 2018 Share Posted March 30, 2018 Petec, is that a similar concept to how one time dividends have minor effects on share price compared to consistent/consistently increasing dividends? Link to comment Share on other sites More sharing options...
Dazel Posted March 30, 2018 Share Posted March 30, 2018 As I have said here...My thesis on a “one off” in a tender offer was because I did not think we would be undervalued as long as we have been! I changed that view Mr. market has decided to ignore FFH and I am fine with that as long as we are as you say “steadily” buying back shares at these undervalued valuation levels. While we know the investment in associates are vastly undervalued...they do not come through in the debt to capital levels...they are lower than they look. Speaking of upgrades with the liquidity profile As I have said before I am expecting a debt ratings upgrade which may be reason for the buybacks being limited at this time. The very successful European bond offering is evidence of the financial strength of FFH. An upgrade is very material to not only bringing debt servicing costs down, allowing for optilnality for financing, as an insurance company profile it is very beneficial. Link to comment Share on other sites More sharing options...
netnet Posted March 30, 2018 Share Posted March 30, 2018 Yes Omers! Thanks that’s what happens when you rush! Petec...I know the numbers...don’t have to be public to count. Pg 60 annual report Cost $298 share of profit $117m that’s a price earnings multiple of 2.54!!!! They own 43.3% of Eurolife... Agreed swap and sale is a bad idea. Why buy back shares? Because the investment in associates are undervalued by at least $2b because they are being carried at cost. (Eurolife and Thomas Cooke alone are $2b)The insurance businesses are not being valued and everyone thinks Prem is a washed up bum who is stealing the company for his family. That’s why! It’s a 40% discount!! Buyout the haters...enough already....before the stock appreciates to where it should be. Dazel, Back of the envelope, but it seems you are saying that Fairfax is selling below book adjusted for sub intraparty price(not to mention fair market value). Yes? Link to comment Share on other sites More sharing options...
Spekulatius Posted March 31, 2018 Share Posted March 31, 2018 Got my Proxy and voted for all Directors but Benjamin Watsa. I hope more people do the same , so they at least get the message. Link to comment Share on other sites More sharing options...
obtuse_investor Posted March 31, 2018 Share Posted March 31, 2018 Got my Proxy and voted for all Directors but Benjamin Watsa. I hope more people do the same , so they at least get the message. By that logic, why vote for Christine N. McLean? She is Prem's daughter. Link to comment Share on other sites More sharing options...
Spekulatius Posted March 31, 2018 Share Posted March 31, 2018 Got my Proxy and voted for all Directors but Benjamin Watsa. I hope more people do the same , so they at least get the message. By that logic, why vote for Christine N. McLean? She is Prem's daughter. Because I didn’t know that this is the case, otherwise I would have withheld the vote for her as well. Link to comment Share on other sites More sharing options...
Dazel Posted March 31, 2018 Share Posted March 31, 2018 NetNet, YES. Link to comment Share on other sites More sharing options...
dutchman Posted April 2, 2018 Share Posted April 2, 2018 why doesn't Fairfax get clobbered when the market tanks? Can't understand. Link to comment Share on other sites More sharing options...
wondering Posted April 2, 2018 Author Share Posted April 2, 2018 https://www.economicswire.net/a-compelling-case-for-fairfax-financial-in-todays-environment.html I found a fairly recent article about Fairfax's evaluation. It makes similar points that have been brought on this threat before. Note, one of the author's points is that in the short run, achieving the 15% increase in book value may be difficult considering the large amount of cash and short term investments they are holding. Link to comment Share on other sites More sharing options...
petec Posted April 3, 2018 Share Posted April 3, 2018 Got my Proxy and voted for all Directors but Benjamin Watsa. I hope more people do the same , so they at least get the message. By that logic, why vote for Christine N. McLean? She is Prem's daughter. Because I didn’t know that this is the case, otherwise I would have withheld the vote for her as well. McLean's relationship was laid out clearly in the shareholder letter. I don't mean this aggressively, but I'm interested: why would you vote at all if you haven't researched the people? Link to comment Share on other sites More sharing options...
petec Posted April 3, 2018 Share Posted April 3, 2018 Petec, is that a similar concept to how one time dividends have minor effects on share price compared to consistent/consistently increasing dividends? Yes I guess so. The market seems to pay a premium for what it knows. So, it might pay 1.1x bvps because it knows there is a steady buyback driving bvps growth, but it won't pay 1.1x bvps for cash on the balance sheet that could be used for a buyback at a very attractive price. That's my sense anyway. Link to comment Share on other sites More sharing options...
wondering Posted April 3, 2018 Author Share Posted April 3, 2018 https://ca.finance.yahoo.com/news/steven-cohen-wins-dismissal-8-143707890.html Sad day. Link to comment Share on other sites More sharing options...
Dazel Posted April 3, 2018 Share Posted April 3, 2018 Dutchman, Fairfax does not need a reason to reverse $30 in a few hours like today....LOL. Buy back the shares Prem....the scenario is perfect. Link to comment Share on other sites More sharing options...
Dazel Posted April 3, 2018 Share Posted April 3, 2018 https://www.bloomberg.com/news/articles/2018-04-02/stock-market-pain-bleeds-into-junk-bonds-as-hedging-costs-surge This is what I have been talking about...those that are not looking closely would not see what has been happening in the credit markets in 2018. As a whole they are still not cheap but there is more value to look at for Bradstreet then he has seen for quite awhile. Link to comment Share on other sites More sharing options...
Cigarbutt Posted April 4, 2018 Share Posted April 4, 2018 "This is what I have been talking about...those that are not looking closely would not see what has been happening in the credit markets in 2018. As a whole they are still not cheap but there is more value to look at for Bradstreet then he has seen for quite awhile." Blip or early reset? The high yield market has been interesting to watch. Many people describe a potential "wall" of maturing high yield debt that will need to be refinanced in the next 2 to 3 years. But this may just be a wall of worry as these "walls" have been "seen" before only to disappear as cans were kicked down the road and as market pros often said that junk bonds never really mature. :) Maybe only noise for now and excitement perhaps needs to be tamed, remembering that, about 10 years ago, the spread between the benchmark US high-yield index and safer Treasurys quite rapidly moved up to 21.82% from a low of 2.41% recorded in the last innings of the last stable instability credit period. Wonder if the bond team at Fairfax are considering all the endogenous scenarios? At least now, they have the optionality. https://fred.stlouisfed.org/series/BAMLH0A0HYM2 Link to comment Share on other sites More sharing options...
Tommm50 Posted April 4, 2018 Share Posted April 4, 2018 Regarding the Cohen dismissal, the headlines blare he wins a dismissal but the judge's ruling is "did not belong in that state's courts". There's nothing about the actual merits of the case. This seems a very curious result after 12 years. Something is quite rotten in New Jersey. Link to comment Share on other sites More sharing options...
mranski Posted April 4, 2018 Share Posted April 4, 2018 For a loose canadian comparable, Intact insurance selling at 2x book. It has been a solid performer but this seems like too large of a valuation differential. Intact is a bit of a yield play I think. Link to comment Share on other sites More sharing options...
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