Fairfax stock positions

[Viking]

20 hours ago, glider3834 said:

Gulf Insurance group results look strong & obviously benefiting from AXA acquisition

 

https://www.insurancebusinessmag.com/asia/news/breaking-news/gulf-insurance-group-profits-skyrocket-242-316608.aspx

 

Shares have advanced close to a 52 week high - current market cap 313 mil KWD ( approx US$1.04 bil )

 

Fairfax ownership 43.4% - now worth approx US$450 mil) 

 

 

 

I think part of GIG investment is included in Riverstone sale - I think Fairfax will repurchase unless they want to sell in meantime - either way I believe this GIG - Riverstone portion will be reflected in Fairfax's earnings as a derivative gain (from GIG share price increase) on their repurchase contract option.

Glider, do you (or anyone else) have any visibility on how GIG paid for the AXA acquisition? I see Fairfax maintained their same ownership stake so it doesn’t look like it was via a big equity raise (unless Fairfax bought more shares and i missed it). 
 

Regardless, the AXA acquisition is transformative for GIG and their market share position in many of the countries in MENA. After many years of largely being a dormant investment for Fairfax, GIG has certainly thrust itself into the spotlight. It will be interesting to see how GIG does moving forward.

 

- https://www.gulfinsgroup.com/Renderers/Showmedia.ashx?Id=57b75643-d12b-4ef9-a1ea-759ac43c8863&download=false

[glider3834]

8 hours ago, Viking said:

Glider, do you (or anyone else) have any visibility on how GIG paid for the AXA acquisition? I see Fairfax maintained their same ownership stake so it doesn’t look like it was via a big equity raise (unless Fairfax bought more shares and i missed it). 
 

Regardless, the AXA acquisition is transformative for GIG and their market share position in many of the countries in MENA. After many years of largely being a dormant investment for Fairfax, GIG has certainly thrust itself into the spotlight. It will be interesting to see how GIG does moving forward.

 

- https://www.gulfinsgroup.com/Renderers/Showmedia.ashx?Id=57b75643-d12b-4ef9-a1ea-759ac43c8863&download=false

yes sure Viking - $475 mil cash purchase - partly funded via two capital raises

 

Sep-21 - rights issue 50 mil KWD (circa US$165 mil) - was fully subscribed not sure Fairfax's final allocation https://www.gulfinsgroup.com/Home/Investor-Relations/Capital-Increase

Oct-21 - perpetual bonds issue 60 mil KWD (circa US$199mil)

 

S&P assigned 'BBB+' issue rating to the subordinated notes that GIG is issuing. This came after the group announced that it had obtained all the necessary regulatory approvals that it is issuing up to Kuwaiti dinar (KWD) 60 million (US$199 million) of Tier 2, junior, subordinated, perpetual notes, which will qualify in their entirety as capital for solvency purposes https://www.gulfinsgroup.com/Renderers/Showmedia.ashx?Id=9416b770-8dee-494c-a22b-419e8e3b2ca3&download=false

 

assuming they fully participated in the rights issue, then I suspect Fairfax's ownership would remain around same %

 

 

Edited November 20, 2021 by glider3834

[glider3834]

The award for "Best Consumer Digital Bank in Western Europe for 2021" (The Best Digital Consumer Bank in Western Europe for 2021) was won  by Eurobank

https://www.cretapost.gr/665795/eurobank-anadichthike-kalyteri-psifiaki-trapeza-gia-katanalotes-sti-dytiki-evropi/

[Viking]

8 hours ago, glider3834 said:

The award for "Best Consumer Digital Bank in Western Europe for 2021" (The Best Digital Consumer Bank in Western Europe for 2021) was won  by Eurobank

https://www.cretapost.gr/665795/eurobank-anadichthike-kalyteri-psifiaki-trapeza-gia-katanalotes-sti-dytiki-evropi/

Nice to see. Just like other regions, being the leader in technology is a big deal. 

[glider3834]

remember this interview with Prem in Globe & Mail in December 2020

https://www.theglobeandmail.com/business/article-fairfax-ceo-prem-watsa-touts-traditional-value-investing-amid-frenzy/

 

these were some of the tech stocks that Prem had concerns about (notice how he says 'wonderful companies' - his comments are strictly around valuation!)- avg YTD return of this group (PTON,SHOP,ZM,PINS) is -31%

 

“These are all wonderful companies, but their valuations are insane,” added Mr. Watsa in an interview last week, as he described his speech to staff earlier in the month. “As in the past, this will end – and it will not be pretty.”

