Fairfax stock positions

[FairFacts]

High level scan of the shipping industry, certainly pertinent to ATCO and its seeming very capable management.....

 

 

[FairFacts]

and a small thorn in Prem's side with regard to exec. pay at Blackberry....

[Viking]

So what is going on with BB stock? It is trading today at US $13.20. It has been trading above $13 for three weeks now. Why is it not going back below $9?
 

We are a week away from quarter end. Should BB continue to trade at current levels it would be up about $4.50 / share from March 31 = $450 million mark to market gain for FFH when they report Q2 results. This is about $17/share pre tax. Not a small number.
 

i also continue to think the longer BB shares trade at elevated levels the greater the chance that FF will monetize the asset. The benefits of monetization are numerous; the question is what price will it take?

Edited June 22, 2021 by Viking

[Gregmal]

If I was a FFH shareholder I'd be tempted to grab Prem by the ankles and shake him upside down asking repeatedly, "where's all our money" from the past decade's historic bull market. 

[petec]

http://www.prnewswire.com/news-releases/concerned-shareholder-urges-blackberry-board-to-follow-lead-of-major-corporate-governance-advisory-firm-and-oppose-watsa-as-director-301316666.html

[Viking]

Greg, yes, i feel for shareholders who have held the stock for the past 10 years; ugly. However, those who bought after the stock cratered last year have done exceptionally well. And the stock is hardly expensive today given how the company is currently positioned:
- we are in a hard market for insurance pricing and it looks like it may last another year or even two. That is significant.

- the equity portfolio has been performing very well and looks reasonably well positioned moving forward should the economic recovery continue into 2022

 

The big challenge for investors in Fairfax is lack of trust in Prem. This is a watchout for me; although not currently a big enough concern as i own stock.

[Viking]

26 minutes ago, petec said:

http://www.prnewswire.com/news-releases/concerned-shareholder-urges-blackberry-board-to-follow-lead-of-major-corporate-governance-advisory-firm-and-oppose-watsa-as-director-301316666.html

i wonder if Prem is booted as a director at the annual meeting tomorrow if that does not give Fairfax the green light to unload the shares  

[Gregmal]

Yea I think his presence on the board is consistent with the logic behind why they arent selling. He is this for personal, largely non financial reasons. 

[Xerxes]

I tend to echo this point of view. I don't have any proof, but my gut feeling is that he never intended to sell BB back in Q1, even if there were no regulatory constraint. Totally, my gut feeling and completely unfounded. Maybe not for personal reason, but perhaps just for a vision that he wants to see through with BB .. and that vision cannot conclude by:  saved-by-the-Reddit club.

 

However, if he were to resign next week from BB board, than I think selling the stake is in the cards.

 

Being on the Board of BB as an independent director, or owning a significant chunk of Resolute are supposed to be the "assets" that the FFH should be able to leverage; but sometimes i feel these are more "liabilities".  

 

Then again, Prem W. built a +$10 billion business from scratch and has been investments and building businesses for decades; that is many fold more than me, and net-net he has been far more right than wrong, otherwise we wouldn't be here.

[Parsad]

2 hours ago, petec said:

http://www.prnewswire.com/news-releases/concerned-shareholder-urges-blackberry-board-to-follow-lead-of-major-corporate-governance-advisory-firm-and-oppose-watsa-as-director-301316666.html

 

What a joke!  Without Prem, Blackberry would have been bankrupt 8 years ago under Thorsten Heins who the board picked against Prem's wishes.  Prem is the guy who pushed for John Chen before Thorsten Heins got the job.  The board went with Heins and lost almost three years on the turnaround.  Cheers!

[Parsad]

1 hour ago, Xerxes said:

I tend to echo this point of view. I don't have any proof, but my gut feeling is that he never intended to sell BB back in Q1, even if there were no regulatory constraint. Totally, my gut feeling and completely unfounded. Maybe not for personal reason, but perhaps just for a vision that he wants to see through with BB .. and that vision cannot conclude by:  saved-by-the-Reddit club.

 

However, if he were to resign next week from BB board, than I think selling the stake is in the cards.

 

Being on the Board of BB as an independent director, or owning a significant chunk of Resolute are supposed to be the "assets" that the FFH should be able to leverage; but sometimes i feel these are more "liabilities".  

 

Then again, Prem W. built a +$10 billion business from scratch and has been investments and building businesses for decades; that is many fold more than me, and net-net he has been far more right than wrong, otherwise we wouldn't be here.

 

+1!  Cheers!

[Xerxes]

I am unfamiliar with Kennedy Wilson just knowing that its somehow related to real estate. Kind of surprised to see that voting machine didn't even gave it a heavier valuation with all the hoopla about real estate.

 

Any one had a take on this name KW ?

[no_free_lunch]

8 hours ago, Xerxes said:

I am unfamiliar with Kennedy Wilson just knowing that its somehow related to real estate. Kind of surprised to see that voting machine didn't even gave it a heavier valuation with all the hoopla about real estate.

 

Any one had a take on this name KW ?