 

 

Here are some of the value stocks that Prem was keen on - avg YTD return of this group (STLC.TO,ATCO,XOM) is +48%

 

the contrarian investor is bullish on the prospects for Fairfax investments tied to an economic recovery, such as steel maker Stelco Holdings Inc., container shipping company Atlas Corp. and unloved energy play Exxon Mobil Corp.

 

 

 

[Xerxes]

And yet Tesla is up who knows how much, since he added a slide on it in his AGM in April 2021, shown below. And probably the dollar value market capitalization created by Tesla during the same period that you alluded was more than 30% combined lost on PTON,SHOP,ZM,PINS, and perhaps dare I say, many times over.

 

Bottom line no one knows anything.

 

I like this new Fairfax that only talks about how outrageously overvalued these companies are as oppose to go around and act like Valuation Policeman by shorting it.

 

[bluedevil]

2 minutes ago, Xerxes said:

I like this new Fairfax that only talks about how outrageously overvalued these companies are as oppose to go around and act like Valuation Policeman by shorting it.

 +1!

 

 

 

[glider3834]

39 minutes ago, Xerxes said:

I like this new Fairfax that only talks about how outrageously overvalued these companies are as oppose to go around and act like Valuation Policeman by shorting it.

100% agree 

[glider3834]

I posted under Eurobank thread - also posting here

 

https://greekcitytimes.com/2021/11/25/surprisingly-growth-athens-property-prices/

 

Property prices in Athens soared by nearly ten per cent in the third quarter of the year, according to the latest batch of data, as Greece’s real estate sector proves to be one of the strongest in Europe.

 

this bodes well for Eurobank's banking ops - on revenue side (more potential lending growth) on liability side (ie increases collateral values on their lending book)

 

It is also a tailwind for Eurobank's 1.36 billion euro property investment portfolio 

https://www.ekathimerini.com/economy/1171079/athens-the-2022-commercial-property-capital-of-europe/

 

Athens looks forward next year to being the commercial property capital of Europe, based on the projected course of prices and rental rates for 2022.

 

The latest annual survey by PwC and the Urban Land Institute on the European property market shows that the Greek capital will lead the ranks in future capital gains and rental hikes among 31 cities. Notably, the Athens market gained the highest marks regarding the future course of both rental rates and sale prices.

[glider3834]

On 11/25/2021 at 6:15 PM, glider3834 said:

I posted under Eurobank thread - also posting here

 

https://greekcitytimes.com/2021/11/25/surprisingly-growth-athens-property-prices/

 

Property prices in Athens soared by nearly ten per cent in the third quarter of the year, according to the latest batch of data, as Greece’s real estate sector proves to be one of the strongest in Europe.

 

this bodes well for Eurobank's banking ops - on revenue side (more potential lending growth) on liability side (ie increases collateral values on their lending book)

 

It is also a tailwind for Eurobank's 1.36 billion euro property investment portfolio 

https://www.ekathimerini.com/economy/1171079/athens-the-2022-commercial-property-capital-of-europe/

 

Athens looks forward next year to being the commercial property capital of Europe, based on the projected course of prices and rental rates for 2022.

 

The latest annual survey by PwC and the Urban Land Institute on the European property market shows that the Greek capital will lead the ranks in future capital gains and rental hikes among 31 cities. Notably, the Athens market gained the highest marks regarding the future course of both rental rates and sale prices.

3Q results out from Eurobank  - I haven't been able to find the 3Q call transcript but what has been reported in media https://www.kathimerini.gr/economy/561603262/eurobank-kategrapse-kerdi-298-ekat-eyro-sto-enneamino/ is

- management expect double digit ROTE in 2022 - based on tangible book of 5.2 bil at 3Q - I believe that would be a NPAT in the area of 520 mil euro at 10% ROE  (if mgmt can deliver then Fairfax's share or profit from this associate  at 32.2% ownership would be in $167 mil area)

- discussions with supervisory bodies starting in early 2022 to discuss the dividend - obviously this would be significant for Fairfax 

- other metrics look good - non-performing exposures down to 7.3%, deposits up 8% YTD (over 9mths)

 

I noticed Eurobank's share price down 5% or so today which looks to be in line with many other European financials- I think people are more concerned about this new SA covid strain today anyway

 

cheers

 

Edited November 26, 2021 by glider3834

[Thrifty3000]

On 11/26/2021 at 2:42 PM, glider3834 said:

3Q results out from Eurobank  - I haven't been able to find the 3Q call transcript but what has been reported in media https://www.kathimerini.gr/economy/561603262/eurobank-kategrapse-kerdi-298-ekat-eyro-sto-enneamino/ is

- management expect double digit ROTE in 2022 - based on tangible book of 5.2 bil at 3Q - I believe that would be a NPAT in the area of 520 mil euro at 10% ROE  (if mgmt can deliver then Fairfax's share or profit from this associate  at 32.2% ownership would be in $167 mil area)

- discussions with supervisory bodies starting in early 2022 to discuss the dividend - obviously this would be significant for Fairfax 

- other metrics look good - non-performing exposures down to 7.3%, deposits up 8% YTD (over 9mths)

 

I noticed Eurobank's share price down 5% or so today which looks to be in line with many other European financials- I think people are more concerned about this new SA covid strain today anyway

 

cheers

 

So that’s another $6 of look through earnings per FFH share. Add that to expected earnings for the insurance ops and ATCO and FFH shares are beyond crazy-stupid-cheap (not to mention the earnings power of all the other assets).

 

Hmm, could that be why FFH is trying to buy a huge chunk of shares back?

Edited November 27, 2021 by Thrifty3000

[glider3834]

On 11/27/2021 at 7:42 AM, glider3834 said:

on liability side (ie increases collateral values on their lending book)

i meant to say asset side - higher loan quality

[MMM20]

VIC write-up on Eurobank by miser861, who I believe is Quincy Lee of Ancient Art/Teton Capital (check out the Santangel's Review feature on him from a while back). Will this turn into a big winner for Fairfax? Hey, would be nice.

 

https://www.valueinvestorsclub.com/idea/EUROBANK_ERGASIAS_SERVICES_A/7217319524

 

"So once this train wreck is cleaned up, we have a bank that trades for .6x tangible book value.  It’s not the cheapest the stock has ever been, but it’s the closest it’s ever been to resolving its balance sheet problems. I don't want the whole fish, I just want the fillet.  It’s earning €1 billion of core pre-provision pre-tax income.  In a recovery year I don’t think it’s crazy to assume 1% provisions per year (€380 million).  So Eurobank could earn €.13/share in a year or so.  So today it trades for 6.5x one year out EPS.  It seems possible that the stock could double in a year or so.  And I think there is good downside protection from the low price/TBV and the trajectory of NPLs, and a likely recovery in tourism.

 

I’ve thrown out a lot of numbers but the bottom line is this.  There’s a rotation into value going on.  There’s nothing more value than Greek banks.  Greek banks were value before value was cool."

 

 

 

 

Edited November 29, 2021 by MMM20

[Thrifty3000]

Aight, continuing down my FFH per share look through earnings line of thinking, I came up with rough look through earnings per FFH share estimates for FFH's 9 largest common stock positions (which constituted roughly half the 2020 YE carrying value of FFH's common stock portfolio). I quickly dug up comments on earnings - or free cash flow - from various sources (including this message board), and I divided by 26 million shares (because I'm optimistic on repurchases).

 

Because it's really quick and dirty estimation, if I had a reasonable estimate of 2022 earnings I'd use that (thanks @Viking), if I only had Prem's comments on 2020 results I'd try to pin down the 2019 results and make a judgment call. On EXCO and Recipe I started with 2020 free cash flow and simply assumed 2022 would be 1 or 2 times better than their Armageddon performance (why I'll never be an accountant). And, for Fairfax India I just had to go with a crazy conservative number, because I've never been disciplined enough to pin look through earnings on that one down (believe me, I've tried).

 

So, I'm basically throwing this out there in hopes someone far more disciplined than me will be frustrated by my inaccuracy and offer a more precise estimation (in other words I'm trying to provoke somebody else to do the hard work, which makes me just a slightly more sophisticated troll than Liberty is on the Altius board. Haha, love you buddy - you know it's true).