Their performance has been sub-par.  In the past, the valuation didn't seem that compelling as I dug into the financials.  Haven't looked at them in a year or so.

[bearprowler6]

A new acquisition at Fairfax:

 

https://www.newsfilecorp.com/release/88858/Mosaic-to-Be-Acquired-for-5.50-per-Share-in-All-Cash-Transaction

[StubbleJumper]

31 minutes ago, bearprowler6 said:

A new acquisition at Fairfax:

 

https://www.newsfilecorp.com/release/88858/Mosaic-to-Be-Acquired-for-5.50-per-Share-in-All-Cash-Transaction

 

 

I wonder whether Fairfax is more interested in Mosaic's assets or its people.

 

SJ

[Viking]

Stubble, i agree. Perhaps the plan is to have Mosaic become the platform from which they manage all the wholly owned Canadian operations (including those currently owned by Fairfax).

 

Given all the things Fairfax COULD do with any excess cash right now it is interesting they decided to do this deal. Either the business assets Mosaic currently owns are quite undervalued or there is a compelling strategic reason or some combination of the two. 
 

i hope this is not yet another example of Fairfax doubling down on a struggling business... i do not understand Mosaic so i do not have a strong opinion right now. 
 

They are buying Mosaic at the price the business was trading at pre-pandemic (early 2020).

 

- https://mosaiccapitalcorp.com/wp-content/uploads/2021/02/January-2021-Corporate-PPT.pdf

[Parsad]

6 hours ago, Viking said:

Stubble, i agree. Perhaps the plan is to have Mosaic become the platform from which they manage all the wholly owned Canadian operations (including those currently owned by Fairfax).

 

Given all the things Fairfax COULD do with any excess cash right now it is interesting they decided to do this deal. Either the business assets Mosaic currently owns are quite undervalued or there is a compelling strategic reason or some combination of the two. 
 

i hope this is not yet another example of Fairfax doubling down on a struggling business... i do not understand Mosaic so i do not have a strong opinion right now. 
 

They are buying Mosaic at the price the business was trading at pre-pandemic (early 2020).

 

- https://mosaiccapitalcorp.com/wp-content/uploads/2021/02/January-2021-Corporate-PPT.pdf

 

Evans and Evans is who we used on the fairness opinion when PDH sold Russell Breweries.  Mike is honest and fair, so I would imagine the price was well justified through their analysis.  Fairfax probably paid fair value for the business...not distressed, but fair.  Cheers!

[Pedro]

I thought the renewed focus with excess cash was to reduce debt, buying out minority interests and buyback shares. I thought the acquistion train left the station. 

Am i missing something? 

[TwoCitiesCapital]

33 minutes ago, Pedro said:

I thought the renewed focus with excess cash was to reduce debt, buying out minority interests and buyback shares. I thought the acquistion train left the station. 

Am i missing something? 

 

I think that comment about not acquiring anything was in relation to future insurance company purchases. Acquisitions for strategic and investment purposes are still on. 

[StubbleJumper]

1 hour ago, Pedro said:

I thought the renewed focus with excess cash was to reduce debt, buying out minority interests and buyback shares. I thought the acquistion train left the station. 

Am i missing something? 

 

I'd say that you need to mentally divide up the excess cash between cash held at the holdco and cash held at the subs.  FFH is always looking for places to invest the subs' capital and can't really dividend any excess cash from the subs to the holdco without constraining the subs' underwriting capacity.  But, you are correct that In the event that the holdco ever holds excess cash, the stated intent was to buy out the minority interests, buyback shares, and hopefully chip away at the holdco debt. 

 

If I had to guess, I would assume that this most recent acquisition was actually funded from the subs (ie, 25% gets bought by ORH, 25% by NB, 20% by C&F, etc without ever touching a penny of holdco cash).

 

 

SJ

[Viking]

I think the deleveraging is primarily tied to the Riverstone sale combined with OMERS re-purchase of part of Brit. The cash from those two transactions are to go to debt reduction. Bizarre regulatory approval has not been given yet given it was expected in Q1 i think.

 

I do find the Mosaic transaction interesting... how was it the BEST use of cash right now. Perhaps a large shareholder of Mosaic wanted out and approached Fairfax (Mosaic stock has underperformed for many years). Covid really hit Mosaic owned companies hard. Some are also Alberta focussed and oil & gas focussed which added to the pain the past couple of years. Given all that has transpired the past year it will likely take another year or perhaps two to understand what the new baseline earnings profile of the basket of companies owned by Mosaic. So i understand why Mosaic is better off as a private company today - much more freedom to do what is needed with the underlying companies out of the public spotlight. I just hope Fairfax did not overpay. 
 

I also hope Mosaic has a competent management team and does not need help from Fairfax in this regard (not a strength for Fairfax). The management team at Mosaic is responsible for the poor stock price performance the past 5 years so this is not encouraging at initial glance. But i do not understand Mosaic well so will keep an open mind for now.