 

I'll spare you my per-holding logic and just get to the point, here goes:

 

(look through USD per FFH share - assuming 26 million shares. To add margin of safety I usually round down to the nearest $.50.)

 

Atlas: $7 per FFH share

Eurobank: $6

Fairfax India (???): $2
CIB 290: $1.5

Kennedy Wilson: $1 per

EXCO: $1

Recipe: $1
Quess $.50 per
Blackberry: $0

 

Total: $20 per share

 

So, in addition to the $20 above, if we conservatively assume the after tax 2022 insurance earnings per share (without double counting dividend interest from the companies above) is $30 per share (see @Viking's recent analysis) then the look through earnings power from insurance and the 9 holdings above is approximately $50 per FFH share.

 

Now, the 9 holdings above account for only half of FFH's common stock carrying value. The big question is what is the rest of the portfolio capable of earning on a per share basis. And, this is where I have a bit of a thesis...

 

If the rest of FFH's assets (including the other half of the common stock portfolio) can earn as much as the 9 holdings above, then you are looking at total look through earnings per share in the neighborhood of $70 per FFH share.

 

If you can assume Prem is a reasonably disciplined value investor determined to earn a 15% return over time then if you divide the estimated $70 look through EPS by the $450 share price you get a year 1 look through earnings return of 15.5% - thus exceeding the investment hurdle rate.

 

In sum, a meaningful billion dollar buyback is looking like a gift from the investment gods, and Mr. Market is dumber than a brick on this one.

 

 

EDITS: The Following Estimates Added After The Original Post

 

BDT (Byron Trott): $1.5

Resolute: $2.4

Edited December 16, 2021 by Thrifty3000

[Xerxes]

Any reason why Resolute is not shown in the your numbers.

It has a higher dollar earning than Atlas this past quarter and seemed to be a significant contributor at least in the short term.

[petec]

6 hours ago, MMM20 said:

VIC write-up on Eurobank by miser861, who I believe is Quincy Lee of Ancient Art/Teton Capital (check out the Santangel's Review feature on him from a while back). Will this turn into a big winner for Fairfax? Hey, would be nice.

 

https://www.valueinvestorsclub.com/idea/EUROBANK_ERGASIAS_SERVICES_A/7217319524

 

"So once this train wreck is cleaned up, we have a bank that trades for .6x tangible book value.  It’s not the cheapest the stock has ever been, but it’s the closest it’s ever been to resolving its balance sheet problems. I don't want the whole fish, I just want the fillet.  It’s earning €1 billion of core pre-provision pre-tax income.  In a recovery year I don’t think it’s crazy to assume 1% provisions per year (€380 million).  So Eurobank could earn €.13/share in a year or so.  So today it trades for 6.5x one year out EPS.  It seems possible that the stock could double in a year or so.  And I think there is good downside protection from the low price/TBV and the trajectory of NPLs, and a likely recovery in tourism.

 

I’ve thrown out a lot of numbers but the bottom line is this.  There’s a rotation into value going on.  There’s nothing more value than Greek banks.  Greek banks were value before value was cool."

 

 

 

 

The real value is if the recover drives negative net NPE formation and provision costs aren’t as high as 1%. 

[MMM20]

8 minutes ago, petec said:

The real value is if the recover drives negative net NPE formation and provision costs aren’t as high as 1%. 

Seems like a not-super-improbable upside scenario in which FFH BVPS is up ~$30-50/sh (?) next year from this alone 

[petec]

13 minutes ago, MMM20 said:

Seems like a not-super-improbable upside scenario in which FFH BVPS is up ~$30-50/sh (?) next year from this alone 

Bear in mind they don’t mark it to market, so it probably won’t come through in bvps, but in adjusted terms I think the lower end of that bound is possible. And I think dividends could be significant on a 2-3y view. 

[Thrifty3000]

55 minutes ago, Xerxes said:

Any reason why Resolute is not shown in the your numbers.

It has a higher dollar earning than Atlas this past quarter and seemed to be a significant contributor at least in the short term.

 

I didn't include it because Resolute happens to be pretty far down the list in terms of carrying value. I'll be happy to edit my post and add Resolute's or any others' look through earnings that anyone wants to toss out.

 

I do prefer normal or mid-cycle earnings for cyclical investments.

 

Do you have any sense of what Resolute's "normal," mid-cycle, earnings might look like? (I know the TTM earnings have been pretty nuts.)

Edited November 29, 2021 by Thrifty3000

[Thrifty3000]

Another one I wrestled with is Byron Trott's contribution. He has contributed an average of something close to $2 per share annually going back to 2009. I'm not sure if that can be baked into the go forward earnings or not. Byron still manages a FFH portfolio that was worth over $600 million at year end 2020. So, maybe $1 to $2 per share of look through going forward is reasonable.

Edited November 29, 2021 by Thrifty3000

[Daphne]

14 minutes ago, Thrifty3000 said:

Another one I wrestled with is Byron Trott's contribution. He has contributed an average of something close to $2 per share annually going back to 2009. I'm not sure if that can be baked into the go forward earnings or not. Byron still manages a FFH portfolio that was worth over $600 million at year end 2020. So, maybe $1 to $2 per share of look through going forward is reasonable.

Did you consider bonds going forward

[Thrifty3000]

Just now, Daphne said:

Did you consider bonds going forward

 

The dividend interest from bonds is baked into the $30 of after tax insurance earnings (which I discounted in attempt to strip out the dividends from the common stock holdings). It would probably be more useful if I separated insurance operating earnings from the dividends, but Viking has already done that in a couple of his recent posts forecasting 2022 insurance and dividend income.

 

I believe his posts had something like $31 per share from insurance and $19 per share from dividends. But, I believe those estimates were pre-tax and I believe his dividend estimate included common stock dividends, which need to be removed if using the common stock look through earnings. So I felt like $30 per share was a reasonably conservative estimate of those two sources, but I'm open to suggestions.

 

[Spekulatius]

On 11/23/2021 at 5:09 PM, bluedevil said:

 +1!

 

 

 

I agree. Talk is cheaper than shorting.

[MMM20]

5 hours ago, Thrifty3000 said:

Aight, continuing down my FFH per share look through earnings line of thinking, I came up with rough look through earnings per FFH share estimates for FFH's 9 largest common stock positions (which constituted roughly half the 2020 YE carrying value of FFH's common stock portfolio). I quickly dug up comments on earnings - or free cash flow - from various sources (including this message board), and I divided by 26 million shares (because I'm optimistic on repurchases).

 

Because it's really quick and dirty estimation, if I had a reasonable estimate of 2022 earnings I'd use that (thanks @Viking), if I only had Prem's comments on 2020 results I'd try to pin down the 2019 results and make a judgment call. On EXCO and Recipe I started with 2020 free cash flow and simply assumed 2022 would be 1 or 2 times better than their Armageddon performance (why I'll never be an accountant). And, for Fairfax India I just had to go with a crazy conservative number, because I've never been disciplined enough to pin look through earnings on that one down (believe me, I've tried).

 

So, I'm basically throwing this out there in hopes someone far more disciplined than me will be frustrated by my inaccuracy and offer a more precise estimation (in other words I'm trying to provoke somebody else to do the hard work, which makes me just a slightly more sophisticated troll than Liberty is on the Altius board. Haha, love you buddy - you know it's true).

 

I'll spare you my per-holding logic and just get to the point, here goes:

 

(look through USD per FFH share - assuming 26 million shares. To add margin of safety I usually round down to the nearest $.50.)

 

Atlas: $7 per FFH share

Eurobank: $6

Fairfax India (???): $2
CIB 290: $1.5

Kennedy Wilson: $1 per

EXCO: $1

Recipe: $1
Quess $.50 per
Blackberry: $0

 

Total: $20 per share

 

So, in addition to the $20 above, if we conservatively assume the after tax 2022 insurance earnings per share (without double counting dividend interest from the companies above) is $30 per share (see @Viking's recent analysis) then the look through earnings power from insurance and the 9 holdings above is approximately $50 per FFH share.

 

Now, the 9 holdings above account for only half of FFH's common stock carrying value. The big question is what is the rest of the portfolio capable of earning on a per share basis. And, this is where I have a bit of a thesis...

 

If the rest of FFH's assets (including the other half of the common stock portfolio) can earn as much as the 9 holdings above, then you are looking at total look through earnings per share in the neighborhood of $70 per FFH share.