Edited June 29, 2021 by Viking

[glider3834]

On 6/29/2021 at 1:16 AM, Viking said:

Stubble, i agree. Perhaps the plan is to have Mosaic become the platform from which they manage all the wholly owned Canadian operations (including those currently owned by Fairfax).

 

Given all the things Fairfax COULD do with any excess cash right now it is interesting they decided to do this deal. Either the business assets Mosaic currently owns are quite undervalued or there is a compelling strategic reason or some combination of the two. 
 

i hope this is not yet another example of Fairfax doubling down on a struggling business... i do not understand Mosaic so i do not have a strong opinion right now. 
 

They are buying Mosaic at the price the business was trading at pre-pandemic (early 2020).

 

- https://mosaiccapitalcorp.com/wp-content/uploads/2021/02/January-2021-Corporate-PPT.pdf

thanks viking I haven't dug into this business - from their Jan-21 presentation, the management are reporting numbers which appear to be decent to me

 

Solid track record of value creation:

• Invested ~$250 million of equity capital

• Assembled a diversified portfolio of private mid-market Canadian companies

• Generated an annual ROE of 21% since IPO in 2011

• EBITDA growth - 28% CAGR since IPO

 

I guess we will have to wait for reasons why this was the best investment option for them right now given the other opportunities available?

 

I found these comments quoted below from Paul Rivett in 2016 that might provide some insight

 

https://www.newswire.ca/news-releases/fairfax-financial-to-invest-150-million-in-mosaic-capital-607978226.html

 

"We are excited to partner with John Mackay, Harold Kunik and Mark Gardhouse and their team through a direct investment in Mosaic" said Paul Rivett, President of Fairfax. "John and Harold have a long track record of successfully applying value investing principles to acquire majority positions in strong cash flow producing small and medium sized businesses. They have been successfully applying a decentralized approach that ensures the management remains invested and operating on a day-to-day basis.  Over time, some of these investments are expected to grow to a size where they may need additional capital from Fairfax. Fairfax often receives opportunities that are difficult to act on because of their smaller size which may be of interest to Mosaic. We look forward to having a partner whose expertise and experience in mid-market private equity acquisitions over the last decade can be combined with our flow of opportunities."

 

 

 

 

[petec]

My guess is they’re buying Mosaic as an acquisition platform. We all know insurers are having to do more and more to manufacture investment opportunities, given low rates. That means doing things others can’t. Having a platform to buy small businesses when (for example) retirement forces a sale could be a good way to deploy a decent amount of capital at high returns over many years.
 

It’s possible this was always part of the game plan with Mosaic - IIRC the original investment gave them >60% on a fully converted basis, and they’ve always consolidated it as a result. 

[Thrifty3000]

It sounds 100% consistent with the strategy they've been executing over the last decade - establishing a diversified "portfolio" of capital allocators, each having demonstrated potential to outperform at multi-billion dollar scale (Fairfax India, Fairfax Africa, David Sokol, Byron Trott, Wade Burton, etc, etc). Out of a dozen or so allocators some will fail to impress. But, that doesn't matter. Fairfax only needs three or four to become true rock stars, and Fairfax will be able to shovel loads of free cash into the rock stars' piles for decades. The lackluster performers will fade out.

 

It's the same strategy they implemented to build a handful of outstanding insurance companies. Consolidating capital and authority among a handful of the most talented insurance managers they could find. Now they're doing it with their portfolio of non-insurance capital allocators. I think it's brilliant. Definitely fun to watch. And, I think so few people get it.

 

Imagine if you're Prem. Hmm... Do I give my next free dollar to a great insurance company in a hard market, or do I give it to Wade Burton, Byron Trott, David Sokol, and so on? Which proven opportunity to compound our investment at a high rate do we pick? What an incredible situation to be in!

 

It's different than Berkshire's strategy, where Buffett was the primary capital allocator for most of the company's existence. Berkshire will soon be handing the capital allocation reigns to a portfolio of TWO capital allocators - Todd and Ted - of whom only one has shown an ability to outperform.

 

This idea of nurturing a larger portfolio of capital allocators has been in the works for years at Fairfax. A beautiful example of ultra long term strategic thinking, IMHO.

[Viking]

Thrifty, i hope you are correct. With the insurance businesses, Fairfax certainly has been able to shift from weak link to strength (in aggregate); it took the right people in the right roles and time. And shareholders are reaping the benefit of the current hard market. 
 

If Fairfax has been in the process of also ‘fixing’ the investment side of its business and it works then, as Prem likes to say, ‘the best is yet to come for shareholders.’ What you say above makes sense. It is a great way for investors to understand the changes in recent years. Fairfax has been evolving with how it manages its investments and perhaps the Mosaic acquisition is the next building block in that evolution. 
 

if Fairfax performs better on the investment side of the business in the coming years then we should see sentiment improve. This in turn should then lead to price to BV expansion (over 1). Growing BV a higher multiple should lead to multi year outperformance in share price. We will see. But the set up is looking good

 

PS: i would also add Kennedy Wilson to the list of capital allocators that Fairfax has chosen to partner with; this covers off the real estate/mortgage bucket.

Edited June 30, 2021 by Viking