 

If you can assume Prem is a reasonably disciplined value investor determined to earn a 15% return over time then if you divide the estimated $70 look through EPS by the $450 share price you get a year 1 look through earnings return of 15.5% - thus exceeding the investment hurdle rate.

 

In sum, a meaningful billion dollar buyback is looking like a gift from the investment gods, and Mr. Market is dumber than a brick on this one.

 

 

EDITS: The Following Estimates Added After The Original Post

 

BDT (Byron Trott): $1.5

how do you account for something like Digit in this framework? I know they are just now (supposedly) flipping to break even so no major contribution to look through eps, but I feel like it could be analogous (on a much smaller scale I admit) to leaving out aws from Amzn valuation years ago. it’s more ‘explosive growth high tech investment’ vs ‘new insurance subsidiary’ IMHO.
 

I truly still can’t believe there is this 15x investment, $2b+, now-also-sequoia-backed hypergrowth long runway type of investment inside fairfax. feels like it’s still under the radar and needs more attention and some consideration in all SOTP-ish valuations til proven otherwise.

maybe the answer is just that FFH is truly now worth 1.5x bv?

Edited November 30, 2021 by MMM20

[Viking]

5 hours ago, Thrifty3000 said:

Aight, continuing down my FFH per share look through earnings line of thinking, I came up with rough look through earnings per FFH share estimates for FFH's 9 largest common stock positions (which constituted roughly half the 2020 YE carrying value of FFH's common stock portfolio). I quickly dug up comments on earnings - or free cash flow - from various sources (including this message board), and I divided by 26 million shares (because I'm optimistic on repurchases).

 

Because it's really quick and dirty estimation, if I had a reasonable estimate of 2022 earnings I'd use that (thanks @Viking), if I only had Prem's comments on 2020 results I'd try to pin down the 2019 results and make a judgment call. On EXCO and Recipe I started with 2020 free cash flow and simply assumed 2022 would be 1 or 2 times better than their Armageddon performance (why I'll never be an accountant). And, for Fairfax India I just had to go with a crazy conservative number, because I've never been disciplined enough to pin look through earnings on that one down (believe me, I've tried).

 

So, I'm basically throwing this out there in hopes someone far more disciplined than me will be frustrated by my inaccuracy and offer a more precise estimation (in other words I'm trying to provoke somebody else to do the hard work, which makes me just a slightly more sophisticated troll than Liberty is on the Altius board. Haha, love you buddy - you know it's true).

 

I'll spare you my per-holding logic and just get to the point, here goes:

 

(look through USD per FFH share - assuming 26 million shares. To add margin of safety I usually round down to the nearest $.50.)

 

Atlas: $7 per FFH share

Eurobank: $6

Fairfax India (???): $2
CIB 290: $1.5

Kennedy Wilson: $1 per

EXCO: $1

Recipe: $1
Quess $.50 per
Blackberry: $0

 

Total: $20 per share

 

So, in addition to the $20 above, if we conservatively assume the after tax 2022 insurance earnings per share (without double counting dividend interest from the companies above) is $30 per share (see @Viking's recent analysis) then the look through earnings power from insurance and the 9 holdings above is approximately $50 per FFH share.

 

Now, the 9 holdings above account for only half of FFH's common stock carrying value. The big question is what is the rest of the portfolio capable of earning on a per share basis. And, this is where I have a bit of a thesis...

 

If the rest of FFH's assets (including the other half of the common stock portfolio) can earn as much as the 9 holdings above, then you are looking at total look through earnings per share in the neighborhood of $70 per FFH share.

 

If you can assume Prem is a reasonably disciplined value investor determined to earn a 15% return over time then if you divide the estimated $70 look through EPS by the $450 share price you get a year 1 look through earnings return of 15.5% - thus exceeding the investment hurdle rate.

 

In sum, a meaningful billion dollar buyback is looking like a gift from the investment gods, and Mr. Market is dumber than a brick on this one.

 

 

EDITS: The Following Estimates Added After The Original Post

 

BDT (Byron Trott): $1.5

@Thrifty3000 my view is there is no one correct way to value Fairfax. Rather it is best to come at it in a few different ways. And if they all tell you the same thing… well then… you might be getting close to understanding things. I like what you have done because it is something i have never attempted (trying to estimate look through earnings). I am almost done my estimate of the equity positions and should be able to post it soon